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The Fall of Finance

Filed in archive Opinions & Insights by Gary Zeiss, Esq. on September 29, 2008

For about the last ten years, many corporate decisions were guided by (or held up by) concerns raised by the finance department. Many of those "on the ground" were perplexed by these decisions - some of which included outsourcing otherwise-well-functioning departments for what appeared to be illusory budget dollars. The inside workers often felt as if the decisions were being made for reasons completely separate from the fundamentals of their business, growing frustrated with their inability to perform well to reach success.

During these times, it was near-gospel that corporations began to look at themselves less as producers of goods and services, and more like a "network of relationships." As they focused on their "core business," that core became smaller and smaller. I remember discussing this with an insurance executive who had outsourced customer service and claims processing, and was looking further to outsource finance. I asked "if claims processing and customer service aren't core to an insurance business, then what is?" Needless to say, I got no answer.

While the fall of the financial markets is, by no means, a good thing for the world's economy (virtually nothing this disruptive is good for economies in the short term), it may prove that this large bump in the road will put corporate finance "in its place" in many corporations. Ultimately, this could be good.

The move to this approach no doubt encouraged a lot of the sloppy outsourcing that we've all seen. After all, one could maintain the network of relationships while moving the instruments of production to lower-cost environs. It all looked rosy - for corporate finance people (who are, by their nature, less focused on the product and service), to shareholders (who turned a blind eye because of the profits), to executives (who profited handsomely) and to government (who rode a wave of popular support as values went up). Even some in my usually-suspicious profession, the law, joined in. What a difference a few weeks make!

It turns out that all of that creative financing - all of that wringing "value" out of relationships - may have proven to be a house of cards. Products, services and customers really do matter. Good companies are more than a "network of relationships." In fact, they must be, or there is nothing left to hang onto when the winds change. The current changes in banking - where real value (customer deposits and core banking) are being separated and sold off - are indicative of this change. It turns out that taking deposits and providing general bank services are the "core business" of banking. Who would have guessed?

Bringing it back to outsourcing, this could be both the best and worst of times for outsourcers. Best at least for those outsourcers who's primary business was to build value into their products and services - in a marketplace where illusory value becomes tarnished, real value will shine. Worst, however, for those who grew exponentially by feeding on their customers' desires to move away from the production of products and services to a "network of relationships" approach - many of these "networks" will prove fleeting.

At the end of the day, we all knew it had to end at some point - that we'd roll the 7 or 11 before long. We'll see if the end can be softened.... but it looks like we've reached it.







Permalink: The Fall of Finance
Tags: economy  finance  wall  street  crash  outsourcing  fall+finance  book+yours 

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