Archive for Resources

Using advance Tech for predictive analytics in employee retention

Using advance Tech for predictive analytics in employee retention

This technique can help managers reduce attrition costs.

The future of human resources is changing. Like the rest of the business world, chief human resource officers (CHROs) and their teams are beginning to find that they need to focus on building a robust analytics capability to best prepare for the data-driven world.

“CHROs have said that they feel [pressured] as the only ones not bringing data to the table. The business is expecting HR to have similar numbers to marketing, though maybe not finance or operations,” observed Andrew Marritt, CEO of OrganizationView, a people analytics practice based in St Moritz, Switzerland. According to Marritt, the data-centric modern HR leader needs to know not only what has happened, but what is likely to happen.

A key HR concern for businesses is employee retention. There are significant financial and intangible costs associated with losing loyal and high-performing employees. Investments need to be made to find, hire, and train their replacements. There could also be a negative impact on the stakeholders they worked with regularly such as suppliers, colleagues, and customers. Some companies are starting to look to predictive analytics to increase their ability to mitigate the risk of employee turnover and increase retention.

Investment in building a people analytics capability need not be big at first, and businesses can benefit greatly from it. “Our research shows that the financial costs associated with attrition can range anywhere between 13% and 23% of annual compensation depending on the function/level of the employees under the scope of the study. In our experience, a focused attrition analytics predictive model can help lower this risk by 5% to 8% annually,” said Neeraj Tandon, director for workforce analytics and planning, Asia-Pacific, at Willis Towers Watson, in Gurgaon, India.

WHAT’S NEW

Traditional HR analytics are descriptive in nature and examine employee data across different dimensions such as department and demographics to identify past patterns within metrics like turnover and retention. Conclusions are then used to formulate talent policies. Descriptive analytics, however, cannot predict future outcomes at an individual employee level.

Predictive analytics does this by going a step further and using the evidence from descriptive analytics as inputs for advanced techniques like statistical modelling and machine learning. These methodologies provide forward-looking measures such as flight risk, which quantifies the likelihood of an employee’s leaving the organisation within a certain period of time.

Predictive analytics also identifies hidden connections between key factors contributing to employee turnover. The main predictor variables normally studied include pay, promotion, performance reviews, time spent at work, commute distance, and relationship with a manager. (See the chart, “Factors Contributing to Voluntary Turnover”, for a breakdown of key reasons for attrition at a sample organisation.) Organisations also use external data such as labour market indicators and the current economic scenario as causative variables while formulating hypotheses and building models for retention. HR teams and managers use the findings from the modelling to better design timely interventions to help retain employees.

Factors contributing to voluntary turnover

An ADP Research Institute white paper examined the factors leading to voluntary turnover at a sample company. The graphic below breaks down the reasons cited. By collecting and analysing the factors that contribute to turnover, companies can institute policies and procedures to address concerns.

In this example, management may want to focus its retention efforts on industry veterans who have not been with the company for very long or look at implementing more lenient telecommuting rules to ease attrition.

Source: ADP Research Institute white paper, Revelations From Workforce Turnover Study.

Deloitte estimates that about 8% of global businesses leverage predictive analytics for talent management, and the ones that do tend to be larger. According to Brian Kropp, group vice president at Gartner, organisations that develop this capability tend to be in sectors that are intellectual property dependent such as financial services, healthcare, and fast-moving consumer goods. Globally, businesses in all major economies are working towards acquiring this competence.

COST VERSUS BENEFITS

Organisations looking to develop competence in predictive analytics have several options. Consulting organisations offer expertise towards building this capability. For businesses looking to set up internal capabilities for smaller capital outlay, many choose to employ or train in-house data scientists who may turn to inexpensive software such as IBM SPSS or free open-source software known as R for their initial modelling.

External vendors that set up human capital management systems with predictive analytics capabilities are also available at different price points. However, experts warn that internal teams should make sure that the human capital management systems offered integrate with data systems within the organisation. The systems should not overpromise and underdeliver in terms of features and tools, and vendors should provide the guidance to use them insightfully.

DATA-BASED CHALLENGES

According to Bersin by Deloitte, an HR research organisation, setting up clean and accurate data streams is, and will remain, a challenge for people analytics. As the research indicates, most big organisations have five to seven systems of record for their human resources data. This means that information often used in predictive modelling is inaccurate or unavailable, a serious stumbling block.

“As statisticians, we do deploy multiple data treatments to improve the quality of data. However, often data on some important variable are incomplete, and as a result we ignore these variables. Some of these variables could be important to predict the outputs. Hence, it’s important that organisations continuously focus on data quality improvement,” Tandon said.

Companies should run specific data quality programs to make the data fit for modelling. These programs would be of greater effectiveness if they were directed at key variables that predict output variables such as attrition rather than across the entire dataset, he added.

BUILDING A GOOD MODEL

Besides clean, accurate data streams, a few further steps can be taken to ensure that predictive retention models are a robust tool for decision-making. For one, studying the workforce in clusters of employees with similar characteristics and reasons for leaving the organisation is essential for building models that lead to targeted and effective retention strategies, according to Tandon.

Model building also goes through multiple iterations to ensure it fits the data optimally, which includes choosing or eliminating causative variables scientifically, and testing the model on an existing dataset to gauge how accurately it predicts actual outcomes. With the acknowledgement that numbers do not tell the entire story, intuition is also factored into models. “There is a good reason people are intuitive; they have got experience,” explained Marritt on how this contributes to the model’s effectiveness.

However, a degree of inaccuracy is associated with predictive modelling, and this is where HR and managers play an important role. “Data should just be another voice at the table. Decisions have to be made by humans,” said Marritt, on how these tools can influence employees’ working lives. It is always better to roll up the data and use them at an aggregated level such as teams, rather than at an individual level, because the implications of making an incorrect decision are considerable, he added.

Last but not least, as with any new initiative, organisations must recognise that adequate coaching and oversight mechanisms should be in place to help users leverage the technique correctly and thoughtfully. According to Tandon, managers are being trained on the key objectives of developing attrition models and coached on how to use the information to prevent high-performing employees from leaving, without creating a bias against the identified individuals.

Central governing teams (often comprising business and HR team members) monitor and track interventions taken by line managers to reduce attrition risk for employees identified as a high flight risk. This also helps organisations bring some level of consistency in interventions to control attrition, Tandon added.

TARGETED APPROACHES

Once these checks and balances are in place, a data-driven approach that includes predictive analytics is seen to bring greater transparency and balance to decision-making. “There have been instances where decisions were made by those who were the most vocal. This will be harder in a world where data is needed to support decisions,” observed Marritt.

The key causative variables that emerge during modelling will also help organisations craft more effective retention strategies. If commute distance emerges as a major driver, for example, greater efforts can be directed towards options such as remote working. If a limited training budget is available, it can be used to provide inputs for those employee segments that have a high flight risk. While HR and managers have always designed these interventions, a forward-looking, rigorous technique enables them to direct time and money towards these efforts with greater precision and with greater confidence in the outcome.

Furthermore, finding unexpected patterns in the data can help design retention strategies that make strong business sense. Marritt’s team at OrganizationView, for instance, found that high work pressure was a key cause for attrition at a certain financial services organisation. However, it was more so for low to midlevel performers while top performers actually thrived under high pressure and were more likely to leave in its absence. Since high-performer attrition had a greater financial impact, the organisation focused on this rather than overall attrition.

THE NEAR HORIZON

Companies are experiencing a massive change in the data they have about customers, and the same change is coming to what they know about employees, according to Kropp. Organisations that figure this out and get there faster will retain a higher-quality workforce. It will be the single most successful differentiating factor on that front, and a must-have for businesses that cross a thousand employees, he added.

Over the last three years, Gartner has also seen a significant increase in the number of organisations that collect employee data in unconventional ways, such as social media activity, speed of keystrokes, mood recognition, email text and frequency, and wearable microphones. Organisations are attempting to understand employee behaviour and experience through these experiments, and some of them will be input into models, which will increasingly graduate from predicting flight risk and quality of hire, which are relatively easy to measure, to hard-to-define variables such as employee engagement and performance, Kropp said.

On the maturity front, while only a small percentage of organisations surveyed by Deloitte currently have the capability for people analytics, in a more recent survey 69% of businesses say they are integrating data to build a people analytics database. The analytics function will also grow into a multidisciplinary team that will solve business-critical problems to drive business results.

Source : FM UK

The problem is the solution

The problem is the solution

The four-step process for better problem solving

If you strip any project down to its essence, you’ll find there are two fundamental tasks. The first is defining the problem that you’re trying to solve, and the second is actually setting out to solve it.

It sounds pretty intuitive, but I think that first step usually receives short shrift. In my experience, people are so geared up to get in there, roll up their sleeves, and come up with ideas, that they forget to really set the stage and understand why a client even needs their help in the first place. What is their marketplace situation like? How is their business performing? What are they setting out to achieve, and what’s getting in their way?

Asking yourself “What solution should I recommend?” is the worst first step. Before you can answer that question, you need to do four things.

1. DEFINING THE PROBLEM

All effective problem solving starts with effective problem defining. Too often, people jump right to solving without knowing exactly what they are solving. The big challenge here is figuring out how to separate the symptom from the disease. Many of us address the symptom only to find the solution to be a temporary fix.

A great way to uncover the root cause of any problem is to go through the “Five Whys” exercise. “Five Whys” is a technique that was developed by Toyota to identify manufacturing issues and solve them in the most effective and efficient way possible. The way you start is to articulate the problem you’re facing. In terms of corporate strategy, that’s typically a surface level issue like losing market share or declining sales. With the “Five Whys” technique, the goal is to ask “why” five times to help you dig deeper and deeper to uncover the root cause of the problem.

For instance, say you’re working with a local, downtown restaurant that has seen revenue decline. Ask yourself, “Why is revenue declining?” The answer might be that the average ticket is lower than it used to be. Why is that? Maybe because fewer tickets include an alcoholic beverage? Ask yourself why that is. Maybe it’s because traffic on Friday and Saturday nights is down, which is bringing overall alcohol sales down. Why is traffic down on Fridays and Saturdays? Perhaps it’s because the performing arts center around the corner recently closed down.

By going through the “Five Whys” exercise, you’re able to better define the problem. Rather than a food problem or a bar problem, what you might really need to fix is the entertainment problem.

2. REFRAMING THE PROBLEM

The next step is to create a few different reframes of the problem. Each reframe of the problem statement could lead to a number of potential solutions. The way we do this is by creating “How might we…” statements.

Going back to the restaurant example, a few reframes of the problem statement might be:

How might we get more people to add alcohol to weekday tickets (to counterbalance the dip in weekend sales)?

How might we get more people to spend a Saturday night downtown?

How might we get more happy hour visits from downtown professionals before they leave downtown for the weekend?

Sharp and varied reframe statements can help unlock some new, surprising solutions.

3. COMING UP WITH SOLUTIONS

These reframed problem statements are great fodder for a brainstorming process. Actually, in many situations we prefer brainwriting as opposed to brainstorming. Brainwriting is where a group of individuals is tasked with a problem to solve and each individual is required to think and ideate on their own.

You can do these brainwriting sessions in person with a group of people, or do them remotely and over the course of a few days. Simply asking team members to come up with three ideas for each “How might we…” statement can give you dozens of potential solutions to consider.

Remember, when it comes to new ideas, quantity is quality. The more ideas you generate, the more likely you are to have a few gems in the bunch.

4. EVALUATING OPTIONS

You can’t solve every problem or implement every solution. Resources and time are limited. To narrow in on the best opportunities, evaluate and score each potential solution for 1.) ease of implementation and 2.) its potential size of impact if implemented. This scoring can be done as a group or be the responsibility of a few key decision makers.

Sometimes it’s helpful to even map these out on a two-by-two matrix, with the ideas that are easiest and most impactful populating the top right quadrant.

Getting Bruno Mars to play a few sets at our restaurant every other Saturday might be impactful, but not all that easy to pull off. And a standing karaoke night might be easy to implement but perhaps not all that impactful. The goal is to identify the ideas that check both boxes, and then assign the appropriate resources to them.

Keep in mind, there isn’t a framework or methodology in the world that will get you the results you’re looking for if you’re solving for the wrong problem. Spend as much time (if not more) diagnosing the problem as solving it, and you’re well on your way to generating truly valuable solutions for your clients.

Source : GCMA

How visionary CFOs approach tech investment

How visionary CFOs approach tech investment

Customer experience

Digital transformation is on the minds of CFOs, who expect to invest more in advanced analytics and artificial intelligence (AI) that can transform their businesses by improving customer experience.

That’s according to a recent Grant Thornton report, which shows that 69% of CFOs and senior finance executives plan to increase investment in technologies that quicken business change. CFOs themselves will need to have more technical skills, and they are divided in how to improve their overall workforce’s financial and technical expertise.

“It’s really a question of who’s more visionary as a CFO in moving forward with their products and services and reaching their customers,” said Srikant Sastry, Grant Thornton’s national managing principal for advisory services.

IMPROVEMENT TIED TO DIGITAL INITIATIVES

Companies that have figured out a way to reach customers more effectively through digital advances are reaping benefits. In one notable increase, Costco saw its second-quarter 2018 e-commerce sales grow about 29% year-over-year, to $1.5 billion, CFO Richard Galanti told analysts and reporters on a recent earnings call.

Additionally, firms that embraced digital transformation averaged a 55% increase in gross margins over a three-year period, according to a 2016 Harvard Business School study. Companies that were slow to adapt generated lower margin growth on average (37%) during the same period.

Meanwhile, International Data Corporation estimates that, by 2019, enterprises will spend $1.7 trillion on digital transformation — a 42% increase compared with 2017.

A year ago, Sastry said CFOs likened strategising on digital transformation to gazing into a crystal ball. Now, he says they are trying to gain a clearer picture of what is inside the sphere.

Accordingly, CFOs are not necessarily seeking digital transformation to improve efficiencies in their IT systems. The goals now are to enhance the customer experience, grow the business, and outperform the competition, according to the Grant Thornton report.

CHANGING THE VIEW OF ANALYTICS

CFOs have recognised that they were not thinking enough about analytics. Consequently, 24% of respondents said their finance team is currently adopting advanced analytics, another 24% will do likewise over the next year, and an additional 25% plan to adopt advanced analytics within two years. But CFOs will have to adapt, too.

CFOs have traditionally been focused on operational performance, cost reduction, and business management, but now they want to drive strategy and clear a path to digital transformation by leveraging information and technology, Sastry said.

“They have to make sure that they have the right skillset and innovation to leverage advanced analytics,” he said. “So the crystal ball is still there, but I think they’re trying to clarify the fog in the ball.”

Forty-one per cent of respondents do not believe they have good financial metrics that show the return on IT investments. And only 12% strongly agree that they possess an effective system to measure financial performance tied to newly implemented technology.

The report points out tension between companies’ current need to invest in maintenance and system updates and their desire to allocate funds to new automation technologies, such as AI. Investment in AI is projected to increase significantly: Beyond the 7% who say they have already adopted AI, an additional 47% expect to adopt it over the course of five years. A similar number of CFO respondents expect implementation of innovations such as distributed-ledger technology (also known as blockchain), machine learning, robotic-process automation, and optical-character recognition within five years.

“Ostensibly, AI will help improve quality, improve accuracy, and streamline the number of people required to perform tasks,” Sastry said. “It’ll change the face of business, including financial management.”

The top IT challenges in the survey are:

  • Systems complexity, including enterprise-wide systems integration;
  • Upkeep of legacy systems; and
  • IT talent.

Regarding the talent challenge, most executives — 52% — would prefer to retrain existing staff. Twenty per cent want to recruit new, technically skilled employees, and 17% aim to outsource tech hiring.

In addition to being aware of AI concepts, Sastry said, CFOs will need to know how AI systems work and how they can improve the business through a better customer experience.

“Those skillsets have, historically, resided in the technology space,” he said. “They’ve resided in the IT shop and the CIO [chief information officer] function. So CFOs need to really embrace the technology portions of their business, or the CIOs.”

Source : FM

The habits of highly innovative companies

The habits of highly innovative companies

While companies continue to focus on in-house innovation, they understand that good ideas can come from anywhere. With technology quickening the pace of business change, research and development is taking on new meaning as it goes increasingly outside company walls.

Businesses are creating venture capital arms to mine for on-the-rise companies or new technologies that can be integrated into their operations.

In the first half of 2016, 53 new corporate venture capital units made their first investment, according to CB Insights data, the most recent available. That was on pace to continue a full-year growth trend that started in 2011.

And some investment in innovation is through acquisition. Microsoft bought LinkedIn for $26 billion, and Facebook bought Instagram.

Some lesser-known deals also help companies advance strategic efforts. For instance, Under Armour, a US-based athletic apparel company, has branched out into technology through the purchase of personal fitness applications Endomondo and MyFitnessPal. The acquisitions, combined with the company’s existing app MapMyFitness, give Under Armour data on the exercise habits of about 120 million users from around the world. That sort of insight can help the company tailor products to everyday athletes.

The Boston Consulting Group (BCG) annually ranks top corporate innovators, and more and more of those innovators are looking far afield. General Motors’ investment in tech start-ups such as Cruise Automation, which GM said in March would add “deep software talent and rapid development capability” to the company’s development of self-driving vehicles, was listed as an example in the group’s report.

Under Armour is ranked No. 22 and GM No. 27 in the BCG report, which bases its list on financial metrics and a survey of innovation executives (see below). The report lists three habits that separate strong innovators from their less innovative peers: They cast a wide net; they excel at using multiple data sources; and they use external data in multiple phases of the innovation process.

INNOVATORS LOOK INSIDE AND OUT FOR NEW IDEAS

At least two-thirds of strong innovators often used the following strategies to generate ideas: Employee idea forums (68%), customer suggestions (70%), competitive intelligence (72%), and internal sources (78%). Companies labelled as weak innovators are far less likely to use such strategies. For example, just 15% of weak innovators get ideas for new projects or growth from employees, and just 26% said they used customer suggestions.

Eighty-six per cent of strong innovators said proprietary company data were a strong part of innovation efforts, compared with 36% of weak innovators. Strong innovators also are skilled at using patent data and scientific literature to their advantage, according to the report. And another 86% of strong innovators said their ability to use data analytics was closely tied to their ability to reveal market trends; among weak innovators, just 29% thought that was the case.

It appears that thinking about the value of data collection and analysis has changed in just two years of the survey, when three-fourths of respondents said their companies were not targeting big data in innovation programmes.

THE RANKINGS

In the BCG rankings, Apple maintained the top spot for the 11th consecutive year. Google was second for the ninth time in 11 surveys, followed by Tesla Motors, Microsoft, and Amazon. Eleven companies entered the rankings for the first time, led by car-hailing service Uber at No. 17.

Tesla made its first appearance in the rankings in 2013, when automobile producers dominated the list, putting nine companies in the top 20. Netflix, which was ranked No. 6 on the current list, didn’t appear in the rankings until 2015.

Source : FM

4 ways innovative companies set themselves apart

4 ways innovative companies set themselves apart

Consider how you used to book a hotel room or flight 25 years ago, or how and where you watched a movie, or hailed a ride from the airport. Companies that have thrived as innovators have capitalised on digital advances more than their peers have, and as a result, they have built strong brands that customers keep coming back to.

“Customers have more information today than ever before,” said Bill Swedish, a consultant in the western US state of Washington. “They have speed of obtaining that information and, because of that, they have the power.

“There is a call for companies to innovate today because of the rapid changes that are happening with their customers and in their markets,” he said. “… The imperative here for the organisations is to get back ahead of their customers and to be proactive in terms of establishing products and services and ways to interact that will win the hearts and minds of customers.”

Companies that have excelled in that realm have embraced four specific types of digital-related innovation, according to the Boston Consulting Group (BCG), which compiles an annual list of the world’s most innovative companies. The four types of innovation that are a strong focus among leading organisations are:

  • Big data analytics.
  • Fast adoption of new technologies.
  • Mobile products and capabilities.
  • Digital design.

BCG singled out those areas because they were the four that had the greatest year-over-year change in expected impact to their industry in the next three to five years. Overall, new products and technology platforms, at 41% each in a survey BCG conducts for the report, are tied atop the list, but their perceived impact shrunk in the past year. In particular, big data analytics (39%) and fast adoption of new technologies (38%) have narrowed the gap of what’s important for companies.

More than half of respondents said that their companies use data analytics for a variety of purposes connected with innovation, BCG said. These include “identifying new areas for exploration, providing input for idea generation, revealing market trends, informing innovation investment decisions, and setting portfolio priorities,” the report said.

One company is still No. 1

Not surprisingly, Apple is atop the BCG list. The Silicon Valley company has been No. 1 all 12 times the list has been compiled. Google, for the tenth time in the past 11 BCG lists, is No. 2. Amazon, which ranked No. 20 on the list ten years ago, is up to No. 4, just behind Microsoft. The rest of the top ten, in order are Samsung, Tesla, Facebook, IBM, Uber, and Alibaba.

Apple’s most recent financial results demonstrate how the company is winning with digital products around the world. Apple CEO Tim Cook said the company’s number of active installed devices, including the new iPhone X, reached 1.3 billion in January, a 30% increase since 2016. For the quarter that ended 30 December 2017, Apple reported revenue of $88.3 billion, its all-time high. Apple said nearly two-thirds of that revenue came from outside the US.

On the BCG list, North America remains the most represented region, with 27 companies in the top 50. Europe is next with 16 companies on the list, up from ten companies in 2016. Europe’s improvement includes first-time appearances by German companies Adidas and SAP.

BCG bases its list on financial metrics, such as three-year total shareholder return and a survey of innovation executives.

Source:  

Using algorithms to fight supply-chain fraud

Using algorithms to fight supply-chain fraud

More companies are turning to data analytics to detect supply chain fraud.Supply chain fraud is hard to avoid, with the contents of a missing cargo container ending up on the black market or an overseas worker skimming off the top being the inevitable reality of global supply chains.

Companies are increasingly turning to data analytics to detect and stop fraudulent schemes, a recent Deloitte poll found.

Nearly 35% of companies are using some type of data analytics to keep eyes on their supply chains, according to the poll of more than 3,200 professionals from a variety of industries.

That’s an increase of nearly 10 percentage points from 2014, and a sign that more companies, large and small, are adopting complex technologies to closely examine their supply chains.

Companies need to constantly look for fraudulent practices in the manufacturing and shipping of goods, with those looking to steal often as crafty and innovative as the technologies that stop them, said Guido van Drunen, a principal in KPMG’s forensic advisory group in Silicon Valley.

“Fraud goes where there is the least resistance,” he said, comparing fraud detection to a game of Whac-A-Mole. Nip one scheme in the bud and another one pops up elsewhere.

A major advantage of using data analytics to examine supply chain transactions is that detection can happen much faster, said Larry Kivett, CPA, a Houston-based Deloitte Advisory partner in the firm’s forensics and investigations division.

Schemes that might have gone on for years, such as a factory operator setting aside a pallet of electronics for black market sales, can now be found out shortly after the theft begins.

Now, complex algorithms can sift through thousands of incoming invoices and work orders from third-party suppliers to find instances of double-billing, overcharging, and theft.

That saves companies money, especially those with complex, global supply chains with hundreds of vendors and suppliers to keep track of, Kivett said. In many cases, the fraud can be detected before an invoice is paid, instead of having audits years down the road reveal the problem.

Advanced algorithms can also match bills of lading, forms filled out at ports that reflect cargo shipments and times, to ensure that goods are leaving when and where suppliers say they are with the correct number of manufactured products, Kivett said.

“If you can leverage data analysis to help out, you’re getting much earlier visibility” on fraud, he said.

Even DNA has a role. Instead of taking a swipe of a criminal suspect’s cheek, DNA swabs from a crate of clothing can tell a company where a product was produced, and ensure a contractor isn’t surreptitiously having goods made in another factory by underage workers, van Drunen said.

Here are tips from Kivett and van Drunen on how to shore up supply chains to detect and prevent fraud:

Consider the risk. Ignoring problems of graft and theft at factories and subsidiaries isn’t an option, van Drunen said, calling the supply chain the “lifeblood of the company”.

Violations of child labour and corruption statutes could have major implications for a company, with exposure opening up the chance of a public relations disaster and other fines and sanctions. The US Foreign Corrupt Practices Act could also shut down a production line, for example, if a company’s representatives are linked to bribery or other corrupt practices.

That’s why companies, especially those that produce and manufacture goods in areas of the world with looser regulations, need to be diligent in looking for problems.

Go in-house or contract? It all depends on your company’s strengths and weaknesses. Companies with robust technology departments and data scientists may do well to develop their own data analytics and internal controls.

But companies that don’t have a team of analytic experts may want to bring in outside help to examine their processes and make recommendations of how to best monitor their supply chain, Kivett said. “You really don’t understand where your susceptibilities are,” he said.

Experts in fraud can help point out weaknesses and conduct an audit of current controls by using experience of dealing with widespread cases of fraud.

Realise that no one is immune from fraud. Supply chain fraud risk is fairly consistent, regardless of industry and size of the global operation, Kivett said, citing Deloitte research. It’s an indication that companies need strong internal controls and need to periodically examine the controls and see if additional measures are need.

“For organisations, there’s the tendency to say that wouldn’t happen here; we’ve got good people,” Kivett said.

That’s a foolhardy stance to take in today’s environment, especially in a business that depends on cross-border trade and can be infiltrated through cyberattacks or by other means.

WHERE TO LOOK

There’s not a single technology or area to look for fraud, Kivett said. Instead, companies should examine all their processes and try to move as much information to electronic sources as possible.

With data such as timekeeping systems, financial reports, and other information available in a searchable way, companies can periodically examine operations to look for suspect patterns.

“You can see what the baseline patterns are like and identify any anomalies,” he said.

Similarly, companies should make sure new acquisitions and new vendors are using the same internal control and data analysis procedures.

Source : FM

How to develop a global mindset

How to develop a global mindset

Today’s business world is a far cry from yesteryear. An increasing number of organizations operate worldwide, and they are more diverse internally. And that means professionals — including CPAs — must be adept at dealing not only with employees from various backgrounds, but with workers and clients in different countries as well.

But how do leaders ensure that they and their organizations are culturally savvy and prepared to deal with diversity? This was the subject of “Developing Your Global Mindset,” a one-hour talk given by Kim Drumgo, director of Diversity & Inclusion at the Association of International Certified Professional Accountants. Drumgo’s talk was the second in a series of CPA Diversity & Inclusion webcasts aired by the Association.

“In this digital age, geographical borders are no longer clearly defined, so having a global mindset while working globally has become critically important for the success of business leaders, especially in the accounting profession,” Drumgo said following her talk.

Drumgo defines “global mindset” as the “ability to adapt to a culture and influence individuals or groups whose ways of doing business are different than your own.” By having this mindset, by asking questions and engaging in dialogue with others, leaders can improve employee morale, generate greater insight into untapped markets, and gain more credibility with clients. Those who do not develop a global mindset could miss out on client and talent potential, she noted.

She outlined three work environments:

  • Multicultural environments contain several cultures or ethnic groups alongside one another, but who operate independently.
  • Cross-cultural environments include people from different cultures and some acknowledgement of the differences, though one culture remains dominant.
  • Intercultural environments are the “gold” standard for organizations to achieve, as they encompass a deep understanding and respect for different cultures and ideas.

Drumgo also described the “global mindset inventory,” a concept created by the Thunderbird School of Global Management at Arizona State University. Individuals with global intellectual capital or global business savvy have strong analytical and problem-solving skills and an ability to understand international business. Next is global psychological capital, which is an individual’s innate passion for diversity. Then, global social capital is described as a more enthusiastic and outgoing quest to “collaborate with people from different perspectives,” she noted. Those who possess each type of capital are often more effective leaders since they engage and learn across cultures. Psychological capital is the most difficult to grasp as you are “changing your thought process, breaking down biases, and beginning to challenge your old way of thinking,” Drumgo said.

Drumgo offered the following five tips for changing your global mindset:

Forget the golden rule and use the platinum rule. “Treat people the way they want to be treated. Find the positive in other approaches,” she said.

Don’t underestimate the challenge. Dealing with cultural and individual differences can be difficult, and you cannot assume that you know how to handle every situation that can arise. “Having many stamps in your passport doesn’t mean you have a global mindset,” Drumgo said. So don’t underestimate the challenge of leading and working with others across the globe.

Apply multiple strategies. “There isn’t one silver bullet as to how you can interact with everyone. There is not one proven strategy that will help you relate to your entire team better,” Drumgo said. “Applying multiple strategies is really important.”

Be sensitive to differences in language. Communicating isn’t always easy for those who use English as a second language. Be empathetic, kindhearted, and understanding.

Be patient and ask for feedback. “You can’t flip a switch and know how to interact with everyone around the globe,” Drumgo said. “You can’t be everything to everyone all of the time,” she said. “But be the best you can to somebody when it’s time.” Then, she added, you will make a huge difference in developing your global mindset.

Are Innovative Companies More Profitable?

Are Innovative Companies More Profitable?

By at least one measure, the answer is yes.

We recently researched this question across five years of data from 154 companies. Because these companies all used the same ideation management software, we were able to seek correlations between their commitment to innovation and their public financial results, such as growth and profit. (The data about individual participants at each company and about the companies themselves remains private; this study analyzed only public financial information and anonymized company metadata.)

The companies in this study all used a platform that enables employees to share ideas in response to challenges created by management, or comment or vote on ideas shared by others. As we demonstrated in our previous research, the key variable that predicts successful innovation across these companies is ideation rate: the number of winning ideas generated per 1,000 active users. In this context, winning ideas means employee-generated ideas that were finally selected by management for active development and implementation.

We examined the relationship between ideation rate and several publicly reported financial metrics (based on generally accepted accounting principles [GAAP]) for the 28 public companies in our data set for the time period between 2014 and 2016. We found a significant correlation between the ideation rate at these companies and growth in profit or net income: The more ideation, the faster they grew. (See “Profit Growth Is Correlated With More Accepted Ideas.”) While the correlation is far from perfect, this clearly is not a random effect; you’d expect to see a correlation this strong by random chance less than one time in 100.

Each data point here is a fascinating case study. For example, the enterprise with the highest ideation rate was a large health care company in which a highly active ideation program generated 500 winning ideas per 1,000 active users — and where the net profit grew 6% over the two years we studied. And the company in the sample with the fastest-growing profit, a semiconductor company, was generating a healthy 340 winning ideas per 1,000 active users.

The left side of the chart is illustrative, too. When we look at the ideation laggards — companies with ideation rates below 100 winning ideas per 1,000 active users — about half of them had no growth in profits at all.

Growing companies need ideas, and companies that generate lots of good ideas tend to have profitable growth. But it’s unlikely that simply goosing up the ideation rate is what made these companies grow profitably. A more likely explanation is that both healthy ideation and net income growth are a result of a third factor: a culture of innovation.

When a corporate culture is designed not just to encourage innovation but to systematically nurture employee ideas, the results are dramatic. Companies like this boost employee participation in innovation challenges created by management, generate more actionable ideas, and then implement those ideas in a way that generates profitable growth. As a result, you can actually assess the level of innovation at a company on a quarter-by-quarter basis by measuring its ideation rate.

When you visit one of these innovative companies, you can feel a palpable difference in the way the company welcomes ideas from employees.

Consider the case of a company that operates hundreds of medical clinics. Because of the decentralized nature of this business, the company empowers its field workers to solve problems. The mindset of employees is, “I have a voice; my opinion and ideas matter.” So it made sense to tap into that same problem-solving energy across the company to improve operations and efficiency.

For example, a local worker at one of the company’s clinics identified a common problem: helping patients who experience dry mouth during a time-consuming type of therapy but are on a restricted fluid intake. The solution they came up with was to create a spray bottle that was printed with reminders of the best ways that patients could manage their fluid intake — educating the patient with the actual device they were using to cure the dry mouth problem.

Problem-solving of this kind happens in every company. But with this company’s culture of innovation, the workers solving the problem naturally thought, “Who else could benefit?” As a result, they posted their solution on the company’s idea hub, and it eventually became a nationwide standard that improved the patient experience in all the company’s clinics.

Because of the company’s culture, the commitment to innovation spans from the mass of employees to the ranks of management. Ideation challenges put this commitment into practice. Managers show their commitment to the ideation program with internal marketing to drive engagement: They conduct “innovation road shows” locally and use March Madness-style brackets to surface the best ideas in each region. Local winners present their ideas to senior leadership with support from corporate. This way, a nurse in a facility anywhere in the country can get the opportunity to deliver a professional-quality presentation on his or her idea to people who can actually make it effective across all the company’s clinics.

These attitudes have led to a healthy ideation rate and an 11% growth in profit over the two years we studied. But what these numbers can’t measure is the attitude of the staff. At this company — and at all the successful companies we’ve monitored — the culture of innovation is woven throughout the workday. Managers know that ideas will come from the rank and file, while workers recognize that they have an important role to play in identifying problems and spreading solutions that may ultimately affect operations and products far beyond their day-to-day experience. Growth and profitability spring directly from this culture, which energizes employees. As one clinic administrator at the medical company told the people running the innovation challenges, “Thank you so much for what you are doing. I finally feel like we have a voice, and our ideas aren’t dropping into a black hole.”

Another company, EDF Energy PLC in the United Kingdom, had a similar experience. Consumer supply of energy in the U.K. is highly competitive; EDF, which delivers one-fifth of the U.K.’s electricity, has 45 competitors. Its management wanted to harness the ideas of as many of its workers as possible to improve its service to customers, so they launched an ideation challenge to more than 6,000 employees, including meter readers, call center staff, back-office workers, human resources staff, and IT employees.

Because they wanted to show rapid results, they framed the challenge with this question: “What ideas do you have for products and services that can be implemented in the next 12 months?”

The launch of the challenge, using the company’s idea management software, included a high degree of visibility from senior managers, many of whom made sure to comment on the ideas flowing from workers. Constant communication — both digitally and in physical locations — ensured that people remained aware of how they could contribute and how their contributions would be visible to management and colleagues. Over a four-week challenge, employees generated 151 ideas.

“The thing that was most surprising was the number of people who engaged in the process from our operations part of the organization,” said Shetal Edwards, EDF Energy’s head of innovation partnerships. She pointed out that 60% of the ideas came from the operations staff.

After participants had voted on the best ideas, the company selected 10 finalists and brought in professional coaches to help them perfect their presentations to top management, which then selected a winning idea.

The winning idea actually came from a call center worker. This staffer had noticed that a significant number of the company’s complaints came from customers seeking explanations for increases in their electric bills — increases that in many cases were due to new appliance purchases. She suggested creating an app that would enable customers to estimate the likely cost of electricity for new appliances they were considering purchasing.

After that audacious start, EDF has gone on to run many more challenges and has generated many more useful ideas from its employees. It eventually attained an ideation rate of 224 winning ideas per 1,000 active users, one of the highest levels of ideation of any of the companies we tracked.

Our research shows a similar pattern across energy companies, telecom companies, retailers, manufacturers, financial services providers, and health care companies. The companies that have the greatest level of participation have the best ideas. They also have the strongest profit growth. And it all stems from a culture that recognizes that effective innovations can come from a call center worker, a clinic staffer, or just about anyone else in the organization bright enough to identify where the right ideas could make a difference.

Take a hike: Ending client relationships

Take a hike: Ending client relationships

Consider this scenario: A key deadline is nearing, and the client is just now returning your calls and emails. But instead of responding to the open issues, the client indicates there is no real problem and irately demands that services be completed immediately. It is clearly time to end this client relationship.

Many accountants confess to daydreams of uttering “Take a hike!” to a less-than-ideal client. While it may seem like a good idea in the moment, such phrasing is not the most desirable way to terminate a client relationship. However, the process of telling a client to take a hike provides a useful analogy to guide a more professional, less risky end to contentious and cooperative client relationships alike. Treat a client termination as if it were a hike through uncharted lands.

STEP 1: PREPARE FOR THE JOURNEY

Most journeys take expert planning and attention to detail. A client termination requires similar efforts. It is important to remember that both good and bad client relationships may need to end unexpectedly. No signpost indicates when a client relationship takes a wrong turn. The following are tools that may be useful in preparing for an unforeseen client termination:

  • Termination provisions: Including a clear termination provision in an engagement letter, indicating an engagement can be terminated without completion for any reason, can provide significant latitude, if termination becomes necessary. By including such a provision, the CPA firm may reduce the likelihood of a client asserting that the firm cannot withdraw from the engagement.
  • Deadline communication: Clients that are chronically noncompliant with terms of the engagement may need a gentle reminder of their responsibilities in the form of a written communication. Deadlines should be communicated in an engagement letter. A separate stand-alone letter or email may be appropriate if there are concerns about a client’s ability to meet the identified timing. A properly timed communication could even prevent the need for a client termination.
  • Ideal client profile: CPA firms should establish an ideal client profile and regularly evaluate the existing client base against the profile to identify clients that are no longer a fit for the firm. This protocol helps identify potential problem clients before the relationship becomes tenuous.

STEP 2: BE AWARE OF THE DANGERS

Any journey will have its own set of pitfalls and obstacles. The same can be said of client relationships. Though no maps, GPS, or satellite imagery guide a termination, awareness can help CPAs through the dangers of a contentious client relationship. It can be easy to overlook negative indicators, especially if the fees are substantial, the relationship is long-standing, or new clients are hard to find. Even more difficult to overcome are strong interpersonal connections between the engagement team and the client. Recognizing a bias toward retaining a client and being mindful of already serious or mounting issues can be the difference between exiting a client relationship unharmed or falling into a conflict. Common indictors may include:

  • Concerns regarding client integrity.
  • Fee or service complaints.
  • Disputes within the client organization.
  • Untimely or incomplete responses to requests.
  • Negative responses to constructive suggestions.
  • Poor attitude toward internal controls.
  • High accounting or management turnover.
  • Dismissive treatment of engagement team members.
  • Disrespectful treatment of client employees.

While counterintuitive, a client’s rapid success or expansion also could be an indicator that the relationship may need to be reevaluated. The client’s successes may require services and expertise that are beyond the CPA firm’s capabilities. However a proactive plan may prevent the CPA from making unintended errors that could result in professional liability claims, if services were to continue.

STEP 3: MAP OUT YOUR PATH

Whether the end of a client relationship is ambiguous or obvious, a client termination is not complete until it is formalized in a written communication to the client. Guidance on drafting the letter is as follows:

  • Omit the reason for the termination: A termination letter is not the time to win an argument with a client. The letter simply represents a method to inform the client that you are no longer providing services and identify the client’s responsibilities going forward. Explaining why the firm is ending services may only upset the client further or create a problem that previously did not exist.
  • Items for client followupAfter parting ways, your client will need to be pointed in the right direction to complete its journey. The letter should clearly map out the client’s responsibilities going forward and issues that should be raised with a successor CPA. Matters of particular importance to include are deadlines (statutory, regulatory, or operational), internal control weaknesses or breakdowns, and indicators of potential fraud or violations of laws and regulations. If deadlines are missed or a theft occurs and the CPA had not informed the client of those in writing, the client may blame the CPA firm.
  • Fees: At times, clients assert that CPAs knew they did not provide proper services because they do not request outstanding fees. As a result, whether or not you expect to collect unpaid fees, a termination letter should state the outstanding balance of fees due. A final billing statement may resolve any confusion and could be included as an enclosure with the termination letter.
  • Send a hard copy: Advances in technology have made most interpersonal communications nearly instantaneous. Yet, the professionalism and permanence of an actual mailed letter cannot be ignored. Unless there is a looming deadline or other rare situation, a hard copy of the termination letter should always be sent by a method that will confirm receipt by the client. Further, the letter should be sent via a traceable method to demonstrate delivery andreceipt.

STEP 4: FINISH THE JOURNEY

The client termination process is no walk in the park. It involves a commitment of will, time, and professionalism. It is not an easy choice or one that should be made on a whim. Once started, the process should be seen through to completion. The following tips will assist in managing this process:

  • Evaluate your mindset: While it is important to assess the client’s actions in making a termination decision, it is equally important to assess your own mentality once the decision to terminate has been made. The goal of a termination is to lessen or avoid a conflict with a client. Failing to maintain a professional attitude throughout the termination could elicit a client response that results in unnecessary stress, reputational damage, or even a professional liability claim.
  • Stick to the path: Once your services have been officially terminated, do not continue to provide services or reengage with the client for additional services. Allowing a client to talk you into providing services is akin to traversing a bridge that you already know to be perilous. It may seem as though you are performing just one more task before concluding the engagement, but continuing to provide services lessens the likelihood that the client will ever accept that the relationship has ended. Just remember, when the relationship terminates, it is a final decision.

 

9 tips for being more responsive to clients

“One of the top reasons accountants lose clients is because they are not responsive enough,” said Edward Mendlowitz, CPA, partner at WithumSmith+Brown in New Brunswick, N.J.

But being responsive isn’t always easy. CPAs and their firms face daily pressures and have hectic schedules. Clients contact them via phone, email, and text. Multiple clients may want attention simultaneously. And clients may expect their CPAs to be on call day and night.

If communication is light or lacking, sometimes CPAs do not realize that clients are dissatisfied with their level of responsiveness.

How can CPAs and their firms ensure they are being sufficiently responsive to their clients? Leaders in the profession offer the following advice:

  • Return calls, emails, and texts in a timely manner to establish trust. It’s all too easy to push things off until the next day. Many firms have a 24-hour rule, stressing the importance of callbacks or returned emails or texts within that time frame. “I try to return every client phone call by the end of that day,” Mendlowitz said. “Returning phone calls is an indication of availability. Clients want to know that you are there if they have a real serious problem. If a client calls you at an inconvenient time, ask them when you can call them back.”
  • Establish a response policy. Firm leaders should create a policy that explains how quickly clients must receive a response, and then communicate that policy to employees, said Hank Levy, CPA, founder of The Henry Levy Group in Oakland, Calif., and a partner at ELLO, an MGO member firm. Joseph Tarasco, CPA, founder and CEO of consulting firm Accountants Advisory Group in Cold Spring, N.Y., advises firms to drop everything if a client has a crisis. “With competition you have to respond,” he said. “That’s today’s world—everyone is walking around with cellphones, and clients know this.”
  • Choose to communicate in a way that suits your client. Some clients prefer emails; others prefer texts or phone calls. Some want to meet in person. So know how your clients want to communicate. “Respond back in a fashion that will retain that client and keep that client happy,” Tarasco said. Also, reach out to clients occasionally just to say hello, as that can help build relationships as well.
  • Prioritize. Make lists of clients you need to contact and/or respond to. Take advantage of different productivity tools, such as spreadsheets and apps, and keep revisiting and updating your lists, Levy said. Also, if at all possible, don’t delegate client-related tasks that are priorities and time-sensitive. “If you do delegate, make sure you follow up. Do not assume that it will always get done,” Tarasco said.
  • Use language your client will understand. Your clients “are not tax accountants with advanced tax degrees,” Tarasco noted. So avoid sending them jargon-filled emails and instead explain things to them in layman’s terms.
  • If a client wants to meet, do it. If a client requests a meeting, “do not make an appointment for two weeks out,” Mendlowitz said. Instead, try to meet as soon as possible, even the next day if you have time. Doing so highlights your availability and responsiveness. Similarly, don’t write a 10-page email if there is a lot to discuss. In addition to the necessary written documentation, you also should meet face-to-face for something that is important or complicated, Tarasco advised.
  • Be compassionate. Clients should view you as a trusted adviser, and that means being a good listener. “If a client has pain, try to find out the pain and meet with the client to help them through it,” Mendlowitz said. “Empathize with the client and feel what they are going through.” Also, be sensitive to clients’ changing needs.
  • Follow up. Even if a client seems satisfied with your response to issues that arise, contact them again within a few days. Ask, “How are things going? Did it work out as planned? Did my advice help? Did anything else get uncovered?” Tarasco said. “Follow-up is key.”
  • Keep your client roster manageable. While it’s great to add more clients to your roster, having too many can make it difficult to serve all of them in a timely manner and keep them happy, so don’t take on too much. “If you are not responsive to clients, you give them a reason to leave you, look outside, and complain,” said Richard Lash, CPA, managing partner at Walthall CPAs in Cleveland.

Most partners in public accounting firms achieved their success because they were responsive to their clients. “That’s the No. 1 commandment,” Tarasco said. “So if you are breaking that No. 1 commandment, you can’t stay in business.”