If you have ever run afoul of your company’s finance department for a misfiled receipt, this might seem like a measure of revenge: Corporations have cut finance department budgets to historic lows.
The Hackett Group consultancy found that the median finance budget at big companies has dropped below 1% of revenue for the first time since it started tracking these numbers long ago:
And so the corporate functionaries famous for imposing cuts on others are themselves getting squeezed. Karma aside, is this wise? Accounting mishaps are already depressingly common, and all those spreadsheets won’t check themselves. Maybe it’s better to look for savings in a less sensitive department?
Hackett says this is the wrong way to look at it. If anything, it argues, spending 1% of revenue on finance is far too much, due to increasing levels of automation. In fact, the best-performing companies run more effective finance departments with only half the people, at half the cost, compared with the median company.
Rote tasks such as billing, collections, expenses and the like can be automated, outsourced, and otherwise taken out of expensive in-house finance departments. Esa Tihilä, CEO of the invoice-automation software provider Basware, tells Quartz that an electronic invoice costs a tenth of a bill processed manually. His pitch to CFOs is that e-invoicing gives them “more controls with less resources.”
Removing the human element in routine finance tasks not only cuts costs, but can also reduce errors. Collecting all of a company’s financial data into a unified, easy-to-access system also unlocks the promise of “big data,” allowing it to sift through reams of information to unearth previously hidden connections and insights.
Small is beautiful
Finance budgets may be shrinking, but finance executives are in more demand than ever. We have written about how CFOs have become some of the most powerful figures in the boardroom, reaping rich rewards for taking on a wide range of responsibilities beyond the bean-counting stereotype of old.
That’s why so many finance chiefs are being promoted to CEO: just this week Jose Antonio Álvarez was named chief executive of Santander, Europe’s largest bank, and United Technologies tapped its long-serving finance chief, Greg Hayes, to run the company. A quarter of large, listed industrial companies in the US are run by CEOs with CFO experience, according to the recruiter Crist/Kolder (pdf, p. 21). Current and former finance chiefs are also in high demand to serve as independent directors on company boards.
At these companies in particular, executives encourage frequent rotations in and out of the finance function to give employees a greater appreciation for how their actions impact a company’s accounts, which reduces their reliance on the people who actually work in finance. Combined with whizzy systems that automate a lot of the other finance grunt work, there is less of a need for CFOs to run a big, expensive department. Instead, they manage a lean staff of specialists to handle the trickiest tasks, while everybody else at the company essentially does the rest of their work for them.