Lockheed Martin’s Kathy Kerchner: Five steps for more cost-effective transparency in 2010
November 23rd, 2009 by Lisa Singh
When you hear “transparency,” what’s the first thing that comes to mind? For many CFOs, it’s transparency with government regulators and customers. Of less focus is organizational transparency. That’s a shame — especially these days, says Kathy Kerchner, CFO of Lockheed Martin Enterprise Business Services.
At a time when budget pressures are augmenting a focus on affordability for many CFOs, looking within an organization is critical to spotting additional ways to reduce costs and doing more with less, she says. That’s what Kerchner did when she stepped into her role in July 2008; she and her team quickly set out to identify redundancies among internal customers that use the company’s IT and financial shared services. That move has, in turn, helped contribute to the bottom line of each P&L business areas at Lockheed Martin. Here, Kerchner debriefs on a campaign successfully waged, and how other CFOs can do the same within their own shared services organizations.
With 2010 around the corner, a must-read for any CFO.
Fast facts:
- Kerchner has held various positions within Lockheed Martin over the past 28 years, primarily within P&L organizations.
- Now on the “cost center” side, Kerchner serves as CFO of Lockheed Martin Enterprise Business Services, which provides infrastructure services to virtually all of Lockheed Martin’s 140,000 employees.
- Assuming her role in July 2008, Kerchner has led efforts to increase transparency to maximize the visibility of the cost of services among internal customers.
“Some opportunities to drive cost efficiencies in a budget-constrained world are right under our nose.”
— Kathy Kerchner, EBS, Lockheed Martin
Greater internal transparency: Five steps
For more than a year, a shift’s been underway at Lockheed Martin. “We have a huge focus on transparency externally as we abide by Sarbanes Oxley rules and maintain strong relationships with public and government auditors,” says Kerchner. “Internally,” she adds, “we’re putting greater emphasis on sharing information as well … in a budget constrained world, some opportunities are right under our nose.” For any CFO looking to do the same, Kerchner advises you:
1.) Be the champion. When three Lockheed service organizations integrated to become one entity, Enterprise Business Services, Kerchner became a finance quarterback, of sorts; she convinced everyone to huddle and share information. “You’ve got to have a champion in the organization,” says Kerchner. “You’ve got to step up and communicate across the organization so everyone understands the expectations and ultimate objective.”
2.) Encourage collaboration. Sharing information across an organization can be a challenge, especially when pride of ownership comes into play. Kerchner highlighted the benefits through meetings with other business area CFOs, controllers, CIOs and their teams, as well as government compliance representatives. “I had two objectives when we set up these meetings,” says Kerchner. “One was to say, ‘I’m open to new ideas about how we bill cost of our services but it has to be compliant.’ Number two was, ‘These [new ways] can’t lead to unnecessary work for my team,” says Kerchner. These meetings helped EBS leaders understand how they have an impact on shareholder value. They also resulted in a greater free-flow of ideas on ways to save money.
3.) Demonstrate active listening — and act on it. “When you solicit information you want to ensure that you’re listening to your [internal] customers — and that you act on their feedback,” says Kerchner. “And if you don’t, come back and communicate as to why,” she says. For every change Kerchner’s team made — among them, the creation of a single disclosure statement to better align the cost of those services to the benefitting business service unit — Kerchner showed internal customers the impact of the cost of that service to their specific business area. Giving that additional information, she says, helped them make more relevant decisions.
4.) Capture the “best” methodology. “We have a number of services — hosting services, desktop services, billing and payables services, HR services … these are all part of our shared services organization that we provide other businesses within Lockheed Martin,” says Kerchner. She adds: “For each one of those services, the costs get billed out to the four P&L business areas using different methodologies. We select those methodologies that best represent a causal beneficial relationship. Once we’ve determined the most appropriate methodology, we can model how the total cost of that service flows to each business area, which enables them to do better financial planning
5.) Encourage teams to look at data through a larger lens. Government contracting is among the most audited industries; naturally, teams are used to turning over data to DCMA, GAO and other governmental entities. Kerchner continually encourages teams to look at data in a larger way —not just for audit purposes but as a source for continuous improvement, showing the impact of the cost of the service.
[...] Katherine Kerchner is the Chief Financial Officer of Lockheed Martin Enterprise Business Services and Vice President of Financial Services. In this position, she is responsible for identifying and implementing value-add services, maintaining and improving cost competitiveness, contributing to the profitability, strengthening program management and controls and developing a Finance and Business Operations team. [...]