Category Archives: Delegate

Why Business transformation fails?

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by Adrian Ryan Head of Finance and Transformation

Join Adrian at our next Finance meeting

I recently read an article that gave 5 reasons why Finance Transformation fails. While the reasons were all valid, and no doubt you will have heard them all before, the article didn’t discuss the primary reason for failure, which is a lack of commitment by senior leadership figures at the outset. The principal reason for a lack of such leadership commitment is fear of change. There a 5 main change fears experienced and exhibited by organisation leadership:

Risk to reputation: the nagging concern that someone is going to ask why these opportunities had not been identified sooner and therefore question whether the incumbent managers are up to the task in the future

Risk to position: the concern that in embarking on a long term change to ways of working new skills will be needed and therefore new management will be needed or at the very least that changes to existing remit will ensue, remits often long in the building

Risk to rewards: management knows how a company works, especially in terms of maximising rewards, and changes to ways of working can lead to changes in rewards structure leaving people feeling that they no longer know how “the game is played”

Risk to legacy: the fear of being seen as the person who instigated significant and widespread changes to the way things are done and, more particularly, the impact of job losses, especially if the changes are not deemed to have been successful or reaped sufficient benefits when set against the emotional stress of job losses

Risk to short term results: a mismatch between short term needs and long term benefits. The classic reason given for not proceeding with long term ways of working change is that the benefits don’t pay back quickly enough and cost too great in the short term

The risks all point to one central theme which is a fear that one’s position will be undermined by one or more of the above. The trick is to find ways to alleviate these instinctive fears sufficiently for decision makers to feel they are secure and so can make the decisions based on long term horizons rather than past or present circumstances. This safe environment must come from the board and the Chief Executive. It is about leadership. Without this no major change is possible and no change management plan is achievable.

It is also not surprising that management fears change failure, and the ramifications of change, especially if they have little or no experience of implementing the kinds of change on the table. This fear of the unknown is entirely understandable but needs to be put into the context of the long term impacts of not changing. This is about corporate Darwinism; those organisations that don’t adapt will die out in the long run.

If your organisations leadership is exhibiting these fears then either a change in leadership may be required or a change in board focus, and thereby managements motivation, is needed. However before you conclude on this first ask whether a major transformation change is what the organisation requires versus a simple set of cost reduction projects. This is the very first step before you get people agitated about a major transformation.

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The importance of being selective on emerging markets

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by Marcos Dussoni Regional CFO Sodexo

Join Marcos and 100 other Finance leaders at the next meeting

For the growth-oriented enterprises, there are still opportunities aplenty in the emerging economies of the world. But maximizing them through M&A transactions is challenging if you are an outsider who does not know local regulations and customs and lacks relevant information.

Companies should pursue some strategies in order to avoid big mistakes. For example, they should have a clear understanding of how M&A in emerging markets will fits with into your overall strategic growth plan. In another words, what countries you want to enter, why you want to be there, what customer or product segment offers the most potential and how you will compete…

Another strategy is to monitor your course carefully such as establish and practice a strong M&A governance.

Mergers, acquisitions, joint ventures, and other transactions are crossing borders at a rapid pace and those markets are an interesting opportunity for companies which is pursuing growth, but has to be remembered that those markets are still emerging… Emerging markets can be complicated but has been proofed that deserves an strategy since the acquisitions and/or development of types clients you want to have in your portfolio.

Some markets, most the big ones such as Brazil & China, transactions structure are much more complicated than the US, Europe and UK to avoid surprises. For example, you can´t structure to avoid liabilities in Brazil. In China, you need structural protections other than contracts terms, which is often ignored. It is time-consuming to get any deal done in these markets due to the difficulty of conducting due diligence, getting necessary approvals and other issues.

Navigating in an emerging market means deal with risks and to create value, a deal must master, no matter where the enterprise is located the five critical areas:

The regulatory, political, and economic environments

The accessibility of key information

Cultural integration

Local leadership

Change management

The quality of resources is critical especially in areas such as tax, contractual and in a buy-side make sure you understand the ownership of the company you are dealing with.

Some countries have different rules for domestic and non-domestic enterprises. China is an example. As a result, a foreign acquirer may have costs that a local competitor does not.

Mechanisms for protections should be considered in a manner that cover certain risks. For example escrow accounts has a stronger weight than provisions.

In emerging markets, the gap in understanding between leadership and the stakeholder groups is magnified, and without proper preparation and a clear communications plan for the entire process, that gap can erode shareholder value.

While emerging markets can offer significant M&A growth potential, sometimes the endeavor to the value creation for the acquiring company could be more complicated than expected. A bumpy road lies ahead as short term benefits may be lower than expected. However, some companies have proved that, when armed with the right strategies, they can be successful.

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Utilisation & Development of Change Management as a key driver in Financial Transformation

jan

by Jan Christiaens CFO Royal Philips Electronics

Join Jan and over 100 of his peers at the next CFO Event

Ever been involved in a challenge you thought would be feasible, but later found out you’d bitten off more than you could chew?

For many companies, the process of transforming the finance function in line with the corporate strategy can turn out a little like that.

Personally, you can behave in different ways. Is your reaction towards the challenge that you behave as a prisoner or a tourist, or do you become the true player who believes the future before you see it…

As a player, you take ownership, team up to excel and are eager to win.

Philips launched 2 years ago a worldwide business transformation program ,changing the way Philips does business and unlocking the full potential. To become more agile, innovative and entrepreneurial as a company.

As part of Accelerate, the Finance transformation program started.

By putting the customer in the center of everything we do at Philips. And to make sure we are properly organized and well equipped to serve that customer and deliver meaningful innovation in a fast and cost-effective way.

That’s why Philips finance is redesigning its organization, improving the processes & systems and last, but definitely not least; creating a winning team by living our behaviors and building capabilities for the future.

The Accelerate journey is not a sprint, it’s a marathon; it’s a multi-year transformation program that eventually touches each and every one in the company. A huge team effort, for both the growing business transformation team and the businesses and markets all over the world. It’s all about working together to wow our customers … and ourselves.

I will be talking about this at the CFO Event

The workshop gives insight in

-The Philips Accelerate and Finance transformation program
-Design of the new finance organization
-Transition and implementation of the new organization
- Challenges and pitfalls
-Examples of implementation

I hope to meet you in person at the CFO Event

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Approximately right or precisely wrong?

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by Lefteris Trechas CFO SMPM International AB

Join Lefteris and 100 other finance professionals at the CFO Event

A decade ago, as a young manager in my field, I got a question from my boss: Would you prefer an analysis approximately right or precisely wrong?

I was quite puzzled. Why did he ask me?

Fresh from my MBA studies, I was eager to use all the fancy tools I got in my intellectual bag. However, despite my efforts the analysis was delayed by a week and my summary conclusions were a bit distant from a decisive action.

I asked him what do you mean by approximately right and he replied: “Hands on analysis, reaching a decisive action point which will require successful execution”

Getting some more experience in the job and maturing in my role, I appreciate the righteousness of his words due to the following reasons:

• Preparing the initial model yourself can help you understand better the issues and objectives and direct more efficiently your team

• Distilling the assumptions before getting into more details will save you time especially when you segregate data from the pyramid of inputs (from bottom operational to top strategic)

• Waiting an analysis from your team may detach you from the real world and may weaken you among your organization, however the opposite will strengthen your leadership skill and will help them navigate more efficiently through a wide range of data

• Respond quickly to your management with a comprehensive summary of your work is always appreciated and offers you the advantage of a quicker execution.

The perfect plan may take a long time and quite often situation has already changed by then. Being fast and agile will give you the competitive advantage to perform your next step with the comfort of corrective actions like steering your sailboat. Needless to mention that my reference is more relevant for business planning and development activities and not for other finance jobs like accounting or treasury whereas a different aspect related to accuracy is required.

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Ambivalent credit and unexpected finding

Andriy Sichka

by Andriy Sichka MICM Credit Operations Director at JTI SA

Join Andriy at the next CFO Event in your area

Being the credit manager for some time I really enjoy the privilege of supporting CFOs. Admiring these brave, smart and responsible people I always keen to make their life easier. This led me to an unexpected finding…

There are many different opinions about the role of credit. Some of them could be even opposite to others. Majority of them, however, agree that credit managers are those taking care of cash. No need to prove obvious – cash is important for every business. During hard times of recession ‘Cash is King’ became a mantra. Let us try to see what credit people could do about it.

Majority of the cash is coming to business from its customers. 90% of all sales transactions in the world are made on credit terms. As such, every company has Debtors or Accounts Receivable, which is the primary source of cash. So my colleagues and me are to ensure customers’ timely payments and collect it if they do not pay. Fair enough. But this is one half of the truth only. Assuring of customer’s payment could not increase the cash strategically.

It is just as obvious that in order to get cash from the customer you have to sell first. Everybody known how challenging it is to make a sale happen. Tough competition, homogenization of the products and other one thousand unfavorable factors make this challenge greater and greater every day. Here is the point where credit could and should support the sales teams. Customized credit solutions contribute substantially to the competitiveness of the firm’s products and help to close sales deals. And this is the second half.

So, the whole truth of credit is that two jobs should be done at the same time – sales support and cash assurance. This requires finding and maintaining of the right balance between the two in every business case. To provide company with the cash, credit manager should always stay on the narrow line between sales and finance. Like a ropewalker he could not make a step to any side.

Majority of companies keep their credit functions within the finance department, often reporting to the CFO. Good credit manager naturally will be doing his best to support the finance. But, to perform in the best interest of the company, credit person will have to spend majority of the time with sales. This is the paradox – to serve the best, credit should go beyond the border of reporting.

Has to become a ‘semi-subordinate’ of the CFO.

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Cash is a demanding King…

cecile

by Cecile Parker Group FD JLA Ltd

Join Cecile and 100 other finance leaders at our next CFO meeting

Having previously worked in organisations where cash was scarce, I’ve been used to tenaciously managing and scrutinising working capital and margin daily, looking for the next cost efficiency initiative to implement. When joining JLA however, the availability of cash, coupled with ambitious growth plans, has brought different challenges.

JLA owns and manages £50m of equipment, across 10,000 sites, generating over £50m of recurring annual revenue. JLA sells 8,000 machines each year to 3,000 businesses, resulting in £21m revenue. Over 1,500 machines are serviced every day with over 200 engineers covering 20,000 miles and generating annual revenues of £15m. JLA supports its machines with over 1.5 million litres of detergent each year, ensuring optimum performance and over £5m in additional revenues.

The Group, owned by HgCapital, achieves this through market-leading products from its Laundry, Catering , Medical, Consumables and Service divisions across 16 different market sectors in the UK and Ireland. Unique value propositions for customers coupled with unrivalled sales and marketing capabilities and a nationwide service infrastructure means that JLA has a perfect platform for growth, proven most recently in my tenure with our successful launch into Catering and Medical through organic growth and strategic acquisitions. Total revenue has nearly quadrupled in less than a decade, now nearing £100m! The level of contracted revenues generates a steady stream of monthly cash ripe for the next growth plan.

However, with cash comes the dangers of complacency! The one critical characteristic that separates a great business, capable of executing its growth plans, from a weaker one is their desire (at all costs) to avoid complacency creeping in to their operations. On joining JLA, the Board challenged me to challenge the status quo. “How can we do better?”; “What ways can we improve our service and ‘keep the promise’ to our customers?” “How can we identify new opportunity in our customer base, for different divisions and products?” and most importantly “What lessons did we learn when things went wrong?”. Implementing controls plus ensuring robust systems and processes are in place to support the rapidly evolving business, has been a major focus for me.

Being part of a highly driven management team means we demand the best of each other and in turn, I can engender a strong performance culture in my own team. My role in continuously challenging both processes and the individual accountability of colleagues, supports a more effective deployment of our strategy and vision.
With such rapid expansion comes a high level of reporting complexity, demand for integration work and strain on resources. Using data analytics to recognise good performance and identify potential opportunities and hurdles is of high priority for us, throughout the group and its acquisitions. Articulating the what and how of success is critical for a private equity owned business. I have personally led on a number of initiatives that include strengthening our approach to cross-sell and upsell, so that we acquire new revenue more cost effectively and provide a more complete solution to our customers.

Joining JLA has been such a game changer for me, putting a different perspective on the role of Finance Director. Driving through change, growth and ultimately a successful exit, is all in a day’s work at JLA!

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The Innovating CFO

cfo event

(CFO Committee meeting)

This week witnessed Global Business Events fourth CFO Event in Heathrow UK

The CFO Event has been established now for four years and is uniquely driven by a community of CFO’s and Finance Directors across Europe/UK.

Chairs of the event promote this innovative community model to their networks allowing; exponential growth of delegate numbers, an unrivaled academic program and continuous thought leadership engagement through a content network. The CFO event itself then becomes the icing on the cake from months of collaboration between world leaders within the Finance space.

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Peter Farley took front of house chairing the two days of intense debate. Enterprise Risk Management was top of the agenda with CFO panelists from Imperial Tobacco, Thermo Fischer and Aegon, the panel agreed that “Risk is a good thing, as it provides opportunity” but concede that “High Risk no longer brings High return,” in conclusion “Profits come from good risk management”. Discussion then opened to the floor and we received interesting learning’s about Fukishima and Digital reputation management.

Following the opening panel, delegates filtered into focus discussion groups that continued throughout the two day with insight into recruitment, procurement, financing and transformation.

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Philippe Moutot, Deputy Director General Economics and Director Monetary Policy from the European Central Bank returned with a less gloomy outlook.

The two days ended with Rudy Lobo COO (Former CFO) Regus PLC running an interactive Seminar looking at the Future Finance Director.

Overall the event (the 4th CFO Event of the series) was an overwhelming success.

If you wish to join over 700 past and present attendees online click here

Want to come to the next CFO Event? Click here

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JV Investment in China

Emmanuel Walter

By Emmanuel Walter, CFO at Caterham

Join Emmanuel and 100 other Finance Leaders at our next meeting

1) Introduction

In many cases, foreign companies do JV because they have to rather than want to. The cultural differences might be overlooked or not continuously work on. Also to deal with a partner take time and commitment and you should not only talk to the partner at the board meeting. Most importantly, for any deal, always think about the exit 1st rather than at the end. Hence the need to consider carefully the corporate governance and shareholder structures

2) Managerial Cultural differences

2.1) Western

  • Expect that the significant difference in compensation, benefits, and training between foreign-dominated and local enterprises will motivate excellence in performance
  • Western managers use a more “rational” approach, exhorting productivity increases through the supposed motivational qualities of “salary and benefit differentials“
  • Expect more competitive behaviour at the workplace especially for US companies or investment banks
  • Do not hesitate to replace people if under-performing

2.2) Chinese

  • Findings indicate that fundamental differences in the conception of interpersonal power, including its ties to the concept of      relationship, may be at the heart of many Chinese/foreign managerial difficulties (Miles, 1999)
  • More importance of relationship at work and outside work
  • Face to face communication is more important
  • Maintain relationship with staff and boss
  • Earn mutual respect
  • Losing face does matter
  • GM leads the company and has important discretionary power on the company

3) Why set up a JV?

3.1) JV Definition

  • A minimum of 25% of the capital must be invested by the foreign partner
  • No minimum investment for the Chinese Partner.
  • Equity in a joint venture cannot be transferred without approval from the Chinese government
  • Either party can appoint the Chairman (Legal Representative)

3.2) So why a JV?

  • German Chamber of Commerce Survey – 2007
  • The ratio of WFOEs to JVCs was 2:1
  • 75% of JV companies would enter the market as WFOES if they could choose again
  • Reasons:
    • Direct Management Control of Operations
    • Control of Technology and Know How
    • Independent Market Exit Decision
    • No need to share Profits
    • Quicker Set Up

3.3) What are the JV Pros?

  • Might be needed if JV main purpose is for the local market
    • Same 2007 German’s Survey says:
    • Required in some restricted markets
    • JV Partners support in dealing with authorities especially in 2nd and 3rd tier cities
    • Access to JV Partners Customer or Sales Network if applicable
    • Access to large local labor force if the partner business is transferred into the JV
    • Important if the chosen area has labour shortage
    • Can be a liability if the partner labour force is far from adequate
  • Better Chance of Getting Government Contracts
  • Sharing Risk and Capital Expense of R&D

3.4) What are the JV Cons?

  • Slowness to make decisions between partners
  • Local partner‘s objectives might be different from the foreign partner
  • Cultural differences might lead to misunderstanding or operational conflicts
  • Potential loss of control over daily operations if the JV is majority owner by local partner unless foreign partner appoint      GM
  • Foreign partner may lose control of its intellectual property if the partner copy it and use it in his own companies
  • JV Exit is much more difficult than a WOFE to manage

4) JV in China – Set-up Stage – Key Issues & Challenges

  • Manage expectations from both sides
  • Assess correctly the market situation (if aim to sell locally) and the claimed partner capabilities
  • Agree financials such as expected return or even co-agree on the JV business plan
  • Minimise misunderstanding
  • Systematically reconfirm meeting discussions / decisions
  • Get real & concrete commitment from both sides to support the JV especially on the technical and commercial sides
  • Negotiation Culture gap
    • Dinner 1st negotiation after
    • Be careful of the GanBei!
  • Due Diligence
    • Over invest in due diligence (either formal or informal)
    • Ensure that the company / assets are real and that negotiators are really empowered to make decision / sign
  • JV Exit (vs. WOFE) is difficult as need partner + local authorities agreement
  • Even in loss-making situation, the local partner might not be willing to give up:
  • Local’s have more long-term approach or different strategy for the JV especially if they use it as internal supplier
  • Willing to adjust selling price to market price even so the GM gets negative
  • Local authorities most likely to side on the local partner side even so the law is on foreign partner side

5) Conclusion

  • Set-up Stage
    • Make sure that the JV  is the right model for the project and that the partner really bring added value to the project
    • Do your homework such as due diligence is key to set-up a new JV
  • Running Stage
    • Achieve trust and mutual understanding with partners
    • Keep following partner situations
  • Exit Stage
    • Keep updated contingency exit plan

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FINANCE TRANSFORMATION: DEFINING THE END GAME

By Onder Senol, CFO at Turkcell Superonline

 

Over the past 15 years there has been much discussion on Finance Transformation and the changing role of the CFO. Finance teams are moving away from the traditional, accounting focus to more forward-looking analysis.

But what does Finance Transformation really mean in practice? How does the CFO ensures it becomes more than just a buzzword, or another management fad? Many people talk about finance becoming a strategic business partner, but how do you actually define “strategic business partner”?

In short, what is the end game of Finance Transformation?

Turkcell Superonline has grown in the past seven years from a start-up to annual revenues of over €350 million, to become one of the world’s leading telecom broadband operators.

Finance and the CFO played a critical role in this success story by moving beyond the traditional role of finance, and by understanding the real value of becoming a strategic business partner. The result: finance had a major contribution in the company achieving its ambitious corporate strategy.

Key take-outs: 

  • What are some of the critical factors for successful Finance Transformation? It has to be more than simply moving away from traditional accounting roles to forward-looking analysis.
  • Understanding what “strategic business partner” means for the CFO, and how this differs from the role of the other C-suite management team.
  • Defining the end game of Finance Transformation.

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Combining risk management and performance measurement in the world of regulatory tsunami

Rishi By Rishi Santokhi, Chief Financial Officer at AEGON Asset Management

The traditional responsibility of a CFO is obviously Finance, making sure numbers are right, reporting complies with (international) reporting frameworks and watching expenses. In the complex world of financial services, being a CFO is so much more than this. The financial crisis has triggered a regulatory tsunami which imposes almost all companies with more than just a few regulatory developments to take into account. Having your data quality and IT infrastructure well in order is a key prerequisite for complying with the wave of regulations let alone to gain a competitive edge.

As a CFO, I also focus quite intensively on risk management and performance measurement. Risk Management is all about managing your strategic, business and operational risks and having a robust internal control environment in place to reduce risks to an acceptable level. Performance Measurement is about measuring the extent to which you are on course to achieve your strategic objectives. Reporting on the effectiveness of risk management and on key performance indicators on a frequent basis enables management to take the appropriate measures in light of the strategic objectives and key risks it is exposed to. The CFO viewpoint in this is becoming increasingly important.

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