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Plus:Nuclear – where thepower lies p148 ways to be a greatproject manager p36Blowing through

whistle-blowingp50

FinancialManagementwww.fm-magazine.com • May 2012

Why employee-owned businesses are thriving

How predictive analytics can drive your business forward

Robin Pagnamenta of The Times on India’s economy

Making theright playHMV Canada’s CFO Harvey Berkley

on why his business is thrivingat a time when global specialist

retailers are taking a hit

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3Financial Management | May 2012

It’s time to take the long view on businessethics. It’s no coincidence that the first

theme in our new series of CIMA/AICPAdiscussion topics is business ethics, andhow it can add value to organisations. Busi-ness ethics is often referred to as “doing the

right thing”. CIMA likes to complete this phrase withthe words: “even when no one is looking”. To me,this strikes at the heart of the issue.

In my February column, I made the point thatethics must be embedded into the DNA of an organ-isation if it is to have any real value. It is CIMA’scontention that good leaders make it their dutyto understand the particular ethical challengesan organisation might face and how they can beaddressed. Once these priorities are identified,metrics can be put in place to ensure improvementcontinues in the long term.

But worryingly, a new CIMA/AICPA study indi-cates that there is currently quite a gap between therhetoric and the reality. A global survey of almost2,000 CIMA members, students and AICPA mem-bers found that while 80 per cent of our members’employers now have a code of ethics in place, only36 per cent are actively monitoring and evaluatingperformance. More worrying still, it appears thatbusiness leaders are less likely to be actively engagedin reviewing and taking responsibility for ethicalperformance than they were at the time of our

previous survey, in 2008.A weakened “tone from the top” has serious impli-cations for the overall ethical culture of the organisa-tion. A change in direction is critical – particularlybecause our analysis also revealed that manage-ment accountants are feeling pressure from all sides.

On the one hand, our members are telling us thatthey are being asked to pay more attention to ethicsthrough an increase in ethical codes, training andoverall “ethical framing”. On the other, they are tell-ing us that there is greater pressure within organi-sations to act unethically. (This view has risen from28 per cent in 2008 to 35 per cent in our most recent

survey.) These pressures are at their greatest inemerging economies where there is the most compe-

tition – and perhaps more temptation to cut corners.We believe that CIMA members have a key role

to play; not only in drawing on their training andunderstanding of professional ethics, but criti-cally, in obtaining, analysing and acting upon theinformation that will help guide their employers toongoing success.

Risk assessment and compliance have becomelarger functions, yet instilling a strong ethical cul-ture across the organisation as a whole is what’sreally needed. It is encouraging, therefore, that morethan 90 per cent of our survey respondents acknowl-edged that they have a role to play in contributingto managing ethical performance.

Businesses operating in difficult working environ-ments should also consider collective action withsimilar-minded organisations in order to coun-ter external pressures on the business. The posi-tive effects of such an approach are self-evident. Asmore organisations challenge and address unethi-cal behaviour from suppliers and customers, bothinternally and externally, the more potential thereis to change operating environments and to levelthe playing field.

The increase in the use of non-financial infor-mation, and the growing emphasis on the value ofintegrated reporting, are being recognised by lead-

ing companies as key contributors to assessing acompany’s present and future position. Central tothis is the transformation of data into knowledge.I would maintain that management accountantshave the skills to support this approach by gather-ing and understanding ethical performance infor-mation and upholding ethical conduct througheffective governance across a range of business-critical activities.

Clearly, CIMA members can provide the ethi-cal backbone that is essential if organisations inboth the public and private sectors are to enjoy sus-tainable success through the difficult years ahead.

Harold Baird, FCMA, CGMACIMA president

A word from the president

I l l u s t r a t i o n : M a s a o Y a m a z a k i / D u t c h U n c l e

‘While 80 percent of our

members’employers havea code of ethics,only 36 per centare monitoringperformance’

Doing the rightthing, even whenno one is looking

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4

At a glance

Front 3-18

Features 20-37

A word from the presidentHarold Baird – p3Update p9–13 Digest of the latest

developments in managementaccountancy and beyond.Hot potato Your ethicaldilemmas resolved. Book inbrief The Art of Action: How

Leaders Close the Gaps Between

Plans, Actions and Results.App of the Month Turboscan.Learn from... KarmaLoop

I work at...

Tata Steel – p6The data

Proliferation of power stations – p14Forum

Blogs, polls and discussion – p16

OpinionRobin Pagnamenta of The Times onIndia’s economy – p18

CIMA is the

Chartered Institute

of Management

Accountants

26 Chapter Street,

London SW1P 4NP

020 7663 5441

www.cimaglobal.com

President

Harold Baird FCMA, CGMADeputy president

Gulzari Babber FCMA, CGMA

Vice president

Malcolm Furber FCMA, CGMA

Chief executive

Charles Tilley FCMA, CGMA

Financial

Management

is published for CIMA by

Seven,

3-7 Herbal Hill,

London EC1R 5EJ.

Tel: 020 7775 7775.

[email protected]

Group editor

Jon WatkinsEditor

Lawrie Holmes

Group art director

Simon Campbell

Junior designer

Josh Farley

Creative director

Michael BoothEditorial director

Peter Dean

Chief sub editor

Steve McCubbin

Senior sub editor

Graeme Allen

Harvey Berkley, CFO of HMV Canada – p20

Shared successWhy employee-ownedbusinesses are thriving – p26

Looking to the future How predictiveanalytics can drive performance – p32

Prime number Income tax rates – p35

8 ways...

To be a great, and efficient, projectmanager – p36

20

36

32

Financial Management | May 2012

J o s e f H o fl e h n e r / G a l l e y S t o c k

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Study notes 39-49

Technical 50-55

Back 56-66

A look at the...

Business processes Mastercourse – p56CIMA global events

Highlights of the internationalcalendar– p60The Institute

CIMA announcements, plus thelatest from CIMA Ethics – p62CIMA CEO column

Charles Tilley – p65CIMA versus... – p66

Most organisations, especially corporates, are comingunder pressure to deliver results in an ever tougher,more competitive environment. But this increasinglytough environment is also inspiring a whole newapproach to how firms should operate, adapt strategy,and employ better systems to understand how theworld is changing.

Our cover feature looks at the relative success ofemployee-owned businesses, compared to their

traditional peers, around the world, be they stock-market listed entities in the West or state-owned inChina. Although the models may differ, thesecompanies show that a workforce with more interestin the company’s success is likely to work harder toensure continued high levels of performance.

Also in this issue, Harvey Berkley, FCMA, CGMA,CFO of HMV Canada, reveals how the group is usinginnovative new techniques in a fast-changing world

dominated by the arrival of digital technology.Meanwhile, our feature on predictive business

analytics looks at the skills, technologies, tools andprocesses for continuous analysis of past businessperformance to gain forward-looking insight and drivebusiness decisions and actions.

Lawrie Holmes

Please send your comments and ideas [email protected] or join theFMfeedback group on CIMAsphere atwww.cimasphere.com/groups

Head of pictures

Martha GittensPicture editor

Nicola Duffy

Senior picture researcher

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Rachael StillwellBusiness development

director Tina Hanks

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Email: Andrew.Walker@

seven.co.uk

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© Seven

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Steve Carty

The contents of this publication are subject

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Editor’s note

Using ASAP to tackle scenario-based

questions; the annualised equivalent

method; and environmental reporting

The legalities of whistle-blowing laid

out in simple terms; and the transition

from spreadsheets to new systems

www.cimaglobal.com

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J o s e f

H o fl e h n e r / G a l l e r y S t o c k

As financial controller at Singapore-based Tata SteelInternational, I was tasked with improving efficiencyfor the operations department. This was also part ofa plan to improve customer service and consolidatewarehousing in the South East Asia steel industry.

Along with Andrew Heycott, Tata SteelInternational’s general manager for South East Asia,we signed a third-party logistics agreement with TollGlobal Logistics to help streamline the warehousingand shipping of steel-related materials to customers.KPIs, which included delivery on time, stock

accuracy and health and safety, was of paramountconcern, and were reviewed quarterly, with theproject being implemented by adhering strictly tothe group’s legal framework.

Key to its success was Toll’s commitment todelivering on the project in the areas of warehousingmanagement systems, port clearance, customsdocumentation and inventory management service.By outsourcing the logistics division, we were able tosave a substantial amount of manpower time, whichcould be diverted to other core competencies,therefore increasing efficiency levels while achievinga better order fulfilment rate. Most importantly,the new operations model has helped us to achieve

a high level of accuracy in stock records and hassignificantly improved on-time deliveries tocustomers since it began in 2011.

We began by evaluating the core benefits ofoutsourcing. The outsourcing arrangement hasalways delivered benefits to the company. We are farmore focused on what we are good at – selling andmanaging the projects – instead of allocating limitedresources on logistics. Streamlining has alsoincreased customer satisfaction over the past twoyears. To date, return on investment for theoutsourced operations has achieved the target setby the group, which I am very proud of.

My CIMA qualification ensured that I was wellequipped when it came to evaluating potentialthird-party providers’ solutions. We spent a fair bitof time debating the costs and benefits. Myqualification has enabled me to be more receptiveto ideas and viewpoints, and has given me theconfidence to express my opinions at the table.

I worked on …achieving hugeefficiencies through

outsourcing

7

Name:Kevin Io,ACMA, CGMA

Organisation: TataSteel International(Singapore) Pte Ltd

Location: Singapore

CIMA qualified:February


Start date June End date December

i

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Update

Most global businesses wantto connect talent decisionswith business outcomes, butfewer than half do.

That was one of thefindings from the “SHL 2012Annual Global AssessmentTrends Report”.

The report analyses howorganisations measure talentthroughout the entireemployee life cycle andsurveyed nearly 500 HRprofessionals from 37

countries around the globe –gauging their views on talent

assessment practices, goalsand challenges with currentworkforces and new hirecandidates alike.

The survey revealed that

while leadership andemployee engagement haverisen to the top of the prioritylist, organisations see muchless value in employeedevelopment programmes– with only one-third ofrespondents considering it apriority, and even fewer usingit as a retention strategy.

Additionally, while themajority of organisations sawthe value in using talentmeasurement data to inform

business decisions, manylacked the know-how to apply

Recruiters failingto considerbusiness outcomes

it to achieve quantifiablebusiness outcomes.

“Our ‘Trends Report’ hasshown that as the economycontinues its recovery,

organisations are recognisingthat their attraction andretention of top talent is whatwill propel them to the top oftheir newly reformed marketlandscapes,” said David Leigh,CEO of SHL.

“This may seem obvious intheory, but it’s proving to bedifficult in practice.

“While these organisationsaspire to make the bestbusiness decisions based onkey talent measurement data,

many lack the ability to doit effectively.”

The number of women on

the boards of FTSE 100 firmshas risen in the past year,

but still stands at just 15 per

cent of all board members.

The figures, which were

in the annual “Female FTSE

Index and Report” from

the Cranfield School of

Management, represented

a three per cent increase in

the number of female board

members from 2011. Of the

190 appointments made to

FTSE 100 boards in the past

12 months, 47 were women.

The report came as

Lord Davies delivered an

update on firms’ progress

towards meeting his

recommendation in his

2011 report, “Women on

Board”, that 25 per cent

of FTSE 250 directors

should be women by 2015.

For FTSE 100 companies

this target was regarded as

a minimum goal.

Lord Davies’ updaterevealed that 11 all-male

boards remain in the

FTSE 100, down from 21.

However, the number of

all-male boards in the FTSE

250 was 112, accounting

for 44.8 per cent.

The update also showed

that 53 female

appointments were made

within the FTSE 250 in the

past year, meaning women

now account for 9.6 per cent

of all directorships – upfrom 7.8 per cent.

UK female boardmembers up –but shy of target

G e t t y

I m a g e s

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Cost: .

Category: Business

Updated: January

Current version: ..

Size: MB

Languages: English,Russian

Developer: Tania Sulimov

Compatible devices:iPhone, iPod Touchand iPad

System requirements:iOS . or later

Our guide to the best online tools

Turn your device into a multi-pagescanner for documents, receipts, notes,whiteboards, or any other hard-copydocuments, allowing you to email them

as multi-page PDFs or Jpeg files fromwherever you are. Turboscan also allowsyou to search the documents.

Update

Now on

CGMA.orgFor CGMAs, the followingcontent is now availableonline:

lGlobal economic outlook:CGMAs grew a little moreconfident in the first quarterabout global economicconditions, according to theinaugural CGMA GlobalEconomic Outlook Index, anew quarterly snapshot of

AICPA and CIMA members.The survey revealed somesignificant regionaldifferences in expectationsand optimism. See what’sworrying executives andwhich industries are themost and least optimistic.Visit http://tinyurl.com/89x43zg lTreasury in the spotlight:The global financial crisistransformed corporate

priorities, pushing financialrisk management high upthe list. In turn, this shift hasraised the profile of theexecutive who is oftenresponsible for managingthat risk: the corporatetreasurer. Two financialexecs offer their views on thetop priorities for the treasury

i

G a l l e r y S t o c k

function, how the culture oftheir organisations has

changed since the financialcrisis began, and theirrelationships with theirbanks, among other things.Visit http://tinyurl.com/748olga

lRisk management providesnew opportunities for internalauditors: Business leaderswant more involvement frominternal auditors in the effortto manage risk. See whatexecutives, audit committee

chairs and board memberssaid about the internal auditfunction, where they thinkinternal auditing should putits risk focus and whatbarriers might preventinternal audit staff fromtaking a more strategic role.Visit http://tinyurl.com/d44ff43

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12 Financial Management | May 2012

I am a management accountantworking for a privately ownedengineering company.

While the finance director

is on leave, I am in charge ofthe finances.

may have on the year end.What are the internal policesin this regard?

If there is no writtenauthorisation from the otherdirectors this is somethingyou could query – and thendocument.

In this situation you needto be sure that you areupholding your objectivity(Section 12), your obligationswith regard to preparationand reporting of information(Section 320), and bear inmind any threats andsafeguards (Section 100.12).

For the code and otheronline ethics resources,

Update

visit www.cimaglobal/ethicsTanya Barman, head of

ethics, CIMA

DisclaimerCIMA does not providelegal, investment,professional or careeradvice. No responsibilityor liability whatsoeveris accepted for any error,omission or mis-statement(whether or not arisingout of negligence) or forany loss or damage sustainedas a result of reliance on

information supplied orcomments made.

Hot potatoThis month’sdilemma:

The managing directorhas a director’s loan accountand has asked me to make

transactions on it, some ofwhich are prior to the year end.He has said this has been

agreed by the other directors.I do not feel comfortable

authorising this and also feelthat it will not reflect well onour year end.Our response:I suggest you refer to theCIMA ethical checklist andconsider all affected partiesand whether you are obligedto keep them informed.

You might also want toconsider what impact this

CIMA member scoopsinnovation award

A CIMA member has picked up

a prestigious inventors award in

London.

Benjamin Redford won the Ideal

Home Show’s 2012 Ideal Home

Inventor Award for his creation – the

Olly – a robot that can produce smells,

such as strawberry or lemon, when you

get a Facebook mention, or your

partner’s perfume or aftershave when

they message you on Facebook.

Speaking at the awards, he said:

“We’re probably going to create a few

more web-connected objects. For

example, the Molly, which will turn

retweets into sweets so it can give you

Maltesers, Skittles or any sweets you

like. We’re probably going to put that

into production as well as the Olly in the

next few months.”

The gadget beat nine other

contenders for the award, including

a motion sensor that can monitor

elderly people living on their own, a

personal “perceptual pod”, and a new

freestanding microwave.

The Ideal Home Show, which has run

for 104 years, has previously featured

gadgets that we now take for granted,

including the vacuum cleaner.

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Executing strategy effectivelycan be a challenge for thoseleading the way in all manner

of sectors. Stephen Bungayoffers a fresh, practicalapproach to strategy,communication andleadership, encouragingpeople to practise a few simplethings that really make adifference. Here’s a synopsis:

Book in brief The Art of Action: How

Leaders Close the Gaps

Between Plans, Actions

and Results

By Stephen BungayVerso Books£20

Update

I l l u s t r a t i o n : D e n i s C a r r i e r / D u t c h U n c l e

, L u c a s V a r e l a / D

u t c h U n c l e

. P h o t o g r a p h y : G e t t y I m a g e s

. Executing strategy is anenduring managementproblem.

. There is often a significant gapbetween what managers plan,what they do and the outcomethey achieve.

. Bungay finds a fresh approachfrom an unexpected source – theth-century Prussian Army.

. His solution is based not ontheory, but on sets of practicesthat have evolved over manyyears in the fast-moving,unpredictable environmentof the battlefield.

. In outlining these, hesets the focus on how toset direction, how to agreewhat people needto do to realise theirobjectives, and howto enable them to besuccessful in thecomplex, dynamic

arena of modernbusiness.

Global pay risesin the spotlight

Pay rises across Europe’slargest economies are set toaverage around three per centin 2012, a significantly lowerincrease than in other regions.

The figures were revealedin a survey by TowersWatson Data Services,which suggests that outsideWestern Europe, salaryincreases are likely to bemuch more significant.

Russian companies expect

to grant increases of ten percent on average, against aninflation rate for 2012 of5.9 per cent. Among Middle-Eastern respondents, SaudiArabian companies areincreasing salaries slightlyabove this rate, while SouthAfrican employees will seepay increase by an averageof 7.5 per cent.

For employees in the UK,a three per cent rise would bea little higher than the rate of

inflation, currently running at2.9 per cent. However, due tolower rates of inflation inGermany, France and Spain,such an increase would feelmore significant.

“We are continuing tosee many of the developing

Most attractivecities revealed

Although the so-called“emerging economies” areclosing the gap on Europeand the US, when it comesto attracting capital,businesses, talent andtourists, the US and WesternEurope are still ahead of thecompetition.

The “Global CityCompetitiveness Index”,a new report from theEconomist Intelligence Unit

(EIU), says that while therehas been much concern inthe West about the impact ofthe financial crisis, it has notsignificantly reduced theiroverall competitiveness. Andwhile cities in emergingeconomies such as Chinarank highly in terms of thespeed of their economicgrowth, they lack the abilityto attract talent.

New York (1st) and London(2nd) remain the world’s two

most competitive cities, thereport found, while Singapore(3rd), Paris and Hong Kong(joint 4th) completed the topfive. In total, cities from theUnited States and WesternEurope account for 24 of thetop 30 cities.

nations increase pay bydouble or even triple the rateof European economies,”

said Paul Richards of TowersWatson’s Data ServicesPractice. “This trend is likelyto continue where inflationis high and/or where thedeveloping economies growand living standards rise.”

The survey also revealedthat 80 per cent of UK,German and Frenchcompanies expect high-performing staff to receivea larger proportion of salaryincrease budgets in 2012.

Learn from...KarmaLoop

When Greg Selkoe started his onlineclothing company, he gathered all themoney he could from friends and familyto launch, but there was nothing left overfor advertising. So Selkoe decided to paycustomers who successfully referred othercustomers – and designate them as“representatives” for the company. Uponsigning up, customers received a “repcode”. If he or she got someone else tomake a purchase, the rep received five percent of the sale. The programme only costthe company when it worked, making itcost-efficient. Within a few months,

representatives were driving about20 per cent of the website’s total sales.

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Financial Management | February 201114

The DataGlobal proliferationof nuclear power

stations

Going nuclearThere are currently 435 nuclear power plant units with an installedelectric net capacity of about 368 GW in operation in 31 countries,and a further 63 plants under construction in 15 countries withan installed capacity of 61 GW. By the end of 2010, the totalelectricity production since 1951 amounts to 67,240 billion kWh.The cumulative operating experience amounted to 14,745 years byFebruary 2012. Although the US, France and Japan have the most

reactors, it is the BRIC countries of China, Russia and India that arecommitted to building the most new reactors as of February 2012.

Key

France

UK

Numberof nuclear

reactors: 58Number being

built: 1

SpainNumber

of nuclearreactors: 8

Number beingbuilt: 0

BelgiNumb

of nuclereactor

Number bebuil

Numberof nuclear

reactors: 19Number being

built: 0

USNumber of nuclear

reactors: 104

Number being built: 1

Canada Number of nuclear

reactors: 18Number being built: 0

Number ofnuclearreactors

Numberbeing built

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Financial Management | February 2011 15

W o r l d

m a p : i S t o c k p h o t o

Source: European Nuclear Society

(February 2012)


UkraineNumber of nuclearreactors: 15Number being built: 2

China

Number of nuclearreactors: 16Number being built: 26

Sweden

Number of nuclearreactors: 10Number being built: -

JapanNumber of nuclearreactors: 50Number being built: 2

TaiwanNumber of nuclear reactors: 6Number being built: 2

South Korea Number of nuclear


IndiaNumber of nuclear


RussiaNumber of nuclearreactors: 33Number being built: 10

ermanyumber ofuclear

actors: 9umber beinguilt: -

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16

cash flows, or reduce debt.Subsequently, the differencerelates to the fact that EVAignores future cash flows,whereas SVA takes theseinto account.

Forum

From the

blogs

Poll of the month

You asked…

We asked…

In our CGMA report on ethics,our members and studentsaround the world reported thathuman rights had risen inimportance as an issue ofpriority for business.Reflecting this, March saw thelaunch of the Children’s Rights

and Business Principles.As a joint venture between

the United Nations GlobalCompact, UNICEF and Savethe Children, the Principlesresulted from wideconsultation with business,government and civil societyglobally, and will be rolledout across the world. Coveringa wide range of issues, thePrinciples identify actionsthat all business should taketo prevent and address

adverse impacts connectedwith their activities, andmaximise positive impactson children’s lives.

At the launch event inLondon, the big influence thatcompanies have on the livesof children was highlighted.Businesses everywhere areunder increasing scrutiny todo no harm, against abackground of a growingdemand from shareholders,

customers and employees forcompanies to have high

Both techniques come underthe general umbrella ofvalue-based management.

EVA is an internal measurethat highlights the increase inwealth to the shareholder byinvesting in the organisation’sshares. It uses adjustedafter-tax profits, less adjustedcapital invested, times bythe weighted average cost

of capital.Shareholder value analysis

Send in your ownqueries to [email protected] will ask a specialist

or tutor to providea response

identifies the “businessvalue”, defined as the presentvalue of future cash flowspotentially available tobecome dividends, plus anyinvestments or securities theorganisation can sell for cashwithout impairing itsperformance, less any debts.Therefore, to increaseshareholder value,

management should improvethe present value of future

What is the maindifferencebetween EVA(earned valueanalysis) and SVA(shareholdervalue analysis)?

Do you consider cybercrime a threatto your organisation?

A new way ofdoing business

standards. Impacts onchildren and youth are ata range of levels – children

themselves may be customers,they may be employees or theymay be affected directly by theproducts created. Or they maybe impacted by family life. Forexample, parents working farfrom home, or for low wages inunsafe conditions, or workinglong hours.

Companies with complexsupply chains across manymarkets need to understandthat the issue can be biggerthan one company alone can

tackle – and solutions aren’t assimple as just forbidding it.Collective action, and workingtogether with like-mindedorganisations andgovernments, can makepositive changes, withchildren’s welfare in the longterm the focus.

Speaking at the launchevent, a leading retailerheadquartered in the UKexplored many of these issuesin relation to the workers in

the garment industry inDhaka, Bangladesh. Throughits work there, the companylearned it was important toshare knowledge with othercompanies working in similarindustries in relation to health,education, and safeguards infactories. Due diligence wascritical for this company, aswell as learning that its impactwent further than theimmediate business activity.

By understanding andresolving issues, it


Source: Survey on fm-magazine.com, 2012 (Figures exceed 100% due to rounding up)

A major threat: 56%

A minor threat: 39%

Not sure: 3%

to have the opportunity todevelop skills and progress.

When investing in youngpeople and their families,businesses are ultimatelyinvesting in the widercommunity – a better skilledworkforce and a moreprosperous consumer base.

Good businesses attract betterpeople to work for them. Andgood business practices meansustainable returns.

A young person fromBangladesh is quoted assaying: “Children work at anearly age in many countries.Businesses should take theinitiative for establishing atraining institute, so childrencan get skill-based training/education.”

Sandra Rapacioli, R&D manager, CIMA

strengthened the efficiency ofits local operations – so in turnit had a clear financial return.

A representative of theChina National Textile andApparel Council spoke abouthow it had arranged forworkshop sessions for youngmigrant workers to better

understand their views andneeds. There may be a startling240 million migrant workersin China. Up to 100 million areyoung people, many of whoseparents may have beenmigrant workers before them.

This second generation hashigher expectations andaspirations, which companiescan leverage. A common viewamong children and youngpeople globally was the need

to be respected, and forbusiness to be fair – as well as

No threat at all: 3%

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18

Opinion

RobinPagnamentaSouth Asian correspondent, The Times (of London)

Adrubbing at the polls in March for

India’s ruling Congress party was ahumiliation for Rahul Gandhi, theyoung prince of the country’s rulingdynasty. And it could turn out to beeven worse news for India’s economy.

Under the party’s watch the country’s GDP grew bya disappointing 6.1 per cent in the final quarter of 2011,its weakest rate of growth in three years and a far cryfrom the eight to nine per cent being trumpeted by thecountry’s government as possible a year ago.

Despite offering to dish out food subsidies to nearlytwo-thirds of the country’s population, the current gov-ernment will be remembered better for a string of cor-ruption scandals, in which elected politicians have beenaccused of some astonishingly brazen acts of graft –including allegations of kickbacks for 2G mobile phonelicences running into hundreds of millions of dollars.

But electoral defeat in a string of states, including thePunjab, Goa and Uttar Pradesh – India’s largest with 200million people – is unlikely to help deliver better eco-nomic results any time soon. India’s electorate, whileclearly frustrated with its political class, does not appearto be speaking with a coherent voice for change. Instead,Congress and its main opposition party, the BJP, areboth losing ground to a plethora of smaller, regionalparties – often with narrow local mandates and agendas.

What will this mean in practice for India’s future?

In all likelihood, an even weaker government in anation that is crying out for strong leadership – and anadministration even less equipped to deliver some longoverdue economic reforms.

Last year, one of the more embarrassing moments forCongress was its disastrous attempt to push through abill designed to unlock the nation’s $550bn retail sectorto foreign supermarkets such as Tesco and Wal-Mart.

What had been billed as a historic reform designedto catapult India’s high streets into the modern era (andstop one-third of the country’s fresh produce rottingbefore it reaches consumers by boosting investmentin proper transport and refrigeration), instead endedup backfiring spectacularly.

In the face of fervent opposition from a rag-tag coali-tion of smaller parties and political showmen – one of

whom promised MPs she would torch the first Wal-Mart

store that opened in her state – Congress was forced todump the plan unceremoniously a few days later.

Ever since, Congress has tried to maintain theimpression that it plans to return to the reform of India’sretail sector – a change that has been talked about nowfor a decade. But after the polls in Uttar Pradesh, forgetabout the prospect of foreign direct investment in retailbeing passed any time soon.

Forget, too, any idea that Congress will manage topush through ambitious planned reforms in India’spension and aviation industries, its land acquisitionand tax laws – all changes that are urgently requiredto kick-start growth.

Instead, India appears to be heading for a periodof chronic political constipation. With a gen-eral election not due until 2014, a weakenedCongress will now have to stagger on, nego-tiating with an ever more complex coalitionpatchwork of smaller parties and politicians

to get anything done. With this in mind, and against abackground of slowing global growth acting as a dragon exports, the prospect for a quick return to India’sboom time of a few years ago looks remote.

Of course, there is a danger of overstating the gloom.Setting aside its political woes, as an economic powerIndia still has big natural advantages – not least the

sheer size and youthfulness of its swelling population,which is driving a consumption boom, and the natu-ral dynamism of its best entrepreneurs – companiessuch as Tata, Infosys, Mahindra and Reliance, whichare exerting growing muscle on the world stage. India’scentral bank also looks poised to offer some relief thisyear by starting to trim interest rates that have chokedgrowth. Nevertheless, taken as a whole, India’s growthstory still looks hamstrung by its feeble political class,whose failure to grasp the opportunity presented tothem is as frustrating as it is tantalising.

Unlike in Europe and the US, there is no questionthat, with the correct reforms, India’s tiger economycould easily roar again. The question is whether its poli-

ticians have the will to allow it do so. At the moment, itappears they probably don’t.

‘India’s tiger economy could roar again, but the question iswhether the politicians have the will to allow it to do so’


‘Though cryingout for strongleadership,India still has

big naturaladvantages’ G

e t t y

I m a g e s

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Photography bySteve Carty

Q&A

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How did you get started in your career?After graduating, I began my career at the UK

headquarters of cosmetics group Avon, where I firstworked as a reporting financial analyst. During thattime, I became interested in a career in managementaccountancy after completing a course in businessstudies at Manchester Polytechnic. I specialised inaccounting, which then led to the desire to pursuea career in accountancy.

I had decided already against becominga chartered accountant, feeling I was more suited toa focus in industry and commerce. As a result,I found the CIMA qualification suited the pathI wanted my career to follow. It gave me an overviewof business operations as a whole, and how to beinfluential within that business.

How did you find your way to North America?After leaving Avon, I moved into a role as amanagement accountant at Sony manufacturingand distribution. During this time, I decidedI needed additional experience in other firms.I moved to Thorn EMI Security, just as it hadtransformed into a larger conglomerate, whereI worked as a divisional accountant.

While at Thorn, I saw an advert for a managementaccountant role at HMV UK. Once hired, I had the

opportunity to work in three different countries,something I had always wanted to do. First, at theage of 29, I moved to New Zealand following myappointment as finance director of HMV’soperations in that country. I was there for two years,returning to HMV’s corporate office to take up a rolein business development, which entailed supportingthe development of the overseas businesses. This ledto a position in business development in the US,where I was vice-president, finance, based inStamford, Connecticut.

You were heavily involved in HMV’s US rollout.What happened?

We established the US business based on severalpreconceptions. We felt we could roll out a USfranchise in the same way that we had successfullydeveloped the model in the UK. The US market for“physical” music was still in growth mode at thattime, with significant specialist competition.We felt we could deliver a better offering than thecompetition that existed in the market.

We looked at many opportunities to acquire newphysical locations from 1993-98, but our arrival wasduring the peak of real estate prices in the country.We were aware of the market opportunity, butunfortunately less aware of the overall marketplace.

We had opened new locations in many of the mostcompetitive US markets, including New York, partlybecause we had experienced success in the majorcities in the UK.

Harvey Berkley, FCMA, CGMAChief financial officerof HMV CanadaInterview by Lawrie Holmes


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Q&A

23

We compared the British market to the US, butdidn’t fully understand the differences in size anddensity of the US market. As a result, we ended uppursuing too many real estate deals in too manymarkets. At one point, we had 24 stores in the US, allon the east coast. When market conditions evolvedunfavourably, we were forced to exit the market.Subsequently, I was offered the opportunity tobecome the VP, finance and managementinformation systems, for HMV North America.

How did you end up in your current position?Part of my new role was as vice-president of finance

for Canada. At the same time, I was continuingto focus on our exit from the US marketplace.Once that was complete, I then became CFO ofHMV Canada.

From 2000 onwards, I was fully involved with theCanadian business, which had approximately 90locations in Canada when I began. Our plan was toincrease coverage to somewhere between 125 and140 sites. At this time, there continued to be plentyof opportunities for expansion, as Canada was still asolidly performing market that focused on physicalmusic sales.

Internet retailing had yet to fully develop here inthe way other countries had by this time, partly

owing to shipping costs in a large and less denselypopulated country. Traditionally, Canadians are

more comfortable to search for goods on theinternet, yet the actual purchase would be at thephysical retail location. As a nation, Canadians aresome of the biggest users of the internet, yet remainless interested as online purchasers.

What were the threats that led to the sale of HMVCanada to Hilco last year?Changes in the UK marketplace began about threeyears ago, when both revenue and profits wereaffected by increased competition by “big boxretailers” such as Wal-Mart, Best Buy and Tesco.Specialist retailers, such as HMV, had difficulty

competing on price, resulting in the need to adapt,for example, creating stronger relationships inthe supply chain. At the same time, more peoplebegan to use the internet for purchasing theirentertainment. The differences between the UK andCanadian marketplace made the sale advantageous,as the Canadian operations had a differentexperience in our local marketplace.

What does your real estate role entail?The biggest part of my job is all about networking,it’s much more about going out and meeting people.Effectively that means being a part of leading thecharge for the business. The Canadian retail

marketplace continues to evolve, and we’veundertaken a programme that looks at our retail

‘Changes to theUK marketplacebegan aboutthree yearsago, whencompetitionincreased’

‘A big part of myjob is networking,which effectivelyleads the chargefor the business’

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24 Financial Management | May 2012

footprints in all markets across the country in thelast year and a half. The key to this role in anevolving market is being able to share our news thatthis business continues to have a strong, healthy lifecycle and make HMV Canada a key part of their salesand marketing plans.

A good example is in our mall locations – as anentertainment retailer we offer the opportunity for

good foot traffic for all tenants. Were HMV Canadato exit a particular location, the traffic forentertainment products would likely disappear fromthe mall environment and migrate to big box retail.

How are you preparing for new opportunities?It’s very important to continue to innovate,especially in an industry that’s evolving.Continuing to maintain profitability is the greatestchallenge we have had, and we’ve managed to keepthe Canadian business successful.

We believe emerging technology is the focus forthe business – we are in the process of developingour own digital streaming service. We need to take

full advantage of the opportunities from the 35million customers coming into our stores every year.

What area of financial management are youmost focused on?

Now that we are no longer part of the original parentcompany, there is more flexibility to beentrepreneurial, as we no longer need the approvalwe once did for major decisions. To continue beingsuccessful, we have discovered that it is all aboutcash management, i.e. managing cash and workingcapital. We introduced a well-controlled cashforecasting tool, which we manage on a weeklybasis. It allows us to keep a careful eye on every partof the business, concentrating on EBITDA and PBIT.

How helpful was your qualification?The CIMA qualification provided me with theopportunities I’ve experienced. With a more

rounded view of an organisation, it makes it mucheasier to have an understanding of things across allchannels. I’ve also had the good fortune to haveworked in four different countries. Charteredaccountants, by contrast, are a little restricted.

Having the CIMA designation has given me the toolsto deal with a multitude of challenges. Also,studying for the qualification while you’re workingprovides a good work ethic.

What advice would you giveto CIMA members?In terms of working in retail and entertainment,

which my role combines, the most important thingis that you need to be passionate about what you’redoing and why you’re doing it.

I don’t think you necessarily have to have thesame enthusiasm for working in other businessenvironments. You have to like the product, thatgoes without saying. I’m a big music fan obviously,with an interest in 80s/90s bands such as U2and Coldplay.

My other piece of advice would be to work inoverseas locations whenever possible. It enhanceswhat you do and how you do it, develops you andmakes you a better person. The only thing I reallymiss about life back in the UK is watching

Manchester United play, so I go to Old Trafford towatch a match whenever I get back.

Q&A

: Joins Avon asEuropean reportingand planning analyst.

: Becomesassistant managementaccountant at SonyUK.

Moves to ThornEMI Security asdivisional accountant.

: Joins HMVUK as financialaccounting manager.

: Transfers toNew Zealand HMV tobecome chief financialofficer.

: Back to HMVin London to take uppost as internationalbusiness analysismanager.

: Moves to theUS to become vice-president, financeand MIS, based inConneticut, forHMV USA.

: Across the borderto Toronto to becomevice-president, financeand MIS, for HMVNorth America.

: Becomesvice-president, financeand MIS, for HMVNorth America.

: Named chieffinancial officer ofHMV Canada as thefirm comes undernew ownership.

CAREERLADDER

‘The CIMA qualificationallowed me to developcore skills that are

applicable to allindustries’

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hen anti-capitalism protestersset up a camp outside London’sSt Paul’s Cathedral, they sparked apolitical debate about the future ofbig business. But what many of theprotesters may not have realised is

that a growing number of senior managers are alsoquestioning whether the conventional model ofa quoted company with institutional shareholdersis always the best way in which to organise a firm.

One of them is Marisa Cassoni, who steps downin May after six years as finance director at theJohn Lewis Partnership. “Our view is that thereis room in society for different kinds of modelsthat work, and that make society richer,” she says.

“It doesn’t mean that the quoted stock com-pany is not right, but we seem to have become tooskewed towards one type of model.”

After all, it’s not as though the institutionallyowned, quoted company is the most effective atdelivering financial returns. The Employee Owner-ship Index (EOI), which tracks the performance ofbusinesses with more than ten per cent employee

share ownership, has outperformed the UK’sFTSE All Share Index by an average of 12 per centeach year for the past two decades. Anyone whoinvested £100 in EOI companies in 1992 wouldnow have £639, compared with £216 for an invest-ment in the FTSE All Share Index.

In January, British deputy prime m inister NickClegg said that more companies should offer theiremployees shares to help to create a “John Lewiseconomy”. Following Clegg’s announcement,Norman Lamb, the business minister, appointedGraham Nuttall, a lawyer and chartered tax advi-sor, to advise the government on how to spreademployee ownership more widely.

Nuttall, a partner at UK law firm Field FisherWaterhouse, says: “My review will look at whether

27

W

Business

As the traditional set-up of institutionallyowned, quoted companies comes under themicroscope following the world economic crisis,we look at how employee-owned businessesand cooperatives are flourishing, and how thefinance function is having to adapt accordingly

Photography byFranck Allais

there should be a preferred model that is betterpromoted by the government so that there is arecognised starting point for anybody wanting toconsider employee ownership.”

Ministers in the coalition government believethat a boost to alternative forms of business organ-isation could usher in a new form of caring capital-ism, such as co-ownership or co-operatives, whereall stakeholders share in the fruits of their labours.

If the government succeeds, it will help Brit-

ain to keep pace with a growing trend that hasseen the world’s businesses adopt a wider range ofemployee-owned or co-operative business models.

Ed Mayo, secretary general of Co-operatives UK,points out that there are 328 million people aroundthe world who own shares, but already more thana billion who are members of co-operative enter-prises. In the case of co-operatives – unlike co-owned businesses – members may include custom-ers and suppliers, as well as employees. In the UK,9.1 million people own shares directly, comparedwith 12.8 million who are members of a co-operative.

Mayo sees the co-operative movement movingmore into the business mainstream, with its focus

on issues such as how to engage staff to make themmore productive and how to win the passion

‘Ministers in the coalitionbelieve alternative formsof business organisationcould usher in a new form

of caring capitalism’

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and loyalty of customers. “It’s not that every busi-ness should be a co-operative, but every business

can benefit from being more of a co-operative,”he says.In the US, 11,300 companies run employee stock

ownership plans covering 13 million employees,according to figures from the National Center forEmployee Ownership (NCEO). The NCEO pointsto research that suggests that companies that turnto employee ownership grow 2.3 per cent a yearfaster than they would have done with only exter-nal shareholders.

In the Far East, there is a growing acceptanceof different business models, especially in China.One of the world’s leading employee-owned busi-nesses is ICT provider Huawei. More than 65,0 00

of its employees own shares in the company. Theyelect 51 representatives and nine alternative repswho, in turn, elect members of the board of direc-tors and the supervisory board. The company’s

most recent annual report described employeeshareholding as a way of aligning “the personal

goals of employees with the company’s long-term development”.At the John Lewis Partnership, Cassoni says the

co-ownership structure “brings back accountabil-ity to the owners. We have a virtuous circle so thatwhat needs to be done to drive forward strategyand plans gets communicated back to the co-own-ers to get their ownership, commitment and drive.

“There is no dislocation between whatthe organisation and what our partners on theshop floor are trying to do. There is a completeconsistency of stakeholders. You won’t see thatin other organisations.”

Cassoni argues that the John Lewis model ena-bles the company to fight that City disease – short-termism. “We would not forgo investment justbecause it hit short-term profit,” she says. “Ourinvestments have been on an increasing trend,notwithstanding the downturn.”

Cassoni points out that other businesses needto manage their financial results so as not

to disappoint the markets. But John Lew-is’s “partners”, as it calls its employee

shareholders, see results every weekthrough the work they do, and are

more attuned to where the businessis going. “As a result, they will be more

attuned to what that will mean to them forin-year bonus.”In March, the John Lewis Partnership

announced that its bonus – effectively a dividend –would amount to 14 per cent of basic salary. Bonusis paid at the same level for all staff. That repre-sents around seven weeks’ pay for a shop-floorworker. But, Cassoni says, it’s less than a direc-tor of a FTSE 100 company could expect. “Theonly place where we can’t match market rates isat board level,” she says.

But it’s those giant boardroom bonuses thathave created the crisis in capitalism, accordingto its critics. “The real issue you are struggling

with in the marketplace is that there are no sanc-tions for failure,” says Cassoni. “I don’t think

Business


‘At ICT providerHuawei, more

than 65,000employees ownshares in thecompany’

‘The John LewisPartnership eschewsshort-termism, soinvestments have beenon an increasing trend’

Employee Ownership Index vs FTSE All Share Index:Jan 1992 to Dec 2011

– EOI

– FTSE All Share

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purpose of the company and profits will follownaturally – as underpinning the argument for

employee ownership.But, Davis argues in his new research paper, “AllOf Our Business”, to encourage employee owner-ship the government should restore the tax advan-tages for employee benefit trusts that the Labourgovernment removed in 2003. That move wouldcurrently cost £51m, but Davies says it could berecouped from regressive share incentive schemesfor high earners.

“Other tax incentive changes that would sup-port the sector include extending the EnterpriseInvestment Scheme to employees, and not onlyto external investors, and to investment in pref-erence shares and loans – at present restricted to

ordinary shares.”No doubt Nuttall will be thinking hard about

these as he ponders his recommend ations for thegovernment. He agrees that financial issues aresome of the most difficult wh en it comes to creat-ing and sustaining an employee-owned business.

“It’s unfortunate that employee-owned com-panies perhaps have no other choice than to betaken over by another company, or seek a listingon the stock exchange as a way of raising addi-tional capital,” he says.

“We need more imagination in financingmodels. Perhaps there should be a market in pref-

erence shares, alongside an employee trust con-tinuing to own the ordinary shares.”He points out that the John Lewis Partnership

has preference shares listed on the stock exchange,which despite not carrying votes, do receive a div-idend and are traded.

When he spoke to FM , Nuttall stressed that hehad not yet reached any conclusions about whatwould appear in his report. He expects to deliverhis findings in July and says: “I have received sig-nificant encouragement from the government thatit wishes to turn the recommendations into actionas quickly as possible.”

Business


Peter Bartramis a regular contributor to Financial Management

anybody objects to people being rewarded forvalue creation – that’s what our bonus is doing.

But when staff are rewarded for no value creation,that’s when people become anxious.”So can business models such as co-ownership

or co-operatives create a new climate in whicheven big business’s sternest critics will be wonover? Giving employees a stake in a companycreates a sense of organisational purpose that isgreater than merely financial purpose, says Wil-liam Davies, academic director of the Centre forMutual and Employee-owned Business at KelloggCollege, Oxford University, in the UK . “It leads tolong-term investment decisions and higher pro-ductivity, when combined with the right manage-ment internally,” he says.

“Ironically, the obsession with short-termearnings even defeats itself over the longer term,and profit maximisation eventually leads tosmaller profits.”

Davies points to the work of economistJohn Kay on “obliquity” – focus on the central

‘We need moreimagination in financingmodels to raise capital

for employee-ownedcompanies’

Geoff Miller, group finance director at Tullis Russell,a m-turnover employee-owned paper and boardmanufacturer, talks about the quarterly meetings he andfellow directors hold with investors.

“In a public company, you’d be sitting across from institutionalinvestors who are financially literate and can ask searching questions

about finance.“But we are sitting across the table from people who are very much

involved in the business. They know it inside out and can ask veryrobust questions about strategy and performance.

Miller points up one of the key differences for a finance chief workingin an employee-owned business. The people he is facing across the tablehave been elected by their fellow workers onto the employee ownershipboard. Its purpose is to ensure that the management is fully aware of theviews of the employee-owners of the business.

Tullis Russell was originally a family owned firm. It moved towardsemployee ownership when family shareholders wanted to sell out, butdidn’t want the independent firm taken over by a big conglomerate. Ifmore companies become employee-owned in the years ahead, this couldprove to be one of the main ways in which it happens.

But becoming employee-owned provides a challenge for the financefunction. Explains Miller: “As a private company, we prepare statutory

accounts and send them to shareholders. But the majority of employeeshareholders would have difficulty working through statutory accountsto get the key messages.” Instead, the company holds regular focusgroups to explain what’s happening in the company and provides aforum for questions.

And Miller warns that an employee-owned business may not be rightfor all managers. “The culture is participative and engaging so you haveto be prepared to consult with people. We’ve interviewed peoplewho are technically fantastic, but we know that they wouldn’t fit in withthe culture.”

Miller advises any company thinking of encouraging employeeownership to ensure that it has a strong underlying business model.“Middle managers must be on board because they’re the ones who willmake it work day by day. And you to have make sure that employees buyinto the idea of ownership because it’s a two-way street.

“You can put all the mechanisms in place, but unless the workforce

understands what you’re doing and are prepared to make it work, thenit’s going to be very difficult.”

‘Givingemployeesa stake in the

company leadsto longer-terminvestmentdecisions andhigherproductivity’

Tullis Russell

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Predictivetesting

Strategy

aterpillar, the global constructionequipment maker, may be a tradi-tional company in most respects.But its use of predictive analyt-ics highlights just how effectivethis set of tools can be in a volatile

economy. Caterpillar’s project was highlighted in arecent report from the International Federation ofAccountants (IFAC), which shows how managementaccountants can add value and differentiate them-selves by using predictive analytics to provide for-ward-looking, rather than historical, information.

Knowing that its business was tied to shifts in

gross domestic product (GDP), executives at Cater-pillar asked its economists to find a leading indica-tor of performance. They established that sales tousers predicted shifts in the economic cycle witha lead time of six to nine months against US GDP.Using this metric, Caterpillar anticipated the USrecession in the third quarter of 2007. Althoughit underestimated the depth of the downturn,it used the information to trim operations andemerge from the recession in a much better posi-tion than its rivals.

Predictive analytics uses a wide range of toolsand techniques to predict business scenarios and

identify appropriate actions for each. It can beapplied to almost any part of a business and in anyindustry sector. The IFAC says it is a continuousprocess to cultivate decision-making, and one ofthe main ways it differs from business intelligenceis its use of external data.

According to the report, the Caterpillar storyshows how predictive insights can draw on the linkbetween economic indicators and internal perfor-mance indicators.

The report goes on to emphasise the impor-tance of analytical skills for accountants in anenvironment where the requirement for quality man-agement information is expanding, and CFOs are

increasingly expected to provide decision-makingsupport as business partners or “navigators”. It also

33

gives detailed guidance on how to create a struc-tured predictive analytics process, and explainsthe tools and techniques involved.

Eddie Short, partner and head of business intel-ligence at KPMG, says: “We look at predictive ana-lytics as a natural evolution of business intelligenceand ‘big data’ [that is, the huge amount of internaland external data now available from a wide rangeof sources]. In a volatile, globally hyper-connect-ed economy, you will be subject to changes. Themanagement accountant needs to be able to planscenarios and ‘what if’ analyses so alternatives areavailable and the company can meet its stress tests.

“Their role is no longer to tell the business andshareholders whether we met targets, but to show,with analytical tools, how to meet or beat them nexttime. It makes the role of finance more important.”

Short says predictive analytics requires a solidbusiness intelligence platform. “If you have anintegrated planning, forecasting, budgeting andconsolidating cycle, then you can build on that.You can pull in data from outside the business toadd confidence to the forecast. You will never have100 per cent confidence in a predictive analysis, butsophisticated algorithms and confidence in yourdata might give 90 per cent.”

Malcolm Wilkinson, financial analytics partnerat Deloitte, says predictive analytics have a widerange of applications, from pure financial planningto finance-sponsored analytics in other parts ofthe business, such as commercial, sales or supplychain management.

“For example, finance could sponsor the use ofpredictive analytics in price optimisation,” he says.“If you adopted different pricing policies what wouldthat mean to your profit and to your supplier’s profit?”

Returning to the theme of “big data”, Short says:“One of my clients refers it to as a ‘data arms race’.Leading organisations are harnessing everythingout there. For example, data from social media –

that is a lot more than they have been able to ma-nipulate via internal sources. They are building

C

Tim Cooper examines to what extent predictiveanalytics can help drive an organisation’s future

Illustration

by ChristianMontenegro

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Strategy

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confidence in the quality of their data to enrich whatthey have from trusted external sources – produc-

ing more composite forecasts and using them tobe ready with product development when the nexttrend emerges. It’s about being able to manipulatemassive data sets with a portfolio of tools.”

Outside help is often necessary. “You can’t buildall this yourself,” says Short. “As well as outsourc-ing, companies are co-sourcing [working with thirdparties to build infrastructure] and crowd sourcing[using customer input from social media to helpdesign products]. The amount of data is growingexponentially so you have to be more dynamicand responsive.”

For accountants used to providing historicalinformation, it requires a shift in mindset.

“Management accountants are used to dealingwith the facts, but with predictive analytics you areexperimenting in a laboratory; you don’t have to getit right first time,” says Short. “Build an adaptive,interactive culture and always have severalalternative scenarios in mind. Managementaccountants have a life-long learning culture.

They can adapt and are well placed to takeadvantage of this.”

Short adds that it could eventually change theway that companies develop strategy: “It is a signifi-cant shift to get from bolting business intelligenceand analytics on to your business model, to build-ing it in and using it to drive your model.”

Predicting the future is clearly tricky and thereare many pitfalls to avoid. The first issue is “garbagein/garbage out” – confidence in the quality and rel-evance of your data is an essential starting point.

Then there are practical issues. Wilkinson says:“More than half the time, predictive people havemore analysis than they are using. How will the rec-ommendations be carried out? Some may requirechanges to the business model. For example, in

a retailer, pricing analysis might say we can opti-mise profit by running a different pattern or layoutinstore. But it is hard to implement because buyersin each category have allocations for space and theywon’t hit their targets if the allocations are takenaway. Some retailers have over-optimised stores forprofit and forgotten about the customer journey.”

Often, it is simply a question of time and resourc-es. “Over the next five years, companies’ decision-making structures will catch up with the speed ofwhat analytics can tell them,” says Wilkinson. “Datais available online, minute by minute, and you candraw meaningful trends on a daily or weekly basis.”

To speed up decision-making, you may need to

in-source more of your analytics capability.“If you use a marketing agency, campaign evalua-

tion is done after the fact,” says Wilkinson. “But yourbest indicator of early campaign success is Twitterfeeds and online chat, which you can get for nothingimmediately, so you are better off in-sourcing that.”

Piyanka Jain, CEO of analytics training companyAryng.com, agrees. She says: “Companies used to bemore dependent on external partners, but there isa huge push towards centres of excellence that makeanalytics support part of the business.”

John Pearson, ACMA, CGMA, assistant manag-er, risk advisory services at BDO Ireland, deals with

some large multinationals, who often use sophis-ticated techniques. He says: “If you want top-endanalytics, you need mathematicians – experts whocan validate your assumptions.”

Analytics can also make strategy much more adap-tive. Pearson adds: “One company has an aggressivestrategy to increase revenue by 60 per cent by chang-ing its model from direct sales to indirect via ware-houses in different countries, which will increasecontrol. Through its modelling on sales trends acrossthe globe, it can see already that it is trending againstit – it’s not making as much money. Having seen that,I would pull back from that strategy.”

Tim Cooperis a freelance management accountancy journalist

‘It is a significantshift to get from

bolting businessanalytics on toyour businessmodel, tobuilding it in’

As former director of finance at Punch Taverns, one of the UK’sleading pub companies, Sara Shipton FCMA, CGMA,demonstrated how management accountants can use predictiveanalytics to produce insightful information and challenge the

business to improve performance.Between and , her team analysed pub sales data, whichallowed Punch to identify underperformance in product categories.Shipton’s team also helped to develop and manage plans to close thisperformance gap.

Shipton, who has since set up her own company, Barton ManorConsulting, says: “Punch Taverns leased around , properties toindividual entrepreneurs. In December , it bought a managed pubcompany, Spirit Group (where the company owned the entire retailbusiness). This gave us access to electronic point of sale (EPoS) data. Bysegmenting the estate by style of pub operation, we could more accuratelyprovide gap analysis between the sales to our leased pubs againstthroughputs in pubs of a similar size and style in the Spirit estate.”

The team clustered “like pubs” based on: size by sales, demographicdata, customer data, and style of trading (for example, local, youngpersons’ pub or destination food pub).

“We used these comparisons to help the sales teams’ target

opportunities, then measured the uplift directly. We gave them aspreadsheet-based tool that enabled them to rank opportunitiesand target their time. Comparing like for like, you could see clearimprovements in sales, before and after. This also helped demonstrateto the leasees the opportunities to increase competitiveness by, forexample, changing their stocking policy.”

This was not a technology-driven initiative as most of the work was doneon spreadsheets using basic macros – sets of instructions that can betriggered by a short cut. However, improvements in remote working did helpfield teams hugely by giving access to live data. “Getting data to the point ofdecision is the clever part,” says Shipton. “It made a huge difference to thecredibility of the sales team – they could see the impact immediately.”

Shipton didn’t need to bring in external expertise for the analysis:“I had non-accountants in my team and it crossed boundaries into IT –I had some clever programmers. Good knowledge of statistics is hugelyimportant. Simple correlations are very powerful for this kind of work.Forward looking information with insight differentiates the profession,

makes it far more commercially based, and drags the accountant awayfrom the relative comfort of simply reporting history.”

Predictive analytics in action

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G e t t y

I m a g e s

S o u r c

e : K P M G

Effective income tax rates versus social security rateson $100,000 gross income (as at May 2011)

Effective incometax rate

Effective employee

social security rate


Prime number

Global ratesof income tax

Aruba took theaccolade for thehighest income taxrates in the world in, with a rate of

In a bid to reduce itsbudgetary deficit in, Luxembourgeffectively increasedits top personal tax by

3% 59%

While Scandinavian countries have some of the highest incometax rates, combined income tax and employee social securityrates creates a different picture, with only Denmark in the topten. The UK, Japan and the US come a long way down the

combined list, as does Switzerland, a country widely regarded ashaving a low tax threshold.

35

Belgium

Tunisia

Papua NewGuinea

Denmark

Croatia

India

Greece

UK

Italy

Japan

France

US

Switzerland

CaymanIslands

34.8%

40.3%

25.2%

27.5%

33%

20%

31.8%

27.4%

23.3%

16.1%

18.6%

11.4%

0%

40.4%

13.1%

6%

20%

16%

9.6%

22%

9.2%

12%

7.7%

12.2%

5.7%

6.3%

0%

0.2%

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36

“Finance professionals with projectmanagement skills are increasinglysought after as employers look for

employees who can take ownership ofchange and efficiency projects,” saysChris Young, a manager at recruitmentconsultancy Hays Senior Finance.

Accountants who want to add projectmanagement to their work portfolioshould consider a Prince2 qualification.Prince stands for PRojects IN ControlledEnvironments – and it’s a process-basedmethod for managing projects.

The Project Management Instituteprovides a range of qualifications. Themost important is project managementprofessional (PMP). The entry-level

qualification is certified associate inproject management.


…be a great project managerExperts in the field on how toorganise and get the best out ofa team to ensure the success ofchange and efficiency projects

Get the rightskills

The list

1

ways to...

Illustrationsby Borja Bonaque

Words byPeter Bartram

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37

Don’t even think about running aproject unless there is somebody elsehigher up in the organisation who isright behind you. “Critical to anyproject’s success is having a goodproject manager, but after that it ispretty important to have a good projectsponsor as well, who will happily act asadvisor to the project manager and willfocus on removing obstacles in thepath of project success,” says PeterTaylor, author of The Lazy Project Manager and veteran of more than

50 important projects.“The project sponsor should be a

senior manager with the financial andorganisational power to act quickly anddecisively in the overall governance ofthe project,” adds Taylor.

Even Superman couldn’t save the worldon his own. (He needed Lois Lane, youmay remember.) Make sure you’ve got a

mix of different skills on the project team.“The key to success lies in the ability

to balance the ‘hard’ project managementtechniques, such as schedule control,risk and change control, with acommand of the ‘soft’ skills, such asleadership, relationship building,stakeholder management and changemanagement,” says Pip Peel, vice-president of programme managementconsulting at Cognizant, which providesIT and consulting services. “Goodproject management is about balancing

the use of process with a healthy dose ofcommon sense, recognising that thediscipline is as much about strongleadership and team building as it isabout Gantt charts and budgets.”

“Focus on outcomes and deliverables,”says Simon Chapman, a director of CFOadvisory firm Novo Altum. “Breakdown projects into bite-sizeddeliverables so that you cancontinuously check progress. The worstthing you can do is to wait until the endof the project to discover that youhaven’t hit the deadline or the budget.”

Chapman says a fail-safe approach isto focus on when you need to delivereach outcome and work back fromthere to understand what you’ll need todo, and even whether it is possible. Headds: “Identify competent people whowill deliver the project. Work withpeople to understand their styles.Always start monitoring each teammember closely until you learn theirstyle and trust them to deliver.”


3

4

5

2

6

Assemble a great team

Choose thebest tools andtechniques

Scope the projectcarefully

Find and nurturea sponsor

Communicate atevery stage

The main reason that projects failis because the project leader doesn’testablish effective information sharing.“The general guidance is that most of aproject manager’s time will be spent incommunicating,” says Taylor.“Therefore, it is critical that suchcommunication is effective – and this isabout isolating the critical information,using the optimum communicationmethod for each person, and delivering

that information at the appropriatetime. You also need to validate its

“You need to make sure that theproject’s activities are broken down tosuitably sized chunks – each with its

own time/cost/quality objectives – sothat you can plan, track and manage,”says Davidson.

“Not so large that you only see it’s goneoff track when the project ends (or shouldhave ended), nor so small that you haveto devote all the project’s resources totracking miniscule activities.”

Chapman suggests keeping a monthlytrack of “estimate at completion” costs.“It’s so you know where the project willend, based on current cost projections.”

Davidson adds: “Make sure you haveearly warning of good and bad progress.

Experience helps you know when all isnot as it’s reported. Get under the skin ofwhat’s really happening, then you cantake corrective action early.”

And that, of course means knowing at thebeginning precisely what was expected.It also means avoiding “project creep”,which allows people to add new tasks.

So can accountants cut the mustard asproject managers?“There is no doubt that accountants at

all levels need to develop their projectmanagement skill set to adapt to anever-changing economic climate,” saysJohn Roberts, director at changemanagement consultancy myProteus.“If the profession meets the challengehead on, then there is a real opportunityto reap the benefits for both firms andindividual career development alike.”

7

8

Keep on time andto budget

Deliver what’sexpected

effectiveness on a regular basis to ensurecontinued communication success.”

Chapman adds: “Equally important

is to communicate upwards and tocommunicate early.“The worst thing you can do on a

project is give your superiors surprises.A ‘no surprise’ culture is a good projectmanagement culture.”

Most accountants will already knowabout the Gantt charts, which Peelmentions. There are also many other

tools and techniques that accountantscan use to manage projects. But Tom

Davidson, principal at Moorhouse,a transformation consultancy, warns:“None is a silver bullet without

intelligent application and, badly used,any of them can be burdensome, orworse, give a false sense of comfort.”Davidson says that, at its simplest,project management runs through afamiliar management loop: plan – do– monitor – correct.

He advises: “Don’t try andreinvent everything – your organisationor colleagues will have standardreporting and planning templates,and maybe even a standard projectmanagement methodology thatyou can learn to apply.”

Peter Bartram is the author of

The Perfect Project Manager (Random House Business Books)

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Study notes 39

Notes

Paper P1

Performance Operations p44

Paper F2Financial Management p47

S t u d y

In the previous issue, Ian Blackmore showed howthe ASAP approach (analyse the requirements,source syllabus knowledge, analyse the scenario,plan your answer) could be applied in answering

a scenario-based exam question from the May 2011P2 paper. Let’s now attempt question 3 from

November 2011’s F3 exam to see how ASAP works inthis case. The full paper can be downloaded fromCIMA’s website at bit.ly/F3Nov2011.

A: Analyse the question’s requirementsThe requirements are as follows:A. Calculate:(i) The terms of the rights issue (to the nearest wholenumber of shares) at discounts of both 25 per centand 40 per cent (three marks).(ii) The yield-adjusted theoretical ex-rights price

per share at rights discounts of both 25 per cent and40 per cent ( four marks).B. Demonstrate the likely impact of the proposedproject together with the related rights issue on thewealth of a shareholder with 100 ordinary shares.Your answer should consider rights discounts ofboth 25 per cent and 40 per cent ( four marks).C. Recommend an appropriate discount – if any –for the rights issue. Your answer should addressthe concerns raised by each of the three directors:

Paper F3

Strategy

Financial

By Andrew Finch, BPP Learning Media

The ASAP method of tackling scenario-based

questions is designed to help you maximise

your marks while making the best use of your

time, so it’s well worth practising repeatedly

In association with

A, B and C. No further calculations are required inthis part (eight marks).D. Advise the directors of DCD on factors that arelikely to affect the company’s share price, bothbefore and after next month’s planned press state-ment (six marks).

First, note the key verbs used: “calculate” in partA, “demonstrate” in part B, “recommend” in partC and “advise” in part D. The first verb is straight-forward to understand, but the others may not beso clear. “Demonstrate” is defined in CIMA’s listof verbs as “prove with certainty or exhibit by prac-tical means”. “Recommend” is defined as “proposea course of action”, while “advise” is defined as“counsel, inform or notify”.

Part A requires you to calculate the terms of therights issue – ie, in terms of X for Y – and work outthe yield-adjusted theoretical ex-rights price forboth discount levels.

The key phrase in B is “likely impact”. You needto exhibit by practical means the probable effect ofthe rights issue and the proposed project on thewealth of a shareholder under both potentialdiscount levels. This should be compared againstexisting shareholder wealth.

Part C requires you to recommend the more ben-eficial level of discount for the price of the rightsissue. Your discussion must consider the commentsmade by each of the directors.

Part D requires you to advise the directors oninformation from the scenario that could changethe company’s share price both before and afterthe press statement is made. This requirement

should lead you to include a discussion of the effi-ciency of the market.The post-exam guides written by the F3 exam-

iner give clear advice on how marks were allo cated.These guides are available on CIMA’s website atbit.ly/F3Pegs and you should review them as part ofyour exam preparation. They stress the importanceof providing fully developed points in your answers,rather than simply giving a list, and of ensuring thatyour points apply to the scenario. I have included

‘The post-examguides writtenby the examinergive clear adviceon how markswere allocated’

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these factors in the following rules of thumb toremember in the exam:l Assume that each relevant point you make willearn up to two marks.l To gain maximum marks for each point, you needto do three things: make your point clearly, relateit to the scenario and draw out its implications interms of how it solves problems facing th e co m-pany. (This approach is described in more detail ina June 2011 Velocity article by Adrian Sims , whichis available at bit.ly/VelocityASAP.)

So for part A the marks available are purely forthe calculations. The same applies to part B. For

part C, providing one well-explained point for eachdirector’s comments will give you six marks. Theremaining two marks can be gained by providinganother well-explained relevant point and recom-mending a discount level. In part D three well-explained points should secure the full six marks.Alternatively, making six briefly explained pointsshould also give you full marks, but there doesn’tseem to be enough information in this particularscenario for you to pull out six different points, soit would seem a better option to explain fewerpoints in greater depth instead.

This guidance oversimplifies the marking pro-cess somewhat, but the general theme – ensure thatyour answer for each part reflects the number ofmarks on offer – is important.

S: Source the syllabus knowledgeScenario-based questions require you to apply yourknowledge. When analysing the DCD scenario, youshould be thinking about the knowledge you willneed to apply in order to satisfy the requirements.Possible topics include:lTerms of rights issues.lThe formula for the yield-adjusted theoreticalex-rights price (Terp).lShareholder wealth.l

Discounted share issues.lThe link between performance and reward.lUnderwriting.lStock market efficiency.

A: Analyse the scenarioDon’t simply read the question. You need to beproactive – for example, by underlining or high-lighting key points in the scenario and makingannotations in the margin. You are permitted to do

this during the 20 minutes of reading time yo u ha veat the start of the exam.

Seek out information in the scenario that you canuse to help sati sfy the requirements. For example,in the DCD scenario you are told:lThe company has ordinary share capital of $70m(paragraph two).lThe shares have a nominal value of $0.50 (para two).lThe current market

FM_13_MAY_2012

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