Proxima — See the change

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No cost is an island

Guy Strafford
May 1, 2014 4:14:00 AM

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Guy-New

It’s striking how many CFOs count leadership of a cost saving programme as a major part of their role. There’s nothing wrong with making procurement more efficient and streamlining the cost base, of course. But the best finance functions treat it as part of their commercial contribution, not a traditional bit of hard-nosed accounting.

Perusing the shortlists for the FDs’ Excellence Awards it’s obvious how many CFO and finance director roles remain defined by cost savings programmes.

It’s evident from the citations given by CEOs and Chairman for their CFOs shortlisted in the quoted company categories. Britvic CFO John Gibney is spearheading the company’s quest for £30m ($50m USD) in cost reductions by 2016; UNITE Group CEO Mark Allan commended CFO Joe Lister for delivering “the right balance of flexibility and cost efficiency”; or Hays CEO Alistair Cox, who emphasised how CFO Paul Venables “has overseen the complete transformation and automation of our global back office systems which reduced the cost base by around £10m ($16m USD)”.

But the really interesting thing about all these CFOs – all shortlisted in the awards for delivering outstanding financial management, remember – is that all of their cost discipline is allied to some kind of strategic, operational or value-focused transformation.

At Hays, for example, the £10m ($16m USD) was saved by “setting up an Indian Shared Service centre, which improved service standards and our operational MIS and reduced our cost base by around £5m ($8.5m USD),” says Cox.

The best programmes are rounded – not just setting tougher targets for procurement or minimising supply chain waste, but taking a 360-degree view of its contribution. That’s logical: the CFO is perhaps the only board member other than the CEO to see and influence every part of the business. The accountant’s mind-set is looking for financial efficiency – but the wide field of vision of the CFO keeps cost programmes connected to strategy.

That sense of interconnectedness is vital. “Leaders should change the way procurement is measured, connecting its objectives to those of the budget holders it is there to serve,” was mentioned in a recent Harvard Business Review (click here to access the piece). “They should consider what the business is trying to achieve and design metrics around areas such as innovation, stakeholder experience, risk mitigation, improving ways of working, and spending wisely rather than less”.

Perhaps the best example in the awards’ citations of this rounded view is in the one for Tony Chanmugam, CFO at BT. CEO Gavin Patterson writes:

Tony kick-started one of the largest cost transformation programs in the company’s history. The program focused on three areas. First, the efficiency of expenditure in areas such as labour costs, consultancy spend and procurement from third parties. Second, ‘right first time’ process re-engineering and the reduction of overhead costs. And third, in-sourcing. All these phases continue across the business today and are still delivering substantial cost savings. Costs have been reduced by around £4.7bn ($7.9bn USD) over the past 4 years, helping transform the company’s financial performance.

There, in black and white, is the secret of smarter, value-driven procurement – a programme that’s inextricably linked to the operational side of the business and is designed to help reshape it… and has averaged savings of more than £1bn ($1.7bn USD) a year. It’s not afraid of buying better – but the heart of it is furthering broader strategy change.

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Guy Strafford 

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