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Published: February 26, 2013
 / Spring 2013 / Issue 70

 
 

Think Functionally, Act Strategically

For all these reasons, the role of corporate staff functions is expanding in many companies. These businesses are investing more in their global corporate staff, and are deploying functions such as marketing, R&D, and sourcing across all the business units in the enterprise. Corporate functions already have a more prominent seat at the strategy table than they used to, and are increasingly influential in setting and executing the corporate capabilities agenda.

Together, these changes give functional leaders a mandate to think and operate more strategically than they did in the past. They are rewarded less for providing a service bureau that fills all requests, and more for their effectiveness and discernment, for emphasizing the activities that differentiate a company in the market, and for finding less expensive or more comprehensive ways to deliver the rest. They are also being asked to focus, for the first time, on resolving function-related conflicts among different parts of the larger organization (for example, conflicts over incompatible IT systems or redundant talent initiatives). Every function, local or global, should define its role in light of the overall capability agenda, and how it can be fit for purpose in driving that agenda—instead of thinking first about how to fulfill its functional excellence agenda.

Consider, for example, the story of the finance staff at a large North American consumer packaged goods company. For years, they had focused on a single dimension of their role: as the “cost police” for the business units, processing transactions, tracking expenses, and holding down costs, even when it meant constraining growth. Then, in the wake of the Great Recession, the CEO asked the chief financial officer to cut finance’s operating costs by 20 percent.

The CFO and his direct reports met to consider the measures. Staff members were already stretched thin, and this would stretch everyone further, possibly past the breaking point. The mood around the table was glum. Then the CFO said, “If we’re going to do this, we’ll do it in a way that delivers more value to the business—not less.”

Over the next few weeks, the CFO and the top finance team met one-on-one with the managers of some of the largest business units to talk about finance’s operating model and where the department’s help was most valued. These conversations, which had never before been conducted in that company, led to a quiet reorganization. In some areas—such as due diligence for acquisitions and postmerger integration—the finance team increased investments. For consultative cost management, they designed a leaner operating model, incorporating new metrics for effectiveness and value delivery. They also outsourced routine and transactional activities such as standard financial reporting. Perhaps the most important change was in the reorganization of the financial planning and analysis staff. Under the old structure, these staff members had been embedded in business units around the world; they replaced this structure with a centralized staffing model, reinforced by service-level agreements with the heads of all the business units. This gave the finance team a higher level of accountability for local results than they had had before, while gaining efficiencies and cost savings. The top leaders of the finance function took on more of an advisory role, consulting with business unit leaders on key decisions—such as where they should channel their investments for growth and how to manage and control costs. That had the beneficial side effect of helping business units plan ahead, reducing some of the urgent last-minute calls that drain every functional group.

Within six months, the new system had freed up more than 20 percent of the finance function’s budget—and a fair amount of executive attention. This was particularly helpful in making and integrating acquisitions; the success rate for “onboarding” new enterprises grew visibly. Because finance now managed business unit costs more actively, the cash available for reinvestment was identified more accurately. The function’s new agenda provided the company with a clearer picture of the return on investments; it helped the company overcome its ingrained reluctance to share information and services across business unit boundaries. In short, finance now played the kind of strategic advisory role that made a significant contribution to the company’s top line as well as to its bottom line.

 
 
 
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