Redesigning the Finance Function at Northern Telecom

By Harrison, Brian | CMA - the Management Accounting Magazine, April 1995 | Go to article overview

Redesigning the Finance Function at Northern Telecom

Harrison, Brian, CMA - the Management Accounting Magazine

This 30-month event was built around themes like; consolidate, re-engineer, automate, and integrate. The result: better information, faster; and at less cost.

This year Northern Telecom will celebrate its 100th anniversary. While this centennial will be celebrated publicly, the most interesting portion of Northern Telecom's history is clearly the last dozen years. In the early 1980s Northern Telecom (NT) was a $2B supplier to Canadian telephone companies, with a fairly broad product line of telecommunications equipment. Continued dedication, R&D investments and aggressive marketing in the mid-'80s, coincident with the deregulation of the telecommunications industry in the United States, allowed NT to gain a significant share of the U.S. market, and more than double its revenue base. From there, the company set its sights on global expansion and, through acquisitions and alliances, doubled yet again by the early '90s and has become an established global supplier.

During this transition, the company's management structure was re-shaped from essentially autonomous business units, through a matrix of global product and market responsibilities, to a hybrid structure of empowered business units with global or multi-regional mandates. The finance function, which had been modeled to service the decentralized business units, struggled to make the transition to servicing global product managers and multi-regional marketing groups. Finance found itself playing "catch-up" to the line organization and began to do some soul searching about its size, cost, and service level.

Challenge to finance function

The finance function at NT had a proud tradition as a strong function servicing line management well. Accordingly, the recognition that finance was in need of dramatic change was, at first, difficult to accept. As well, the decentralized structure initially made attempts at driving change difficult. However, as the service level and credibility of the function diminished in the early '90s, the need for change was unavoidable, and dramatic action plans were prepared. In early 1993 the business hit a crisis, which was manifest in a $1B loss in the second quarter. This proved to be, somewhat ironically, the final ingredient that precipitated the beginning of significant improvements in Northern Telecom's finance function. A plan was developed to rebuild, standardize, and consolidate virtually all of the corporation's financial systems within a 30-month program. The aim was to significantly improve the business value-added of financial information and of financial services - and to reduce the size of finance from over 2,100 employees worldwide to less than 1,600, reducing the cost of the function accordingly.

Addressing the challenge

As a first step, the finance function itself was centralized for the duration of the transition. Within the new structure, global process owners were appointed for each significant princess within finance. For example, for the first time ever, a global director of accounts payable was established. This concept was applied to receivables, fixed assets, payroll, general accounting, and cost accounting, as well as other areas. Each process owner was challenged to make significant improvements in his/her respective process to increase quality, reduce cycle times anti costs. The senior finance management team committed to fully support this program, and earmarked the funding and resources required to make the structural and systems changes. As well, due to the significant systems content, focus was placed on how to effectively engage the information systems (I/S) and finance functions to manage concurrently a multitude of systems initiatives to expedient delivery.

To this end, the I/S group supporting finance was reorganized to mirror the pro-cess-focused structure within finance. Led by Eugene Roman, CMA, assistant vice president, enterprise management systems, a skilled and disciplined I/S team was formed, with a strong customer focus. …

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