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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

High demand for board positions for CFO’s

High demand for board positions for CFO’s

CFOs to participate on corporate boards is increasing.

Seventy-nine per cent of CFOs are experiencing increased demand for their expertise on corporate boards, according to an Ernst & Young survey of 800 global finance chiefs. CFO and Beyond: The Possibilities and Pathways Outside Finance communicated the results of the survey and a study of 347 companies worldwide with annual revenue over $5 billion.

Current or former CFOs make up 14% of board members of the companies studied, up from 8% in 2002. And 41% of audit committee chairs are current or former CFOs, up from 19% in 2002.

The desire on the part of CEOs to have finance professionals look beyond their functional silo to collaborate effectively on strategic decisions was revealed in the CGMA report Rebooting Business: Valuing the Human Dimension. Those same skills are sought by corporate boards, and CFOs are supplying them.

Jim Ladd, CPA, CGMA, senior vice president of finance and operations at the Institute for Systems Biology in Seattle, estimated that he has served on about 18 boards during his career. His current board responsibilities include an audit committee role for a New York Stock Exchange-listed company, a lead independent director position with a privately owned company in Seattle, and participation on two not-for-profit boards.

He said finance executives can contribute a lot to boards.

“They’re generally sought out initially because of finance background and a knowledge of financial reporting and audit risks and that sort of thing,” Ladd said. “But CPAs have a broader background than that. And people discover that.”

Audit committee a good fit

Finance skills make CFOs ideal candidates for audit committee positions. In many jurisdictions, regulatory requirements demand that at least one audit committee member have financial expertise to keep abreast of evolving accounting standards, risks and regulations.

Public companies listed in the United States, for example, must disclose whether they have at least one financial expert independent of management on their audit committee. The United Kingdom’s Corporate Governance Code says a board should satisfy itself that at least one audit committee member has recent, relevant financial experience.

This can be a benefit and a frustration to CFOs. Eighty-one per cent of them say finance leaders are good choices for audit committee jobs because of their finance acumen. But CFOs want to make sure their skills in strategic development and other areas are recognised, too.

“Some of them can be a little insulted that the breadth of their experience as CFO is not necessarily recognised,” Gerard Dalbosco, an E&Y managing partner, said in the report.

Opportunity to branch out

Although CFOs already have busy jobs, about two-thirds of them reported that they have taken on, or would be willing to accept, more part-time, voluntary or non-executive roles. Twenty-seven per cent said they already have taken such a role, and 40% said they haven’t yet, but would be interested in doing so.

Scott Lampe, vice president and CFO of Hendrick Motorsports in North Carolina, serves on a few community and government boards and said he is willing to consider working on boards of companies that don’t have a lot of risk and are looking to grow organically. “I want to work with companies who share my philosophy about how a business should be run and what kind of contribution it can make in improving the communities is operates in,” Lampe said.

What do CFOs reap from serving on boards? Three-quarters of survey respondents said gaining general management or board level experience is a benefit. Other top benefits included gaining exposure to another company or industry (65%) and getting a different perspective on running an organisation (62%).

“You get to look beyond the purely financial and think more strategically about a different organisation,” Qatar Foundation CFO Faisal Al-Hajri said in the report. “You can also use these roles to play a broader role in society or the community.”

Serving on charitable and community service boards also gives CFOs an opportunity to give back to the community. Mick Armstrong, CPA, CGMA, recently agreed to serve as treasurer on the board of directors of the chamber of commerce in Meridian, Idaho, where he is employed as CFO of Micro 100 Tool Corp.

“We as a company are committed to the community and realise that just our business environment, the quality of life for our employees, all is wrapped up together,” Armstrong said. “So we choose to be involved in the community.”

Protection from liability

Ladd said a key question any potential board member should ask before considering a seat on a board is whether the organisation carries liability insurance for its directors and officers. He said risk exists even at not-for-profit organisations, so board members should make sure they are protected.

In addition, Ladd said, it is important to make sure you are working for an organisation that supports your involvement on an external board. And you need to have the time and energy to fulfil your board duties in addition to your regular job.

Armstrong, for example, said his duties as chamber of commerce treasurer are made easier by Micro 100’s recent hiring of an accounting manager with a public accounting background. As Armstrong moves toward more of an executive leadership role with his company, this distancing from Micro 100’s daily accounting activity also has helped him find more time – early in the morning, at lunchtime and on weekends – to devote to his board duties.

Ladd said he does a lot of his board work during evenings and weekends.

“I sometimes joke with my wife when I come home at night that I’m starting my second job,” Ladd said. “…But most of the meetings are during the day, so you do have to have an understanding employer. That puts some strain and requires extra time in your life. There is no doubt about that.”

Source :GCMA

Strategies to use analytics for competitive advantage

Strategies to use analytics for competitive advantage

Organisations are building momentum for the use of Big Data by integrating data analytics into their strategy in small projects that deliver substantial results, according a new report.

Almost all respondents – 96% – said that analytics will become more important to their organisations in the next three years, according to a Deloitte report based on a mix of 100 online surveys and 35 interviews conducted with senior executives at 35 companies in North America, the UK and Asia.

Although analytics already is an important resource for many companies, analytical technology remains immature and data under-utilised, according to the report. Getting buy-in for further projects is essential, so analytics leaders are starting small.

“Projects that demonstrate analytics’ ability to improve competitive positioning help these initiatives gain traction across the enterprise,” Deloitte Touche Tohmatsu Limited’s Global Analytics Leader Tim Phillipps wrote in the report.

Companies can prepare themselves to use analytics for competitive advantage, according to the report, by using the following strategies:

  • Acquire the right talent now. Talent for analytics and Big Data is in high demand. Talent shortages may become more of a barrier to analytics implementation as more companies use data to drive more processes and decisions.
  • Tie analytics to decision-making. Better data and analysis don’t necessarily result in better decisions. Specific initiatives to improve decision cultures and processes, along with changing the understanding and behaviours of front-line workers, lead to better decisions, the report says.
  • Apply analytics to marketing and customers. Finance operations are the most frequent area of analytics investment, with implementation by 79% of respondents. Marketing and sales groups, at 55%, are the second-most frequent analytics users, and the report says the best financial returns from analytics often come from marketing and customer-oriented applications.
  • Coordinate and align analytics. There is little consistency among companies with regard to who oversees analytics initiatives. Business units or division heads (23%), no single executive (20%), CFOs (18%) and CIOs (15%) were most commonly cited. More co-ordination may be needed to realise the full benefits of data throughout the organisation.
  • Create a long-term strategy for analytics. While current analytical processes are being implemented, a multi-year plan for the growth of analytical capabilities – linked to strategy development – will help organisations better use data over time, the report says.

TOP key concerns keeping directors up at night AND How board can address them

TOP key concerns keeping directors up at night AND How board can address them

Concerns on board members’ minds are similar across the globe, the surveys suggest. Here are the top four:

Managing cybersecurity. “In my opinion, and as reflected in the two surveys referenced, cybersecurity is an area of focus for most boards,” Pickering said.

New digital technologies and cybercrime were two of the three top concerns amongst respondents in the InterSearch survey. The PwC survey found that cybersecurity is top of mind for US directors, with 95% of respondents saying their board is preparing for cybersecurity incidents and two-thirds (67%) saying their board is receiving more reports on cybersecurity metrics. Among the tactics boards are using to address gaps are increasing cybersecurity budgets (57%), engaging third-party consultants or advisers (56%), and providing directors with additional education opportunities on cybersecurity (66%).

The PwC survey suggests that increasingly, directors want the entire board to oversee cybersecurity instead of allocating the responsibility to a smaller group, such as the audit committee. In 2017, half of directors said the audit committee was responsible for overseeing cybersecurity, but in 2018, that number fell to 43%. In 2018, more than a third (36%) said the full board has taken responsibility for cybersecurity, up from 30% last year.

In Pickering’s experience, cybersecurity has best been overseen by the risk committee. “It’s such a specialised area, we really need people who are involved in risk oversight on a more regular basis,” she said, adding that the full board gets regular reports and participates in drills. According to the survey, just 34% of directors said their companies had staged crisis management drills or simulations.

Refreshing the board. Serving as a director is more demanding than ever, said Pickering, who was appointed to her first board two decades ago. “It takes a lot of time. You have to stay informed, read the journals, and make sure you are on the leading edge of what’s coming down the pipe. I believe every director needs to be fully engaged.”

But not all directors are as engaged as colleagues expect, both surveys found. Just 10% of the respondents in the InterSearch survey thought the competencies of current board members matched the competencies needed for the future, and 32% suggested their boards needed alterations. Competencies respondents felt were needed more on the board were digitalisation and new technologies (24.3%), innovation (12.2%), and customer orientation (9.3%).

In the PwC survey, 45% of respondents said at least one board member should be replaced. Directors age 60 or under were also more likely to say a fellow director should be replaced (52%) compared with those age 61 or older (43%) who wanted to replace a colleague. Among their chief complaints about colleagues were directors overstepping their roles (18%), being reluctant to challenge management (16%), negatively impacting board dynamics with their interaction style (14%), and lacking the appropriate skills or expertise for their role (12%). At the bottom of the list, 10% of respondents said they thought advanced age had diminished a colleague’s performance, which ties into long-standing debates about mandatory retirement ages and director term limits.

According to the PwC survey, directors think both mandatory retirement ages (73%) and term limits (64%) are effective strategies for refreshing boards, but less effective than a leadership focus on board refreshment, as well as assessments of the board, committees, and individuals.

PwC recommends annual assessments to identify directors whose expertise no longer aligns with the company’s needs. Less than one-third of respondents (31%) said their boards already use director assessments, but another 46% said they thought the board would be willing to adopt their use.

Avoiding corporate culture crises. Corporate culture is often thought of as the “tone at the top”, but according to the PwC survey, most directors think cultural problems can start both at the executive level (87%) and in middle management (79%). That’s why it’s important to offer employees at all levels opportunities to offer feedback, such as with an anonymous survey, Pickering said.

“You shouldn’t be afraid to ask your employees these questions,” Pickering said. “You need to know if there’s a potential issue. It’s good for culture and the health of the company.”

More than 80% of respondents in the PwC survey said their companies have taken action to address culture concerns, many by enhancing employee training (60%) or improving whistle-blower programmes (42%). But some organisations still are missing the mark by using ineffective tools.

According to the PwC survey, 64% of directors said they evaluated company culture using their intuition or “gut feelings”, even though just 32% said this was a useful approach. Another 63% said they looked to employee turnover to get a read on work culture.

PwC recommends that boards review the quantitative and qualitative metrics the company may already measure to identify gaps and ensure organisational culture is a regular topic on the full board’s agenda. Even if elements that contribute to organisational culture, such as ethics or compensation, are broken off and discussed in committees, the full board should discuss concerns that arise as part of their broader oversight of culture.

Determining the value of diversity. “Gender diversity on boards is still not where it needs to be,” Rand said. “Increased diversity on boards should not be the result of a box ticking or a public relations exercise.”

Almost all directors (94%) in the PwC survey agreed that board diversity brings unique perspectives into their discussions, and 91% said their boards are taking steps to increase diversity on the board, which is a slight increase from last year. However, about half the directors surveyed also said they thought efforts to increase diversity on boards are driven by a desire for political correctness (52%) and that shareholders were too preoccupied with this issue (48%). About a third (30%) said diversity efforts result in boards nominating extraneous candidates, and 26% said diversity results in unqualified candidates being nominated.

In the InterSearch survey, 43% of respondents reported changes in board membership that had already taken place to make the boards more diverse — 67% were driven by the wish for greater gender diversity, 46% to promote greater diversity in competencies, and 25% to provide greater diversity in nationality.

“Being a female, I understand and appreciate diversity,” said Pickering, who was the sole woman on the board for Hancock Whitney Bank for years. “You want to have a diverse board; I believe it makes a huge difference in how boards operate.”

Among attributes, respondents in the PwC survey placed the most importance on gender diversity (46%) compared with racial and ethnic diversity (34%) and age diversity (21%).

PwC recommends that boards consider diversity whilst developing strategies for board refreshment. Boards often recruit new directors by relying on recommendations from current ones, which limits results. The firm encourages boards to look more broadly and consider recommendations from investors rather than board members, and find candidates outside of the corporate world, such as those who have served in the military or worked in academia or at a not-for-profit.

To her board’s credit, Pickering said, it has added two female directors in the last two to three years, including one who was featured in Savoy magazine as one of the “2017 Power 300: Most Influential Black Corporate Directors”. “We partnered with a search firm and found great talent,” Pickering said.

 

What makes a CFO great

What makes a CFO great

A majority of finance leaders said they are increasingly expected to have digital know-how, use data analytics, and manage risks. They also have to deal more with shareholders and regulators than before, according to a global EY survey of more than 750 finance leaders.

Corporate finance leaders face four main challenges. Tackling them will allow CFOs to shape strategy and drive innovation necessary for sustainable growth, but it will also rapidly expand their role, EY research suggests.

Taking on the additional responsibilities is crucial to help develop and enable an overall strategy for the business, provide insights and analysis to the company’s executive management, ensure that business decisions are grounded in sound financial criteria, and represent progress on financial goals to external stakeholders, according to EY.

A great CFO is a partner to the CEO and in private his or her harshest critic when warranted, he said.

Digital know-how. To fulfil critical strategic priorities, 58% of the respondents said they need to better understand digital technologies and data analytics. Two technologies are shaping up to become particularly important for finance leaders to understand: Blockchain, which allows data to be exchanged with the help of a decentralised ledger, could transform corporate reporting. Robotics process automation promises to automate and reduce the cost of back-office processes.

Digital savvy is a priority across industry sectors, because it offers opportunities for growth – in new markets, through new products and delivery models, or by transforming existing products. Financial leaders who understand how their company can deliver on its digital strategy can co-ordinate and focus investments accordingly.

Digital issues to tackle include global tax implications for how goods and services are sold; where companies base their operations; robotics; and new competitors.

A good digital strategy helps a company figure out which technology provides the best return on investment and possibly other intangible benefits. “Not everything will work for your business.”

Data analytics. In the past decade, half of the finance leaders polled by EY have increased the amount of time they dedicate to advanced analytics to provide more insight to the CEO and senior management. Of the respondents in the 2016 survey, 57% said that being able to deliver the data and advanced analytics will be critical for the finance function.

“Using Big Data along with your own internal data makes your internal data even more powerful, and it provides context and connection to the marketplace,”.

For companies to turn these efforts into a long-term competitive advantage, data must become integral to the business strategy, and analytics delivery must match business requirements. To gain more value from analytics, business leaders should focus on training, easy-to-use tools for data users, and aligning incentives, rewards, and measurements.

Risk management. Two-thirds of financial leaders in large companies (more than $5 billion in annual revenue) and 54% of financial leaders in smaller companies said they believe risk management will be a key capability demanded of the finance function.

To play their part effectively, CFOs must think beyond prevention and identify strategic risks, bring up risks in strategic and business planning discussions, and take the time and resources to recruit talent in advanced analytical skills.

“By understanding the pain points of pivotal departments in your organisation,”, “you can look at a balanced level of risk that allows for creativity and mistakes in order to drive the best possible solutions and outcomes.”

Stakeholder scrutiny and regulation. Half of the financial leaders polled said they will have to improve their skills managing relationships with stakeholders, including investors and senior management; in emerging markets it was 59% of respondents.

Understanding what drives stakeholders, communicating proactively, and telling a consistent story about the business will be critical to strengthen stakeholder relationships.

Intense regulatory scrutiny requires CFOs to also work ever more closely with policymakers. Of the finance leaders polled, 71% said they will increasingly be responsible for the ethics of their company’s decision-making.

A great CFO “is a great communicator and is as comfortable talking to boards and investors as [he or she is talking to] a roomful of software engineers,”. “They are flexible and listen to ideas, commercially astute, and up to date with technologies.”

HOW TO TACKLE THE CHALLENGES

To help identify and assess fresh strategic approaches and help their companies, EY considers these five areas as critical:

  • Support innovation and new business models. Collaborating with entrepreneurs and start-ups helps drive innovation and meet changing customer and emerging market needs. CFOs play a key role in building successful collaborations, including effective due diligence on potential partners, aligning incentives between partners, and establishing an effective governance model.
  • Develop and deliver agile strategy. Business strategies should adapt to changing competitive dynamics, differing customer needs, emerging technologies, and a changing regulatory environment. CFOs can develop and deliver these strategies, for example, by unlocking capital for new business opportunities.
  • Drive sustained, long-term growth. Identifying risks as early as possible, managing negative exposures, and seizing opportunities help companies adapt to uncertainties generated by market and regulatory volatility. CFOs can provide investment flexibility to seize growth opportunities, such as new products and services or entering new markets.
  • Inspire and lead the way with strong purpose and ethics. Articulating a business’s purpose and ethical stance motivates employees to meet new challenges. CFOs help embed purpose in the business by leading through example and by grounding it to performance measurements.
  • Support digital. Understanding the opportunities and risks allows companies to incorporate digital into their strategy and into the delivery of the strategy. CFOs can then help the business to deliver the right digital capability at scale, be it by striking a balance between near-term targets and long-term potential or by building the business case for significant technology investments.

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

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.

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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.

Workplace Health and Safety a Vital Component of Mature Risk Management

Businesses of all types are being transformed by technology, and so are the many kinds of workplaces that support their operations. Changing business strategies and increased productivity lead to rapid changes in process, which often means that executives lack a full understanding of the impact on the health and safety of employees and third parties. Workplace health and safety risks are among the most critical to address, as they can result directly in loss of life and limb—not to mention chronic injury and illness, work stoppage, lawsuits, and damage to brand reputation.

Traditionally, workplace health and safety matters have been addressed by dedicated safety teams working apart from the business, and risk management teams relying on spreadsheets, checklists, and incident reports as tools of the trade. As the number and interdependence of risk factors increases, this is no longer a sustainable approach—the cost of managing each regulation, requirement, change, or incident out of siloed programs will continue to rise, while effectiveness erodes.

The growing influence of international standards for risk management (e.g., ISO 31000, ISO 9001 and ISO 45001), and emphasis on integrated risk management as a key factor in cultivating business resiliency have created prime opportunities for workplace safety professionals to raise awareness of their role in risk management and of the impacts of accidents. With the right processes and technology, safety professionals can help protect their organizations from a range of negative outcomes from employee absences to insurance premium increases to fines and lawsuits.

With this in mind, health and safety leaders, C-level executives, and boards should be incorporating workforce well-being into strategic planning, corporate responsibility programs, and risk maturity initiatives across the enterprise. Governance, risk management, and compliance (GRC) efforts are not abstract—they are interrelated, and each function can be made stronger when addressed holistically. Carrying out integrated GRC initiatives (including health and safety programs) involves orchestrating and centralizing numerous interdependent policies, processes, and reports.

Integrated risk management should raise continuous, data-driven improvement of health and safety measures to the same level as other operational risk measures (e.g., cyber security, outsourcing, fraud prevention). Supporting these efforts with a systematic and streamlined process and toolset for documentation, tracking, training, reporting, and analysis is fundamental to incorporating them throughout the enterprise.

Integrated risk management processes help organizations foster accountability and collaboration, form a clear and complete picture of risk, cover compliance obligations more efficiently, reduce safety and health incidents, and improve incident response. The longer problems remain unaddressed, the greater the liability and risk exposure. Ineffective responses to workplace health and safety issues can lead to repeat accidents, illnesses, absences, loss of productivity, higher fines, higher insurance premiums and increased scrutiny from regulators and business partners. The GRC processes that need to be optimized include: performing risk analysis and business impact analysis; maintaining and reviewing process and safety documentation; investigating and reporting on accidents, injuries, illnesses and near misses; analyzing injuries and issues by site to pinpoint and measure risk; automating generation of incident forms for outside agencies (e.g., OSHA and HSE); executing job hazard analyses; managing site inspections and remediation actions; and ensuring employees are aware of safety processes.

There are few excuses for the blind spots that lead to major workplace health and safety issues. If we integrate policies and controls with processes and systems across the enterprise, we can gather and analyze metrics on just about every aspect of operations, as well as incorporating employee input and best practice guidelines. GRC technology solutions that include a health and safety component can help automate and bring a new level of intelligence to the associated risk analysis.

Enterprise-wide data integration enables predictive analytics capabilities, making it possible to identify health and safety issues and communicate them to executive decision-makers before they turn into incidents and losses for the company. Data captured during risk or safety assessments, and investigations into near misses and incidents generates insights to be incorporated into safety protocols and job training. The same types of analyses can be applied to vendor and supply chain management to improve health and safety outcomes throughout the value chain.

Data-driven safety programs should also include mechanisms for gathering input and feedback from the workforce. Whistleblower capabilities, responsive communications, and reliable procedures for following up after an incident or near-miss cultivate a safety-first environment. The ability to reassure workers that their wellbeing is a management priority positively impacts everything from recruitment and retention to incident rates, productivity, and corporate reputation.

Organizations cannot reach a mature, effective level of risk management without incorporating health and safety into their operational risk programs. An informed and comprehensive view of risk leaves enterprises better prepared for planned growth as well as unexpected opportunities and challenges. To strengthen business resiliency and sustain competitive advantage, executives must prioritize the continuous monitoring of health and safety risk and compliance across all business units, partners, and vendors. Mature risk management not only saves lives, but also lowers insurance costs, increases productivity and protects the sizable investments companies make in acquiring, training, and retaining their workforce.

Keys to Embracing Disruptive Technology

Keys to Embracing Disruptive Technology

In taking stock of potentially disruptive technologies, CEOs should be ready—really ready. Reinhard Fischer, chief of strategy for Audi of America, urges CEOs to “stop denying reality, which is what taxi operators did with Uber. Now Uber has taken about one-third of the taxi traffic in big cities.” Disruption is happening faster than ever. “Before when you talked about technologies coming, you’d name one or two,” says EY global chief innovation officer Jeff Wong. “Now there are 10, and they’re all relevant and important. That’s what’s really changing for the CEO.”

Here are some key pointers for CEOs looking to embrace disruptive tech solutions:
Don’t panic. The world is rife with examples of businesses where technological revolution fell short of its warnings. Early participants in e-learning, for example, still haven’t made money, says Julian Birkinshaw, a professor at London Business School. “Sometimes we forget about industries that haven’t been turned completely, immediately upside down. You have to make an ultimate commitment to new technology, but it’s not like you necessarily have to do that immediately.”

 

1. Take a long and broad view. Wall Street may demand rapid returns but woe be unto the CEO who concedes wholesale. “You’ve got to try to optimize for 10 years from now, not even just one to two years ahead,” warns Guo Xiao, CEO of the consulting firm ThoughtWorks. CEOs must also broaden their transformation push to encompass relationships with suppliers, customers and other external constituencies. “The greatest success comes through building an ecosystem of alliances and not thinking that the impact of technology is all within the four walls of your company,” says Nichole Jordan, national managing partner of markets, clients and industry for Grant Thornton.

2. Disrupt yourself. Critically evaluate your existing business model much as a hacker would try to take down a cybersecurity network. “Find out what the weak points are that you don’t see so that a disruptor can’t take advantage of them—and so you can disrupt yourself,” says Fischer.

“YOU’VE GOT TO TRY TO OPTIMIZE FOR 10 YEARS FROM NOW, NOT EVEN JUST ONE TO TWO YEARS AHEAD.”

3. Seed early successes. Enable a “culture of testing and learning new technologies, not necessarily passing and failing them,” advises Roger Park of EY. Former Humana innovation chief Paul Kusserow, now CEO of Amedisys, recommends testing technologies with “people in the company who have a very specific problem that a technology could solve—more acute than anywhere else in the company—or who believe that a process needs to be changed and this could help it. Then you need to make sure these people get not only the benefit of the innovation but credit for taking the risk.”

4. Create emerging-tech scrums. EY’s Jeff Wong suggests charging a team with “actually getting dirty with tech and playing with it, trying to address and answer problems.” Audi of America created a “digital team where we pull all the bright young minds that are working on digital topics and merge them with people who do strategy for the long term,” Fischer says. “It’s a little lab where we play around with all kinds of ideas and ask ‘what if?’ questions.”

5. Expect resistance. “There are incredible forces working against innovation” in any organization, Kusserow says. “Technology has to be so good that someone has to be willing to take the risk of restructuring or disassembling an existing process to which their success or maybe their careers may be tied.”

6. Don’t get hung up on a specific technology. Resist the urge to make a big bet on the latest buzzword technology, says John Mullen of CapGemini. “Don’t prepare yourself to chase certain technologies, but [rather] to get better decision making in your organization, because the technologies that pass through your ecosystem are going to be different tomorrow than today.”

7. Focus on building capabilities. CEOs need to see their roles as “building an organizational culture that can rapidly figure out which technologies are advancing, what the paybacks are and what the future leverages of those technologies are in order to determine whether they’re part of the business strategy going forward,” Mullen says. Consider putting tech people on the board and add the CIO to the company’s core management team. “You need to infuse specific technology skill sets in management—people who understand digital as well as your industry,” says Jeanne Beliveau-Dunn, VP and general manager of Cisco Systems. “They need to be embedded in each business unit.”

8. Reckon with legacy IT. A company’s IT base typically must provide the computing horsepower and platforms for embracing machine learning and other data-intensive disruptors. Many CEOs get excited about a shiny new app, “but they shouldn’t lose sight of the fact that existing IT can be an enabler or an inhibitor of new digital services,” advises Paul Appleby, EVP of transformation for BMC Software. “They have to work on how to turn their existing infrastructure into a competitive differentiator. It may not be the exciting piece, but it’s what will allow you to be agile and scale and do so in a trusted environment.”