Excellence in Leadership December 2012

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Issue 4 | 2012 | £12

the

S T R A T E G I CP E R f o R m A n C Em A n A G E m E n T

issue

How finance is driving effective performance management strategies

Paul Friston, director of group financial control at Marks & Spencer, on how finance

underpins the retailer’s performance

Anders Bouvin, general manager, Handelsbanken UK, on how his bank outperformed in the financial crisis

James Davenport, FD, Innocent Drinks, on how reward packages incentivise

performance

Alexander Maljers, downstream finance performance manager at Shell, on what

performance management means to the oil giant

talents and skills of an organisation’s rising stars (p52).When it comes to managing employee expectations,

Generation Y is reshaping the landscape. James Davenport, finance director at Innocent Drinks, Stephen Purse, FD at Adnams brewers, and George Riding, MENA CFO at business management software specialists SAP, discuss how flexible working, flat-rate bonuses and employee share schemes are helping to enhance staff performance (p54).

As part of CIMA’s celebrations to mark the 20th anniversary of the Balanced Scorecard, the institute launched four new reports, each of which looks at integrating performance management from a different perspective. These range from: employee empowerment in shared service centres; risk management in the intermediary food chain business; the adoption of economic value-added (EVA) in Chinese state-owned enterprises; and improving risk reporting to the board of directors. Each report provides

insights into how organisations are pushing performance management in new directions (p24).

CIMA is strongly aware that tomorrow’s talent is high on the business agenda. With this in mind, the institute recently held a roundtable in conjunction with financial

recruitment experts, Hays, to find out how firms are planning their talent management strategy in light of changing organisational requirements. The clear message is that management accountants are becoming even more integral to the decision-making process in leading companies (p46).

I very much hope that this issue of Excellence in Leadership will be a useful reminder of the importance of fine-tuning the motor of business and, in particular, the value drivers. As Professor Kaplan recently pointed out in his inimitable way, “There ain’t no fixed costs – just inattentive managers.”

At CIMA’s recent celebration to mark the 20th anniversary of the Balanced Scorecard, one of the scorecard’s creators, Professor Bob Kaplan, joked that he wanted the words: “We can’t manage what we don’t measure,” written on his tombstone. In this particular instance, the professor was

discussing ways to improve performance management in public healthcare, but this phrase should be etched at the forefront of every business leader’s mind, whether they are in the public or private sector.

Today, the Balanced Scorecard’s popularity is global. Indeed, it was selected by the editors of the Harvard Business Review as one of the most influential management ideas of the past 75 years. But, of course, there are many devices in the modern business toolbox. In this issue, we ask leading business figures to highlight some of the key performance management challenges they are facing and what tools they are using to overcome them.

Performance management means different things to different organisations. For Alexander Maljers, downstream finance performance manager at Shell, the focus is on ensuring that the petroleum giant achieves end-to-end value optimisation across its operations (p28). Meanwhile, Anders Bouvin, general manager at Handelsbanken UK, reveals how a commitment to customer-focused values has helped the bank to avoid the shockwaves of the global downturn while Rani Awad, CEO of Atlantic FuelEx, illustrates how deft performance management footwork is needed to avoid turbulence in the aviation fuel supply business (p8).

Speaking from the cutting edge of business, Paul Friston, director of group financial control at Marks & Spencer, details how his team is working on a ground-breaking integrated reporting pilot that he believes will make the company’s Plan A strategy for sustainability even more effective (p14). Like many other successful firms, Marks & Spencer has found that part of Plan A’s success is ensuring buy-in from staff.

On a similar theme, Phil Sheridan, managing director of financial recruitment firm Robert Half UK, explains how a performance management strategy that is transparent and tightly linked to the overall goals can help to develop the

Charles Tilley,chief executive, CIMA

foREWoRD

Performance management

‘When it comes to managing employee

expectations, Generation Y is reshaping the landscape’

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

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Excellence in Leadership | Issue 4, 20123

Editorial advisory boardMalinga Arsakularatnechief financial officer, Hemas Holdings

David Blackwoodgroup finance director, Yule Catto & Co

George Ridingchief financial officer, Middle East and north Africa, SAP

Arul Sivagananathanmanaging director, Hayleys BSI

Bogi Nils Bogasonchief financial officer, Icelandair Group

Kai Peterschief executive, Ashridge Business School

Jeff van der Eemschief financial officer, United Biscuits

Jennice Zhufinance director, Unilever China

ConTEnTS

3 Foreword

6 Vital statistics 8 Performance strategies Anders Bouvin, general manager, Handelsbanken UK; Rani Awad, CEO, Atlantic FuelEx; and Dr Kristina Potocnik from the University of Edinburgh Business School, on what performance management means to them

14 Finance makes a mark Marks & Spencer director of group financial control, Paul Friston, FCMA, CGMA, on how finance is driving performance at the retailer

20 Know your customer Author and performance management guru Gary Cokins offers businesses guidance on

On the right KPI road?How to avoid KPIs that damage other parts of the business p38

Getting global How multinational Shell handles global performance management p28

Paying the priceHow salary fits into companies’ reward structures p54

how to better understand their customers

24 Modern performance To mark the 20th anniversary of the Balanced Scorecard, CIMA commissioned four reports into modern-day performance management. We profile the findings

28 A global view Alexander Maljers, downstream finance performance manager at Shell, explains how to obtain a view of performance in a multinational corporation

32 Investing in the future How Hewlett-Packard is partnering with CIMA to create a learning culture at its shared service centres that will reap benefits for years to come

36 Independent partners Independence in business partnering has been the subject of a series of recent CIMA roundtable events. Tanya Barman, CIMA’s head of ethics, provides an update on the dicusssions

38 Best laid plans... Key performance indicators can help an organisation to drive up performance. But it’s important to consider their impact across the whole business

41 Get involved with CIMA

42 Right tools for the job Leading finance chiefs on good performance management

46 Tomorrow’s talent With finance playing an

increasingly important role across organisations, a recent roundtable in partnership with Hays addressed the issue

52 Measure for success Robert Half UK’s Phil Sheridan on creating a motivated workforce through performance management

54 Paying the wayHow salaries fit into today’s reward programmes

60 From CFO to NED Peter Williams, NED of Cineworld Group and Silverstone Holdings, on what CFOs bring to the role of non-executive director

66 CIMA directory

65 Next issue



CIMA is the Chartered Institute of Management Accountants 26 Chapter Street, London SW1P 4NP 020 7663 5441 www.cimaglobal.com

CIMA contact: CPD manager, CIMA Claire MortonEmail: claire.morton @cimaglobal.com

Excellence in Leadership is published for CIMA by Seven, 3-7 Herbal Hill, London EC1R 5EJ. Tel: 020 7775 7775.

Group editor Jon WatkinsGroup art director Simon CampbellJunior designer Josh FarleySenior sub editorsGraeme AllenDarren BarrettDeputy chief subChristina Ryder Chief sub editor Steve McCubbinPicture editor Louise Fenerci Picture researcher Alex Ridley Editorial director Peter Dean Managing directorJessica Gibson Creative director Michael Booth Production manager Mike Doukanaris Group publishing director Rachael StilwellCommercial account developmentHilton YoungAdvertising manager Andrew WalkerEmail: [email protected]: 020 7775 5717

Chief executive Sean King Chairman Tim Trotter

© Seven © CIMA

Cover imageAction Images

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

Origination by Rhapsody.Printed in the UK by Wyndeham Press Group.

The products and services advertised in Excellence in Leadership are not necessarily endorsed by or connected in any way with CIMA. The editorial opinions expressed in the publication are those of the individual authors and not necessarily those of CIMA or Seven. While every effort has been made to ensure the accuracy of the information in this publication, neither Seven nor CIMA accepts responsibility for errors or omissions.

VITAL STATISTICSTalking Performance

Source: Finance Effectiveness Benchmark Study 2012; PwC

6

2011

$3.5BN

$3BN

2012In 2011, more than $3bn of talent management software was purchased, and it is expected to rise to almost $3.5bn in 2012.

Strategic Human Resources and Talent Management: Predictions 2012

Source: Strategic Human Resources and Talent Management: Predictions for 2012; Bersin & Associates

Companies that revise and update goals quarterly generate more than 30 per cent greater impact from their performance management processes than those which implement the old-fashioned annual review.

GEN-XGEN-Y

In 2012, organisations must specifically develop engagement, development and incentive programmes targeted towards Gen-X and Gen-Y in order to grow.

30%

Top-performing finance teams take just seven days to produce their forecasts. The typical function needs 19 days

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 200

60%Around 60% of

participants still rely on manual spreadsheet

manipulation for reporting

Top-performing finance teams spend 17% less time on data gathering and 25% more time on analysis than typical functions

25%

17%

0%10%20%30%

TIME

40%50%

50%40%30%20%10%

Succession plans are in place

for more than 90% of key finance

roles in the top-tier finance teams…

…compared with only around 40% among the

average performers

90%

40%

45% 80%

80% of participants say the accuracy of their forecasts is critical to the running of the business, but only 45% believe that the outputs are reliable

8

Contextis everything

Performance management means different things to different organisations. Anthony Harrington

asked Anders Bouvin, general manager, Handelsbanken UK; Rani Awad, CEO, Atlantic FuelEx;

and Dr Kristina Potocnik from the University of Edinburgh Business School, about their performance

management strategies and what it means to them


Theories of performance management come in many guises. Ultimately, it’s all about finding the most appropriate and best available metrics to steer a particular ship through its own patch of ocean. Ideally, those metrics should also be broad enough – to stay with this marine analogy – to allow the officers to keep a weather eye out for any relevant dynamic that might radically impact the vessel’s passage – a passing hurricane, for instance. The following two case studies show just how much the context in which a company is operating, and the way it perceives and defines its strategic mission and the nature of its markets, sets the framework for what

constitutes an appropriate set of performance management metrics. The Swedish Handelsbanken Group was recently rated by Bloomberg as the tenth safest bank

in the world, and the safest in Europe. It quietly and unspectacularly avoided all the elephant traps that so many of the developed world’s banks stumbled into in their mad dash for profits in the run-up to the 2008 global financial crash, and the durability of its business model is – or should be – the envy of its competitors. Atlantic FuelEx, founded by the entrepreneur Rani Awad, has taken just 14 months to be well on the way to being a global player in one of the most competitive markets on earth, as a worldwide provider of aviation fuel services. What makes this market so difficult, as Awad notes, is the simple fact that “fuel is fuel”, and though the volumes are huge, the margins are tiny. This means that success has to be based on more than price. Value add and risk control are the keys to Awad’s business and shape everything that the company does.

Interestingly, what both fuel services and banking have in common is a low mark-up on credit, which means that one large loss caused by one big client going belly up creates a huge hole that can only be plugged by a daunting volume of ordinary business. This makes risk management absolutely vital for both bankers and jet fuel providers and creates a surprising commonality of purpose. Awad has to look to continuously add value in order to grow his business and make his offering more attractive than that of his competitors. But adding value, in the sense of being ready to meet the needs of clients across everything from personal and business banking, is exactly what banking is all about, too. »


Bouvin has been with Handelsbanken since 1985 and served as its head of Northern Great Britain and head of Denmark Regional Bank.

Anders BouvinGeneral manager, Handelsbanken UK

What was it that allowed Handelsbanken to sidestep the disasters of the 2007/2008 financial crash? How did the bank manage its way through that crisis and what were the key metrics that management was concerned with during this period?Our philosophy has always been to avoid what you might call “opportunity banking” and to stay focused on one simple principle, which is to keep the customer relationship at the heart of everything we do. It is customary in banking for all banks to claim that they are focused on the client relationship, but there is a world of difference between saying this and doing it. For example, the entire bonus culture, in our view, is inimical to a model that puts the customer at the heart of the relationship.

If you’re going to reward a manager for meeting a target, then he or she is going to try to meet that target, whether or not it accords with what customers really need and want. You are setting up a tension between what the manager wants, namely a larger bonus, and what the customer wants, which is excellent service. To bring it down to performance management, if you set targets for anything, be it a branch personal loan portfolio, business loan portfolio, or expanding your mortgage book by a certain percentage, or whatever, then people will work to achieve

those targets. If you then reward on the basis of those targets, which is what bonuses are all about, you strongly reinforce the behaviours that will allow management to achieve against those targets. What has this got to do with relationship banking? Not a lot, in our opinion. In fact, it’s easy to see that it actually works against relationship banking. This is why Handelsbanken doesn’t pay bonuses and doesn’t have a bonus culture.

For the same reason, we do not have performance targets that seek to increase this or that specific facet of our portfolio of services to customers. None of those metrics work for us because they are not about nurturing the client/bank relationship. What this meant, in the boom years in the run-up to 2007/2008, was that we looked very staid, and might have seemed to outside commentators to be missing a number of tricks when our competitors were outperforming us by buying large amounts of mortgage-backed securities, which at the time seemed to pay handsome returns, or when our competitors increased their sovereign debt portfolios with massive lending to Portugal, Greece and other peripheral eurozone countries.

We did not join this dash to exploit new opportunities in banking. We stayed focused on our own business model and on our own key metrics, namely building our banking model around the customer. This approach did not change through this whole period and remains the same today.

How do you support your customer relations focus with metrics? What enables you to manage on this basis?The basic philosophy is that if you leave it to branch managers, they are best placed to know who the best customers are in their area. They will develop the long-term relationships with customers, and by focusing on what the customer needs they will, over time, grow their book steadily. So the metric that is most important to us is the branch cost to income ratio. We measure this regularly and have a totally transparent league table. Every branch can see where they are on the cost/income ratio table, relative to all the other branches. There is a clear incentive to move up if your branch is quite far down the league table, and to retain and improve your position if your branch is well placed. As you can see, this is a completely neutral metric as far as prioritising particular products is concerned. By stimulating competition among the branches and giving branch management a free hand to develop client relationships for the long term, branch performance improves over time. This enables us to meet our overall objective, which is to outperform the competition on the key financial metric that really matters to us, namely return on equity. We outperform our competitors on return on equity by being more efficient and having lower costs. This is not about underpaying staff. To attract the best people in banking you have to pay an attractive reward package, but then you get superior returns by retaining »

AnDERS BouVIn

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customers for the long term by providing them with what they want, not by selling them products they don’t need. We are also very selective in our customer acquisition. We only take on customers that the branch manager feels that he or she can develop a long-term relationship with. We are not about acquiring rapid market share. This simple set of metrics has worked for us for 40 years. We have lower non-performing loans and better return on equity, and lower cost income ratios than the competition, and have had for decades. This model works through all business cycles, through the downturn as well as the boom times.

Other banks tend to fall into the trap of endlessly rethinking and restructuring their business models. We have had the same, consistent model for 40 years, since we moved to it in the 1970s. Before that we had tons of goals. There were so many targets and goals set by head office that everyone found a different subset of goals that suited them and there was no consistency. So we did away with all that and stuck with one overriding goal, return on equity relative to our peers, and at branch level this translates down to the cost income ratio. With that as our yardstick and with a complete focus on developing long-term customer relations, we achieve steady, organic growth year in and year out.

How important was scale to you as a metric when you launched Atlantic FuelEx from your base in Dubai in July 2011?It was a very crucial metric for us. To be a global player in this business you have to have a wide network of relationships with airline carriers and general aviation clients, as well as with both incumbent services and fixed-base operators at airports in a number of countries. If you are dealing with a big jet fuels supplier, your importance to them is directly related to the size of the fuel orders you are placing with them and the quality of the clients they are delivering to from a creditworthiness standpoint. This has a very significant influence on the margin you can get from them. Margins in this industry are very thin and we deal in large quantities of fuel to generate profit. So getting to a sustainable scale that would enable us to maintain our growth was vital.

However, it was just as important, if not more so, for us to carry out very thorough due diligence checking on our potential customers and to monitor their economic health very closely.

So credit management is a fundamental and critical part of this business and is just as important as being excellent on the logistics front. If you say there are going to be fuel trucks on the ground at a particular airport at a particular time, and waiting for a particular flight, that fuel had better be there! Operational efficiency is another dimension that you live or die by in this business.

One of the maxims in the jet fuels business is that “fuel is fuel”, meaning that fuel companies such as yours are supplying direct from the major suppliers, such as Exxon or Total, to a range of incumbent services and fixed-base operators, as well as to carriers. Scale is not enough to differentiate your business, is it?No. Another critical metric for us is value add, and it is something that we strive to make a fundamental part of our proposition to all our clients. This has

Rani AwadCEO, Atlantic FuelEx

Awad was previously the fuel sales manager for Jetex Flight Support for five years before he set up Atlantic FuelEx.

RAnI AWAD



How solid or deep is the current state of performance management theory?To date, the theory is very pragmatic and, one has to say, very shallowly rooted in theoretical concepts. Any theory needs a definition of its terms, and the definition that we use is that performance management is all about a group of behaviours that contribute to the effectiveness of others in the work group.

That would seem to be a very group-oriented definition. How does it help at the company level where an organisation is looking to enhance the performance of its strategic mission?There are basically three approaches to performance management. At the corporate level, the definition that is most often used is results-based performance. This emphasises outcomes, financial outcomes generally, but also “softer” outcomes, such as developing client

relationships that then go on to deliver financial performance.

Another measure is the behaviours approach that I began outlining, and the third approach is based on traits. It asks what character traits an employee has to have to be successful in this organisation, or more specifically, in this role? What would lead us to expect an enhanced performance from someone in this role? Here you are looking at enduring traits, such as conscientiousness and intelligence. If someone is conscientious and intelligent today, they are likely to be so tomorrow, and a year from today and so on.

The second approach, the behaviours approach, is what you want to work with when it is not absolutely clear how your expectations on the results approach are going to be achieved. You are then looking not just at financial outcomes, but at the specific behaviours that are needed to get to those numbers, at how the work is done.

both a direct economic benefit and a huge knock-on benefit which, in the

end, shows up as better margins from our major fuel suppliers. For example, to win a good-quality carrier client I will want to bring to their attention the fact that while they have two or three options on fuel supply in, say Qatar and the Middle East, they have no good coverage in Sudan or West Africa, where I can help them. So the fact that we extended our operations to Africa at an early stage is very important to us. That goes to the scale issue, but it also goes to improving my proposition to the carrier, since I can do them a bundled deal for their Middle East and Africa business and provide them with comprehensive billing, reporting and fuel usage statistics. But at the same time, winning the carrier’s business improves my standing with the major fuel suppliers. The same thing works with the direct suppliers. Exxon has a range of options in terms of suppliers it can go through to reach Middle East clients, but it is not strong in Africa. So I can give them an added presence there and that can bring me some or all of their Middle East business since we can, again, do a bundled deal. So in this business you always have to look at ways of leveraging value add, while keeping a very close eye on your credit lines and

the general health of your debtors. Value add is not a “metric” so much as it is a philosophy and a shaping approach to business.

Another example is the way we facilitate the use of supplier fuel card schemes across Africa. If you hold a fuel card as a pilot at London Heathrow, you will have no problems getting the job done. But at many African bases, and at numerous other places around the world, fuel sales are done on a strictly cash

basis. We are working very hard with fixed-base operators and incumbent fuel services companies to get them to accept cards from our major fuel partners. We are also looking to get the cards accepted on military bases. That is a strong positive from the point of view of our suppliers, but it also helps the clients since it makes it much easier for pilots to pay. Value add, scale and cash flow, coupled with excellent logistics, is what makes our business tick.

Dr Kristina PotocnikLecturer in the Organisation Studies Group at the University of Edinburgh Business School

The theory of performance management

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Can accountants save the world?

THE In-DEPTH InTERVIEW

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Paul Friston, FCMA, CGMA, director of group financial control at Marks & Spencer, on how finance is driving performance at the leading global retailer

The idea that finance holds the key to issues we face today has been gaining currency. Peter Bakker, president of the World Business Council for Sustainable Development, raised it at the 2012 Rio+20 conference on sustainable development and at a Marks & Spencer conference on integrated reporting this year. At the latter, Bakker made every accountant in the room stand up and told them that they can make a difference by making sustainability more measurable and tangible through integrated reporting.

The message clearly resonates with Paul Friston. He has been closely involved with Marks & Spencer’s well-regarded Plan A for sustainability since it was launched in 2007 – especially since he took over as group financial controller in 2011 – and is now working on an integrated reporting pilot that he believes could help make Plan A even more successful.

“Now I have a really diverse team, from commercial decision support through to technical accounting, with about 350 people across the world,” he says. “With the expected growth in »

middle classes around the world, retail consumption will [increase rapidly]. As a large international retailer, we need to account for this and consider how we impact the planet, because resources are finite. There is both an environmental and a commercial rationale.”

When Plan A was launched it made 100 social and environmental commitments to deliver by March 2012. In 2010, M&S updated the plan and added 80 more commitments. It has been widely hailed as a success, both within the company and by commentators in the worlds of both business and social responsibility. The vast majority of Plan A targets have been met or are “on plan”, while only six have been abandoned. And the next phase of the plan has been launched with a range of three- year targets.

ClIMaTE ChaNgE Is IMporTaNTFriston says that while targets around the reduction of energy and waste have an obvious practical impact, other less tangible targets, such as those based on climate change, are equally important.

“We are already seeing the impact of climate change in important areas such as costs and continuity of supply,” he says. “To raise awareness about that and to influence it is important. Because we are ‘own label’, we cover all aspects of the business. The commitments are wide-ranging, so different parts appeal to different areas of the organisation. [Plan A targets on] ethical sourcing, for example, have a big impact on customer interaction.

“We also measure how Plan A resonates with staff – over the five-year period it has become more important to them as they are becoming more socially and

environmentally aware. On the customer side, we have always been clear that they don’t want to pay for something that is ethical or environmentally friendly, so the challenge has been how you can promote the benefits without passing on any additional cost.”

Crucially for finance, the business case for Plan A has grown over the past three years.

Friston says: “My current role has revolved around how to bring the business case for Plan A to life. Within my team is the head of FP&A Suzanne Foley – she sits on the Plan A committee and the Plan A innovation fund [which supports new business ideas]. That is really helping the business to capture and realise the benefits, and get the best return on investments.

“Plan A went from costing us money in year one, to profit neutral in year two. Now, in year five – whether on cost avoidance or true enhancements to profit – it is adding about £105m of profit. Commodity and energy prices have gone up in those five years and so, by limiting our consumption, Plan A has played a bigger part.”

This year, M&S also published the document “The key lessons from the Plan A business case”. “That is to help other organisations and finance professionals think about how we have gone about measuring Plan A,” says Friston. “We want to help others to see that there is a financial benefit, and to upskill so that they can do the same.”

sUCCEss IN sUsTaINaBIlITYFriston says that Plan A has been a huge challenge, but has been more successful than the company could have imagined back in 2007. “That success is a unique selling point and a huge benefit in attracting finance people, who are generally much

more socially aware than they were even five years ago. We didn’t necessarily know how we were going to get there, so it has taken a lot of faith and changing mindsets, but having ambitious and stretching goals has helped us to find solutions.”

“The biggest challenge initially was that not everyone understood the part they had to play,” says Friston. “We had a central team that formulated the ideas and we found very early on that we needed much more ownership, both commercially and financially. So we devolved many of the budgets and expectations to the different areas of the business to try to foster accountability.

“A few Plan A commitments were not achieved, because the landscape is changing. For example, we wanted to double the amount of organic food that we sold. [But because of the economic downturn] demand actually declined.

“The key to success has therefore been to have something that is simple and can be cascaded easily through the organisation – so everyone knows what you are trying to achieve and the part they can play. It also has to be something ambitious, and that you keep coming back to. There will be times when we have to realign how we get there.

“Now that it is so embedded in the culture, everyone is playing their part. That was the biggest cultural shift. We have made sure we had the right KPIs in place, and everyone in the organisation has Plan A as one of their objectives. Senior management have it linked clearly to their bonus targets, so it helps us culturally to make sure that this isn’t just a hobby.

“Also, we now have a clear business case, so there is much more of an appetite, not only from social responsibility but also


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from a financial point of view, to keep driving Plan A. We have moved away from seeing it as just about efficiency with our cost base and are starting to see the commercial opportunities. The obvious efficiency was around reducing energy consumption, but we are now finding ways – for example, through eco-products such as our carbon-neutral bra – that get a response from customers and allow us to sell more.”

Plan A has helped M&S win several awards recently, including the CIMA Finance Team of the Year 2011. “We don’t benchmark ourselves against competitors, but the awards are recognition of what we have done,” says Friston. “We make sure we have the right talent within the group, spend a lot of time developing those people, and have used Plan A as a way to motivate and galvanise the team.”

Plan A is now expected to become even more commercial. “We expected to generate profit this year, but it was way ahead of our expectations in 2007,” says Friston. “Now we want to build on that and we have built it more formally into our planning process. Every budget holder will know what the expectation is.

“Monitoring it regularly means you can stop activities that aren’t working and accelerate the ones that are. That has really helped us to drive new thinking, so when it gets to something that you can roll out we would build that into their plans, with any investment required and any benefits we are looking to realise.”

Of course, good sustainability strategy does not always guarantee profits. Though it has performed well over the past few years, Marks & Spencer net profits dipped in the financial year ending in 2012.

Friston says: “Our underlying profits last year were flat against the backdrop of a more challenging UK market. But in terms of our long-term strategy, Plan A helped generate an extra £105m last year, so it is definitely helping towards our results rather than distracting from our core operation.”

“We have a very large CIMA population within the finance group,” says Friston. “Their skills help to bring the technical elements of accounting together with the commercial side. We are a very commercial business and we want people in finance that help drive that.

“We have added value around the Plan A business case and there are a number of key things that I have helped to bring with my CIMA experience, such as what costs should be included. For example, you know what is a sunk cost compared to a cost that would be a true consequence of Plan A.”

Having a robust baseline is crucial, he says. “It is about knowing where you are measuring from and to, and measuring investment by having the right hurdle rates in place. Plan A hasn’t had softer hurdle rates, we have treated it like any other business initiative and looked for the same return on investment – which is generally 12-15 per cent. We also look at whole life-cycle costing, trying to move away from measuring just the initial outlay.”

Bringing it back to Bakker’s point about integrated reporting, Friston says: “Lastly, we feed all that into an integrated reporting approach. We are part of a pilot on how to bring our Plan A report and our annual report and accounts together in an integrated view of how we are driving

value through to shareholders, both socially and financially.

“We want to be at the forefront of that and help with thought leadership. We are already well advanced with our two reports and want to help our stakeholders and shareholders understand how to use the information from both.”

“Integrated reporting will help because everything that gets measured gets managed. Rewarding someone for delivery against something gives it focus. If stakeholders and shareholders see all the information together, they will start holding the board to account,” says Friston.

Another aspect that has helped cascade the message about Plan A to departments is the fact that many CIMA members working in M&S are in embedded teams around the organisation. “They are able to work closely with the business to drive this agenda – it is not just the central finance team,” says Friston. “We have a very active business-partnering finance function that touches the whole organisation. They have become an effective and influential group. The commercial areas, for example, would rather have more people supporting them than less, which is a good sign that the business partners are adding value.”

Friston’s ambition does not stop there, though. He adds that: “The next stage of Plan A will involve embedding it further in how we do things. We have an ambition to be the world’s most sustainable retailer by 2015. After that the benchmark will just keep rising.”



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Friston left City University with an MA in property valuation and law and joined Marks & Spencer on the finance graduate programme in 1996. In 2009, he became director of M&S Pension Trust Ltd and in 2011 was appointed director of group financial control for M&S.

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Optimising customer profitability and value

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Author and performance management guru Gary Cokins profiles the pressures on businesses to better understand their customers and, if they do, the

performance improvements that can be achieved…

Much of a company’s marketing budget is typically based on faith that its spending will somehow grow the business. There is an old, rumoured quote from a company president stating: “I am certain that half the money I am spending on advertising is wasted. The trouble is, I don’t know which half.” This expresses a concern and applies

to many marketing programmes, in addition to general advertising. Marketing spends money in certain areas and the company hopes for a financial return. Senior management has had unquestioned views that marketing and advertising is something that you must spend money on – but how much money? How much is too much? Where are the highest returns and what should you avoid? Which customers should you target? And which not?

Business is no longer just about increasing sales. It’s about increasing the profitability from sales. It’s not enough to simply measure gross margin profitability for sales of products and standard service lines. Companies should instead start to identify the differences in the cost-to-serve between different types of customers (called the fully loaded costs of serving a customer). Activity-based costing (ABC) is required to measure these costs for products, services, channels and customers. This effort will help them get a full picture of where their businesses are making or losing money. Superior companies provide a differentiated customer experience to different types of customers in order to drive loyalty and gain a competitive advantage.

The budget expenditures for the marketing and sales functions should be subject to the same intense examination of the chief operating officer (COO) and chief financial officer (CFO) as any other spending programme. Many marketing functions rely on imperfect metrics, anecdotes and history that may have been a result of unusual occurrences that are unlikely to be repeated. How marketing spends money is critical, but it should be treated as a scarce resource to be aimed at generating the highest long-term profits. This means the need for answering questions such as: “Which type of customer is attractive to newly acquire, retain, grow or win back? And which types are not? How much should we optimally spend on attracting, retaining, growing or recovering the types of customers we want?”


GARy CoKInSCokins is an internationally recognised expert, speaker and author in advanced cost management and performance improvement systems and holds an MBA from Northwestern University’s Kellogg School of Management. He began his management consulting career with Deloitte Consulting before moving to KPMG, where he was trained on activity-based costing by Harvard Business School professors Robert S Kaplan and Robin Cooper. From 1997 until recently, he was in business development with SAS, a leading provider of enterprise performance management and business analytics and intelligence software.

1 Customer retention

It is generally more expensive to acquire a new customer than it is to retain an existing one – and satisfied existing customers are not only likely to buy more but also “spread the word” to others, such as a referral service. Existing customers are free. They have already been acquired.

2 A shift in the source for competitive advantage In the past, companies focused on building products and selling them to every potential prospect. But many products or service lines are one-size-fits-all and have become commodity-like. Consequently, as products and service lines become commodities, where competitors offer comparable ones, then the importance of customer service rises. There is an unarguable shift from product-driven differentiation towards service-based differentiation. That is, as differentiation from product advantages is reduced or neutralised, the customer relationship grows in importance. This trend has given rise to many marketing organisations focusing on segment, service and channel programmes, as opposed to traditional, product-focused initiatives.

3 One-to-one marketing Technology is being hailed as an enabler to: (1) identify customer segments, and (2) tailor marketing offers and service propositions to individual customers (or segments). There is now a shift from mass marketing products a seller believes it can sell to a much better understanding of each customer’s unique preferences and what they can afford.

4 Expanded product diversity, variation and customisation As product and service lines proliferate, such as new colours or sizes, it results in complexity. As a result, more indirect expenses (i.e. overhead costs) are needed to manage the complexity; therefore indirect expenses are increasing at a relatively faster rate than direct expenses. With indirect expenses growing as a component of an organisation’s expense structure, the managerial

accounting practices typically require enhancing. Activity-based costing provides this enhancement.

5 Power shift to customers The internet is shifting power – irreversibly – from sellers to buyers. This is a one-time event happening in our lifetime. Thanks to the internet, consumers and purchasing agents can explore more shopping options more efficiently and quickly compare prices among dozens of suppliers. They can also more easily and quickly educate themselves. This shift in power from sellers to buyers is placing relentless pressure on suppliers. Supplier shakeouts and consolidations are constant.

The combination and convergence of these pressures and additional customer satisfaction and loyalty pressures mean that suppliers must pay much more attention to their customers. This means providing more and better products and services to one’s existing customer base, as well as carefully targeting future customers.

Earning, not just buying, customer loyalty is now mandatory. There is an unchallenged belief that focusing solely on increasing sales dollars will eventually lead companies to reduced profitability. What matters is a mind-shift from pursuing increased sales volume at any cost to pursuing profitable sales volume – smart sales growth. If each customer’s value is not known, then you are more likely to be misallocating resources by under-serving the more valuable customers, and vice versa.

ThE CFo shoUld sErvE ThE CMo aNd ThE salEs dIrECTorThe CFO can and should work more closely with the chief marketing officer (CMO) and sales directors to measure and report the non-financial, Balanced Scorecard key performance indicators that impact or reflect customers’ total experience and satisfaction. Progressive CFOs understand how customer experience drivers achieve strategic objectives and indirectly influence financial results.

Ultimately, managerial accounting measures, which are typically product-based and retrospective, should extend to become forward-looking, value- based measures. Evaluating customers requires calculating prospective metrics that, when acted on intelligently, truly convert to bottom-line earnings and shareholder wealth.

The day is coming that the CFO function must now turn its attention from operations and cost control to support the CMO and sales director. The objective is to develop and monitor strategies that will assist cost planning and are customer-centric to grow the customer base, its loyalty, its revenue and the company’s brand.

The perfect storm is creating turbulence for sales and marketing management.

In the past ten years, five major forces have converged that place immense pressure on companies, particularly on business-to-consumer ones, to better understand their customers and what it costs to serve different types:

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To mark the anniversary, scorecard creators Professor Robert Kaplan and Dr David Norton attended a series of events that saw the launch of a number of CIMA and CGMA reports on performance management. Here, we look at the key findings from those reports...

Performance management: 20 years after the Balanced Scorecard


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This report looks at the consequences of applying performance management systems in the context of shared service centres.

Performance management frameworks tend to begin with strategy. They then rely on measures to drive organisational performance by communicating goals through a top-down process. This begins at executive director level. The Balanced Scorecard model suggests that the route to organisational performance lies in appropriate performance measures. This is because management is not possible without measurement. However, recent studies offer an alternative view. They suggest that performance management is about finding a variety of ways of working to encourage commitment and constructive behaviour. Performance measurement is a part of the story, but is not the whole story.

This research considers these two contrasting views. The focus is on shared service centres (SSCs), which are designed to encourage an entrepreneurial mind-set and new working practices. It found that in order to achieve excellent performance, SSCs are attempting to steer a course through a number of competing forces. One of the fundamental arguments for the creation of SSCs lies in their potential to standardise and streamline business processes, saving costs and potentially providing a better service. All of the case study organisations are engaging with management techniques such as Lean

and Six Sigma. In an economic environment characterised recently by volatility, and where advances in technology and management are taking place at an increasing rate, the research found that the need also arises for adaptability and flexibility to be built into business processes in order to facilitate rapid response.

In addition, highly competitive marketplaces have created the need for a continuous improvement of systems in order to keep pace with competitors.

The researchers did not encounter clear and neat alignment of performance measures from operations to strategy. Strategy was typically communicated from the top of the organisations, but it was not explicitly connected to performance measures. Hundreds of different performance measures can exist at an operational level, but few are routinely reported upwards. Instead, effective leadership in SSCs is largely about empowering employees and increasing the extent to which they identify with their organisation. This was analysed in terms of a Performance Management Mix, which combines “managing through people” with “managing by the numbers”.

The approach of “managing through people” has involved the SSCs in new ways of working. One CEO described his role as essentially about “winning the hearts and minds” of the SSC staff and making them feel empowered. Individuals within SSCs invest considerable time and effort in

frequent communications with their teams and with customers. A significant part of the process standardisation includes managing the customers’ expectations and negotiating their compliance with the new system.

Rather than finding a systematic cascade of strategy maps of increasing detail as they moved down the organisations, the researchers found in the SSCs complex web of relationships linking processes, SSC people, internal and external customers and wider social institutions. Instead of being translated into a series of detailed performance measures, strategy statements from the top of the organisation are translated in facilitating frameworks such as the Network Rail “4Cs” model, which looked at cash, cycle time reduction, compliance and customer service to drive continuous improvement. These models provide a frame of reference and a vocabulary within which employees can discuss performance.

However, the frameworks do not provide detailed guidance on the performance measures to be chosen. This choice is frequently made by team leaders and managers in negotiation with the individuals concerned. In this way, employees are empowered and motivated and the senior managers keep an overall check on the aggregate effect of the individual choices through monitoring and by engaging in a series of benchmarking programmes and peer-to-peer networking.

RElEvANCE REGAiNEd? PERfORmANCE mANAGEmENT iN ShAREd SERviCE CENTRES Professor Lin Fitzgerald, Dr Rhoda Brown, Rosamund Chester Buxton, Ian Herbert, Ruth King and Dr Laurie McAulay – Loughborough University

To download the report visit:http://tinyurl.com/a46rh8l

‘SSCs are attempting to steer a course through a number of competing forces’

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This research sought to understand the extent to which performance measurement systems in food supply chains might be incomplete and inadequately balanced.

Intermediary food businesses operate in a highly competitive marketplace where demand is volatile and net margins are low (typically around 2% of turnover). The grower-packers and small manufacturers in this study face worries about survival and long-term profitability because of the high risks centred on: • Loss of customer through the

“promiscuous” chasing of lower prices, even when ability to supply exists.

• Refusal of product by customer. • Loss of reputation. • Loss of supply through weather, disease

or contamination.• Relative ease of substitution in the market

of both product and supplier.Unlike the bigger manufacturing firms,

these businesses rely on the quality of produce, products and customer service to achieve some competitive advantage.

Performance measures are used extensively within the intermediaries and cover internal processes; quality; customer profitability; delivery to customers; and staff

development and finance. In terms of negotiation with retailers, quality and delivery specifications are set by the retailer/caterer.

Financial and risk measures are rarely discussed, except price, where again negotiations centre on quality and delivery. With suppliers, intermediaries did develop relationships that involved wider discussions about risk and price, especially where they wanted to retain the services of the best growers. Asked what drove the strategic plans of the intermediary, one director replied: “Quality, integrity and provenance in the marketplace in the UK. We can’t afford to pay any more money than anyone else, but we need to attract the best 25 per cent of the growers.”

Key findings• The main risk in this research was commercial risk, which includes the risk of losing customers or suppliers at relatively short notice for reasons other than their own inability to supply or meet requirements. It appears that retailers want the assurance of quality and delivery that comes from long-term relationships, but at prices that come from competitive trading markets.

• Intermediary food companies play a crucial, pivotal role in attempting to align strategic and operational planning in the industry. In order to develop the relationships that make planning and negotiation more effective, and to ensure their own survival, they show best practice by delivering on time, in full, and to specification to the retailer, creating value, developing relationships with suppliers based on constant communication and business support, and by providing some protection for suppliers against commercial risk.

• Elements of the Balanced Scorecard approach were evident, even though no examples of full scorecards were presented, suggesting that the influence of the approach has extended beyond major multinationals. Performance measurement through the supply chain is based primarily on non-financial measures relating to quality, customer service and learning. Financial measures are used within the intermediary measures, but only price is discussed between supply chain partners, restricting the scope of negotiations and maintaining the monopsony in which a very small number of retail buyers are able to drive prices down.

PERfORmANCE mEASuREmENT ANd RiSk mANAGEmENT iN iNTERmEdiARY fOOd ChAiN BuSiNESSESProfessor Lisa Jack, Portsmouth Business School, UK; Associate professors Juan M. Ramon-Jeronimo and Raquel Florez-Lopez, Pablo Olavide University (Spain)

This project investigated the design and implementation of performance measurement systems (PMS) based on economic value added (EVA) in China’s state-owned enterprises (SOEs).

EVA implementation has been mainly studied in Western companies from the perspective of improving economic efficiency. This report took a different angle, however, looking at the motives of EVA adoption and the impact on the design and implementation in a major emerging

economy. The study found evidence that evolutionary change is achieved in Chinese state-owned enterprises by staged performance measurement system development, in which economic value added is introduced gradually.

It also revealed that this design is driven by the intertwined motives of legitimacy and efficiency, and has provided a mechanism to achieve a balance between maintaining stability and promoting changes in a company’s management practice.

Some changes were observed, including an improved awareness of the cost of capital, a greater willingness for investing in research and development, and an improved asset and operation efficiency.

The study also concluded that the extent of the impact was variable among the companies and is largely determined by the motives behind implementing EVA, and the level of management effort.

Imposed by the State-owned Assets Supervision and Administration

ECONOmiC vAluE-AddEd AdOPTiON iN ChiNA’S STATE-OwNEd ENTERPRiSES: A CASE Of EvOluTiONARY ChANGEDr Pingli Li, Middlesex University Business School, UK; and Professor Guliang Tang and Dr Narisa Dai, University of International Business and Economics, PRC

To download the report visit:http://tinyurl.com/av9fhoj

To download the report visit:http://tinyurl.com/bqqmn6b



Commission of the State Council (SASAC), a new EVA-based performance assessment policy has been introduced to the 129 Chinese SOEs under the direct administration of central government since 2010. Established by the State Council in 2003, SASAC at the national level handles the state’s ownership interests, as well as regulation and supervision of central SOEs. This EVA initiative was applauded by Erik Stern, the director of Stern Stewart and Co, as a change that “could end up having an impact on China that rivals that of Premier Deng’s 1978 reforms”.

Based on the concept of residual income (RI) and trademarked by Stern Stewart & Co in the 1980s, EVA is defined as adjusted operating income minus a capital charge. The academic research examining the use of RI has mainly compared the performance of firms having adopted RI to those that have not, but has produced mixed results.

One of the factors contributing to the

mixed results may be that distinguishing RI companies from others has been solely on the basis of RI use in forming compensation plans. From their field work in five Finnish companies, Malmi and Ikäheimo (2003) found that the use of value-based measures does not lead to management control mechanisms in their purest form. Similarly, McLaren’s (2005) CIMA-sponsored investigation into the use of EVA in three companies in New Zealand found that EVA has not entirely replaced traditional measures, so its use is not “all or nothing”. They argue that the different application may be due to different motives for adoption.

In the context of Chinese SOEs, the motive of introducing EVA could be regarded literally as pursuing economic efficiency, since the main objectives of EVA implementation are to increase returns on capital and strengthen risk control for the interests of state as shareholders, as claimed

by SASAC. However, SASAC and the sector of SOEs are under not just economic, but also social and political pressures for restructure and privatisation.

The criticisms on SASAC’s roles and SOE achievement have never abated. One recent example of these criticisms is the heated debates in 2012 on whether SOEs should be privatised, which was triggered by the World Bank’s report “China 2030”. Within this context, should there be other motives for SASAC to introduce the EVA initiative? How would those motives affect the design and implementation of the initiatives? What impact does the new system have on decision-making in the companies? Answers to these questions will have theoretical and practical implications.

Aiming to address the above research questions, the researchers investigated the design and implementation of EVA-based initiatives in China’s central SOEs by means of case studies.

Since the board of directors holds the ultimate responsibility for a company’s success or failure, board members should be adequately informed about the company’s performance and risks. That was the driver behind this CGMA research project into integrating risk into performance.

Surprisingly, the report states that there has been relatively little academic research on what information boards of directors actually receive in order to fulfil their strategic monitoring role. Furthermore, whereas performance-related reporting benefits from a long-standing research tradition in management accounting literature, relatively limited attention has been paid to its integration with risk – especially in relation to boards as receivers and users of that information.

This project responds to earlier calls for research that extends beyond the use of accounting information for decision-making by managers to examine how other actors interface with management accounting.

The main objectives of this research were to:

• Document and analyse how performance and risk are integrated in management reporting to the board of directors.

• Identify leading practices of enhancing performance management with risk to enable board members to perform their strategic monitoring role.

The case studies provide evidence of significant variation in companies’ risk reporting practices, both in terms of the content and the structural aspects of risk reporting. The researchers’ main findings were as follows: • They observed that boards generally seem

to be very aware of the importance of considering risks in their decisions and in their performance evaluations. Board members tend to perform their own implicit assessment of strategic risks when they discuss new strategic initiatives. Such board risk assessments are usually not formalised, but are part of the regular discussions on long-term strategy and potential uncertainties related to that strategy.

• With respect to integration of risk and

performance in strategic decision-making, the researchers found that it is common practice by management to identify and report risks to the board as a part of M&A proposals, business development plans, or strategic reviews. Such integrated reporting typically comes on top of the specialised reporting that focuses specifically on (operational) risks.

• Through the involvement of the internal auditor in risk management, the integration between risk and performance is also in the audit reports that go to the board of directors. On the board side it is the audit committee that is most frequently in charge of the risk management, which also adds to an integrated view on both risk and performance.

• In most companies the researchers observed that risks are viewed not only in a negative light (i.e. as a threat), but also from a positive perspective (i.e. as value-creating opportunities). The reporting on risks is thus closely intertwined with reporting on potential opportunities, in this sense providing a close integration between risk and performance.

iNTEGRATiNG RiSk iNTO PERfORmANCEProfessor Dr. ir. Regine Slagmulder, Vlerick Business School

To download the report visit:http://tinyurl.com/bm5ntx3

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Gaining a global view of performance

What does performance management mean to a major global corporation, and how does it measure performance across its operations?

Alexander Maljers, downstream finance performance manager at Shell,

offers some insight…

Performance management means different things to different organisations. What does it look like within Shell?Performance management is as broad or as narrow as you want to make it. To take an extreme view, everything we do is done to manage performance. However, when I talk about it in terms of my role at Shell, performance management means that I focus on planning, measuring and appraising performance.

At Shell, we start by setting a strategy and determining where the business wants to go to in the long term – and what the strategic objectives are of the business. That is absolutely key in terms of performance management: always start with the strategy as it gives each business their long-term targets.

Based on our strategy, we make shorter term plans, and these translate into detailed operational targets, and measure our performance against those targets. These operational targets are aligned across the organisation: starting with sales targets and budgets at the lowest organisational level, rolling up to the overall targets for the whole of downstream. Targets are always consistent, but not necessarily focused on the same metrics. As an example, at downstream we focus on cash generation, but

for a sales manager we translate that cash target into targets for sales volumes, pricing and direct costs.

With reporting, it’s very important to have one consistent set of numbers across the business and it’s essential to make sure that businesses cannot tweak their own data.

What are the most challenging aspects of performance management?The most difficult part is driving accountability through the appraisal process. There are several dilemmas. Do you stick to backward-looking discussions or do you make them forward-looking?; do you focus on processes or restrict yourself to outcome KPIs?; how do you identify the most appropriate and effective KPIs?

Also, a lot depends on the personality of the manager and the context in which he or she operates. How much edge does the manager want to bring into the conversation? Some managers prefer to put everything out on the table, while others choose to focus on particular areas. All can generate different results.

I also want to highlight that across all of the businesses, safety comes first, and so tracking non-financial safety metrics is part of our role. »

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Maljers is downstream finance performance manager. He has a planning team, a reporting team and a financial management reporting to him and has been with Shell for 20 years.ALExAnDER mALjERS

So how do you manage the appraisal process at Shell?We have an appraisal framework that is consistent across the organisation: it starts with the RDS appraisal with the Board, then the downstream appraisal with the CEO, all the way down the organisation, say to cluster GM or refinery manager. The appraisals always consist of a standard data set and a number of special topics that are relevant at that time. The more senior appraisals are quarterly and lower down the organisation more often, and we look at a mix of lagging KPIs (e.g. cash, expenditure, earnings) and leading KPIs (e.g. supply/demand forecasts).

We don’t try to create actions from appraisals or have action trackers in place, as it should really be about how the business is doing against its strategy and targets. It is expected that managers would have plans in place to improve performance where it falls short on these criteria. Therefore action planning is the exception.

It’s very important for us as a large organisation to have a consistent business plan and objectives across the company, rather than business areas or individuals working in silos and in different ways. Although we are a huge organisation, we have the same molecules flowing through our entire business. The molecule you buy at a filling station, for example, has easily been “handled” by 10-12 parts of the organisation on its way to reaching you. So that end-to-end value optimisation is absolutely critical and the appraisals should look to include that angle.

What shifts have we seen in performance management over the past five or so years?I think the end-to-end talking and thinking in performance management is coming much more to the forefront now, for a number of reasons. The world has become more complex, Enterprise Resource Planning is now able to give you a full picture of the end-to-end value and, culturally, we are no longer as country-based as we used to be – we are global, with global functions and a globally optimised supply chain. In addition, we are in a period of single-point accountability, with individuals looking after a business. Appraisal discussions now typically include only four key people, which allows for really focused discussions.

It makes measurement and accountability much more straightforward despite the growing complexity of the business. Around ten years ago it wouldn’t have been unusual to step into an appraisal discussion and see 12 to 15 people involved.

How has finance’s role and influence grown during this time?In Shell, strategy sits within finance, and finance owns the performance management processes. Finance drives the planning, and ensures the integrity of the numbers. In every appraisal discussion the finance leaders will sit next to their business leaders, where they bring discipline to the appraisal discussions about the business and, increasingly, bring edge to the business conversations. The finance people can do that because they ask the right questions about why things are working or not. Finance is already playing a greater role than the traditional accountant did in the past and I see that becoming an even deeper partnering role in the future. That’s also why we split our organisation into business finance and finance operations.

Do you feel today’s performance management model will still be fit for purpose in five to ten years’ time, or will this fast-changing business world require a change in the coming years?At Shell, the model we use and the way it is working is robust in the set-up. However, there are a number of areas where we should continue to improve. We could still enhance our ability to hold individuals accountable – we are a massive organisation, with a long value chain, so we want to be able to find out exactly where performance needs to be improved, and who hasn’t played their part.

Looking forward, it’s fair to say that we can expect the speed of performance management to improve. As we develop tools that are increasingly real-time, then the speed at which we can carry out performance management and analysis will become faster.

In addition, I would expect some of the things we are trying out to be more embedded by then. For example, I would expect a sales manager in a region to be able to see instantly everything that is happening in their area, and presented in a way that is useful for them and allows them to react quickly – creating a more direct ability to change things, thus becoming even more reactive to customer demands.

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s the role of the finance function continues to expand and finance professionals become increasingly influential in driving organisations’ strategies, companies are increasingly looking at ways to equip their finance staff with the skills

and experience needed to fill these roles.At the heart of the debate is the role played

by internal shared service centres (SSCs) and the staff working in them – which role SSCs should play in the overall finance function and business, how staff working in them can advance their own skills and careers, and how they will evolve over time.

US multinational Hewlett-Packard (HP) recently launched a new finance, learning and skills portal. The Global Business Services University hosts a wide range of learning material to help staff at its internal SSC to develop their skills.

The university includes a raft of CIMA learning material – 1,600-plus hours of e-learning content – which HP says will give its staff the opportunity to “increase their finance and managerial capabilities”.

Jon Watkins asked V Ravichandran, senior vice president GBS at HP, about the company’s commitment to developing skills among those working in its SSC, why it has chosen to partner with CIMA and, ultimately, how the university will drive performance in the organisation as a whole.

Why have you decided to partner the HP GBS University with a management accountancy body? As HP moves to improve domain expertise within the organisation, there is a need to partner with professional bodies in finance, supply chain and human resources, etc.

What opportunities will this partnership deliver to your finance staff in the short and longer term?I was in Poland recently and talked about this partnership with my team there. They were thrilled. My staff, and not just finance staff, see this as a huge, positive step taken by HP from an employee career perspective. They see this partnership as the first step in creating a knowledge-based organisation. In the long run, my staff see this as an enabler to creating a learning organisation that will add significant value to HP and its business units (BUs).

Does such a move reflect a shift in the skill levels and capabilities within SSCs generally over recent years?Yes, it does. As shared services move higher in their maturity curve, the cost arbitrage factor reduces in importance and customers look for more value-added services. This requires different skill sets and capabilities that many shared service organisations have started building. Apart from this, the expectations of customers regarding the shared service organisation they use is changing to be more driven by business outcomes than output. This means that both skill levels and the capability build need to be different from what they were earlier.

What are the career prospects for ambitious accountants in service centres, and how will the partnership help drive those opportunities? As customer expectations change, career opportunities improve. Shared service organisations are now not just creating people management roles, but roles that need deep domain knowledge and expertise. In the finance space, Global


Investing in the future

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Multinational Hewlett-Packard has created an online “university” to help staff at its internal

shared service centre grow their own finance skills and knowledge. Ultimately, it hopes it will

drive performance across the organisation


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Business Services (GBS) has moved from being a transaction service provider to an organisation that helps close the books of accounts, handles complex reconciliations and cross-border transactions, is building taxation expertise and handles complex reporting, as well as business finance expertise.

We also have forensic accountants, SOX auditors and asset protection services in our SSC. Over the past ten years we have grown in our maturity to provide process expertise to the finance function of HP. This means that our staff have to be professionally qualified to be able to handle the complexity. We are looking to this partnership to give us that.

Do you hope that the partnership will help your accountants develop a better understanding of the drivers of cost risk and value in the business? As I stated earlier, the need to understand business finance, risk and compliance and how all these impact business outcomes is only increasing. The CIMA qualification is very well suited to get our accountants to better appreciate these aspects of business.

In your view, are finance service centres becoming process service centres?Yes. This is true. Over the past ten years, GBS has provided process management capabilities to the finance function. In fact, all major IT project roll-outs and process roll-outs have happened through the use of GBS. Today, GBS owns most of the finance processes of HP.

How essential is it for organisations to expand their finance skill sets today, and to encourage their finance people to gain a broader understanding of the business, to become business partners and to develop the knowledge to make non-finance decisions?Customer expectations have changed and businesses are asking for more outcome-driven services. This means that finance professionals should understand the fundamentals of the businesses they support and be able to add value in business decision-making. A business leader needs to understand his/her numbers extremely well.

It is essential to have finance acumen to succeed in business so expanding finance skill sets is a must for any organisation.

Specifically, how can accountants in SSCs develop close working relationships with their counterparts in distant BUs?This is done through partnering to ensure that the objectives of the BUs and their outcomes become the performance indicators of the SSCs. What is measured is what gets done. So if the outcomes of both the BU and the SSC are intertwined, they will work with each other. Of course, nothing can replace collaboration and the collaborative skills that are needed in today’s geographically dispersed organisations.

How do you hope it will impact the long-term performance of the organisation as you increase the skills and abilities within the finance shared services centre?The services coming out of the SSC will be more contextual and will enable businesses to make decisions. Long term, the focus will be more on data analytics and how information is provided from these SSCs that will drive decision-making within business units.

What sort of results and changes do you hope to see across the SSC in the next three to five years as a result of this partnership?A significant improvement in the quality of services in the finance and risk functions. I am also expecting that the quality of information provided for critical decision-making will improve significantly. Process automation and process re-engineering will improve and this will result in a highly skilled, leaner finance organisation that enables the business to sell more and customers to be able to reach out to global organisations more conveniently.

Why have you chosen to partner with CIMA specifically?CIMA is the leading management accounting body in the world. It is truly a professional qualification. I am a proud member of CIMA and having gone through the rigour, I know the benefits that this qualification can bring to an organisation.


Ravichandran was managing director – India, global e:business operations at HP before taking on his current role.

VRAVICHAnDRAn

With business ethics making front page news, CIMA has been holding roundtable events with

senior finance executives to discuss independence in business partnering. Tanya Barman, head of ethics

at CIMA, summarises the key messages

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Independent

partners

D rawing on discussions in London, Singapore, Warsaw and Johannesburg, we found a number of similarities, both in challenges and in ways of embedding

good practice. But there were also key regional differences.

By working more closely within a business, there is the potential for professional accountants to lose their reputation for taking an independent view. The danger is that they may become unwilling, or unable, to offer unbiased and, at times, unpopular assessments of new investment plans, sales targets, bonus payments, international expansion plans, etc against the pressure of either team or divisional expectations. There can be even more pressure if they are managing upwards.

CIMA’s finance transformation research identified the challenges and opportunities to the independence of finance professionals as they increasingly take on business-partnering roles. Rather than restricting finance to collating and reporting financial information data, finance professionals are increasingly expected to apply their expertise to high-end analysis, supporting decision-making and helping to define and implement strategy across the business. How individuals manage not only upwards, but multi-disciplinary teams and critical situations, will set them apart.

skIlls shorTagEThe discussions showed that attention to finance business partnering in different parts of the world is increasing. The challenge for CIMA, employers and finance professionals is how to best manage this transformation, enabling finance personnel to deliver the greatest value to businesses, while ensuring they maintain their independence and – critically – the confidence of businesses in this area. This takes particular skills

and behaviours, and currently there is a clear talent gap in all markets. There is

an opportunity for CIMA students and members to ensure that they are developing the appropriate skill sets in order to influence and lead.

MarkET rEadINEssEach market brings with it a particular operating environment, coloured by recent history, economic growth, skill scarcity and localised general business practices.

These can create barriers in some situations. For partnering to be conducted with true independence the organisation has to be prepared to not only accept and resource it, but respond to the positive challenge it brings.

EThICal CUlTUrEUltimately, for finance business partners globally to be able to challenge with confidence, act with independence and contribute to business decisions with integrity, they will depend upon the operating culture at large. It was clear in all regions that if the tone from the top demands it, the structures, systems, training and culture will be in place to sustain it.

Does a partner remain silent when your organisation is going down the tubes? Or when someone is doing the wrong thing? While business partners have the opportunity to add value, they also have the opportunity to apply the brakes when things are going wrong. Finance business partners in their own right have much to contribute to engendering this culture and ensuring that responsible business practices are adhered to.

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For CIMA members, ensuring their influencing skills are honed will help embed the ethical standards needed for long-term success. To view the global report, as well as earlier reports and videos and recordings from the roundtables, see: www.cimaglobal.com/businesspartner.

sUMMarY oF gloBal FINdINgs uk and western Europe- Partnering model mature, more

embedded and value is recognised within leading MNCs.

- Despite maturity, there are still talent shortages in relation to the leadership qualities needed, and an understanding of models in smaller businesses.

Singapore and East Asia- Movement towards finance roles

that add value beyond recording and reporting, and business partnering models increasing, particularly in multinationals’ operations.

- Challenge in “challenging”, a cultural shift needed in “speaking up”, although the newer generation may be more open to this if the business environment supports it.

Poland and Central Europe- Business partnering and non-

traditional finance roles not well understood in wider market. This means it takes patience and time to build trust within business.

- Once an organisation is open to concepts and relevant structures are adopted, the value is clearly recognised, leading to more rapid transformation.

Southern Africa- Conflict of interest issues related to

both financial reward at the top levels and job security at lower levels can be risks to independence.

- Regulatory environment and policy effects of King III will lend themselves to highlighting the value of independence and integrity.

More in CGMA magazinePaul Walsh, FCMA, CEO of leading global drinks company Diageo, recently stated in CGMA magazine: “You want people who operate to incredibly high ethical standards. You want a business partner who is from an accounting discipline and is very strong on their commercial and analytical capabilities. Not just someone crunching the numbers and providing the data, rather a voice at the table; someone who can help steer the overall commercial strategy for the firm.”• To read the article, and an interview with CIMA chief executive Charles Tilley, visit http://tinyurl.com/8fb97kv. For CGMA

reports on skills, talent and leadership, see: www.cimaglobal.com/transformation and www.cgma.org/resources.

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Key performance indicators can help to boost employee performance and improve skill sets. But here Tim Cooper looks at how poorly thought out KPIs can have an adverse effect on organisations and their strategies


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E xperts agree that good key performance indicators (KPIs) are aligned to overall organisational goals, measure quality as well as quantity, and correlate with performance of the whole process.

The consequences of poor KPIs can range from diverting resources from more useful activities to distorting supply across a whole market. In extreme examples they can even be life-threatening – one oft-quoted example regards a health service that kept patients waiting in ambulances just to meet waiting time targets on the ward.

Here is a selection of real-life examples of KPIs that led to negative results, with suggested lessons learned.

The first two will appear in the book Measurement Madness: Avoiding Performance Management Pitfalls, by Dina Gray, Veronica Martinez, Pietro Micheli, Andrey Pavlov and Monica Franco, to be published in September 2013.

1. drUg ovErdosE The purchasing managers at a small pharmaceuticals company in Russia received large shipments of medical products from India that they had not ordered.

An investigation revealed that these shipments were made by Indian suppliers who were under pressure to meet sales targets.

They were relying on the fact that shipping, acceptance, and the ensuing investigation and return, would take significantly longer than their sales target horizons. The most “entrepreneurial” of them shipped the products by sea.

lessons This was a stretch target, which can be a strong incentive, especially if it provides bonuses for success. But such a target can create the temptation to think short term, take short cuts and cheat.

According to Measurement Madness, the way to mitigate such effects is to lay down rules of conduct, make leaders into role models and provide a clear vision for employees.

2. Car TroUBlE On deciding to buy a nearly new, famous-brand car, a purchaser searched the internet and came across a “direct” website. This was authorised by the manufacturer and linked to dealerships around the country.

The purchaser called several dealers from the site with similar models to enquire about price. Keen to sell, the different salespeople all offered discounts of varying amounts.

After visiting the preferred site to buy a car, the purchaser discovered that all of the sites were branches of the same company. Salespeople from the same organisation had been undercutting each other and the business was the only loser. lessons Each salesperson was rewarded on individual sales, not on the organisational profit. According to Measurement Madness, one of the best ways to construct KPIs is to give specific, challenging targets but to make bonus awards after the fact, taking into account the full context in which the target is pursued.

3. Bad Call An IT outsourcer ran a service desk for its client, a large government department. The outsourcer was paid partly according to the KPI “number of logged calls to the service desk”. This seemed reasonable, but had unintended consequences in that managers encouraged operators to log every call, including those from customers who were only chasing an update on their first call. The number of calls logged exploded, as did the monthly bill. Service also decreased as resources were diverted into logging supplementary calls, rather than fixing the original problems.

lessons Dan McCarthy, managing consultant, Verax Consulting, says he often encounters such problems. “Even the KPIs that seem the least controversial and straightforward need careful thought,” he says. “Always assume that a KPI will not only measure something, but potentially drive behaviour to achieve different results. Whether that behaviour will benefit the organisation is the crucial question to answer.”


4. drUM rolEs An example from Australia shows just how complicated the effects of KPIs can be. An industrial lubricants package filling plant was beset with problems, and productivity was one-fifth of the national average.

It chose to measure productivity at each package size and impose targets for filling differently sized drums. It took 18 months of negotiation with a union to be able to collect data to measure the productivity at the desired level.

At first, productivity appeared to improve by 20 per cent just by measuring it. After 12 months, however, annual analysis demonstrated that costs had hardly changed, and certainly not by 20 per cent. The “improvement” in productivity was not showing in reduced package costs.

Furthermore, customer service levels, which were already poor, had deteriorated. Out of stock levels increased, the level of returned stock got out of hand and morale in the distribution area plummeted. Customers, clerks, marketers and distributors were angry.

The unintended consequences were: • The plant supervisor developed an

informal prime KPI of the number of large drums filled per hour as he thought this was a sign of high plant turnover.

• Leading staff became skilled at allocating hours in both rostering and compiling the data (including falsifying records) to make the informal prime KPI always look good.

• They also became skilful at manufacturing excuses to not fill difficult, small package orders in order to keep reported filling rates up. Niche products, which were usually in small packages, were out of stock constantly. This lack of stock had a drastic effect on customer loyalty.

lessonsKevin Dwyer, managing director, Change Factory, had personal experience of this example, which he refers to on his website. He says the crucial problem was that the KPIs were aligned to packaged filling rates, not to the corporate goal, which was sales. Out of stock levels would have been a better measure. “The KPI only measured

Kaplan and Norton’s Balanced Scorecard, which celebrates its 20th birthday this year, brought together financial and non-financial performance measures to provide managers with a comprehensive view of organisational performance. Although today’s scorecard has evolved into a more complex strategic performance management framework, managers still continue to struggle with the design and measurement of key performance indicators (KPIs), particularly with regard to non-financial measures.

In today’s knowledge economy, where company value is increasingly attributable to non-financial value drivers, it is crucial that organisations understand, manage and measure these effectively.

Of the CEOs surveyed for the CGMA report “Rebooting Business: Valuing the human dimension”, published earlier this year, 75 per cent agreed that greater emphasis was needed with regard to measuring and demonstrating the non-financial value of their business.

The recently published CGMA tool, “How to Develop Non-Financial KPIs” seeks to address this issue with a three-step approach:• Identify and map your value

drivers, considering the human, relational and structural aspects of intellectual capital, their organisational context and the strategic value of intellectual capital to the business.

• Design key performance questions (KPQs) for your KPIs to answer. These

need to be clear, relevant and engage staff at all levels. KPQs should focus on the present and future. For example, “Are we increasing our market share?” rather than “Has our market share increased?” KPQs keep our indicators useful, focused and meaningful – if there is no question that needs to be answered, there is no need to measure.

• Design KPIs to consider how your data will be collected and measured. Interviews, observations and surveys are common methods, but as these can be complex to record, the key considerations must be whether it is possible to collect meaningful data that will answer your KPQs, and whether the cost and effort is justified. There is, of course, one final hurdle to

overcome: dysfunctional management behaviours, such as data manipulation, can scupper even the best-designed KPI. Indeed, too much focus on the KPIs themselves can lead to loss of direction and a lack of innovation and action, both of which conflict with the forward-thinking associations of the scorecard approach.

Conversely, sub-optimisation may also arise, where managers ignore the “bigger picture” KPIs, focusing instead on local objectives. “How to Develop Non-Financial KPIs” suggests ways in which such behaviours, and their consequences, can be overcome.To access “Rebooting Business”, visit www.cgma.org/Resources/Reports/Pages/rebooting-business.aspx.

packages filled, not packages filled against the schedule. It did not measure quality,” he adds. The firm eventually implemented two replacement indicators:• Items in stock as a percentage of the

planned number.• Replenishment of stock units within

the planned time.“Within six months of implementing

those measures, returns were negligible, complaints were minimal, warehouse stock levels reduced by 35 per cent and costs per litre fell by 10 per cent,” says Dwyer.

These examples show just a few of the many ways in which poorly thought out KPIs can unintentionally damage performance. The most common message underpinning them is that KPIs should not be created in a silo and should always take into account the overall performance of the organisation, though this is often not as easy as it sounds.

When assessing all KPIs, one should always think carefully about all the potential consequences and ask: what might people do to achieve the targets and what might they also do if the measure increased, decreased, or stayed the same?

The answers could be more revealing than the people who set the KPIs initially imagine.

designing effective kPis

CIMA ethics helplineWould you know where to turn if you faced an ethical dilemma? The CIMA ethics helpline is available to members and students facing an ethical dilemma in relation to CIMA’s code of ethics. CIMA ethics helpline Toll-free number: 0800 358 7663 (UK) (xx*) 800 3838 4000 (international) Landline number: +44 (0)20 8849 2303 Email: [email protected] also has a legal helpline (UK only), a global speak-up line and advice on how to use its code of ethics. These services are free and confidential. For more information, visit www.cimaglobal.com/helplines.* insert your country’s international

access code before the toll-free 800 number

CIMA Ethical LensThis newsletter highlights the most recent reports, articles and events, as well as the latest news on ethics and sustainability relevant to the finance professional.To read Ethical Lens, visit www.cimaglobal.com/ethicsresources.

Get involved with CIMA

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For more information about CIMA’s ethics support, resources and your professional code, visit www.cima global.com/ethics.

Now on CGMA.orgThe following resources are now available online:• “Talent pipeline draining growth:

Connecting human capital to the growth agenda” Global executives are becoming increasingly aware of the importance of human capital and talent development, but a lack of effective management in this area hinders growth, competitiveness, financial performance and innovation. This report shows how senior executives often have misaligned and divergent views on who is responsible for managing human capital performance, which impacts on an organisation’s ability to make agile and effective decisions.

• “CGMA Global Economic Forecast” This quarterly report captures the views of CGMA professional decision-makers from around the world on global economic conditions and current topical

issues. It provides a bellwether of the health of the corporate sector and the wider global economy. It also highlights the broad business perspective of management accounting executives and the value that they bring to their organisations in terms of the key performance indicators that matter to businesses, shareholders and other stakeholders.

• How to improve your finance organisation’s efficiency and effectiveness The role of the finance professional is changing. There is an expectation for finance organisations to take on a broader role in terms of providing management information and analysis, and to become more influential in how the organisation is managed. In forward-looking organisations, finance is evolving from a focus on transactions and cost efficiency to a broader focus that covers decision support and strategy. The AICPA and CIMA have created three tools to help finance organisations effectively address these changes. For more information, visit www.cgma.org.


42

Finance takes centre stage



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Successful performance management means having fast and accurate access to data, a consistent view of performance across the business, and the ability to predict future performance based on the data available. That was the message delivered by attendees at a CIMA dinner held in partnership with Vantage Performance Solutions at the

Almeida restaurant in London.Attendees from a wide variety of sectors and organisations of

different sizes heard that achieving that balance of information and the ability to act upon it requires considerable influence from the finance department, because it’s the finance function that has the power to drive standardised performance measurement.

An attendee from a global petroleum business explained: “Finance has taken control of the process to get meaning behind the numbers. Some of the results have been amazing in terms of aligning the detail on performance management. The finance division is absolutely key to changing the attitudes towards performance management across the whole organisation.

“We’ve had to sort out 15 years of non-alignment. What is crucial is one system for everybody because, once you get that, you can break down data in so many ways and the management comes naturally as part of it. Finance has to be the owner of that.”

David Werrett, director of Vantage Performance Solutions, agreed: “Finance has to take the lead and drive the change and adoption of performance management so that standardisations can be achieved. I have been working with a consumer goods company recently. In a couple of its major countries it was producing detailed product cost information. But in others it wasn’t really doing anything. It was vital that it put standardisation in place so it could see which lines are profitable and which are costly, and how it compares with other firms and other countries, for example. Standardisation is critical today.”G

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Attendees at a recent CIMA dinner, held in partnership with Vantage Performance Solutions, heard that finance teams are increasingly holding the key to successful performance management


The attendee from the petroleum sector agreed that standardisation is critical, but added that it can be a complex task, which takes time.

“Particularly where you have acquired individual businesses or where certain countries have long worked in silos, it can be hard to enact change,” he said. “You have areas where they will say, ‘We’ve always done it this way’ and are reluctant to change. They will feel that they are providing their own cost-effective, reliable information so the problem can be encouraging them to move away from that. Again, that’s where finance’s value comes in, because finance can demonstrate the value of a global view by presenting the numbers.”

Another participant, from a major UK food producer, agreed: “Our group has grown quite quickly through acquisition, so what we found was that we had lots of processes and systems that had grown up in the individual companies. The challenge for us was to get those onto the same platform.

“In a complex industry such as ours, we have had to take out the individual reporting people from individual lines and products – we used to have a person reporting on the performance of our bread line, someone else on grocery, for example – and replace them with a performance reporting team within finance, which has rolled out a standard approach. Now, the decision support teams don’t have to worry about producing data and they can focus on responding to the trends.”

MEasUrEMENT aNd aNalYsIsThe dinner guests were asked about the challenges facing their businesses in terms of measuring performance and reacting to the findings.

One attendee, from a US conglomerate, said: “I work for a massive organisation spread across a wide range of industries and we have a standard language so that someone from aviation can speak to someone in financial services or media businesses, so the planning cycle happens at the same time, with the same definitions.

“What worries me is when I hear about companies with something like 250 KPIs. That’s ridiculous. You can’t see the wood for the trees. We believe it should be 10 to 25 KPIs and that, if one is going the wrong way, a further batch can be put in place to get that one moving in the right direction.

“My other big concern around measuring performance,” he added, “is the time it can take. I know we talk in an ideal world of pressing a button and there’s a result, but we’re a long way from that. What concerns me is how much time is spent creating these measures and then what we actually do with them – are we reacting to them and trying to fix the source problem? I’m not sure there’s enough of that. If companies are spending 90 per cent of their time producing the issues and 10 per cent reacting to them, that’s the wrong way around.”

That view was supported by the findings of a survey carried out by CIMA and Vantage in the run-up to the event. More than 40 per cent of the 820 respondents said that the main issue they face around performance management is that reporting is too time consuming.

The same survey revealed that half of respondents feel that a major challenge for them is obtaining good quality non-financial data. The attendee from the food producer agreed this can be difficult.

“What we’re talking about here is how the organisation itself is performing and how the individuals are doing outside of the recognised financial systems, and the controls that sit around that,” he said. “Once you go into all the forms of collecting data, it becomes harder to get hold of and there’s much less structure. This is more of a manual exercise, whereby your analyst provides manual input.

“What we are doing is drawing in non-financial information. The performance management team then takes that and churns it back out again so it continues to be presented on a consistent basis. I know that can be a challenge for businesses because consistency isn’t easy.”

Another attendee, from a major global investment bank, said that non-financial data was also of growing importance to her organisation.

‘‘What worries me is when I hear about companies with

something like 250 KPIs. That’s ridiculous. We believe

it should be 10 to 25 KPIs’



“I look after many of the corporate sectors within global banking and markets, so what I will do is look at how the transport team is doing against the infrastructure team, against the consumer team, etc.,” she said. “And I am looking at how they’re all operating. To do this, I am looking at bankers’ behaviour and how they’re managing their clients – what they are doing, who they’re meeting, how they’re using their time. I am looking at productivity 18 months down the line, so that when revenue does come in, we know who was actually involved and how they were involved.”

JUsTIFYINg INvEsTMENTOne attendee raised the issue of how to justify the cost of implementing performance management within the business, particularly where it is for measuring the “softer” non-financial performance.

“If, for example, I make an investment in one of our factories to reduce labour costs, I can see a finite benefit,” he said. “I can see that there used to be 20 people who handmade a product, but that now it’s automated I am making a saving. I know what the return on investment is. However, with non-financial performance management systems, and to a certain extent ERP, how do you justify the investment?”

Vantage’s David Werrett responded: “It is a challenge, but I think it goes back to the ‘one size doesn’t fit all’ point. If you look at different parts of enterprise performance management, then you can break that down into different sets – there’s the cost management application sets, consolidation, strategy management – and all of these different elements have a role to play in the way that we manage and run our businesses.

“Consumer product companies are now looking at cost management systems with great gusto because

they’re really interested in understanding cost-to-serve – how much does it cost to serve our customers from a detailed perspective, from factory gate to the customer? They’re really interested in understanding their overheads below gross margin in marketing and sales, and all these other functions,” he added.

“So what price do you put on that kind of information?”

a BrIghT FUTUrEAll of the dinner attendees agreed that performance management software and technology have come a long way in recent years, but all also expected it to progress at speed in the coming years.

One respondent explained: “For us, the future of performance management lies in understanding much more about what our customers are doing and being able to work collaboratively with them. For instance, as I’m sure everybody does, we produce an annual budget that says customer X is going to do ‘this’ and customer Y is going to go with ‘this’, and we’re going to run these promotions across ‘this’ and we’re going to introduce new products with margins of ‘such and such’. What is increasingly important to us is to understand what that means to the customer. We might think it’s a fantastic idea to run a promotion on a particular product, but actually only when you look at it from the customer’s dimension do you realise that you may be destroying value to the customer.”

Meanwhile, another participant added: “The future will be to have access to information ‘here and now’, and I’m sure we’re getting closer to it. But it’s all still in Excel spreadsheets and not as easy to get hold of as we’d like. That said, I expect part of that is about culture and our willingness to change. The technology is coming. Perhaps the challenge is making the best use of it.”

Concluding, Vantage’s David Werrett agreed that technology is developing at pace, adding that he expects there to be greater developments around performance management in the next ten years than there was in the past decade: “In ten years’ time, we will sit at this table and I think everyone will put their hands up and say they have mobile BI. That’s a technology-driven change that will happen and the implication for finance people is that we need to adopt it. An implication for our businesses if we don’t is that our competitors will. It will be important for us to have the latest information to understand our customers, how they behave and how they drive cost.”

‘It will be important for us to have the latest information to understand our customers,

how they behave and how they drive cost’

This article is based on a CIMA senior roundtable in partnership with Vantage Performance Solutions.To learn more please contact Grace on 07920 046915

46

With the finance function’s influence continuing to grow, developing tomorrow’s

talent is high on businesses’ agendas. A successful formula for meeting the

challenge is the subject of a new CGMA report and was discussed by business leaders at a recent roundtable event...

Developing tomorrow’s finance

talent pipeline

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Organisations are operating in increasingly complex, volatile and competitive conditions. In turn, they require finance to retain their fiduciary and operational responsibilities, while supporting and partnering

with the wider business to improve decision-making and implement and deliver on the strategy for the long-term interests of its stakeholders.

The finance machine has been evolving in the way it is structured and delivers services within thebusiness, to effectively fulfil this broadening remit.Organisations are using technology and externalservice delivery models to achieve economies ofscale and standardise and streamline processes,in tandem liberating management accountants totake on more collaborative and supporting roles inthe wider business to provide insight and improvedecision-making.

In turn, this increasing remit and changing mandate demands a finance talent pool with an equally diversifying skill set and capability.

That is the key message behind a new CGMA report entitled “One finance – building tomorrow’s talent strategy”, which discusses how businesses can develop the talent pipeline needed to meet tomorrow’s business needs.

The report explains that firms are increasingly finding it difficult to provide retained staff with exposure to and experience of the transactional areas of finance in central functions, especially where activities are delivered by shared services and BPO (business process outsourcing) centres. Yet, there is strong agreement of the need for all finance to have an understanding of the end-to-end finance processes to effectively manage and be able to challenge the numbers. As an increasing

number of organisations change their service delivery models, and the use of shared services and BPO increase, the future talent pipeline may be compromised. Therefore, many firms may be missing an opportunity in not considering the full global finance population and talent available.

The report says: “Many [firms] appear to isolate the strong skilled talent base within shared service and BPO centres, restricting its mobility around finance and the wider organisation. There is also an apparent disconnect in some organisations for this area of finance from the overall finance training and development strategy and plans.

“The impact of such a disconnect can be widespread; poor ROI on talent development investment, reduced mobility and opportunity leading to attrition of skilled staff, and the risk of developing a silo culture across finance. Ultimately, this disconnect may impact on finance’s ability to effectively fulfil its broadening remit. Firms need to focus on connecting talent management strategies throughout all retained and outsourced functions to align better understanding of the business and its strategy, and optimise sharing best practice. This may require a different and unified approach to talent management and development strategies. In some cases it may require a cultural and mindset change in actively living the ‘one finance’ concept.”

The report features, and is based on, the opinions of a number of global finance leaders, including Anne Parris, VP accounting and control compliance EMEA at DHL, who comments that it is clear finance is evolving, and that companies need to respond: “Segregation in finance is happening. There are finance people in many markets that have been working and running these huge shared service centres, they have experience and training and there is definitely now a career path in the shared services industry. Crossover back into »


the more general finance roles from shared services does not seem to happen much, though, at the moment.”

BrINgINg ThE dIsCUssIoN To ThE TaBlEDeveloping an appropriate talent pipeline for tomorrow’s finance function was also the discussion of a corresponding roundtable discussion in London. At the heart of the discussion was the impact of business process outsourcing and shared service centres on the finance talent pipeline.

“Technology, improved systems and greater migration to shared service centres are all great and deliver loads of efficiency. Streamlined processes, cost arbitrage, turning things around very quickly, freeing up resources within the retained finance function to assist the business and partnering up are the results,” the discussion heard from one participant.

“However, what that means potentially is that the way finance people have exposure to finance going forward, and in particular the more transactional areas of finance, might be changing. And with that come challenges for developing your talent pipeline.”

It was agreed during the discussion that the finance function is changing at a rapid pace, and that it’s more involved in the wider business and more influential than ever before.

A participant from the logistics sector commented: “It really is. I mean, if you want something done, give it to finance, even if it’s only slightly related, because finance is structured, organised and adds value.”

Another participant, from the banking sector, agreed, citing finance’s role in risk as a signifier. “There is increasing demand on finance to be risk management people. They have to understand risk entirely. We are finding we have to drive them to be more risk-management focused, but that is the trend.”

CIMA’s Peter Simons identified four key drivers for the way the finance function is changing. He said the first was the relentless drive for greater efficiency, the second was the need within businesses

for better information, and that the third was the need for finance to become more influential and to provide professional objectivity. He said the fourth driver was the need for greater transparency.

growINg IMpaCT oF sharEd sErvICE CENTrEsThe panel was asked if they thought the above drivers would lead organisations to push more processes and tasks through shared services centres, as the drive for greater efficiency and cost savings continues.

One participant, from the entertainment industry, agreed that may be the case. “We obviously started off at the transactional level and now we have started pushing more reporting responsibility to them. The question companies should be considering is: ‘where is the value?’ You need to consider how much the shared service function understands the business. The real value comes when you’re actually within the business and you’re talking to the FD and the MD, and speaking to the marketing director and the sales director.

“Everybody’s working towards that cohesive strategy. Where you get the challenges are where certain parts of the business are not ingrained within that process and therefore not working towards a common goal.”

Another participant, from the financial services sector, added: “I think you can only outsource the lower-skilled aspects of finance or the ones that are repetitive. You can take that work and have systems that help get a lot of the information prepared and make that more efficient. But in the end you want people who are close to the business interpreting and having the detailed discussions with the people at the sharp end.”

UpskIllINg For ToMorrow’s FINaNCE FUNCTIoNCIMA’s Peter Simons added that for finance people to develop a broader understanding of the business, they need to first have an interest in that business or industry.

“Finance people must have core finance skills and technical knowledge – that’s a given,” he said. “But to move forward they also need the commercial insight – that interest in the business, that eagerness

‘A changing mandate demands a diversifying finance talent pool’

48

to understand how things work, what drives the cost, what drives value, what drives risk.

“They need to take that interest in the business and understand it. Then they need to develop the soft skills that enable them to influence. Then, if they want to rise to board level, they need to develop the leadership skills.”

The participant from the entertainment industry agreed that soft skills are vital: “It’s so important because if you can see the value in things you will have the ability to communicate it.”

However, another participant from a major electronics manufacturing firm added that becoming a broader finance professional required experience as well as skills.

The attendee from the logistics sector agreed: “It is important because no amount of bookwork can prepare you for real-life issues that might be bubbling under, and for being able to spot them and sort them.”

There was a general agreement throughout the discussion that shared service centres are “upskilling”, and are helping to drive up skill sets among finance professions in the regions where they operate.

“We’ve got a couple of guys coming from our offshore centre and moving into our London office,” commented a participant from the entertainment sector. On top of that, we’ve got 200 guys in from India.

“These kids are so intelligent and bright.”Peter Simons identified another shift in the finance

function that is likely to impact the skills required of tomorrow’s talent pipeline.

“There seems to be a growing level of shadow finance, which is people who are not in the finance function, but who are doing finance stuff in the business. This is potentially damaging and shows why we need to adapt,” he said. “If the managing directors of business divisions are choosing to have a business analyst or a statistician alongside them, that suggests they’re not getting that service from finance, perhaps because the finance people are too busy ensuring the figures are right, ensuring the travel expenses have been paid properly.”

However, another participant suggested finance remained influential in this arena. “I would say I want my finance directors as close to the managing director as possible. I’ve been a managing director for three years in two different companies. It is the hardest job and you need a strong finance director next to

you to help with the analysis, and to have an honest conversation with.”

“So yes, I want a finance function that does all the transactional processes and that’s a real skill and we shouldn’t denigrate it. There is a phenomenal skill in being a brilliant credit controller and we shouldn’t try to make somebody great at that, but then say unless you want to do all these other things you’re a failure. But others may be inquisitive and want to get closer to the business and more involved, so you should encourage those that do, but not denigrate those that don’t.”

plaNNINg For ThE FUTUrEThe discussion also heard that strong succession planning is more of a challenge during difficult economic times.

CIMA’s Peter Simons explained: “Succession planning is essential. You have to get the best possible people in each of the positions and look at how to develop them. That will help you go down that pyramid and look at where your entry people are coming from and how you can give them the right skills to move up. Yes, all that costs money, but in the end you have a pool of people coming forward and creating continuity.”

That said, the discussion also heard that there is a tendency for firms in some sectors today to concentrate on recruiting the talent they need rather than developing it through succession planning.

One attendee commented: “Traditionally, in the banking sector, for example, there has been a focus on recruiting commercial finance people, while the bosses from the engineering sectors have had a much more patriarchal view, wanting to develop their own people. And I think that still happens.”

Concluding the discussion, Peter Simons added that despite all the discussions and debate about the best way to develop tomorrow’s talent, it was refreshing that the conversation was taking place – and that finance is focused on how it can develop the best talent pipeline for the business environment of tomorrow.

Excellence in Leadership | Issue 4, 2012 Excellence in Leadership | Issue 4, 201249

‘No amount of bookwork can prepare you for real-life issues’

“One finance: Building tomorrow’s talent strategy” is supported by Hays. To download the full report, visit http://tinyurl.com/d4b6zqf


Is energy top of your agenda?

Energy supply is changing. A fast-moving policy and regulatory environment, an increasingly competitive marketplace and new approaches to energy purchase and supply have thrust the energy industry

into reform, but there could be opportunities for business as suppliers look to work together to meet industry challenges.

whaT’s drIvINg ChaNgE?Reform of the electricity market is being driven by a number of pressures on both the Government and on energy providers directly. For example, 40 per cent of electricity generation is due to be decommissioned over the next 15 years, while the UK is required to reduce greenhouse gas emissions by 80 per cent by 2050. These are the challenges that the UK faces in delivering the three pillars of energy policy: affordable, low carbon and sustainable energy. What’s more, Ofgem estimates that £110bn needs to be invested in low-carbon generation over the next ten years, putting further pressure on the industry to evolve in a way that is fair to both consumers and investors.

In addition, the infrastructure needs to be able to handle a greater use of intermittent power sources . This will require new forms of back-up generation owned and operated by small independent generators, including companies taking advantage to generate their own power. All of this means increased opportunities for value creation, but also an increase in associated risks, leading energy firms to look at how they supply and charge for electricity.

whaT doEs IT MEaN To MY BUsINEss?The pressures being placed on the Government and suppliers are having knock-on effects. The price of electricity

generated from fossil fuels is being impacted as the cost of carbon is increasingly reflected. In addition, non-energy costs – those costs associated with environmental subsidy, transportation and balancing etc – are likely to rise, and represent a higher proportion of overall energy costs.

Traditionally, wholesale energy costs have accounted for around two-thirds of energy bills, with “non-energy costs” accounting for one-third. Going forward, non-energy costs are expected to account for an even greater proportion of energy bills, meaning suppliers will find it harder to offer direct savings.

There are other knock-on effects too. Required infrastructure investment is likely to impact transmission and balancing charges, while demand reduction is increasingly being incentivised by high costs and help from Government

So with more opportunities to be explored and increasing levels of risk to manage, EDF Energy believes that its business customers should be looking to move contracts away from being built solely on price to a more holistic approach that considers all these factors.

whaT arE ThE opporTUNITIEs For MY BUsINEss?Suppliers want contracts to be evaluated more on “whole energy cost” rather than “energy price”.

For example, while electricity prices have traditionally been volatile, suppliers’ margins are extremely narrow. That means they are limited in the price reductions that they can offer businesses. However, they say that by working closely with firms to help them better manage their energy consumption, overall cost savings of up to ten per cent are not uncommon.

Suppliers are also keen to work with

businesses to help them take advantage of incentives to develop on-site generation and consumption of renewable energies.

Furthermore, the Government is looking to agree a stable output price for low carbon generation technologies.

Achieving a “fixed” price on output from renewable energy would provide generators with a cash flow which, depending on the wholesale price at the time, would be delivered either back to businesses or to the generator.

That process would make the predicting of wholesale prices incredibly important. However, Paul Sheffield, commercial director, EDF Energy B2B, says a change in approach would create a valuable opportunity for companies.

“What businesses need to do is to move beyond price,” he said. “Many of our customers still want to negotiate on price, but the alternative is to consider overall value – considering the options and opportunities in electricity contracts.

“To do this effectively, businesses need to move away from simply repeating their previous energy contract and engage in the renewal process much earlier so that we can help them to take advantage of the benefits this new approach can bring.

“The benefits – rewards for on-site generation, rewards for reducing demand when energy is not needed and rewards for energy efficiency – can make a real difference to companies,” he added.

“Now is the time to consider what the transition the power market is going through will mean to your electricity supply contract – so if it’s not yet on your boardroom agenda, you should be asking why.” If you would like more information, or to discuss your future energy, requirements call the specialists on 0800 404 6009 or email [email protected]

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With the energy industry undergoing considerable reform and electricity prices rising, many CFOs are concerned about the impact

on their business. However, supplier EDF Energy says early engagement pre-contract renewal and a new approach to the role

energy plays in your organisation can result in big benefits for firms

Excellence in Leadership | Issue 4, 2012Company insight

Measure for

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Creating a motivated workforce through performance management by Phil Sheridan,

managing director, Robert Half UK


Here are five tips for running an effective performance management system:

1 Ensure that your system is tightly coupled with overall business strategy and specific objectives

2 Communicate your system effectively so that everyone understands how their performance impacts on the overall business plan

3 Provide as much transparency as possible so that there can be no doubt how performance is linked to remuneration (pay rises and bonuses)

3 Make sure that there is a coaching culture in place so that each individual has ready access to advice and support (both formal and informal). To learn more about your coaching style, visit www.roberthalf.com/career-coaching

5 Document everything and keep careful records of all communications within the performance management process

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ne of the most oft-quoted sayings about effective business management is that “you can’t manage what you can’t measure”. Just as it’s impossible to manage a retail store without knowing which products are selling well – and therefore being able to predict demand

and margin in the future – it’s difficult to develop a team without a clear picture of current performance and aspirational goals.

A performance management strategy enables an organisation to measure the progress of its workforce as they strive towards agreed objectives. However, people are clearly not just cans of beans or loaves of bread, to be counted and shifted around the store. A performance management system does far more than count the numbers: it also inspires individuals to reach their goals.

This inspiration stems from a number of factors. First, a performance management system is, by its nature, highly transparent. It is clear to everyone involved what is expected from individuals and how performance beyond the normal call of duty will be remunerated and rewarded. There can be no argument about how bonuses or pay rises are allocated because everything is documented and measured according to an agreed framework.

Second, a performance management system is linked tightly into the overall goals of the organisation itself. Individuals understand how their performance impacts the commercial success of their company – enabling them to see the bigger picture and feel both valued and valuable. This is particularly important for the accountancy profession as a strong sense of “commerciality” is often requested by hiring managers as one of the most desirable attributes for members of their finance team.

Third, a performance management system helps to identify strong players in the team and enables them to move forward within an appropriate and well-managed process. They are able to see clear progression in remuneration, attached to distinct performance goals. This is important in the current climate, where many finance professionals are cautious about moving jobs and are waiting for the ideal opportunity before taking

the leap. Instead, they are looking for improvements within their current role, undertaking additional levels of responsibility and training to enhance their own professional development.

Indeed, research undertaken by Robert Half with 100 CFOs within the financial services sector shows that more than two-thirds (68 per cent) of respondents feel that their finance teams are more motivated by remuneration than they were five years ago. The number of finance professionals more motivated by remuneration rises in Hong Kong (89 per cent), Singapore (75 per cent) and Germany (70 per cent).

Further evidence that a performance management system motivates employees is provided by the same research study by Robert Half, which found that aside from remuneration, title/career progression was the most important single motivating factor for 37 per cent of respondents. This was closely followed by reduced work hours (27 per cent), exposure to senior level projects (21 per cent), telecommuting/working from home (eight per cent) and global opportunities (six per cent).

There were similar differences in opinion between UK respondents and those based in other parts of the world. Perhaps unsurprisingly, finance professionals in Singapore (26 per cent) and Hong Kong (22 per cent) were much more motivated by global opportunities than their counterparts in the UK (six per cent).

So how should organisations implement a performance management system if they don’t have one in place already? The place to start is with a salary and benefits framework, which documents pay scales across the organisation by role and responsibility.

As part of this process, organisations should ensure that they have a fair and equitable pay scale in place. Robert Half produces annual salary guides that provide a benchmark and ensure that organisations are offering competitive pay.

Applying a performance management system to your business is vital at a time when organisations are balancing the need to retain their best players by offering a fair and transparent career progression ladder, as well as the requirement to reduce the risk of complaints about unfair treatment. With a few simple steps, organisations can begin to measure the progress of all the people that they manage.

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Paying for performance

What you earn has long been viewed as a status symbol. However, in the era of Generation Y, where today’s and

tomorrow’s finance professionals crave much more than just cash, we ask James Davenport, FD of Innocent Drinks; Stephen Pugh, FD of Adnams

Brewery; and George Riding, CFO for SAP, MENA; how salary fits into their overall reward packages…

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First and foremost, I think people have to be motivated and inspired by the company they work for, because if you don’t get that bit right then you’re starting from the wrong place.

Giving people a strong sense of purpose in the work they do is the most fundamental part of this. I strongly believe that if you’re attracting people purely through the salary you pay them, then you’re essentially bribing them to come to work, and that’s not going to produce a loyal and committed workforce, which is much more compelling and long term.

As such, our approach is driven by what we think is the right way to attract the right person for our company. We have spent a lot of time on our employee proposition and we think it is strong enough to attract great people, even if the salaries we offer are in the second quartile, not the top quartile.

For us, one of the most important components of attracting the right people is the employee brand. We have created an office and environment that is a reflection of the Innocent brand – it is fun, entrepreneurial and encourages creativity. In effect, we have created an environment that we want to work in so if you came to our office you’d see grass, trees and picnic tables rather than cubicles, and people in t-shirts and jeans rather than suits, and so on.

And quite frankly, for the most part, I think that people value having a purpose and a stimulating place to work, rather than necessarily getting paid that top quartile salary.

And I can see that approach spreading. It’s becoming clear that people want to feel that what they do has a purpose, and that the companies they work for have a set of values that they can buy in to and work hard to support.

As part of our employee proposition we have a company-wide bonus scheme, and everyone gets the same percentage, from the CEO to the front-desk receptionist. The bonus is designed to reflect how well

we’ve done against the performance objectives that we have set ourselves. These tend to be both financial and non-financial. We also have a share scheme for all employees, so they can truly feel like owners, which we think is really important.

As to whether salary has diminished in importance when people are assessing job opportunities, there are some trends that I am becoming more aware of. When I joined Innocent ten years ago the average employee age was mid-20s, so salary was often the most important thing, because at that age you’re paying off your student loan, saving for a holiday, a car or a deposit on a flat. Money really matters.

Ten years on and the average age is now closer to 30, and people are a little more settled in their career. There is more interest in the non-salary based elements of the package, such as pension plans, healthcare, work/life balance and flexibility.

From my perspective the demographic of the workforce is critical to how you design your packages. I have worked with two of my direct reports with the aim of developing a flexible working plan for them, as this is something that they really value. So as a result, my treasurer now works four days out of five. It works because she’s got two kids in school and wants Fridays off so that she is able to get everything ready for the weekend. It works for us, and for her, so it makes sense.

Alongside that, I’ve got an international FC who works three weeks out of four. His parents have a farm in the north of England and it’s important for him to be able to take a week to help them out every month. It works for us and it works for him, so again it makes sense

Five years ago I would never have imagined that I would be able to support my team in this way, but as their personal circumstances change, being able to change the way that we reward our employees has become much more important and relevant.

‘We have spent a lot of time on our employee proposition’

jAmES DAVEnPoRTFD, Innocent Drinks

jAmES DAVEnPoRT

I don’t see a huge change in the pattern of how our benefits are structured – indeed we are offering something similar to what we were offering five years ago. There may be a reappraisal of incentives, notably bonuses, but I don’t envisage Adnams changing much as we’ve not paid

sizeable incentives of this nature in the first place. As a major part of that, I think there’s going to be a

slightly different approach to the way that businesses look at remuneration. What we try to do here is to view our staff, especially those in the finance function, as professionals. And we believe they should be paid as such. If you’re a teacher or a doctor then you don’t expect to be paid huge bonuses for doing your job well.

We take the view that we’ve got a salary and remuneration structure that’s pretty much the same from the CEO down.

We do pay some financial incentives, but they’re relatively modest compared to other places – no more than 12 per cent of salary. Ultimately, the basic salary is the key thing and it’s mainly about paying a proper rate for a proper job well done.

When it comes to retaining our best people, salary is clearly a headline element, and I’m not convinced that flexible working is such a big deal. Finance people in particular are very busy, and so it is down to their managers to ensure that they are allowed flexibility, provided they get the job done.

The idea of having a contract for 35 hours a week and if you do an extra 5 hours you get to take them off some other time is inappropriate for that sort of role, and I don’t think it would be that attractive to good people. That type of approach can also be exploitable.

We’re also a little sceptical about large, complicated incentive schemes. Aligning incentives in a way that encourages people to follow behaviour to benefit the company as a whole is nigh on impossible.

The complexity of what you need finance people to do is such that you cannot say that “I’m going to incentivise you on measures A, B, C, D and E”. It won’t work either because there are too many measures, or you find that people start focusing on the things that have the incentive attached to them to the detriment of their overall job.

There’s merit in everyone receiving the same level of bonus. We do that, with our people getting up to 12 per cent across the board. That’s quite modest, and we base ours on profit targets. It’s a good recognition of success, and while some people will inevitably feel they’re not close enough to the action to make an impact on that in a smallish firm like ours, it does help to foster the collective feeling of us all being in it together.

I’m not sure it’s highly incentivising for everyone, but it’s helpful for general staff morale. But we have no intention of going down the road of paying certain individuals much bigger money to change the world.

We’ve got pretty low staff turnover in most parts of our business and I think that the issue of Generation Y is slightly overstated – human nature remains largely the same down the generations. Yes, a 20-year-old is differently motivated than a 30-year-old, but the fundamentals haven’t changed. I do, though, think there’s been an overall change in what’s acceptable in terms of company behaviour.

There has been a loss of trust in business and that is becoming a concern in boardrooms. We have to put that right and demonstrate that we’re doing the right things. That’s not a generational thing, it’s a fundamental part of our business – we’ve been going since 1872 and we like to think we’ve encouraged a “do the right thing” approach in that time. And part of that is the relatively egalitarian way in which we’ve handled the issue of remuneration.

‘We do pay some financial incentives, but they’re relatively modest’

STEPHEn PuRSEFD of Adnams Brewery


»

STEPHEn PuRSE

We cover the Middle East and North Africa and have mostly expatriates from varying cultural backgrounds in the team, so there needs to be a variety of different approaches

when it comes to recruiting and retaining staff. The cultures mean that they will be attracted to different things, so there’s no simple answer that will be right for everyone.

But you do need to offer competitive packages and you can’t substitute a good salary with flexibility. You don’t have to go well beyond the market rate, but you need to be competitive to attract good talent in the marketplace.

When it comes to looking at what people want in the other areas – it’s simple: you need to give everyone something to look forward to. Your people need to view the future as bright and full of promise, and that they’ll achieve their personal goals while supporting the business. Aligning all that with the company’s goals is very important, and it’s something I look out for when I interview someone.

I spend a lot of time trying to assess an individual’s motivation and working out what we can do to support those motivations. If it comes down just to money then it’s a difficult conversation because we’re not going to hand out an endless stream of pay rises. And while we have to be competitive, we also need to know that the new person is coming in fired up and ready to go for a new challenge that excites them.

That’s key for me – making sure the personalities match, and that the person we hire is committed to

the company for the right reasons. As for the other benefits, it varies across individuals. I’ve not seen a lot of requests for flexible working and those types of arrangements. Again, it comes down to demographics in terms of your workforce. For us, people seem to want help in those areas where they feel vulnerable. So that means, for expats, it’s about coverage in areas such as school fees, housing support and health benefits (these are especially important when working abroad).

As a business, we’re on a steep growth curve and we tend to ask people to be flexible in terms of their working hours, and sometimes to work beyond their comfort zone. Most of our people are young and ambitious and more open to that sort of thing. They are not looking to take their foot off the gas.

We do a lot of training – which incidentally is another really important differentiator when you’re trying to attract top talent – and study support for finance people is an important benefit. If people are studying, you have to give them the time to dedicate to this to maximise the chances that they return as a qualified professional. And then, of course, you make sure you pay them appropriately for the level they’ve achieved.

I do think that you have to take into account the stage of life that your people are at. You’ll have your solid, mid-tier performers that probably aren’t looking to leave, but they still need to be treated well and with respect, and offered a set of benefits that suits them. But really, there’s no substitute for looking after people and recognising their good work – that is a great way to motivate them.

‘You can’t substitute a good salary with flexibility’

GEoRGE RIDInGCFO for SAP, MENA

This feature is part of the CFO Priorities programme, which includes articles, papers and interviews. Supported by Robert Half. www.cimaglobal.com/priorities


GEoRGE RIDInG

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Charting the course from

CFO to NED

When is the right time for a finance professional to think about becoming a non-executive director (NED)?Taking on an outside non-executive directorship early in your career is not practical because you are still carving out your own career and the people you are working for will expect you to be fully focused on that role.

However, as you advance to a more senior position and become the CFO of a public company, most boards benefit by bringing in experience from elsewhere. It’s a two-way street because the company at which you are a NED benefits from your experience as a CFO, while the company that you work for full time has a senior executive who is gaining exposure to other areas and different ways of doing things.

What attracts businesses to appoint finance professionals as NEDs?As an experienced CFO – particularly one from a public company who will therefore know what it’s like to be on an audit committee or on a board – you are likely to be asked to chair the audit committee. In the businesses I have been involved with I have found that they want someone who can mentor their CFO through that process.

What do CFOs/finance professionals bring to the role?Obviously, as numbers people – and because finance is at the heart of driving organisations – we bring an ability to underpin strategies, with the numbers that will support those strategies or highlight any issues with them. Non-execs are there to ensure good governance and the good running of the business. They are there to challenge the numbers and shake the tree a bit. Finance people are well positioned to do that because they have such a strong numbers background.

More specifically, a major advantage to having a NED from a finance background is that we have such

a wide understanding of a business. The FD and CFO have a much wider view of the business than other senior specialists, such as a marketing director or a head of HR. As the right-hand men to the CEO, we know all the foibles across the organisation.

How do you position yourself to become a NED?I was lucky because when I wanted to acquire a NED role I was at Selfridges and the chairman there was very good at developing people. After I had been in a senior finance/CFO role for five years, he saw that taking on just one non-exec directorship would be valuable to my development as it would broaden my perspective on life, and benefit the company as well.

He was then very helpful in making it happen because he knew all the headhunters and executive search firms. Their approach to finding good people will often involve contacting people such as him to see whether he knows anyone who is appropriate for such roles. I would say that it is crucial to be recommended or endorsed by such a figure to get a role as a NED.

Are there certain sectors that the CFO suits best as a NED?I think that, broadly speaking, in the case of the CFO we are a good fit for any industry. There are some sectors where other specialisms, such as marketing knowledge or an understanding of logistics, for example, are valuable, but generally speaking I can think of no business where the CFO would not bring a valuable contribution as a NED.

The significance of a CFO in any public company is major, and if you combine their business experience, the way they look at the business and their ability to challenge the running of a company, then CFOs and FDs are uniquely positioned to take on a NED role in pretty much any business.A

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When is the right time to become a non-executive director and how do you position

yourself for such a role? Peter Williams, former CEO and CFO of Selfridges – and NED at Sportech, Silverstone Holdings, ASOS and Cineworld – explains how he went about it


Williams has spent more than 20 years in a variety of executive and non-executive positions in the retail industry. For 13 years he worked for Selfridges , initially as CFO and then as chief executive. He has significant experience of turnaround and corporate restructuring.

PETER WILLIAmS

Putting a price on environmental sustainabilityGlasgow, 21 JanuaryDr Michael Groves, partner at Codbod Technologies, will present how SMEs have tackled risks and costs associated with environmental impacts, looking in particular at “guardians of Scotland’s national dish” Macsween to see how it has tackled such impacts.www.cimaglobal.com/scotland

Leadership and management mastery for management accountantsCambridge, 23 January This event will highlight how to master your soft skills, taking your leadership and management skills to a whole new level. www.cimaglobal.com/eastmidlandsandeastanglia

Ethics: cost or return? Bath, 24 JanuaryWith an increasing focus on the ethical conduct of business and the importance of reputation and risk, management accountants need to be aware of guiding their organisations in the right direction. www.cimaglobal.com/southwestenglandandsouthwales

This event will highlight key aspects of pricing for business and offer interesting and useful insights into it. Momtchil Kovatchev, the global director of business intelligence for Hult International Business School, will share his experience in creating pricing mechanisms used by large businesses, and advanced techniques to deliver optimum pricing for long-term sustainable profit.

www.cimaglobal.com/centralsouthernengland

Further events

Tough pricing for a tough world

Staying in the helicopter® – win with the new basics of business outcomes

Raising finance: when there is no money

This event will look at the fundamentals of any business and the new role of the business leader, while keeping it practical and not departing into the realms of complexity and business-school speak. It will enable you to embark upon a high level of thinking about your organisation and your pivotal role in its future.

www.cimaglobal.com/ westmidlands

Steve Knowles, managing director at Knowles Warwick Ltd, will explain the current market for commercial finance, who and what is in the market, and how to get what is available.

www.cimaglobal.com/northeastengland

17 JanuaryHigh Wycombe

17 JanuaryCoventry

21 January Sheffield

EVEnTS


nExT TImE


S T R A T E G I C R I S K m A n A G E m E n T

the

issue

From identifying the risks facing your business to managing the balance between risk and innovation, our first edition of Excellence in Leadership in 2013 will include comment

from a host of global CFOs and other senior finance professionals

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CIMA Corporate Centre 26 Chapter Street,London SW1P 4NP Tel: +44 (0) 20 8849 2251Email: cima.contact @cimaglobal.comwww.cimaglobal.com

CIMA Australia Paul Turner: country manager 5 Hunter Street, Sydney, NSW 2000, AustraliaTel: +61 (0)2 9376 9902Email: [email protected]

CIMA Bangladesh Zareef Tamanna Matin: manager Suite-309, RM Center (3rd Floor), 101 Gulshan Avenue, Dhaka-1212, BangladeshTel: +8802 8815724 +8802 8816306Email: Zareef.Matin @cimaglobal.com

CIMA Botswana Moses Sikwila: country managerPlot 50374, Block 31st Floor, Southern Wing,Fairgrounds Financial Centre,Gaborone, BotswanaTel: +267 395 2362Email: [email protected]

CIMA China: Head OfficeLi Ying Vicky: regional director Unit 1508A15th Floor, AZIA Center,1233 Lujiazui Ring Road,Pudong, Shanghai, PRC. 200120Tel: +86 (0)21 6160 1558Email: infochina @cimaglobal.com

CIMA China: BeijingXina Zhang: manager C 201, 2/F Landmark Tower 2, 8 North Dongsanhuan Road,Beijing 100004Tel: +86 (0)10 6590 0751 Email: Beijing@ cimaglobal.com

CIMA China: ShenzhenEric Pan: manager16/F, CITIC City Plaza,Shennan Road Central,Shenzhen 518031Tel: +86 (0)755 3330 5151 Email: [email protected]

CIMA China: ChongqingFlora Hu: managerRoom 1202, Metropolitan plaza, No 68 Zou

Rong Road, Yuzhong District, Chongqing 400010, P.R. ChinaTel: +86 (0)23 6371 3538 Email: [email protected]

CIMA GhanaPaul Aninakwah: country manager3rd Floor,Ayele Building,IPS/ATTRACO Road,Madina, Accra, GhanaTel: +233 (0)30 2503407Email: [email protected]

CIMA Hong KongDamian Yip: director Suite 2005, 20th Floor, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong KongTel: +852 (0)2511 2003Email: hongkong @cimaglobal.com

CIMA India Arati Porwal: chief representativeUnit 1-A-1, 3rd Floor, Vibgyor Towers, C-62, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051, IndiaTel: +91 22 42370100Email: [email protected]

CIMA IrelandDenis McCarthy: director5th floor, Block E, Iveagh Court,Harcourt Road, Dublin 2, IrelandTel: +353 (0)1 6430400Email: [email protected]

CIMA Malaysia: Head Office Irene Teng: regional directorVenkkat Ramanan: head of CIMA MalaysiaLots 1.03b & 1.05, Level 1, KPMG Tower, 8 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor Darul Ehsan, MalaysiaTel: +60 (0)3 77 230 230/232Email: kualalumpur @cimaglobal.com

CIMA Malaysia: PenangTan Chiew Ann: managerSuite 12-04A, 12th Floor Menara Boustead Penang,No. 39 Jalan Sultan Ahmad Shah, 10050 Penang, MalaysiaTel: +60 (0) 4 226 7488/8488Email: [email protected]

CIMA Malaysia: SarawakDoreen Tan, manager Sublot 315, 1st Floor,No. 21 Jalan Bukit Mata,93100 Kuching,

Sarawak, Malaysia Tel: +6082 233 136Email: [email protected]

CIMA Middle EastGeetu Ahuja: regional headOffice E01, 1st Floor, Block 3,PO Box: 502221, Dubai Knowledge Village, Al Sofouh Road, Dubai - UAETel: +9714 4347370Email: [email protected]

CIMA NigeriaMusliu Olajide: managerLandmark Virtual Office, 5th Floor, Mulliner Towers, (former NNPC Building)39 Alfred Rewane Road, Ikoyi, Lagos, NigeriaTel: +234-1 4638353 (ext 518)Email: lagos @cimaglobal.com

CIMA Pakistan Javaria Hassan: country managerNo.201, 2nd Floor, Business Arcade, Plot No. 27-A, Block-6 PECHS, Shahra-e-faisal, Karachi, PakistanTel: +92 21 3432 2387/89Email: pakistan @cimaglobal.com

CIMA Pakistan: LahoreSahar Saqiq: managerFlat No: 1,2-1st Floor,Front Block-3,Awami Complex at 1-4, Usman Block, New Garden Town,Lahore, PakistanTel: +92 42 35940311-16

CIMA Pakistan: IslamabadZunaira Riaz: manager1st Floor, Rehman Chambers,Fazal-e-Haq Road, Blue Area,IslamabadTel: + 92 51 2605701-6

CIMA PolandJakub Bejnarowicz: country managerWarsaw Financial Centre, 11th Floor, ul. Emilii Plater 53,00-113 Warsaw, Poland Tel: +48 22 528 6651Email: poland @cimaglobal.com

CIMA RussiaHelen Buniatyan: director Office 4009, 4th Floor,Zemlyanoj Val 9, Moscow 105064, Russian Federation Tel: +7495 967 93 28

Email: russia @cimaglobal.com

CIMA SingaporeShavonne Sim: manager3 Phillip Street, Commerce Point, Level 19, Singapore 048693Tel: +65 68248252Email: singapore @cimaglobal.com

CIMA South Africa Samantha Louis: regional director 1st Floor, 198 Oxford Road, Illovo 2196,South AfricaTel: +27 11 788 8723/0861 Email: johannesburg @cimaglobal.com

CIMA Sri LankaBradley Emerson: regional directorRadley Stephen: country head356 Elvitigala, Mawatha,Colombo 05, Sri LankaTel: +94 (0) 11 250 3880Email: colombo @cimaglobal.com

CIMA Sri Lanka: KandyRoshini Wirasinghe: manager 229 Peradeniya Road, Kandy, Sri LankaTel: +94 (0) 81 222 7883Email: [email protected]

CIMA UK David Rowsby: regional director 26 Chapter Street,London SW1P 4NP Tel: +44 (0) 20 8849 2251Email: cima.contact @cimaglobal.com

CIMA ZambiaKennedy Msusa: country manager6053 Sibweni Road,Northmead, Lusaka,ZambiaTel: +260 1 290 219Email: [email protected]

CIMA ZimbabweMatilda Nyathi: branch administrator6th Floor, Michael House,62 Nelson Mandela Avenue,Harare, Zimbabwe Tel: +263 4 708 600/720379Email: [email protected]

CIMA offices


CIMA contacts:New ZealandTel: +64(0)48017132Email: [email protected]

FranceEmail: [email protected]

SwitzerlandTel: +41(0)797802139Email: [email protected]

CanadaTel: +905 553 0346Email: [email protected]

KenyaEmail: [email protected]

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Excellence in Leadership December 2012