Excellence in leadership: issue 2, 2011

3 Excellence in leadership | Issue 2, 2011

FOREWORD

Cover photography: James Wojcik/Trunk Archive. This page: Illustration: Masao Yamazaki/Dutch Uncle

People and performance lexibility is one of the key requirements CIMA’s expert in continuing professional development, for today’s businesses. The dramatic discusses the benefits of this new synergy and how some change in the operating environment of BPOs are now using their broad knowledge of business organisations over the past two decades activity to help companies steer their finance personnel means that businesses and their towards higher end, value-added areas (p50). employees have to respond to Companies often say that people are their greatest asset, a constantly changing landscape. In this but is it really possible to measure their contribution to the issue we argue that to keep ahead of the bottom line? Mark Poole, CFO of the Virgin Group, describes competition, organisations in both the how a cultural change programme not only improved staff public and private sector must ensure morale, but increased customer satisfaction (p8). In the same that they regularly review their methods for attracting and article, Dato’ Kamarudin Meranun, deputy group CEO of developing first-class talent. low-cost airline AirAsia, explains how tracking human capital Globalisation and the rapid development and accessibility measures and having an open door policy fosters loyalty from of new technology have led to increased opportunities and both employees and customers. challenges. But fast-evolving product development can only When it comes to the nitty-gritty, CIMA is helping to create short-term advantages – provide businesses with the right imitators can move in and crowd the toolkit to meet future employment marketplace. To thrive in the long term, Companies often say that people challenges. Recent research funded by organisations need to constantly are their greatest asset, but is it the institute examined how a strong transform themselves, and this requires really possible to measure their collaboration between finance and HR a strong and committed talent base. contribution to the bottom line? functions drives improved business Not only is the business performance. Reza Kouhy, professor environment changing, so too are the of accounting at the University of attitudes of the future business leaders who are now entering Abertay Dundee, looks at how this relationship can improve the job market. Former Entrepreneur of the Year Peter decision-making, increase cost savings and enhance Sheahan explains why Generation Y is providing new organisational and financial performance (p25). dynamics for businesses to consider (p21). Sheahan discusses As we move into the final quarter of 2011 it’s a good time to how “sideways ladders” and new working models can attract reflect on what has been achieved so far and what more can be a web-based generation that can be very fickle . done to provide the kind of stimulating environment that New technology is enabling companies to tap into the best appeals to business high flyers. I very much hope that the and most affordable talent across the globe. This flexibility has articles in this issue of Excellence in Leadership will provide led to a new phenomenon – the “Martini worker”, who, rather some inspiration to help your business reach stellar heights of like the ‘seventies advertising slogan, can provide support “any success when it comes to recruitment and retention. time, any place, anywhere”. But academics Andrew Rothwell and Ian Herbert warn that the growth in shared services centres has led to a talent bottleneck and careful management is needed Charles Tilley, in terms of continuing professional development to ensure that chief executive, rising stars don’t move into rival orbits (p34).

CIMA Business process outsourcing (BPO) is another rapidly maturing market as firms look for cost-effective, high-value support. Outsourcing provides an ideal opportunity for organisations to give their finance professionals the freedom to focus on adding value as business partners. Ana Barco,

Excellence in Leadership is the official publication of CIMAplus. For more information visit: www.cimaglobal.com/cimaplus

5 Excellence in leadership | Issue 2, 2011

CONTENTS Valuing talent Is it really possible to measure your staff’s impact on the bottom line? p8

Road to business leader The route from finance professional to global business leader p14 3 Foreword 6 Vital statistics

Human capital

8 People power Finance and strategy chiefs from Virgin Group, AirAsia and Kraft discuss the link between good people and company performance.

14 Future stars Lessons from Autonomy CFO Sushovan Hussain on making it from management accountant to business leader.

Banking on mobility Why the strategic benefits of staff mobility outweigh the costs p36 25 Partners for success How better collaboration between HR and finance can drive improved business performance.

29 World-class business A new CIMA report looks at the ingredients for success.

30 Gender agenda Three business leaders discuss the use of quotas to ensure more women make it to the boardroom.

18 Replacing talent The costs of retention and replacement.

34 The Martini workers Are the highly skilled finance professionals of today really able to work any time, any place, anywhere?

21 Generation Y How to tie down young, fickle and restless talent.

36 Going mobile HSBC’s Tracy Figliola, head of the bank’s global mobility

programme in Europe, the Middle East and Africa, discusses the benefits of employees working overseas.

40 London calling A raft of Chinese firms are moving their operations to the English capital.

So what’s attracting them and how easy is it to do?

42 Company insight A look at one bank’s view on the current state of play in the asset-backed finance market.

Other topics

46 Getting forensic George Riding, CFO of SAP in the Middle East and north Africa, talks about the challenges of accurate forecasting and why it is critical.

49 Get involved with CIMA 50 Transforming delivery As delivery of finance services externally rises in popularity, firms must move finance staff towards value-added tasks.

54 Room for improvement A recent report revealed only half of CFOs believe their organisation is effective at developing people. So how can they get better?

56 Supply-chain risks Stuart Glenn, COO Parsons Brinckerhoff, discusses the threats posed to supply chains by reputational risk.

63 CIMA events 65 Next issue 66 CIMA directory

Editorial advisory board Malinga Arsakularatne chief financial officer, Hemas Holdings

Bogi Nils Bogason chief financial officer, Icelandair Group

George Riding chief financial officer, Middle East and north Africa, SAP

Jeff van der Eems chief financial officer, United Biscuits

David Blackwood group finance director, Yule Catto & Co

Kai Peters chief executive, Ashridge Business School

Arul Sivagananathan managing director, Hayleys BSI

Jennice Zhu finance director, Unilever China

6 Excellence in leadership | Issue 2, 2011 CIMA is the Chartered Institute of Management Accountants 26 Chapter Street, London SW1P 4NP 020 7663 5441 www.cimaglobal.com

VITAL STATISTICS Finance and organisational performance Do you believe the organisation is better able to meet its objectives when finance works in a management support role?

68.5% 75.4% said yes

believe professionally qualified people are better suited to undertake management support activities

67.1%

agree that working in management support roles is better remunerated

Do you agree that those in management support roles are promoted faster?

66.8% said yes Do you see a professional qualification as essential to do their job?

68.4% said yes Source: CIMA’s 2011 report “Finance and organisational performance: shaping the future” supported by

The changing finance services delivery mix

CIMA contact: Senior product specialist Ana Barco Email: ana.barco @cimaglobal.com Excellence in Leadership is published for CIMA by Seven, 3-7 Herbal Hill, London EC1R 5EJ. Tel: 020 7775 7775.

Commissioning editor Dawn Cowie Group editor Jon Watkins Group art director Simon Campbell Chief sub editor Steve McCubbin Senior sub editor Graeme Allen Picture editor Nicola Duffy Senior picture researcher Alex Kelly Editorial director Peter Dean Client director Jessica Gibson Creative director Michael Booth Production manager Peta Hatton Account director Jake Cassels Business development director Tina Hanks Advertising manager Andrew Walker Email: Andrew.Walker@ seven.co.uk Tel: 020 7775 5717.

Chief executive Sean King Chairman Tim Trotter © Seven © CIMA Cover photography James Wojcik

60% 14.8% 16%

use or are planning to use external delivery of finance services

planning to use a shared service centre to deliver some services

planning to use outsourcing to deliver some finance services

Source: “From efficiency to effectiveness: Transforming the finance delivery mix” 2011 report supported by The products and service advertised in Excellence in Leadership are not necessarily endorsed by or connected in any way with CIMA. The editorial opinions expressed in the publication are those of the individual authors and not necessarily those of CIMA or Seven. While every effort has been made to ensure the accuracy of the information in this publication, neither Seven nor CIMA accepts responsibility for errors or omissions.

The contents of this publication are subject to worldwide copyright protection and reproduction in whole or in part, whether mechanical or electronic, is expressly forbidden without the prior written consent of CIMA/Seven. All rights reserved.

Origination by Wyndeham Pre-Press Ltd. Printed in the UK

by Wyndeham Group

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Valuing talent

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Companies often say that people are their greatest asset, but is it really possible to measure their contribution to the bottom line? The CFO of diversified conglomerate Virgin Group and the deputy CEO of low-cost airline AirAsia explain their strategies for developing talent and how they measure the business benefits

Can you give an example of how investing in people has improved customer satisfaction, boosted profits, driven innovation or helped with product development?

Mark Poole, Virgin Group: There are many examples, but a great one to cite, and which touches on a number of the areas you highlight, is within Virgin Holidays, where they have recently completed a cultural change programme to reinforce the company’s brand values and further emphasise the importance of customer service to its 580 staff.

It represented a big investment of time for everyone involved, but the impact has been dramatic. As a result the percentage of staff who believe that the company lives by its values went up from 46 per cent to 79 per cent, while the percentage of employees saying, “I am proud to work for Virgin Holidays”, increased to 95 per cent. In turn, customer satisfaction rose to 97 per cent, the proportion of customers saying they “would recommend Virgin Holidays” increased by five per cent and the first-time resolution of customer complaints went up by three per cent.

In addition, shortly after the programme finished, inspired employees came up with the idea of developing a leisure lounge at Gatwick Airport that would be available to all Virgin Holidays customers and not just those who had booked seats at the front of the plane. The so-called VRoom at Gatwick (the first of its kind in the world) attracted such positive customer feedback that a second VRoom has just opened at Manchester Airport.

Dato’ Kamarudin Meranun, AirAsia: We know that AirAsia’s success – growing from a start-up [with the relaunch of a failed carrier] to the world’s best low-cost airline in less than ten years – is due, in large part, to the industry, creativity and sheer tenacity of our staff, the AirAsia Allstars. It is therefore imperative that we invest in their growth.

Take the case of Ong Sook Min, who joined AirAsia as a flight attendant. When we learned that her dream was to become a pilot, we supported her and she now flies the Airbus 320 for us. This has been a boon for us because when Sook Min flies she not only transports our guests safely, she also tries to make their flight as comfortable and enjoyable as possible, perhaps as a result of her training as a flight attendant. She makes the flying experience an extra delight, which encourages guests to fly with us again.

AirAsia also hires staff from the ASEAN region, which is our base. Many companies shun this practice, thinking that it’s simpler and more practical to hire purely locals instead of accepting foreign talent. But we believe that it’s to our advantage to make the organisation a microcosm of the ASEAN community.

By doing so we encourage diversity and regional integration in the workplace, benefit from alternative insights and knowledge specific to the markets they’re from, and broaden the team’s horizons.

How do you ensure that your HR function provides a return on investment?

Mark Poole, Virgin Group: Some of the larger Virgin businesses have shared service centre models, with robust service level agreements in place to monitor the effectiveness of the HR service provision. However, many Virgin companies are too small for this kind of approach. Across the board, “group people stats” are collected from all Virgin operating businesses and a consolidated report is produced on a quarterly basis for the group’s senior management team. This summarises key metrics, such as employee attrition and absence stats, as well as other measures, such as investment in development and costs incurred per effective hire. In addition to the data that we get from our employee engagement surveys, this information serves to provide a fairly comprehensive view on how »

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We are careful in our hiring process, accepting only talented, creative individuals who we think will fit into the AirAsia culture effectively our “people teams” are performing and flags up any people issues that may exist in the group.

Dato’ Kamarudin Meranun, AirAsia: We focus on constantly honing the skills and service level of our staff to keep them competitive and world class. We are careful in our hiring process, accepting only talented, creative, passionate and fun individuals – those who we think will fit into the AirAsia culture. We also have a state-of-the-art training centre where our flight and ground crews undergo extensive training programmes. We have created an environment where the sharing of ideas is encouraged, communication lines are open and camaraderie and loyalty are fostered. We empower the staff and help them reach their full potential, so that they in turn give us the best return on our HR investment.

And low cost doesn’t have to mean low quality.

We pay competitive salaries, incentives and benefits to our staff, allowing us to hire the best from any sector, industry or country. We have a few hundred pilots from all over the world earning exactly what their local colleagues are earning and finding it competitive enough to make AirAsia their “home”.

What are some of the most cost-effective ways of developing the skills and performance of your people?

Mark Poole, Virgin Group: We are not big believers in classroom/instructor-led training. Instead, we believe that exposure and experience are highly beneficial low-cost solutions, and we favour options such as job shadowing, attendance at internal business conferences, acting up and secondments to other departments and jobs.

As an entrepreneurial business we are regularly looking at new project opportunities within companies or starting up new companies from scratch, which we often need to resource quickly and flexibly.

We mostly look internally to fill this need; we have a large number of employees with enormous enthusiasm and drive to get involved in new projects.

With some experienced managers to coordinate, we try to give our best talent project and secondment opportunities through which they can learn and develop their skills on the job.

It’s well known that at Virgin we like to socialise and many of our businesses also use all-staff events to communicate new initiatives or ways of working, combining a bit of instruction with a well-earned opportunity to have a bit of fun and let our hair down.

Dato’ Kamarudin Meranun, AirAsia: Having your own training centre is a good way to ensure that your staff are trained according to the standards set by the company. We’ve also found it useful to encourage inter-department mingling. We don’t have silos in the workplace. We’ve found that when the different teams mingle with each other, the members gain a much better understanding of the organisation as a whole. We also do our best to boost the confidence of our staff and their sense of belonging.

AirAsia has a fairly flat organisational structure and this makes it easy for us to spot the star performers.

Once identified we then challenge them with tougher projects and increased responsibility to allow them to strengthen their skills.

Ultimately, the biggest factor is our willingness to take risks on our people by allowing and encouraging them to chase their dreams. Our staff value this tremendously, which boosts motivation and retention.

To what extent do you calculate the cost of losing and replacing key people and which strategies have been most effective at reducing employee turnover?

Mark Poole, Virgin Group: At company and group level we track basic turnover metrics, such as voluntary and involuntary turnover, dismissals and turnover by tenure. We also encourage our companies to “drill down” further and cross-check multiple data points to assess any causal links with wider business issues. For example, a reduced investment in systems may make jobs harder and less enjoyable for employees, a spike in people leaving in the first year of employment may mean issues with recruitment effectiveness, whereas a spike in leavers with more than five years’ service may be driven by lack of opportunity.

One effective strategy for reducing employee turnover has been to ensure that the messages that we send to prospective and current employees is inspiring, but also realistic – we don’t want people to join with aspirations that do not reflect the reality of the job. We like to have fun at Virgin, but there’s still a job to be done.

Dato’ Kamarudin Meranun, AirAsia: We look at the loss in terms of the experience and expertise that an employee who leaves takes with him/her. But we have a strong succession plan in place so the resignation of one person cannot cripple the company.

It helps that AirAsia is expanding, so there is always much excitement and constant growth in the

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company, which are big incentives for staff to stay. We also know that AirAsia’s success has rested mostly on the strength of the staff. Whenever we receive accolades, we always remember to thank the Allstars.

What HR process do you have in place to spot talent and develop the next generation of senior managers?

Mark Poole, Virgin Group: Virgin businesses are run in a fairly autonomous way, with their own senior leadership structures, and HR teams and people practices (although with some guidance around core principles) are predominantly defined at an operating company level. Different Virgin companies have different talent strategies and processes, which are reflective of, and relevant to, their size, complexity, stage of growth etc. Larger businesses, such as Virgin Media and Virgin Atlantic, have fairly established talent programmes to identify and develop high-potential employees for future

senior leadership roles. Some of our smaller businesses have a more informal, inclusive approach based on identifying shining stars in key roles within the business (often those that have the greatest impact on our customers) and focusing training and investment in those.

At a group level we seek to join the dots and facilitate intra-group movement by regularly meeting with our counterparts in the operating companies to pool information on talented people looking for a next opportunity and vacancies available in other Virgin companies. In our opinion it’s better to lose someone to another Virgin company than to lose them to a competitor outside the group and 99 per cent of the time our businesses agree!

Dato’ Kamarudin Meranun, AirAsia: As I’ve said, AirAsia’s a relatively flat organisational structure, which makes it fairly easy for us to spot the stars. We constantly strengthen the abilities and leadership »

Hetal Shah of Kraft Foods on stretching the finance team I am a big believer in finance having a unique and privileged position in the business in that we, as a function, can challenge, probe and influence the other functions. I have constantly reminded my team that we have a responsibility to poke our noses in, to educate and also to connect the separate business functions.

A great example of this was my manufacturing controller who pulled together the product costs as part of the annual budget process. Historically, these were then handed to the commercial finance team to build into the brand P&L statements. In response to my challenge to connect the business and educate, he set up a meeting with all the key marketing and sales managers. He took them through the rationale for product costs going up or down and helped facilitate a discussion on where pricing should be taken or where the brand teams felt products needed to be re-engineered to offset cost increases.

This meeting had a huge positive impact – the commercial team was

better informed about the drivers of cost increases/decreases and they felt that the manufacturing team were supporting their agenda. The functions began to be connected and finance were facilitating commercial decisions and helping identify solutions, rather than just providing the information.

The most effective way to develop the skills and performance of key people is through real-life tasks and projects that stretch the individual and contribute to the business. It is also important to coach and mentor them through the project, as it should be challenging as well as motivational.

One example of this was when we as a finance team decided that the business had lost sight of where value was being created in the business. We felt that there needed to be a more detailed strategic discussion at the leadership team level, driven by a detailed set of financial data.

As a team we scoped a project to be delivered within three months that analysed brands, packs, customers and countries from sales to profit and return on invested capital.

The team went one step further and modelled what profitability would look like in three years based on current plans, thinking and capital investment. This led to the finance function making some clear and bold recommendations on where we should invest, where we needed to improve margins and where we needed to accelerate growth.

One of my team pulled this analysis together and at the final board presentation – historically this had been performed by external strategy consultants – we replicated the same analysis in-house, which was a great achievement and highlighted the value of the finance team.

The individual who led the project was also personally recognised for his contribution. He saw how he had stretched himself, learned new skills and increased his self-belief.

Increasing self-belief is a key way to develop performance and it allows you to stretch the individual even further the next time.

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skills of our staff, training them and exposing them to varied and challenging environments and projects.

We also actively take in young people on internship programmes and are starting a unique leadership trainee programme that will bring in the best young people we can find and train and develop them for higher leadership positions.

How do you assess whether your people are fully engaged in the business and measure the impact that this has on the bottom line?

Mark Poole, Virgin Group: Our brand licence requires that Virgin companies carry out engagement surveys once a year and track other human capital measures, such as turnover and absence every quarter. We consolidate this information at group level and compare our performance within

Mark Poole Poole has been CFO of Virgin Group since 2000 and deputy group CEO since September 2005. He is also a non-executive director on the boards of numerous Virgin companies. He established a tax department to enable the Virgin Group to manage its tax compliance in-house and took on responsibility for providing corporate tax planning advice with respect to its acquisitions and disposals, restructuring, liquidations and other corporate transactions.

Dato’ Kamarudin Meranun, AirAsia: We look at the quality and quantity of their output, their knowledge of the company and the industry that we’re in, their ability to respond to the needs of the business and the demands of the market and their ability to stay ahead of the curve.

Compared to most companies, our leadership team is very open to all employees. They know that, regardless of rank, they can contact any member of the leadership team and they will be taken seriously and that whatever concerns they raise will be looked at. This is an extremely powerful engagement tool and we have no doubt that it has a positive impact on the bottom line. n

Dato’ Kamarudin Meranun Meranun has been deputy group CEO of AirAsia since December 2001 when he co-founded the company with long-serving business partner Tony Fernandes. He is also the co-founder of a group of Malaysian entertainment and leisure companies, Tune Group.

He previously worked at ArabMalaysian Merchant Bank as a portfolio manager and executive director of Innosabah Capital Management.

Hetal Shah Shah became director of business planning and commercial projects at Kraft Foods UK and Ireland earlier this year. For the previous two years he was finance and IT director at Cadbury Southern Africa, based in Johannesburg. Before this he was finance, strategy and IT director at Cadbury South East Asia, based in Thailand between 2005 and 2008. He has also held a number of finance and strategy roles in the UK and the US.

Photography: Getty Images

If you start off with a happy, well-motivated workforce, you’re much more likely to have happy customers

the group and relative to external benchmarks.

Our focus is increasingly on analysing the link between employee engagement, customer satisfaction and financial performance to give us greater evidence in support of Sir Richard Branson’s philosophy that if you start off with a happy, well-motivated workforce, you’re much more likely to have happy customers. And in due course the resulting profits will make your shareholders happy.

Those of us who’ve worked in the group for some time firmly believe this to be the case, but it’s incredibly powerful to have hard facts to hand when we meet new partners and shareholders.

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The road to business leader How do management accountants gather the skills required to make business-critical decisions and become business leaders? Sushovan Hussain, CFO of global software firm Autonomy, offers some tips from his own career – and says you have to start with the groundwork…

A

s one of just two executive board members at an organisation with a market capitalisation of $700m, and which has seen 20 per cent organic growth while the industry has seen negative growth, Sushovan Hussain is well placed to talk about leadership, influence and commercial strategy.

As CFO of Autonomy, the software company specialising in “high-end information processing and management”, he plays a key role in mapping out the company’s future.

“The commercial growth and direction of the business, dealing with acquisitions and driving the strategic direction of the company are all part of my job today,” he says. “You have to do more of those things if you wish to be an influential CFO in a modern-day organisation.”

As a modern, progressive organisation that has seen large-scale growth since it was set up in 1996

with a vision to “change the way we interact with information and computers”, you would expect Autonomy to have a CFO closer to these issues than some. But Hussain says the evolution of finance leader to business leader has been far more wide reaching.

“Early in my career, at [UK-based oil and gas exploration firm] Lasmo plc, I would attend board meetings with our financial director,” he says. “He used to just talk about the P&L and stay silent about everything else. I think that was kind of expected back then. The CEO was the guy who talked about strategy and that was the way it was expected to be.

Here, our CEO is an engineer and I am a management accountant, but we are both business people.

“The world has changed a great deal since then,” he adds. “It’s much faster now. Today, business is 24/7 and because of that business leaders have to be aware of much more than the narrow aspects of being a finance director. Being able to make decisions quickly requires having more knowledge.”

So how do management accountants gather that »

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You have to do the grunt work. It’s only when you’ve done the grunt work that you can understand all the intricacies of finance knowledge to turn themselves into business leaders?

Hussain says his own career took in many of the milestones required to be a successful business leader today.

He started his career in London as a trainee accountant with Ernst & Young in 1986. However, four years later he moved to Lasmo, taking on various finance roles, including North Sea operations and head of investor relations and corporate development (mergers and acquisitions).

“I started off doing very basic stuff and it was so important gaining that grounding. You have to have the basic core skills in this job – you have to have the basic qualification when you start,” he says.

“I don’t think you can get where we are now without an initial qualification.

“As well as that important, basic level of training, you also have to do the grunt work. Because it’s only when you’ve done the grunt work that you can understand all the intricacies of finance.

“Only if you spend a few months doing general ledgers do you really find out what a general ledger is.”

It was at Lasmo that Hussain learned what ledgers are. It was also where he got to grips with M&A work.

“We had a hostile bid from Enterprise Oil in 1993 and Lasmo wanted to create a small team of six to fight it off,” he explains. “I was the accountant on this and helped with the defence work. We survived, so that was a very good learning curve for me.

“After that I did quite a lot acquisition work, which again was very important. I gathered a lot of hands-on experience at lower levels, moving around – albeit with the same organisation – before I joined Autonomy in a senior role. That was absolutely vital.”

In 1997 Hussain was asked to gain some operational experience in overseas offices and moved to Venezuela, where he and his family spent two years. He then moved to Pakistan for two years before returning to London to join Autonomy in 2001.

“I was fortunate in that I worked in an industry where you can get overseas experience,” he says.

“What that gives you is an understanding of, and exposure to, different cultures. That is also very important when you are developing the skills to be an influencer and a business leader.

“I loved my time in Pakistan. I loved my time less so in Venezuela, but both experiences gave me an understanding of different places, different cultures, different people. In a global organisation like Autonomy – where we are regularly dealing with people in Singapore, Australia, Europe, Brazil and the Americas – that experience is essential. It has made me much more accepting of different ways of doing things than I think I would be if I didn’t understand the different cultures.”

Now he’s reached a senior role himself, Hussain preaches the benefits of his experience to his own staff at Autonomy.

“I spend a lot of time ensuring they gain a wealth of experience, doing a lot of travel, helping out with acquisitions and negotiations, helping out with strategy. Because without that I don’t think you can go on to demonstrate the added value that is required in the boardroom today.”

In addition, Hussain is a strong advocate of work-based training.

“That is very important, too,” he stresses. “I went to two lots of negotiation training and I have a lot of fun when it comes to negotiating the audit fee with our audit team. I’ve negotiated with Pakistani governments, Arabic governments, Venezuelan governments – so training is just as important as the basic skills training.

“I have had less of the softer management training because I have worked in organisations where you have an opportunity to develop those skills naturally, but I enjoy the management side of it, too.

Controlling, influencing and negotiating; that’s what modern-day CFOs and CEOs are all about,” he says.

“If you just stay in one area, focusing on one aspect of the work, you are not going to get the breadth of

17 Excellence in leadership | Issue 2, 2011

Sushovan Hussain’s CV

2010 – voted Finance Director of the Year at the FD Excellence Awards.

Becomes non-executive director of Monetise plc.

2001-today, Autonomy Corp plc. Joined as CFO and appointed to the main board in May 2003.

Member of the group management team.

Photography: Getty Images

1999-2001, Lasmo Oil Pakistan, Karachi, Pakistan. Finance manager of a $500m business.

Successfully negotiated the first non-recourse finance of $50m, from IFC (a World Bank affiliate) for the largest gas development project in Pakistan.

experience to be, in my opinion, a very good finance leader,” Hussain adds. “So assuming you have a qualification, my recommendation is to then make sure you get the basic experience in business. A lot of accountants will be driving corporate development, acquisitions and investments. If you’re driving that you need to gain the experience first – to learn what the risks are, the people issues and the planning requirements.

“We’re a quarterly reporting company so I need to be aware of the numbers at all times.

I’ll be speaking to the management teams in America and EMEA daily. It’s a very busy environment, but the only way that you can keep on top of your game is by knowing what’s going on, and you know what’s going on by making phone calls and talking to the key people. My job requires me to do a lot of work with the City – the analysts – communicating the quarterly numbers

and then dealing with commercial aspects of the organisation integrating the acquisitions, which I really enjoy.”

As well as giving him the skills to lead from the front, Hussain says the fact that his background took in such a broad range of skills and experiences also now allows him to carry out the core, traditional management accounting duties more effectively.

“Still, I see my provisional role, my key responsibility, as being the financial policeman,” he says.

“Now, you can either be a chief bean counter or a commercial bean counter. But you’ve got to be a bean counter.

“The reason we’ve seen such a convergence of the CEO and CFO roles – with so many CFOs moving into other influential positions – is that the management accountant role gives you such a good view of the overall business.” n

1997-1999, Lasmo Oil Venezuela, Caracas, Venezuela. Finance manager of the Dacion development project ($1bn capital spend). Also head of procurement.

Member of the management team.

1990-1997, Lasmo plc, London. Various finance roles including North Sea operations, head of investor relations and corporate development (mergers and acquisitions). Part of the team that successfully defended a hostile takeover approach from Enterprise Oil in 1994.

1986-1990, Ernst & Young, Becket House, London. Trainee accountant.

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CIMA’s got talent The costs of retention and replacement

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reviously, the most important drivers of competitive advantage were thought to be the cost and quality attributes of the products and technologies used in the production process. Although the contribution of human talent was recognised, it was not seen as crucial or decisive. But the dramatic changes in the operating environment of organisations over the past two decades have made human talent a critical factor for corporate success. Many organisations face increasing competition and constant, fast and unpredictable change, driven by demographic shifts, globalisation and the rapid diffusion of technology. In these circumstances reliance on product attributes only gives short, first-mover advantage, because they can be easily replicated. To survive and thrive in this environment organisations must constantly innovate, evolve and transform themselves. Human talent is crucial to developing this strategic ability.

People power How does human talent contribute to this strategic ability? Take innovation: machines do not innovate, but are themselves the result of innovation. More

importantly, it is the way they are used by people that provides the avenue for innovation in response to changes in the operating environment. Moreover, the essential, but routine, aspects of organisational activities are either being outsourced to low-cost countries or automated. With few exceptions this does not differ much between organisations. Outsourcing can achieve cost reduction for a while, but it cannot continue indefinitely. Most organisations in these situations point out that the real benefits lie in freeing up personnel time and skills to undertake value-adding activities. This is where the real differentiation and competitive advantage for organisations can ultimately be achieved. It is people who are best equipped to deal with non-routine and non-programmable aspects of organisational activities that are the source of competitive advantage.

The CIMA model In light of this increased understanding about the value of people, CIMA is developing tools to help HR and finance to measure the separate costs of losing and replacing each employee. Dr Noel Tagoe, CIMA’s head of research and development, and Marc Lepere, chairman and CEO Vox Pop Consulting, are leading the project with input from the CIMA Global Employers Study commissioned in June 2010.

19 Excellence in leadership | Issue2, 2011

CIMA’s intention from the outset was to kick-start a debate that would develop over time. The guiding principle was: “Better to be roughly right than precisely wrong.” The current models of the tools are a means to that end and are expected to evolve in the light of empirical evidence and employer needs.

Staff lay-offs and redundancy are a common response from employers in straitened economic times, but few companies have sophisticated measurement systems and data currently available in this area. Version 1.0 (see below) is deliberately easy to use. It is focused on raising the issue within the business, primarily by identifying the bottom-line impact of talent loss and/or replacement.

The Cost of Losing Talent (COLT ©) model has been deliberately designed as a stand-alone tool so that these costs can be factored into such decision-making.

It is envisioned that version 2.0 will begin to merge with talent management and appraisal systems.

For example, linking KPIs and employee appraisals to the model would enable employers to measure an individual employee’s contribution to strategy.

In this way the models could become a systemic part of a company’s talent-management system.

Furthermore, not all staff turnover has a negative impact on the business. A further sophistication, perhaps version 3.0, will develop so as to enable companies to better understand the full picture.

The models (version 1.0): The COLT© model (see box, below right) is based on EBITDA (earnings before interest, taxes, depreciation and amortisation). EBITDA is increasingly used by investment analysts to measure the ability of the business to generate cash. Many regard it as the purest form of operational performance. Employee EBITDA measures the average contribution of each employee to the business. It is calculated by multiplying total EBITDA by the distributed weighting of each level/ grade in the organisation and dividing by the number of staff employed at that grade.

This figure is then weighted to reflect the seniority of the employee at three distinct levels: operational staff, managerial level and senior management. The weightings were identified as part of the CIMA Global Employer Study 2010, representing 450 employers drawn equally from North and South America, Asia and EMEA, across all major sectors. The study was also

used to identify the average number of weeks in which a role at each level of seniority is vacant. The table details the weightings, average length of vacancy and percentage of employees at each staff level.

These weightings are intended only as guidelines or “norms” – users should include company-specific data wherever possible.

Cost of Replacing Talent The Cost of Replacing Talent (CORT ©) model factors in employee opportunity cost – employers’ estimates of the number of weeks it takes each level of staff to become fully effective.

Employee opportunity cost is one of three costs factored into the CORT© model. Acquisition cost and the “cost of losing talent”, derived earlier in a separate CIMA model, are the other two. In the UK the Chartered Institute of Personnel and Development, among others, suggests that the true acquisition cost is the sum of vacancy cover, redundancy, recruitment and selection, training and education costs combined.

The employee opportunity cost is the same as employee EBITDA multiplied by the number of weeks to be fully effective.

Beyond the corporate sector The CORT © model can be used across different sectors with only minor variations. For example, the fact that not-for-profit organisations do not measure EBITDA does not limit the use of the model in this sector. The key thing is to find a proxy for EBITDA that is appropriate for this sector. EBITDA looks at the value created that would eventually be available for meeting

»

COLT© weightings Distributed employee weighting

Percentage of employees (example)

Number of weeks of vacancy

Operational staff

0.45

60%

10

Management staff

0.41

30%

14.5

Senior management

0.14

10%

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20 Excellence in leadership | Issue 2, 2011

COLT

©

Employee EBITDA � 52weeks � Number of weeks of vacancy = Cost Of Losing Talent

CORT

©

Acquisition cost + Cost of losing talent + Employee opportunity cost = Cost Of Retaining Talent

Organisations must constantly innovate, evolve and transform.

Human talent is crucial to developing this strategic ability

organisations where financial information might not be appropriate, one can use other quantitative information to capture the essence of the relationship between the organisation and its primary and/or ultimate stakeholders. For instance, in hospitals it will be the number of patients treated over a period of time per employee, and for schools it will be the number of students educated over a period of time per employee.

Next steps the obligations of the organisation to its key stakeholders, for example, government, shareholders and other providers of long-term capital. Thus, in the case of not-for-profit organisations, one needs to identify the key stakeholders. In many cases it is the beneficiaries of the programmes and projects that they undertake. A key measure will therefore be net revenue (defined as the total amount of revenue received by various donors, less administrative expenses). This is the amount of money available for meeting the needs of the beneficiaries of the programmes of the not-for-profit organisation. In

CIMA is continuing to refine these models in conjunction with a beta-users group of employers who will be testing the models within their organisations over the coming months. A CIMA white paper will be launched in late 2011 at www.cimaglobal.com/thought-leadership.

A web-based application of version 1.0 is also in development, allowing organisations access to an interactive model of the COLT © and CORT © tools.

If you or your organisation would like to know more about these tools, or would be interested in trialling the models, please send an expression of interest to research@cimaglobal.com. n

An unmet need – employers’ response to date: Having developed version 1.0, a three-part blog was posted on CIMAsphere to gauge interest and confirm our hypothesis that this issue is strategically important to companies and that it represents an unmet need. CIMAsphere is CIMA’s online community that brings together a diverse global community to discuss topical issues.

Overall, this blog series was the seventh most popular blog on CIMAsphere among 20 active and regularly updated blogs in the period December 2010 to

May 2011, generating more than 1,600 unique readers – much higher than normal for a comparable “technical” topic, indicating a high level of interest: l “How much are you worth?”– 17 December 2010: 803 views, 725 unique readers l “Measuring the cost of losing talent”– 25 January 2011: 670 views, 556 unique readers l “Understanding employee opportunity cost”– 18 February 2011: 418 views, 348 unique readers.

The models have already featured in the business and

accounting press in Pakistan and have also been translated into Mandarin. Two members volunteered to test the models in their organisations.

This blog was then posted into the LinkedIn group.

CIMA’s online team reported: “Compared with most blog posts from CIMAsphere into the LinkedIn group, this post attracted a high level of discussion engagement.”

For more on these tools or to trial the models, please contact: research@cimaglobal.com

21 Excellence in leadership | Issue 2, 2011

Gen-Y

Young, fickle, and restless: the next generation of talent could prove difficult for organisations to engage and retain. Former Entrepreneur of the Year Peter Sheahan offers some ideas for pinning them down

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he managing partner of a global professional service firm recently told me that he believed the proverbial “war for talent” was over.

“What do you mean?”

I asked. “Talent won,” was his response.

In truth, the battle to attract talent is only just getting started. As both the global demand for accounting and the complexity of management accounting continues to increase, it’s imperative that we – as leaders in our organisations and indeed our profession – respond by driving cultural and structural changes in our companies to make it more attractive for the next generation to work for us.

The rules of supply and demand dictate that we need to attract more and better talent. And that talent is increasingly young – often called Generation Y, or Millennials.

But what strategies can organisations worldwide use to attract, engage and retain this fickle generation?

1 Widening the funnel Perhaps the most obvious strategy is to broaden our ideas about what good talent looks like, and to create opportunities for currently inactive candidates to work.

There are at least a couple of ways to do this: a) Open your mind to more diverse talent pools. b) Embrace new models for work.

Think you are open to diversity in your workplace? My company, ChangeLabs, has investigated how unconscious bias can undermine companies’ efforts to bring gender diversity into their workplaces.

Why is it, we asked, that companies routinely fail to bring women into senior leadership roles? The results of our multinational research showed that male executives did not intend to be biased and,

when asked, they believed they were not.

But whenever behaviour was tested and measured it exposed a bias two times more significant than the male executive believed to be the case.

The risk is that we fail to utilise the value that more diverse candidates can bring to our business, all the while complaining that “no good people are out there”. Diversity in the profession is exploding and we need to overcome our unconscious biases if we are to take advantage of it.

But broadening the funnel also involves expanding the models of work to re-engage employees already working for us. One way to do this is to make the workplace more flexible through job sharing, telecommuting and parttime employment. These measures not only attract the younger generation, they can also re-engage retired or retiring professionals, as well as those returning to work. »

22 Excellence in leadership | Issue 2, 2011

Studies show that in developed countries, professionals under 30 will change jobs up to 29 times by the time they are done A banking client of mine is seeking to reduce the pressure it is under to hire more and more young professionals by re-engaging its mature workers who are about to retire. Their strategy is to transform the currently unoccupied second floor of thousands of high-street branches into satellite offices. This will, among other things, remove the physical burden for these workers of having to travel into the major CBD offices.

2 Sideways ladders What is the traditional accounting career path? You go to school and get good marks so you can go to university. Study hard, get a job and have them sponsor your finance qualifications. And then it is one of two avenues: get on the bill-per-hour treadmill and work your way to partner level, or jump ship, work for one of your old clients and start your trip towards the CFO suite.

Today, things look different. Raised on an appetite of instant gratification, Gen Y tends to jump ship every time it feels like its progress, momentum and development have slowed down. Some studies show that in developed countries, professionals under 30 will change jobs up to 29 times across five different industries by the time they are done. Never mind that you are meant to be creating value and giving your employer a return on their investment.

But before you judge this as an example of disloyalty and a poor work ethic, ask yourself this: over the past 20 years, when times got tough, did your company stay loyal to its people? Put differently, have you ever had major layoffs? And more to the point, if a young professional wanted

to get promoted and experience new challenges would it be easier and faster to stay with your company, or leave? If the answer is that it is easier to leave, are you surprised that they do?

Given this tendency for Gen-Y to job-hop, you can: a) Create an experience that feels like progress, only it is lateral and not vertical.

Or as I like to say, create sideways ladders. b) Love them when they go, so they tell everyone else how brilliant you were to work for, and in doing so widen the funnel.

We must be proactive in creating sideways ladders for Gen-Y. Consider how IBM sends employees on overseas assignments for six months or less. This not only provides employees with a new experience, it also saves the company the cost of expatriation should it require that person to stay overseas in the long term.

British American Tobacco moves managers and emerging leaders into different parts of the business, sometimes as often as every nine months.

Creating sideways ladders sounds simple enough, but is difficult in practice.

It is the manager who has to lead these conversations. If we wait until the talent comes to us asking for a new experience we have likely already missed the opportunity to retain them and to build the relationship equity and trust that would have come if you had been proactive and shown genuine interest in their career and professional goals.

3 New models of work As the global labour market tightens, and as technology continues to explode, the opportunities emerge for entirely new work models.

Microsoft has a very strong culture of individual contribution. In an attempt to create greater levels of collaboration, the Amsterdam subsidiary invested in an entirely new office, which broke the patterns of a typical work environment.

The office contained no formal rooms, just myriad spaces designed for all work needs: privacy, silence, collaboration and presentation. The company required that staff only come to the office for team meetings (usually once every two weeks) and whenever else it supported people’s ability to do their jobs; incredibly, its people got to decide when that was.

The Amsterdam subsidiary found that as a result: lP roductivity of their people went up. lC arbon footprints went down. lS ales of their future-oriented products around mobility and collaboration exploded as a result of their first-hand experience of its power. lI t was voted the number one employer in Holland. lA nd perhaps most importantly for you as a CFO, they used only half the real estate and costs are down to 8sq ft per person.

Ask yourself: do you think the subsidiary finds it easier to attract and retain talent in Amsterdam now that it has these more flexible practices? Of course.

To take another example of an innovative work model, consider Eli Lilly.

An R&D leader at Eli Lilly realised a few years ago that not all the smart people actually work for Eli Lilly. Groundbreaking, I know. Taking an age-old concept, it began to offer cash incentives for scientists all over the world who could solve problems being contemplated at the Eli Lilly labs. Predictably, full-time staff at the company resisted the idea of sharing private information with external contractors, as well as the implied belief that the full-time staff could not solve these problems alone. But the scheme went ahead and was wildly successful.

Today, these innovation incentives occur under the umbrella of a spin-off company called Innocentive, which has more than 100,000 “innovation scouts� ready to solve problems, with the promise of a reward to be received upon completion of set tasks.

23 Excellence in leadership | Issue 2, 2011

Imagine enacting a similar scheme in your business: thousands of highly qualified management accountants all over the world in your network, ready and willing to solve major challenges that arise – say tax structuring or carve outs – none of them sitting on your balance sheet, none of them weighing down your overhead and none of them getting paid unless they add measurable value. Sounds like CFO utopia to me. If you think this is a pipe dream, consider that P&G report doing close to 25 per cent of their R&D globally through these channels.

Photography: Martien Mulder/Trunk Archive

4 Collaborative workplace Imagine being asked all your life for your opinions, encouraged to question authority (often with your parents’ support) and had access to technology, allowing you to share your views anywhere, any time about anything.

Now imagine you were on a graduate programme, or shortly thereafter in your organisation. Do you think you would demand a more collegial relationship with your superiors at work? Do you think you would demand to always be in the know?

Would you question existing practices and processes where they don’t see the value?

And do you think they will demand a greater opportunity to get involved and influence the agenda? Sound like anyone you know?

We must engage our employees in acts of collaboration. One company that did this in a very profitable way is the Best Buy through its WoLF packs initiative. Best Buy sought to broaden its appeal to female buyers. Initially, it spent considerable money on a marketing campaign that failed dismally. But then it decided to engage teams called WoLF (short for Women’s Leadership Forum) that consisted of more than 16,000 female employees (and some men). And it asked these teams how the business could improve its stores in women’s eyes. The WoLF packs responded with simple yet powerful recommendations. For instance, make the aisles wide enough for strollers to fit through. Focus less on technical jargon and more on what its products could actually do for customers, whether

they were male or female. The feedback was practical; it had cut-through. And when put into practice it energised the female buying base. Some reports have sales up $4.4bn in the category. Just as Best Buy engaged its female worker base to activate a broader market, so we must strive to engage Gen-Y in solving our business problems.

I know what you are thinking: how dare I suggest you do such things. These little buggers should be grateful to have a job! Unfortunately for you and I, power has shifted from the employer to the talented employee; in much the same way as we had to “sell” ourselves to the client, we are increasingly having to do the same with our people. It may not seem fair, but it is what it is; supply and demand has made it so.

And with that in mind my final suggestion is simply to pick your battles. Get emotional about the things that truly matter and let the other things slide. I worked recently with the founding CEO of a financial services company.

In an attempt to create a more youthful culture he had adopted a casual Friday dress policy. It quickly spiralled out of control to the point where casual meant flip flops and a pair of shorts. This seemed to his mind inappropriate, considering they were managing people’s money and wanted to be seen as diligent and professional. After several unsuccessful attempts to reverse the dress code, he came to a point where he wanted to fire the worst offenders.

But we undertook some research to see what impact the more casual dress approach was having on his clients.

We surveyed the firm’s 100 best clients and found that 65 per cent had not even noticed, 25 per cent actually preferred it, saying it made them feel more at ease and better able to engage in the decision-making process, while the remaining 10 per cent said although they thought it unprofessional they, too, were dealing with the same issue in their own businesses and were happy to let it slide as long as service and financial performance standards did not drop.

In other words, he got all worked up over something that may have actually benefited the firm. Now, to be clear, we did indeed work towards a more formal dress code, but not as far back as where they began. And we did it not through executive order, but by explaining the essence of the firm’s brand and what role dress played in symbolising the values of the business to their clients.

I am not suggesting you lower your standards, rather that there are some things that you are holding onto, some practices and beliefs about how work gets done, where it gets done, what it should look like and by whom that bears no resemblance to value creation for your clients (internally or externally).

As counter-intuitive as it may seem, it may be better to let it slide, freeing up your emotional, mental and actual time and energy to focus on developing your staff and delivering value to the market.

The next generation’s workforce is ready to work for you, if you know how to let them to do it. n

Peter Sheahan Sheahan is the author of five books, including the bestseller Generation Y: Thriving (and Surviving) with Generation Y at Work. He is a leading expert in workforce trends and generational change, with a reputation for transforming organisations by turning traditional paradigms on their head. He is CEO and founder of ChangeLabs. Visit www.peter sheahan.com.

25 Excellence in leadership | Issue 2, 2011

Driving performance through collaboration As a new report examines whether better collaboration between finance and HR drives improved business performance, Reza Kouhy, professor of accounting at the University of Abertay Dundee, explains the findings and details one of the report’s case studies

O

ur CIMA-funded research project examined the relationships between HR policies, management accounting and organisational performance on the basis of six case studies and 100 telephone interviews in Canada, Japan and the UK. The cases covered building materials, consumer products, electronics, software development, timber products and a utility. Five of the cases had more than 5,000 employees and turnover of more than £1bn, while all six case studies used a mix of financial and non-financial performance measures.

The four main HR policies mentioned by interviewees in the case studies as directly affecting organisational performance (and confirmed by the 100 telephone interviews) were: recruitment, training, teamwork and organisational culture (with regard to employees).

Both the case study and telephone interviewees agreed that when employees are viewed as assets rather than costs, it has a positive impact on an organisation’s performance.

In all six cases, HR managers and management accountants were working closely together to develop strategic plans and annual budgets. For example, key topics of discussion were the proposed number of employees, the required mix of skills and the budgeted salaries. In four of the cases, HR managers developed a performance-related bonus scheme in collaboration with management accountants. The management accountants discussed the financial and non-financial performance measures with HR managers before the proposed bonus scheme was finalised, and later interpreted the actual results from the bonus scheme.

However, the most frequent communication between HR managers and management accountants was about decision-making. For example, in one case the management accountants calculated that the organisation in question spent four times as much on workers’ compensation as its competitors in the same industry. The HR managers and management accountants were now working together on this problem and had already managed to significantly reduce the payments on workers’ compensation.

Perhaps the most important finding from this research project is that in several of the cases, HR »

26 Excellence in leadership | Issue 2, 2011

Case study

The interviewees considered that good employees were attracted by a good pension scheme managers and management accountants worked closely using benchmarking or employee surveys, or a combination of both, to explore the links between specific HR policies and organisational performance.

For example, one British case in the early 1990s entered into an HR benchmarking scheme with other organisations. The management accountants and HR managers combined the results from this HR benchmarking scheme with the results from its own annual surveys of employees’ opinions.

This company found that several years of benchmarking data and survey results were required before it could begin to establish relationships between specific HR policies and organisational performance. With the twin problems of time lags and other factors affecting organisational performance, it was difficult to link a specific HR policy to a change in organisational performance, but this company had made some real progress in this area.

A listed British utility company that has operated for many years, but was privatised in the fourth quarter of the 20th century.

About the organisation There were approximately 2,000 employees at the case location, which was the headquarters for this organisation that had more than 10,000 employees.

The group annual turnover was more than £5,000m.

The total employee costs were approximately 40 per cent of controllable costs.

This case was interesting in that it historically had a large number of HR staff relative to other organisations of its size and relative to other utility companies. These HR staff had done a great deal of work to try to link changes in specific HR policies with overall organisational performances. Furthermore, this company had entered into an HR benchmarking scheme with other organisations to give it another basis of comparison in relation to its HR policies and organisational performance.

HR policies and performance A few years ago the firm decided to adopt a different HR approach aimed at reducing centralised HR costs by cutting the number of HR managers and redeploying existing HR staff – often into operational management roles. This approach aimed to improve organisational performance; firstly, by reducing total HR costs, and secondly by devolving much of the HR

Key findings from the case study 1 Devolving some of the HR function to operational managers can lead to improvements in organisational performance.

5 Recruitment of good quality employees has a major positive impact on future organisational performance.

2 A good pension scheme can have a positive impact on organisational performance.

6 A “job for life” policy has a positive effect on organisational performance.

3 A mix of financial and non-financial measures leads to improvements in organisational performance.

7 When employees are viewed as assets rather than simply costs, this has a positive impact on organisational performance.

4 Benchmarking results can be combined with the results from employee surveys to explore the relationships between HR policies and organisational performance.

8 Budgeting is an important communication link between management accountants and HR managers.

9 Training has a positive impact (with a time lag) on organisational performance.

10 A performance-related bonus scheme can lead to improved organisational performance.

11 Organisational culture (such as a family culture) can have a positive impact on organisational performance.

12 Teamwork has a positive impact on organisational performance.

13 Qualitative statements can be made in an organisation’s published report about the impact of specific HR policies on organisational performance.

27

Photography: Getty Images

Excellence in leadership | Issue 2, 2011

function (performed by HR specialists in other organisations) to individual operational managers.

The case study interviewees stated that the overall HR service had improved, while performance had also improved in terms of various measures, such as stock market performance, profitability and employee satisfaction (as measured by employee surveys).

The overall philosophy was a centralised HR function covering employee relations, pay scale and bonus negotiations, pensions and payroll. The HR function at the operational sites (as distinct from the headquarters) had a very limited role, concentrating on recruitment (against centrally agreed employee numbers) with one HR person to 1,000 employees at operational sites.

A second major HR policy that most interviewees considered affected organisational performance was pensions. The firm had two main pension schemes: a final salary scheme and a defined-benefit scheme, which was started in the 1990s.

The interviewees considered that good employees were attracted by a good pension scheme. The defined-benefit scheme started with the employer and the new employee contributing an equal amount, but after five years the employer’s contribution became 150 per cent of the employee’s contribution and after ten years it became 200 per cent of the employee’s contribution. The interviewees considered that this defined-benefit pension scheme encouraged employees to stay at the firm.

A third main HR policy emphasised by interviewees as having a major impact on organisational performance was recruitment of the correct number and mix of good quality employees.

A fourth HR policy highlighted by interviewees was training and development. For many years the firm had spent much less per head on training than the industry average, but recently decided to increase its training expenditure per head to improve its level of customer service. Training budgets were set centrally at headquarters and managed by the HR managers at the various sites within the firm. Each October, every business within the group made a submission in relation to the external training budget. The HR department at the headquarters controlled the internal training budget. Training was the main HR policy explored in relation to organisational performance during this case study. In the past the organisation had established a positive relationship between training and organisational performance, using employee surveys and external benchmarking over a number of years. The company monitored its recent increase in training expenditure against other organisational performance targets.

Links between management accountants and HR managers Within this case study there were very close links between management accountants and HR managers, with the budget being a central communication, coordination and control tool. For example, there was a close working relationship between the group finance director and the group HR director on a day-to-day basis and between HR staff and management accountants at site level. HR staff and management accountants were involved in discussions about the long-term plan, but particularly about the annual budget and the resulting actual performance, including the achievement of strategic targets. The number and mix of employees was a critical component of the annual budget. With the “job for life” policy, existing employees were often trained to develop new skills required by the company.

However, many HR staff and management accountants had daily contact in a decision-making capacity, such as the number of employees and the pay rates in different areas of the business. There were also discussions between HR staff and management accountants about performance measurement and, in particular, the interpretation of both financial and non-financial results for the bonus scheme.

What the employees said The interviewees suggested that over a number of years the culture of the organisation had become more open, honest and informal. Managers operated an open-door system, not only for those reporting directly to them, but also for employees two or three levels below.

The chief executive of the organisation also had a programme for going round all areas of the business and the company operated 20 discussion focus groups.

These included employees from all levels, who were invited to talk about whatever was concerning them about the organisation. Summaries of the discussions went to the senior management. All the interviewees suggested that this family culture within the company had led to improved financial performance.

The interviewees regarded the company as a good place to work. It had a reputation for not overpaying, although interviewees cited examples where employees had left to join another organisation, but had subsequently returned. n

Further reading For more on this report and collaboration between HR and finance, visit: www.cimaglobal.com

About the report authors

Reza Kouhy is a professor of accounting at the University of Abertay Dundee.

His main research interests are human resource accounting, oil and gas accounting and performance management.

Rishma Vedd is an associate professor at California State University, Northridge.

Her research interests include performance management and the interface between management accounting and strategic human resource management.

Takeo Yoshikawa is a professor of accounting at the Graduate School of Hosei University, emeritus professor of Yokohama National University and visiting professor at the University of Edinburgh. His research interests are cost and management accounting.

John Innes is an emeritus professor of the University of Dundee.

His research interest is management accounting, including activity-based costing, Japanese cost management and the role of management accountants in relation to management functions, such as design and human resource management.

29 Excellence in leadership | Issue 2, 2011

How can we build world-class businesses?

Samantha Louis, Regional Director, CIMA Africa, outlines a groundbreaking new report

Photography: iStockphoto

T

he bookshelves of every business school are groaning with tomes on “How to build a world-class business”, so what can we add to the discourse? And, more importantly, how do we do this in a world that is so dynamic and fluid? The severe economic turbulence that has taken place over the past few years has brought new urgency to the age-old debate about how business fits into society.

There is, however, one theme permeating much of the discussion: the condemnation of short-termism and the promotion of long-term thinking. The fixation by company managers and investors on immediate gains – with little, if any, consideration for longer-term benefits or harm – has been blamed for some of the worst excesses of the global financial crisis.

But switching to a long-term focus is not as straightforward as might be suggested. It raises many questions, such as “What does a long-term approach look like in practice?” and “What challenges face companies that want to lengthen their horizons and create sustainable enterprises?” Not only that, the genuine need for short-term stewardship within a company can distract managers, even

those with the best intentions, from their long-term vision.

For example, some of the blame for the takeover of British iconic chocolate manufacturer Cadbury by Kraft, the US food giant, was laid at the feet of shortterm thinking. In early 2010, after a four-month battle, Kraft completed a US$19.4 billion hostile takeover of Cadbury. During that time, the share of Cadbury stock owned by short-term investors, including hedge funds, went from 5% to 31%, suggesting that the only open question was the final bid price. Sir Roger Carr, Chairman of Cadbury during the merger battle, lamented, “At the end of the day, there were simply not enough shareholders prepared to take a long-term view of Cadbury and prepared to forego short-term gain for longer term prosperity.

Individuals controlling shares which they had owned for only a few days or weeks determined the destiny of a company that had been built over almost 200 years.”

To address this business myopia, the Chartered Institute of Management Accountants (CIMA) is launching a groundbreaking and extremely timely report: Building world-class businesses for the long term: challenges and opportunities. For some time, the Institute has been working to identify some of the modern factors complicating the debate on the role of the company in society. This has been combined with

a body of CIMA research which has looked at different aspects of long-term corporate sustainability.

The report concludes that a world-class, sustainable business must focus on a basic set of priorities – a clear strategy, cost leadership, a durable supply chain, a motivated staff, satisfied customers and innovation. When successful, this approach can create enduring corporate value and organisations that prosper not just for months and years, but for decades.

It suggests ways of bringing this approach to life by creating a framework for organisations to use and adapt to meet their specific needs. n

The report will be available at the CIMA World Conference 2011 – sponsored by ATS and global partners Implats and Shell – which addresses the issues of sustainability, future growth and business success.

This two-day global event for professional management accountants boasts a speakers’ platform of world-class business leaders offering exclusive insight into their top-line thinking on the future of finance.

For more information visit www.cimaglobal.com/worldconference

30 Excellence in leadership | Issue 2, 2011

Boardroom debate With progress slow on women breaking through the boardroom glass ceiling, some countries are adopting quotas. Laura Whyte, personnel director at John Lewis, Lisa Ellis, former financial controller of TK Maxx, and Damian O’Connor, former vice-president, finance, at Rolls-Royce, offer their views

31 Excellence in leadership | Issue 2, 2011

T

he issue of breaking the glass ceiling to ensure more women make it to the boardroom is nothing new, yet progress seems to have been slow. Women still hold just 15.7 per cent of board seats at Fortune 500 firms, and only 13.9 per cent of FTSE 100 board positions – 152 out of 1,086 boardroom seats.

One approach to addressing the slow rise in women in senior positions in some countries has been boardroom quotas, which require firms to ensure a certain percentage of their board are women.

Norway was the first to introduce quotas, in 2003, requiring companies to ensure 40 per cent of board members are female. Spain will bring similar legislation into effect in 2015.

However, the issue of quotas is highly contested.

Supporters hold Norway up as an example of success, stating it has not only created pressure for change in the boardroom, but has also fuelled awareness of wider gender equality issues. A report into the success of the quota system in Norway, carried out by the Institute for Social Research in Oslo, concluded that “without both the compulsory quotas and the accompanying sanctions for non-compliance, it would be next to impossible to increase the number of female board members”.

The naysayers are equally vocal, however. While the number of women on the board in Norway has increased in line with the legal requirement, critics say there has been no corresponding improvement in the number of women in other leading executive positions.

They argue that quotas treat the symptoms, not the causes, and believe the best way to drive equality in business is through encouraging diversity that finds the best job for every staff member.

Here, Laura Whyte, personnel director at John Lewis, Lisa Ellis, former financial controller of TK Maxx, and Damian O’Connor, former vice-president, finance, at Rolls-Royce, offer their views on quotas. »

32 Excellence in leadership | Issue 2, 2011

Laura Whyte, personnel director at John Lewis, the UK-based retailer

“The John Lewis management board comprises 50 per cent women, while our senior management team includes a number of prominent women who have risen up through the business. In fact, our leadership teams within shops comprise a third more women than men. This is well ahead of recent figures published by Skillsmart (which provides services to the retail sector), which outlined that nationally only 13 per cent of women in retail employment hold management positions, compared with 25 per cent of men.

“As a business that continues to invest heavily in our people, John Lewis welcomes the emphasis the Government has placed on the gender equality issue, and we strongly support the setting of targets rather than the introduction of quotas for women in boardroom positions to address this balance. Our focus around talent development is to get an even better balance throughout the business.

Laura Whyte As personnel director at John Lewis, Whyte is responsible for setting the personnel strategy, including recruitment and retention.

Lisa Ellis, former finance controller, UK, at global retailer TK Maxx “I worked in a senior position at TK Maxx for five years and, to be fair, there were a number of women in senior positions throughout the organisation.

The proportion of women certainly dropped off in the boardroom – although I certainly don’t think that’s unusual, whether in the retail industry or the wider industry.

“I do think that part of the issue here is around women having their career development interrupted, in many cases by taking time away to have children. It could be perceived that I am criticising women. I’m not. I’m merely saying that it’s very hard to have children and put in the kind of hours and commitment required to work at the very top of organisations, and certainly feel I would have struggled to work in the boardroom and have kids. Many other women drop away from work altogether when they have children so it’s

Photography: Getty Images

It is vital that women in senior positions act as role models and mentors to other women who aspire to work at this level

“Business leaders must take responsibility for building an effective talent pipeline and make it a commercial priority to identify, invest in and train potential leaders from its entire workforce. It is also vital that women in senior positions act as role models and mentors to other women who aspire to work at this level.

“We believe that coaching and development programmes and strong succession planning are essential for any business to prosper, especially in the current economic climate. We have made it our priority to focus on these areas to ensure that all our staff are given the right tools and support to maximise their career progression. This progression is well exemplified through our newest appointment to the John Lewis board, divisional registrar Harriet Hounsell, who joined as a graduate and has worked her way up through the business ever since.” n

33 Excellence in leadership | Issue 2, 2011

Damian O’Connor, former VP, finance, Rolls-Royce

understandable there is some discrepancy in the numbers of men and women in the most senior roles.

“That said, TK Maxx grew considerably while I was there, from around 50 stores in the UK to around 100, yet I never really sensed that the issue of women in the boardroom was addressed. It doesn’t seem that it’s something people really talk about.

“So I can understand why some people suggest quotas are the solution. However, I wouldn’t really want to be a woman working in the boardroom under a quota system because I would be concerned, either that I am not there on merit or that my colleagues do not view me as being there on merit.

“It’s much better to address the broader issue of diversity, ensuring that the best people are given opportunities to take the jobs best suited to them, regardless of their gender. That, in my opinion, is how you address the issue of boardroom inequality.” n

“As vice-president, finance, at Rolls-Royce for many years I saw the ways different countries approach the issue of women on the board. I worked in Norway, where they have quotas, I worked in Spain, where it has long been discussed, and I worked in the UK. “In general, I am not a big fan of quotas. I think they send out the wrong message to businesses – that they need to get ‘some women’ to the board, rather than genuinely working at the issue to ensure women have the same opportunities as men.

“In Norway, I can understand why quotas are seen as a success. More women are making it to the board as a result, but I do think they were in quite a strong position to make it work, particularly in my sector, as European countries already have a higher percentage of women working in their organisations. They have a higher population of women to call on.

“At one of our plants, for example, 40 per cent of staff were female. Many of those were in blue-collar roles, but they were highly educated and the fact that they were there, learning about the company and already working their way up, meant it was easier to get more to the boardroom if required by the quota system.

“Generally, however, I think quotas are not the right way to tackle the problem. It is a cultural issue. In the UK, we need to see more done to change the culture, and that means starting in schools, making sure students know they have the same opportunities to make it to the top, whether they are male or female.” n

Lisa Ellis Ellis has spent 25 years working in major organisations, including Compass, and in the UK for global retailer TK Maxx.

Damian O’Connor O’Connor had a long career with Rolls-Royce where he was VP, finance, until 2009. He now works at the Financial Management Centre.

I wouldn’t really want to be a woman working in the boardroom under a quota system

breaking the glass ceiling Female accountants are still hugely under-represented at senior management level, despite increasing numbers of women entering the profession.

So how can women reach the top in the male-dominated finance industry? CIMA has spoken to senior female members worldwide to find out their strategies for success and shares their advice for aspiring women leaders and their employers in the report, “Breaking Glass – strategies for tomorrow’s leaders”. Based on interviews with 24 of CIMAs most influential women and a survey of more than 4,500 finance and business professionals, the report reveals the personal qualities and strategies that helped CIMA’s female members get to the top. It also looks at what is preventing women from reaching leadership positions and how employers can nurture female talent.

The report identifies four key strategies for success: seek support, raise your profile, be true to yourself and get organised, and includes an “Action Plan for Success” checklist.

“Men and women play different roles,” says Theresa Chan ACMA, corporate finance director of Warner Bros, Hong Kong. “Instead of seeing men and women as competing, it’s good to see us as complementing each other.”

This report is part of a wider Women in Leadership campaign to support the progression of female CIMA members into senior roles and includes a CIMA Women’s Network – an online platform for female members and students to share tips on advancing their careers – and in-depth case studies. To find out more visit www.cimaglobal. com/women Sandra Rapacioli, R&D manager, CIMA

34 Excellence in leadership | Issue 2, 2011

People management

Any time, any place, anywhere: managing the Martini workers Is it really possible that the highly skilled work of today’s accounting and finance professionals can be done any time, any place, anywhere? The short-term business benefits are clear, but academics Andrew Rothwell and Ian Herbert explore whether the model has longer-term flaws

The business benefits So how far can the cost of professional work be driven down by market forces?

Previous research on this topic (Rothwell, Herbert and Seal 2011) has suggested that “knowledge” work can be located anywhere there is a technically literate, English-speaking workforce with the infrastructure support required.

There can also be other advantages, such as the potential for future reductions in head count, with less impact on the parent organisation, the ability to improve performance by tying specific service levels to contractual obligations and access to specialist and technical expertise.

We have adopted the phrase “Martini workers” (although we are not alone) after the seventies advertising tagline to describe the phenomenon of professional knowledge work taking place anywhere (flexibility of location), any place (inside or outside the organisation), and any time (across time zones).

Our long-term research project, based at Loughborough University, has revealed the potential for significant business gains that go beyond the simple cost benefits of job migration. First, technical professional knowledge is not unique to the parent company or the parent country – it can be quickly embraced by a well-educated and well-motivated global workforce, which has no concerns with working 24/7 shifts or dealing with transactional tasks.

SSC roles represent good jobs for ambitious people in developing nations

and a pathway to a professional career. Our respondents in Singapore and Hong Kong, for example, reported that 30-40 per cent of SSC workers had MBA qualifications, but were working for one-fifth of the equivalent cost of UK workers. One executive-level respondent at a global multinational said: “I see it as the global creation of the same kind of work that I did 30 years ago. The role is influenced by technology, for sure, but the fundamental activities are no different.”

Negative side-effects But is there a catch? Well, several adverse side-effects can develop. First, the flattening of organisational hierarchies has tended to lead to a polarisation between the “transactional process” workers and more senior professionals at the “business partner” level. We describe this hollowedout structure as the “hourglass profession”, where individuals in lower-level roles may face a promotions bottleneck owing to the limited number of mid-level positions open to those looking to build their careers.

The fallout from this in the short term is labour turnover of about 10-15 per cent per year, which was regarded as manageable owing to a buoyant labour market and the ample supply of well-qualified individuals.

In the long term, however, this may have a negative effect on employer brand and

Photography: iStockphoto

T

he start of the 21st century has seen radical changes to professional and knowledge work in many organisations.

Offshoring, downsizing, re-engineering and the recent move to shared services centres (SSCs) have brought significant efficiency gains, as well as some challenges.

This increased level of flexibility in the workforce, driven by the need to reduce head count, leverage the impact of technology and focus on core activities, has radically altered the shape of many organisations.

Although it began with basic roles, it increasingly applies to the more transactional aspects of professional work, including finance, human resources and purchasing.

As a result, individuals in professional roles may find themselves part of the flexible workforce, either working as individual agents or for a third-party organisation.

The quest for efficiency gains has recently led to the growth in SSCs, where activities previously located in business units or a head office are aggregated into a new central unit, often at arm’s length from the mother organisation. A critical feature of the SSC model is that the physical location of the work is not critical, but certain overseas bases may offer a greater ability to work across time zones and lower labour costs.

35 Excellence in leadership | Issue 2, 2011

feet wet. In terms of career and professional development the outcome depends on how well the individual engages with a scheme of professional training and embraces continuing professional development (CPD) in the long term.

Staying ahead of the wave

potentially damage the motivation and commitment of employees. Taking a laissez-faire approach therefore becomes less sustainable.

Early on in our research project we’d heard anecdotally of this “development gap”, where organisations are at risk because they are not “growing” the professionals they need for the future. The evidence that we have gathered seems to confirm this.

A second, related issue, is more serious and concerns the rate at which knowledge becomes out of date in our fast-paced business world. This phenomenon can be aligned to the concept of the “half-life of knowledge” (originally proposed by Fritz Machlup in 1962) and is defined as the amount of time it takes for half the knowledge in a particular field to become out of date.

The argument goes something like this.

If the rate of change is increasing, then individuals have to learn more rapidly to keep up to date. If they can do this they can stay ahead of the game, and there are huge advantages to doing this. If they can’t keep up then they face the risk of career displacement, or even redundancy.

It’s a bit like running up a beach ahead of a wave – as long as you can keep running you’ll be fine, and you’ll find new parts of the beach to explore. If you don’t, then there’s a risk that you’ll get more than your

One of our executive-level respondents at a major petrochemical multinational reported that many of the SSC workers had a certified public accountant qualification or equivalent. However, he reported that there was also a significant level of interest in working towards further professional qualifications, such as the UK’s Chartered Institute of Management Accounting qualification.

These issues have implications at individual, organisational and professional levels. For individuals, it highlights the need to take responsibility for their own CPD in order to secure their future employability. We define this as the future ability of individuals to keep the job they have or to get the job they want.

Organisations don’t necessarily want to pick up the tab for this; after all, in a recession the training budget is often under pressure. Ultimately, it will be in an employer’s interest to fund CPD programmes to avoid succession issues developing.

Professional associations may also have observed the “hourglass” phenomenon with some concern. The structural changes that are affecting finance and accounting, human resources and purchasing, to name but a few areas, and have implications for the knowledge base of the professional body, as well as the sustainability of professional membership.

What’s more, the outlook for professionals in western countries who have enjoyed relatively recession-proof careers, safeguarded by barriers to entry and the growth of the so-called knowledge-based economy, is becoming less secure. As the market for professional work becomes increasingly global,

professional workers in the West may find themselves competing with highly skilled, motivated and technically competent professionals who can offer greater flexibility for less cost.

Are there positive messages from our research? First, individuals must keep on running, maximise the level of professional qualification and membership that is available to them and keep up with their CPD. Meanwhile, organisations must invest in their employees’ CPD, not just through formal training, but by recognising the informal learning that goes on at work every day.

In addition, employees in transactional roles should be given the opportunity to acquire a breadth of professional experience through experiential learning. Human resource planning seems to be out of fashion as organisations believe they can meet future challenges through flexibility strategies, but it is better to have a plan than none at all.

Finally, professional associations need to recognise that the occupational landscape has changed, probably forever.

New entrants to the profession won’t necessarily be in the broad generalist roles that was the case for previous generations.

Associations will need to add experiential learning and breadth to provide additional CPD opportunities. n Dr Andrew Rothwell Dr Rothwell is a lecturer, researcher and organisational consultant based at De Montfort University, Leicester.

He has previously held academic roles at Coventry University and Derby University, and started his career in the banking industry.

Ian Herbert Herbert is senior lecturer at The School of Business and Economics, Loughborough University.

He teaches management accounting on both undergraduate and postgraduate courses.

36 Excellence in leadership | Issue 2, 2011

37 Excellence in leadership | Issue 2, 2011

Banking on mobility HSBC currently has 2,096 staff on international secondments around the globe. Tracy Figliola, head of the bank’s global mobility programme in Europe, the Middle East and Africa, tells Dawn Cowie why the strategic benefits of managing a highly mobile pool of talent outweigh the substantial costs

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he strategic importance of a mobile workforce to a global bank, such as HSBC, has never been greater. It is critical to achieving two of the company’s top priorities: first, to increase process and cost efficiencies throughout the organisation, which currently has a total of 311,033 employees located in 86 countries.

Second, it will play an important role in helping HSBC to build its business in key markets offering the greatest growth opportunities. “To be a slick, efficient, global organisation that can capture as much growth in the marketplace as possible we must have a diverse talent pool that can react quickly to the needs of the business and share best practice,” says Tracy Figliola, HSBC’s head of global mobility for Europe, the Middle East and Africa.

“Global mobility is gaining a higher profile within the bank. There is a growing recognition that different cultures bring different perspectives and that the organisation has to be open and willing to share new ideas in order to achieve the group’s strategies,” she says.

This is quite a different approach to ten years ago. Back then, about 90 per cent of international assignments were driven by the need to fill vacancies as efficiently as possible wherever they arose in the business, according to Figliola. And the role of the mobility department was largely limited to logistics support.

Business needs and skills shortages still play a significant part in determining who goes where, but, particularly at a senior level, the global mobility programme is seen primarily as a means to drive strategy, convey key messages throughout the organisation and to nurture and manage the bank’s talent.

Staying at home Although there is no requirement for HSBC staff to go on international assignment it is regarded as an asset, and an increasing proportion of the company’s high fliers are spending time in overseas posts.

“If you work in a global organisation then you have to recognise that being internationally mobile will open up more opportunities – learning on assignment and applying that knowledge when you return will inevitably enhance your career,” says Figliola. “That »

38 Excellence in leadership | Issue 2, 2011

HSBC’s global mobility programme in numbers

2,096 311,033 Total number of employees:

If you work in a global organisation, you have to recognise that being internationally mobile will open up more opportunities doesn’t mean that you can’t progress unless you are mobile, but it could be a restriction because there will be fewer opportunities available to you to grow and show what you’re worth.”

Making the decision to go on international assignment, however, can be tough, so the firm offers plenty of support for spouses and children.

Nevertheless, the diversity figures suggest that it is still more difficult for female employees to be as mobile as their male counterparts.

“Old family structures are still in place, which typically makes it easier for the male population to decide to move the whole family overseas than for their female counterparts,” says Figliola. Concerns about inequalities may also be a barrier. “We have female secondees in all jurisdictions, but the same concept of equality does not exist in all geographies and cultures.

That may be a mental barrier that prevents women from being completely mobile.”

International manager programme Increasing the diversity of HSBC’s talent pool is a strategic priority, which is being led by the bank’s international manager programme. This is a centrally managed programme and is focused on nurturing the future leaders of the company and ensuring that they gain experience and understanding of the many different facets of the banking business.

“There has been a central directive to improve the diversity of the programme through the recruitment and selection process to make sure that we get a broad range of people from different cultures and backgrounds to instil the right core values,” says Figliola.

Historically, the programme was male-dominated, UK-oriented, had a high proportion of members with a public school background and there was little consultation with secondees about where they would be going or which types of positions they might be most

Main locations: UK, Hong Kong, US, Mexico Other key areas: United Arab Emirates, France, Malaysia, India, Saudi Arabia, Singapore

interested in. This has changed significantly over the past 15 years, according to Figliola.

The proportion of women in the international manager programme has increased to 40 per cent, compared to 22.6 per cent of the total number of international assignees.

There is a rigorous selection process to ensure that the best talent joins the programme and their career development and performance is monitored closely at group level. The programme includes 434 permanently mobile staff, who transfer from one international assignment to another every two to three years, and the plan is to expand the number of places to 500 in the next 18 months.

Types of assignment In addition to the international manager programme, there are three other categories of assignment. One of these is the international contract executive programme, which currently has 160 members. This offers senior managers who are functional specialists in areas such as finance, IT or operations the opportunity to move from one jurisdiction to another every two to three years, sharing best practice and leading the bank’s strategies and core principles.

Then there is the largest grouping, known as “international secondees”. This allows individuals to take a single assignment for two to three years in a host country before returning to their home country, where they can apply their experience. This category includes 1,257 members, who are managed by the business, although their movements, and increasingly their performance, are tracked by the global mobility programme.

The fourth group includes 245 “short-term assignees” working on three- to 12-month projects, which takes the total number of staff currently on international assignment to 2,096.

In addition to these main categories, a number of staff also transfer between jurisdictions as a local employee on a local contract. They are not included in the overall figure as these moves are driven by the individual choice, rather than business need, and do not enjoy the benefits of an international assignment package.

Return on investment The scale of HSBC’s investment in its mobile workforce is huge and the focus on measuring the return on that investment is therefore intensifying. A typical secondee

Photography: Getty Images

Total number of international assignees:

Total jurisdictions: 86 with assignees currently in 56 of those countries

39 Excellence in leadership | Issue 2, 2011

Attrition rate for repatriated assignees: currently

17 22.6 40 33.6 %

Proportion of female international assignees:

costs the company three times more than a local employee, while those who get a place in its international manager programme cost, on average, seven times more than a local employee.

Historically, the costs and benefits of the international manager programme have always been closely monitored at group level. “The rewards for international managers are a lot higher than for normal local workers so the programme has to deliver results,” says Figliola.

There is also now a concerted effort by the bank to develop a series of metrics to measure its overall return on investment in global mobility. For example, it recently completed a study to find out the attrition rate for secondees returning from international assignments.

The research revealed that 17 per cent of assignees had left the bank within five years of returning home.

“People will always move between organisations to a degree, but if you are going to make an investment in global mobility, you have got to assess why people are leaving and whether you could do things better in order to retain talent,” says Figliola.

The performance of international secondees was previously monitored locally by line managers in the host and home countries, and the assessment of return on investment was also a matter for the local business.

That is changing as the bank invests in central infrastructure to monitor the selection of candidates, to track where they are and for how long, to measure their performance on assignment and to trace their long-term career progression.

“The individual has to be the starting point because that is where the company is putting its investment.

Although assignments are still largely driven by business objectives, assignees have more input today about where their career aspirations lie,” says Figliola. “There is also more attention paid to finding the right career avenues for individuals when they are repatriated to make sure the business gets the best return on its investment.”

Running a mobility programme There are a wide range of challenges involved in successfully running a global mobility programme with more than 2,000 members. In particular, coordination between global, regional and local levels is critical to ensure that the business has accurate data on all assignments that can be accessed centrally. As the bank has focused more attention on measuring and improving the efficiency of its global mobility programme, the quality of this data has become increasingly important.

%

Proportion of females in the international manager programme:

%

Proportion of females on short-term assignments:

It is also essential from a compliance perspective. All the compliance requirements relating to tax reporting, compensation, social security and immigration across its operations must be accurately tracked at a local level and fed into a centralised data system.

“We have got to have really good global, regional, local connections to ensure that we are remaining compliant in each jurisdiction and the bank is not exposed to any unnecessary reputational risks or compliance costs,” says Figliola.

About half of HSBC’s assignees are senior executives so a thorough understanding of the tax and social security regulations in each jurisdiction, and accurate data on the terms and conditions of every assignment, can substantially reduce the overall cost of the global mobility programme, as well as improving risk management.

“Effective assignment planning and analysis of the data on each assignee can save vast sums of money, particularly from a compliance perspective,” says Figliola. “As we take a more strategic approach to managing the global mobility programme, there will be a much greater focus on optimising the returns on investment for the business.” n

Tracy Figliola Figliola heads HSBC’s global mobility regional hub for Europe, the Middle East and Africa. She has played an integral part in HSBC’s recent global mobility transformation initiative, which developed new global process, structure and systems. Figliola was previously the compensations manager for HSBC.

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40 Excellence in leadership | Issue 2, 2011

London calling

A recent trend has seen a considerable increase in the number of Chinese companies setting up offices in London.

Linda Kozlowski, director of global marketing and customer experience at Alibaba, explains what attracted her organisation to the capital

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Photography: iStockphoto

Excellence in leadership | Issue 2, 2011

hile China’s booming economy is attracting investment from around the globe, another interesting trend is seeing a growing number of Chinese organisations set up operations in London.

In fact, China was the second largest investor in London in 2009/10 after UK firms, with 24 Chinese companies setting up or expanding their business in the English capital. This increase saw Chinese job creation in London rise by 95 per cent year on year.

So what is attracting Chinese companies to London, and how easy is it to make the move?

Linda Kozlowski is director of global marketing and customer experience at Chinese firm Alibaba, a B2B online marketplace that connects small and mediumsize buyers and suppliers from around the world and has more than 40 million registered users in 240 countries and regions. She oversaw the company’s move to relocate its R&D function from Geneva to London, and says there were many drivers behind the decision.

“Our main objective was to increase brand awareness and to get more members to use our platform,” she says. “In the UK alone we have more than 400,000 community members and it is very important for us to get closer to our customers, to listen to their needs and feedback so we can be of better service to them. So London was an obvious choice in that sense.

“But there were other appealing factors, too. It’s predominantly English language here and we are an English website.”

That said, Alibaba’s customers are not limited to the UK. It’s a global set up, and again this made London appealing.

“We also have a large customer base across Europe,” adds Kozlowski, and the UK’s very strong transportation links to Europe were also a positive. It’s very easy to get to anywhere in Europe from London.

“And London in particular – above all other UK destinations – had the talent pool we wanted to tap into.” In addition to this, Kozlowski adds that Alibaba was attracted by London’s “favourable income tax rate and other tax breaks”.

Once London was selected, Kozlowski says the process of locating in London was relatively simple.

It is very important for us to get closer to our customers, to listen to their needs and feedback. So London was an obvious choice “It was fairly easy for us to tackle the legal and regulatory issues associated with coming to London,” she says. “Our international office is in Hong Kong, and as that was once a UK territory lots of the legal and regulatory issues are relatively easy to overcome.”

While Alibaba decided against using external relocation consultants to help with its move, Kozlowski says they did receive help from both UK Trade and Investment (UKTI) and Think London, UK Government organisations that promote the English capital and help overseas companies operate there (Think London has recently been rebranded as London and Partners).

The move was initiated after UKTI in Shanghai built a good relationship with Alibaba in China, which coincided with the company first considering further European expansion.

Then, UKTI worked with Alibaba to help the firm identify a suitable location in the UK. UKTI also arranged a suite of UK visits for the senior management team. Think London and UKTI then worked together to ensure Alibaba’s business expansion into London was both smooth and successful.

“While I would say external consultants would be the right fit for some organisations there is already a great deal of help available, so we decided against it,” says Kozlowski.

The results indicate the move has been a success for Alibaba. It opened its London office in Soho, central London, at the end of 2008, employed 14 people in its first year and predicts strong growth of numbers over the coming years.

Kozlowski concludes: “Anecdotally, the growth has been good. Of course, we were showing good growth in this region anyway, but it is definitely up as a result of us moving closer to our customers and serving them better.” n

Linda Kozlowski Kozlowski is director of global marketing and customer experience at Alibaba and worked closely on the organisation’s relocation of its R&D function from Geneva to London

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Company insight Advertorial

Excellence in leadership | Issue 2, 2011

Excellence in leadership | Issue 2, 2011

Advertorial Company insight

Making the most of your assets Alternative forms of finance are growing in popularity – with asset-based lending leading the way

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he past three years have witnessed wide changes in the marketplace and many businesses have, in turn, reassessed the ways in which they fund their ongoing operations. There’s no doubt that the landscape has changed and banks are still making finance available, but it is not a one-size-fits-all approach. Relationship banks are working closer than ever with their core customers to find the right financing solution for each individual situation.

Many astute FDs have explored alternative ways to source finance. As a result, there has been a surge in the popularity of a whole range of alternative funding strategies, with FDs and treasurers casting around for solutions to restricted cashflow and more expensive credit. Inevitably that effort will lead many to look at the assets within the business for a solution.

And in a lending environment where the cost of money may be high, sweating assets can strengthen working capital in order to service a major new order or prepare effectively for a seasonal spike in demand; it can offer a competitive advantage by allowing a business to invest in capacity, product development

and geographical expansion as well as financing a buyout, merger or acquisition by unlocking the often considerable “hidden” value on a company’s balance sheet.

The mechanics But what, exactly, does asset finance or asset-based lending involve? Asset-based finance is a means of raising money against assets that you already own or to finance the purchase of new equipment for your business such as vehicles, machinery, raw materials, stock or property. “At its core, asset-based lending will always have an invoice discount and factoring facility, which is releasing cash from trade receivables in advance of debtors paying,” says Martin Cooper, director, Corporate at Lloyds TSB Commercial Finance.

As a worked example, Cooper says that for a £50m business with three warehouses etc, the bank would start with an assessment of the management to determine whether they share the same vision and have a plan and forecasts that support that vision.

“Then I’d want to ask whether I can meet their needs as established in their plans – what are the main risks and how sensitive are their plans to these threats?

I want to put in place a facility that meets their »

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Company insight Advertorial

Asset finance providers will look at the plant and machinery a company has and use it to free up cash to buy new kit and so on needs and has sufficient headroom that it will cope with any surprises.”

Typically, the next job would be to assess the company’s debtor book. “This is the asset nearest to cash and will be the cheapest asset to borrow against,” Cooper adds. “I would want to understand the basis of trade and when the debts should get paid, and then review their systems and credit control procedures and the average time taken for debts to get paid.

I would assess the quality of customers and would look for a mixed portfolio of customers, with no single debtor representing a significant concentration risk.

“We would then assess the stock, looking at its age – anything not currently sold or obsolete would not typically attract any lending value. I would look at the individual stock lines and assess how quickly they turned, and I would assess the risk of faulty or returned or disputed stock and ensure that it was free from any other prior claim from a creditor so that I could attribute a lending value to it and advance money. The cost of borrowing against this asset will be marginally more expensive than debtors.”

The bank would then look at the other fixed assets like plant machinery and property, get them professionally valued and then advance money against these assets. The borrowing cost will be more expensive than debtors but will vary on the quantum and term “Ongoing I would reassess the debtor and stock security on a weekly or monthly basis to ensure the money advanced remains secure when compared to the lending value attributed to the assets, adjusting the lending up or down in line with the assets used in the business,” says Cooper.

A question of confidence Cooper believes the increasing use of alternative finance – and in particular asset-based lending – is a result of several trends. “We saw a peak of refinancing and reassessing options in early 2009 when the price

Excellence in leadership | Issue 2, 2011

of money had moved considerably and people were sense checking what they were being told by their banks,” he says.

“And right now, among both new and existing customers, we’re seeing our strongest take-up of asset-based lending facilities for a while. Companies are recognising that we are in a recovery phase, albeit a slow one, and that now might be the time to look ahead to growth.”

Essentially, asset-based lending allows a virtuous circle to develop, as Darren Baker of Lloyds Bank Corporate Markets, which supports business customers with more than £15m turnover, explains. “Previously, businesses might typically have been restricted to borrowing 50 per cent of their debt book for their facilities. By going down the asset route they can increase that and borrow up to 65 per cent of their debt book and also a percentage of their work in progress.

We can add value and fund that work in progress.

It means we can fund each month their increased requirement because they’re building more and more and they can lean on the bank more and more.”

Of course there is a quid pro quo for that increased level of flexibility. “FDs may have to supply us with more data than they might have done previously,” says Baker. “We will lend higher levels and give different lending values to the security, but we will probably expect more transparency and disclosure.”

The flexible friend Louise Ross, head of Corporate Performance Management at CIMA, says the fundamental advantage that asset finance and invoice factoring in particular offers businesses is flexibility and assurance.

“In difficult times, invoice factoring and asset finance does remove an element of uncertainty for businesses – they know what they are going to receive, at least in the short term, for their accounts receivable,” she says.

“This form of financing is based on the values of the receivables, unlike loans that are affected by a company’s creditworthiness (a more complex, partially judgemental assessment and one also influenced by changing economic conditions not within the control of the company).”

But if using asset-based lending is such an obviously beneficial option, why are fewer businesses using it than we might expect? “Ignorance,” says Kate Sharp of the Asset Based Finance Association (ABFA).

“Far and away the biggest problem is lack of awareness. Not enough people know about it, and those that do have preconceptions that aren’t true.

Photography: Gallery Stock

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Excellence in leadership | Issue 2, 2011

The problem is that when it first emerged in the UK it was used in a certain kind of way by a certain kind of company that then gave it a poor reputation, and it’s been stuck with it ever since.”

And that flexibility is central to asset finance’s appeal. Martin Cooper certainly thinks so. “Flexibility and speed are the two key benefits that people value, and at Lloyds Bank we can put facilities in place within 24 hours if need be. And then in terms of flexibility, people can use as much or as little as they want.

Indeed, once they’ve put in place their line of credit by looking at the assets and establishing what credit that will generate for them, it effectively costs the business nothing until they start drawing the facility.”

A good example of how using asset finance can allow a business to grow in a sustainable fashion Unlocking additional value through trade finance And of course, asset-based lending does not need to function in isolation. Working in tandem with facilities such as Trade Finance it provides an integrated approach to funding the complete working capital cycle.

Jamie Nicklin, commercial director at gardening equipment supplier Solus, believes that by working with Lloyds Bank Corporate Markets using trade finance, the business has benefited in a range of ways. “We operate in a competitive market and it’s essential that the financial facilities we have in place support both the import and wholesale elements of the business,” he says.

“The trade finance solution put together by Lloyds Bank Corporate Markets was not an ‘off the peg’ product and we know it has the flexibility we need as Solus continues to grow and develop.” The package is designed to match the working capital patterns of the business, which vary greatly depending on the time of year and weather conditions, bringing the element of flexibility into play once again.

Ultimately the popularity of all forms of finance hinges on the product’s ability to meet a need. But since UK businesses will increasingly be in need of fast, affordable and secure finance as the recovery continues, there is little doubt that asset finance will continue to climb the agenda.

Advertorial Company insight

In a lending environment where the cost of money is high, sweating assets can strengthen working capital comes in the form of the UK’s leading bus operator, Stagecoach. The business has used asset finance for many years, funding its strong growth through all stages of the business cycle. Based in Perth, Stagecoach currently operates around 13,000 buses and trains, and originally approached Lloyds TSB Commercial Finance in 1981 for finance to purchase two new Volvo Duple coaches, which were the flagship vehicles for the Perth to London express service.

Since then it has followed a hire purchase model as its fleet has grown. And while large investment in fleet is crucial to the business’s long-term expansion, generating sufficient liquidity to upgrade and maintain its vehicles to the latest standards cannot be ignored.

“Clearly the environment and sustainability is a big part of their business and they need to run green,” says Cooper. “So the asset finance model means that not only are they able to replace buses on a regular basis, they can also make sure they are at the cutting edge of green technology.”

Clearly Stagecoach has taken the right approach: de-risking its balance sheet by employing a range of financing. Asset-based lending sits comfortably within that, allowing the company to maintain the performance of its fleet without impacting working capital. Given that asset finance is a form of funding directly and tangibly linked to the strength of the business and its underlying value, employing it in such a way makes sense. n

For further information on asset-based lending or on Lloyds Bank Corporate Markets, contact Martin Cooper, Director, Lloyds TSB Commercial Finance Martin.Cooper@ltsbcf.co.uk or Nick Boardman, Lloyds Bank Corporate Markets Nick.Boardman@lloydsbanking.com

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46 Excellence in leadership | Issue 2, 2011

Performance management

Forensic forecasting The Arab spring has highlighted the huge uncertainties that companies face in emerging markets. George Riding, CFO of SAP in the Middle East and north Africa, talks to Dawn Cowie about the challenges of accurate forecasting and finance’s role in managing the sales pipeline, especially in times of high volatility hen George Riding moved to Dubai last October no one was predicting the momentous civil unrest and political upheaval that was to sweep across the Middle East and north Africa (Mena) region within months of his arrival.

This turbulence has brought an additional element of uncertainty to Riding’s job with business software firm SAP as its Mena CFO, where he oversees forecasting and managing the company’s regional financial performance.

After recruiting quite heavily in Egypt just before the start of the Arab spring, software sales there are significantly behind target owing to the severe disruption and financial pressure that the country’s companies are facing. Instead, SAP has had to revise its short-term investment plans and think about how to take advantage of the weakened position of its rivals.

“There is a blip in the growth of the Egyptian market right now and we need to monitor it and be sensible about how we invest, but we believe our more established competitors are hurting more than us, so while software sales are impacted now we see this as a good opportunity for us to establish the right foundations for the future,” says Riding.

The regional turmoil has not, however, thrown

SAP’s longer-term growth plans off course. Having doubled its head count over the past year, the company aims to grow its Mena business threefold by 2015.

Riding has targets for head count growth in each market and a list of big accounts that the company should be pursuing in the next five years.

“These are not hard targets that are logged in a group-level management system with a specific deadline attached,” says Riding. “The regional plan is really a road map showing how we are going to drive software revenue up to a larger market share by 2015.”

This makes it a helpful tool for reinforcing the message at regional and group level that Mena has enormous growth potential, even though it is still a relatively small part of SAP’s overall revenues today.

In addition, it forms the backbone of SAP’s resource allocation discussions in its quarterly business reviews.

But in reality SAP is a quarterly-driven business and Riding spends most of his time analysing how short-term performance matches up against quarterly and annual forecasts.

47 Excellence in leadership | Issue 2, 2011

Quarterly forecasts There are two big, interrelated factors that dictate the accuracy of Riding’s forecasts for the Mena region – people and software sales. In a sales business, such as SAP, the biggest cost is head count, but making accurate forecasts is tricky in fast-growing emerging markets.

“The finance team needs to take a close look at personnel expenses every month and be well-aligned with our HR organisation so that we know where we are in terms of recruitment, staff attrition and any changes in employment terms and pay,” says Riding.

“People can be too optimistic about how quickly we can add resources. There is a shortage of talent with strong IT skills in the Mena region so people with the right skills can command high fees because they are often the only ones who can do the job to the level we require.” This impacts SAP’s ability to make forecasts about its cost base in the Mena region, as well as dictating how fast the company can expand.

The other key number and volatile element in SAP Mena’s forecasts is sales of software products, which

account for about 75 per cent of the business compared with 25 per cent for software services. This is measured on a monthly, quarterly and annual basis and is divided across industries, products and segments.

These figures can be highly volatile and over the course of each quarter there are regular assessments of the risks to software sales and the potential upside.

In the first month these are weekly, but they become more regular towards the end of the quarter.

The nature of the software business means that deals are often done at the end of the quarter.

Customers use the quarterly cycle to their advantage by taking negotiations down to the wire and it is often only the more experienced account executives who are able to manage deals to close earlier.

“As a CFO there are often heart-stopping moments because you’re never really sure whether you will meet your targets. And when you’re dealing with relatively significant top-line numbers there isn’t much that you can do from a cost perspective to mitigate the revenue performance.” »

48 Excellence in leadership | Issue 2, 2011

Assessing the pipeline

George Riding Riding was appointed the chief financial officer for SAP Middle East and north Africa (Mena) in October 2010 with responsibility for managing finance and accounting, treasury, legal, facilities and purchasing. Before this, he was head of sales controlling at SAP in Europe, the Middle East and Africa, responsible for improving visibility of business performance and maximising operational profitability and efficiency. He joined SAP in the UK in 2000 as the financial accounting manager and has held a variety of senior roles within the finance organisation. He is a member of CIMA.

Part of the uncertainty relates to the fact that one or two big deals can make or break a quarter. “You can have a forecast of $25m with two or three deals making up $12m of that total. You therefore need to have good contingency plans in case they don’t come in so you can meet the forecast profitability,” says Riding. So software sales forecasting isn’t just a finance activity; SAP’s managing director for the Mena region has weekly calls up the management chain to talk about the forecasts. “These discussions help to identify the elements that we might need at a regional level to close key deals, such as technical expertise that we don’t have locally or some other contractual expertise that we might need to bring into the region,” says Riding.

Improving accuracy One way in which the reliability of forecasts can be improved is to get a more even spread of deals throughout the quarter by encouraging better business practices by its account executives and sales managers.

“We are a young organisation. While we are improving rapidly and revenues are going up very quickly, there are a lot of people within the organisation who don’t have a lot of experience at SAP,” says Riding.

This means that people sometimes underestimate the time it takes to go through all the internal processes needed to close a deal, such as checking contracts with customers.

With this goal in mind SAP is investing heavily in “onboarding” people in the Mena region to make sure they understand what is required of them. They get a lot of training and support to ensure they understand the company’s product range, the internal processes that must be followed to complete a deal and the importance of ensuring that all sales information that feeds into the forecasting process is up to date.

“I don’t think we’ll ever move away from having a big last couple of weeks of each quarter, but it is possible to get things done at an earlier stage and we’ve seen improvements by applying more rigour,” says Riding.

Although SAP is focused on hitting quarterly targets, Riding also has to keep an eye on how the quality and status of the deal pipeline is shaping up relative to his forecasts for the financial year.

“We make regular assessments about how good the pipeline looks and what actions might be needed to improve our chances of hitting target,” he says.

Every prospective deal is assessed and weighted depending on its chance of completion.

Does the contract simply require the client’s signature or is SAP just one of several firms involved in a competitive bidding process?

This information is then collated to provide an overall weighted number.

“It’s quite accurate as a predictive method. It’s never going to be penny perfect, but it shows you when you have a wealth of opportunities that are relatively mature in terms of the deal process and when you’ve got a gap to fill,” says Riding.

The process recently revealed that there were a lot of opportunities skewed towards a small group of individuals who weren’t going to be able to follow up on all the deals at the same time. “We had to assess whether they were all live deals and, if so, decide how to reallocate resources internally, either by calling for help at a regional level or shifting resources from left to right within our own market,” says Riding.

Growth potential SAP’s success in the Mena region will partly depend on how well it draws on the group’s strengths and resources to support its regional growth plans. “There are many industries, particularly oil and gas, where SAP is extremely strong technically, but we are under-represented in Mena because we don’t have the feet on the street to engage potential customers – there are lots of opportunities,” says Riding.

The market fundamentals are also good. There is a large and growing youth population, a positive sign for technology adoption and a high proportion of cash-rich companies that have been benefiting from the strong oil price, which means that negotiations on price can be less fierce than in some other regions.

On the other hand Mena is a region made up of 15 countries, which means that its overheads might be higher than in emerging markets, such as Brazil, Russia, India and China (BRIC).

But Riding remains optimistic. “What Mena doesn’t have in terms of critical mass we should be able to make up in other areas. I don’t see why we shouldn’t be growing as fast as the BRIC countries,” he says. “If we can get the right people, management and infrastructure in place then the rest tends to fall into place.” n

Photography: Press Association

We make regular assessments about how the pipeline looks and what might be needed to improve our chances of hitting target

49 Excellence in leadership | Issue 2, 2011

Get involved with CIMA Writers and bloggers required

Formal and informal feedback in management accounting

Would you like to contribute articles and blogs to Insight, CIMA’s e-magazine for members and students? Insight reaches a global audience of 140,000 CIMA members and students. See our latest editions at www.cimaglobal.com/ insight and contact us at web@cimaglobal.com to find out how to get involved.

We are also looking for members who are interested in sharing their expertise by blogging and engaging directly with their readership at our online community CIMAsphere. To find out about blogging options, email us at: sphereinfo@cimaglobal.com

This study explores how formal and informal feedback plays a key part in influencing how effectively organisations are managed. www.cimaglobal.com/feedbackreport

CIMA Annual Awards 2011: Recognising excellence Every year the CIMA Awards identify the determination and dedication of people, teams and organisations in management accounting. The nominations are in and CIMA’s esteemed judges are beginning to make their decisions, so it’s time to book your table. Join us at the 10th CIMA Annual Awards. Find out how to book via the website: www.cimaglobal.com/awards Category sponsor: Hays senior finance

CIMA reports you may have missed CIMA produces a number of reports each year on a range of issues in finance and business. These can be found by visiting the thought leadership section of www.cimaglobal.com

Creating and popularising a global management accounting idea: the balanced scorecard This study focuses on the success of the “balanced scorecard” and demonstrates how it can be made practical through the process of customisation. The report can be read here: www.cimaglobal.com/balanced

Using management accounting to lengthen the time frame of managers This research study starts with the ambition of the managing director of Van den Udenhout (VdU), a large Dutch car dealer, to lengthen the time horizon of his managers.

In this research project an academic researcher and the managers of the dealership worked together to investigate how the time frame of the company’s managers could be lengthened, and how management accounting could help to achieve this. www.cimaglobal.com/timeframe

Round-table summary: Tomorrow’s balance sheet Following on from CIMA’s successful and ongoing relationship with Tomorrow’s Company, “Tomorrow’s balance sheet” summarises the key discussion points from a high-level, round-table discussion, where senior business decision-makers met with experts in sustainability to discuss the integration of strategies for corporate responsibility and evaluating their impact, both socially and environmentally. www.cimaglobal.com/balancesheet

UK Bribery Act and what it means for members CIMA members and students worldwide have a responsibility to be fully aware of the implications of the UK Bribery Act, its main requirements and what the law will mean in practice for CIMA members working for UK businesses and their subsidiaries overseas. This was passed in April 2011.

Read how the Act could influence the way you work: www.cimaglobal.com/briberyact

New products from CIMA Organisational performance A new report launched in May provides insight into how to shape the structure and roles within the finance function to best meet the organisation’s objectives. It looks at what best performing organisations are doing in this respect, as rated by the respondents. For more information, visit: www.cimaglobal.com/performance Supported by: Hays senior finance

What is CIMA on demand?

CIMA on demand offers a range of online courses covering a variety of topics, giving the flexibility and control to learn anywhere and at any time.

More details Each course currently has a running time of between 60 and 75 minutes and includes knowledge checks to ensure full understanding. Completion certificates are also offered so a record of successful completion of the course can be kept.

Course slides can also be printed off and retained. Courses cost £30 + VAT for 60 minutes and £45 + VAT for 75 minutes.

We also have special offers available l 10-course pack option. l 20-course pack option.

Check out the website for further details www.cimaondemand.com Remember, CIMAplus subscribers can select two free online courses from CIMA on demand.

From efficiency to effectiveness A new research programme, including a report and webcast interview, looking at how finance services will be delivered in the future. It examines the role of external delivery via shared services and outsourcing with the aim of identifying some best practice.

For more information, visit: www.cimaglobal/effectiveness Supported by: Genpact

50 Excellence in leadership | Issue 2, 2011

51 Excellence in leadership | Issue 2, 2011

Finance transformation

Efficiency to effectiveness Organisations’ confidence in the external delivery of finance services is rising, explains Ana Barco, enabling them to cut costs and improve efficiency. But are they missing an opportunity to transfer their in-house finance staff towards more value-added tasks, thereby improving effectiveness?

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IMA research shows that more than 75 per cent of finance and senior management surveyed globally believe that when finance works in a collaborative management support role the organisation can better meet its objectives.

Using the external delivery of finance services is therefore an important consideration in the transformation of finance and the move to a value-creation model. Business process outsourcing (BPO) has become common for many finance services, with companies turning to third-party vendors, not only to cut costs, but also to transform F&A processes to make them more efficient and more aligned with business goals.

The idea is that with better processes, and fewer processes maintained in-house, companies can save costs, liberate resources and time spent by in-house staff so that they can collaborate more closely

with the rest of the business, and turn their attention to activities of greater value.

“There has been significant impact from business partnering,” says Shantanu Ghosh, senior vice-president for practices, solutions and transitions at BPO provider Genpact.

“Most of our clients in finance and accounting continue to upgrade the areas we are responsible for. Their confidence in BPO is growing so they are looking closer at what they need to do in-house and how to create the capacity to be a true business partner.

“We are playing a much bigger role in more of the higher end and contextual finance processes. There is a growing desire among CFOs to streamline, optimise and change their business processes to drive core business goals, so they are looking beyond the traditional efficiency gains from labour cost arbitrage.

“They want better processes linked to business outcomes. Some buyers are very mature in that sense, but others are still focused on cost. The ‘best of breed’ clients look at how to get more out of their finance function and our expertise.”

Improved confidence Having begun as a captive of GE before becoming an external service provider, Genpact has seen the evolution of outsourcing processes from the simple to the complex at first hand – from closing and reporting activities, statutory reporting and tax matters to decision-support tasks,

including business planning and cost analysis.

For Ghosh, this reflects the change in the main drivers of outsourcing, from cost-cutting to real process transformation.

“It is not necessarily all about labour costs,” he says, “especially if a process is hard to decouple. It is more about the skills and scale of external service providers who, for example, can enhance the quality of analytics.

“Companies have more confidence now in the quality of service providers and believe that the BPO model adds capacity and skills. They are more open-minded and willing to leverage our competencies and capabilities and to invest continuously in developing the partnership. It is not just about substituting people.

“The market is maturing, particularly among buyers of BPO services. They may start out with the goal of cost-cutting, but given the overall success of the model customers are beginning to appreciate the full range of benefits they can receive, and to look for more from the engagement.

“BPO requires a big change management effort and hard savings in the bank to begin the journey. While 30 to 40 per cent savings in labour costs is impressive, after two years it may not be enough. The transformation agenda at that point begins to expand.”

This thinking is clearly shared by many peers, including Simon Newton, vice-president shared services at KimberlyClark (K-C), who reinforces the need to look beyond any initial cost savings to gain true value for the organisation.

“I firmly believe that while cost reduction is the fundamental bedrock of any outsourcing initiative, any scheme based mostly on this is ultimately doomed to failure,” he says.

“If and when better economic times return this sort of model will begin to unravel. For example, the European version of shared services in K-C was built »

52 Excellence in leadership | Issue 2, 2011

There is a growing desire among CFOs to streamline, optimise and change their business processes to drive core business goals The importance of skills in driving value creation So, does externalising the delivery of finance services lead to a company turning its in-house finance staff towards more value-added tasks? That is certainly the opportunity and, often, the goal that this delivery model opens up, but outsourcing F&A processes is just the first step and offers no guarantees.

“Clients always need time and bandwidth for finance people to move to being business partners and trusted advisors to the rest of the business,” notes Ghosh.

“They are usually struggling with tasks such as analysis and compliance, so BPO may be required. But while BPO saves cost and time, that freed time may not necessarily be used effectively by the business.

“To gain maximum advantage from their investment, the retained organisation at the client also needs the skill set for more effective business partnering and to understand the strategies used in the different parts of the business.”

Recognising this, service providers have realised that they can play a part in helping their clients to steer finance personnel towards higher end, value-added areas.

“Our responsibility includes helping with skill mapping and the redistribution of work,” says Ghosh. “But first the client needs to have a burning need to make this shift and commit to upskilling and re-purposing people.”

Ultimately, it is the organisation’s responsibility to ensure that the relevant skill sets and experience of the finance team is recognised, both within the retained finance function and the shared service or outsourced relationship.

For many organisations this is recognised as critical and ahead of any possible cost savings that external delivery might also provide, as Chris O’Shea, BG Group’s finance director Africa, Middle East and Asia, explains.

“The top criteria for outsourcing should be efficiency increases – labour cost arbitrage will eventually effectively disappear over time.

“The secondary nature of cost efficiencies also comes in where the quality of staff in a BPO or shared service is concerned. The skills of the staff employed

by BPO providers are very important, as is a low staff turnover.

“Surety of good-quality staff employed on your account is far more important than simply lower costs. Ultimately, efficiency and effectiveness are far more important than labour and cost arbitrage.

Service providers tend to focus more on these items, with less being made of cost savings.” n Article based on CIMA’s “From efficiency to effectiveness: Transforming finance service delivery” 2011 report – from www.cimaglobal. com/effectiveness Ana Barco Barco is a senior product specialist from CIMA and heads the development of various continuing professional development and research projects.

Photography: Getty Images

on the premise that we needed to operate in a highly consistent manner, with a rapidly consolidating European retailer customer base.

“This rationale has endured, even through the tough times on service and cost execution. If ‘higher value’ processing supports the business imperative beyond cost then confident and self-aware businesses make the switch.

“At K-C, despite having a major manufacturing aspect to our business, we need our business partners focused on customer and consumer investment analysis, which may subsequently create manufacturing investment.

“We have centralised monthly manufacturing reporting, product costing and first-line cost analysis in order to free up our business partners to focus on the questions the business needs answers to.

“I think this is the sort of task that the BPO world calls higher value. Within our K-C shared services world we have developed a brand profile that effectually characterises our higher value offering: ‘freedom to focus on growing your business’. That is the value proposition that we strive to perpetuate and deliver against each and every day.”

In achieving transformation, Ghosh at Genpact believes that BPO has distinct advantages over shared service centres (SSCs), particularly where relevant skill sets and experience are concerned.

“A client should only choose an external service provider when that provider has more skills and experience than would be available in-house,” he remarks.

“A BPO provider can build a bigger pipeline of talent, whereas a SSC has to obtain that expertise at a higher price.”

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Company insight Advertorial

Excellence in leadership | Issue 2, 2011

Bridging the talent gap The modern finance team requires an equally modern approach to talent management given its changing shape and new strategic demands. We highlight some steps that companies are taking as they rise to the challenge

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odern finance teams are changing fast as they play an increasingly central role in driving business performance and helping companies to gain competitive advantage.

Chief finance officers have to be strategists who focus on growth and opportunities for innovation, as well as controllers who must minimise costs and improve efficiency.

Outsourcing of the more transactional aspects of financial management to shared service centres (SSCs) has greatly improved the efficiency of the finance team by creating standard processes and consistent data.

This has freed up time for CFOs to devote more of their attention to strategic issues. It has also provided high-quality and reliable data that allows them to unlock the power of analytical tools that can help to tackle these new challenges.

Responses to IBM’s 2010 CFO survey highlighted the important role that finance organisations must play in creating value through the use of analytics. It also revealed that finance teams that provide strong business insight are helping to drive greater value across their enterprises.

CEOs want data-driven decision-making to play a critical role in the management of their businesses.

So, for example, they want the finance team to provide scenarios and simulations that offer

immediate guidance on the best actions to take when disruptions occur.

This new approach is changing the kind of talent needed by modern finance teams. In particular, there will be high demand for individuals who can manage enterprise risk, measure and monitor business performance and provide business insight based on the integrated information held by the company.

This means that certain skills will need greater emphasis, such as developing forward-looking analysis; delivering accurate cash forecasting; undertaking scenario-based planning and forecasting; providing strategic support for investment decisions; supplying volatility and risk-based predictive and behavioural modelling; and developing crossfunctional operational metrics.

The IBM survey revealed that 84 per cent of the finance chiefs interviewed felt it was important to invest in people to build capability, but only 49 per cent rated their organisation as effective in developing people. This was the largest gap revealed by the study in 2008 and 2010.

Making the most of your resources Although SSCs, outsourcing, centres of excellence or a hybrid of these now handle the transactional processing and much of the data needed by the finance function, CFOs must still have a good knowledge of all aspects of finance activities, wherever this takes place. They must understand the internal and external

Excellence in leadership | Issue 2, 2011

finance resources of the enterprise and the full end-to-end finance processes in order to support the executive management team.

An effective talent management programme is also required to ensure that this new structure runs effectively in terms of its governance and decision management, process execution and service delivery.

Many organisations are realising that the way they manage talent is more important than ever because it offers the potential to gain competitive advantage.

This comes at a time when companies are finding it harder to justify recruitment agency costs, want to recruit faster than external methods allow and are finding it harder to get candidates with the right skills to replace high performers who leave the organisation.

One solution is to hire from within. The starting point for this is to set the expectation that high performance will be rewarded with promotion. This will only work if individuals have confidence in the promotion process and have an ultimate career goal that they are working towards.

They then need a career path to be determined and agreed. This requires training programmes that are more targeted and focused on helping the individual to develop new skills. This kind of programme must use externally recognised competency frameworks backed up by the overriding values of the organisation.

Information about targeted roles must also be shared between the functional, regional and global levels of an organisation so that individuals do not miss out on the job opportunities when they arise.

Work shadowing, job rotation, secondments and back-filling opportunities are important aspects of understanding SSCs and outsourced activities.

However, this will only be a real success if there is an effective talent management strategy behind it.

It is equally important to understand outsourced and in-house business areas so that an organisation can manage its entire talent pool and maximise business performance across all areas. If the interaction between the retained organisation and the SSCs is well planned, it will also help to reduce operational risk. Encouraging cross-fertilisation between business areas can help to ensure that the outsourced elements of the business run effectively and the retained organisation is involved in changes to transactional processes.

An integrated approach One of the ways that companies can improve their internal talent development is to create multifunctional assignments. These can provide broader experience and greater development on the job, as well

Advertorial Company insight

One of the ways companies can improve their internal talent development is to create multifunctional assignments as allowing top talent to get a better idea of the direction they would like their next career move to take them in. Developing more flexible organisational structures can help a company to accelerate its response to new business opportunities and shift its top talent into positions where they can play a leading role.

The IBM 2010 Chief Human Resource Officer Study recommended the use of cross-organisation communities to share intelligence on strategic business topics. This can then be used to build collaboration directly into business processes and project management activities, which can help to spot business opportunities, share assets and drive productivity improvement.

The study also suggested that companies should allocate their talent development resources more strategically towards key positions and roles. This allows them to dramatically reduce the time to reach the right level of competence in these critical positions. Face-to-face learning can also be augmented by alternative techniques, such as social media, gaming and business simulations.

Undertaking annual or half-yearly reviews to monitor the success of this new approach is not a sufficient commitment given the fast growth of “virtual teams�, which are spread across multiple locations and geographies. The best results are achieved through quarterly or monthly interactions, which can reduce overall staff turnover.

By applying this approach the development of future finance professionals also has several other business benefits. First, it helps to cultivate creative leaders who can lead a more global, flexible and diverse workforce. Second, it improves flexibility of the workforce and the speed at which individuals can be deployed to match emerging opportunities.

Finally, greater collaboration and knowledge sharing can help an organisation to capitalise on its collective intelligence and that, in turn, drives efficiency and innovation among any CFO’s top priorities. n

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56 Excellence in leadership | Issue 2, 2011

Reputational risk

Supply-chain ethics Reputational risk might not be the most obvious threat posed by a company’s supply chain, but it is one of the most important.

Stuart Glenn, former chief operations officer at Parsons Brinckerhoff Asia Pacific and Africa, tells Dawn Cowie how the engineering services specialist carries out due diligence on all its suppliers

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company’s reputation is only as good as those of its suppliers. And when there is a weak link in the chain, it is often the largest, most well-known brand that suffers the greatest reputational damage by association.

This is particularly important for Parsons Brinckerhoff, which specialises in providing engineering services, such as planning, design and environmental assessments for infrastructure projects, often in remote and high-risk parts of the world.

Although it has most of the expertise it needs in-house, it still has to rely on sub-contractors, such as specialist sound or vibration engineers, drilling experts or legal advisers at points along the way.

This creates two main supply-chain threats,

particularly when the company works with suppliers in less developed countries − the potential for bribery and corruption and the level of health and safety standards.

“The recently introduced Bribery Act in the UK, and increased governance acts around the world, mean that we have to treat the risks very seriously. If you find yourself in association with an unethical organisation, ignorance is not an excuse any longer,” says Stuart Glenn, chief operating officer at Parsons Brinckerhoff Asia Pacific and Africa.

“The Bribery Act has certainly heightened our awareness of the risks and enhanced the way we approach the due diligence process – we not only have to be thorough, we also have to be proactive,” he says.

This hit the radar last year when Parsons Brinckerhoff, a US firm, was acquired by UK engineering giant Balfour Beatty.

57 Excellence in leadership | Issue 2, 2011

A risk worth taking?

The company’s rigorous due diligence process includes an assessment of country risks, the ethical and health and safety track record of any partners and suppliers it will be working with, and their level of expertise in working on projects in high-risk locations. All these factors have to be analysed and evaluated before it agrees to work on a project.

One important tool in the process is Transparency International’s Corruption Perceptions Index, which measures the perceived levels of public sector corruption in 178 countries worldwide (see following page). Parsons Brinckerhoff uses the index as a framework to assess the level of country risk. Then, if a country is categorised as high risk, a judgment has to be made about whether the potential threats outweigh the business benefits.

“You have to look at the nature of the organisation that you will be working with. If it is a local organisation

that doesn’t have much of a track record of entering a country that is high on the TI Corruption Perceptions Index, then it is not a risk worth taking,” says Glenn.

However, if the client is a global oil or mining business with strict standards of safety, governance and compliance and it happens to be operating in that area because of a mine or a particular prospect, then Parsons Brinckerhoff is more likely to act under their guidance. “When we go into countries that are high risk it tends to be with a global player because it provides greater assurance that we will be paid and that we will be operating at the right ethical and governance standards,” says Glenn.

Assessing suppliers However, with so much demand for transport and energy infrastructure in developing countries experiencing widespread demographic change, and

»

58 Excellence in leadership | Issue 2, 2011

As countries develop their infrastructure and resources they are learning from businesses and improving their practices

Glenn was president and chief operating officer of Parsons Brinckerhoff (PB) in Asia Pacific and Africa based in Singapore from 2010 until July 2011. He spent the previous 12 years at the firm in various positions, including as COO of PB International and also managing director of PB Australia. He has industry experience at logistics group Brambles, as well as in the mining and power sectors, and held senior government roles in his early career.

Finance professionals have a responsibility to be aware of the implications of the UK Bribery Act, its main requirements and what the law will mean in practice. This applies to those not only working for UK businesses and companies with a UK presence, but also their subsidiaries and supply chains globally.

Visit www.cimaglobal. com/bribery for more information.

Evolving standards So what happens if a local sub-contractor is not quite up to standard, but they haven’t done anything wrong and they’re evolving and improving their compliance processes. Then Parsons Brinckerhoff may help it to get the right systems in place, but Glenn says that this is relatively rare. “We have responsibility for the safety of all the people who work for us. So the reality is that we want to be pretty sure about who we’re working with, particularly if we’re going to a location that has safety risks because it is relatively remote or has developing standards,” he says.

As the due diligence process has to be rigorous, and therefore time-consuming, the firm uses a preferred supplier list so that it can minimise the number of checks that have to be carried out on each project and make faster decisions about who to work with.

Glenn is also optimistic that practices are improving, and therefore reputational risks are reducing, even in less developed parts of the world.

“We’re certainly finding that as countries focus on developing their infrastructure and resource bases they are learning from global businesses and improving their practices,” he says. “I’m feeling more and more positive about the acceptance of governance and safety standards worldwide.

Some places have a long way to go, but the trend is in the right direction.” n

Who’s clean and who’s a risk?

Two top-ten lists from Transparency International’s Corruption Perceptions Index, which measures the perceived levels of public sector corruption in 178 countries worldwide

Ten cleanest countries

1= Denmark 1= New Zealand 1= Singapore 4= Finland 4= Sweden 6 Canada 7 Netherlands 8= Australia 8= Switzerland 10 Norway

Ten highest risk countries 1 Somalia 2= Afghanistan 2= Myanmar 4 Iraq 5= Sudan 5= Turkmenistan 5= Uzbekistan 8 Chad 9 Burundi 10= Equatorial Guinea 10= Angola

Photography: Getty Images

Stuart Glenn

those capitalising on the resources boom, the opportunities for Parsons Brinckerhoff in emerging economies are vast.

The engineering services firm therefore has to be prepared to work with local sub-contractors from time to time, where its in-house compliance officers are able to give these suppliers a clean bill of health in terms of their ethical and operational standards. The starting point is a detailed series of trace checks using external databases to see if there has been any negative publicity or court proceedings involving the supplier.

“If the contractor has been flagged up in the press then we are unlikely to use them at all. It doesn’t necessarily make them guilty, but it heightens your awareness of the risks of association,” says Glenn.

The compliance team also makes checks in terms of company registration, conflicts of interest and levels of insurance, particularly the strength of its professional indemnity insurance policies. Also, if the company is choosing a contractor because of its particular technical expertise, such as a drilling specialist, the compliance team also has to check on the availability of its top staff.

Then there is the question of assessing the health and safety track record. This involves checking the references of their previous clients and their historical safety statistics. “We require all our sub-contractors to meet the same standards of health and safety, compliance and governance as we do. If not, they can’t do the work − we are strict on that,” says Glenn.

63 Excellence in leadership | Issue 2, 2011

Events CIMA World Conference

Why should you attend?

Theme: Business in tomorrow’s world – a sustainable future The CIMA World Conference is the global event for professional accountants in business.

The two-day event brings together more than 600 international delegates and a platform of world-class business leaders to offer insight into the future of finance.

The theme of this year’s conference is “Sustainability”. There are many new ideas and theories of what a truly sustainable business model looks like and we firmly believe that chartered management accountants have a key role to play in developing sustainable business models that ensure growth and success.

To register for the conference and find out more information about the programme, speakers and early bird booking rate, visit www.cimaglobal.com/ worldconference

Where and when?

CIMA World Conference 24-25 October 2011 Cape Town Convention Centre, South Africa

CPD technical update:

CPD technical update:

Executive CPD Academy

Better decision-making in difficult economic times

Benchmarking

17 October 2011 London, England

22 September 2011 Newport, Wales Photography: iStockphoto

Gain an insight into top-line thinking on the future of finance. l Network with global finance leaders. l Find out how world-class organisations are leading the way in the aftermath of the global recession. l

28 September 2011 Birmingham, England

When times are hard it is the quality of decision-making that separates successful companies from the rest. This event will focus on evidence-based management.

Benchmarking can be a powerful tool for providing insight. This practical workshop will help you to plan your progress from traditional performance management to value creation through benchmarking.

For more information, E. cima.techupdate@cimaglobal.com T. +44 (0) 20 8849 2489

For more information, E. cima.techupdate@cimaglobal.com T. +44 (0) 20 8849 2489

The Executive CPD Academy provides high-level CPD training and ensures you’re up to date with the skills and knowledge you need. Focusing on the strategic side of finance, the two days will cover seven areas and provide networking opportunities.

For more information, visit www.cimaglobal.com/executive E. conferences@cimaglobal.com T. +44 (0) 845 026 4722

65 Excellence in leadership | Issue 2, 2011

IN THE NEXT ISSUE..

Sustainability Sustainability approaches The priorities that drive companies’ approaches to sustainability, and how the finance team works with business units to put a value on the social and environmental impact of a business.

Measuring environmental impact Sports firm Puma has become the first major company to publish an environmental profit and loss figure for its entire supply chain. So how does this fit in with the company’s overall sustainability strategy?

Water security With record numbers of droughts and increasing battles over water supplies, how are companies preparing for a world in which water is an increasingly expensive and constrained commodity.

Green technology The developments taking place in green technology, which are helping transform business performance across a range of sectors.

Accounting for sustainability How social and environmental accounting models can help businesses and communities to make the transition to a more sustainable future.

Integrated reporting How environmental costs can be recognised in business models and communicated effectively through integrated corporate reporting.

An investor’s view Do investors factor sustainability into their investment analysis?

Who owns sustainability?

Companies are increasingly aware of the impact their handling of social, environmental and ethical issues can have on their business. But to what extent should finance own sustainability and be responsible for measuring it?

Standard Chartered in Ghana Standard Chartered’s sustainable approach to building a business in Ghana – encouraging sustainable growth in the real economy.

The role of private equity Why private equity firm KKR is backing companies with strategies for tackling energy efficiency and environmental risks, helping its portfolio increase profitability through environmental innovation.

66 Excellence in leadership | Issue 2, 2011

DIRECTORY Excellence in leadership

Issue 2 | 2011 | £12

Excellence in leadership

Top finance and business insight in this issue Mark Poole, CFO of Virgin Group, on investing in people Sushovan Hussain, CFO of Autonomy, on becoming a business leader George Riding, CFO of SAP Middle East and Africa, on forensic forecasting Tracy Figliola, head of global mobility EMEA, HSBC, on employee mobility Laura Whyte, personnel director at John Lewis, on boosting women in the boardroom

Human capital development

Human capital development ISSUE 2 2011

Global contacts CIMA UK 26 Chapter Street, London SW1P 4NP Tel: +44 (0) 20 8849 2251 Email: cima.contact @cimaglobal.com www.cimaglobal.com

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CIMA Ireland 5th floor, Block E, Iveagh Court Harcourt Road, Dublin 2, Ireland Tel: +353 (0)1 6430400 Fax: +353 (0)1 6430401 Email: cima.ireland@ cimaglobal.com CIMA Kenya George Mathenge, PO Box 55518, Nairobi, Kenya Tel: +254 (0)733 718 358 Email: george@ke.crownagents.com

CIMA New Zealand 111 Cuba Mall, Wellington, New Zealand, 0800 CIMA NZ Tel: 00 64 (0) 48017132 Email: cima@cima.org.nz CIMA Pakistan No.201, 2nd Floor, Business Arcade, Plot No. 27-A, Block-6 PECHS, Shahra-e-faisal, Karachi, Pakistan Tel: +92 (0)21 34322387/89 Email: pakistan @cimaglobal.com

Successful companies always invest in their people, but are they getting a good return? We find out which strategies produce the greatest business benefits

CIMA Singapore 51 Goldhill Plaza #08-02, Singapore 308900 Tel: +65 (0)6535 6822 Email: singapore @cimaglobal.com CIMA Southern Africa Postal address: PO Box 745, Northlands 2116 Office address: 1st Floor, South West Wing, 198 Oxford Road, Illovo 2196 Tel: +27 (0)11 788 8723 Email: johannesburg @cimaglobal.com CIMA Sri Lanka Colombo office: 356 Elvitigala, Mawatha, Colombo 05, Sri Lanka Tel: 00 94 (0) 11 250 3880 Kandy office: 254 Peradeniya Road, Kandy, Sri Lanka Tel: 00 94 (0) 81 222 7882 Email: colombo @cimaglobal.com kandy@cimaglobal.com