Re-engineering the roles and tasks of the Finance Officer

RE-ENGINEERING THE ROLES AND TASKS OF THE FINANCE OFFICER Case Study, Concepts and Debatable Ideas Kenny Ong CNI Holdings Berhad

Intro: CNI

20 years old

Core Business: MLM

Others: Contract Manufacturing, F&B Retail, Export/Trading, eCommerce, Shared Services

Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam

Staff force: ± 500

Distributors: 200,000

Products: Consumer Goods and Services

Re-engineering the major roles of the Finance Officer It’s all about expectations

Finance Role? Finance Officer SBUs, Divs, Depts Corporate HQ Strategy Results Request Service Policies Service

Finance Function Objectives? Transactional Cost reduction, Efficiency, Agility, Fast Copy AP, General Ledger, B/S analysis, Accounting, Fixed Assets, AR, Facilities Value-added Budgeting, Reporting, Financial Analysis, Forecasting, Tax, Legal, Treasury Consistency, Analysis, Value creation, customization Systems, Standardize, Benchmarking, ERP, Streamlining, Automation, Governance Best Practices Process improvement, service innovation, secondary KPIs, internal customers Transformation Market Leadership, Competitive Differentiation, Business model, M&A Direct Business Impact, primary KPIs, external customers

Finance Role vs. Measurement Transactional Cost reduction, Efficiency, Agility, Fast Copy Value-added Best Practices Consistency, Analysis, Value Process improvement, service innovation, secondary KPIs, internal customers Transformation Direct Business Impact, primary KPIs, external customers Time Cost Quantity Quality

Finance Role vs. Measurement Transactional Cost reduction, Efficiency, Agility, Fast Copy Value-added Best Practices Consistency, Analysis, Value creation, customization Process improvement, service innovation, secondary KPIs, internal customers Transformation Direct Business Impact, primary KPIs, external customers Time Cost Quantity Quality Innovation Service

Finance Role vs. Measurement Transactional Cost reduction, Efficiency, Agility, Fast Copy Value-added Best Practices Consistency, Analysis, Value Process improvement, service innovation, secondary KPIs, internal customers Transformation Direct Business Impact, primary KPIs, external customers Time Cost Quantity Quality Innovation Service KPI

Finance Role vs. Measurement Transactional Cost reduction, Efficiency, Agility, Fast Copy Value-added Best Practices Consistency, Analysis, Value Process improvement, service innovation, secondary KPIs, internal customers Transformation Direct Business Impact, primary KPIs, external customers Time Cost Quantity Quality Innovation Service KPI Impact

Career Guide for Finance Officers

Go Wide, Dig Deep

Finance’s Role and Business Intent

"The digital watch didn't come from established watch companies, the calculator didn't come from slide rule or adding machine companies, video games didn't come from board-game manufacturers Parker Bros or Mattel, the ballpoint pen didn't come from fountain pen manufacturers, and Google didn't come from the Yellow Pages"

Bob Seidensticker, Futurehype

What’s wrong with Business Strategy Today?

L ong-term Plans

O bjectives

S trategies

E nablers

R esources

Also known as L.O.S.E.R.

What’s wrong with Business Strategy Today?

Biggest Threats often come from OUTSIDE your normal industry

Planning from the base of an ‘Existing’ organization vs. zero-based

Using Sunk Costs for decision making and planning

Traditional Analysis (e.g. SWOT) based only on known or existing assumptions or knowledge

Spending too much time in market research and analysis

Defining the company from a Product/Service perspective vs. Category vs. JTBD (e.g. Coca-cola)

Wrong Benchmark – already successful vs. what made them successful

Implementing BSC and PMS to improve Business Model and Strategy

Finance Role and the Business Model How to fail without trying

Funds: What do Investors look for? www.myCNI.com.my www.OOBEY.com Market Value 0 10

M&A

P/E

Investor

Etc.

Strategic Control 0 10

I.P.

Monopoly

Gov-linked

Business Model 0 10

USP

Profit Mod.

Mkt Disc.

Growth

What is the Business Model? USP Market Discipline Profit Model

Google

Air Asia

Tata Nano

Business Model: Profit Model Revenue Cost Margin Cash Flow Assets

Strategy + BSC Revenue Financial Learning & Growth Internal Process Customers Cost Margin Cash Flow Asset

Intro: Market Discipline

"Exactly what I need"

Customized products

Personalized communications

"They're very responsive"

Preferential service and flexibility

Recommends what I need

"I'm very loyal to them"

Helps us to be a success

"They are the most innovative" "Constantly renewing and creative" "Always on the leading edge" "A great deal!" Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Reliable product and service Product Leadership Operational Excellence Customer Intimacy

Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution) www.myCNI.com.my www.OOBEY.com

Product Leadership

New, state of the art products or services

Risk takers

Meet volatile customer needs

Fast concept-to- counter

Never satisfied - obsolete own and competitors' products

Learning organization

Strategy: Value Disciplines

Operational Excellence

Competitive price

Error free, reliable

Fast (on demand)

Simple

Responsive

Consistent information for all

Transactional

'Once and Done'

Customer Intimacy

Management by Fact

Easy to do business with

Have it your way (customization)

Market segments of one

Proactive, flexible

Relationship and consultative selling

Cross selling

www.myCNI.com.my www.OOBEY.com

The McPlaybook*

Make it easy to eat

50% drive-thru

Meals held in one hand

Make it easy to prepare

High Turnover

Tasks simple to learn & repeat

Make it quick

“ Fast Food”

Tests new products for Cooking Times

Make what customers want

Prowls market for new products

Monitored field tests

*Adapted from: Businessweek , Februrary 5 th 2007 www.myCNI.com.my www.OOBEY.com

Strategy: Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)

Strategy: Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution) HP well-balanced portfolio, mass customization Acer super lean cost structure, aggressive pricing Apple powerful products, premium pricing, limited range Still Doing well in 2009

Google

Air Asia

Tata Nano

Finance Role and Strategic Planning ‘ Hope’ is not a strategy

What is Strategic Planning? Strategic Planning Variables: Research Growth Risks Stakeholders Constraints SWOT Misc. Output: Plans Priorities KPIs

What is your Goal?

Cost Reduction

Growth

Both?

Growth Strategy “ Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com

Increase switching cost

Customize products

Preempt Defections

Brand

Neutralize Competitor advantages

Superior Value

Buy market share

Spot growth opportunities

Organized search

Promising Market?

Make or Buy?

Base Retention

Share Gain

Positioning

Adjacent Market

New Business

GROWTH

Side Notes on Cost Reduction Strategy

Cost Reduction

5% - 30% 30% - 80% Business Model

USP

Profit Model

Market Discipline

Invest/Divest

Operational

Finance, HR, IT

Supply Chain

R&D

Sales & Marketing

Strategy vs. Focus Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer NPD Cycle Time Improve Edge Extensions Counter Competitor Innovation Acquire Profits Build momentum Sales Cash Flow Innovation/R&D Focus ‘Breakthroughs’ JV, In-source, Out-source Eliminate bottom 20% Improve Top 15% revenue-generating products ↓ R&D, ↑ Sales www.myCNI.com.my www.OOBEY.com

Strategy + BSC Revenue Base Retention Share Gain Positioning Adjacent Market New Business Financial Learning & Growth Internal Process Customers Cost Margin Cash Flow Asset Satisfaction

Strategy: Disciplines, Priorities, and KPIs Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)

Product Leadership

New, state of the art products or services

Risk takers

Meet volatile customer needs

Fast concept-to- counter

Never satisfied - obsolete own and competitors' products

Learning organization

Strategy: Disciplines, Priorities, and KPIs

Competitive price

Error free, reliable

Fast (on demand)

Simple

Responsive

Consistent information for all

Transactional

'Once and Done'

Customer Intimacy

Management by Fact

Easy to do business with

Have it your way (customization)

Market segments of one

Proactive, flexible

Relationship and consultative selling

Cross selling

Move know-how from top performing units to others

Benchmark against best in class

Ensure operations training for all employees

Use disciplines like TQM for continuous learning to reduce costs and improve quality

Customer Intimacy

Capture knowledge about customers

Understand customer needs

Empower front line employees

Ensure that everyone knows the customer

Make company knowledge available to customers

Product Leadership

Reduce time to market

Commercialize new products fast

Ensure that ideas flow

Reuse what other parts of the company have already learned

Ensure there are multiple sources of funding

Strategy + BSC Revenue Base Retention Share Gain Positioning Adjacent Market New Business Financial Learning & Growth Internal Process Customers Cost Margin Cash Flow Asset Operational Excellence Product Leadership Customer Intimacy Investment Strategy Satisfaction

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

already know our priorities, aware of all strategy options available

creating something UNIQUE, INNOVATIVE and DISRUPTIVE e.g. Air Asia

conducting a business Turnaround e.g. MAS

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

want to find out possible strategies,

determine our priorities first thru selection of important KPIs;

growing through ‘normal’ business, not a Turnaround.

Example: Selection of KPIs for BSC

Customer satisfaction

Customer loyalty

Market share

Customer complaints

Complaints resolved on first contact

Return rates

Response time per customer request

Price relative to competition

Total cost to customer

Average duration of customer relationship

Customers lost

Customer retention

Customer acquisition rates

Percentage of revenue form new customers

Number of customers

Annual sales per turnover

Win rate (sales closed/sales contact)

Customer visits to the company

Hours spent with customers

Marketing cost as a percentage of sales

Number of ads placed

Number of proposals made

Brand recognition

Response rate

Number of trade shows attended

Sales volume

Share of target customer spending

Sales per channel

Average customer size

Customers per employee

Customer service expense per customer

Customer profitability

Frequency (number of sales transactions)

Wrong KPIs

“ What is the moral of the story?”

KPIs and Behavior

Before: “Handle Time” Per Call

Motivated Call Centre staff to transfer callers, getting rid of complainers, making them someone else’s problem

Callers at 45% chance of being transferred

7,000 customers each week suffered transfers 7 times or more

KPIs and Behavior

After: “Minutes Per Resolution” of a problem

Resolution in ONE CALL become the core goal

Reduced probability of call transfers from 45% to 18%

Sample: Other 1 st Level KPIs across industries… Financial Services Retail Telecommunications

Maximize ARPU

Minimize Churn

Mutichannel customer service

Understand customer behavior related to customer conversion, acquisition, and retention

Single view of customer

Multichannel customer experience

Personalized customer experience

Anticipate and prevent churn despite compensation

Increase number of products per customer

Turn call center information opportunity to up-sell and cross-sell

Increase customer satisfaction and loyalty

Hospitality Travel & Leisure Manufacturing

Personalized customer experience

Maximize share of wallet

Player/customer loyalty

Multichannel customer service

Increase customer loyalty and preference

Maximize customer revenue

Improve service quality and efficiency

Capture and close sales opportunities

Single view of customers across supply chain

Zero-error order capture

Streamline opportunity to cash processes

Leverage investment in ERP and backoffice systems

Sample KPIs for Each Discipline

Price

Selection

Convenience

Zero Defects

Growth

Customer Intimacy

Customer Knowledge

Solutions Offered

Penetration

Customer Data

Customer-success focus

Product Leadership

Marketing

Functionality

# of Successes

# of Failures

Learn from key users

Interdisciplinary teams

Pipeline

Finance Role and Resource Allocation and Alignment Where did our money go?

Budgeting: Some thoughts…

Two major roles of Budgeting:

Provide real-life CONSTRAINTS to strategic planning

Provide RESOURCES to realize strategic plans

Why Constraints?

Over aggressive unrealistic planning, usually by Marketing/Sales need to be grounded to real life

Creative entrepreneurial thinking when resources are limited

Enforce the need for Accountability i.e. ‘ROI’ thinking for all Managers

E3 – Department BSC Customer Perspective – Marketing Department Budgeting Goals Strategies Targets CAPEX OPEX Base Retention Share Gain

Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources

Alignment: Framework

Focus point

Alignment

Quality

Innovation & Differentiation

Risk taking

Performance Management

Corporate obsession

Decision making

Culture

Alignment: Framework

Org Structure

Job Design

C&B

Policies & procedures

Decision making

Job fit

Management Systems

BSC and KPIs

Decentralized & Empower

Structure

Strategy: Framework

Role modeling

Vision/Mission/Philosophy

Leadership Style

Delegation & Empowerment

C&B, Promotions

Sense of Urgency

Speak regularly about Performance

Leadership

Strategy: Framework

Recognition

Recruitment

Training

Profit sharing

Values

Motivation

Self Efficacy

Awareness

Useful Competencies

Career aspirations

Attribution (control)

Person

Strategy: Framework

Enablers

Technology

Equipment

Materials

Human

Intellectual Property

Partners

Property

Funding

CAPEX

OPEX

Resources

Product Leadership

Each Discipline Requires Different Priorities & Resources Operational Excellence Customer Intimacy Organization, jobs, skills Management systems Information and systems Culture, values, norms

Each Discipline Requires Different Priorities & Resources

Central authority, low level of empowerment

High skills at the core of the organization

Disciplined Teamwork

Process, product- driven

Conformance, 'one size fits all' mindset

Integrated, low cost transaction systems

The system is the process

Command and control

Quality management

Organization, jobs, skills Management systems Information and systems Culture, values, norms

Product Leadership

Ad hoc, organic and cellular

High skills abound in loose-knit structures

Concept, future-driven

Experimentation and 'out of the box' mindset

Person-to-person communications systems

Technologies enabling cooperation

Rewarding individuals' innovative capacity

Risk and exposure management

Product Life Cycle profitability

Each Discipline Requires Different Priorities & Resources Organization, jobs, skills Management systems Information and systems Culture, values, norms

Customer Intimacy

Empowerment close to point of customer contact

High skills in the field and front-line

Customer-driven

Variation and 'have it your way' mindset

Strong customer databases, linking internal and external information

Strong analytical tools

Customer equity measures like life time value

Satisfaction and share management

Focus on ‘Share of Wallet’

Strategy + BSC Revenue Base Retention Share Gain Positioning Adjacent Market New Business Financial Learning & Growth Internal Process Customers Cost Margin Cash Flow Asset Operational Excellence Product Leadership Customer Intimacy Investment Strategy Competencies Information Systems Motivation, empowerment, alignment Satisfaction

Budgeting in a Downturn

StratEx

CoREx

Linking the Finance Role with Sales & Marketing Building relationships for the good of the company

Typical Corporate Planning Scenario?

Budget ‘top down’ – no questions asked

Only two budget goals – revenue, expenses

The only planning we needed to do was “do better than last year”

Planning was ‘bottom up’ - compilation of plans within set budget

No one knew what the other was planning

FAC’s role was only to compile budget for approval

KPIs were not used

Sales was resource priority, everything else not important

Assumed no major changes in market

R&D was ‘bottom up’

At the Table Sales and Marketing Finance and Accounts

Field Intelligence

CRM

Growth (organic)

Lagging KPIs

Adaptability

Channels

1 st Level Branding

Stakeholder Interest: Customers

Gut Feel/Instincts

External Intelligence

Ratios

Leading KPIs

Control/ Constraints

Resource Mgmt

Stability & Systems

Pyramid roles

Containment

Shareholder Interest: Shareholder

Linking the Roles Sales and Marketing Finance and Accounts

Four Links:

Philosophy

Business Model

KPIs

Resource Allocation

Philosophy

“ In business after business, 60% to 80% of lost customers reported on a survey just prior to defecting that they were satisfied or very satisfied .”

HBR March/April 1996 www.myCNI.com.my www.OOBEY.com

Business Model USP Market Discipline Profit Model

Sample KPIs for Each Discipline

Price

Selection

Convenience

Zero Defects

Growth

Customer Intimacy

Customer Knowledge

Solutions Offered

Penetration

Customer Data

Customer-success focus

Product Leadership

Marketing

Functionality

# of Successes

# of Failures

Learn from key users

Interdisciplinary teams

Pipeline

Budgeting & Resource Culture Business Model Strategic Planning

Funding

CAPEX

OPEX

Structure Person Leadership Resources

End Notes Tying it all up

Problems, problems and more problems…

“… in the past 18 months, we have heard that profit is more important than revenue, quality is more important that profit, people are more important than profit, customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our performance is inconsistent"

CEO, Anonymous www.myCNI.com.my www.OOBEY.com

Don’t forget…