investiledysfunction

In this recent interview from Business Finance Magazine’s Sept 2009 issue entitled, “The Serial Transformer“, Gary Crittenden, CFO of Citigroup, talks about his efforts to transform the finance organization at Citi.

He touches on many critical points about Finance Transformation which we help organizations with including corporate portfolio management (Investment Optimization), reengineering and driver-based planning.  Some relevant excerpts are below, but I recommend reading the entire article for those interested in creating a strategic finance organization and who are looking for ideas and a high-level gameplan from somebody who has successfully done this before in other organizations.

Gary led such a transformation for American Express Finance which transformed the organization into one of the most respected and strategic finance groups in a large organization.  American Express Finance has been discussed and chronicled by the Harvard Business Review, CFO Magazine, and the CFO Executive Board to name a few.

(shameless plug: Gary also wrote the foreword to my book - more info here)

Here are a couple of noteworthy excerpts:

On Selecting the Best Projects and Investments Using Investment Optimization

“…We think very carefully about every dollar that gets added back that offsets the reengineering.

This process is called investment optimization. We go through and look at the expense dollar optimization and ensure that we have a common definition for expenses across the company. I’m talking about the end-state now — not where we are, but where we’re headed.

In a company that is this large and this complex, even getting the definitions common is important so that somebody who is making an investment in a fixed income trader in, say, Brazil has the same financial metrics, terminal value, and present value calculations.

This is a big part of what has to happen as part of this process. But once you have this, you can then align those opportunities and say which one you prefer. You also know what’s on the margin — what the 20 last things were that I approved that would have the least impact if I had to cut them. You also know what the 20 next things are that you would approve if you had some dollars. And if you’re constantly updating and reforecasting, then you’re always able to ask yourself the question, “Do I need to cut or can I have the opportunity to add?”

On Driver-Based and Rolling Forecasting

“It ties back into this primary thing, which is that we’re trying to drive the performance of the business. There are several different elements to it.

One is to have a rolling forecasting process so that you’re always looking further ahead than you normally would. The way this starts for us is with a strategic plan that looks at a couple of years. This then turns into an annual plan, and then the annual plan gets refreshed each quarter, out for that quarter plus then the additional six months on the end of that, and then we update this twice a month as part of our normal process.

We’re always looking forward and doing a normal update to this. Now, if you’re going to be updating this frequently, you can’t do it from a bottom-up basis. You quickly conclude that you have to use the primary drivers of the business as opposed to the detailed, kind of bottom-up forecasting. It turns out, paradoxically, that doing this is just as accurate as the bottom-up forecasting. In fact, you probably get more accurate data because you’re doing it a lot more frequently.”