Advanced Management Program
Becoming the "Financial Conscience" of the Company

The accounting scandals of the past year have driven home the importance of the CFO in maintaining strict financial discipline. "The CFO needs to represent the financial conscience of the company. Without this backbone of a solid financial framework — accounting standards and clear guidelines that you adhere to and make the rest of your organization adhere to — the rest of your job as CFO is meaningless," said Erich Ammann, Advanced Management Program (AMP) alumnus and CFO of the Schindler Group, the second-largest elevator and escalator manufacturer worldwide. Without such a foundation, "you start to lose focus and don't understand the financials anymore."

Part of this financial foundation, Ammann said, is establishing a clear cash-oriented mindset within the organization. "Invoices and billings increase operating revenues, but eventually you want to get paid. You need to have a balanced working capital and a solid financial structure."

This financial rigor is particularly important in a large organization like Schindler, with more than 40,000 employees located on every continent. As CFO, Ammann is the person "who must analyze the financial consequences of strategic and investment decisions and make sure these are clearly communicated to the rest of the organization," he said.

Setting Strategy, Managing Risks

In addition to serving as a corporate conscience, the CFO is playing an increasingly central role in setting corporate strategy and managing risks. For instance, it is his responsibility to make sure both the positives and negatives of possible acquisitions and strategies are considered. "By also looking at the downside risks, you are better able to determine whether or not an acquisition would jeopardize a certain product line or put other parts of the company at risk."

Schindler's organizational structure helps Ammann communicate effectively in such a large organization. Not only is he a member of the management committee for the company's largest division (the elevator and escalator division), he also reports to the executive committee of the board of directors. "This way, if I see risks I don't like, I am able to work directly with the board," he said.

Each of the corporation's country divisions are managed locally, but the finance managers report to the corporate finance department. Having such "strong links" built into the corporate structure helps to "force a financial conscience throughout the company," he said.

Leading Change

Overseeing corporate change management initiatives is a growing part of his new job, Ammann said, and an AMP session in 1994 on this topic foreshadowed some of the challenges he would eventually face in his new capacity as chief financial officer. "AMP gave me a new perspective, one that allows me to now ask the right questions in areas I am not as familiar with as finance — for example, product development and marketing."

In particular, Professor Kenwyn Smith's discussions on change management continue to remain very helpful to Ammann. "The most difficult projects are the ones where you need to align and standardize multiple companies and you run into issues of cultural barriers, turf issues, etc. It can't be stressed enough how difficult this type of transformation can be. It was very helpful to have had this discussed while in AMP."

Amman would like to see even more discussion of change management in AMP. "No project is exactly the same, but I have learned that the most important aspect is getting initial buy-in and enthusiasm, especially if the company is doing well financially. It's more difficult to explain why we have to do something different in good times rather than when there is a crisis."

A current change initiative Ammann helped develop is Schindler's R03 program. Launched in January 2002, this initiative is committing almost one year's worth of net profits to increasing productivity, improving geographical positioning, and expansion. Each member of the management team is responsible for individual projects within the R03 program, and Ammann lends his financial expertise accumulated during his 14 years with Schindler. In addition, he personally is responsible for a project himself, consolidating and standardizing the financial processes on one IT platform, as well as creating a shared financial services center for European operations.

While many companies would balk at committing profits for such a long-term project, Schindler "considers R03 an investment strategy to secure our profitability to maintain our independence in the market," Ammann said. "While we are a publicly traded company, the majority shareholders are descendants of the company's founding family, who fully support such programs. This is an advantage over other companies, that we know our shareholders are here for the long term, even as they push very hard for good results in the short term."

Knowing all aspects of the business, as well as skills in different financial disciplines, has helped Ammann reach his current position. "If you are a controller, try to learn more about IT or the financial markets. You need to build your career in different areas of finance, that's what will make you an effective CFO."

   

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