Finance spearheads $billion strategy at global company

Prof Wai Fong Chua

By Kate Belgrave, senior web editor, CIMA.

Hundreds of finance professionals around the world tuned in recently for a live 'finance and strategising' webcast with CIMA visiting professor Wai Fong Chua. The subject was ‘The developing relationship between finance and strategising: the evolving role of management accounting’. It concerned a case study of the finance function’s involvement in strategy at a major global organisation.

‘Find the balance between control and growth and a company can prosper,’ said Professor Chua. She observed this when studying a major global company recently – one of the top ten technology brands in the world, with more than 50 subsidiaries. The company’s finance function was helping it to translate corporate themes into real sales development and growth.

There was an imperative for corporate change at the time. 'By the end of 2005, institutional investors felt that the company had lost its leadership position and needed to build much more growth. The strategic themes were:

• to improve customer and partner satisfaction
• [to develop a] strategy for substantial worldwide growth and
• [to improve] productivity.

The company had to rein in its costs at the same time.'

It developed a one-line company mantra built round a 'billion-dollar revenue by 2009' target. The company's finance function was to play a critical strategising role. 'When we arrived to begin the study, the accounting environment was focused on more centralised forms of business planning. There was a strong adherence to budgeting routines and planning templates governed by a focus on key accounting and also non-financial metrics – contribution margin, headcount and sales.'

What Professor Chua also saw was that the company had 'started to disperse a lot of activities. [To grow], the organisation decided it would decentralise some of the budgeting functions. Flexibility was given to subsidiaries to come up with growth initiatives and take advantage of local growth opportunities. [Suddenly the finance function] had much more engagement at multiple levels and cross-functionally across the firm.'

Connecting to the project

There was a real emphasis on innovation. The mid year review process was particularly important. Regional subsidiaries met in Singapore to present their forward plans – a meeting that proved extremely constructive.

'This event gave subsidiaries an opportunity to present their ideas and have them debated at a forum that included regional management, corporate management, and folks from other subsidiaries.

'The finance function was central to this. The structure and accounting templates issued by the corporate centre focused subsidiary debate that the centre wanted addressed.'

Other innovations meant debate could flourish in a flexible environment. 'Subsidiaries had additional decision rights,’ said Professor Chua. ‘So they got very involved in strategic visionary exercises. There was a range of strategic workshops, with many senior managers involved.'

It was an expansive approach that generated a lot of activity involving people across the organisation, and caused the company to reflect on its identity.

'When we think about accounting, we have typically focused on it as a rational exercise that provides information for choice to be made – for example, between investment projects, or between products.'

But Professor Chua said the activity generated by this template changed the ideal of the future. 'People began to focus on the possibility that they might achieve double digit growth.’

Turning engagement into deliverables

Generating excitement about the future is all very well, but the question is how to turn the activity into growth? Professor Chua said there were several specific steps. 'There was a great deal of work to break that billion dollars down into many other numbers.'

An analysis of the company's customer base became a high priority. 'As a consequence of focusing on a variety of numbers, the organisation started a segmentation exercise – to review the top 20% of customers, and changing the categories they thought of them in. [They looked at categories like] level of product penetration, and how they could penetrate in a more systematic way. The finance function was very involved and compiled information in a way that it hadn't before.'

The company also began a level order planning exercise – 'breaking down key performance targets by level of operation, which gave employees a clear sense of their accountability and responsibility.' It also mobilised a culture change programme. It was keen to help staff take responsibility for their actions.

Other important initiatives included 'interlock' meetings, and breaking down traditional company silos. 'The company wanted to know how its cross functional areas could work in a more coordinated fashion.' A benchmarking tool was also introduced - a ranking exercise that focused on a range of accounting metrics. 'It meant the company could compare the performance of each subsidiary. [It could ask] “why is Holland so successful on this particular metric?” and so on.'

Was it successful?

Professor Chua said the company's cultural shift to flexibility, cross-functional coordination, and dispersal to subsidiaries was very successful. The only mistake it made was underestimating the growth it would achieve.

'Strategy is not only made at the top of an organisation, but at many levels. The billion dollar number gave a visualisation and a focus for many activities. At the same time, it was part of a process of changing identity. It's about the sense of self, and what the organisation is capable of.'

Click here to see a copy of Professor Chua’s presentation, and find out about previous and upcoming webcasts.

May 2008

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