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The controller's good intentions.

Have controllers - the company's fountain of financial information - really emerged as business partners?

Popular belief is that the role of the controller has changed dramatically in the past few years. A major theme of this supposed change has been for the controller to take the perspective of the business partner. This controller of the future provides innovative products and services that incorporate but go beyond traditional transaction processing, financial reporting and control.

But how much change have these finance leaders really made?

While partnering with management may be a valuable concept and widely accepted as a "good thing," there's been little evidence that documents the nature or the extent of the shift from traditional controller to business partner. Now, the 150 controllers that participated in the first phase of a joint research project by Georgia State University and Gunn Partners, Inc., are shedding some light on the state of this shifting paradigm.

One very predictable survey result is the gap between the controllers' perceived importance of their "partnership" role and the acceptance of this role by operating managers. The controllers rate the importance of the "partnering role" a 4.8 on a 5.0 scale, with 5 being "strongly agree." But the controllers rated the acceptance of their partnering activities by operating managers at 3.9. So the gap that most controllers believe exists probably does indeed exist.

A more interesting insight: The larger the company, the smaller the perceived gap between the controller and the operating manager. The perception gap closed by more than 40 percent as the respondent's company's revenues went from less than $1.0 billion to more than $10 billion. What's behind this declining gap? Perhaps larger corporations have proportionately more resources available to work on partnership topics. Or maybe larger companies started on this path earlier than did their counterparts at smaller corporations.

In larger corporations, such as the ones covered in this research, it's typically held that if the business unit controller is in a direct reporting relationship with the head of the business unit, there will be a closer alignment between the two. However, the data revealed inconsequential differences in perceptions - regardless of whether the individual was reporting to the CFO, corporate controller or the head of a business unit. However, the reporting relationship does have an impact on the focus and attention of the controllers, but more on that later.

The concept of partnering with operating management has obviously gotten through to the controllers surveyed. But how are they allocating their time in response to the direction they now embrace? The chart on page 24 shows how controllers spend their time today and how they plan to spend their time five years from now.

What Makes a Partner?

The shift is clearly away from the activities we traditionally think of as the core of the controller's responsibilities - managing the function, ensuring business controls, and planning and reporting - and moving toward the activities we think of as business partnering - decision support, improvement initiatives, and business leadership.

It becomes even more compelling when we group these activities together under the banners of "controllership" and "business partnership." (See the accompanying chart on page 24.)

To think that there will be nearly a 30-percent reallocation of time toward partnership activities over the next five years is astonishing. In more practical terms, this represents nearly 60 work days per year being reallocated. But do controllers know how to make this shift occur? We suspect that many controllers don't have the knowledge or, more important, the access to the knowledge that will allow them to make this change effectively and efficiently.

Another surprising finding is that controllers say they plan to spend slightly less time on people management in the future. Going into this research, we held that a key enabler of the shift to business partner was developing the people in the controller's organization. The theory: As the capabilities of the finance function increase, the ability to dedicate more resources to partnership activities will also increase. Controllers who want to shift their role probably won't get there unless they spend more, not less, time on the people issues.

Juggling Priorities

These trends - movement away from controllership activities and toward partnership activities - remain consistent when we look at the analyses based on reporting relationships. However, the percentage of change in the time allocation is more pronounced with the controllers who have a direct reporting relationship to the CFO versus those reporting to the head of the business unit.

This isn't necessarily surprising, given where these two groups are today. Currently, the controllers reporting to the CFO spend 31 percent of their time on partnership activities, while those reporting to the business unit head spend 40 percent. Controllers in the former group estimate they'll be spending 43 percent of their time on partnering in the next five years, and the latter group estimates 48 percent.

Clearly, today, the controllers reporting to the business unit leader have more focus on the business as demonstrated in their current time allocation. But those controllers reporting to the CFO will be attempting to make a more substantial shift in their focus over the next five years. This finding is also potentially an acknowledgment of the differences in the roles and expectations of a controller reporting to a CFO (most likely a corporate controller) [TABULAR DATA OMITTED] and a controller reporting to the business unit head (most likely the business unit controller).
Activities by category

 % change

Business partnership +29.6%
Controllership -21.4%
People management -2.8%
Corporate transactions 0.0
MIS guidance +1.4%


The corporate controller's role (audits, external reporting, MIS, tax, insurance, treasury, etc.) is frequently different from that of the business unit controller. The corporate controller is typically more focused on corporate-governance activities as opposed to the running of the business units. Often, the corporate controller isn't close enough to the decision-making process of the businesses to be expected to have a role as business partner. But he or she is close to the corporate officers and thus can have an impact on corporate strategy and direction. On the other hand, the business unit controller is more focused on the businesses and should be expected to be influencing the business leaders as a member of a unit's leadership team.

If the finance profession wants to partner with the businesses, shouldn't the finance department have as many of the key finance professionals as possible report directly to the business unit leadership team - but retain the responsibilities for professional development, career management and compensation within the controller's organization?

Valuable Contributions

Next, we asked the controllers to list their three most significant contributions to the business during the past year or two, to gain insight into what activities they believe are the most valuable to the corporation. To help analyze these responses, we evaluated each contribution and classified it according to the activity and role definitions used throughout this study.

Based on the overall results, the highest percentage of significant contributions (22 percent) are under managing the controller function. Furthermore, when you combine managing the function, business controls, and planning and reporting - the traditional functions of the controller - these three areas account for nearly 40 percent of the overall contributions made by the controllers.

You can look at this in two ways: It's good news if you believe the controllers are tuning up their own operations to dedicate more time in the future to partnering activities. But it's bad news if the controllers are undertaking improvements in their operations because they're unable or unwilling to cross over into new or different territory.

Popular belief is that the role of the controller has changed dramatically in the past few years. A major theme of this supposed change has been for the controller to take the perspective of the business partner. This controller of the future provides innovative products and services that incorporate but go beyond traditional transaction processing, financial reporting and control.

But how much change have these finance leaders really made?

While partnering with management may be a valuable concept and widely accepted as a "good thing," there's been little evidence that documents the nature or the extent of the shift from traditional controller to business partner. Now, the 150 controllers that participated in the first phase of a joint research project by Georgia State University and Gunn Partners, Inc., are shedding some light on the state of this shifting paradigm.

One very predictable survey result is the gap between the controllers' perceived importance of their "partnership" role and the acceptance of this role by operating managers. The controllers rate the importance of the "partnering role" a 4.8 on a 5.0 scale, with 5 being "strongly agree." But the controllers rated the acceptance of their partnering activities by operating managers at 3.9. So the gap that most controllers believe exists probably does indeed exist.

A more interesting insight: The larger the company, the smaller the perceived gap between the controller [INCOMPLETE TEXT FROM ORIGINAL PUBLICATION]

RELATED ARTICLE: IN THEIR OWN WORDS

Masters of Information: How the Top Controllers Add Value

While Gunn Partners' research questions how far the typical controller has advanced in the quest to become a legitimate business partner within the organization, several controllers are pioneering the shift to more enlightened controllership. Here are their stories, in their own words.

Adrian Donoghue Controller, Northern Telecom

"Nortel has 20 to 30 potential acquisition or divestiture activities going on at any one time. Senior managers were struggling with evaluating these activities when just three to six were in progress. For example, the people in mergers and acquisitions had their own ideas about which ones were the best, but they didn't know the impact on the overall corporate structure. The treasury people said they could finance using equity and debt, but they didn't know that five more deals were coming down the line, which would impact our debt capacity as well.

"So we had a problem. To address it, the finance function developed a corporate model that evaluates various aspects of each acquisition or divestiture based on stated assumptions. The model is interactive in that we can change a given assumption and evaluate the outcome. We take our budget plans for the next two or three years and overlay these various acquisition/divestiture scenarios. The model evaluates such things as accounting scenarios (e.g., dilution impact), debt and equity structure scenarios and corporate structure. This helps us narrow the best acquisition/divestiture candidates from a much larger pool.

"The second thing we've done is create a shared services capability that incorporates many best practices. For example, we now have shared services for all of our accounts payable functions. We've also consolidated into only two payrolls for the 45,000 employees in North America. Lastly, our employee expense voucher system offers electronic input, approval and payment of expense vouchers within four to seven days. These and other consolidation activities have helped us lower accounting services expenses by 29 percent since 1993."

The new role

"Several years ago we had accounting people who were primarily accounting oriented. Now we have people who are primarily business oriented, who are really consultants to the business. We did need to replace some people with those who have line-of-business experience.

"You have to be positioned to know what is going on in the key functions of the corporation, and we've been able to do that. For example, I sit on the credit committee of the corporation, which allows us to be involved in the financing decisions that involve higher levels of management. Additionally, two of my people work on the mergers and divestitures team."

His resume

"I'm taking every opportunity to be involved with heads of the business units and various committees to keep attuned to what's going on. If you don't know and understand the business units' activities and problems, then you're not going to be able to help very much. Once you get in tune and involved, it's amazing how often business units will ask for your help. You must be seen as a business person first and an accounting person second. I'm considered a part of the business team."

The contribution

"We've started a training program for the acquisitions and divestitures team on topics such as the accounting issues they might have to deal with during their work. Also, we're expanding the corporate modeling I described earlier, to take it down to the business unit level. Finally, we've established an Internet web site that includes the different accounting standards in countries where we do business, comparing them to our own in Canada. The site is updated monthly, and we add new countries as needed."

Priorities

"We're pushing very hard on the modeling program I described and will continue to do that. The other priority is to continue to instill in my people the need to think like a business person and be an advocate for the business. Finally, people management will always be a priority."

Biggest hurdles

"To change the direction of finance, we initially faced some resistance from operating management, but most of that has gone away. However, finding the right people for the controller function and then bringing them in and making them business people will continue to challenge us. We're looking for risk takers who can create additional value for the company."

Gary Fayard Controller, Coca-Cola

"Coca-Cola's controllership function includes a group called the Information Standards Steering Committee, which is a 'virtual' worldwide committee with representatives from all of Coca-Cola and its bottlers. This group is developing a common language so that when I say 'a unit case,' everybody agrees that a unit case is 24 eight-ounce bottles. When I say 'channel' or 'customer' or 'outlet,' we all have a common understanding. This is important when someone from Korea is talking to someone from Brazil.

"Next, Project Infinity is a worldwide information system we're presently developing. Finance is implementing the first module in this system - worldwide financials - which will serve as a prototype for the rest of the company. When completed, the system will provide Coca-Cola managers worldwide with the capability to access a full array of information instantly based on demand.

"Finally, we're moving to worldwide continuous planning, which is more than just rolling estimates. This is being led by the finance function. Instead of a monthly update of the yearly plan, we're now updating monthly the plan for the next two years. We're driving toward continuous planning."

The new role

"I absolutely approve of the changes taking place. We must go from a finance controllership to a 'total business view' controllership. This means the controllership must move from a primarily historical perspective to a primarily futuristic, predictive perspective. My management doesn't want to know about what happened yesterday but what will probably happen tomorrow. You don't add any value unless you can provide this type of information. Having said that, the controller must continue to efficiently process and report transactions and keep an eye on operations - the control function. Management doesn't want surprises from finance."

His resume

"I'm getting more involved in international business development. For example, I was personally involved in the sale of a bottler this past summer. I'm pushing very hard on exploitation of technology, as I described earlier. I'm also putting a lot of emphasis on developing our people in the finance function. Being a business partner requires a different kind of person - a different skill set. Most of our people want to change but they need coaching and the finance leaders have to see that it's done. Finally, as I said earlier, I'm pushing to make our planning more valuable through the use of continuous worldwide planning."

The contribution

"We've established a field support group, which are referred to as 'paratroopers.' This group will 'parachute' in experts when we have a structural change, such as a merger or an acquisition, when internal audit identifies issues or when local management needs assistance. This support group is comprised of functional experts in finance who are troubleshooters and who know best practices. This is the ultimate in partnering with management, and this group is being well received. To be exact, before the paratroopers accept an assignment, they have to be asked by operating management, and operating management has to agree to a 'charter' of what the group is to undertake."

Priorities

"The first of my two highest priorities is pushing Project Infinity and implementing the system so it provides the information any manager in the world needs - and provides it when the manager needs it.

"My second priority is to get our people to change their perspective from the traditional accountant to one in which they're business advocates. And we need to upgrade their skills so they can perform from this perspective. Five to 10 years ago, a finance manager was six feet deep in finance and accounting. Today, that person has to be six feet deep in finance and accounting and 10 feet wide in everything else in the business."

Biggest hurdles

"My biggest hurdle involves people - our own finance people. It's not time and resources, although there will never be enough. Neither is it getting the support of top executives and operating management, because we have that; we in the finance function have shown we can add value, and the new approach used by finance has been fully accepted. The problem is having the right people with the right skills and growing these people to the point where they can perform their jobs from a broad business perspective."

Nancy Brigham Assistant Controller, J.C. Penney

"Our vision for J.C. Penney's finance function is to improve the decisionmaking process to increase shareholder value. What we're doing is not necessarily leading edge, but it's critical to achieving this vision. Significant systems changes are underway at the company and, in some instances, finance is driving these technology changes, moving from legacy systems to client-server systems. For example, we started with a new general ledger and a new payroll system. We're also in the process of consolidating financial, personnel and administrative activities at our stores, and that will provide significant savings.

"Within the finance function, we're reorganizing by moving away from duplicate controller activities in our divisions and subsidiaries. We currently have a lot of redundant processing occurring for example, duplicate check-writing and invoice processing. We're consolidating these activities so we can unencumber our finance people in the divisions to do more business partnering, to better advise managers and help them with strategic and tactical decision-making.

"Also, we have an initiative to change the development and skill sets of our finance people. We want to change our way of thinking to a more analytical, strategic mode. To do this, we used benchmarking to identify the skill sets we'll need in the future."

The new role

"I think the changes going on are great. The types of activities that are being undertaken by today's controller are far more interesting because they're much more business oriented and the controller actually participates in the decision-making process. The controller can be a great help in bringing relevant information to the table to improve decisions. I believe the traditional role of finance will continue but, because of technology, the attention we give it will be reduced. We need to exploit technology to efficiently perform this traditional role."

Her resume

"Personally, I'm involved in the Associate Directed Initiatives, a learning and self-development program J.C. Penney offers. The benchmark initiative helped us to determine the skills we needed, and it gave our people an understanding of where they stand against these skills. We identified skills by position and how we would build new skills as we progress through our careers.

"I'm also involved in working with our finance people in the business units to change our orientation to become more analytical, strategic thinkers."

Priorities

"Our first priority is to take all of the processing activities out of a decentralized mode and re-engineer them into not a centralized accounting function but a shared-services environment in which we focus on the customer's needs.

"Our next priority is to change our skills and perspective to become strategic thinkers. We must move to develop our finance people.

"Another priority for us is to use technology to get timely, relevant information to operating management. We're looking at our process of strategically allocating resources, particularly capital resources. Historically, we've had a fragmented approach that doesn't allow our company to focus strategically. We'll achieve this primarily by adopting the economic value added measurement."

Biggest hurdles

"First, we have some resistance from operating management to accept our new role. It will be up to us to demonstrate the value of the new role in helping them make better decisions. Our challenge is to provide relevant alternatives they can explore and that make economic sense while not becoming roadblocks.

"The second hurdle we face is to change our own mindset. Our new approach requires different skill sets that we'll need to develop."
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Title Annotation:includes related article on controllership
Publication:Financial Executive
Date:Mar 1, 1998
Words:3509
Previous Article:How Silicon Valley CFOs keep pace: quick-change artists.
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