Vol. 1 ISSUE 11
Controlling outsourcing risk p.28
The rise of branchless banking UAE AED 15 | Bahrain BHD 1.5 | Qatar QR 15 | Oman OR 1.5 | Saudi Arabia SR 15 | Kuwait KD 1.2
p.34
strength in diversity Jumbo group cfo jairaj jaisinghani on the company’s diversification drive
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The language barrier MANAGEMENT Dominic De Sousa Chairman Nadeem Hood Group CEO Rajashree Rammohan Publishing Director EDITORIAL Group Editor Jeevan Thankappan jeevan.thankappan@cpimediagroup.com +971 4 375 5678 Editorial Assistant Adelle Louise Geronimo adelle.geronimo@cpimediagroup.com +971 4 375 5683 Contributing Editors Annie Bricker annie.bricker@cpimediagroup.com +971 4 375 1643 James Dartnell james.dartnell@cpimediagroup.com +971 4 375 5684 ADVERTISING Commercial Director - Business Division Chris Stevenson chris.stevenson@cpimediagroup.com +971 4 375 5674 Group Sales Director Kausar Syed kausar.syed@cpimediagroup.com +971 4 375 1647 DESIGN Neha Kalvani neha.kalvani@cpimediagroup.com
The new UAE Commercial Companies Law, which came into effect in June this year, stipulates that all companies in the country must apply IFRS (International Financial Reporting Standards) when preparing their accounts by next year. At the moment, it is mandatory for listed companies on Nasdaq Dubai to prepare IFRS financial statements, and is used widely by companies listed in Dubai Financial Market as well. Though some companies still continue to use accounting standards issued by Accounting Auditing Organisation of Islamic Financial Organisations (AAOIFA), all GCC countries are looking to adopt the same financial reporting standards in a bid to reduce accounting costs, increase market efficiency and reduce the cost of raising capital. Saudi Arabia has moved to IFRS this year, and countries such as Qatar, Bahrain and Oman are expected to follow suit soon. There is already a great deal of discussion in the financial community around the institutional, regulatory and HR requirements for fully converging with global accounting and reporting systems, and building an IFRS infrastructure to achieve high-quality corporate reporting. For companies in the UAE, adopting the new, comprehensive model of accounting before the July 2016 deadline is going to be challenging given the complexity of applying new standards and heavy investments required in new IT systems. Regional CFOs will have to realise that the adoption of common financial reporting language is going to have huge business and financial reporting implications. They will have to be compliant with the new standards and will need to communicate the changes in balance sheets to board members and other stakeholders. IFRS grants certain exemptions to first-time adopters, and there are toolkits available from big four firms for financial professionals to learn the fundamentals and ease the transition to the single common language for financial accounting. Middle Eastern companies operate in an increasingly global environment, and compliance with IFRS will offer them a level playing field with their international counterparts. However, as the standard continues to evolve, it is important for financial leaders to stay tuned to the new developments.
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Jeevan Thankappan Group Editor
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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. 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. Michael Armstrong Michael Armstrong, FCA is the Regional Director for the Middle East, Africa and South Asia (MEASA) of ICAEW. He is responsible 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. 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. 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. Paul Gyles Paul Gyles is the Regional CFO and Board member for all ISG Group companies – an international construction services company delivering fit out, construction, engineering services and a range of specialist solutions. He is responsible for the finance, HR, IT, admin and legal functions for ISG’s Middle Eastern outfit. A key aspect of the role is project funding and raising external financing by working with both Arab and international banks. Gyles is also the Chairman of the Steering Committee of the MECA CFO Alliance, the largest CFO networking group in the Middle East. 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
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8 News The latest local developments in finance.
12 Strength in diversity CFO Jairaj Jaisinghani discusses Jumbo’s transition from a retailer and distributor to a diversified business group focusing on its services business.
16 Digital dilemma The rise of digital is impacting almost every industry, leaving Middle Eastern CFOs at an important crossroads in their organisation’s evolution.
20 Information investment We take a look at how the Khalifa Butti Bin Omeir Group revolutionised and united its finance and HR operations.
22 Special feature: Lux Susan Turner, Head of Employee Benefits Services, Lux Actuaries & Consultants, elucidates the shifting sands of leaving service gratuity.
24 Capital defence EY MENA Executive Director for Forensic Practice Stuart Jones Jr. on how finance professionals can take action against financial crime.
28 The third power Outsourcing, while bringing key operational and management benefits, does not come without risks.
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Untapped potential Together with SAP, The CFO ME gathered some of the the region’s foremost finance decision-makers for an engaging discussion on digitalisation.
34 Ditching the branch The rise of the mobile era has sprung great change in the banking industry with branchless banks becoming increasingly popular in emerging economies.
38 Prepared for the future The 9th annual MENA CFO Strategies Forum provided finance leaders with vital business continuity strategies.
42 Refining talents
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34
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Dennis Whitney, CMA, Senior VP, IMA, discusses the company’s grooming of management accounting talent in the region.
44 New frontiers We bring you some of the highlights of the Coface Country Risk Conference 2015.
46 Bits and pieces Bitcoin is increasingly gaining popularity, making it the most used modern currency in the world of virtual transactions.
Column
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Managing change in the workplace can be an uncomfortable process. Fintan Somers offers top tips on how to cope with the challenge.
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Geetu Ahuja, Head of GCC, CIMA, discusses keeping positive professional relationships in check to help people and organisations thrive.
News
SAP: GCC banks to be among world’s most digitally competitive According to a recent report, GCC banks are well-positioned to be among the world’s most innovative in driving digital strategies for business transformation and competitiveness. The GCC is one of the world’s strongest-performing emerging markets, with liquid wealth growing 17.5 percent per year from 2010 to 2014, reaching $2.2 trillion, according to research firm Strategy&. But in the growing digital economy, both global and GCC banks face increasing IT pressure from regulators, digital banks, mobile customers and cybersecurity. Demonstrating the strong demand for Big Data analytics, only 44 percent of finance professionals around the world currently have meaningful business analytics and reporting, while 79 percent said they need further analytics to succeed, according to a new survey by CFO Research and enterprise software company SAP. Meanwhile, up to 90 percent of banks’ IT costs are taken up running current legacy systems, stalling innovation - added SAP, which supports more than 14,100 banks and 140 million bank accounts in 150 countries. Among the Middle East’s innovative banking and finance organisations is Kuwait Credit Bank, which recently launched a 90 second personal loan service, in partnership with the firm.
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IFC celebrates $100 million Sukuk listing on Nasdaq
The International Finance Corporation (IFC), a member of the World Bank Group, recently celebrated the listing of a $100 million Sukuk (Islamic bond) on Nasdaq Dubai. IFC’s Sukuk is only listed on the exchange. It has raised the total nominal value of Sukuks currently listed in Dubai to $36.8 billion. The bell-ringing ceremony was headed by Bahar Alsharif, Deputy Treasurer, IFC, and was attended by H.E. Essa Kazim, Governor of Dubai International Financial Centre (DIFC), Secretary General of Dubai Islamic Economy Development Centre (DIEDC), and Chairman of Dubai Financial Market (DFM); Abdul Wahed Al Fahim, Chairman of Nasdaq Dubai; Hamed Ali, Chief Executive of Nasdaq
Dubai; Dimitris Tsitsiragos, Vice President of Global Client Services, IFC; and Mouayed Makhlouf, IFC Director, Middle East and North Africa. Alsharif said, “This issuance will help meet the funding needs of our private sector clients in the Middle East and globally. As a premium global issuer, IFC is also keen to offer international and regional investors high-quality alternatives in Islamic financial markets.” H.E. Essa Kazim, Governor of DIFC, Secretary General, DIEDC and Chairman of DFM, said, “Dubai is delighted to provide a listing venue for IFC and support its beneficial development activities. The listing underlines the emirate’s continuing status as the leading centre in the world for Sukuk listings and its growth as the global Capital of Islamic Economy, under the initiative launched in 2013 by H.H. Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President and Prime Minster, and Ruler of Dubai.”
Seminar puts spotlight on UAEAustria double taxation treaty of an exemption or tax at A seminar organised by the a reduced rate on certain Austrian Business Council receipts such as interest, (ABC) in conjunction with royalties, dividends, capital Crowe Horwath held recently gains and others that are highlighted the doubleconnected with a transaction taxation treaty between the carried out between UAE and Austria. parties associated with According to Klaus the agreement,” explained Krammer of TPA Horwath Krammer. Austria, the treaty has so far Klaus Krammer, TPA Horwath Austria The seminar also included proved beneficial to both a presentation led by ABC’s Austrian companies and its legal counsel Dr Clemens Daburon. expat community. He chose to home in on the issues The UAE signed an agreement with Austria in 2003 for the prevention of double surrounding new UAE Commercial Company Law and amendments to the taxation. This agreement, in principle, European Inheritance Law, which he enables offsetting tax paid in one of the warned “can have some serious effect two countries against the tax payable in the on expats in the UAE, if no proper other, thereby averting double taxation. regulations are set up.” “The treaty, similarly, allows the grant
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News
UBF launches Trust Index in UAE banking industry
HE AbdulAziz Al Ghurair, Chairman, UAE Banks Federation
The UAE Banks Federation, the professional representative body for the country’s banks, has launched an independent study commissioned with Brunswick Insight and Ipsos Observer to track levels of trust among the country’s banking customers.
The results of the study form the basis of a trust index forming a platform for future surveys. The results of the first survey show that most customers around 70 percent - in the UAE have a high level of trust in their banks, especially compared to customers in other international banking markets, and that UAE banking customers are five times more likely to say their view of banks has improved rather than worsened in the past six months. The survey also found that while banks can do more to understand customers’ needs to offer them products that they want, and to offer more reasonable fees and charges, only 23 percent of expatriates believe banks in their home countries are better than those in the UAE.
MasterCard appoints new MEA president Africa. He has been at MasterCard recently MasterCard for more 10 years, announced a series of holding senior leadership roles Middle East and Africa in Asia and the Middle East. leadership changes, Commenting on the effective 1st January 2016. appointment, Ann Cairns, Raghu Malhotra has President, International been appointed president Markets at MasterCard said, for Middle East and “ MasterCard is focused on Africa, replacing Michael building a strong, relevant and Miebach, who will Raghu Malhotra, MasterCard MEA impactful business across the become Chief Product Middle East and Africa. Through this new Officer, based at the company’s global appointment, we will continue to build a headquarters in New York. business that delivers to the needs of both Malhotra, who has been overseeing the partner and the cardholder. During activities for the 39 markets across the his tenure, Michael has helped shape Middle East and North Africa, will now and build MasterCard ‘s business and be responsible for driving the evolution reputation for excellence in this exciting of the company’s technologies and region and I am grateful to him and delivering increased value to MasterCard delighted that the business is transitioning stakeholders across the entire region, to a new and dynamic leader in Raghu.” including sub-Saharan Africa and South
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MENA M&A market drops in Q3 2015 A report by Bureau van Dijk and MENA Research Partners found that the regional mergers and acquisitions market stagnated during Q3 2015. The overall 12-month activity falls short from any sign of rebound, according to the report, enduring the impact of the regional political turmoil and the economic spillover effects of the slump in oil prices which are amongst the major factors weighing on investor confidence in the MENA region. Despite the short to medium term challenges, when thinking long-term, the region still depicts largely attractive economic fundamentals to sufficiently propel more transactions going forward. Deal activity remains at large, driven by strong performance in GCC. The report further highlights that the GCC region accounted for only 45 percent and 44 percent respectively of the announced value and the volume of completed deals during the last three months. This is compared to a historical share of circa 63 percent of deal values, against 36 percent of deal volumes. Overall, the general trend prevailing to date is that of larger ticket sizes in the GCC, as opposed to a larger number of smaller deals in other MENA countries.
The Iraqi government is expected to begin discussions with the World Bank and the IMF to secure $6 billion to help finance its budget deficit Source: Reuters
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THE NEW CFO FROM
GEEK TO GURU How a changing market has impacted the role of the CFO CFOs are no longer mere data geeks and spending naysayers. They now have to execute against increasingly complex, customercentric business models. Whether it’s making changes to traditional models or embarking on new ones such as sharing or subscriptions, the modern-day CFO plays a strategic role in a company’s long-term growth.
1995 business model Background and skill set
Transactional sales One time value Product centric Inventory management: Worried about reserved amounts for obsolete memory Measure business by looking at the past
TOP PRIORITIES As the scorekeeper, number-cruncher, and guardian of the financial health of an orgainisation, the CFO once focused primarily on:
Accounting
Audit and compliance
Budget
Tax planning/ forecasting
BS in accounting or finance Audit experience (CPA)
2
3
1
0
3
2015
TOP PRIORITIES Today, the CFO is considered a company’s strategic business partner, forecasting revenue and allocating resources for growth.
business model Recurring revenue with subscriptions and contracts: Recurring value Customer-centric
$
Manage complex changes to process that impact revenue, like subscription cancellations
73%
Involved in strategic decision making
61%
Helps facilitate internal enterprising partnerships
84%
Focused on long-term growth vs. short-term cost reduction
60%
Supports with data analysis
Background and skill set
Measure business by looking at past, present and future
CPA & MBA
Operations experience
Software tools and devices Mobile/tablet applications Multiple best-of-breed cloud applications that: Monetize, reports, and optimize on relationships with their customers Provide insights for strategic business decisions TOP Skills
4
15 3
Leadership, communication, strategist, analytics, technical competence, risk management and ambition
2
Software tools and devices 1-2 expensive, on-premise ERP or GL applications to: Control expenditures Track product/inventory costs and margin analysis Transactional sales TOP Skills Interpersonal, communication, sound judgement and problem-solving
With more knowledge comes greater expectations Today’s CFOs are tasked with understanding their markets and the business drivers more than ever before. As the focus shifts to the future, more and more CFOs are tracking the success of recurring revenues as the forefront of trends affecting their jobs. The role has changed dramatically in 20 years. What will the next 20 bring? Source: Zuora
COVER
Jairaj Jaisinghani
Strength in diversity A veteran CFO, Jairaj Jaisinghani is steering Jumbo Group’s transition from a retailer and distributor to a diversified business group with a strong focus on its services business.
Can you walk us through your resume? I have almost 27 years of experience working with manufacturing companies in India, spanning across various industries including electrical engineering, pharmaceuticals and textiles. I have worked for names like ABB, Madura Coats and HEG. I’ve been with Jumbo Group for the last two-anda-half-years. What made you join Jumbo? It was an excellent opportunity for me. Working in different industries, where each business has its own dynamics and nuances in terms of customer expectations and marketing gave me valuable insights into how business managers respond to those challenges. Joining Jumbo, which has interests in omni-channel retailing, distribution and services, was an exciting change, and personally, it has helped to broaden my perspective and knowledge. I have spent a good part of my career in global
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powerhouses, and I could bring those values and good business practices to Jumbo, which is a trusted brand in this part of the world. What was your mandate when you came on board? My main area of focus was to make sure that the capital invested in business was used effectively, and the finance function was aligned with the company’s growth plans and strategic objectives. The primary responsibility of any CFO is to keep an eye on working capital and cash flows. We all know that the role of the CFO has evolved, and they have to participate in formulating and executing company’s growth strategies, and benchmark it against various financial parameters. It’s important to keep the balance, which is not easy. What have been some of your biggest challenges since you joined Jumbo? When I joined the company, it was a completely new environment for me, so
I had to spent the first couple of months gaining knowledge about how the retail and distribution business operates, and get used to the new market, which is different from India. I came on board when Jumbo was in a growth phase; it was important for me to manage and make sure that this growth was achieved in a cautious manner, which required constant engagement with business heads to see how working capital was deployed and whether the growth was profitable or not. What does the CFO’s changing role really entail? The CFO role is not just guardianship of finance; they have to be part of the senior leadership role, setting the strategic direction for business. CFOs have to ensure that the finance function is aligned with corporate objectives, and put in place proper financial reporting and monitoring systems to measure performance against plans. At Jumbo, we have to keep looking at making our
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“Jumbo is in transition, and we are following Dubai’s example of diversifying. The Group was established 40 years ago, and we have seen ups and downs, but we are as resilient and sturdy as this country.”
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COVER
Jairaj Jaisinghani
operations efficient and effective because distribution is a business where you have to keep a close watch on costs. The CFO is no longer a glorified bookkeeper, or for that matter, not even a controller of finance. He or she has to participate in company’s strategy development, collaborate with business heads and make sure that everyone is aligned with a company’s growth plans. What are the attributes of a successful CFO? First of all, a CFO should have a thorough understanding of their company’s business model and market in which it operates. Second is something I call intellectual integrity. What that means is that he or she should be able to think independently and apply their judgement on what is right and what is not. Then, of course, they have to be street smart and be a good team leader. And the end of the day, they must have a good sense of humour. What are the qualities you look for when building a team? Any company is as good as its people. You have to have the right sort of people and team as no one can do things alone. I look for a certain level of intelligence, and instead of placing too much focus on academic knowledge, I prefer people with common sense and relevant experience. What kind of growth opportunities do you see for Jumbo in this tough economical climate? The business environment today is more challenged compared with a year ago. Back then, the mood was bullish when Dubai won the bid for Expo 2020. Unfortunately, the softening of oil prices has had an impact on the region. However, the UAE is more cushioned because its dependence on energy revenues is relatively smaller compared to other GCC countries. In 2011, the UAE’s economic dependence on
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oil revenue was around 77 percent, and it is lower than 30 percent now. That is a rapid transformation by any standards, and you have to thank this country’s visionary leadership for that. Things might be slow today, but the market will bounce because the fundamentals are strong. Huge investments have been made into infrastructure projects, and sectors such as healthcare and education, which will lead to demand generation. All this opens up opportunities in the services space, which is the direction Jumbo has been taking. Traditionally, we have been focused on retailing and distribution. Though it still remains our backhone, we have been increasing the serviced-led component of our business through our enterprise services division, Jumbo Engineering and Logistics. Jumbo is in transition, and we are following Dubai’s example of diversifying. The group was established 40 years ago, and we have seen ups and downs, but we are as resilient and sturdy as this country, which is a beacon of excellence in the Arab world. How do you plan to fund your growth plans? Ours is a well-funded company and we have no plans to go public. It all
depends on the valuation, what is the need for those funds, etc. Just raising funds and keeping that cash doesn’t make any sense. The megatrend of digitalisation is offering new opportunities for CFOs. What is your take on this? Digital is indeed the way to go. If we have to bring efficiency to our operation and be responsive to market trends, the only way to do this is through digitalisation. At Jumbo, we take this very seriously, and we have an internal IT committee, which meets every month. We have adopted a very balanced approach because it is easy to get carried away, which leads to wastage. You have introduced omni-channel retailing last year. Has that really gained ground now? Jumbo was the first retailer to bring the concept of omni-channel to the region. It may not have grown as fast as some other countries, but we know from experience that online retailing doesn’t give you returns from day one. We have integrated online retailing with our brickand-mortar stores, giving the flexibility of choice to our customers.
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Bahrain Ruan van Rensburg ruan@luxactuaries.com Cyprus Dimitris Dimitriou dimitris@luxactuaries.com India Yogesh Agarwal yogesh@luxactuaries.com Turkey Seda Ekizoglu seda@luxactuaries.com UAE Shivash Bhagaloo shivash@luxactuaries.com
FEATURE
Digitalisation
Digital dilemma The Middle East’s CFOs are at an important crossroads in their organisation’s evolution. The rise of digital is impacting almost every industry, but when, and to what extent should financial decision-makers back digital initiatives? Can the topic be brushed under the carpet altogether or will those who do so die out?
Y
ou don’t have to look far to find signs of digitalisation’s impact on the economy, and society. There are several oft-referenced examples of firms whose digital models have had a hugely disruptive effect in recent years. Facebook, founded in 2004 and one of the world’s largest media companies, reached a market value of $245 billion in 2015, and with 1.55 billion users – over 20 percent of the world’s population – the company still owns no intellectual property. Fastforward to 2008, and Airbnb, now one of the world’s largest accommodation providers - despite owning no physical real estate - was formed. A year later and Uber, now the world’s largest taxi firm, was born. The company owns no physical vehicles to provide its services. The message is clear: digital is not only on the rise, but is disrupting at an unprecedented rate. Two clear technology trends stand
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at the fore of the digitalisation drive – mobility and social media. “Social attitudes and expectations have changed at an incredible pace,” says Paul Sommerin, Partner and MENA Financial Services Technology and Transformation Leader, EY. “Customers are increasingly mobile and have greater access to international media and technologies. The customer decision journey has also changed tremendously with the proliferation of digital technology and mobile devices. As a result, the disconnect between customer expectations and what service providers deliver is more distinct than ever. Addressing customer needs in an increasingly digital world means disrupting and rewiring existing business models for a fresh customer experience.” Farhan Syed, Partner, Consulting, KPMG UAE, believes the need to create individual experiences for each
customer has been a driving factor in the necessity of digital. “The first thing almost everyone does when they wake up is check their smartphone,” he says. “We are social beings and we have an innate desire for knowledge and communication. Mobile and social have become the primary source of our interaction – communication, information and transaction. Without a digital offering we risk losing our customers. The personal experience of each end user can now be individualised through digital, which creates new opportunities for revenue generation. Offering the right product at the right time and at the right price significantly increases the odds of a sale.”
“Offering the right product at the right time and at the right price significantly increases the odds of a sale�
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FEATURE
Digitalisation
Research from Epicor Software recently split CFOs into six categories: traditionalist, visionary, conductor, politician, carer and revolutionary. Politicians constituted 27 percent of those surveyed, with revolutionaries comprising the second largest group at 20 percent. As the names suggest, a politician is someone who works based on consensus, and would rather delay decisions to avoid risk. The revolutionary, meanwhile, is a figure who is more inclined to make bold decisions to drive the organisation’s agenda. These working styles will be pivotal in terms of the region’s adoption of digitalisation, with perceived risks afoot, and the need to achieve balance in terms of the sums invested into new initiatives. As with any new venture, members of the whole C-suite will be split between the optimism of innovation and skepticism of the risks of failed investment. The CFO is arguably the most susceptible to such reservations, and therein lies one of the biggest barriers - or potential accelerators - in the adoption of digital strategies. In order for initiatives to gain full momentum, organisations need the backing of this influential figure. “Articulating digital as a concept can be difficult – so think how much harder it is to calculate the return on investment of a digital idea,” Syed says. “CFOs tend to be the most objective executives in an organisation – and they are probably the most skeptical when it comes to calculating how, or if, an investment creates value. Once they understand the value of digital they tend to be very supportive.” While collaboration with other senior management figures is essential in driving digital strategies, staff with specialist skills also need
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“The real risk lies for companies who have competitors that are succeeding in the digital space, but are not yet prepared or operating in that space themselves.” to be deployed to ensure a lowrisk transition to a digital model. ”Resistance can arise if there are doubts around market adoption and the sheer scale and complexity of transformation,” Sommerin says. “Companies should look to win the digital war by creating an ecosystem of partnerships to make life better for customers. Digital marketing specialists are a necessity, but the digital agenda needs to be driven by the business to enable and align with the growth agenda. Organisations will need to hire people with stronger business analysis skills and new technology skills including cloud on the network side, and HTML on the customer experience side.” Although CFOs of certain industries may feel that their business is not yet ready to go digital, or that digital products may not suit the vertical in which they operate, the threat posed by rival companies will act as proverbial stick, if the carrot alone won’t suffice. Syed compares the dawn of digital with another technological shift that proved to be tectonic. “While you might think you don’t need a strategy, most of your competitors will have one,” he says. “Are you sure you don’t want to compete in this space? Similar
myopia occurred during the Internet revolution. Businesses that ignored the true potential of the Internet tend not to exist today.” Sommerin is in agreement that competition should be one of the main drivers of digital adoption. “The risk varies depending on the industry, as some sectors are much further ahead in terms of digital model adoption than others,” he says. “The real risk lies for companies who have competitors that are succeeding in the digital space, but are not yet prepared or operating in that space themselves.” Also directly affecting the CFO is the need to consider the impact on regulated and unregulated industries. While a lack of regulation opens the door for new players to achieve huge market share, regulated industries face a different kind of menace. “There is a threat from agility,” Syed says. “For instance, the banking industry is being disrupted by the FinTech world. There are thousands of FinTech billions in funding disrupting lending, payments, forex, trading, wealth management and even insurance. Finally, the biggest issue is from unforeseen competition. What do you do when you don’t even know where competition is going to arise from?”
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case study
Khalifa Butti Bin Omeir Group
Information investment
With its companies siloed and speaking different IT languages, Khalifa Butti Bin Omeir Group needed a fresh solution that could unite its finance and HR operations. Samir Mayani, IT Director, KBBO, opted for a cloud-based ERP solution to drive the change.
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eading Abu Dhabi investment firm Khalifa Butti Bin Omeir (KBBO) Group has made its mark on the Middle East, and the globe. With a diverse portfolio of interests, the firm has a proven track record of success. KBBO’s objective is to amplify growth by injecting capital and restructuring debt in already successful companies. In line with the Abu Dhabi 2030 Economic Vision to achieve effective transformation and global integration of the emirate’s economy, KBBO’s mandate is to bring about sustainable growth and enduring benefits to the region. Established in 2004, KBBO has since expanded its reach into investment, real estate and development, oil and gas, healthcare and facilities management and information technology, and has grown dramatically both in terms of sectors serviced and geography. With the company’s investments across such diverse industries, and an ever-expanding portfolio on its hands, Samir Mayani, IT Director, KBBO, knew that he would have to keep his IT design and overall footprint agile and forwardlooking, to support the company’s rapid growth. In 2013, the group housed multiple companies, with different IT architecture and accounting systems. Process standardisation, accounting, reporting
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and tracking intercompany transactions were difficult, with each company essentially “speaking” a different language as a result of diverse systems and business processes. “We needed to increase efficiency throughout our operations,” says Mayani, “and to do that we needed our systems and processes to be streamlined and unified.” The firm needed to bring together its many Group companies based in the UAE and the UK, including KBBO Group, One Financial Markets, One Prepay, Bin Butti Real Estate Development, Bin Butti IT Solutions, Bin Butti General trading and Brokerage House Securities onto a single ERP platform by replacing siloed accounting, human resources and payroll systems. An extensive plan ahead of them, KBBO would have to automate and integrate most of their finance, payroll and procurement processes to increase efficiency and productivity. This would give increased transparency in their financial transactions as well as their HR records and processes. “Our prerequisites for an ERP software vendor included a financially solid global provider, with enterprise solutions as its core business, and with a strong roadmap for product development,” Mayani says. The KBBO team went on a search for an effective solution for their business
needs. They also needed to keep their IT infrastructure and manpower lean and agile, which led them to consider the cloud. “We shortlisted Microsoft, SAP and Oracle, and engaged in detailed discussions with all of them to evaluate which solution was the best fit for the group companies’ requirements and had the lowest total cost of ownership over five years,” explains Mayani. After detailed discussions and product demonstration with all software vendors, Oracle ERP Cloud emerged on top at the conclusion of a thorough RFP process. “It was the right option for us,” says Mayani. “It is secure, easy to use, managed by experienced engineers from Oracle, requires zero hardware investment and is 20 percent cheaper than competitors’ solutions.” After selecting Oracle ERP Cloud, the next challenge was the implementation. The product was new, and KBBO Group was one of very few companies that would implement the complete suite across multiple companies and countries. Prior to the start of the implementation and prior planning, the KBBO team focused on defining and documenting business requirements, standardising business processes and designing the master data. Most importantly, says Mayani, this included the most critical “chart of accounts” to ensure a seamless transition later on. “The next step was to work with an implementation partner who was flexible and willing to invest in our growth - that is something we found in Oracle Platinum Partner Hexaware,” he says. “Their consultants invested a lot of time before the project started to make sure they fully understood our business requirements. Their skills meant we could fully rely on them to internationally standardise and streamline our business processes with Oracle Cloud.” With all the right ingredients in place, the project was smooth and swift. From start to finish, the implementation
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“Standardised financial, supply chain and HR management processes across the Group have laid the foundation for unified governance and transparency across the companies.” took five months and was made fully operational on 1st January 2015. Post-live, KBBO has also successfully completed two upgrades within a shorter time frame. “We were able to standardise financial, supply chain and HR management processes across the group and lay the foundation for unified governance and transparency across the companies,” Mayani says. Deploying Oracle ERP Cloud has also benefitted KBBO’s IT department, reducing IT staff workloads by 30 to 40 percent by leveraging the real-time reporting capabilities and no-coding customised analytics of Oracle’s business intelligence and financial reporting tools. “It has enabled us to meet the high standards of information security imposed by regulators around the world leveraging compliant and riskaverse security solutions that meet ISO/IEC 27001:2013 information security standards,” Mayani says. “Postimplementation, upgrades to subsequent releases from Release 8 to Release 10 have been completed spending only a third of the time, costs and effort as compared to an on-premise upgrade. It has guaranteed round-the-clock uptime of applications and no investments in infrastructure maintenance including backup and disaster recovery,” says Mayani. “Oracle provides us with a complete solution with integrated components and excellent transactional and reporting capabilities that fully address our business requirements. The Oracle Cloud solution also ensures that we can scale costeffectively to meet scheduled business growth, and offers the lowest total cost of ownership over five years.” says Mayani.
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Special FEATURE
Lux
The shifting sands of leaving service gratuity Susan Turner, Head of Employee Benefits Services, Lux Actuaries & Consultants
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With the new UAE Commercial Companies Law that has made IFRS mandatory, it is becoming both crucial and profitable for companies to professionally manage their employee benefit liabilities, including end of service gratuities. The member states of the Gulf region continue to transform economically. Businesses grow in size and headcount, leading in turn to a growth in the expatriate population. Salaries, to be competitive, continue to increase and employees are staying in the region for longer, compounding these liabilities, so what was previously not significant, is becoming material to both profitability and balance sheet liabilities. Funding an unknown, but potentially significant gratuity liability from your working capital is a huge risk. If you want: • A better understanding of the employee benefit costs that should be recorded as expenditure and the liabilities that should be shown on balance sheets Or; • To release capital for your business needs – you could save a proportion of your provision for the liability Or; • To understand and structure your
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total end-of-service benefits to support your company’s own recruitment, staff retention and business plans Or; • To invest the funds set aside for this obligation to maximise returns in a secure environment Then you will most certainly need to employ the services of a specialist actuarial and employee benefits firm to determine what your true liability is and how you can meet these challenges in a cost effective way. Generally accepted actuarial and accounting standards Actuarial firms in the region are most likely to value your employee benefit liabilities using the International Financial Reporting Standards (IFRS), IAS 19. FAS may apply for US headquartered firms. IAS 19 employee benefits - amended
in 2011 - outlines the accounting requirements for employee benefits, including short-term benefits such as salaries and annual leave, postemployment benefits such as retirement benefits, other long-term benefits, like long service leave and termination benefits. The standard establishes the principle that the cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable, and outlines how each category of employee benefits is measured, providing detailed guidance in particular about post-employment benefits. The objective of IAS19 is to prescribe the accounting and disclosure for employee benefits, requiring an entity to recognise a liability where an employee has provided service and an expense when the entity
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consumes the economic benefits of employee service. Advantages of applying IAS19 There are a number of advantages of using IAS 19 to value your employee benefits, most notably: • Knowing the value of your employee benefits and mitigating the cost impact is a corporate responsibility • Properly accounts for the liabilities in conforming with IFRS • Locally based companies have adopted IFRS for nearly all their other financial entries • Ensures all balance sheet and income statement entries are at pinpoint accuracy before sign-off • Harmonisation of the recognition and measure of employee benefit obligations to a single set of standards • Increased transparency, with all financial entries in company accounts being stated clearly and in full compliance with IFRS • Increased consistency, with companies adopting the same actuarial and accounting standards, facilitating more accurate assessments of organisations’ financial strengths (particularly important for those companies listed on stock markets or who are involved in M&A activity or IPOs). • For those ambitious local firms, entry to international markets is easier when all financial perspectives conform to those international norms Funding for your gratuity obligations The majority of companies in the Middle East do not separate cash to cover their employees’ end of service benefit liabilities from their working capital. Currently almost all companies pay gratuities out of their general operating budgets, which can lead to problems if a company runs into financial trouble. Below are some of the main risks associated with funding your gratuity liability from cash-flow: • Market risk: when markets are
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depressed and you need to reassess the number of people your business needs, it is probably the worst time for your gratuity liability to be realised into a cash outflow. • Business risk: using your cash-flow to cover these end-of-service commitments allows no safety net during the bad times • Credit risk: by using money from within your business to fund your gratuity liabilities, your ability to pay your employees at end of service may be dependent on your creditors paying you • Legal risk: the number of court cases against employers not fulfilling their obligations is growing. This could lead to your business losing its licence to operate • Operational risk: the risk of not providing this important employee benefit could mean that valuable opportunities to attract and retain loyal and productive staff could be lost • Reputational risk: the risks mentioned above could lead to your company being benchmarked below that of your competitors, both in clients’ and employees’ eyes. In summary, you cannot predict the leaving dates of your staff; should you have a mass exodus, then that could threaten the business’ existence in more ways than just losing the staff. Your cash-flow is entirely unpredictable. In contrast, there are enormous benefits of funding for this liability by firstly understanding your cost under IAS19 and then, as a further possibility, establishing an off balance sheet arrangement. Such benefits include the fact that it: • Demonstrates sound financial management and best practice • Reduces the risk exposure • Protects the company and the employees during economic down turn or periods of uncertainty • Creates certainty for both you and your employees • Has the potential to become self-funding over time if strategically invested • Ring-fences the provision from creditors
in the event of the company’s insolvency • Reduces the chances of expensive litigation in this area, in the event that companies are unable to cover the benefit payments which individuals are legally entitled to receive once they have completed the minimum eligibility criteria • Improves employee relations and retention • Allows the expansion of employee benefits, that are valued by employees more than cash, and costs less to the employer than that corresponding cash Professional actuarial firms can calculate the sum required to ensure that a company’s end of service gratuity liability is met on an ongoing and sustainable basis for example X% of its payroll. To the future Now let’s turn to the immediate future…. What do we know? We know that a new Commercial Companies Law (No. 2 of 2015) requires all UAE companies to comply with IFRS by no later than July 2016. We also know that the government and its financial regulators are: • Strictly enforcing the current legislation • Considering alternative systems What don’t we know for certain? It’s widely anticipated that there will be a change from funding gratuity liabilities out of working capital to making separate provision for end of service benefits a mandatory requirement, as is currently the case in many jurisdictions around the world. And this is key; the pensions systems in countries such as the UK, Germany and the US have been instrumental in building up healthy and large asset markets, over the last century. It is only a matter of time before the GCC governments start using these same tools, and the low oil price encourages a sense of urgency. No one outside of government circles really knows what discussions are taking place, but one thing is certain; the sands are shifting.
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opinion
EY
Capital defence Stuart Jones, Jr., Executive Director, Forensic Practice, EY MENA
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etecting and combatting financial crimes orchestrated by international criminal syndicates is complex and time consuming, however, it is also terribly important. Despite calls for collective global action, too few financial institutions operate systems and controls designed to proactively detect and stop it. Despite the investment and ‘prioritisation’ made by financial institutions, governments and international bodies like the United Nations and the Financial Action Task Force, combatting the rise of the many sources of illicit financing requires new and smarter approaches to the fight. Some of these approaches include collecting and sharing intelligence and utilising tried and tested programmatic methods to detect and disrupt illicit finance. The game, however, is changing fast and governments and institutions should further leverage the vast amounts of data that now exist within
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banks, international databases, and a multitude of public social media platforms if we are to make a serious impact on financial crime. Utilising social media to uncover risk management data For perspective, consider that industry reports reveal that every minute of the day, YouTube users upload more than 300 hours of video, Twitter receives in excess of 180,000 tweets, Facebook users share well over half a million pieces of content, Instagram users share some 220,000 new photos and the pace of this information explosion is set to only quicken. Roughly a third of the world actively uses the Internet, a universe that undoubtedly includes users linked – at varying levels – to the broad world of illicit finance. Governments and financial institutions can utilise deep web searches to uncover new, publicly available information that can be applied across unique customer sets, transactions types and geographies to better manage risk – and possibly
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opinion
EY
Some global financial institutions have already incorporated social media and negative news reporting into their compliance risk management functions, but more can be done. uncover an actual or potential illicit finance linkage between individuals or entities. Some global financial institutions have already incorporated social media and negative news reporting into their compliance risk management functions, but more can be done. Furthermore, there is no agreed best practice for doing so, no ISO standard for how we link disparate data to make the world safer. Understanding ever-complex, global linkages For years, financial institutions have screened customers, searching for matches with various publicly available sanction lists. In recent years, however, these lists have grown in number and have not always included all listed entities that are owned or controlled by a named government, which basically makes them incomplete. In the past,
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the UN list, the US OFAC list and the EU list were seen as sufficient, now other countries have their own ‘black lists’ that must be factored into the broader screening equation. The one-for-one approach currently taken via list-based screening misses a number of key follow-on linkages that can only be seen through further analysis. For example, specialised firms can now tell you the second and third-level associations - business, familial etc. - of individuals and entities on various lists. What’s more, these data sets can easily be incorporated into existing compliance frameworks – at very little cost to the institution beyond the extra time for internal investigations to review expanded red flag-related matches. Stepping up the fight against illicit finance While there is no panacea for financial crime, one thing is clear – more can and should be done at both a global and regional level to leverage a variety of data sources. Some specific policy steps that should be considered in the near-term include the following: • Sharing best practices and defining new global standards via technology and open source information There is an urgent need for global dialogue among leading financial institutions, allied governments, and subject matter experts to outline what more can be done to identify and diminish illicit financing and associated threats utilising new technology and data analysis. • Take immediate steps at the individual financial institution level (companies operating in high risk regions) Global and regional financial institutions should conduct - or refresh - AML/CTF risk assessments,
ensuring proper client risk rating, and apply appropriate illicit finance-related filters across those customer sets who are higher risk as a result of geography, industry, travel and other related factors. Institutions should also ensure robust and complete data quality – with refreshed KYC checks performed on an agreed and regular basis, starting with high risk customer sets. Global and regional financial institutions should also utilise social media and bank transactional data to proactively look for patterns and trends that raise red flags for investigation. • At the sovereign level (nations in high-risk jurisdictions) Urgently consider and conduct a robust national anti-money laundering/CTF risk assessment. As an example, Singapore and a number of other nations have completed or are already in the process of completing their assessments. These countries should also ensure that the nation’s financial intelligence unit is well-funded, staffed, trained and active in its collection, analysis and dissemination of information. In summary, without smarter, next-generation approaches to combating illicit finance, criminal organisations will become increasingly successful in raising, moving, and storing cash and other value that can be used to enrich bad actors or fund illicit activities. The time is now for governments, financial organisations and specialised firms to work together to combat financing for criminal syndicates and to reconsider – particularly with innovation in mind – how we can do it in a more effective way.
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insight
UAE finance recruitment
Finance headhunt
As international economies return to pre-recessionary levels, UAE firms need to compete on an international scale to attract top performing candidates. Recruitment firm Robert Half highlights national research on the nation’s ability to retain talented finance employees.
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Although the regional economy has plateaued in recent months – attributed slightly to the reduction in oil and gas activity – UAE employers continue to fill open vacancies and backfill permanent positions. Just over 93 percent of CFOs in the region find it challenging to secure skilled, professional-level employees, while half (48 percent) say that the primary reason for this is the lack of niche, technical experts. M&A promise Market observers including PwC believe that the Middle East and Africa (MEA) are on the brink of a significant increase in mergers and acquisitions deal flow, despite regulatory and cultural barriers that will continue to limit activity in some areas. Activity is predicted to take off most quickly in the education, healthcare, retail and consumer sectors, sparking a rise in demand for accounting and finance professionals in those markets. The UAE continues to benefit from its long-standing policy of diversification away from oil production. The most popular asset class for UAE investors is real estate, with 67 percent believing it to be the best performing asset in 2015, according to a survey by Franklin Templeton. This interest in real estate is echoed by the fact that the construction sector topped a recent list of major employers, followed by the business sector. Even with the plateau of the economy and reduction in government spending, companies are broadly optimistic about the region’s growth prospects in the
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year ahead. The majority (85 percent) of finance directors say that they are more optimistic about economic growth than 12 months ago, while 89 percent say that they are more optimistic about their own company’s prospects than a year before. Why look elsewhere? As skills shortages continue to bite, HR directors are becoming more concerned about losing talented professionals to the competition, locally and internationally. Almost three-quarters (72 percent) say that they are worried about top performers leaving to take up other job opportunities in the next year. HR directors believe that the main reason for employees to leave the company is the offer of higher remuneration, with 29 percent citing this as the top motivator. Other reasons to leave include career advancement (27 percent), better work–life balance (24 percent), better location (13 percent) and better corporate culture (7 percent). The hiring climate Accounting and finance recruitment is looking positive, although companies are still cautious when considering who and when to hire. Companies are generally seeking to fill specific gaps in their teams as well as to invest in new initiatives such as system implementation and business partnering. As a result of this activity, the accounting and finance skills shortage is already concerning CFOs in the region, who report that it is increasingly difficult to find the right candidates. Looking at the roles that are most difficult to fill, CFOs state that functional areas including accounting, financial
and management control, business and financial analysis and audit present the toughest challenges. Remuneration trends As CFOs focus on retaining their top performers, they are being increasingly selective about who should be awarded pay rises and bonuses, choosing to reward individuals on the basis of the contribution and value that they deliver to the organisation. Overall, there is a trend for remuneration to rise. In the next 12 months, CFOs expect salaries for their existing permanent accounting and finance employees to increase by 6.6 percent. The hiring climate The risk and compliance agenda continues to dominate the UAE financial services industry, driven by increasing regulatory demands and growth in financial crime, fraud and cybersecurity. Risk management is now part of day-to-day business operations for financial services companies, and there is a commensurate demand for skilled professionals with experience in anti-money laundering, anti-bribery and corruption, regulatory investigations and compliance. The continuing recovery of the financial services sector in other centres, notably London, New York and Singapore, means it is increasingly difficult for UAE-based companies to recruit or retain talent from the expatriate community. The growing skills shortages are creating renewed concerns about losing top performers to UAE-competitive or home-country opportunities.
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FEATURE
Outsourcing
The third power Outsourcing continues to be a key component for most businesses’ management and operational strategies. However, while it brings various advantages such as convenience and flexibility, dealing with third party companies comes with significant risks.
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ost organisations today are facing increasing pressure to make frequent updates to strategy, against a backdrop of everintensifying business competition, both regionally and globally. With aims of putting more focus on the core functions of the business, many companies employ services from thirdparty organisations to manage several operational functions. “There is a growing trend for corporates to outsource the entire functions of divisions such as procurement, HR and marketing using a ‘shared service centre’ methodology,” says Sam Achampong General Manager, Chartered Institute of Procurement and
Supply MENA, and Chairman, CIPS UAE Fellows Committee. “Although this form of business process outsourcing is not new, previously it was mostly limited to specialised functions such as legal services. Another area where outsourcing is growing increasingly popular in is facilities management.” Adding to this, Saad Maniar, Managing Partner, DIFC Branch, Crowe Horwath, says that organisations outsource segments such as customer service, social media management and even some finance functions as well. “There is no doubt that outsourcing can be a useful business tool,” he explains. “This allows a business to focus on its core functions. At the same time,
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“There is no doubt that outsourcing can be a useful business tool. This allows a business to focus on its core functions. At the same time, outsourcing has been proven to improve service quality and ensure quicker delivery while reducing costs.” Saad Maniar, Managing Partner, DIFC Branch, Crowe Horwath
outsourcing has been proven to improve service quality and ensure quicker delivery while reducing costs.” Meanwhile, Rajeev Batra, Head of Risk Consulting, KPMG, notes that companies are even entrusting some knowledge elements of the business content development for instance - to third-party firms. As the list of functions that are being outsourced by businesses continues to grow, so does the amount of risks that they are exposed to. Therefore, leaders within organisations should have a clearer understanding of these potential challenges that can be brought by their external business relationships. “Different kinds of risks, ranging from
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regulatory, litigation and financial and reputational losses are coupled with outsourcing,” Maniar says. “Others include operational, transactional, credit, compliance, legal and lawsuit risks among others. All these different kinds of perils, if not managed correctly, may impact the bottom line of the business.” Achampong explains that when making the decision to outsource a business function, the tangible benefits increase based on the level of activity that they are willing to submit to the third-party firm. “If an organisation decides to outsource only 50 percent of, say, its procurement activity, then the benefits that it can potentially achieve
will only be equivalent to that. “Organisations are being pushed to outsource as much of the function as possible. This then increases the chances of the business being exposed to risks. An example of which is when the outsourced provider fails to deliver on the company’s expectations and requirements. This, of course, creates cost implications for the business,” he says. Meanwhile, Batra highlights that aside from the usual operational and coordination issues that occur in external business relationships, concerns around confidentiality are becoming prevalent as well. “When subjecting a part of your business to be
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FEATURE
Outsourcing
managed by a third-party company, you are also giving them access to various data that may be critical for managing that function. There are cases where it might be necessary for you to share confidential information with them, so of course, there are risks that come with that.” Today, vendors and other third parties are more inclined to offer very attractive and competitive service-levelagreements (SLAs). With this in mind, companies employing third-party firms should carefully analyse the SLAs and regularly keep track if they are complying with the agreements in place. “It’s important to note that managing risk is far more difficult today than it was a few years ago,” says Maniar. “This is mostly due to global markets connectivity, hence it is necessary to establish heightened expectations for risk management, governance and internal audit, particularly in large institutions. Many financial institutions are developing several best practices that together form a comprehensive approach to third-party risk management. Therefore, in an interconnected world, vigorous due diligence and ongoing monitoring of third parties are crucial steps toward reducing third-party risk.” Achampong concurs, emphasising that with all business relationships, necessary due diligence is expected from both parties. “SLAs and key performance indicators should be in place for any such relationship. A forum for periodically reviewing expected service levels should also be embedded into any agreement. Essentially, any performance indicators should be easily measurable and not be subjective or open to interpretation. A further option is to embed financial penalties or rewards into performance mechanisms to ensure the supplier is incentivised to perform.” Meanwhile, a question of who should take responsibility for monitoring the
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“SLAs and key performance indicators should be in place for any such relationship with third-party firms. A forum for periodically reviewing expected service levels should also be embedded into any agreement.” Sam Achampong General Manager, Chartered Institute of Procurement and Supply, MENA, and Chairman, CIPS UAE Fellows Committee
performance and risk management arises. Batar believes that the outsourcer is accountable for this task. “Most companies make a mistake of letting a third-party company assume the management of a function where they are not doing well in and that should not be the case,” he says. “A business’ maturity on a particular function that they are outsourcing should be at the same level as the third-party provider. This ensures that they get to monitor and manage the risks.” On the other hand, Maniar believes that the risk management and monitoring function of a firm may include internal and external auditors, compliance officers, risk managers and physical inspectors. “Keeping track of the third-party relationship should be an ongoing responsibility for the risk management team, providing continuous improvement in the risk management programme and decisionmaking process. The report established by risk assessors forms part of the action plan that serves as the basis for making decisions on the need for future adjustments to the risk management strategy or implementation plan.” As businesses work to effectively mitigate the risks accompanying third-party relationships, they
are increasingly implementing various approaches to better risk management. “Recently reported supply chain issues such as the horsemeat incident with UK supermarkets or the fire in a Bangladesh garment factory have highlighted the fact that those making supplier relationship decisions must ensure that due diligence is carried out throughout the entire supply chain,” says Batar. “It is important to recognise that when issues such as insolvency, ethics, health and safety, reputation and scarcity affect any supplier within the third party suppliers’ supply chain, the impact will ultimately be felt by the client organisation. Initial appraisals should be followed up by periodical reviews and audits throughout the supply chain.” In addition, Maniar highlights, “There are a number of important steps that can be taken to assess and manage risks associated with third-party relationships. These include proper due diligence while selecting a third-party, adopting risk management processes consistent with the level of risk and complexity of a company’s thirdparty relationships, and continuous monitoring of the third party’s activities and performance.”
WE CANNOT SOLVE OUR PROBLEMS W I T H T H E S A M E
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Time saving: Excel4apps allows executives to quickly and securely access real-time, meaningful information directly from their Oracle E-Business Suite or SAP ERP. Risk Avoidance: Excel4apps solutions create a direct link from Excel to your ERP eliminating the disconnect between Excel and the ERP and reducing the risk of spreadsheet calculation errors. Time for Analysis: Rapid, error-free and real-time access to vital information directly in Excel allow executives and their teams to quickly and thoroughly analyse the information ensuring timely decision making. 1 Kelly, Susan. For finance planning & analysis, majority still use spreadsheets. CFO Innovation. July 3, 2014. Retrieved Aug. 13, 2014, from http://www.cfoinnovation.com/story/8507/finance-planning-and-analysis-majority-still-use-spreadsheets.
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EVENT
SAP Roundtable
untapped potential
In association with SAP, The CFO Middle East hosted a roundtable discussion on one of the hot topics of the moment for regional financial decision-makers – the shift to digital business models.
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ome of the Middle East’s biggest end-users in corporate finance gathered for an engaging discussion of the prospects of digitalisation. A mixture of excitement and constructive skepticism were displayed in a one-of-its-kind forum. Beginning the discussion, George Riding, Co-Managing Director and CFO, SAP Middle East and North Africa, framed digitalisation as having a disruptive impact, but something that has still not been fully exploited. “Today, the ability to know has grown exponentially, while the ability to define outcomes is growing incredibly,” he said. “A few years ago, you wouldn’t have cared who was drinking what type of coffee and where, but now this kind data on customers can give you an advantage and protect against competitors.” Riding went on to highlight a statistic that shows there is room for progress. “Around 90 percent
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EVENT
SAP Roundtable
“Around 90 percent of CEOs believe the digital economy will impact their industry, but less than 15 percent are actually executing digital strategies.” of CEOs believe the digital economy will impact their industry, but less than 15 percent are actually executing digital strategies,” he said. Michael Doersam, Senior Vice President, Group Finance, Emirates, weighed in on the discussion by highlighting the need to establish the purpose of digitalisation, and how the CFO fits into that transition. “The real value in digital is getting more insights to provide additional benefits to the customer, and increasing margins,” he said. “We need to define what exactly the role of the CFO is in this process. That’s the interesting part, how do we define the journey going forward?” Doersam went on to discuss how digital campaigns would be pointless unless they could be carefully tailored to each customer – a process that would take time. “If I never travel to Russia then why should I be sent adverts for flights to Moscow?” he said.
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“Customers end up deleting offers via email before they have even been read. If you provide the customer with something more focused, then you are more likely to receive a positive response to it.” Jignesh Sanghvi, CFO, Dubai Multi Commodities Centre Authority, shared the story of how the organisation had faced difficulties prior to its digital journey, but has since reaped the benefits. “Our transformation journey started around two years ago,” he said. “We had around 2,500 companies under the Authority who were issuing visas, and we wanted to provide valueadded services for them. We knew that to satisfy customers, we had to change. Now, 100 percent of our services are online, and learning about our customers and what they require has taught us how to deliver better value.” Giving a perspective from the healthcare industry was Michele
Rosso, CFO, Mediclinic Middle East. “Digital is having a huge impact in our industry; there is a mind-blowing amount of change,” she said. “We’re currently running 10 IT projects, which all come at a large cost. What’s important is achieving a balance in terms of the amount of resources invested. We need to decide how much investment digital projects warrant.” Amir Sohrabi, Director, Business Analytics, SAP MENA, highlighted a classic example of a firm that failed to adapt to modern demands – and suffered. “In 1997 Kodak had market capital of $28 billion,” he said. “Their margins were in the in paper and photographic chemicals business. By 2012 they were bankrupt; the model had shifted underneath them. Finance professionals need to be leaders. The CFO’s office is now forward-thinking, and should be considering taking on the challenge of digital readiness plans.”
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FEATURE
Branchless Banking
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Ditching the branch
Branchless banks are becoming increasingly popular in emerging economies. With lower fees and increased agility, the new generation of customers simply do not see the need for a teller. Smartphones now take the place of the bank window, and supporters and sceptics alike can agree that ours is an era of dramatic change in the retail banking world.
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Online-only’, ‘branchless’ or ‘direct’ banks are a relatively new trend in personal finance. Financial institutions, looking to capitalise on mobile technology, are creating virtual banks, with no physical presence. Even traditional brick-and-mortar banks have an online presence more often than not, but with 62 percent of customers preferring online banking these days, some institutions forgo traditional banking methods altogether. Endpoints for branchless banks can vary. Most institutions use a combination of endpoints, including private ATMs, POS devices, EFTPOS
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devices and personal mobile phones. These technologies allow customers to access their accounts through multiple channels, in multiple ways – with the notable exception of entering a physical branch. The concept of branchless banking became popular in the early 1990s as a result of the advent of online banking technology. Many of the early online-only banks were owned by larger, established brick-andmortar outfits, and gave early adopters peace of mind. Now, more and more independent, direct-only banks are cropping up. Successful online-only banks such
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FEATURE
Branchless Banking
“Historically, when people have asked, ‘Who are your competitors?’, we would answer Chase or Bank of America. Today, we would say Google or Amazon.” as TYME Capital out of Kenya and First Direct in the UK are proving that there is a market for customers who do not need a physical outfit to do their personal banking. Indeed, the East African country seems to be a market that is keen to take on branchless banking, garnering over seven million customers. South Africa and the Philippines have also taken on a number of branchless banks, and in 2011, Indonesia also launched a branchless version of the country’s largest bank. Banks in Latin America have had some of the fastest growth in the mobile banking arena, according the Economist’s Intelligence Unit. Drivers behind the acceptance of branchless banking in these markets are multiple. As has been mentioned, a younger demographic tends to be willing to take on new channels for banking. These markets also tend to have widespread smartphone usage, whereas access to large branches in foreign capitals may prove to
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be more difficult. Still, some markets are hesitant to accept a branchless model, and the style is certainly not for everyone. “We are in a new era for the company,” says Jamie Moldafsky, Chief Marketing Officer, Wells Fargo. “Historically, when people have asked, ‘Who are your competitors?’, we would answer Chase or Bank of America. Today, we would say Google or Amazon.” It is unsurprising that younger customers are nearly twice as likely to consider stepping away from traditional banking methods and switching to a branchless model. Almost 88 percent of millennials do their banking online, according to an Accenture survey undertaken this year in the US. Over half of those that use online bank services use their mobile phones as a means of banking. With the millennial population set to comprise an increasing portion of the adult population by 2020, it seems that non-traditional banking service providers are set to expand.
A survey conducted this year by AlixParnters confirms that new users are more likely to adopt digital transaction habits. A significant 26 percent of new checking accounts were opened physically at a branch, down from 35 percent in the year prior. Mobile check deposits increased to 17 percent up from 10 percent. Many customers are willing to take their online transaction habits a step further, and ditch the bank branch entirely. Long-time banking traditionalists are standing up and taking note of the new push for mobile banking options. Jay Sidhu, formerly of Sovereign Bancorp, launched a new app in January this year - BankMobile - with the hopes of appealing to a generation of consumers under the age of 35. “There is a once-in-a-hundredyear kind of change taking place in banking right now,” says Sidhu of evolving banking practices. However, the movement toward branchless banking comes with its challenges. “The challenge with every Internet-only bank in the past and today,” says Jim Marous, Publisher, Financial Brand, “is the ability to provide enough value in exchange for ‘giving up’ branches and local access.” The Middle East may be a prime environment to support branchless banking. With a young population that is increasingly part of the banking population, coupled with the ubiquitous presence of smartphones, it stands to reason that branchless banks may be, at the very least, an option in the region in the near future, and if not, a serious alternative to traditional channels.
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EVENT
CFO Strategies Forum
Prepared R for the future The 9th annual MENA CFO Strategies Forum provided finance leaders with vital business continuity strategies.
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isk never ceases to stalk the corporate world – partly a necessary evil, partly a sign of opportunity. For finance professionals, risk is a spectre that they cannot go ignored. The need for risk mitigation is obvious to any company that dedicates resources to business continuity; any company that seeks to survive past the next fiscal year. Often, the entire scope of a company’s risk management function is embodied in a single individual: the CFO. The CFO Strategies Forum brought together 150 regional and global CFOs, CIOs, heads of finance and policy experts to benchmark their practices, discuss the most pressing challenges facing the CFO function and showcase innovative strategies to overcome them. The Forum was focused around the concept of ‘Navigating change –
the CFO’s new strategic agenda’, a theme that has perhaps never been more relevant than at a time when the finance realm and the world in general is holding its breath in anticipation of an increasingly likely second recession. The two-day platform opened with a thought-provoking discussion on the macro-economic outlook, which sought to answer the question: “Are headlines more volatile than reality?” The discussion was moderated by Tariq Quraishy, CEO, Vantage Holdings, and gathering policy experts Dr. Peter Middlebrook, CEO, Geopolicity and Matein Khalid, Managing Director at IPC Global. Quraishy’s comments made it clear that his answer lies firmly on the side of ‘Yes’. On the ‘No’ side of the argument stood Dr. Middlebrook and Khalid. In a summary of current events, Dr.
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EVENT
CFO Strategies Forum
Middlebrook pointed to the devaluation of the US dollar and the yuan’s imminent frog-leap into the currency basket as signs of impending financial distress, though he also made sure to point to silver linings such as the many ripe investment opportunities in the East. During the panel discussion on ‘The DNA of a modern CFO’, panellists held up a magnifying glass to the complexities of the modern economy and compared it to the simpler days of yore, when the financial realm was subject to low market pressure, a steady economy and no major transformations. This is clearly no longer the case, and according to Mahmoud Al Kurdy, CFO at Bank Audi, “much like the evolution of genetic DNA across ages”, the DNA of a modern CFO is likely to be subject to many mutations and transformations in future. One aspect of their role, however, is unlikely to change: the burden commonly placed on them to predict the future, CFOs predict the future in service of business continuity. Business continuity is a matter of continuous value creation, and identifying key growth drivers and opportunities for expansion. These could lie internally in the form of strengths within the organisation, or they could be new markets to explore, or new product lines to develop. The CFO is responsible for driving growth in the organisation, but to be able to secure business continuity, he/she needs to be empowered and trusted and given access to all the fetching hats they’ll need to wear. Speakers at the Forum expressed an almost unanimous belief that CFOs will inevitably emerge as key strategists within their institution. The Forum’s highly anticipated panel on business continuity presented the CFO as a succession planning driver. This was a mildly, but understandably, touchy topic, implying that the future of the company might rest in the hands of the CFO, and in his or her ability to be the voice of reason within the organisation.
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Led by Fadi Hammadeh, Group General Counsel, Al Futtaim Group, the panel featured well-respected industry experts including Edward Quinlan, Former UAE Country Partner and Chairman of Boards, EY. Panellists described the importance of knowledge conservation and the need to engage in succession planning of family businesses well ahead of the actual transition, highlighting the need for companies to line up “an heir and a spare”. The panel was timely, considering the recent research showing that family businesses rarely survive past the third generation. According to research conducted by the Family Business
Institute, only 30 per cent of family businesses survive into the second generation, 12 per cent are viable into the third generation, and only around 3 per cent survive into the fourth generation or beyond. The challenge for CFOs who seek to secure business continuity within a family-owned organisation lies mainly in generational transition, and in enforcing a distribution of power that is not solely based on familial hierarchy. Successful business continuity relies on healthy corporate governance, which is conducive to true meritocracy. And unlike monarchies, businesses require meritocracy in order to survive.
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Interview Interview
Dennis Whitney
Refining talent The Institute of Management Accountants (IMA) is committed to further cultivating the knowledge and skills of financial professionals. Dennis Whitney, CMA, Senior VP, IMA, speaks to The CFO ME about grooming management accounting talents in the region.
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hat were the primary objectives of the IMA roadshow that you have conducted across the
might have for us and at the same time get their feedback so we can further improve the programme.
GCC region? The first objective of the roadshow was increasing the level of awareness of the CMA programme in the region. Another was to engage with the individual professionals - both current CMA-qualified and candidates. We aimed to connect with them, foster our relationships with their community and motivate them to continue with the programme. Thirdly, through the event we endeavoured to help the review course providers – those companies who provide training and consulting to our candidates. We wanted to make sure that we get to answer all questions they
Recent reports suggest that there have been shortages in management accounting talents in this region. What do you think is the reason behind this? I think there is a talent shortage in management accounting all around the world. In this particular region, I believe ever since the financial crisis of 2008 more and more companies are realising the importance of financial and management accounting. This is because the skills that this segment requires – planning, analysis and financial control are critical to any company’s success. The picture of the accountant,
“Organisations should start looking at talent development as an investment and not as an expense. They can bring in trainers for their finance professionals or encourage employees to take part in training programmes.” 42
wherein that person just sits in one corner with his spreadsheets crunching numbers, is a thing of the past. Today, most management accountants working with the finance teams are now more involved in the analysis and decisionmaking within the company’s finance function. They now act as business advisers as well and are instrumental in identifying new opportunities for their companies and at the same time helping their organisations pinpoint the risks that come with pursuing these opportunities. Where does the responsibility of developing these talents lie? There should be a three-way partnership. Firstly, universities and other educational institutions should progress their initiatives in teaching management accounting and finance. Next, I think organisations should start looking at talent development as an investment and not as an expense. They can bring in trainers for their finance professionals or encourage employees to take part in training programmes and develop their skills. Thirdly, organisations like IMA, can come in and assist them in this training. This is particularly the case
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with the CMA exam, which is a very concise programme which focuses on those skills that are in-demand in today’s business landscape. How do you think digitalisation can impact the management accountant segment? I think this alleviates the old numbercrunching notion of the management accountant profession. With the digital age, management accountant professionals would be able to more effectively and efficiently perform roles such as risk management and market assessments. However, it also creates risks for an organisation because technology changes so quickly that your whole business model can be deemed outdated within just a year. What initiatives does IMA currently have and will be launching soon in terms of further fostering management accountants and other finance roles? We actively hold events that focus on professional upskilling, which includes conferences, workshops and roadshows. We also have our teams here in Dubai and Cairo who are vigorously assisting finance professionals in the region on whatever they may require with regard to our programmes. Our chapters in this region are well-equipped with the capability to help not only individuals in the finance sector but also their respective organisations. We have also recently rolled out programmes that target academia. These programmes focus on grooming the next-generation of finance professionals, which has been wellreceived in countries like Jordan, Egypt and Syria, and we plan to bring this to the UAE as well.
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What would your message be for those aiming for success as finance professionals? First and foremost, it is very important to devise a plan of where you want to be in the future. And then, remember
to invest in improving your knowledge and capabilities. As a finance professional, if you aim to be a CFO in the future, you should identify various programmes that can help you shape your path to that career.
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EVENT
Coface
New frontiers
Last month, Coface hosted the 2015 edition of its Country Risk Conference, which opened the sixth Global Trade Development Week 2015. We bring you highlights of the event.
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eld under the patronage of H.E Sultan bin Saeed Al Mansoori, Minister of Economy, UAE, the event brought together government leaders, decision-makers, economists and other industry key players from both global and regional levels. The Coface Country Risk Conference discussed the impact of low oil prices, economic diversification, and greater integration with global trade in the region’s economy. Kicking off the event, Coface Country Manager Gregory Le Henand delivered his welcome note expressing his appreciation to all the attending delegates and thought leaders. The event saw a number of presentations delve into the outlook of global markets, with the spotlight on the GCC and Africa regions. Focusing on the UAE, Coface reported that the UAE economy will post strong growth of 3.1 percent in 2015, very close to the GCC GDP growth forecast of 3.2 percent. Saudi Arabia is expected to grow by 2.5 percent.
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“The UAE’s economy is one of the most diversified among the GCC countries,” said Julien Marcilly, Chief Economist, Coface. “Hydrocarbon revenues account only for 25 percent of GDP and 20 percent of total export revenues, and more than 60 percent of the country’s budget revenues still depend on non-oil sector development.” Marcilly also highlighted that though GCC economies are still dependent on the hydrocarbon sector as its main export and source of fiscal revenues, in the past decade respective governments have decided to replace their growth model by economic diversification that aims to reduce dependence on hydrocarbons, where prices are volatile and can be a source of macroeconomic imbalances. Although the forecast 2015 rates can still be considered high compared with many emerging and advanced economies, they remain below the region’s average growth rate of 5.8 percent between 2000 and 2011. The main reason for this slowdown is the decline in oil prices.
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The event saw a number of presentations delve into the outlook of global markets, with the spotlight on the GCC and Africa regions. According to reports by the company, rising government spending, coupled with falling oil prices, may transform the region’s budget surplus of around 10 percent in 2013 into a significant deficit in 2015. The same situation applies to current account balances. It is estimated that the current account surplus will dip from around 20 percent of the region’s GDP in 2013, to close to 0 percent in 2015. The event also saw a panel discussion on the GCC’s economic outlook, which underlined opportunities, overcoming challenges and analysed regional economic implications of increased diversification of trade within the region. The panel comprised Massimo Falcioni, CEO, Middle East Countries, Coface; Dr. Abdul Zahra Abdullah Ali, CEO, National General Insurance; Kim Tran, Head of Global Transaction
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Sales, Commercial Banking Gulf, NBAD; Owais Diyan Head of ICIEC Operations in Dubai, ICIEC; and Sriram Ganeshan, CFO, Redington Gulf. Throughout the session, the panelists agreed that geopolitical issues, credit, payment, working capital and staff competence are among the foremost challenges faced by traders and businesses operating within the region. Another panel discussion then prodded the economic outlook for Africa, which included experts including Jean Christophe Battle, CEO, African Countries, Coface; Dr. Ashraf Mahate, Head of Exports Market Intelligence, Dubai Exports; Asim Al Abbasi, CFO, Economic Zones World; and Riyaz Jamal, Chairman, Rini Holdings. Battle emphasised the potential of the African market, “If you are not already doing business in Africa, then you are already late in entering the market. The best margins are available in that region and the environment is improving. However, the key challenge is identifying business counterparts and this can be done by partnering with the right people who have extensive experience in the region.” Mahate then underlined that while opportunities are robust in Africa, doing business in that market is somehow a case of ‘glass half full-half empty,’ “The African market is rapidly expanding with exports into the continent also increasing. Africa is also expected to have more than half a billion middle class people by 2030. With all the good prospects surrounding this market, challenges on red tape and transparency still remain.”
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Feature
Bitcoin
bits and pieces
T
here has been a great deal of buzz surrounding the cryptocurrency Bitcoin in recent years. In 2009, the payment technology was released as open-source software, allowing users to use it as a decentralised virtual cash. Though other crypto-currencies exist, Bitcoin is by far the largest and most used in this new world of virtual transactions. Though the currency has been unstable for the past year, more and more businesses, particularly in the Middle East, are beginning to do business in Bitcoin. In 2014, the first functioning Bitcoin ATMs were installed in the UAE. The Middle East is fast following in the footsteps of many other Bitcoinfriendly countries. New Zealand, Finland and Australia are extremely supportive of the use of digital currency, while Canadian taxes can even be paid with Bitcoin. Other governments are less than excited about the prospect. Denmark, for example, recently outlawed the use of Bitcoins in transactions. The reason for some governments’ hesitancy is relatively straightforward. There are few laws and regulations in regard to Bitcoin - or any digital currency for that matter - which can leave governments weary. The way that Bitcoins work is actually fairly easy to understand. Bitcoins can be obtained in a number of different ways – most commonly by receiving them from another Bitcoin owner during a transaction. Bitcoins can also be mined. Mining of Bitcoins is done through verifying other transactions to record in the public ledger. Bitcoins are then stored in a virtual ‘wallet’ and secured with digital keys.
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Yet, as Bitcoin increases in popularity, businesses and brokers alike are looking to lend structure to the technology. In August 2014, the Australian company igot opened its doors in the UAE. “igot is a multinational Bitcoin exchange platform,” explains Vignesh Pethuraja, Strategy & Business Development, igot. igot functions as a broker for Bitcoin users, or more simply, as an exchange service for the currency. With a familiar ‘buy-sell’ model, the company is able to take some of the mystery out of using the currency for investments and purchases. igot has secured local banking partners and payment processors to give users in the region as many options as possible. igot is registered in the UAE with a Commercial Brokerage Licence. igot uses KYC – or know your customer – best practices. “To be a customer with igot, individuals must be verified,” explains Pethuraja. While this may put a dampener on original users of Bitcoin, who revelled in the idea of anonymous transactions, it protects the company as well as the local economy from nefarious activity. “Any and all suspicious activity noted on an account is investigated,” Pethuraja adds. The result may mean less anonymity, but it also means truly transparent, secure and realtime banking and accounting. The company is determined to keep both their customers and the community safe. “We also are certified in anti-money laundering practices,” says Pethuraja. The days in which crypto-currencies could be used for illicit activities are certainly on their way out. According to Pethuraja, igot’s presence should be no shock. “There have been 2 million dirhams in Bitcoin transactions
in the UAE,” he says, “and a daily global transaction volume of nearly 1200 Bitcoins.” It was only a matter of time, therefore, before a company such as igot made its way to the region. Bitcoin was the worst performing currency of 2014. However, according to Pethuraja, there is an explanation for the fluctuations. “Bitcoin is a technology, and it is a relatively new one at that,” he explains. The instability that the Bitcoin has experienced in the last year, he says, is the result of that. As people become more confident in the currency, he predicts the exchange rate will stabilise. Indeed, Bitcoin is becoming easier to use. As the currency gains popularity, companies like BitPay – a service that can be described as the Bitcoin version of PayPal – are streamlining the way that users conduct Bitcoin transactions. “Bitcoin today is like the Internet in 1998,” quips Pethuraja, “At that time, the Internet existed, but it wasn’t very user-friendly.” Proponents of digital currency are fast at work adding layers to the BitCoin user interface to make it accessible to even the least tech-savvy user. On a smaller scale, micro-payments derived from international remittences will mean big business for brokers such as igot. Real estate transactions could also forgo international fees when doing business over borders, and travel related industries could stand to benefit as well. However, with igot in the region, it is NGOs that stand to collect in the moment. “We want to do something for the community,” says Pethuraja, “so we are providing zero percent transaction fees for non-profit organisations.” With this offer, NGOs can make everyday donations much more lucrative for their organisations, and provide more for their beneficiaries.
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SomersConsult
Managing change “Many people are uncomfortable with leading and managing change in the workplace.” Fintan Somers, CFO, SomerConsult
I
n my previous article ‘No technology magic bullet’ I asked the question: “...why do you repeatedly see the technology part of a transformation programme taking over and becoming the point of the programme rather than a subsidiary enabler, with the result that the programme fails or under-delivers?” One answer to this question is that many people are uncomfortable with leading and managing change in the workplace. This may seem to be a strange statement. After all, people have to manage major change in their lives outside of work - having children and getting married spring to mind. Why wouldn’t they be comfortable with change at work? I’ll go into this question later in this article. A second answer is that people are uncomfortable dealing with the human dimensions of managing change, which are often the more complex, difficult and messy parts of the change process. I think you’ll agree that a great new IT system managed by a dysfunctional team is not a successful outcome. We need to fix the team first; but for various reasons, and perhaps unsurprisingly, people can be reluctant to open this particular can of worms. Often, attention is diverted to the technology aspects of the change programme
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while refusing to acknowledge that technology, alone, may not solve the performance problems. A third answer to the question is that many of the team, sometimes including the management, do not understand what is required to lift the performance of the team beyond what it currently is. Their vision of what ‘could be’ is constrained by their vision of what is and what has been. Unless the team knows and agrees where they are going, how are they to define the technology and other components required to get there? Finance Function LIFT, my model for developing and executing finance function transformation, is designed to address these issues: • The Function Effectiveness action programme redefines the vision for the function, translating gaps between now and the future condition into a welldefined action plan that forms the basis of a new team charter. • The Team Effectiveness action programme teases out the issues that a team might be facing around goals, roles, processes and values and puts resolution of these issues front and centre of the programme design. • The Technology Effectiveness action programme looks at technology planning in the context of the needs and priorities defined by the team and function effectiveness programmes. I have found that careful incremental IT investment that delivers a staged delivery of improved function and team effectiveness - low hanging fruit, so to speak - is more effective than ‘big bang’
technology implementation. Who wants a technical success but a practical failure? It also, often, can cost much less. So, let’s return to the question of why many people are uncomfortable managing change at work, despite the fact that they manage lots of change in their daily lives. I think the main reason is that either they are not asked to, or they are told not to, initiate and manage change. A McDonald’s burger cook is not paid to be creative; he or she is paid to present a standard product in a standard manner with standard ingredients cooked in a standard way and with a great attitude. Many finance jobs are like this. They are not paid to make outcomes more effective, they are paid to deliver a standard outcome in a standard manner to a standard very busy timetable. The reality is that risk aversion is trained into many people as part of their work and, in the case of finance people, risk aversion for certain roles is an actual prerequisite and a personality characteristic of people who do certain jobs. The result is that many finance managers who come up through the system are adept at administering standard processes rather than developing and executing change. A modern finance function is a complex mix of highly productive standard process and ad-hoc improvisation. For the CFO and team to be successful, constant change , recognised, for example, in the Japanese businesses philosophy know as Kaizen, needs to be included in the target operating model.
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CIMA
Tomorrow’s Relationships
M
anaging relationships has always been given a degree of importance. Positive relationships are a vital component for creating an environment where people can thrive. However, more focus is dedicated to this area of management now than ever before. The business environment is more complex, competitive and connected in today’s world where communication plays a central role is success. Value is therefore created as much inside the organisation as outside. This is why organisational structures in recent years have evolved from old fashioned chains of command into a more flexible, two-way structure based on internal networks and relationships. Effective relationships are ones that are mutually beneficial and create value for all parties involved. In 1975, more than 80 percent of corporate value reflected in the S&P 500 was tangible assets, while intangible assets comprised less than 20 percent of market capitalisation. By 2010 intangible assets had grown to 80 percent of market capitalisation. A major portion of these intangible assets are all the stakeholders involved in a company’s everyday operations, including employees, customers, suppliers, investors and the general society. As a result, the quality of a business’ relationships with these groups influences its overall performance and also has both short and long-term implications. Hence, long-term business success depends on understanding and responding to this trend in the appropriate way. Tomorrow’s company
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recommends an approach called the ‘triple context’ which involves aligning economic, environmental and social interests and nurturing the relationships that support the health of this interconnected context. The ideal strategy can capitalise on the advantages effective relationships can offer and unlock the potential value businesses might be missing out on. Creating effective internal, as well as external, relationships is important; it is highly possible that one cannot be achieved without the other. The same way in which relationships are an integral part of a functional society, creating a positive culture within a company is probably unlikely if there is no sense of ‘society’ within it. In today’s fast changing world, organisations are forced to adapt to constantly changing trends in order to remain competitive. A significant aspect of operational change is how to develop the correct approach to relationships. The first step in this process is identifying the relationships in and around the business and then implement effective management and decision-making strategies that will bring the most amount of value out of these connections. For this to be possible, company executives will have to first recognise the benefit of investing more in the quality of relationships their company develops and how this will add growth, value and efficiency to the firm. There is a tendency to assess the quality of a relationship on the basis of how satisfied someone is with the current bond or affiliation. However, a relationship where one or both parties
“Fostering a culture where relationships are highly valued has to start from the top level management and trickle down through the policies they delegate.” Geetu Ahuja, Head of GCC, CIMA
are satisfied is not necessarily one that is helping both parties to achieve their goals. It is more beneficial if their relationship ensures the accomplishment of the respective goals that are set out. The four main requirements to build beneficial relationships are: identifying key relationships, developing them into more meaningful relations, measuring their effectiveness and finally reporting on the effectiveness of those relationships. Fostering a culture where relationships are highly valued has to start from the top level management and trickle down through the policies they delegate. These influential officials will have to take the conscious initiative of making the quality of relationships a main point of discussion and track its performance within the company with the vision of how it will be a contributing factor to long-term business success. Tomorrow’s Relationships is a guide aimed at boards and senior management with the intention of providing them with practical steps in the form of an 18 month project which will explore what it means to develop more effective relationships. This programme has been supported by CIMA, the CIPD, KPMG and Linklaters, drawing on discussions with companies, professional bodies, practitioners and academics who are experts in the field of relationships.
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