The CFO Middle East | Issue 18 by The CFO Middle East

VOL. 2 ISSUE 18

BILL McDERMOTT: S ue z

SAP CEO discusses Middle East’s digital prospects PG 24

REGIONAL JOB INDEX PG 42

THOMSON REUTERS: MENA CFO Gop Menon on tax PG 18

DREDGE DEEPER Gautam Pradhan steers National Marine Dredging Company to $1.5 billion Suez success

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Out of jail Founder, CPI Media Group Dominic De Sousa (1959-2015)

On 24th October, the UAE government issued a long-anticipated decree to help struggling companies avoid bankruptcy and liquidation.

EDITORIAL Group Editor Jeevan Thankappan jeevan.thankappan@cpimediagroup.com +971 4 375 5678

The law is expected to come into effect in early-2017, and contains elements of bankruptcy protection laws from jurisdictions including France, Germany and the Netherlands. Previous legislation dictated that business owners facing financial difficulties could face jail sentences.

Editor James Dartnell james.dartnell@cpimediagroup.com +971 4 375 5684 Online Editor Adelle Louise Geronimo adelle.geronimo@cpimediagroup.com +971 4 375 5683 Designers Neha Kalvani neha.kalvani@cpimediagroup.com Analou Balbero analou.balbero@cpimediagroup.com ADVERTISING Group Sales Director Kausar Syed kausar.syed@cpimediagroup.com +971 4 440 9130

Advertising Executive Zohair Ahmad zohair.ahmad@cpimediagroup.com +971 4 440 9127 PRODUCTION Production Manager James Tharian james.tharian@cpimediagroup.com

Operations Manager Shweta Santosh shweta.santosh@cpimediagroup.com Database and circulation Manager Rajeesh Melath rajeesh.nair@cpimediagroup.com DIGITAL SERVICES Photographer Charls Thomas

Thousands of business owners across the country will undoubtedly breathe a sigh of relief at the announcement, and there are a range of practical positives that should emerge. Although the UAE is undoubtedly a welcoming and attractive location to do business, the regulations had nonetheless proved an obstacle for some. The new law will enhance the UAE’s business environment by boosting its investment climate. Businesses facing financial difficulty can now restructure, instead of ceasing to exist, which will not hurt investors as much as it did before. What’s more, scores of indebted residents fled the UAE in light of the last financial crash, exacerbating the economic climate. However, the shift in legal proceedings surrounding the law changes has already been flagged by some legal experts as posing new difficulties in the short term. Restructuring and bankruptcy procedures will pose serious administrative challenges, as will the training of staff. Although encouraged by the changes, Essam Al Tamimi, Founder of law firm Al Tamimi and Company, has already raised concerns about the practicalities of the change, saying that there is a shortage of skilled insolvency practitioners in the UAE. The change is unprecedented for the country, and will inevitably incur a series of growing pains. Nonetheless, this can surely be only a good thing for this country, and the open, thriving business community that this government wants to foster. The World Bank’s ‘Doing business’ report from this year places the UAE 31st out of 189 countries – a hugely respectable position for a 44-year-old country. These changes will surely boost its ranking for resolving insolvency from 91st, by keeping those who are out of pocket on the streets.

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THE CFO MIDDLE EAST

Advisory Panel

The CFO Middle East’s Advisory Panel comprises a dynamic group of experts and leaders in various aspects of finance. As industry captains arriving from world-leading organisations and specialising in financial strategies, accounting and management, these key personalities will play a vital role in ensuring the delivery of relevant and accurate analyses of the latest trends and issues in the business community.

Ahmad Darwish Ahmad Darwish is a Board Member and Secretary General of the UAE’s Accountants and Auditors Association (AAA), an organisation tasked with the promotion and development of the accounting profession in the country. He is also the Senior Manager for Financial Accounting at DP World UAE and oversees the management accounting, treasury and asset management divisions of the company. With his extensive financial expertise Darwish is also the first Emirati to chair the UAE Members Advisory Committee of the ACCA.

for the ICAEW’s work across the MEASA region, collaborating with key stakeholders, engaging with businesses across the region, supporting ICAEW members and working with both public and private sectors on raising awareness of the relevance of chartered accountancy catalysing economic growth. Armstrong has extensive experience advising financial institutions and energy and natural resources companies in addition to having held several leadership and advisory positions in business and government.

Hanady Khalife Hanady Khalife is the Director of Operations, Middle East and Africa, of the Institute of Management Accountants (IMA). She is responsible for training providers, business partners, universities, governmental entities, amongst others. Khalife is also an expert consultant specialising in assisting clients develop and implement strategic business plans and build partnerships with key industry stakeholders.

David Thomasson David Thomasson is the founder and Managing Director of Phoenix Financial Training. David is a fellow of CIMA and worked in the accountancy industry for many years before moving into training in the 1990s. PHOENIX offers courses leading to Professional Finance Qualifications in ACCA, CIMA and ICAEW in Dubai and India. Offering a range of bespoke financial courses in Financial Awareness Building and Corporate Treasury Phoenix’s student body ranges from independent students to practitioners of private companies and sovereign wealth funds.

Michael Armstrong Michael Armstrong, FCA is the Regional Director for the Middle East, Africa and South Asia (MEASA) of ICAEW. He is responsible

Lindsay Degouve de Nuncques Lindsay Degouve de Nuncques is the UAE Head of the Association of Charted Certified Accountants

(ACCA). Her role entails spearheading discussions with regulators, business leaders and important stakeholders to strengthen the ACCA’s network and profile in the region. Degouve de Nuncques has spent more than eight years with ACCA in various senior roles.

Geetu Ahuja Geetu Ahuja is the Head of GCC for the Chartered Institute of Management Accountants (CIMA). Responsible for developing the growth of operations and positioning the global brand of CIMA across the GCC region, Ajuha establishes strategic partnerships with global and regional entities. She is also responsible for overseeing the launch of various region specific CIMA nationalisation programmes in the GCC.

Amer Khansaheb Amer Khansaheb is the president of the CFA Society Emirates. He is the Managing Director of Khansaheb Investments, an investment company with investments in construction, real estate and infrastructure. His expertise includes real estate management, construction management and financial analysis. Amer graduated from the American university in Beirut with a degree in Civil & Environmental Engineering. In 2009, he received his MSc in Project Management from the British University in Dubai. He has been a CFA charterholder since 2009.

CONTENTS 8

News

The latest developments in the local finance indsutry.

Dredge deeper Gautam Pradhan discusses how National Marine Dredging Company overcame financial and logistical hurdles as part of a consortium in a Suez Canal extension project.

“When we started this project, banks and financial institutions told us that what we were doing was impossible.”

Gautam Pradhan, Group CFO, NMDC

18 Knowledge is power Thomson Reuters’ MENA CFO Gop Menon shares details of the company’s drive to boost its tax and accounting business.

Data Curators SAP CEO Bill McDermott discusses the company’s future plans and the opportunities for digital transformation in the Middle East with James Dartnell.

SMEs today and tomorrow KPMG Lower Gulf’s partner for advisory services Tasneem Lakdawalla gives her take on how the GCC’s family businesses can weather tough transitions to ensure their longevity.

32 The information journey Kodak Alaris’ Emma Isichei on why banking compliance departments need to get up to speed with the latest information management technology.

34 Building a security business case for the CFO Jim Jaeger, Fidelis Cybersecurity, shares insights on the ways that IT can present a compelling case for cybersecurity spending to the CFO.

32 34

Cost optimation: transforming the GCC’s corporate agenda

EY’s Richard Ruttle and Stephen Farrell on the cost optimisation strategies that GCC corporations are implementing to cope with the volatile oil price.

Environmental health Steve Treagust, Global Director of Finance, IFS, highlights how increased environmental and ethical reporting can benefit businesses and their CFOs.

44 40

Evolution or revolution

Angelo Bertini, Managing Director MENA, BPC Banking Technologies, discusses how banks can make well-informed decisions regarding updates to their payments infrastructure.

It’s all in the execution… SomersConsult’s Fintan Somers gives his take on how CEOs and CFOs can work together to ensure the seamless execution of change programmes within the organisation.

News

ICAEW encourages collaboration between accountants and lawyers

Sage extends offerings to Saudi Arabia SMB market

(L-R) Abdulmohsen Albadr, Josor and Keith Fenner, Sage

Panellists at ICAEW’s Corporate Finance Faculty roundtable

Accountants and lawyers must collaborate more closely on corporate finance transactions to complete deals successfully and effectively, according to accountancy and finance body ICAEW. The notion was the outcome of ICAEW’s Corporate Finance Faculty roundtable held recently in Dubai. During the event, ICAEW members and guests discussed whether accountants and lawyers collaborate sufficiently on corporate finance transactions. Panellists agreed that accountants and lawyers need to bridge the gap in communications and collaborate more effectively on corporate finance transactions to ensure efficiency, and avoid delay or potential derailing of the transaction as the result of miscommunication. Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said, “Collaboration between lawyers and accountants is crucial to any successful corporate transaction. Bringing together the legal and financial expertise decreases the risks for

enforcement or compliance breakdowns.” Speakers with finance and accountancy expertise highlighted that best results were achieved when working with lawyers who had expanded their knowledge to better understand finance and accountancy, thereby enabling them to include the findings into sale and purchase agreements. Further into the discussion, the panellists noted that having a project manager on corporate finance transactions is critical. They added that investment bankers or CFOs are the best people for this role as they have both financial and legal expertise. Roundtable attendees included Andrew Tarbuck, Partner, Hogan Lovells (Middle East); Imad Ghandour, Co-founder and Managing Director, CedarBridge; Promoth Manghat, Chief Executive Officer, UAE Exchange; and Sam Surrey, Principal Director, Deloitte. The discussion was moderated by Matthew Benson, Partner Transaction Support Leader, Europe, Middle East, India and Africa (EMEIA), EY.

Sage, an integrated accounting, payroll and payment systems company, has appointed Josor as its business development and distribution partner for Sage X3, Sage X3 People, Sage 300 and Sage CRM business management solutions in Saudi Arabia. Josor, founded in 2011, targets small and medium businesses in Saudi Arabia providing them with products and services for industries such as finance, marketing, and technology. Leveraging on Josor’s expertise in the SMB sector in Saudi Arabia, the agreement will offer Sage partners a platform to grow their

businesses by taking advantage of the thriving SMB and technology sectors. “This is an exciting partnership that will act as an enabler for the SMB sector in Saudi Arabia,” said Keith Fenner, Vice President Sage Enterprise Africa, and Vice President Sage Middle East. “As the focus shifts to non-oil industries and SMBs, partnering with Josor will open doors for us in the Kingdom. We are thrilled to partner with a trusted name such as Josor in the promotion of our solutions.” A report on ‘Small-medium enterprises in Saudi Arabia, 2016’ by the Jeddah Chamber suggests that nearly 90 percent of all businesses are SMBs, contributing about 33 percent of Saudi Arabia’s GDP. Following government policy documents such as ‘Vision 2030’, the sector is set for rigorous change and development if its net contribution to the GDP is to increase.

UAE continues to attract interest from UK investors According to Links Group, the UAE’s economic diversification strategy continues to attract interest from UK investors, despite the sustained low oil prices. The notion was shared by the company after a trade mission to London with the Dubai FDI. “Dubai remains a robust and sustainable market due to the government’s strategy to diversify the national

economy by 2021,” said Simon Hobart, Director, Links Group. “Developing these new sectors will shore up the economy, but getting there still requires considerable investment and this presents excellent opportunities for investors in the UK.” According to the Dubai FDI, bilateral trade between the UAE and UK is set to reach AED 120 billion by

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Nasdaq Dubai expands equity futures market Nasdaq Dubai has announced the addition of Abu Dhabi Commercial Bank (ADCB) and Union Properties (UPP) to its equity futures market. The market opened on 1st September 2016 and is aimed at providing regional and international investors with unique new tools for investment and wealth protection. ADCB and UPP will join seven other UAE-listed companies on which futures have been offered from the outset: Aldar Properties, Arabtec Holding, DP World, Dubai Islamic Bank, DXB Entertainments, Emaar Properties and Etisalat. Market making services on all futures are provided by SHUAA Capital. Hamed Ali, Chief Executive of Nasdaq Dubai, said, “The addition of ADCB as a prominent bank and UPP as a leading property company provides attractive new opportunities for investors wishing to take a range of positions in the UAE capital markets. The benefits of

leverage, and the ability to make gains when underlying shares are falling as well as rising, are among the innovative features that the market offers.” A total of 43,219 single stock futures contracts have traded since the market opened. One contract represents 100 shares. Abdul Rahman Hareb Rashed Al Hareb, Chairman, SHUAA Capital, said, “The addition of ADCB and UPP on the equity futures market highlights the progress undertaken since its inception in September. The ongoing development of the UAE financial markets is a source of great pride for all involved. In addition, their listing will also contribute positively to market liquidity. We are pleased to be the lead market marker for the nine listed companies.” Nasdaq Dubai is planning a phased expansion of its futures market in coming months, including futures and options on shares of other companies listed on MENA exchanges, as well as futures on equity indices.

Members of the Dubai FDI, Links Group and The Business Year trade mission

2020, presenting a host of opportunities for investors. In 2015, trade between Dubai and the UK was worth AED 29.7 billion, and the UK remains one of the top source countries for foreign

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direct investment (FDI) into UAE. During the trade mission, a sector-specific briefing on setting up business in Dubai was conducted for members of

KAMCO names new CFO

Ruben Omar Fernandez, CFO

KAMCO Investment Company KSC, a subsidiary of United Gulf Bank, has recently announced the appointment of Ruben Omar Fernandez as its new Chief Financial Officer. With over 28 years of experience, Fernandez has held several positions throughout his years in the investment and finance industry. In one of his previous roles as Group Chief Treasury Officer and Financial

the Middle East Association (MEA) by Links Group in partnership with the Dubai FDI and The Business Year. According to Links Group, recent government initiatives have already helped to boost investment interest among British companies. The introduction of publicprivate partnerships (PPPs) by the Dubai Government in November 2015 is expected to offer more opportunities for major international contractors and financiers.

Institutions Head at Kuwait Finance House, Fernandez developed and managed Group Treasury strategies in Kuwait, Turkey, Malaysia, Bahrain and Saudi Arabia. He also held several positions in organisations such as Citi Bank. “I look forward to joining one of the leading investment companies within the investment banking and asset management sectors,” said Fernandez. “KAMCO holds a solid track record in investmentrelated achievements, coupled with a wealth of accumulated experience, and supported by a specialised team of capable and knowledgeable professionals. With the collaborative efforts of the management team, I believe that we can drive sustainable financial growth, development and stability in KAMCO.”

Ibrahim Ahli, Director of Investment Promotion Division, Dubai FDI, said, “Over the last few years, the Dubai FDI along with our partners, have enabled a significant number of innovative British enterprises to set up in Dubai and target wider regional markets. As we gear up to Dubai Plan 2021, we look forward to welcoming further UK investors to explore the region’s exciting business landscape and offer them Dubai FDI’s expertise in facilitating foreign investment.”

THE FUTURE OF THE FINANCE FUNCTION The CFO’s role is one that is full of contradictions...

81% of senior finance professionals believe CFOs will be more influential in decision making, but one third of CFOs are still making decisions based on gut feelings.

CFOs are still bogged down with traditional accounting...

81% believe CFOs will be responsible for corporate data, but almost two thirds admit they are struggling to master the variety and volume of new business data.

75% believe CFOs will play a greater role in innovation, but two thirds currently admit they have too little time to spend on innovation and process. improvement

52% of CFOs believe they spend too much time on TRANSACTION PROCESSING

72% believe more CFOs will be responsibile for technology, but one third of CFOs are currently struggling to make the best use of it.

77% believe the finance function will consist of fewer but more highly skilled members, but 52% feel threatened by the automation and de-skilling of accounting .processes

42% of CFOs believe they spend too much time on MANAGEMENT ACCOUNTING

32% of CFOs believe they spend too much time on STATUTORY REPORTING

Leaving insufficient time for ‘value creation’... Process Improvement

Innovation

Business Partnering

Performance Management

Strategy Development

Consequently, only 42% of CFOs believe the finance function is perceived positively by other business functions

Or people development... CFOs whose finance teams invest strongly in their development are...

62%

almost twice as likely to spend more time on BUSINESS ANALYSIS and less on accounting

almost twice as likely to be engaged in creating BUSINESS VALUE

72% more than 2.5 times as likely to be activly engaged in BUSINESS DECISION MAKING

Consequently, those that invest strongly in their finance teams are almost two-and-a-half times more likely to be perceived more positively by other business functions

Process standardisation and automation are key to breaking free from the traditional CFO role... CFOs underestimate the importance of process standardisation, automation and linking front office to back office systems, yet those that have fully achieved these goals are more likely to... have LIBERATED TIME spent on transaction processing and reporting in favour of added value initiatives such as performance management

have a better VIEW OF ORGANISATIONAL PERFORMANCE and FORECASTING MORE ACCURATELY

be PERCEIVED MORE POSITIVELY by other business functions

make QUICKER AND MORE TIMELY DECISIONS based on more comprehensive and accurate management information

have made the BEST USE OF TECHNOLOGY available to them

Source: FSN Publishing Limited

COVER STORY

NMDC

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COVER STORY

NMDC

DREDGE DEEPER WHEN THE EGYPTIAN GOVERNMENT DECIDED TO MAKE VAST EXTENSIONS TO THE SUEZ CANAL, COMPETITION FOR CONTRACTS WAS FIERCE. ENTERING INTO A CONSORTIUM THAT AT ONE POINT DEPLOYED 70 PERCENT OF THE WORLD’S MARINE DREDGING POWER, NATIONAL MARINE DREDGING COMPANY OVERCAME A SERIES OF FINANCIAL AND LOGISTICAL HURDLES TO PLAY A HUGE PART IN THE $1.6 BILLION – AND HIGHLY IMPROBABLE – MEGA PROJECT.

“

This was the biggest mega-project to have happened at the time in Egypt,” Gautam Pradhan draws immense satisfaction from his part in the Suez Canal’s extension, and with good reason. The development is set to offer a major boost to Egypt’s economy, and the National Marine Dredging Company (NMDC) chief financial officer was a crucial change agent in making the development a possibility. NMDC’s work, as its name suggests, centres around dredging, marine and port construction, as well as breaking water for beach and environmental protection. The company has cultivated a reputation for a series of large-scale projects, including the development of four artificial islands to create new oil fields in Abu Dhabi on behalf of ZADCO. It’s easy to imagine how a company that handles such large projects would have some heavy costs to bear. “Our industry is extremely capital-intensive,” Pradhan says. “The equipment costs are huge, as are fuel and people. This is a very unique industry, and people are the

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driver of it. Finding the right people who can drive these projects is very tough. The industry is very concentrated, and requires very specialised staff, which is a big challenge.” Pradhan adds that “around 2530 percent” of costs go towards equipment, a similar number goes towards fuel, while “15-20” percent is spent on staff and other overheads. The company’s formidable reputation stretched across the Red Sea. For Egypt, strong ports and connectivity form a vital part of its economy, with the Suez Canal, situated in the north east of the country a key pillar in trade. The Egyptian Government had long desired to make substantial expansions to this channel, but for various inhibiting factors had been unable to do so. “They recognised the benefits that were at stake if they could push this through,” Pradhan says. “Suez is the heart of the connection between continents, and fantastic opportunities could be opened if it could be expanded.”

After much deliberation, the Egyptian Government, in partnership with the Suez Canal Authority, decided that risks had to be taken, and the project would have to commence. Due to the sheer scale of the project, the Egyptian Government recognised that their ambitious deadline – completing work in a nine-month timeframe, beginning in October 2014 – could never be met without enlisting several partners. “In order to dredge a volume of over 200 million cubic metres, it would take a single company well over 3-4 years to complete,” Pradhan says. With this constraint in mind, NMDC, enlisted by the Egyptian Government, agreed to begin work on the Suez Canal. They would be part of a consortium consisting of three other marine dredging partners, including Dutch firms Boskalis and Van Oord, and Belgian company Jan De Nul. Working in tandem with some of NMDC’s biggest international competitors did not come without its challenges, however. “Arranging the banking requirements, guarantees,

COVER STORY

NMDC

“When we started this project, banks and financial institutions told us that what we were doing was impossible.”

bonds, insurances and managing working capital with all the partners were all things that required a lot of work and consideration,” Pradhan says. “Structuring the finance of the deal had to be handled carefully.” Adding to this complexity were the difficulties that the Egyptian economy had faced in prior years. Chief among these issues was the convertibility of the Egyptian pound to euros and dollars. “Foreign currency availability in Egypt was very low, and there were a lot of constrictions in terms of getting money out of the country due to the Central Bank,” Pradhan says. Throw into the mix NMDC’s background of working in a tax-free environment, and there were a number of potential banana skins to overcome before a deal had even been agreed.

All received wisdom indicated that an agreement would be difficult to tie up. “When we started this project, banks and financial institutions told us that what we were doing was impossible,” Pradhan says. “Nobody imagined that paying $1.6 billion in a year would be achievable. The Suez Canal Authority, the Central Bank of Egypt, and the Government of Egypt took this as a challenge to make sure they could deliver something great for the Egyptian people.” In spite of all the exchange problems faced, as well various regulatory issues, a deal was eventually struck. “The Egyptian Government were fantastic, and considered the long-term view of the country’s population as motivation to get things moving,” Pradhan says. “The sooner this job was delivered, the

faster revenue generating streams were going to come in.” In such a large project, the potential risks for NMDC had to be carefully considered, but Pradhan was confident that huge return on investment was due if things went to plan. “For us, every job is a risk and an opportunity,” he says. “In the marine industry, we go all around the world with our work, but we always look at everything we can in order to mitigate risk.” Nevertheless, Pradhan was careful to be sure of the laws and regulations that were specific to Egypt. “We had to ensure compliance mandates were followed properly, and could deliver wealth to our shareholders and stakeholders from agreeing this deal.” After signing the contract for proceedings to begin, a series of logistical hurdles would have to be overcome.

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COVER STORY

NMDC

“Mobilising staff was difficult,” Pradhan says. “This job would require very highly skilled people. The integration of dredging and marines is very important. Weather and soil conditions also play a massive part, and these are conditions that are out of our control.” Space constraints on the site would have to be considered. “With so many dredgers working in one area, you have to keep all the equipment in one area. Once work on the Canal had begun, NMDC and the other dredging partners were also prohibited from blocking other vessels from passing.” The same day the contract for the project was signed, NMDC’s dredgers set sail from Abu Dhabi. “Bringing the necessary equipment from around the world to Egypt was the first major logistical challenge we had to tackle,” Pradhan says. In spite of all these difficulties, work was able to begin, and all four dredging companies hit the ground running. The initiative required tireless dedication from all the firms involved. “At one point in time, 70 percent of the entire world’s dredging production capacity was deployed on the Suez site,” Pradhan says. Following a painstaking nine months for NMDC and the trio of dredging partners, Pradhan has walked away having played his part in a record completion time for a marine

dredging project of this size. NMDC and the dredging partners successfully established a parallel 35km-long additional waterway to the Canal, which had around minus 24 metres in depth, while also adding widened and deepened bypasses to 37km of existing waterway. This has already begun to ease congestion on the Canal. “Before, the Canal only had one-way traffic, and ships had to wait for traffic to pass by,” Pradhan says. “The new waterway saves around 8-9 hours of sailing time per vessel, which is a huge benefit.” The changes stand to bring substantial benefits to Egypt’s economy, with considerably larger containers now able to pass down the Canal, which will increase the volume of Egypt’s imports and exports. The development of infrastructure along the Canal’s banks, meanwhile, also has developed the possibility of “more industrialisation” and offer more employment opportunities. “Once trade starts increasing, this will also bring more foreign exchange opportunities into the country,” Pradhan says. Pradhan relished the experience of collaborating with operating alongside some of NMDC’s biggest competitors. “It was a great opportunity to learn from their best practices, and how they manage their working capital across different countries and continents,”

he says. “The approach to the whole job from a finance perspective was a great experience for me.” He has also gained a new outlook on the benefits of collaborating with those who had traditionally been seen as adversaries. “One of the most interesting dynamics I had to manage was transforming a relationship with a competitor into being a partner. In this gloablised world, it’s important to have a different approach to business. This kind of approach helps you to come out of your comfort zone and can help you take an organisation to a different level.” Pradhan also draws great pride from the benefits it could bring to the UAE as a whole. “I think it’s great to have companies from this country going out and competing with the world’s best for this kind of contract.” The project has earned NMDC worldwide recognition, giving the company extra clout in terms of landing new projects. It has also given them vital access to the Indian market, which had previously been dominated by a series of players. With the UAE and Indian governments having signed an agreement for infrastructure development, NMDC is set to benefit with a series of new dredging contracts.

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INTERVIEW

Gop Menon

KNOWLEDGE IS POWER With thousands of global clients dependent on its market data, Thomson Reuters needs to blend first-class journalism with smart technology platforms. GOP MENON, chief financial officer for the firm’s Middle East and North Africa region, discusses the company’s drive to boost its tax business.

op Menon recalls a moment that perfectly sums up the mercurial nature of his industry. “I was at a conference in 2008, shortly after the Financial Crisis had begun,” he says. “Staff across industries around the world were being cut, but I seemed to the only person saying we were

recruiting. I guess you could say bad news all round equalled good news for us.” Thomson Reuters subsequently invested $10 million in its regional operations, focusing on organic growth. The investment has proven to be a welladvised. Over 350 staff now sit in the

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“I think a lot of my peers still think that we’ll get to January 2018, and the government will delay the introduction of VAT for another 12 months.”

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INTERVIEW

Gop Menon

“Staff across industries around the world were being cut, but I seemed to the only person saying we were recruiting.”

Dubai office today, while 700 work across the Middle East and North Africa region that Menon’s work covers. Menon manages a finance team of nine from the Dubai office, with some operations outsourced. “Our financial controllership is carried out in Bangalore, where we also have about 4,000 global staff,” Menon says. Previously working for Reuters’ group finance division in London, Menon gained high-level experience on a range of transformation initiatives, including a crossorganisation restructuring project with the CEO office .. Menon arrived in 2007 – when Thomson Reuters had 90 staff in its Dubai office – working for the organisation’s financial business across the Middle East and Africa region. He was named chief financial officer in 2014. Around “90 percent” of Thomson Reuters’ business in MENA is related to the financial services industry, while revenue resulting from the media business – news, images and video – totals roughly 2 percent. “We’re a wholesaler of news,” Menon says. “That means we provide content for sale, as a feed, for our clients to consume.” “The news agency business is how the Reuters side of the business initially started, and the news developed from that side goes into our financial, legal and tax products,” Menon says. At the core of the news & content gathering process lies Thomson Reuters’ strongest asset, and Menon’s heaviest expenditure. “Our biggest cost is people,” he says. “We are in the business of collecting content and data, and in order for that to be dispersed worldwide, it’s essential to make an investment

in people in order to carry out that process.” Turbulent economic conditions in the region have once again worked to Thomson Reuters’ advantage, with the firm seeking to expand its reach beyond its financial services platforms. Thomson Reuters recently hosted its ‘MENA Evolving Tax Landscape’ conference, which gathered a selection of highly regarded speakers, including representatives from the IMF and Qatar’s Ministry of Finance. This is a precursor for the firm’s increased efforts to highlight its other lines of business. “We’re aiming to position ourselves as thought leaders in several spaces, including tax,” Menon says. “We’re trying to say that we have much more than a financial business. Obviously, we’re helped by the fact that VAT’s come into the region, and we’re trying to establish ourselves as the software solution provider for indirect tax calculation & compliance.” Tax and accounting has been a big focus for Thomson Reuters, but, unsurprisingly, primarily in the US, and in jurisdictions with more mature tax environments. “For us, the thread that goes across our business is providing information, data and analytics to professionals in industry,” Menon says. “We want to show how clients can manage their risks and market turbulence.” Menon believes that while some CFOs may still be in a state of denial regarding VAT, the time for action will inevitably come. “I think a lot of my peers still think that we’ll get to January 2018, and the government will delay the introduction of VAT for another 12 months,” he says. “We do feel that a lot of people are burying

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INTERVIEW

Gop Menon

“Our strength lies in reporting on public companies, but we’re always aiming to get a deeper understanding through a number of channels.”

their heads in the sand with VAT. But this is real, and it is coming. Saudi Arabia recently announced that VAT will come into effect on 1st January 2018, and I expect the UAE will shortly do the same thing.” Given the range of IT platforms that Thomson Reuters depends on – and with so-called ‘hard’ journalism at its core – many will ask whether it should be classed as an information or technology company. Eikon, Thomson Reuters’ flagship financial product provides data from exchanges around the world, featuring analytical tools for finance professionals. “We are a technology firm,” Menon says. “It’s a bit of a conundrum for us. We see ourselves as a technology company, with data at our core. It’s the way the world is evolving. There’s now a data overload taking place, so it’s crucial that we can make tools smarter so they are able to filter the right data.” Given the importance of data delivery in Thomson Reuters’ work, and with competition with rival Bloomberg always intense, a lack of timeliness in transmitting information can lead to irate financial customers. “Fractions of a second become very important in our industry,” Menon says. “We make sure we invest in latency in order to deliver real-time, accurate data.” Although the company’s primary business is the gathering of financial data, Menon and the Thomson Reuters team also have a mandate to monitor developments that go on behind the scenes across the region. Suffice to say, this is often easier said than done. “Transparency can be an issue,” Menon concedes. “Our strength lies in reporting on public companies, but we’re always aiming to get a deeper understanding

through a number of channels.” The firm is making a number of in-roads to expand its reach in terms across the Middle East. Menon speaks particularly highly of the 2012 acquisition of finance and business news portal Zawya, which has added clout to Thomson Reuter’s Middle East offerings. “It’s added another tier to our customer base,” Menon says, “and is fantastic for private company information across the GCC and MENA regions.” In late 2015, an Emerging Businesses unit was established within Thomson Reuters, with three main initiatives comprising the unit. Chief among them is the Accelerate SME platform, which is a community platform to give an avenue for businesses to interact and develop their business The tool allows users to grow their profile through adding data on their business, and allows them to be “rated” via an algorithm. With the delivery of real-time data a necessity in Thomson Reuters’ line of business, Menon always has a series of pressing concerns at hand. “The biggest challenge I face today is balancing priorities,” Menon says. “Our financial business is still maturing in the region, and is our cash cow, so we need to ensure that that ticks along whilst ensruing that we invest enough in our growth businesses – risk, tax and legal. We need to put the right resources in the right place so that we can provide adequate growth for other units. “Even in difficult times, everyone needs clarity, data and information, and to make sense of what’s going on. As a data provider, we’re well placed to make use of analytics to shed more light on a situation.”

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INTERVIEW

Bill McDermott

hat’s your perception of the Middle East? If you think about the UAE and the 2021 vision, the idea of digitising services, and creating digital technology and innovation-oriented jobs for young people is fantastic. You’re seeing lots of businesses diversifying into multiple industries. Obviously there’s less of a reliance on oil in the UAE compared to Saudi Arabia, but if you look at their 2030 vision, they’re clearly trying to diversify their economy. Customers want to run S4 HANA in a public or private cloud. We’re making a commitment to the region to have cloud data services here for public and private environments. Data, data management and data security are very important here, and a commitment from a company like SAP is reassuring in that journey.

DATA CURATORS

SAP CEO BILL MCDERMOTT sat down with James Dartnell to discuss the company’s plans to build a data centre in Dubai, and the opportunities for digital transformation in the Middle East.

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So you’ll be building an SAP data centre in the region? We’re doing it; the data centre will be in Dubai. We’re refining the locations and the final strokes on that, but the capability is clearly there for it to be here, with perhaps one or two other locations. There could be one in Riyadh as well. We’ll keep you posted as soon as the deal is inked. We now have 40 cloud data centre locations around the world, in every major economy, and we’re going to build one right here. It’ll be here in 2017. You can have the private cloud right now, but for public cloud we’ll be offering that here, as-as-service – the servers, the cloud data centre – will be right here. So people will be able to validate that and have comfort with their own servers and information. Since 2007, when we established a middle channel between us and our customers, we’ve been the fastest growing software company in the world, and in the Middle East. We’re very well liked here, and I think we’re well liked everywhere. Our brand is highly regarded and people have trust in us. A company of our size and scale – a $25 billion company – has to ask where growth will come from. We have to do well in our core markets – the US, Europe, Latin America, Asia – but if you’re really going to get the hockey stick, then you have to capitalise on the immense growth opportunities in the Middle East, Africa, parts of South America, India and China. These are mission-critical markets for us and that’s why we’re investing heavily, and in doing it the right way. Is digitalisation a realistic prospect for this region in the short-term? You need to have a vision, and you have to start somewhere. I think the region is

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counting on us to bring thought leadership and best business practices from all our other worldwide operations. We need to scale that across 25 industries – as you know, we got to market by industry – and that’s a great place to start. It’s important that technology and research are encouraged within the region, and that public-private partnerships are leveraged to achieve this. One of the universities I visited in the UAE has 6,000 students from 90 different countries – that’s a lot of intellectual firepower. I think a digital journey starts with education, which emanates into a global opportunity. The Middle East’s digital journey is far from complete but we have the vision to lead it. If you think about Expo 2020, if you think about travel and expense with Concur, and what we’ve done with professional sports, I think we’re the perfect match for the UAE and the Middle East. You’ve just announced partnerships with HP, Lenovo and Microsoft… I think we’re all trying to do the right thing for the new consumer. Satya and I were at Sapphire Now last week in Orlando talking about Office 365 and S4 HANA, and the notion that an office worker could have a seamless experience between their Microsoft office experience, and their enterprise application experience with SAP. If you happen to be in Outlook and you have a human capital management function in ERP that you’re trying to access, then it does that seamlessly. HP has obviously abided by our reference architecture on S4 HANA, and they’re interested in private cloud environments, where SAP is pervasive.

Lenovo make outstanding hardware and have very attractive price points, HANA runs on x86 hardware so we keep the price low. HANA consumes ten times less hardware than other databases on the market, as well as providing seven times more throughput and is 1,000 times faster. Any time we can get the customer better value on the hardware, and better performance on the software, it’s win-win. What can Middle Eastern CFOs learn from their American and German counterparts? I think Germany has done a great job in terms of its Industry 4.0 efforts, led by Chancellor Merkel and her vision for the industrialised Internet. There are many large companies operating at scale, taking advantage of opportunities including the IoT. Lessons to be learned include how to take big companies, and scale and diversify them. How to look at businesses in real-time for clarity and visibility. The United States is incredibly creative in terms of developing new markets and opportunities. When you have a bust in one industry, they’ll create a new industry and a new market. There’s this resilience around markets and market dynamics. The other thing is innovation. When you think about Silicon Valley, venture capital money and the investment in young people, there’s a lot to be learned. The other thing that’s underreported is the philanthropic aspect of what the US does. Philanthropy is done at scale and there’s a big lesson there. Are you the antithesis of Larry Ellison? I think we’re both very driven people who are in charge of very different companies.

INTERVIEW

Bill McDermott

I think that we have some similarities too. We both do all that we can to make the best for our companies, and we’ve both been very good at what we’ve done. You can only give credit to Larry on a personal level for that. He’s been very good at what he does for a very long time. Hats off to him in that regard. As for Oracle and SAP, we’re just very different companies. They’re a database company that moved into the application space, we are an applications market leader that was in a perfect position to disrupt the database industry at the very moment it mattered the most to disrupt it. Due to the mobile explosion and IoT, the disk-based database from the 20th Century is too slow, consumes too much hardware, and doesn’t give the businesses that rely on it the complete clarity of mission, where they have visibility into their data in real-time. With HANA, we disrupted the database market as we know it. You might even say we are going to ‘Uber’ the database market. With regard to the applications, reinventing S4 HAHA on a pure inmemory platform has dealt with the toughest objection to SAP. Maybe you could’ve said ‘it’d be great if SAP had a database’ or ‘it’d be great if SAP could be more simple’. We’ve now simplified work that used to take six or seven steps to a matter of a few clicks. I think that makes us a very different company from Oracle. I’m not saying better or worse – that’s up to the customer. We’re the only company that does inter-enterprise collaboration of companies. I think in this century that will create more growth than pure internal enterprise computing. We stayed out of the hardware business. We can work with commodity hardware and cut costs dramatically. CFOs are under constant pressure to marry business and technology. To

“The data centre will be in Dubai. We’re refining the locations and the final strokes on that, but the capability is clearly there for it to be here, with perhaps one or two other locations.” what extent have you earned your CEO position through technical skill, and how much has been through aligning business and technology? It’s always been the ultimate ambition to match business objectives with IT enablement. The biggest reason that strategies fail is that companies do not enable technology in the execution phase. What I think I bring to the party, and what I think SAP brings to the party, is a rich appreciation of how to run a business, and a true empathy for how you enable that

strategy for the use of technology. Some companies are determined to talk about their products, but the truth is, the best mouse trap doesn’t always make the strategy a winner. You have to combine business and IT. One of the big challenges is aligning business professionals and IT professionals in the customers we serve. The only medium that I think serves the interest of the company is when these professionals are aligned in common goals, and how to combine them for the benefit of the business.

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INSIGHT

KPMG

SMES TODAY - AND TOMORROW

KPMG Lower Gulf’s partner for advisory services Tasneem Lakdawalla gives her take on how the GCC’s family businesses can weather tough transitions to ensure their longevity.

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INSIGHT

KPMG

MEs have been a driving force for many economies. Within the GCC, they account for over 70 percent of GDP and are an increasingly important economic force. SMEs are typically family-owned and managed, and the GCC is home to many that have blossomed into large conglomerates. Family-owned businesses have often proved to be both resilient and successful, doing very well and outperforming non-family peers. Nevertheless, these businesses tend to operate within a ‘closed’ structure and often have a strong desire to retain control. In this article, the first in a series directed at family businesses, we look at a key issue that inhibits the growth of family businesses – funding. We suggest strategic priorities these businesses need to focus on to move to the next level. And we look at why some family businesses fail. Owners of family businesses tell us they want to know how to innovate, despite their limited financial capabilities to invest in innovation or transformation. They want to know how to increase turnover and improve profit margins despite mounting cost pressures. They want to be able to diversify product portfolios – or to understand how to sell goods and services in other geographies or markets. Growth is possible. There is no doubt that liquidity across the GCC is tighter now than it used to be, and that there are considerable business headwinds to deal with. But the private sector is healthy, adaptable and used to competition. At the same time, there is considerable assistance available for local companies. As well as banks, SMEs and GCC-owned family businesses have access to funds at reasonable lending rates from various government bodies, chambers of commerce, governmentrelated entities and NGOs. In addition, organisations like KPMG help family businesses by supporting

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their innovation plans and preparing and validating the business models which back them. Family businesses can then approach lending and other financial service institutions with viable business plans to help them get access to funds. Organisations like KPMG can help rationalise costs, analyse trends in past data to support predictive analysis towards growth and expansion, or look at the extension of markets to other geographies. Growth and expansion have made family businesses think about – and be increasingly open to – new ways of financing. Very few businesses are entirely self-reliant on internal funding, and SMEs with operations in global markets are keen to leverage the different, possibly cheaper funding options available in new geographies. Funding options are no longer used to meet short or medium-term goals but are viewed as long term investment options. Traditional lenders are facing competition from other players like private equity houses, high net worth individuals and long term investors. New financing options may mean relinquishing controls but this comes

“Family-owned businesses have often proved to be both resilient and successful, doing very well and outperforming non-family peers.” Tasneem Lakdawalla, Partner Advisory Services, KPMG

Family businesses continue to be the driving force behind the global economy. According to the Family Firm Institute, family-owned companies account for two-thirds of all businesses worldwide, generating more than 70 percent of global GDP annually. However, their economic importance is often underestimated. KPMG is partnering with The CFO Middle East to develop a series of articles on family businesses, covering: - The changing face of family businesses - Strategic changes family businesses are making - Family businesses and philanthropy - Issues inhibiting success - How family businesses are professionalising We will develop a short poll to accompany each article and look forward to receiving your response. If there are particular areas or topics of interest to you, please let us know.

INSIGHT

KPMG

POLL: with benefits like strategic alliances and tie ups and access to overseas markets and customers. The choice of investment partner is critical. Once funding is secure, and as companies grow, owners often look to professionalise their existing management teams. Organisations are increasingly looking outside their ‘closed’ teams to seek help from professionals to help run and manage their business. External professionals bring with them a variety of skills and benefits, including an outsidein view which simultaneously improves governance and processes, balances family concerns and business interests, and maintains family control. Involving external leaders helps decision makers take effective decisions without being prejudiced by sentiment. External decision makers may suggest that it is time for change at the top. Today’s business owners are increasingly aware of succession planning issues. Rather than waiting until retirement or old age, the next generation is being groomed earlier to be trained and so management, ownership and governance experience can be passed on. The next generation tends to be better equipped to deal with changing business and – more importantly – technology trends that are driving operations today. From proficiency in understanding international markets and digital trends to working across multiple jurisdictions, these organisations gain from millennials’ experiences. An alternative is to sell the business. Handing over a family business to the next generation

How confident are you about your family business’s economic perspective over the next 12 months? Very confident Confident Neutral Negative Very negative No answer How has turnover changed over the last 12 months? Increased Stayed the same Decreased No answer How have staff numbers changed over the last 12 months? Increased Stayed the same Decreased No answer How has overseas activity changed over the last 12 months? Increased Stayed the same Decreased No answer Approximately how many people does your business currently employ (full-time equivalents)? Less than 50 50-249 250 – 1000 Over 1000 No answer Which generation of the family currently manages the business? First Second or third Fourth or later No answer Which generation of the family currently owns the business? First Second or third Fourth or later No answer For the online survey, visit: www.surveymonkey.com/r/JPHCCFB

is make-or-break time for most family-run businesses, and statistics reveal the disparity between the optimistic intentions of business owners and the massive failure of their companies to survive through the generations. The reality is alarming: only 30 percent of family businesses make it to the second generation, 12 percent make it to the third, and only 3 percent make it further than that. Without a good plan in place, each time the business passes into the hands of the next generation, it could face failure, no matter how well it was doing previously. And SMEs do fail, with one or a combination of three key factors – increased competition, the war for talent, and declining profitability – usually to blame. Larger enterprises tend to cope better with increased competition than smaller enterprises. They tend to be better able to weather pressure, diversify or penetrate new markets. Failure is a necessary part of a market economy – and the consequences can be serious. Across the GCC, it is heartening to see different stakeholders coming together to support businesses when they find themselves overstretched. SMEs are the backbone of the GCC economy and, despite numerous challenges, are responsible for generating jobs and improving financial stability. The future of SMEs is dependent on a range of factors, including their ability to attract and retain talent and to hand over successful businesses. There is no doubt that, despite the challenges, these businesses are here to stay and will be the rising stars of the GCC’s future economy.

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EDITORIAL

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Zohair Ahmad

James Dartnell

Rajeesh Melath

Tel: +971 4 440 9127 zohair.ahmad@cpimediagroup.com

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Tel: +971 4 440 9119 rajeesh.nair@cpimediagroup.com

INSIGHT

Kodak Alaris

The

INFORMATION JOURNEY Banking compliance departments need to get up to speed with the latest information management technology, writes Emma Isichei, Worldwide Category Director, Capture Solutions, Kodak Alaris.

ompliance officers in the financial sector have a tough job. Whether they work in banking, insurance or capital markets, these employees are tasked with ensuring their companies comply with regulatory requirements and internal policies. With scrutiny intensifying, fines and other penalties on the rise, companies are making their compliance departments a priority. As technology changes the way companies communicate with their customers, accelerating the pace at which financial services’ business operates, the speed of compliance departments’ operations must keep up – across information coming in, moving around the organisation and finally going out to stakeholders. Compliance’s seat in the c-suite Just how important is the compliance department? While

getting new customers and serving existing ones is top priority for any financial services provider, proper and timely regulatory compliance ranks a close second. Most compliance officers – 77 percent, according to Accenture’s 2015 Compliance Risk Study – report directly to their company’s board or CEO, giving them a seat at the decision-makers’ table. Compliance is also a significant change agent; 80 percent of respondents to the same study say compliance will be the “pre-eminent group” able to affect culture change within their firms over the next five years. “In our view,” Accenture states, “expectations of compliance have never been higher,” with the function needing to leverage its influence to become a “positive and disruptive force” in how banks and other financial services firms innovate and evolve.

How compliance is changing Compliance officers operate in a range of industries, from healthcare to telecoms to agriculture. But in no area is the role more important than in financial services. The maze of laws, regulations and internal policies, not to mention the increased scrutiny used to oversee firms, makes financial services compliance particularly challenging. The changing ways in which customers – from large institutions to individual investors – are interacting with financial firms further complicates matters. What’s more, the increasing burden of digital documentation, email records and other online communications means today’s compliance officers must place a greater focus on information management. Several key technology areas need particular attention, and if handled correctly, they can pay significant dividends to compliance departments: • Data management: With the increased volume of data within an organisation, it is vital that the business understands what it has, how it is stored and what the ‘journey’ of this information is, as they need to be able to comply with the audits and reporting that they need in order to regularly provide the relevant regulatory agencies, and also, the general public. • Data analytics: It’s not enough to just store data. Financial services companies need analytics tools to uncover trends (and pain points) as early as possible. This is especially important in the compliance area, where getting ahead of issues can make all the difference. Handling the issue before it gets out of control can help avoid a large fine and negative press. • Communications management: Managing customer interactions is particularly challenging today,

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as customers visit retail locations, interact with call centres and communicate with the bank via email, text, web, live chat and more. Managing all of this unstructured or semi-structured data is an important task for today’s compliance departments. While digital communication is difficult to manage, paper trails may be even harder. • Improved data management tools – Including more automated document workflows and analytics are needed to pull ‘needles out of the data haystacks’. This can turn data into an asset rather than a burden. The compliance answer Leveraging advanced data management tools and processes can transform the role of compliance. At a time when compliance departments are being inundated by more data than ever, these tools are essential. Modern information management solutions that enable web and mobile capture can help financial services compliance departments get their job done better, faster and at a lower cost and are well-suited to help transform document and data managementheavy departments such as regulatory compliance via improved workflow automation. Furthermore, it is vital that a business has the right capture process, whether at point of need, centralised or though mobile tools, as this can turn data into an asset rather than a burden. Better solutions can also help legal departments keep up with new regulations and ensure compliance is on top of evolving rules and laws. The entire organisation benefits from improved operational efficiency, and concerns about potential fines and penalties for noncompliance are reduced.

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INSIGHT

Fidelis

BUILDING A SECURITY BUSINESS CASE FOR THE CFO Jim Jaeger, chief cyber services strategist, Fidelis Cybersecurity, gives his take on the ways that IT can present a compelling case for cybersecurity spending to the CFO.

ccording to a PwC report, ‘A false sense of security?’ that surveyed 300 Middle Eastern organisations, the region has become a prime target for cyberattacks. In fact, according to the findings, in 2015, 56 percent of businesses in the region lost more than $500,000 as a result of cyber incidents compared to 33 percent globally. Faced with this reality, organisations across the region have upped their IT security spend. However, one of the biggest challenges when you go shopping for new security tools is answering the inevitable question from finance: What’s the value? Determining the ROI of a new security product isn’t an exact science. There are no hard and fast rules to follow, which is why generic ROI calculators should be avoided at all costs. Measuring the impact of better security is like measuring a moving target. What’s more, every organisation is unique. The setup of an organisation’s existing infrastructure, its size, risk level and

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INSIGHT

Fidelis

the potential impact of a security incident, will vary significantly. Ultimately, this means that successful security strategies can look very different. Where is the value? On the face of it, most security tools don’t appear to save you time or money. They generate new alerts which can swamp an already overburdened security team with investigating and tracking down new potential threats. That’s not to say that security tools have no value, however, and evaluating this allows a CFO to understand the true business case for a security solution. However, the challenges that are inherent in defining the ROI for security tools does not decrease the importance of defining this information and articulating it for corporate leaders and the board. The recent explosion in the number of security vendors in the market, offering similar overlapping solutions, and their almost identical claims to solve security issues makes picking a comprehensive security solution more difficult. The fact is that it’s increasingly difficult for CIOs and CISOs to understand if and where security gaps still exist, don’t decrease the importance of helping C-suite executives and board understand the value of proposed security programs, and the importance of resourcing them. In security, the biggest benefit will always be reduced risk; ‘buy this tool (or hire this person) and bad things are less likely to happen.’ Unfortunately, this argument is highly theoretical, which doesn’t

One of the biggest challenges when you go shopping for new security tools is answering the inevitable question from finance: ‘What’s the value?’

translate easily into a business case. It’s also likely that the same argument has been used for previous security procurements and consequently leads to a debate around the likelihood of data being stolen – a risky game to play. Instead of trying to estimate the level of risk a company has in terms of security and how likely an attack may be, it’s arguably much more important to analyse the time and/ or people a new tool might save and how much more efficient it could make an organisation. Some key questions include: • Can the tool automate tedious day-to-day activities? • Can it reduce requirements for highly skilled security personnel? • Will it let tier 1 analysts do the tasks of a tier 2 analyst? • Will it allow tier 3 analysts to do the work of an incident responder? • Does it reduce the time it takes to resolve a threat? • Will it help consolidate the security stack e.g., reduce the number of agents operating on endpoints or the number of network security appliances in your rack?

• Will it reduce the requirements to integrate multiple security devices? • Will it reduce the number of screens that monitoring personnel have to focus on? • Can it improve the speed and accuracy of a company’s incident response? To the CFO, this approach presents clear opportunities to save critical funds and enhance the ROI of security solutions. At the same time, you are reducing the risk to the enterprise of a breach which is a primary focus for any board of directors. For any organisation, it is almost impossible to predict how much a cyber breach could cost, as it isn’t only a case of compensating victims and the loss of business revenue, but also damaged reputation. No one is expecting a CFO or the board to write a blank check for security, which is why explaining the savings an enterprise can make in terms of a more efficient security team, lower hardware costs, and minimised risk, is paramount to understanding its value.

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FEATURE

COST OPTIMISATION TRANSFORMING THE GCC’S CORPORATE AGENDA

Richard Ruttle and Stephen Farrell, Partners, Advisory, EY MENA, discuss the different cost optimisation strategies that GCC corporations are implementing to cope with the challenges brought by the volatility of oil prices.

il price volatility has brought in renewed scrutiny on ‘cost’ and what constitutes ‘optimal’. Corporations in the GCC are now taking strategic decisions to navigate the new normal and the pressures that it puts on the health of their enterprises. They are now urgently starting to explore opportunities for optimising operational costs, enhancing

revenues, driving supplier costs down, maximising their return on capital investments and controlling nonessential discretionary spend. Corporations also need to understand the finer details that separates cost reduction (which is more short term and a knee-jerk response) from cost optimisation, which is strategic and essentially a ‘smarter’ allocation of your finite capital.

Most cost reduction programmes fail to sustain savings beyond the initial period of management focus. Why? For all the focus organisations put on strategic and tactical initiatives to change the operating model for cost efficiencies, few consider the cultural shift that needs to occur within the organisation to make the changes stick. Even few companies undertaking cost reduction programmes look at

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the upside opportunities (revenue enhancement). One should look at an approach that offers a solution that makes cost reduction as a sustainable, repeatable solution, whilst also implementing revenue enhancement initiatives. This is a good example of cost optimisation. You don’t just pull back your expenses but also ‘invest’ to push up your revenue streams. It’s about turning an initial enterprise cost reduction programme into a sustainable, ongoing set of initiatives that requires organisations to establish a sustainable programme governance structure, align performance management systems and transfer knowledge. But it also requires that organisations embed a cost reduction culture into their business and people strategies. Companies typically focus on a combination of the following: Distress: Ensure business survival; build stakeholder confidence; release cash today! Stress: Covenants in danger of being breached; budget contraction and stakeholder dissatisfaction; release cash as soon as possible Revenues: ‘Handbrake’ discretionary spend; focus on quick wins relating to value leakage; secure potential funding/re-financing to bridge any gaps Margins: Mix growth plans with aggressive cost management measures; get control of back office cost base to ensure lean growth; build foundations for sustainable cost management Leakage: Wholesale review of business priorities; drive out back office costs; drive focus on customer value leakage Efficiency: Respond to market volatility; be more efficient in what we do; look for ways to get more ‘bang for buck’ Organisations are interested in more than just reducing the immediate top line - they also want strategic solutions that drive long-term enterprise

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value and bottom line growth and stability. Cost optimisation achieves this by releasing resources to fund short-term cost strategies, whilst also providing the means to finance growth, and improve the quality and alignment of current initiatives with their strategy. A balanced approach is required and the ultimate cost position is found when all are optimised. It must be embedded into business strategy, to prevent repeating the mistakes and missing the opportunities of previous economic cycles. Businesses have to shift from efficiency measures to effectiveness, from cost reduction to cost optimisation, and to help ensure that cost reduction becomes a permanent factor in commercial behaviour. So how does one know that the cost optimisation programme will work and achieve the stated objectives of growth and efficiency? If you are in the midst of a cost optimisation programme, or are thinking of launching one, here are five key questions to help you assess whether your organisation is positioned to deliver sustainable benefits: 1. Are you addressing all possible areas of cost savings to deliver the required profitability targets over the next 12 to 18 months? 2. Does your operating model need altering to achieve or sustain the required financial benefits and are you clear about what it needs to look like? 3. Do you have the right data and insights to give you the confidence that you are making well-informed decisions to achieve success in your cost optimisation programme? 4. Do you have the right leadership to convey the messages, the right capability to deliver the change and the proper mindset in the business to maintain long-term focus and discipline?

Richard Ruttle and Stephen Farrell, Partners, Advisory, E Y MENA

5. Do you know what sustaining success looks like once you have delivered on your cost optimisation programme? If you are not satisfied with your answers, it probably means that your programme will not deliver and sustain the value you expect. So the question is; how can GCC companies achieve cost optimisation in manner that is impactful, least disruptive and sustainable? • Cost optimisation programmes should liberate pools of available cash to invest in people, projects and acquisitions, to aid company growth and create a positive effect for employees. • Cost management should be a tool to push business development and overall growth. • Make and maintain as many costs as possible flexible, without losing control of them, to prepare your business for future volatility. • Look for incentives offered by governments, to hire professionals or set up shared services operations for example. • Advise and equip your sales teams to negotiate hard to reduce discounts and keep margins high. And finally, cost reduction and optimisation need to become a routine, normal part of business operations, rather than something which is identifiably short-term and done only in response to a crisis.

INSIGHT

IFS

ENVIRONMENTAL HEALTH

Steve Treagust, global director of finance, IFS, highlights how increased environmental and ethical reporting can benefit businesses and their CFOs.

t January’s World Economic Forum, climate change was top of the corporate agenda. Not far behind were environmental and ethical reporting, and the need to build sustainability into governance and decision making. The impact of these urgent new priorities on the role of CFOs and finance teams will be great, and so will the opportunities. Bertrand Badre, Managing Director of the World Bank has said “Research shows more and more investors are incorporating nonfinancial information into their decision making. Integrated reporting is providing a more holistic view of how organisations manage financial and non-financial resources.” The environment and ethics The next five years will see environment and ethics move from being ‘separate’ issues confined to one or two sides of an annual report to becoming core components of a company’s strategy. The integration of environment and ethics into financial reporting will become the rule, not the exception, as climate change regulation gathers strength. Finance teams could be routinely expected to collect and analyse data on, for example, the sustainability of resources used in production – water, energy or materials – or the job satisfaction of employees related to turnover. Finance teams will be expected to play a far broader and more central strategic role.

Finance: strategic shift from shortterm to long-term analyses Finance works with data – as data expands, so does finance’s role in collecting, analysing and using it. Simple output data can now easily be collected and calculated automatically, so finance is shifting from looking back, collecting and calculating data, to looking forwards, analysing it and deciding what it means to the company’s long-term strategy. In the US and Europe, we are as likely to meet a CFO with an MBA background now as one with a background in accountancy. I see finance customers increasingly being expected to play crucial roles in HR and IT as well as environmental and ethical strategy. In ten years’ time, back-office financial staff (if the terms still even exists) could well spend as much time using scenario planning and forecasting tools as calculating profit and loss accounts. Risk scenarios and forecasting tools: the big picture In the last eight years, the banking industry has realised that it needs to up its game. The banking industry needs to run a full set of scenarios to test the fundamental structure of their business: are our outputs secure? Have we got the right level of reserves, and risk? In the next 10 years, other industries too will embrace risk scenario and forecasting tools. A narrow focus on P&L balance sheets will not be enough. Corporate finance departments will need to start considering complex algorithms

around ‘what if’ scenarios, way beyond “what if my costs go up 10 percent?” With today’s available data, such a question is now a relatively simple output, calculated easily. In a global market, analysing and understanding macro data and the impact on your company of macro-scale market economies delivers a competitive edge. Companies that integrate technologies that enable this early on will be the big winners. Ethics and long-term thinking more important than ever The recent Volkswagen (VW) scandal around cheating software on carbon emissions has changed the automotive industry for good, and maybe broader corporate practise too. It revealed the real costs of poor, short-term, unethical decision making. Not only the two thirds wiped off VW’s market share directly after the event, but also the need to carve out a fund to compensate impacted customers, and the multi million dollars in legal fees accruing in the US, the still incalculable costs to the VW brand and the transformative realisation that in today’s social media age, such crises simply cannot be ‘contained’. The scandal has also made many re-evaluate the role of finance and the CFO. It reminds us of the long-term investment perspective finance teams need to master, how much ethical responsibility they have and how much they need to be at the heart of environmental reporting.

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RESEARCH

Middle East job market

KEY HIGHLIGHTS:

ROBERT WALTERS MIDDLE EAST JOB INDEX Q2 2016 The CFO Middle East looks takes a look at insights from recruitment consultancy Robert Walters on the prospects for the regionâ&#x20AC;&#x2122;s job market.

espite a volatile commodities sector, there has been a steady increase of advertised jobs within the Middle East year-onyear, according to the latest results from the Robert Walters Middle East Job Index, indicating a positive trend in the hiring sector for 2016. The impending introduction of VAT

+5% Overall increase in job advertising volumes compared to Q2 2015 in the Middle East across all finance functions

+3% Increase in job advertising volumes compared to Q2 2015 in the UAE across all finance functions

+7% Increase in job advertising volumes compared to Q2 2015 in Saudi Arabia across all finance functions

2018 in GCC countries within the accounting and finance sector, and the demand for statutory and regulatory obligations across banking and financial services has resulted in organisations focusing on both strategic and specialist hires within their sectors.

One observation is that the Middle East and Saudi Arabia in particular are becoming more Internetsavvy, and therefore part of this increase can be attributed to more organisations using job boards.

ACCOUNTING & FINANCE FOCUS ON STRATEGIC HIRING MARKET COMMENTARY â&#x20AC;˘ The increase of 5% of advertised jobs indicates the market is moving in a positive direction despite being affected by the oil and gas prices. n There has been a significant increase in strategic hires across the board, specifically roles such as head of treasury and group financial controllers.

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• With decision makers focusing on internal optimisation, turnover and internal requirements, the market conditions are conservative with no significant growth within the region. • With the implementation of VAT in January 2018 the market is expected to shift as demand for tax professionals drives the GCC talent pool. • As the oil price settles, businesses become more willing to embrace the single digit growth. • The UAE has achieved 11% growth in Q2 2016 compared to the Q1 2016, and 4% in KSA, where the market is less diversified and oil revenue is more of an economic driver. • Salaries across the GCC have remained flat and candidates are more cautious within current market conditions. Candidates are more inclined to consider a move if the increment on their current package is between 15% to 20%.

Accounting and finance overall

+5% Annual growth in job advertisements

BANKING & FINANCIAL SERVICES FOCUS ON SPECIALIST HIRING MARKET COMMENTARY • There has been a small increase in the number of advertised roles in the GCC, this is a positive statement within

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the market. The majority of these roles are across compliance, risk, governance and private banking. In order to understand where each institution’s risks are, there has been an overall push to improve governance across the region, resulting in banking and financial services firms asserting firmwide corporate governance across all functions – subsequently a significant upturn of hiring in this space. • With continuing concern around liquidity, local banks have either put recruitment on hold or even started headcount reduction. International banks have faired better but there have been the expectations of closing divisions or outsourcing other activities. • With the prospective merger of NBAD-FGB, there is sentiment in the market of further consolidation within the banking sector. With more than 50 financial institutions for a population of less than 10 million, the UAE is smothered in both local and international firms. Ambitions in Dubai, and now also Abu Dhabi, to become global financial capitals and

Banking and Financial Services overall

+4%

Annual growth in job advertisements

the country’s rapid economic elevation in the past 30 years, have magnetised financial institutions the world over. • Financial authorities in Saudi Arabia and the United Arab Emirates are currently downplaying the impact of Britain’s vote to leave the EU on their banks. They are keeping an eye on the impact of the Brexit vote, but their banks’ exposure is limited due to the fact that their currencies are pegged to the dollar.

INSIGHT

Legacy banking systems

Angelo Bertini, Managing Director MENA, BPC Banking Technologies, discusses how banks can make well informed decisions regarding updates to their payments infrastructure.

inancial institutions, especially banks, were early adopters of IT. But an unfortunate corollary of this is that many of them are still powered by legacy payment systems which, in some cases, happen to be several decades old and, in turn, incompatible with current customer expectations and industry-wide themes such as immediate payments and digital banking. At this juncture, banks are faced with one of two alternatives: upgrade or replace them. But while the need to modernise is obvious, the decision to enhance an existing system, or to entirely replace it, is not as clear-cut. So far, banks in the Middle East have demonstrated a marked proclivity for enhancement over replacement – if you are held captive by a complicated and inflexible legacy system, with significant investment already sunk into your platform, enhancement can certainly seem a more attractive proposition when compared to a complete ‘rip-and-replace’. But as legacy payment platforms become increasingly resource-hungry and

expensive to upgrade, it might be more prudent to opt for a complete system overhaul than pouring funds into updating a dead-end solution. When legacy is not enough When it comes to older banks in the Middle East region, which have opted for enhancements over replacements, their payment systems have morphed into a patchwork of bolt-on improvements and upgrades. This legacy issue is certainly less pronounced in the relatively younger banks within the region, but it is definitely lurking on the sidelines given the speed with which newer technology is scaling up customer demands and the pressure on banks to innovate. So why exactly are these banks opting for enhancing legacy payment infrastructure over replacing it? Simple: banks seek to mitigate risk in almost everything they do, and a dramatic change in IT infrastructure is perceived as fraught with risks. Not only does enhancement require far less immediate capital expenditure but, with the right specialist technology partner, priority applications can also be implemented swiftly and cost-effectively, immediately improving services offered to customers. There are plenty of reasons why it’s time for banks to pull the plug on updating their ageing payment systems, not least of which that contemporary banks cannot afford to be saddled with increasingly complex, underperforming and out-dated payment architectures. Consider, for instance, that the digitisation of customer services at banks is not only placing an

incredible strain on legacy systems but is simultaneously also exposing every failure in near real-time. In the meantime, deteriorating architecture requires continuous investments. Hundreds of millions of dollars have been spent over the last ten years or so to bring legacy payment systems up to date and to align them with the demands of the latest generation of consumers, by ‘wrapping’ them in increasingly expensive upgrades. Systems you can bank on A common misconception is that switching out of IT systems in financial institutions is difficult, disruptive or drawn out, an opinion cultivated by the technology currently available to them. The Middle East’s customers are demanding mobility, transparency and greater access through a variety of distribution channels. Banks need to respond with a shift towards customercentric IT architecture to meet these demands and maintain a satisfied customer base. Ultimately, it’s important to weigh-up financial and market requirements against the performance of an existing platform, then determine if it can be enhanced to compete effectively or if money is being poured into a dying solution that will never be competitive. Whatever the chosen strategy, it is clear that in order to compete, every financial institution needs to pick a payments solution that enables them to meet ever-evolving market demands and provide a sustainable, future-proof platform for growth.

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COLUMN

Fintan Somers

IT’S ALL IN THE EXECUTION… I was speaking to a senior executive of a large UK financial institution recently and she talked about some of the frustration her institution is experiencing in executing change. Now, of course, some of this may be an issue of perception. After all, if you are a chief executive tasked with developing and implementing a very large and complex change programme, then there is a strong likelihood you will perceive few things as being delivered quickly enough. If patience is a virtue, it doesn’t always apply to CEOs. But, putting CEO pressures and related perceptions to one side, the reality is that many business change programmes run into real execution difficulties. Whether it is a new product, a new system, a corporate reorganisation, an acquisition, a divestment or whatever, many change programmes deliver way less than expected, or don’t deliver at all, not so much because of a failure of strategy but because of a failure to execute effectively. Why is this the case, and what should the CFO consider to better ensure return on change investment? I use a simple top-team diagnostic to begin with:

1. Goals: Are we clear on the financial outcomes we need to deliver? Are these appropriate? The point here is that the overall change programme needs to be contextualised by a desired and sustainable financial outcome. Recently I was at a presentation by the CEO of a large global software company where he made this point to the audience: “The reason I remain employed is the bottom line…. that’s all 46

the board and shareholders care about.” Getting people focused on and reminded of the financial outcomes and drivers of those outcomes can be transformational to a program that’s not working.

2. Roles: Are we clear on the accountability for the various components and prerequisites for delivering the financial outcomes? I have been surprised at how many times I have observed opaque accountability for getting things done. Many managers, particularly those that are poor leaders, act as a drag on execution. They prefer to secrete themselves in an oversight or governance role rather than in actually leading the change. This gives them power without accountability and this power can sometimes be misused.

3. Processes: Do we all understand what needs to happen for the financial outcomes to be achieved? And I’m not talking about ‘move this number by 10 percent’, or whatever. The question is ‘what drivers of performance need to move for this 10 percent to happen?’ Too often, I have seen the so-called “strategy” or goal being a top-down aspirational target with little or no validation as to achievability. If you cannot nail down the drivers of the numbers, then you cannot nail down who is performing and who is not. 4. Finally: What are the relationships like in the top team? I know one thing for certain: unless the top team acts effectively as a team, we will not deliver

“Businesses with execution difficulties fail or need improvement, and the resulting weaknesses are replicated and amplified throughout the organisation.” Fintan Somers, MD, SomersConsult

top-class financial performance and we will not execute well. In my experience, businesses with execution difficulties fail or need improvement on one or more of these key questions and the resulting weaknesses are replicated and amplified down through the organisation. Now, many finance professionals reading this may react to it by saying: it is the job of the CEO rather than the CFO to enter into this particular minefield. However, a critical part of the CFO’s role is to advise and support the CEO on the matter of securing financial outcomes, so that the CEO and the team’s performance is acceptable to key stakeholders. To do this effectively, you need to walk in the CEO’s shoes and, as one of the very few members of the leadership team with the breadth of view of the CEO, you are often the best-placed resource to suggest improvements to the leadership team alignment where financial outcomes are concerned. Now that is leadership.

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