CGMA Magazine 2015 Leadership by Chartered Institute of Management Accountants

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Issue 1 – 2015

Driving Innovation in Management Accounting

Leader Be a Better

Tune your team for peak performance 27

• How to foster collaboration 28 • Developing the next generation of finance leaders 32 • Quiz: Are you a reluctant leader? 35

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CONTENTS

30 32 35 6 – Guide to CGMAMagazine.org See what’s available at the online home of CGMA Magazine.

Plus

To spark collaboration, work on building relationships, breaking down barriers, and leading by example, advises Lynda Gratton, professor of management practice at London Business School.

How to Lead an Effective Team Focusing on outcomes — rather than methods — promotes a sense of ownership, boosts performance, and fosters creativity. Mark Fritz, an adjunct professor at the IE Business School in Madrid, explains how.

Developing Finance Leaders Veronica McCann, ACMA, CGMA, a former division CFO at Commerzbank in Singapore, and Craig Harnett, CPA, CGMA, the CFO of the National Hockey League, share tips on developing future finance leaders.

Quiz: Are You a Reluctant Leader? An organisation suffers when its employees refuse to step up and take a lead on projects and activities, or serve as agents for change. This quiz will help you determine whether you are a reluctant leader.

31 – What We Can Learn From the Best — and Worst — Leaders 34 – 3 Ways to Keep Your Finance Team Engaged

June 2015

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How to Foster Collaboration

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10 14

Finding Opportunities in the MINTs Advancing globalisation is unlocking rapid-growth markets where investors willing to take the risk can find opportunities galore.

Scaling Up Successfully Hootsuite CFO James Rumble, ACMA, CGMA, outlines the building blocks of rapid expansion.

Funding Radical Ideas Keith Goffin, a professor of innovation and new product development at Cranfield School of Management, explains the criteria by which management accountants should evaluate projects and drive innovation.

The SMART Alternative to Big Data

Lost in a sea of data that delivers no value? Bernard Marr, CEO of the Advanced Performance Institute, explains how to convert raw information into real business results.

8 Best Practices for Aligning Strategy, Planning, and Risk Providing effective governance presents boards and management with a formidable challenge. Learn how Massachusetts Mutual Life Insurance Co. does it.

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FP&A Can Help Guide the Journey James Miln, ACMA, CGMA, the senior director of investor relations at Yahoo, shares how companies can improve the effectiveness of their financial planning and analysis teams.

23 – New Ways of Working: Managing the Open Workforce The corporation is being reinvented. Globalisation and digitisation are transforming the way companies do business, giving rise to a powerful new force in business: “the open workforce”.

Finding the Extrovert Within To meet the growing demands of the role, finance professionals must be comfortable communicating critical information — with a microphone in hand. Oral Dowell, CPA, CGMA, explains how.

How to Identify Risks, Opportunities Through Scenario Planning Scenario planning can help companies identify risks and opportunities to drive more effective business decisions, explains forecasting expert Steve Player, CPA, CGMA.

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Finding OppOrtunities in the

Mints

Advancing globalisation is unlocking new rapid-growth markets where investors willing to take risks can find business opportunities. BY sabine VOllMer

A decade ago, the emerging economies of Brazil, Russia, India, China, and South Africa drew much attention from multinational companies looking for business opportunities. The BRICS still receive large amounts of investments, but rising labour costs and economic cooling have companies looking for a new batch of rapid-growth markets. Mexico, Indonesia, Nigeria, and Turkey — commonly called the MINT economies — could hold great business opportunities

for companies willing to take risks. Corruption is a problem in the MINTs. Other challenges include risks due to drug violence, religious strife, and outbreaks of deadly communicable diseases. But urbanisation and rising labour productivity drive business opportunities in the MINTs. Mexico City, Jakarta, Lagos, and Istanbul — the MINTs’ largest cities — will be among the top 25 economic hotspots by 2025, according to McKinsey & Co. u

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MexicO GDP growth (2015, projected): 3.5% Population (2014): 124 million GDP per capita (2014): $10,652.80

GDP growth (2015, projected): 5.5% Population (2014): 253.2 million GDP per capita (2014): $3,472.70

exico features a relatively stable macroeconomic environment, a sound banking system, a domestic market that allows for economies of scale, and decent infrastructure. It ranks 61st on the 2014–2015 World Economic Forum’s Global Competitiveness Index, after placing 55th for several years. A member of the North American Free Trade Agreement, Mexico has long benefited from its close relationship with the US, but it also felt the damage the financial crisis did to its northern neighbour, according to International Monetary Fund data. Economic growth has been erratic and slow in the past five years (1% in 2013). Corruption and crime have also been major challenges of doing business in Mexico, according to data from the World Economic Forum’s 2014 Executive Opinion Survey, which was conducted in more than 140 countries and involved 14,000 business leaders. Mexico ranked 103rd out of 175 countries and territories on Transparency International’s 2014 Corruption Perceptions Index. Global Financial Integrity estimates Mexico lost $461.86 billion to illicit financial outflows from 2002 to 2011, the third highest amount worldwide. But a slowly recovering US economy and the election of a new political leader in Mexico stirred up a fresh breeze. Since President Enrique Peña Nieto took office in December 2012, Mexico has pursued multiple structural reforms, including in the financial sector, education, energy, and taxes, according to the World Bank. For example, the country plans to open its power grid to private power generators and allow them to compete with the state electricity company. The World Bank expects Mexico’s economy to gradually recover as exports to the US and public expenditures normalise. Economic growth is projected to increase to 3% to 4% over the next few years. Mexico’s new administration has also had some success in its fight against drug violence, which has been a problem in the country. In February 2014, government forces arrested Joaquin “El Chapo” Guzman, considered the world’s most powerful drug kingpin. And Mexico has developed into a regional leader in promoting environmentally friendly technologies, according to EY. In the past two years, Mexico has committed to reducing greenhouse gas emissions by 30% by 2020 and 50% by 2050. To meet the goal, the country will have to generate at least 35% of its electricity from renewable sources by 2025.

n the past few years, Indonesia has mounted concerted efforts to address some of its biggest challenges, which has done wonders to the Southeast Asian country’s competitiveness for investors. After falling in the World Economic Forum’s Global Competitiveness Index three years in a row, Indonesia improved by 12 places to 38th, one of the biggest leaps by any of the 145 nations on the 2013–2014 index. In 2014–2015, Indonesia improved four more places to 34th out of 144 nations. Indonesia’s government has stepped up funding to upgrade roads, ports, water facilities, and power plants, according to the World Economic Forum. The private sector is quickly adopting the latest technologies, and use of information and communication technologies is rapidly increasing in people’s daily activities. Efforts to reduce inflation are also underway. The rate, which peaked at 8.2% in January 2014, has eased to 7.3% and is projected to drop to 5% or lower over the next four years, according to an EY report on rapid-growth countries. Indonesia’s economy has grown about 5% annually over the past decade and is projected to continue at a similar pace, mainly driven by domestic demand, according to the World Economic Forum and the EY report. Gross national income per capita increased from $2,200 in 2000 to $3,563 in 2012. The World Bank predicts that the population in Indonesia, already the world’s fourth most populous country, will increase 4% to 264.4 million by 2018. EY ranks Jakarta, Indonesia’s largest city, among the 20 cities with the largest economic output. Rapid urbanisation is projected to double the number of cars on Jakarta’s roads to 5 million in the next decade. But serious challenges remain. Corruption is the biggest challenge (15.7% of respondents), according to data from the World Economic Forum’s 2014 Executive Opinion Survey. The second biggest concern was access to financing (10.6%). Indonesia ranked 107th out of 175 on Transparency International’s 2014 Corruption Perceptions Index. The country lost an estimated $181.83 billion to illicit financial outflows from 2002 to 2011, the eighth highest amount worldwide. Poverty and poor public health are also issues, according to the World Economic Forum. Indonesia has among the highest incidence of communicable diseases and rate of infant mortality outside of sub-Saharan Africa.

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indOnesia

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nigeria

turkey

GDP growth (2015, projected): 7.3% Population (2014): 175.5 million GDP per capita (2014): $1,921.30

GDP growth (2015, projected): 3% Population (2014): 75.9 million GDP per capita (2014): $10,523.90

igeria has enormous potential for economic growth, but Africa’s largest economy must first tackle serious challenges to deliver on its promise. Its ranking in the bottom fifth of the World Economic Forum’s Global Competitiveness Index the past four years reflects Nigeria’s situation. In 2014–2015 the country was 127th out of 144, even though it has the largest natural gas reserves in Africa and is the continent’s biggest oil exporter, according to the World Bank. The country’s potential is in its population and the size of its market, which offers economies of scale attractive to foreign direct investments. Already the continent’s most populous country, Nigeria is projected to be home to 194.2 million in 2018, about a 10% increase over four years, according to the EY report and the World Bank. In the same period, GDP per capita is expected to rise about 33%. By 2025, Lagos, Nigeria’s largest city, with a population of more than 11 million, is projected to add another 13 million people. Financial services and telecommunications are among the fastest growing sectors, according to the World Bank. To boost job creation — underemployment is a serious problem, especially among youth — the Nigerian government is focusing on information communication technology, entertainment, meat, leather, construction, and tourism. To unlock its economic potential, Nigeria has to also improve its infrastructure, tackle corruption, and ease access to financing, according to data from the World Economic Forum’s 2014 Executive Opinion Survey. Corruption is one of Nigeria’s biggest issues and one of the top two concerns among Nigerians and executives doing business globally. About one-fourth of all respondents in each survey said reducing corruption is an issue facing Nigeria. Transparency International’s 2014 Corruption Perceptions Index ranked the country 136th out of 175. Global Financial Integrity estimates Nigeria lost $142.27 billion to illicit financial outflows from 2002 to 2011, the ninth-highest amount worldwide. Also, the security situation in the country, already worrisome, continued to worsen last year. The US State Department has issued a warning to Americans to avoid travel in parts of Nigeria where terrorist groups are active.

urkey straddles Asia and Europe geographically, culturally, and economically, which affected the world’s 18th largest economy during the global financial crisis. With the onset of the euro-zone crisis, economic growth in Turkey slowed, according to the World Bank. The country is tied in with many advanced nations, especially in Europe. Turkey is a member of the Organisation for Economic Cooperation and Development and the Group of 20 and a longtime candidate for full membership in the EU. By 2010 and 2011, though, Turkey’s economy was again humming at an annual growth rate of about 9%, according to the International Monetary Fund. A nation that for thousands of years has been an intersection for trade between Europe and Asia, Turkey has a vibrant business sector and fairly developed roads and air transport, according to the World Economic Forum. In the past decade, Turkey has advanced 16 spots in global competitiveness, and foreign direct investments rose from about $1 billion to about $13 billion in the same time, according to the World Bank. EY ranks Istanbul, Turkey’s largest city, among the 20 cities with the largest economic output. Corruption is a problem, but a less serious one than in many other rapid-growth markets — Turkey ranked 64th out of 175 on Transparency International’s 2014 Corruption Perceptions Index. But domestic challenges arose in the past two years that have cost Turkey’s economy, according to the World Economic Forum. A rising fiscal deficit and inflation that is projected to have reached 8.6% in 2014 have worsened the macroeconomic environment, and Turkey fell one rank to 45th on the World Economic Forum’s 2014–2015 Global Competitiveness Index. Turkey’s central bank has tried to bring inflation under control, increasing interest rates 550 basis points in early 2014, and the lira has recovered some since then. But inflationary pressures remain high, and investment contracted sharply in the first quarter of 2014, according to the EY report on rapid-growth markets. Also, Turkey borders Syria and Iraq in the south and is dealing with large numbers of refugees fleeing Syria’s civil war and advances by the Islamic State in Iraq and Syria. The top concerns for executives doing business in Turkey are inefficient government bureaucracy (11.7% of respondents), policy instability (11.5%), an inadequately educated workforce (10.9%), tax rates (10.8%), and access to financing (9.2%), according to data from the World Economic Forum’s 2014 Executive Opinion Survey. ■

June 2015

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Scaling up

SucceSSfully

Hootsuite CFO James Rumble, ACMA, CGMA, outlines the building blocks of rapid expansion. BY SamantHa WHite

ow does the CFO of a start-up ensure that the company grows sustainably but still keeps up with and capitalises on burgeoning demand? This was the challenge facing James Rumble, ACMA, CGMA, when he joined social relationship platform Hootsuite in January 2012. The Hootsuite dashboard allows users to manage their posts and interactions on Twitter, Facebook, and LinkedIn, among others. The company was preparing to launch a premium subscription service targeted to organisations that were realising the importance of these channels as a means of engagement with customers and stakeholders. At the time, the Hootsuite office in Vancouver, British Columbia, was home to 60 employees. Just three years on, the company employs 900 people in offices across the world and has 10 million users, including more than 725 of the Fortune 1000 companies. Rumble, who relocated to Canada from the UK eight years ago, is proud of having built the finance team from three to 30 to support that growth, as tasks have expanded from paying the bills, month-end, and tax to include an FP&A team, M&A, funding, and a team that reports to investors. Rumble also is responsible for legal matters and facilities and has been heavily involved with the strategy and go-to-market teams.

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people and culture Rumble is no stranger to scaling up operations. He performed a similar feat at directory company Canpages, guiding the start-up from 100 people to 700. Hiring the right people with values that are aligned with the company’s mission has been essential to Hootsuite’s development, he said. “We liken Hootsuite to racing downhill at 100 mph on your bike, but you’re also building the bike as you go. There’s

James Rumble, ACMA, CGMA, the CFO of Hootsuite

just so much to be done, and you have to be so flexible, you’ve got to find a better way of getting things done all the time,” he said. “When you’re building incredibly quickly and the business is growing so fast, you have to think about the type of people that can come into this environment and thrive. The company needs to move at a certain pace, and finance needs to be out in front.” In most finance functions, growth is built on an existing u

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framework with ledgers, billing, and information flows from the data warehouse already set up, for example. A start-up environment in which those basics are not available requires a very different type of person, someone who is comfortable with a lot of change, not tied to what’s written in their job description, and willing to build that infrastructure himself or herself. Getting those hiring decisions right and creating a positive culture are essential to growing at speed. “If you keep losing your people, you just keep resetting your clock. You have to start again all the time,” Rumble said. “So retaining people is incredibly important, and that’s why we put so much work into the environment, the culture, and living the values that we have as an organisation so people feel like this really is a great place to work.” The next step for the CFO is to manage the expansion of roles within finance, identifying the right time to bring in people with the needed specialisms, and to keep ahead of the growth of the business. In the growth phase, there are constant demands for information and time to work on new strategies, Rumble explained. Finance has to work with various areas of the business and key decision-makers to give them the information they need.

new products and maintaining the existing service and a large go-tomarket team with sales, new business-lead developers, and marketing personnel all involved. Managing that cost is vital when scaling up the business. The data accumulated in the first year of expanding Hootsuite in North America provided a strong sense of the essential components of the business model, such as how long it takes for a salesperson to become efficient and how much work is involved in lead generation. The next step when considering new markets is to think about how that insight would apply elsewhere and how KPIs might need to be tweaked for those markets, to evaluate whether the acquisition cost is acceptable. In markets where the Hootsuite brand has a very high presence, such as North America and Europe, a sales representative can start hitting his or her targets fairly quickly after training. Reaching similar sales levels in other markets, where the brand is less familiar, will take longer and involves spending a lot more money to generate awareness. “It’s a matter of recognising where you are in the markets you’re going into and reflecting that in the plan,” Rumble said. “When we’re going into new markets, we’re constantly asking, ‘Can we set this up efficiently?’ And the answer is we’ve been very successful at that.” London is one example. The company opened its London office a couple of years ago. Today, 150 people are employed there, and clients include Adidas, IKEA, Swarovski, and the North Atlantic Treaty Organisation.

“The company needs to move at a certain pace, and finance needs to be out in front.” — James Rumble

Supporting neW market deciSion-making “When you’re in a super-fast-growing business, everything looks like a great idea. So you’ve got to put your effort and emphasis into things that are going to pay off big one or two years down the road,” Rumble said. “One of the joys of being in a software-as-a-service (SaaS) business is that because you have such well-established metrics and you have a very big base of customers that go from one month to the next, you have very high predictability of your revenue streams.” Hootsuite’s enterprise-level customers subscribe for a year at a time, he said, “so that allows you to quite confidently build out according to your projections.” Establishing Hootsuite in new markets involves high upfront (or acquisition) cost, as it involves developers creating

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capitaliSing on opportunity With the right people and metrics in place, Hootsuite has been able to capitalise on the burgeoning demand for social media by taking operations to several new territories simultaneously. “You’ve got this massive opportunity in social media right now,” Rumble said. “A more traditional approach … would be to just grow out in North America and then go into Europe and then go into Asia-Pacific. But we’ve chosen to advance on

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all fronts because we’re very much at the front of this market and the opportunity is really forming now.” Choosing the right funding strategy is another crucial element of sustainable growth. By September 2014, the privately held company had attracted a total of $250 million in investments to fund expansion and acquisitions.

As CFO, “you’re managing all this growth inside the business, but you’re also delivering the funding strategy as to when to bring money, how much do you take, and all of those things,” he said. “You’ve got to find that balance between being comfortable in terms of having the money to expand and taking too much money.” ■

HoW to go from Start-up to SucceSS James Rumble provides entrepreneurs with a blueprint for scaling up their business by drawing on his experience of taking Hootsuite from a start-up to serving blue-chip clients from offices around the world. ■ For finance professionals who are looking to raise funding for their start-up: “It’s going to be exhausting! Sometimes it can happen very quickly, and there are other times where it actually takes quite a bit of time. You’ve got to do a lot of work with roadshows, you’ve got to get your investor deck really tight. … You’ve got to get to the heart of your business very quickly and concisely — you don’t have the luxury of a long presentation. “When you get into the actual business side of the transaction — the terms, investor agreements, and so on — it’s very important to have the right group of people around you who can execute on that. You need really high-quality people that can support you in your legal and finance teams because you can’t bear the load on your own. You’ve still got the business to run.” ■ On seizing opportunities in a booming market: “When presented with a growing market and a massive opportunity, you’ve got to do something. When companies are growing at a 100% year-overyear sort of rate, you’re going to make some mistakes, but that’s better than not doing anything at all. If you wait for the right answer, the moment will pass. So you start to build an offering for your customer, and it gets more sophisticated as you go. You develop the product in relation to the customers’ needs. But if you waited for the perfect product, you would never have sold anything. The customer would have gone elsewhere, and it’s very hard to get them back after that.” Having a robust execution plan and monitoring how well things are progressing are key, said Rumble.

Don’t give up the first time things deviate from the plan. If you’re entering a new market and something is not working as expected, find out what the root cause of the problem is. Your business model and your research should be good enough to know that you should succeed in that market. Ask whether you need to provide your people with additional training or adapt or internationalise the product, for example. ■ Be a partner to the business: “In the places where I felt most successful, I’ve had very, very good relationships with the non-finance people that I’ve worked with. And to execute on these huge transformations, you have to work really hard not to be the finance guy on the outside. You need to recognise everyone’s trying to get to the same success, and that you are all aligned, and that you guys should trust each other and work really hard with each other. That’s incredibly important for any successful team. Because if you’re not like that, the group under you won’t be, and the group under them won’t be. You’ve got to lead by example.” ■ On setting career goals: “You’d better be sure you’re willing to make the sacrifices to get there, and you’d also better be sure it’s what you really, really want to do, because it’s going to dominate a big chunk of your life. To be successful, you’re going to have to work through some really difficult things, whether that’s business situations or your own development situations. “You’ve also got to be really aligned with the values of the company you work for, because you’ve got to live them. I keep coming back to the question: What is it you really, really get a buzz out of? And guess what, if you’re doing that, you’ll be great at it. Ask yourself: How is the work I’m doing making a difference, and how can I make it better? How can I give people what they need to deliver on our strategy?”

June 2015

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Funding

Setting appropriate criteria by which to evaluate radical projects is one way management accountants can drive innovation. PHOTO BY grmarc/ISTOcK PHOTO BY JOHn JameS/aP ImageS

BY Keith goFFin

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Radical ideas hoosing which ideas to invest in is an area where many companies struggle. Very often, companies will use net present value (NPV) when evaluating ideas. For incremental projects, such as a variation on an existing product or service, where you know the market well, that is a highly effective measure. However, NPV tends to kill the most innovative projects because there are so many unknown factors involved. Other criteria that companies often use, such as “Can the new product be produced on today’s production lines?” or “Can we use today’s sales force?”, also rule out truly radical projects. Many finance professionals don’t realise the role they can play in helping their companies drive innovation and make it a strategic tool. Where management accountants can really help is by encouraging their organisations to evaluate radical projects differently. In the early stages, the best way is to use a set of estimates including factors such as risk, return, and how aligned a new project would be with the business strategy. The management team members give the project ratings based on that set of criteria. Wise companies break the radical projects into stages, providing funding in tranches with clear targets and expectations for each stage to unlock further funding. NPV becomes useful only in later stages, when there is more clarity and the project is much nearer to market. It is ideal if the management accounting team can actually create the criteria for radical projects in parallel to the set used for incremental ideas, and then work to ensure that the right balance of projects is included in the portfolio to match the strategy. One way to do this is by looking at the mix of projects that have been developed in the past and exploring whether the right balance has been struck between incremental and radical ideas. While a 90%-to-10% radical-to-incremental ideas split is not recommended, if you don’t have anything that’s risky and radical, you’re probably never going to get some of the bigger breakthroughs. A company striving to be a first-to-market u

4 innovation essentials

Strategic underpinnings: One of the essential features of an innovative culture is awareness of the organisation’s strategic direction. Senior management must communicate this to staff, and requests for ideas should be clearly aligned to the priority areas. Creativity theory shows that people are more creative when they are given more specific problems or areas to work on. For instance, companies could say, “We would like ideas on how we could be more effective in this segment,” or ask, “How could we boost sales of this product?” Clear criteria: Making the criteria by which ideas will be selected for development transparent to employees helps them hone their ideas and match future suggestions to the company’s requirements. The criteria may include fit to strategy, feasibility, and the availability of the right team to take the idea through to market. Time: Once employees have some direction as to the type of ideas sought, they need the time and space to come up with them. It is essential that senior management break the required groups out and give them the time and resources to do this type of work. Reward: Celebrating and rewarding innovation is another important part of culture. Some managers are reluctant to provide rewards and recognition for innovation, as it’s considered an inherent part of their employees’ job descriptions. But if managers are not happy with their innovation output, those mechanisms need to change. The reward doesn’t have to be financial; it could be peer recognition, for instance. Find the approach that works in your organisation. If you want more innovation, you’re going to have to highlight that and celebrate what you’ve achieved.

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common BaRRieRs to innovation ■ Focusing too heavily on generating ideas, not enough on selection and development. ■ Aiming for breakthrough products rather than a mix of product, process, service, and business model innovation. ■ Stifling ideas through too strong a hierarchy. ■ Lack of clarity in the company about strategic direction. ■ Attempting to replicate the model of a pioneering company. ■ Chasing the innovation management theory of the day.

leader would need a portfolio that includes at least 30% fairly radical projects.

act liKe a ventuRe capitalist Fear of failure is a major barrier to innovation for both individuals and organisations. To foster a culture in which employees are comfortable developing their ideas and exploring their potential, companies can take a leaf out of the venture capitalists’ book. Most companies decide to fund selected ideas all the way to market. In contrast, investors minimise risk by breaking projects down into a number of different stages and staggering investment. Funding for each new phase of development is released only if the pre-defined targets for the previous stage have been achieved. This is an area where finance professionals can take the lead. Management accountants can also work with HR colleagues to counter the perception that a cancelled project is a failure. Terminating a project before it gets to market can be considered a strength and celebrated if the idea has been explored fully and the decision has been taken on a sound business basis using market data and understanding. This scenario is actually much better for the company than going to market and losing far more money, because investments typically rocket at the later stages of development. It’s also important to recognise that some unsuccessful ideas are an inevitable part of the innovation process — individuals and teams can’t have brilliant ideas all the time. ■ Keith Goffin is a professor of innovation and new product development at Cranfield School of Management.

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case study: aXa insuRance iReland As part of a strategy to move the company into a stronger financial position, household and motor insurance provider AXA Ireland placed innovation firmly on the company’s agenda. Seeking to involve the whole workforce in the business transformation, AXA asked employees for suggestions. The company was deluged with ideas, many of which were not very relevant. Management then created a range of programmes to encourage teams to come up with ideas, this time providing a more specific description of the strategic areas in which they were looking to improve. Suggestions were filtered according to strategic fit, cost/benefit analysis, key deliverables, relevant risks/alternative course of action, feasibility, and business case. These factors also enabled the company to calculate the financial value of ideas and communicate that in the boardroom. To make the process transparent to employees, AXA published detailed information about the ideas selected and the criteria by which they were chosen. The “Going the Extra Mile” programme encouraged staff to implement one idea to improve customer service delivery quickly and at low cost. Ideas were registered and approved through a formalised process, and their progress could be tracked on the company intranet. Efforts were recognised and rewarded by the company, with prizes for the best ideas awarded at a high-profile ceremony. Innovation was also incorporated into employees’ key objectives, with an impact on salary and bonus. The long-term emphasis on innovation delivered concrete benefits to customers, employees, and the company. AXA Ireland experienced major increases in business and revenues. There was a 20-point improvement in the customer satisfaction index, and the ideas generated contributed €1.5 million ($1.6 million) per annum to profitability.

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The

SMART

AlTeRnATive To Big DATA Getting lost in a sea of data that delivers no value? Here’s how to convert raw information into real business results. BY BeRnARD MARR

e have been told for years that we live in the Information Age: Information is gathering momentum and pace; it’s growing exponentially. Yet less than 10% of the data companies currently hold is used to inform decision-making. The escalation of data poses its own set of problems — the danger is we get lost in a sea of data that delivers no value whatsoever, bamboozled by the proliferation of smart technology and endless possibilities that send businesses down resource-sapping rabbit holes without any useful or definable output. The basic idea behind Big Data is that everything we do is increasingly leaving a digital trace that we can use and analyse to become smarter. US retailing giant Wal-Mart Stores Inc. handles more than 1 million customer transactions an hour and imports them into databases estimated to contain more than 2.5 petabytes of data. Wal-Mart uses data to understand what is trending in social media, as well as buying patterns amongst similar types of customers and what competitors are charging in real time. The company changed its free shipping policy based on Big Data analytics, increasing the minimum qualifying online order from $45 to $50. Meanwhile, Amazon has recently

IMAGE BY ALEKSANDARVELASEVIC/ISTOCK PhOTO BY JOhN JAMES/AP IMAGES

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patented “anticipatory shipping”. The online retailer has become so good at predictive analytics that it believes it knows what you will buy before you buy it and can ship an item towards you even before it is in your shopping cart. Companies such as Amazon and Wal-Mart may enjoy a competitive advantage because of the data they have access to, but there is probably more than enough data in your own company to tap into without eye-watering budgets as long as you focus on SMART data, not Big Data. The SMART model — start with strategy, measure metrics and data, apply analytics, report results, transform your business — allows you to cut through the chaos. Step back from the hype and learn the techniques to convert raw information into real business results.

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KnoW YouR DATA TYpe Itâ&#x20AC;&#x2122;s important to understand the various types of data that can now be analysed for insight: Structured data: Data located in fixed fields within a defined record or file, such as spreadsheets and relational databases. Unstructured and semi-structured data: Images, text documents, and social media posts. Internal data: Data that you can access only from within your own business. External data: Data that have been created or generated outside your business that you do not own or have access to; there may be a cost to access them.

The SMART MoDel AT WoRK Instead of starting with the data, start with your business objectives and what you are specifically trying to achieve. This will automatically point you towards questions that you need to answer, which will narrow data requirements into manageable areas. Once you know what you are trying to achieve and you are clear on what SMART questions need to be answered, then work out how you can access that information so you can measure metrics and data. The next step is to apply analytics, extracting useful insights from the data that can help you answer strategic questions. The data themselves are meaningless unless they help you to execute your strategy and improve performance.

But the insights alone are useless unless you report results. The mistake that is too often made by data scientists is to bury these insights in 50-page reports that no manager or executive has time to read. Ideally, results should also be reported in a single-page infographic. When you approach data and analytics from this narrower, more practical perspective, you can transform your business, understanding your customers better, improving and optimising business processes, and driving performance. I worked with a telecom company whose business objective was to reduce customer churn. Executives knew they had a lot of data and ran analytics on some of it but had never looked at how people called each other. They didnâ&#x20AC;&#x2122;t know whether their customers made mainly inbound or outbound calls, how long they spoke, or what times of the day were most popular. By mining those data and applying analytics, they found that one particular calling pattern was much more associated with churn than the rest. The data analysis showed that there was a type of customer who moves more frequently than others. By identifying that segment of the market, they could target those customers with special offers that would entice them to stay. By analysing traditional structured data a little differently, they were able to extract commercially significant u

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linKing Big DATA WiTh STRATegic goAlS To help companies get clear on their strategic data needs, I’ve developed a framework I call the SMART strategy board. It helps you step back and ask the right questions to ensure your Big Data initiatives are linked to your strategic needs. There are six panels in the strategy board (see Figure 1): The Purpose Panel contains your mission statement, which concisely states why your business exists, and your vision statement, which explains what you want your business to be in the future. The Customer Panel prompts you to consider how much you know about the customers your strategy is targeting and what you may need to find out in order to deliver on your strategic objective. It should include your target market and your value proposition. The Finance Panel is designed to make you consider how much you know about the financial implications of your strategy. How does your strategy generate money? Are you confident your business model is accurate?

1 2

5 6

The Operations Panel makes you think about what you need to do internally to deliver your strategy. Which suppliers, distributors, and partners are crucial? Do you currently work with them, or do you have to establish new relationships? And, secondly, in what core competencies will you need to excel if you are going to execute your chosen strategy? The Resource Panel prompts you to consider what resources you need to deliver your strategy and what you may need to find out. There are four components: IT systems and data; infrastructure; people and talent; and values and leadership. The Competition and Risk Panel assesses the competition you will be up against and what risks you may face along the way. It’s the perspective that is most often missing from strategy maps, and yet it poses a serious potential threat to successful strategic execution.

FIGURE 1: SMART STRATegY BoARD Purpose Panel Purpose: What is our purpose? (Mission statement) Ambition: What is our ambition? (Vision statement) Customer Panel

Finance Panel

Target market: What customer do we target? (Segment, market, region, niche, channels, etc.)

Finance objectives: How will we deliver financial results?

Value proposition: What do we offer our customers? (Quality, price, innovation, relationship, service, etc.)

■ Revenue, profit, and cash

Operations Panel

■ Cost, productivity, and

Partners: Who are our key partners we need to maintain a relationship with? (Suppliers, distributors, communities, etc.)

generation, and shareholder value efficiency

Core competencies: What internal processes do we have to excel at? (Develop products and services, generate demand, fulfil demand, regulatory and social, etc.)

Competition and Risk Panel Competition factors and risks: What is threatening our success? ■ Market,

competition, and customer risks ■ Operations

risks ■ Financial risks

Resource Panel

■ IT risks

IT systems and data: What are the key IT systems and data deliverables? (Systems, networks, data sources, etc.)

■ People risks

Infrastructure: What are the key infrastructure deliverables? (Property, machinery, land, etc.) People and talent: What are the key people and talent deliverables? (Recruit, develop, retain, engage, etc.) Culture, values, and leadership: What are the key culture and leadership deliverables? (Values, behaviours, etc.) Source: Big Data: Using SMART Big Data, Analytics and Metrics to Make Better Decisions and Improve Performance (Wiley).

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insights that increased profit. SMART data can transform the relationship of a business with its customers. They can also transform the way a business thinks about itself.

SMART queSTionS, SMART AnSWeRS

A collABoRATive exeRciSe To reap the benefits of Big Data, you don’t have to collect everything and produce the biggest, most complex database in the world. The aim is actually the opposite — to get clear about the data you need and build the smallest, most straightforward database in the world. The truth is we are often so mesmerised by the data that we forget the question is much more important than the answer the data may provide. As a rule of thumb, start with internal data and structured data, which are usually easier and cheaper to analyse than unstructured or semi-structured data. But asking the right questions and finding the right data to answer them is not in itself enough. Leaving the reporting to analysts and designers alone is as unproductive as leaving it to the executives. There needs to be collaboration and

interaction between the people creating the results and the people who need the results to make decisions. Consumer products manufacturer Procter & Gamble has chosen to institutionalise data visualisation as a management tool. The company put visual displays of key information on more than 50,000 desktops and created “business spheres”, which are basically information dashboards that have all the same technology and data visualisation protocols in place. P&G has ensured information is presented in a common way across the whole company. The company has initiated a set of seven “business sufficiency models” that specify what information is used to address particular problem domains. If a P&G executive is focused on supply-chain issues, the sufficiency models specify the key variables, how they should be displayed visually, and sometimes even the relationships between the variables and forecasts based on the relationships. The uniformity means everyone is on the same page. Once the data are understood, executives from any division, any brand, or in any country can quickly and easily interpret the data. That means they spend less time trying to understand the data and more time putting them to use and making better decisions. It also prevents people from hijacking the data and presenting them in a way that supports their pet theory. Never forget that data analytics is useful only if you make sure the right people get the right information in the right format so they can make the right decisions more often. ■ Bernard Marr (bernard.marr@ap-institute.com) is chief executive of the Advanced Performance Institute and author of Big Data: Using SMART Big Data, Analytics and Metrics to Make Better Decisions and Improve Performance (Wiley).

June 2015

IMAGE BY FANDIJKI/ISTOCK

Asking SMART questions can lead a company to change its business model entirely. Rolls Royce asked itself what its customers needed rather than focusing simply on what the company provided. That led it from only manufacturing aircraft engines to monitoring the engines, too, using thousands of sensors to identify issues before they arose. Now Rolls Royce sells the engines and offers to monitor them, charging customers based on engine usage time, and repairs and replaces parts if there is a problem. So the client effectively buys a dynamic servicing option, and this servicing now accounts for 70% of the civil-aircraft engine division’s annual revenue. General Electric Co. is another company that has transformed its business away from its traditional manufacturing roots using Big Data analytics. Its gas turbines are now smart turbines. It has collected 100 million hours of operational data, and these “intelligent” machines communicate their operating statistics through 400 sensors on each turbine, allowing adjustments to be made to improve efficiency and reduce wear and tear. Using operational data from sensors on a range of machinery and engines, GE applies analytics to identify patterns and deliver commercially relevant insights. Like Rolls Royce, GE provides additional services tied to its products designed to improve real-time efficiency and minimise downtime caused by parts failures. As well as transforming a company’s relationship with its customers, Big Data is increasingly being used to optimise business processes.

INN VATION It’s what CGMA stands for. Our research explores the new trends shaping our world. We apply management accounting thinking to the big questions facing global business. Our research and resources help Chartered Global Management Accountant™ (CGMA®) designation holders to enhance their perspective, and ensure they have cutting edge insight, tools and techniques to address the most important issues for organisations. Read our latest research and access practical resources at cgma.org/resources

CGMA® MAGAZINE EXCLuSIVE REPORT

NEW WAYS OF WORKING… MANAGING THE OPEN WORKFORCE THE OPEN WORKFORCE The corporation as we have known it for the past century is being reinvented. The twin forces of globalisation and digitisation are transforming the way companies do business. But these megatrends have also given rise to a powerful new force in business, a phenomenon that we call “the open workforce”. In the era of the open workforce, companies increasingly get the job done by using talent and resources that operate “off the payroll”. Whereas the traditional company relied on employees to undertake nearly all their most important tasks, CGMA research reveals that organisations today depend on a more dynamic talent base. The new workforce that has emerged combines employed staff with a growing proportion of freelancers, contractors, outsourced service providers, business partners, and a host of other participants in the value chain. Like many megatrends, the era of the open workforce has evolved gradually. But the new ways of working represent a momentous shift in how companies need to organise

themselves to get work done. It is a shift that touches every aspect of the business: corporate structures, the way teams collaborate, decision-making, performance, and risk management. All these areas need rethinking. Adapting to the needs of the open workforce will be one of the defi ning business challenges of the coming decade. CGMA designation holders will play a pivotal role in helping organisations thrive in the new world of work. This exclusive report outlines the key fi ndings of our research, and the steps CGMA designation holders and their organisations can take to thrive in the open era.

KEY FINDINGS Last year, the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA) conducted a programme of in-depth interviews and a survey of over 1,100 senior executives from around the world. Here is what we found.

Organisations increasingly rely on external talent to deliver on missioncritical goals More than one in four respondents reported that external talent, such as contractors, outsourced service providers, temporary staff, and freelancers, makes up greater than half of their organisation’s total workforce today. The research also reveals that the shift in resourcing from employees to external resources is set to accelerate during the next five years.

The new ways of working are spreading rapidly around the world The US and Canada were first to embrace the open workforce, but companies in every region are beginning to move in this direction. Companies in the Asia-Pacific region predict they will move rapidly during the next five years to increase their use of external talent.

High-performing companies are using the open workforce to deliver competitive advantage

In particular, they are finding it difficult to strike the right balance between control and empowerment, with 62% of respondents indicating that their organisations are either struggling to get the balance right or feel that they have got it wrong.

Performance management has become harder yet more critical Companies urgently need new tools to manage performance across today’s networks of employees and collaborators. That gets harder when you rely on people who don’t formally report to you. Nearly one-third of respondents indicated that their companies lacked a clear line of sight over the cost and performance of their external talent. Organisations need a new approach to performance management to ensure that they are mobilising all their resources effectively. Figure 1: Oversight and control over external talent

Nearly one-third report low levels of oversight and control of: Overall NUMBER of external resources used

31%

Overall COST of external resources

28%

QUALITY of external resources

28%

Companies need to rethink how decisions get made

AWARENESS of company principles and/or best practices by external resources

28%

Today’s complex and highly distributed organisations need a new framework to govern decision-making.

PERFORMANCE and

There is a strong correlation between companies that identify themselves as outperforming their peers, and those that have been quick to embrace the opportunities created by the open workforce. High performers are more likely to be using external talent and more likely to have the tools, strategies, and frameworks in place to leverage these complex structures more effectively.

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productivity delivered by external resources

28%

New risks need to be managed

The opportunity is huge

The open workforce exposes companies to risks that few have fully understood. In the survey, companies show concern over information leaks, whether because of cyber-security issues or intellectual property (IP) theft. Less obvious but equally challenging are the reputational risks that arise when vital tasks are performed by people and partner organisations that do not necessarily share the organisation’s values or targets for quality.

The open workforce allows companies to reduce costs, but it also unlocks a whole range of opportunities. With open innovation strategies, we see companies increasingly collaborating with suppliers, customers, and other business partners to deliver new products and services. The open workforce can also give companies much greater agility, so they can redeploy resources and augment their capabilities with unprecedented speed.

The companies of the future will be increasingly open, agile, innovative, collaborative, automated, and digitised. This new breed of company will require leadership that can unite a dynamically shifting, loosely affiliated network of talent around a coherent corporate vision and set of values.

“

Corporate structures will be transformed

In the internet industry, everything moves really quickly and we have to react to changes nimbly because the first mover usually wins. This means we need access to a diverse mix of talent, both locally and internationally. John Lo, FCMA, CGMA, FCPA (Australia), FCPA (HK) CFO, Tencent

Figure 2: New corporate models in the era of the open workforce The new organisation

Implications for management practice

Open Outward-looking approach to sourcing talent and exposure to innovative ideas.

• New approaches to measuring performance.

Agile Need to adapt to local needs and respond rapidly to market pressures.

• Close alignment with HR to forecast talent and knowledge needs.

Innovative Ability to share knowledge, insights, and innovation processes between teams and across multiple players in the value chain.

• Master the new tools and technologies required to help capture innovative ideas and streamline innovation processes.

• Enhanced risk controls and security mechanisms. • Embed cultural change to more transparent ways of operating.

• Decision-making structures that enable local autonomy yet maintain control.

• Exploit tools and techniques that drive open innovation.

Collaborative Ability to knit together a more diverse workforce with an array of external partners.

• Lay down principles and frameworks to guide interaction between in-house and external teams.

Automated and digitised Increased implementation of machines, robotics, and information technology on tasks previously not thought to be susceptible to automation or digitisation.

• Redeploy skilled workers to more value-adding activities.

• Develop ways to share internal information with external workforce, including setting up shared workspaces.

• Integration of new internal systems with external partner systems where necessary. • Maximise the potential of digital and mobile technologies to create value.

June 2015

7 STEPS TO HARNESS THE OPEN ENTERPRISE The open workforce requires a new approach to management. Organisations need to harness a multi-generational and culturally diverse workforce. To do so, they must use innovative technology and collaborative processes to orchestrate a complex mix of talent and resources. Finance professionals can take a leading role when it comes to developing tools and frameworks to support effective decision-making, and risk and performance management within the context of the open workforce.

Here are the steps you can take: 1. Map your talent base. Our research reveals that many companies struggle to track every aspect of where and how work is being done across their organisations. Companies need better ways to monitor resourcing levels and forecast how shifts in demand will require them to reconfigure the mix of in-house and external talent. 2. Embrace open ways of working. The new ways of working can help companies save money, but the long-term benefits are more about creating organisations that know how to collaborate, innovate, and adapt to deliver a competitive advantage. 3. Understand the risks. The open workforce creates new vulnerabilities. There are trust issues when working with external talent. Sensitive information needs to be protected; service and product quality needs to be upheld. Ultimately, companies need to put the policies and controls in place to ensure proper governance extends across the open workforce.

4. Develop new approaches to performance management. Performance needs to be made visible and measurable across all elements of the open workforce. Managers need a new set of “carrots and sticks” to motivate the right behaviours. 5. Create a new system to govern distributed decision-making. This will entail striking the right balance between empowering talent to make the right decisions and maintaining strong controls to manage the risks. 6. Master diversity and inclusion. Develop new strategies to attract and incentivise the multicultural, multi-generational workforce of the future. 7. Build a blueprint for the new ways of working. Create a strategy and framework that helps to unite the open workforce around shared goals and common values – backed by the tools and metrics required to co-ordinate this complex organisation.

Visit cgma.org/ready for the report, interviews, and exclusive animation

CGMA Resources Keep abreast of the latest trends and developments with this selection of recent research and resources. From Insight to Impact — The role for finance in helping organisations harness the potential of Big Data. cgma.org/bigdata Transformation and Transparency — The role for finance across the Four Ts of local government performance: transformation, transparency, technology, and talent. cgma.org/fourts Addressing the Employability Crisis — Outlines how new demands, technologies, and globalisation are changing the skills organisations need, and how stakeholders must work closer in resolving the employability crisis. cgma.org/employability Essential Tools for Management Accountants — The exclusive collection of the top tools for CGMA designation holders, outlining when and how best to use them for maximum value. cgma.org/essentialtools

cgma.org/resources @CGMA CGMAMAGAZINE.ORG

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WHY LEADERSHIP

MATTERS Strong leaders are made, not born, and their best teachers are the people around them in every part of the organisation.

IllustratIons BY Csa-arChIve/ IstoCK

he best organisations get to the top because they have strong leaders. But how did those leaders get to be strong? In discussions with finance leaders and management experts, we explored a host of issues around leadership. On the following pages, youâ&#x20AC;&#x2122;ll find tips and tools for leading collaborative and efficient teams and developing talent within your team. Thereâ&#x20AC;&#x2122;s even a quiz to determine whether reluctance to lead could be hindering your career and your company. u

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HoW To FoSTER

CoLLABoRATIon Lynda Gratton has conducted extensive research into what makes certain companies “hotspots of collaboration” and therefore innovation and growth. The London Business School professor provides tips on fostering a collaborative environment. BY SAMAnTHA WHITE

hanging patterns of work mean that collaboration is becoming an increasingly important element of success for companies and individuals alike. More routine tasks have either been outsourced or can be done by a computer, explained Lynda Gratton, a professor of management practice at London Business School. “What’s left is the stuff that’s ambiguous, or highly collaborative, or innovative,” she said. The form and means of collaboration are also increasingly complex. Nowadays, it tends to involve working with people based in remote locations, whom you may have never met face to face. While bringing together staff from various global

hubs is desirable, it is not always affordable, so many projects are carried out virtually. Some companies, such as Tata Consultancy Services (TCS), now incorporate collaboration criteria into employee performance reviews. All of this means that an ability to collaborate effectively is a core skill in your professional armoury. Here are four areas of focus Gratton suggested to encourage your organisation to collaborate more effectively:

To BooST CoLLABoRATIon, ASk THESE QuESTIonS

Look at your own behaviour and ask yourself: What sort of language do I use? How do I work with others?

Recognise the collaborators in your team. Which members are really helping each other? Who is sharing information and working across boundaries?

Look at your practices and processes, particularly your reward mechanisms, and ask: Does the current system reward people for working independently or for working collaboratively? Does this need to change to incentivise collaboration?

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Look at the extent to which you are asking people to collaborate virtually. If more than 50% of your team’s work involves virtual collaboration, they face a different set of challenges. Consequently, you need to acquire a very specific set of skills to manage them. Points to consider include: ■ How do we get people to appreciate each other in a virtual network? ■ How do we get people to make and keep commitments to each other? ■ How do we get people to manage their time effectively?

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■ Relationship building. Finding a way for colleagues who are spread out across the globe to get to know each other is essential. “Using virtual platforms is an incredible way of building a collaborative mindset,” Gratton said, “as they Lynda Gratton encourage people to participate in discussions and engage with each other.” TCS’s enterprise social platform, called Knome, is one successful example (see the sidebar, “Knome: A Virtual Platform Success Story”). With stronger relationships comes trust, which in turn fuels collaboration. The more people judge their colleagues as capable and competent, and trust them to deliver, the more they will be willing to collaborate, Gratton explained. ■ Breaking down barriers. Human resources practices such as circulating people to different departments or regional offices can help break down barriers to collaboration. Even when all the members of a team are located in the same building, the layout of the premises can create physical barriers. Gratton’s research highlights how one should build circulation around the physical space. “If you want people to collaborate across functions, it’s best that they sit near to one another, or that the layout forces them to walk past each other’s desk on a regular basis,” she said. When Unilever redesigned its London headquarters, the company moved away from a typical layout of a central corridor with rooms going off it. Instead, a glass atrium was created in the centre of the building so that everybody could see each other, engendering a sense of unity. Breakout areas are located within the atrium, and a central spiral staircase ensures that people meet as they move around the building. ■ Finding the “point of ignition”. People tend to only collaborate on things they find interesting and exciting, Gratton said. “The role of the leader is to find what I call the ‘point of ignition’ that really excites people and encourages and inspires them to collaborate.” That spark becomes more important when you are leading a virtual team. You have to consider how you can ask a question or give them a vision so interesting that they’re desperate to pick up the phone and talk to each other about it, Gratton said. For example, when Unilever CEO Paul Polman asked the workforce how the company could reduce its carbon footprint by 50%, the challenge had a galvanising effect. “We have an engagement score that

has gone up enormously over the last four or five years,” Polman told McKinsey last year. “We have never seen such a big jump. People are proud to work on something where they actually make a difference in life.” ■ Leading by example. As a leader, your actions and the language you use set the culture for the team or organisation, making them another important tool in fostering collaboration. Likewise, the degree of cooperation in an organisation tends to be modelled on how, and to what extent, employees see senior people collaborate and work with each other. u

knoME: A VIRTuAL PLATFoRM SuCCESS SToRY Seeking to foster communication and collaboration and ultimately create a community out of a globally dispersed workforce, Tata Consultancy Services (TCS) created Knome, an enterprise social network that connects 300,000 employees in 43 countries. Each employee completes a detailed personal profile about their role and interests outside of work. The social media approach was considered particularly appropriate to the company’s needs; 70% of the workforce is under 30 years old and thus considered to be so-called digital natives. Take-up of the initiative has been very strong. So far, staff members have used the platform to create at least 8,000 communities amongst colleagues who share skillsets or interests. Knome enables employees to comment on developments in the business or gather feedback on new proposals. TCS has found that the more input and feedback employees are able to give on a proposal, the more buy-in there is for the initiative. In addition, innovative solutions to business challenges can be crowdsourced through the platform, drawing on employee insight that might otherwise go untapped. In 2013, users suggested 1,500 solutions to 100 innovation challenges posted on Knome. Staff are encouraged to share knowledge through public communication on the platform, such as blog posts and message boards, rather than private emails, to maximise the knowledge-transfer benefit. Knome has also revolutionised how leaders connect with their teams. For example, in 2014 a CEO town hall session hosted on the platform was attended by 60,000 employees. Within an hour, participants posted 600 questions for the leadership.

June 2015

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HoW To LEAD An

EFFECTIVE TEAM Rather than delegating tasks, give your employees responsibility for outcomes. The approach promotes a sense of ownership, boosts performance, and fosters creativity. BY SAMAnTHA WHITE

Photo BY James maCKenzIe

Why you are doing something is more important than how it mpowering your team to take ownership, rather than gets done. Good leaders must articulate this. The more you simply delegating a task, benefits everybody. A focus on reinforce the why of your mission, the more the message is outcomes engages creativity, drives performance, and, amplified, Fritz explained. ultimately, generates pride in the organisation. For a manager, Giving employees choice is also important. If you don’t the approach provides the bonus of saving time and give your people some degree of choice in how to do things, brainpower as employees find solutions and make more they feel powerless and take less action, Fritz said. decisions for themselves. Ego also plays a role. The biggest motivator to the most So says Mark Fritz, an adjunct professor at the IE Business valuable team members is visibility. Give them that, Fritz School in Madrid. Fritz developed his leadership approach suggested, and they will drive the success of the team, from his experience implementing enterprise systems in as their reputation depends upon achievement. marketing companies throughout Europe, the Middle East, A degree of peer pressure is also necessary and Asia. and comes with the bonus that not all of the “If we are focused on completing an activity, we tend to do “push” is coming from the leader. Monetary exactly what we did the day before,” he said. “When the rewards can also help. focus is on outcomes, people tend to get creative to find the But don’t forget that recognition is shortest way there.” crucial for everyone. Good leaders match Successful leaders are focused on two things: the direction the level and frequency of the recognition the organisation should be headed and the pace of progress they give to each individual’s needs. towards those outcomes, Fritz said. Likewise, effective leaders evaluate Once the leader has provided clear goals, an effective way which motivators are most of promoting ownership is encouraging staff to set milestones important to each employee and en route to the goal. adapt accordingly. Spending time Asking employees how they will achieve the outcomes getting to know about indicates to you, as a leader, how much involvement you need employees’ lives outside work to have. If their answers are credible, you can hold back. If can help guide you, Fritz you get weak answers, you may need to manage more closely. advised. So how empowered does your team feel right now? “If their first instinct when faced with a problem or challenge is to try and solve it themselves, they own the task,” Fritz said. “If they come to you for an easy answer, they don’t have a sense of ownership.” Mark Fritz, an adjunct professor at the IE

MoTIVATIng YouR TEAM Imparting a clear sense of why your team should care about the project is key to motivating them.

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Business School in Madrid, says it is important to give employees some degree of choice in how to do things, or they will feel powerless and take less action.

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CuLTuRE AnD CoMMunICATIon Emotional intelligence is crucial to a leader’s ability to influence. An awareness of each person’s needs can help you target your communication style accordingly. One-onone time provides a perfect opportunity to tailor your message. The most powerful question you can ask your people is, “How can I help you be more successful?” Fritz said. In many situations, stories and examples are the best way to illustrate your point. If people are able to relate your message to their own experiences, it makes it relevant and memorable. It also enables you to provide your employees the answer without imposing an approach.

Leaders must also build trust amongst their team. Trust facilitates and encourages collaboration. Helping team members find common interests is a good way to start, Fritz suggested. Trust helps people feel comfortable speaking up when they don’t agree, and openness is crucial to utilising the full power of the team. “The best culture, especially when people are working virtually, is one where everybody participates,” Fritz said. “If they participate and can see part of their idea in the solution, they will buy in to the whole solution and have a personal stake in making it happen.” u

WHAT WE CAn LEARn FRoM THE BEST — AnD WoRST — LEADERS BY BoB PALADIno, CPA, CgMA

Develop a coaching, can-do demeanour. The worst leaders point out problems without offering solutions. And they often withhold plans or prevent colleagues from contributing to the decision-making process. The best leaders: ■ Offer guidance to those tasked with achieving the goals. ■ Foster a can-win approach and find a way to correct, coach, and motivate when employees don’t meet expectations. ■ Praise and celebrate employee accomplishments. Have self-confidence to empower others. Weak managers blame the team for failures. They are less transparent when it comes to decisions or information vital to a team’s success. And they discourage others from taking risks. Strong managers: ■ Deliver a clear message with appropriate tools and accountability. ■ Delegate tasks that develop and stretch the team. ■ Train, coach, and provide feedback — regardless of how well a job is done. ■ Provide incentives for team members to understand the business as a whole. Respect others and act with class. Ineffective managers can be dismissive of others’ opinions or insensitive to professional issues. They have side conversations during meetings instead of listening to speakers. The best leaders: ■ Allow others to have different opinions without

belittling them. ■ Respect individuals’ abilities and contributions

to the business. ■ Listen, understand, and then speak.

Build diverse teams. Ineffective managers limit feedback to small groups and fail to integrate new or different people. They forget to seek counsel or collaboration from team members on different continents. The best leaders: ■ Learn other functions in the company to gain a global perspective and break down silos. ■ Seek people with different backgrounds, experience, skills, and culture to improve a team’s abilities. ■ Create an open-information environment, looking for different points of view to help analyse scenarios.

Thrive on teamwork. Leaders who have little reliance on the team can kill communication. They think about “me” rather than “we” and make important decisions without buy-in or understanding of those impacted. The best managers: ■ Forgo personal gain for the benefit of the team. ■ Help everyone understand the strategy, plan, and progress. ■ Identify and support the role of each team member, set goals and rewards, and strive to improve communication.

Bob Paladino (bobpaladino@paladinoassociates.com) is an adviser and trainer and author of three books on performance management.

June 2015

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DEVELoPIng

FInAnCE LEADERS A good leader recognises that part of the job is developing the next generation of leaders, ensuring the organisation doesn’t miss a beat when the boss moves into another role or into retirement. BY nEIL AMATo AND SAMAnTHA WHITE

eronica McCann, ACMA, CGMA, has worked in Singapore for 23 years, formerly as a division CFO at the Canadian Imperial Bank of Commerce (CIBC) and Commerzbank, and currently as an adviser for Commerzbank until June 30th. For several of those years, she focused on making sure the next leaders were ready to take her place. At CIBC, she began developing a replacement who grew into the role over a span of four years and has since continued to rise. At Commerzbank, the transition took place over nine months. These successful transitions illustrate how McCann values the use of deputies up and down the chain of command, despite reluctance by some in the organisation to do the same. Here are five tips from McCann on developing the next generation of leaders: 1. Communicate the strategy to your employees. Let your team know the strategy and reinforce that strategy to ensure they’ll make better decisions as managers. Often in times of dramatic change, management can overlook communication and focus on action. Not everyone can follow the action, and they can get disillusioned or frustrated, McCann said. Communication makes the staff feel they have a say in the strategy or an opportunity to voice concerns or fears. “People feel more comfortable working in a company when they feel as informed about everything as they can be,” she said. “So they know what the long-term strategy is, they have a good idea of what the immediate future plan is for the business, and therefore they can help steer it towards accomplishing that and achieving it.” 2. Encourage staff to develop relationships with other

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divisions and regions. One way for future leaders to develop those relationships is to send them out of the home office. In addition to empowering staff to learn how to do things differently, exposure to other areas of the business or other regions gives staff a better understanding of the organisation. An employee on secondment in another country or continent can pass along best practices but also bring back process efficiencies. The leader who has seen and understands, for example, that the issues facing the organisation in Frankfurt are different from the issues faced in Asia is far more valuable than the aspiring manager with experience on just one continent. “If you just sit in your little box and you don’t really see anything else that’s going on around you, then you’re just going to end up doing the same old thing day in and day out,” McCann said. 3. Have a 360 review and learn from it. McCann has learned plenty from her 360 reviews, which encompass feedback from supervisors, peers, and direct reports. She encourages future leaders to take part in such reviews, as long as the circle of respondents is kept small and the questions are relevant to the individual’s role. Such reviews can help identify a weakness that can be addressed through coaching or outside training. For example, an employee might have exhibited knowledge and the ability to provide analysis in small meetings mainly amongst peers. If that same employee has a harder time conveying messages to larger meetings with senior management — because of nerves, speaking style, etc. — the company could invest in coaching from an outside firm to get the employee more comfortable in that type of setting. 4. Make sure you have a deputy and that your deputy wants a top job. McCann made it clear to the u

Photo BY rorY DanIel/aP Images

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Veronica McCann, ACMA, CGMA, a former division CFO at Canadian Imperial Bank of Commerce and Commerzbank in Singapore Summer 2013

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merger in 2008, McCann learned the value of openness and honesty in an effort to keep people motivated and focused during a time when everybody’s job was up for grabs. There would be duplication and therefore layoffs — and her people knew this. But the company needed to retain much of the staff until the integration was complete. So she urged the employees to get the most out of the situation: Look at it as a career opportunity and stay mission-focused. That approach can help employees gain valuable experience, even if they don’t ultimately remain with the company. “You’re probably never going to get this opportunity again to work on such a merger, so you have to think about it from a benefit perspective to your career,” McCann told them.

managers she supervised: You must have someone who can take over your job in your absence. The first step is finding someone who is capable — but also ambitious. There’s a difference between a group of workers who want a job and those who want a leadership role, so managers should have those conversations with staff. Also, managers should not view an ambitious worker as a threat to unseat them. “The threat that you have is not necessarily they’re going to take over your role but that they will move to their next career level and you have to replace them,” she said. Or worse, if the CFO is somehow out of work for months on end, it’s important to have a backup in place. 5. Convey to your direct reports the significance of project work as it relates to their career. After a

Photo BY aDam lerner/aP Images

3 WAYS To kEEP YouR FInAnCE TEAM EngAgED Craig Harnett, CPA, CGMA, who is in his 20th year as CFO of the National Hockey League (NHL), is focused on developing talent within the organisation’s finance function — something he thinks is vital to the success of the league of 30 teams in North America. And for the finance team, that means more than just spending a day shadowing the boss. Here are three strategies Harnett uses to engage his finance team of 44 employees in New York City and Montreal: ■ Better alignment, better analysis. Some companies refer to the concept as “embedding” finance in the business units. Harnett prefers “alignment” between the members of his business analysis group and the business units. One example: Working as part of the events department, the group that organises multi-day productions such as the annual NHL Winter Classic outdoor game or the Stanley Cup Final season-end championship, the finance employee is on-site at events. “Their job is to understand those business units, to work with them closely on their forecasts and business plans, so that everybody understands, when you’re doing a deal, what that might mean for the financial statements,” Harnett said. ■ Working on special projects. Harnett gives newer employees the chance to assist him on projects. The strategy gives him more insight into how the staff member interacts with senior executives and what competencies the staff member possesses. It also provides the employee invaluable exposure to the rest of the organisation. For example, Harnett asked a

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general accounting manager, whose regular duties include reconciling accounts, to analyse the league’s insurance programmes. He had a payroll employee Craig Harnett work with him on benchmarking the league’s medical benefits against those in other industries. ■ Encouraging independent, solution-based thinking. The ability to point out problems is valued, but Harnett wants the finance team to go one step further. “We have people analyse a problem and present solutions, not just walk into their supervisor’s office and say, ‘I have a problem. What should I do?’ ” Harnett said. “When people come into my office with an issue, I expect them to have a couple of potential solutions for those issues. I may have my own view on what the solution might be, but I require them to present their solutions first and to discuss that and understand how they came to those potential solutions before we talk about what I think is right or wrong.” The workers who offer solutions are more likely to be strong analysts. They develop credibility with department heads because they’re thinking through an issue, not just raising one. “They have developed credibility because they can explain or predict successfully what various decisions will mean to [the business unit’s] financial results,” Harnett said. —Neil Amato

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QuIz: ARE You A

RELuCTAnT LEADER? Those who don’t take charge not only limit the effectiveness of their organisations but also curtail their own professional development. BY Ron RAEL, CPA, CgMA

InSTRuCTIonS This self-assessment explains the reluctant leader predicament. By going through the nine scenarios and tallying up your score, you will discover whether you display a reluctance to be the true leader that your company needs you to be. Answer based on how you would most likely behave, not based on what others would want you to do. Then use the self-scoring tool on page 37. 1. You witness an employee who does not work for you engaging in a disruptive behaviour. I would most likely: a. Scold the employee for his inappropriate behaviour right then and there. b. Decide not to get involved since it is another manager’s problem. c. Meet with the employee and talk about professionalism,

hoping that he will get the hint. d. Talk with this employee one on one, letting him know why his behaviour is “out of bounds” and explaining the consequences if he continues to act this way. e. Drop hints to the employee’s boss hoping that she’ll recognise that this employee has gone “out of bounds.” 2. Your boss is intent on you taking on a project that you know for sure will end in failure. I would most likely: a. Accept the assignment without complaint, because my job is to do what the boss says. b. Inform my boss that I would accept the assignment only when she agrees to make specific changes in the plan that helps to ensure success. c. Accept the assignment and complain about this unreasonable boss to my team. d. Tell my boss that I won’t take on this project and cite specific reasons. e. Inform my boss that I simply can’t take on the assignment because I have no time for another project. 3. You are attending a very critical and hastily called meeting that has become disorganised. You notice that many attendees are upset and ready to leave. I would most likely: a. Call for a 20-minute adjournment and during this break sit down with the meeting’s leader to develop a plan to get the group back on track. b. Openly criticise the meeting’s leader for the disorganisation and chaos, hoping the embarrassment created will get people on track. u c. Take control of the meeting.

June 2015

IllustratIons BY IlYalIren/IstoCK

rganisations suffer when employees fail to step up and take the lead on projects or activities or serve as agents for change. If your company is like most organisations, many of those you rely on to lead either refuse or feel unable or unequipped to do so. A reluctant leader is an employee who does not like the label of “leader” or avoids taking charge, even when the need is evident. This reluctant leader does not define himself or herself as an influencer and, because of this, challenges grow into problems because no one steps up to make the situation better. If you are reluctant to take charge even when you are expected to, you limit yourself and prevent advancement. What’s worse is that you acquire a reputation as being ineffective. Take this assessment to determine how much your reluctance shows — and learn strategies to overcome it.

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d. Leave this meeting, because my time is valuable. e. Offer a suggestion that could help the group get refocused. 4. A routine or process on your company website is failing, and you are noticing a growing number of complaints from customers. The website is the responsibility of the IT manager. I would most likely: a. Take my concerns to the IT manager’s boss. b. Send an email to the website’s manager about the growing number of complaints. c. Direct a technology-savvy employee whom I trust to fix the problem quickly before any more complaints occur. d. Send a complaint about the problem through the website’s “contact us” screen. e. Conduct a quick assessment and meet with the IT manager to create a plan and timetable for fixing the problem. 5. You uncover a battle of egos between two front-line supervisors. Their dispute is making their employees tense, upset, and unproductive. These two people are at a level below you on the organisation chart, and you don’t have much interaction with them. I would most likely: a. Talk to the employees of these two supervisors and ask for their patience while this issue gets sorted out. b. Set up a meeting with the two supervisors and invite the CEO to it, then pass the hot potato to her. c. Talk to each supervisor privately about my concerns and then invite to meet with them together to create peace. d. Since it’s just office politics, allow the two to battle it out. e. Complain to the CEO about the two knuckleheads and the problems they are causing. 6. Your company CEO, a tenured and seasoned veteran, engages repeatedly in a disreputable activity and thinks he is discreet, but his actions have become the butt of employees’ jokes. He is quickly losing their respect. I would most likely: a. Gather a group of executives together to have an intervention session with the CEO. b. Add my latest story to the rumour mill. c. Take the issue up with the CEO’s boss, the chairman of the board. d. Tell employees to stop spreading rumours about the CEO. e. Invite the CEO to lunch, tell him my concerns, and listen to what he has to say. Even if he denies the situation or claims it’s nobody’s business, I would explain the impact he is having on the culture. 7. Your company has a policy forbidding employees to use a mobile phone or other device while driving a company vehicle.

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Yet you have witnessed certain delivery drivers repeatedly getting on their mobiles the minute they leave the company parking lot. I would most likely: a. Just hope that the drivers’ boss notices and deals with the situation, since I have nothing to do with transportation or safety. b. Report the problem to the company’s safety manager. c. Collect specific examples, then meet with the heads of the safety and transportation departments and work with them to brainstorm solutions. d. Take photographs of the culprits and send the photos anonymously to the head of the transportation department. e. Write a memo to the executive team and ask them to step in quickly before an employee causes an accident. 8. The management council has been going back and forth over two different goals for this year’s strategic plan. There is not enough money in the budget to take on both projects. Four members of the council favour goal A, while four other members favour goal B. You are the deciding ninth vote. I would most likely: a. Vote for my own preferred goal, which was not considered. b. Facilitate a session using a specific decision-making tool that could end the deadlock or allow new insights to enter in the decision process. c. Abstain from voting, knowing that I will be criticised no matter what I do. d. Attempt to reach a compromise between the two factions. e. Vote for the side that will most likely respect my vote. 9. Employee morale is at an all-time low. Despite some positive trends, everyone on the management team is focused on what’s going wrong instead of what’s going right. This negative attitude is scaring employees. I would most likely: a. Take my concerns to the executive council and offer specific ideas that could get employees optimistic about the future. b. Send an anonymous email to the CEO expressing my concern about worsening morale. c. Over coffee, complain to those colleagues whom I trust. d. Bring up employee morale as an agenda item at the next management team meeting. e. Keep my head down and focus on my job. ■ Ron Rael (ron@highroadinstitute.com) is CEO of the High Road Institute, a leadership development organisation in Sammamish, Washington. He is the author of the CGMA book The Traits of Today’s CFO: A Handbook for Excelling in an Evolving Role.

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SCoRIng TooL Circle the points awarded for your answer to each scenario. Total each column and add together for your combined score. Answer selected Scenario:

Disruptive employee

3 points

5 points

2 points

1 point

4 points

Poorly designed project

Disorganised meeting

Website failure

Supervisor war

CEO’s bad behaviour

Driving and texting

Deciding vote

Morale problem

RESuLTS oF YouR SCoRE The higher your score, the more likely you are reluctant to lead. ■ 36 to 45 = You are definitely reluctant to use your leadership authority to influence others to behave in ways that help your organisation. ■ 26 to 35 = You have a tendency to avoid living up to your obligation to stop employees from going “out of bounds.” ■ 16 to 25 = You occasionally use your leadership authority to help make things work better in your company. ■ 9 to 15 = You understand true leadership and use your influence to produce positive results.

TIPS To IMPRoVE YouR RESuLTS Courage is required to be a good leader, but leaders are not perfect, nor do they need to be. Some of the scenarios presented in this assessment would intimidate even the most experienced leader. This test gives you a baseline for your confidence level right now. By taking charge more often and being more influential, your level of courage will rise. Here are some actions that can help turn your desire to influence into the courage you need to do so. Each action will reduce your reluctance.

HIgH AMounT oF RELuCTAnCE (34 To 45 PoInTS) You must be courageous, believe that you can lead, and believe that you are expected to influence others. Be on the lookout for work and personal situations where you need to assert your convictions. Remember, you are encouraging people to take an appropriate path, not scolding or chastising them. Another strategy is to seek out a leadership mentor for support.

MEDIuM AMounT oF RELuCTAnCE (22 To 33) You have a basic understanding of leadership but need to practise it more often. Look at those issues where you are reluctant, and commit to being a bigger influence and better role model. Before you attempt to assert your influence in high-exposure situations, write out or practise what you will say. Run your thoughts by a mentor for advice and suggestions.

LITTLE To no RELuCTAnCE (9 To 21) Your next step is to find people in your organisation who are reluctant to lead and mentor them to follow your example. Each time you see an emerging leader holding back on taking charge of a situation, take this person aside and offer encouragement and advice. Role play to show how he or she could be more assertive in influencing an outcome.

June 2015

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8 BeSt PracticeS for aligning Strategy, Planning, and riSk Providing effective governance presents boards and management with a formidable challenge. Here’s how one company does it. BY Joanne Sammer; kenneth W. Witt, cPa, cgma; AND Paul r. Bacon, cPa, cgma

uccess in business is influenced by many factors: effective strategy and execution; deep understanding of the business environment, including its risks; the ability to innovate and adapt; and the ability to align strategy throughout the organisation. Massachusetts Mutual Life Insurance Co. developed a framework to address such factors. The “Pinwheel” (see Figure 1) illustrates how the CEO and other executives work through the company’s ongoing strategy and financial planning and analysis (FP&A) process at the enterprise level while subsidiary and business unit leaders work through their

PHOTO BY IPGGUTENBERGUKLTD/ISTOCK PHOTO BY JOHN JamES/aP ImaGES

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own process. It is essential that the two groups exchange information — the ultimate goal being that all parts of the organisation are aligned.

the maSSmutual PinWheel ProJect MassMutual, as the company is called, is a private, memberowned U.S. provider of life and health insurance with more than $650 billion in assets under management. While the company has been around a long time — it was founded in 1851 — it is by no means staid in its approach to business success. When the 2008–09 financial crisis began to recede,

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MassMutual emerged stronger than many competitors. The experience convinced company leaders that more formal governance around strategy and risk was needed, including greater transparency and improved alignment between financial and strategic planning. The company had an effective strategic planning framework. But it needed a better ability to evaluate business intelligence and assess the potential impact of strategic opportunities and risks. So it began developing the Pinwheel to help the organisation become more strategically agile and aligned. There are many strategic governance frameworks out there. MassMutual wanted one that met its unique needs, culture, and existing processes. The final framework design is based on best

practices and competitive intelligence gleaned from interviews with other companies and consultants. The Pinwheelâ&#x20AC;&#x2122;s development started with the CEO creating new strategy and corporate development (SCD) and enterprise risk management (ERM) functions reporting to him with a mandate to create a governance framework. The SCD and ERM teams now serve as go-betweens for subsidiaries and the strategic aspirations of the CEO and board. The SCD team is intentionally eclectic, bringing in different points of view to build an effective process. The SCD and ERM teams rotate their talent pools every three to five years, moving to new positions in the business units, becoming key leaders, and promoting the Pinwheel process concurrently. u

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making the PinWheel function

the PinWheel in action

To develop the Pinwheel framework, MassMutual focused on keeping strategy aligned with risk and reward. By increasing the focus on strategic risk management, the SCD and ERM teams have shown how driving strategy in one direction enables organisations to quantify and manage significant risk. When the Pinwheel process began at MassMutual, the CEO led the way, and two of its ten business units were immediately on board. There was also much discussion about the framework and about the degree of implementation by each subsidiary. This interaction amongst company leaders led to important changes, including an effort to simplify the framework and create a sense of ownership amongst users. To reinforce the culture, the CEO gathers senior corporate and business unit leaders off-site three times a year. As well as fostering transparency, teamwork, and alignment, this ensures that the resulting information reaches the board of directors in time for its meetings. In effect, this creates a consistent cadence for leaders to run the Pinwheel for their businesses and provide information to the SCD and ERM teams before each off-site meeting. The result: The leadership team is more engaged in what the company’s businesses are doing, not just divisional priorities. This makes them more collaborative and informed leaders. This helps foster a more unified brand and culture across the organisation.

Once the financial crisis eased, MassMutual’s Retirement Services division launched a line of stable-value funds in collaboration with Babson Capital Management LLC, a subsidiary. This expansion met two key customer requirements: the need for more choice and more stability in investment funds for retirement. The response was overwhelming, exceeding the $4 billion sales target by 50%. But the success and reward were not without risks. To identify liquidity and market risks arising from this new offering, MassMutual turned to the Pinwheel. The result highlighted the need for important risk-management actions, such as managing sales volumes with the risks to which these product offerings expose MassMutual. Here are eight steps for implementing a similar framework.

SteP 1: evaluate BuSineSS intelligence A sound understanding of global business conditions and trends is fundamental to effective governance and planning. One widely used tool for conducting a thorough review of the external factors having potential impact on the business is a PESTEL analysis: political and regulatory, economic, social and consumer, technological, environmental, and legal. Another key element of the business intelligence process is to consider what actions the company can take to influence regulation that might affect its brand.

SteP 2: refine Strategic PurPoSe and viSion

key StePS to take Before imPlementing a PinWheel frameWork ■ Understand how formal governance aligns strategy with risk and reward. ■ Initiate a formal process for implementing the framework based on the organisation’s culture. ■ Reinforce the desired culture and cascade “topdown” to subsidiaries. ■ Create incentives for leaders to support and adopt the process and framework. ■ Align with performance and enterprise risk management (ERM) best practices. ■ Build in significant collaboration between CEO and subsidiary/business units. ■ Clarify the management accountant’s role in each step. Note: The Pinwheel process at the CEO and subsidiary level took MassMutual 24 months to implement.

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For MassMutual, this is an opportunity to influence and revise its purpose, vision, strategic priorities, and aspirations — keys to the enterprise strategy. MassMutual defines its purpose as: To help people secure their future and protect the ones they love. Its vision: To be the best company in the industry based on superior financial strength, high dividends, and delivering a high-quality customer experience. Consistency and clarity of purpose and vision are important, but so is professional scepticism.

SteP 3: define goalS and aSPirationS Examples of MassMutual’s 2020 aspirational goals include: 1. Serve 10 million customers. 2. $1 trillion of life insurance in force. 3. Become a top-five retirement plan and life insurance provider. 4. Have a cost structure (combination of selling and administrative expenses) in the top quartile in the industry. 5. Surpass 90% of employees proud to work for MassMutual.

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FIGURE 1: the maSSmutual PinWheel frameWork

ceo and executive leadership Process economic, sector, and consumer trends

measure/evaluate strategic performance

* enterprise strategy still relevant?

additional disruptive/innovative initiatives?

modify aspirations and metrics

critical initiatives ceo and team discuss

Subsidiary and Business unit Process

evaluate trends

* Business strategy still relevant?

update weekly dashboards

modify assumptions and aspirations

measure and monitor

Build funded initiatives into three-year plan

Prepare base and stress scenarios Seek funding of initiatives

* Enterprise strategy drives subsidiary and business unit strategy.

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Long-term aspirations are also a key catalyst for disruptive and innovative thinking beyond what is known as “momentum growth” embraced by most strategic-planning frameworks.

SteP 4: develoP Strategic PrioritieS Strategic priorities set by the CEO and leadership team become the pillars universal to all subsidiaries that set in motion the drive to achieve the aspirational goals. All subsequent operational or tactical planning and resource allocation is based on promoting these strategic priorities.

Examples of MassMutual’s strategic priorities include: 1. Relentless customer focus: a deeper understanding and connection to the customer. 2. Enhanced distribution: reaching broader market segments in innovative ways. 3. Collaboration and solution development: innovation to serve new and existing customers and distributors. 4. Brand and cultural alignment: a high-performance culture that embodies capabilities as well as integrated branding and customer experience.

FIGURE 2: tyPical Board information requirementS for Strategic overSight Topic

Minimum frequency

Situation analysis Industry information and trends (key success factors) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Competitor intelligence (major initiatives and positioning) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory, political, and economic information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technological forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Competitive positioning of the company — benchmark (major share, pricing, quality) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strengths and weaknesses analysis of the company (including functional — eg, employee retention and turnover and R&D investments) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reports on major risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy formulation Report on major capital expenditures, acquisitions, and divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual strategic plan (corporate, major business segments) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating plans (major functional supporting initiatives) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternate strategies considered and rejected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Five-year strategic plan (long-term corporate strategy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annually Annually Annually Annually Annually Annually Annually

As required Annually Quarterly Annually Annually

Implementation process Reports on major policies/management systems and organisational structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annually Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annually Evaluation and control Progress report on strategic plan — reports on operating variances (deviations/shortcomings from original plan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Progress report on major capital expenditures, acquisitions, and divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reports on financial performance (for every major business segment of the company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reports on corporate operating performance (eg, productivity or quality data) for every major business segment of the company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Source: Governing for Performance, CGMA 2012.

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Quarterly Quarterly Quarterly Quarterly

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Strategy and planning is a dynamic process, and disruptive innovation is essential for cultural change and strategic agility. Management and the board must continually consider new initiatives that may contribute to achieving the organisation’s long-term vision and aspirations.

SteP 5: identify critical initiativeS MassMutual identifies those critical initiatives that are the most important and ensure alignment to purpose, vision, and aspirations. Some of these initiatives will be sponsored by the CEO to ensure they are funded and managed. Important considerations for this step include: ■ Which initiatives and investments are critical for the successful execution of our strategy and achieving our performance objectives and long-term goals? ■ What are the key non-financial metrics that drive performance? Relevant non-financial indicators might include customer satisfaction or market penetration. ■ What strategic, operational, and compliance risks are associated with these initiatives?

SteP 6: integrate ProJectS, oPerating PlanS, and BudgetS Detailed projects are then incorporated into the three-year operating plan and one-year budget to monitor and track performance. Important considerations for this step are to: ■ Determine key project milestones, measures, and owners. ■ Define metrics for financial and non-financial performance indicators. ■ Align incentives with the achievement of financial and non-financial performance targets. ■ Identify key risk indicators that need to be monitored. ■ Establish sound ERM practices across the company (operating risk). The SCD team then compares the trajectory of these plans to long-term aspirations and industry and competitor outlooks. Gaps are identified and communicated to the leadership team and become an off-site agenda discussion. The partnership between the FP&A function, the ERM function, and the CFO comes strongly into play at this stage. This is when assumptions, underlying plans, and projections are tested by developing “base,” “best,” and “stress” scenarios.

SteP 7: monitor critical initiativeS Evaluation and monitoring to manage risks and the overall impact on the organisation is an ongoing process. MassMutual’s expansion into the stable-value business exemplifies this step in action. For MassMutual, monitoring is a continuous, multi-layered process. In addition to quarterly monitoring of progress against the three-year operating plan and one-year budget, the

company has initiated bottom-up “huddle boards” that provide critical information across all levels of the organisation.

SteP 8: aSSeSS Strategic Performance Effective governance requires a tailored information strategy for the executive leadership team and the board of directors (see Figure 2 for factors the board should consider — and how frequently — to assess strategic performance). This should include: ■ Essential information needed to monitor and evaluate strategic execution of the organisation. ■ Risks to the achievement of long-term objectives. ■ Risks related to conforming to compliance and reporting requirements. In assessing strategic performance, it is critical to separate performance into “management actions” and “external actions”. If management is executed flawlessly, yet the stock market or interest rates do not perform in line with the plan’s assumptions, it is important that leaders have this knowledge. Conversely, strong markets may mask areas where management actions are in need of evaluation.

the management accountant’S role Regardless of whether the organisation follows a Pinwheel-like framework such as the one MassMutual uses or some other approach, management accountants have an important role to play. Whatever framework the company chooses, the focus should be outward as well as inward. By looking at external factors, management accountants can identify what customers want, where competitors are operating and expanding, and whether the company’s strategy is aligned with the resulting demands. Management accountants can also play an important role in aligning and integrating various functions within the organisation to smooth the planning process. For example, integrating the ERM, FP&A, and budget functions can help to manage risks effectively and to allocate limited capital more quickly and efficiently. Finally, management accountants need to ensure that any model their company uses is resilient enough to accommodate changes and stress. Will the model be relevant when the company grows or contracts following mergers, acquisitions, or spinoffs? The model must have the flexibility to deal with change in an appropriate way. In many cases, such changes are to the company’s benefit — the model must be able to recognise that and adjust accordingly, in alignment with the company. ■ Joanne Sammer is a freelance business journalist; Kenneth W. Witt is an AICPA technical manager for management accounting; and Paul R. Bacon is vice president and chief underwriter at MassMutual.

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FP&A CAn HelP Guide tHe Journey James Miln, ACMA, CGMA, has spent years helping tech giant Yahoo forecast revenues and costs. He shares his tips on how companies can improve the effectiveness of their financial planning and analysis teams. BY JACk HAGel

hief financial officers have become more focused on shaping and governing strategy in recent years. They have made the evolution with the help of financial planning and analysis (FP&A) professionals, who work closely with the C-suite to ensure the strategy is carried out, risks are avoided, and opportunities are recognised ahead of the competition. James Miln, ACMA, CGMA, has played a key role in that type of relationship at Yahoo, where he is senior director of investor relations. Prior to his current role, he served in various positions involved with FP&A or business partnership, supporting the company’s forecasting of revenues and costs, building analytical models to improve accuracy of forecasts, and working closely with data and reporting teams. “One of the challenges is ensuring that we identify the most important and relevant pieces of data that can help drive the understanding of our financial results,” he explained. “I’ve always been very focused on translating the strategy of a company or a business unit into execution and very passionate about that.” Miln spoke with CGMA Magazine about the evolving role of FP&A and offered tips on how companies can improve the effectiveness of their FP&A teams. Here’s an edited transcript of the conversation:

today and the quantity of data that we have to deal with. On the finance side, having the skills to cope with the amount of data that we have — not just the traditional financial data, but the full enterprise data and then potentially what is called Big Data — is an area that we have to grapple with and become experts in. And accompanied with that is having the right talent and the organisational structure in place, ensuring that there are people within the finance function who are able to deal with this data, and also that we’re organised to be able to partner with the business correctly. We have to make sure that finance is very proactive and confident about its role in supporting the business across all types of decision-making, because at the end of the day they all have a financial impact.

What are the obstacles to the FP&A group within an organisation becoming a true business partner? I’ve seen two major obstacles: The pace of change that there is

How would you advise companies to overcome those kinds of obstacles? A big part of it is leadership from the top, so that the CFO

PHOTOs BY AlisOn Yin/AP imAges

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James Miln, ACMA, CGMA, says finance professionals demonstrate their value by being a partner at every step in the business.

and his or her leadership team really recognise the challenges there are in dealing with the amount of data and the high pace of change in business today. We have to be able to adapt it to an environment where data is perhaps not all in one system or we have to be quicker at aggregating it from those different systems. Having talent that is able to deal with that level of uncertainty, but also having the skills to be able to deal with data today is key. The leadership from the top can ensure that the finance function is looking for that talent and developing those sorts of skills within our organisation as well. And the other point is about making clear decisions about where youâ&#x20AC;&#x2122;re going to allocate your resources and that you think it important enough to have roles that deal directly with the challenges of dealing with data and the decision-making that needs to be done in the business. What are the pros and cons of centralising FP&A professionals versus having them decentralised, more visible to other business units?

A big decision to make is how much centralisation you want in your finance team versus having your finance team and leads sitting with their business partners. There are times when it makes sense to centralise more, and there are times when it makes sense to get more people focused with their business partners. It is important to consider the scalability of what youâ&#x20AC;&#x2122;re trying to do in supporting the business. Centralisations can help in dealing with data, being able to pull it into one place, and having the talent and the structure in place to be able to focus on standardising key reporting, key metrics, being aligned very much with the strategy and with the C-suite. At the same time, if you do too much of that, then the trust finance has outside of that central location can be much lower. And in terms of your day-to-day ability to influence decisionmaking by the operators, you can lose touch. So you need to balance, and sometimes itâ&#x20AC;&#x2122;s been the right decision to try and move some roles more centrally for a while to focus on getting the standardisations, potentially globalisations depending on u

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the company, and get one source of truth in place. But once you’ve gone through a period of that, I think it’s very helpful to then try and get back out and do more customisations and closer partnering to continue to build trust so that finance can influence more decision-making. Why is it important for those in FP&A to build trust? Our role is about supporting and challenging leaders’ decisionmaking. We can’t quantify all of the scenarios that can occur. And in that situation you want to both support the belief of where the company can go, but you also need to be a bit more of a realist and challenge the key assumptions, make sure that we’re not deluding ourselves whilst also aspiring to something much better than where we are today. So you need to earn that trust with that leader, so that they’re not looking at finance as being the police, but you can also be part of that creative process about where the company is going to go. How can FP&A professionals or the FP&A function demonstrate the value it provides a company? The best way to do that is to just be on that journey with the senior leadership, whether that’s the C-suite or the senior leader that you’re supporting. From developing the strategy at the beginning, following it through to the goals you’re putting in place, the measurement against those, and really following through with the postmortem and the analysis afterwards of how that went. If you can be with your business on every step of that journey around — from strategy to execution — your value is demonstrated because they know that you’re with them in terms of supporting their vision and where they’re trying to drive the results. Then they’re willing to listen to you when things have gone worse or better than expected to learn from that experience.

competition have — and the ability to extract value out of that data — has driven the most change in the last five years and will also do so in the future. This is data beyond what you would just need for your financial transactions, but what is sitting within your company about your customers, about your users, about your suppliers, about what’s going on out there — the ability to extract value from that is going to be increasingly a competitive advantage. And if your finance team does not have the skills going forward to be able to leverage that, then you put your company at a disadvantage. Finance must be proactive in playing a role here. Finance does not necessarily own all the data, but needs to judge what’s important about the data available, and so select what best informs the strategy, the plan, and the execution. How else can FP&A professionals help make a business more agile in its decision-making? And which skills must they develop to help an organisation do that? FP&A teams need to be very conscious about the cycles that are impacting our businesses and our competition and respond to those in a very flexible way. It may have been good enough before to have a very regular cadence. Maybe every three years you did a three-year or five-year strategic plan and then refreshed it every year or two, and then had a certain cadence around the annual budgeting and forecasting. I think we need to be a lot more selective going forward and think about, for every business driver that there is, what is the right cadence to be looking at that? So I think we have to be flexible ourselves in driving the core FP&A processes, but with responsiveness to what’s going on in the business. Think about which of the lines have the most volatility and then think about the drivers that you need to be monitoring, and focus your attention on those and be comfortable with a level of uncertainty — and that you don’t need to do everything all the time. Otherwise finance would just be inundated with too much data and too many tasks. We have to realise what we don’t need to do in order to be most effective at supporting the business and being more agile. ■

“Our role is about supporting and challenging leaders’ decision-making.” — James Miln

How has the role of FP&A evolved in the past five years, and where do you see FP&A headed in the next five years? Whether it’s online, where it’s more obvious, or whether it’s in steel-making or chemicals, the data that you and your

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Finding the

extrOvert Within

Oral Dowell, CPA, CGMA, the founder and CEO of Dowell’s Advisory Services Inc. in Barbados.

To meet the growing demands of the role, finance professionals must learn to be comfortable communicating critical information — with a microphone in hand.

PHOTO BY TOm DiPace/aP ImaGeS PHOTO BY JOHn JameS/aP ImaGeS

BY neil AmAtO ral Dowell, CPA, CGMA, is an introvert. It’s not his nature to speak up in small groups. He covets quiet time alone. When moving into his new house about 15 years ago, he had the building plans flipped, putting the garage away from the road so that people wouldn’t know if he was home in case they wanted to drop by unannounced. It dawned on him early in his career, though, that these traits weren’t going to get him very far. So the quiet man from the Caribbean island of Barbados embarked on a personal

journey to transform himself into a more outgoing person. His metamorphosis is likely to resonate with many finance professionals. Accounting often comes up in lists of top careers for introverts, but those lists tend to belie what today’s finance professional is being asked to do: effectively and confidently communicate critical information across the chain of command. “Accounting and finance professionals have gradually assumed increased visibility, expanded roles, and greater influence within their firms over the past several years, making soft skills an essential competency today,” Max u

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COming Out OF the Shell Oral Dowell’s transformation from full-time introvert to occasional extrovert didn’t happen immediately, and it came with practice. “I am an introvert operating on an extrovert stage,” he said. “You have to go out there and perform.” Here are a few tips he offers for finance professionals to emerge from their shell: ■ First, define what you want: Before deciding you need to change, you must first decide why it is you’re trying to change. “What are the results you want, not in your head, but in the pit of your stomach,” he said. “You cannot vacillate.” ■ Decide that you are more than you think you are: You were hired for your expertise, but that expertise does neither you nor your organisation any good if it is not shared. Dowell said finance professionals must make up their minds, not in a boastful way, that they can overcome any introversion that is holding them back. “You must believe in yourself,” he said. ■ Know the organisation, know the material: Dowell never would have had the confidence to speak up in meetings if not for his full knowledge of the operation. “You have to understand your subject matter and research it thoroughly,” he said. “You can’t take any shortcuts. And once you do that

Messmer, chairman of staffing firm Accountemps, said in a news release. CFOs say poor interpersonal skills are the top reason for an employee’s failure to advance in the company, according to an Accountemps survey. But while CFOs increasingly recognise the need for soft skills training, they’re still not likely to offer it to employees. In 2013, just 19% of CFOs said they would likely offer interpersonal or communication training. Dowell believes his career in finance, and his position as CEO of a business consulting firm in Barbados, never would have been possible had he remained the person who never spoke up in meetings or shied away from the microphone. “I made a decision that I have to either go forward or stand still,” he said. “And standing still was not an option for me.”

Stepping up Dowell’s journey shows how one can improve communication and presentation skills in the absence of training. It just takes practice and an iron will to succeed. His story starts in Barbados in 1984. He was working as a financial analyst at Caribbean Data Services Ltd., a subsidiary of American Airlines. It wasn’t going very well. Dowell felt underused and was ready for a change. Days after he

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research, it builds that confidence within yourself.” ■ Prepare for public presentations: “In terms of an actual presentation, one thing I do — and would suggest that anybody do — is sharpen your mind,” he said. “You have to sharpen your mind from the point of view of practising before the session. If something goes wrong with the slides or electricity goes out, you have to show that you could still command the audience’s attention with your knowledge. So you have to be able to have it in your head and be able to deliver it with confidence.” ■ Calm your nerves: If you come off as nervous, your audience will know it. Dowell suggested reminding yourself that you are the expert and know the material very well. ■ Involve the audience: “My technique is to disarm me by disarming them. I would drop in a question at the start. Say it’s a seminar on personal financial planning. I ask them, ‘Why are you here?’ It catches them off-guard, and they pause to think about their responses. You can see them physically relax. Then I say, ‘The people who don’t look at me, those are the people that I will call upon.’ It disarms them, and it helps me.”

announced he was resigning, his boss, a controller who was in the position only temporarily, offered his job to Dowell. Dowell accepted. Six months of training followed, including visits with his departing boss to US cities that housed American Airlines’ ticket offices. The Barbados site was where all of the airline’s used paper tickets were sent for data entry, record-keeping, and archiving. The ticket offices in the US were where those tickets came from and where Dowell was exposed to the operational side of the business. “Each trip he took me on, I would not participate in the meetings’ discussions,” Dowell said. “He would do all the talking.” Four months into the training, the boss, Larry Rednour, had had enough and gave Dowell an ultimatum: Break your silence or risk losing the job. “I said, ‘You’ve either got to step up, or you’re going to get left on the curb,’ ” Rednour recalled during an interview. “I knew he was capable, but I don’t think he connected the dots as the clock ticked down and I was going to be leaving that it was going to be his responsibility to make contributions.” Dowell finally mustered the courage to break out of his shell. “I psychologically had to bring everything that was against my natural instincts out to be able to transform myself,”

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he said. The change began as a trickle — questions here and there in meetings. The best way to get the confidence to be a leader was to know everything he possibly could about the business. He had to learn about operations, payroll, and quality control. “I had to get my hands dirty and see how all of those operational segments fed into financial reporting,” Dowell said. He cited one meeting in particular, at an American Airlines data-processing and payroll centre in Tulsa, Oklahoma, in the mid-1980s. Anyone who had anything to do with American Airlines’ ticketing, data entry, payroll, and related administration that affected the company’s financial performance was there, most with a vice president and a second in command. The meeting included Dowell, flying solo as the controller from Caribbean Data Services. Rednour, who had returned to work in the US and was no longer Dowell’s boss, also attended. When the meeting started, Dowell began discussing the issues and challenges he saw. He was challenged in the meeting by the VPs, who would disagree with Dowell’s statements and then turn to their second in command to look for confirmation that their viewpoint was correct. But the backup never came; it was Dowell who was correct on each issue. Rednour, recalling the meeting nearly 30 years later, was amazed. “Being able to observe Oral in command of the department and representing the department in a big meeting — yeah, it was a bit surprising,” Rednour said. “It was great to see.”

“it’S ShOWtime” Dowell thinks of leading a meeting as a lights-camera-action moment. “Pull the curtains; it’s showtime,” he said. “And when I come off stage, I then go back to who I truly am characteristically.” Over the years, Dowell honed communication skills by putting himself in uncomfortable situations. As the controller at Caribbean Data Services, he would give periodic staff updates on the financial side of the business, speaking to more than 1,200 shift workers. He also said that training books, such as The 7 Habits of Highly Effective People by Stephen Covey, were instrumental in helping him think beyond the numbers and more about interacting with people. Dowell decided about 14 years ago to go on his own, starting Dowell’s Advisory Services Inc. and offering accounting services and consulting to businesses in Barbados and other Caribbean islands. He enjoys having his own company because he doesn’t have to be around large groups very often. But he is still a regular speaker at finance events — even if he still gets a little nervous before each one. ■

the devil in the delivery Marjorie North, an instructor in public speaking and executive communication skills at Harvard University, offers four key principles for more effective speaking in front of a group: Be adaptable: It’s not about you giving a speech, it’s about you communicating a message, whether it’s to 100 people or 1,000 people. Notice feedback and adapt your message to it. For example, if you see people falling asleep or paying more attention to their handheld devices, you might want to inject humour into the presentation with a joke or ask your audience a question. If you see confused looks, back up and explain a topic more thoroughly. Know your audience: In advance, ask as many questions and do as much research as you can. If you fully understand your audience, it’s far easier to tailor your message. For example, if you are speaking to a group of finance professionals, that might not be enough detail. Early-career professionals want to hear about different issues than established professionals would. Organise your materials: Know that your content is easy to follow. Using an outline makes a presentation clean and more easily understood. Practise what you’re going to say, but don’t try to memorise it. If you get up on stage, get nervous, and suddenly forget, that can be disastrous. Strive for maximum impact: North said the human brain will start to wander after 20 minutes, so it can be challenging when you’re scheduled to speak at a conference for an hour and 15 minutes. Keep words on slides to a minimum, which eliminates the chance that you will read your slides. Instead, go for pictures and tell stories related to those pictures. Aim to get across no more than five key takeaways. “You want to make sure they remember the points that you want them to remember.”

June 2015

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How to IdentIfy RIsks, oppoRtunItIes tHRougH

scenaRIo plannIng BY ken tysIac

cenario planning can help companies identify both risks and opportunities to drive more effective business decisions. Forecasting expert Steve Player, CPA, CGMA, North American programme director of the Beyond Budgeting Round Table, provides advice on how companies can use scenario planning to maximum effect:

IllustratIon By artQu/Istock/thInkstock

■ Go beyond just considering the best- and worst-case scenarios. “By planning not only for what you think is the most likely thing to happen, but [also identifying the incremental] up scenarios and down scenarios as well, you get a range of different actions that pre-think what you would do.” ■ Plan for best and worst scenarios outside the range of possibility. “We recommend four to seven scenarios. We want one so good that you can’t spend all the money you’re making, and one so bad that it threatens your very existence. … In thinking through those things, your planning department will come up with ideas that spur further innovation and further growth.”

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■ Use the worst-case scenario to identify opportunities to free up cash. “In a downside scenario, you usually have to free up cash. You have to sell idle assets to raise cash to weather the downturn. Well, in a normal year, why don’t you sell some of those idle assets to develop the cash to invest in some of those upside potentials? And then you can grow faster and never run into those kinds of troubles.” ■ Develop early warning systems. “Begin to think about the leading indicators of whether those possibilities are coming through, whether you can grow faster or do enough to defend and protect cash flow to finish executing your plans. So you look for those leading indicators, and they tell you which way to go.” ■ Develop a playbook. “It’s like a sporting team analogy. A playbook is a series of [actions] you’re going to do [in certain situations]. If this happens, here are the things you can do to counteract it. Or, here are the things you can do to take advantage of it. Scenario planning is not just about downside risk, it’s about upside opportunity.” ■

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