Thought Piece

The argument is that transactional resource possesses a vital capability of working at a detailed level and getting things right first time. By recognising that and investing more in transactional resource, then all the processes that follow are simpler to perform and the information produced can be relied on because of the confidence in the accuracy of the underlying data.

Behind the not-so-serious idea of a new political movement lies a very serious point. The CFO in question was new in his present role and in his first 100 days in post he had been advised on a number of occasions to outsource various aspects of this transactional work because it did not add value. This is in stark contrast to management accounting, which is universally considered to be value-adding. But the outsource advice was not instinctively compelling for the CFO; looking for alternative advice, he kept asking others what they thought.

Another finance director recently told me that they had offshored the purchase ledger and the work was now being done by graduates who were half the cost of the UK-based clerks. But that cost comparison may not be quite as simple as first appears. For a start offshored clerks bring diseconomies of scale by virtue of different time zones and distance. In project management it is an axiom that if you introduce water (in other words, the project team now spans a sea or an ocean) you are adding complexity. And then, of course, you still need to find some method of communication between head office and the outsourced location, because not everything can be done by computer. So while you may have halved the cost of the transactional resource, you have also, by introducing water, time zones and communication difficulties, cubed the complexity of the project management. And such complexity will lead you to save a figure much less than the half you had first anticipated.

So is there an alternative to outsourcing? The answer is yes, as long as the CFO is prepared to work at the present processes so that as many as possible are automated and simplified. Automation presents a one-off project cost similar to outsourcing; once complete, it presents low ongoing cost. Even when a finance department straightens out its processes not everything can be automated, so the next step is to work hard to cut out the queries and to introduce good performance indicators. Experience suggests that, all told, those steps can squeeze out another quarter of cost.

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of.

That brings us to the role of the banks, so often the largest creditor and certainly the one with the most intimate knowledge of how a company is faring. We all love a stereotype and the heartless, faceless bank pulling the plug on sound businesses over a minor blip sits deep in the business consciousness. But not all banks fit this caricature. "We want to work with management of a business facing difficulties to help identify the issues and provide solutions to get them back on track," says a senior manager with a leading retail bank. "We can make the most impact when the problems are identified early. We are keen for management to be open with us."

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of. Most solutions to business difficulties involve access to more funds and/or different products (hedging, leasing, factoring) and that all adds up to continued and profitable involvement for the bank.

A Repositioning Turnaround may mean divestment of a troublesome subsidiary. It may mean embarking on (yet another) cost-cutting exercise, including turning away revenue opportunities if they are not of a sufficiently high margin. It most certainly involves a first step of getting an impartial and pragmatic overview of what the problem actually is, from Turnaround Professionals who also know the kind of language with which to talk to banks. The moment you take this kind of decisive action, you're likely to discover that there's no crisis, no drama, only urgent action that must start now.

Peter Charles 2010