The Evolution of the CFO

Chief Financial Officers (CFOs) have a big job on their hands. Increased regulation, competition and access to real-time data mean they are expected to be proactive strategic partners. Criticaleye spoke to a number of CFOs about how they are using financial insight to drive the business forward.

“The role of the CFO has changed significantly and they have become much more influential when it comes to business strategy and planning,” says Andrew Minton, Managing Director at Criticaleye. “Digital technology is enabling the CFO to transform their function from being expense and accounting focused, to one centred on predictive analytics and collaboration with other functions.”

In Criticaleye’s Eye to Eye video series, in association with Accenture, we asked a number of CFOs from large corporates how digital technology is transforming the finance function and how they see their role evolving. Here’s what they had to say:

Stephen Daintith
Group Finance Director
DMGT

Our technology development spend was around £15 million over the five years to 2010, in contrast over the next five years we will have capitalised and spent in excess of £300 million. There has been an enormous acceleration to keep up with competition, develop our products and to innovate stronger and harder than ever before.

That puts challenges and responsibilities on the CFO to ensure we’re always spending the money wisely, getting involved in the debate, understanding what it is we’re building and what the payback looks like, as with any sort of investment appraisal.

There’s another topic that’s come up – which is brand new for me and will be for many CFOs – and that’s the notion of measuring your technology debt. This is the understanding of your IT systems across an organisation and the cost of replacing or upgrading them. It isn’t recorded on your balance sheet, but is a contingent liability.

What’s also interesting is how we’re evaluating acquisitions. The technology assets they bring to DMGT is high up there on the list of reasons why we would acquire; it’s not just about the products or revenue streams. Technology is affecting us and it’s a case of CFOs having to learn fast.

One CTO gave me some good advice and said: ‘Ask more simple questions: ask why, how and what? And don’t accept our answers.’

Technology is a space where jargon can be used, so ask the common sense questions and flesh out real issues.

Patrick Lewis
Group Finance Director
John Lewis Partnership

I would pick three different lenses where I get the most value from technological improvement. The first [is about] our customers and making sure that we’re investing in the right place based on our digital understanding… That helps me with capital allocation and getting the best returns, so that we can provide the greatest service.

From an employee perspective, over the last five years we’ve managed to drive interaction with our partners… in a way that reduces the amount of time they have to spend on administration. This, in turn, increases the amount of time they provide adding value to the business [thus] enabling them to earn more. That’s very important, as a co-owned business my goals are slightly different from the CFO of a standard Plc.

Last but not least, the digital understanding right across our P&L helps us drive productivity. So, [to take an] example… the process by which we interact with our suppliers to pay them… used to be a very manual process, with different [procedures] right across the business. We have [now] put in [place] a number of systems that have standardised that, [allowing] us to manage the process all the way through our [supply] chain.

Simon Dingemans
CFO
GlaxoSmithKline

Enhanced digital capabilities across the company are transforming the way in which finance can engage with the business. In a traditional model of finance systems and finance IT, it would have been about controls and governance; it clearly still needs to be about those things, but you now include a much more comprehensive, capable analytics platform.

This allows you to engage with the business in a much more real-time environment. I think that is really the challenge: how do you think about the speed at which you need to make those decisions? You can invest exponential amounts in trying to accelerate that speed and, at some point, the trade-off and the value in that is questionable.

How you use data is also increasingly important. Many CFOs have invested in new systems and more standardisation, and GSK would be no exception. What you want to do is allow the whole business – not just the finance people – to see that data, understand it, interpret it quickly and in a practical way.

Stephen Jones
Former CFO
Santander UK

There’s a huge opportunity for the CFO to be able to drive their immediate business requirements in a manner that is better integrated across the firm.

Many of the requirements for a CFO… relates to ensuring that data is available in a manner that addresses accounting, capital, liquidity and other regulatory reporting requirements. [However], if you think beyond those narrow requirements it’s the same data that is driving credit risk, market risk, operational risk and could be driving customer relationship management.

I think the role of the CFO in relation to data overlaps very strongly, particularly with the roles of the Chief Risk Officer (CRO), Chief Technology Officer (CTO) and, to an extent, the Chief Marketing Officer.

Being digitally savvy and able to think about data in a manner [that] is based around golden, bullet-proof sources, [as well as] creating digital architecture which is being updated all the time with the latest requirements, are incredibly important skills.

CFOs need to become better at commissioning and executing data-related projects. The standoff I often see between the CFO and the CTO is [when] the CTO says: ‘You asked me to do this so I did it.’ Probably what the CFO asked [was] the wrong thing because they didn’t understand [the wider outcome]; they weren’t thinking beyond their own narrow scope. [CFOs need to be] lateral [and] understand the potential of technology.

Julie Brown
CFO
Smith & Nephew

There has been a big change in the role of the CFO. Previously, say ten years ago, the CFO would be a traditional accountant; they would know reporting, accounting standards and what you may call the finance specialisms, [such as] tax and treasury, extremely well.

The CFO of today is much more focused on business strategy and performance… The profile of [those] being sought after for CFO positions are now business orientated and commercial. When you think about the future… with macro-economic issues and [the fact that it’s harder to grow] in established markets, there’s an increased focus on cost, efficiency and resource allocation.

The CFO is ideally suited [to partner with the CEO in order to grow the company] because of their lens on the business and the numbers.[They can help an organisation to look] at the levers by which performance can be improved; I think that’s going to continue to become more important.

Getting top-line growth… requires someone that understands the business, looks at the granularity of the numbers and the return on investment in different parts of the business. [They need to] help the CEO channel investment towards the areas that are [ultimately] going to generate the greatest return.

By Dawn Murden, Editor, Advisory

Do you think the role of the CFO is changing? Please do send your thoughts to: dawn@criticaleye.com

Watch the latest Eye to Eye: The CFO as Architect of Business Value video series

Or why not read more from Accenture on how digital is killing the finance function as we know it.

Also, don’t miss next week’s Community Update on productivity.

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How to Support a First Time CEO

Stepping into the CEO role for the first time is a daunting task. You’ll face immense pressure to tackle widespread responsibility at a relentless pace. No CEO can do it alone and a first-timer in particular will need support in making that transition.

“The top job requires so many skills and leadership capabilities that just acquiring them − let alone using them − can seem overwhelming. Once you’re in the role, don’t expect that you can do everything yourself; a strong leadership team should be there to support you and give you time to reflect and decompress,” says Matthew Blagg, CEO of Criticaleye.

We ask leaders for their experience of being, or supporting, a first time CEO. Here’s what they had to say…

Get the Support of the Board

Ron Marsh, Criticaleye Board Mentor and Chairman at Polypipe

For a first time CEO probably the biggest challenge is having the confidence to drive through change in an organisation that they’re not entirely familiar with.

The chairman is there to support them in that, but also to challenge them and respond to their individual needs. He should be supportive without taking responsibility away from the chief executive. It’s more difficult for a NED to directly support the CEO as they don’t have routine interaction with them, but they should provide the sounding board for the chair and CEO to reach a solid conclusion that they can then back.

One of the things a chairman should look for in a new CEO is whether they are overworked – the hours they put in and the sheer effort needed for the job is immense; it can be too much for some.

The main concern is whether the chief executive is feeling lonely and isolated. That often happens when significant changes occur within the top team and at that point the chair should provide a little more help.

Look for Strategic Insight

Catriona Marshall, CEO at Hobbycraft

I joined Hobbycraft in 2011 as a first time CEO. I was heading into a major change programme in a very competitive market with high expectations from my private equity owners. I knew I would need the support of a good board.

The chairman’s role is very important – they maintain a healthy relationship with investors and the board. They should be supportive but also independent. You want them to point out the pitfalls and give you honest advice but also help you on how to get to where you want to be.

From a functional perspective, the CFO should be able to take on things like IT, the supply chain and property but I love to have a buddy on the strategy; someone who can understand the implications of a strategic question.

Getting a CFO who is technically good and commercially savvy is hard, but getting one who can also build a team is the real trick.

Find a Top CFO 

Ian Harley, Criticaleye Board Mentor and former Finance Director and Group CEO at Abbey National

The relationship between a CEO and CFO is the most important in any corporate entity because of the level of contact between them.

They should be complementary – with different strengths and talents – but it’s also very important that they are in locked step; they must move together on the big issues.

I spent five years as CFO to a very charismatic CEO, an ideas factory who sometimes spoke before he thought. When doing investor roadshows with him I’d need to catch those loose balls. My role was to be pragmatic. I also focused on the numbers because he wasn’t technical in terms of accounting.

When I was promoted to CEO I was lucky to be able to pick my own CFO. It was someone I knew from inside the organisation and had worked with for years. If you inherit an incumbent that’s potentially quite tricky – especially if they were a candidate for the top job, which is almost always the case.

Any CEO will have disagreements with the CFO but you must try to have them in private because stakeholders in the business will see the chinks between you and will worry about it, if not try to exploit it.

Create a Team with Complementary Skills 
Greg Morgan, Director at executive search firm Warren Partners

The energy and dynamism of the first time CEO can be a huge asset to any business, especially when well-supported and given the autonomy they crave.

When preparing for a first time CEO role the candidate should be open and honest about their relative blind spots – everyone has them. These could range from having a limited experience of operations, not having done M&A or being a novice in engaging with shareholders or the City. Individuals should involve themselves in situations that enable them to mitigate some of those blind spots.

Businesses that are committed to developing their people will encourage their ‘brightest and best’ to operate outside of their comfort zones and to seize every opportunity to broaden their skillset.

As a first time CEO, it’s no less important to flag where you’re going to need support – the business will not be expecting you to be the finished article; they will respect your honesty and candour and it will get them thinking about the make-up of the team you will need around you.

Potential implications for the business range from hiring or retaining a ‘heavyweight’ CFO to support the new CEO, or asking the chair to remain in the post a while longer.

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4 Tips on Improving Performance

Improving business performance takes strong leadership and immense effort, but neither will have impact if the company’s customers, staff and other stakeholders don’t believe in its future. A good leader will be able to create buy-in from everyone involved and use it to drive change.

When looking to bolster the performance of a company or division, Matthew Tait, Business Restructuring Partner at BDO, emphasises the value of communicating a clear strategy to all involved.

“One risk to recognise about businesses in distress is management’s tendency to lock the doors to the bunker. Despite the evidence, they can believe that no one sees what’s going wrong. Nothing could be further from the truth. Staff, customers, competitors, will know what is happening,” he says.

“A good turnaround plan needs to be agreed by the stakeholders as opposed to being imposed on them. You must understand what you need from each stakeholder – it could be time, funding, or a change in work practices. You also need to understand what the turnaround offers them; if it doesn’t give anything to key stakeholders then the turnaround won’t work.”

Change can be worrying for anyone, but the greatest fear comes from not being informed about where it will lead. As Joe Berwick, Business Development Manager at Criticaleye, highlights: “A clearly communicated strategy is the cornerstone of any successful change programme, and it is the leader’s responsibility to ensure it’s well-received by all stakeholders.”

We spoke to a range of business leaders, each of which have been through a restructuring, to find out how they managed their stakeholders. Here’s what they had to say:

  1. Reassure Your Customers 

When Vanda Murray, Criticaleye Board Mentor and Non-executive Director at Bunzl, led the turnaround of conservatory provider, Ultraframe, where she was UK MD and Group Marketing Director, she knew all key stakeholders had to be involved. “You must engage with them on a meaningful level about what they need, what their issues are and how you will work together,” she says. “The core of the turnaround story should always be the same and it should be based on reality, but you will clearly want different messages for different stakeholder groups.”

One move Vanda made early on in Ultraframe’s turnaround was to reassure customers that the company was reacting positively to market changes.

“The competitor had copied the product and halved the price, the product wasn’t quite as good but it was good enough. Our customers were leaving us in droves; it was a critical situation and action needed to be taken very quickly,”Vanda explains.

“I spent a week on the road speaking with all of the top customers to really understand what was happening. I spoke to most of the senior people in the company and then modelled how it could survive. We made it very clear what we hoped the timeline would be and we told them about our milestones to show we were on track. That was really important for them.”

  1. Build the Right Executive Team

When Andrew Richards took over as Managing Director of Britvic’s newly acquired Irish operations, recession had just hit the country. “We saw a procession of poor numbers, poor productivity and a poor marketplace performance across almost the entire spectrum. The business was failing,” he explains.

Andrew realised that he needed a team fit to take the business through Ireland’s recession; that meant very honest conversations with his executives, culminating in five of the seven leaving the business.

“In my first 90 days, one of my goals was to assess the nature of the loadbearing team,” says Andrew. “When I arrived, the Britvic Group Chief Executive had confidence in the Britvic Ireland executive team we’d inherited, but as we spent time pressure-testing the plan it became apparent that a lot of people weren’t capable of making the journey.

“The first person to exit the executive team, which was within three or four months, was the HRD. He was very well intending but not capable of managing a progressive HR agenda, and he recognised that.”

This process needs to be maintained throughout the change programme – while it’s common to make initial changes to the executive team, continued assessment will ensure the team still carries the skills it needs as the business evolves. “Those who initially feel they’re engaged and involved can begin to lose the energy to continue,” Andrew explains.

  1. Restore Staff Morale 

Low morale will take its toll on any business in decline; it can blight productivity, stain your company culture and lead your best staff towards the door. While emotions are bound to run high, there are ways to improve things – the most important of which are openness and clarity.

“People know when you are being straightforward with them. I talked to the staff in small groups of their own teams, so they felt comfortable enough to ask questions. I was as honest as I could be with them about the changes that would happen,” explains Vanda.

The greatest fear for many employees will be redundancy, so it is important to ensure it is handled properly. “We allowed people to leave with dignity and their heads held high, as much for them as the people left behind,” says Vanda.

It’s also important to understand how cultures vary across regional and international operations. Bryan Marcus, now Chairman of JBR Capital, recalled his experiences while being CEO of Volkswagen’s Latin American financial services division, VWFS.

Tasked with the turnaround of loss-making businesses, Bryan says: “I was a Brit leading a turnaround of German-owned banks in Brazil and Mexico, so the cultural, regulatory and operational challenges were numerous. From my experience, the critical success factors were openness with shareholders, consistency with local stakeholders and to ‘walk the talk’ with the local management teams.

  1. Communicate With the Board

Having led the turnaround of an international division, Bryan is familiar with the complexities of dealing with a distant board, as he explains: “Having worked in a local corporate, one of the challenges I faced was being part of a global corporation with global standards. You need to manage the pressure from headquarters and meet shareholder expectations while creating the time and space for the transformation to take root locally,” he explained.

Andrew faced similar issues at Britvic Ireland and found face-to-face communication was the remedy. “Some of my group executives and board colleagues had less sympathy or understanding of the situation I was in,” he explained.

“One of the ways I tried to work through that was to get the Chairman and a couple of non-execs over to explain what we were grappling with, that’s how I tried to manage my stakeholders back at the group level. Once I’d got them on the ground to see the situation first hand, they started to understand the challenges better.”

Whether you meet your stakeholders in person or build a rapport from afar, it’s imperative that you earn their confidence. As Matthew explains: “You need to have a trusted starting point otherwise people will hear the same messages reiterated but never believe it.”

And as much as you may want it, widespread improvements won’t happen without the belief of others.

Read more on managing your staff through a turnaround and rebuilding a business.

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Connecting with China’s Consumers

Western businesses won’t break the Chinese market with ambition alone. It takes patience, research and knowledge of the market’s consumers. Understand the customer and you will know how to position, alter and grow your offering.

To think that China is a homogenous or static market would be a huge mistake. Criticaleye’s Global Conference Call, Understanding China’s Consumer Landscape aimed to drill down into the complexities of consumer behaviour.

Michael Crompton, General Manager for Asia at Criticaleye, said: “Understanding the consumer is so important. The company − its brand, its product or service and everything it stands for − has to match the desires in the marketplace. Work out what people are passionate about and appeal to that. Also consider product differentiation depending on whether you enter a basic, mid-range or premium market.”

Here are some of the key points to emerge from the call:

Foreign vs Home-Grown 

David Comeau, former President for Asia Pacific at Mondelez International, which owns brands, including Oreo, Chips Ahoy! and Belvita, explained that you can’t just export a Western idea and hope that it’ll stick.

“It’s not simply about bringing a product or idea to China, it’s about how we understand what the Chinese want and do it in a way that feels home-grown,” he said.

To tackle this, David gave his Chinese team the freedom to tailor the brand communication and new product pipeline to suit the market. “We gave them ownership, we set them creating messaging around the brand that made sense to the Chinese consumer so it felt home-grown,” he said.

Remember you will be competing against a rising number of domestic brands, many of which are enjoying growing customer loyalty.

Anne Stevens, Criticaleye Board Mentor and Board Trustee for charity Over The Wall, reflected on the market changes that have occurred since she was Vice President for People & Organisation at Rio Tinto Copper, where she led the people strategy and practices across the Americas and Asia Pacific.

“There has been a rapid amount of change in a relatively short space of time; businesses and products are now viewed differently. In particular by millennials and younger Chinese consumers,” she noted.

“Previously, we saw a lean towards Western products, for example Prada and Burberry in luxury fashion, but now there’s a move towards local brands. Leaders need to stay on top of these changes and tune into what the market is telling them.”

Take Advantage of Trends 

A taste for domestic brands is not the only consumer trend in China and understanding more of them helps you position your product or service.

Chris Riquier is Board Director at Foxley, a platform for website design and online marketing; prior to that was CEO for the market research and market information group, TNS Asia Pacific, where he gained insight into the Chinese market.

On the Conference Call Chris noted some trends that Western companies have done well to adapt to; one of which is the growth of domestic tourism, which outdoor clothing company The North Face has taken advantage of. “Previously, their advertising in China was very much directed at Western experiences such as trekking in The Alps, now it’s directed at urban Chinese who want to experience rural China.”

He also explained that uniqueness and self-expression are of growing importance among Chinese consumers. “Individuality is an intoxicating taboo that is growing within the marketplace and according to research, 64 per cent of consumers within Beijing and Shanghai agreed with the statement: ‘I don’t like it when I see others wearing the same clothes as me,” he shared.

Understand the Channels 

According to Iñaki Amate, Group Director for Greater China at Fjord, Western companies often underestimate the power of digital platforms in China, especially those on mobile.

“It’s important to understand why people behave as they do and why people in China consume media in a different way compared to other markets,” he said. “Always test before you enter, and not just segments; create the persona of the different users before you create the products and services. In a market like China, which is so broad, it may sound challenging but you need to go one level deeper.”

Take the pervasive WeChat, for example. While it is similar to an instant messaging platform like WhatsApp, it also has a payments platform, meaning consumers can order food, taxis, manage their money, sort utility payments, pay traffic parking tickets, check the weather – it has a long list of uses and owner Tencent is constantly developing it.

Chris said: “I come back to a Western market and see the messaging apps we have; they seem positively archaic compared to China. Brands have to be aware of this if they are going to connect with consumers.”

When David was at Mondelez he realised the company had to adapt to the rise of ecommerce in China. “We saw other companies [start] on [nothing] and grow unbelievably quickly – for example, we saw a Chinese nut company called Three Squirrels go from zero to more than 200 million sales online. We weren’t growing like that,” he explained.

That’s when Mondelez started partnership discussions with companies, including internet service portal Tencent and the ecommerce company Alibaba, to develop the business’ online mindset.

“That was a huge win for the organisation in terms of incremental growth. A lot of growth will come from those channels as consumers develop stronger online habits; this is happening elsewhere but China’s leading the way,” said David.

Partnering isn’t a Necessary Evil 

There’s often a presumption that China plays by different rules. One of these is that you must join forces with a Chinese entity to get your business off the ground, but this is not always the case.

Chris at Foxley noted that it’s difficult to make a generic statement about partnering and the best course of action, be it a joint venture, M&A, investment or going in alone. “It’s contingent on what market you are going into, your company and products or services,” he said.

“Apple is an example. Where it has strong products it’s going in alone; where it feels less able to compete it’s going down the partnering or investment route – for example, it has invested $1 billion in the app-based taxi company, Didi Chuxing, which is Uber’s main rival.”

If you’re going to form a partnership, be it via a joint venture with a commercial partner or another type, it must deliver discernible value and include clear roles for those involved. “Partnerships in China need to be seen as a good thing. It’s a real chance to create a ‘one plus one equals three’ scenario,” David adds.

Read more from Chris Riquier, or find out how to organise your leadership team in Asia 

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Unlocking the Value of Data

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Mastering data analytics can reveal a multitude of business learnings and the means to improve your products and services, yet the sheer volume of data available often leaves companies immobilised. Here, we detail five simple steps to unlock the value in your data.

1) Be Clear on What You Want to Achieve 

The difference between sitting on a gold mine of information or drowning in it depends on how you approach big data analysis.

Criticaleye’s Managing Director, Charlie Wagstaff, explains: “As is the case in so many aspects of business, it pays to have a clear strategy; it’s no different with data analytics. By knowing what you want to achieve you can hone in on the data you need to accomplish it. Go in as though it’s a treasure hunt and you’ll soon find yourself lost in a sea of information.”

Catriona Marshall, CEO of Hobbycraft, has learned that the best way to benefit from data analytics is to set clear objectives: “We cottoned on to having a customer club a couple of years ago and through it we rapidly built a database of over two million people − and we use really smart analytics with that.

“We haven’t gone for big data and got swamped with finding our way through, or had to put a lot of resources into understanding it, we’ve been really clear on what we were looking to deliver. While we have a mass of data that we can drill into to answer numerous questions, we tend to focus just on what we really need to know to drive specific behaviour.”

2) Present the Information in a Meaningful Way 

The second trick to analytics is to present the information in a meaningful way, explains Peter Lumley, Head of Business Intelligence & Analytics at PA Consulting Group.

“People want something visually rich. They don’t want a flat table of numbers but something they can interact with,” he says.

“You need to pick the right tools for the job. With products like Qlik, Microsoft, Tableau and Niagara Files, there are a whole set of offerings that give you opportunities to do new things.”

As an example, Peter describes how his team at PA Consulting Group worked with the UK’s local Government: “In under an hour we were able to extract their public data, put it into a dashboard and start to build insights. The intriguing part is that if you really understand how a local government works you can bring that data to life. There’s a theme developing on the use of analytics alongside business understanding.”

3) Understand the Etiquette of Big Data 

“Access to swathes of online information has raised public questions about the big brother nature of data analytics and whether it will be used it to ‘spy’ on people,” says Criticaleye’s Charlie. Be aware that you will have to find a balance between interaction and intrusion.

This is something Ruchir Rodrigues, Managing Director of Digital Banking at Barclays, knows first-hand having had to reassure the public of its intentions following the recent release of its data analytics tool, SmartBusiness.

Using transaction information, SmartBusiness allows UK SMEs to track their financial performance, compare themselves with other local businesses and then use Barclay’s online tools to reduce costs and grow the business.

“We’ve got permission from the customer so we’re legally compliant but that is not enough. You have to be very cautious that everyone understands that it’s anonymised information and the customer’s privacy is secure. You have to spend time and energy reassuring the customer, even if you have permission,” says Ruchir.

4) Partner for Quick Progress

Norman Bell, Group strategy and IT Director at Travis Perkins, highlights the widespread challenge of finding the talent needed to support the data function. “Not having enough of that technical capability is a major limitation. There just aren’t enough data analysts coming out of university to meet the growth in demand – which is almost as big as the growth in data.”

At Hobbycraft, Catriona has tackled staffing constraints by partnering with external companies. She explains: “One of the ways that we’ve overcome resource is to contract out to really good partners – these being younger, smaller, really hungry partners who would give us a good deal financially but were really keen to prove themselves.”

Harnessing innovation through partners is at the heart of Barclays’ strategy. Ruchir explains: “We let partners develop on an open platform, which makes it easier for them to show the relevance of their intellectual property and also makes it a more efficient model.”

Through its programme, Accelerator, Barclays supports fintech companies by offering investment, mentoring and business connections and in return gains the latest insights into machine learning, digital banking solutions, cyber security, payments, cryptocurrency, and wealth management.

5) Build an Army of Analysts

Partnering with external companies can build momentum and create a drive for further change internally, yet it’s not enough to support long-term growth and innovation. “As businesses become more inherently digital, so too must their workforce and that means building up the talent from within,” says Charlie.

Peter at PA Consulting Group advocates that talent be built internally. “In our business recruitment is challenging, the people who have the right skills are in high demand, which also affects the market,” he says.

“I think companies are missing a trick in not building the resource internally. Reskill the people you have by building communities around a few very skilled people, it could make a big difference in the long run.”

Ruchir – who sees data and digital as becoming integral to every aspect of business at Barclays − stresses the same point. He says: “It’s difficult to find people who really understand data sciences so we’re encouraging everyone in the business to be analysts. We need to change the culture from going to ask the nerdy people in the corner what the data means, to everyone in the business becoming a data expert.

“If we can change the organisation’s mind set and culture to become more data led then we can get scale behind using information.”

Do you have an interesting story to tell about data analytics? Share your experiences and opinions with maryanne@criticaleye.com

Read more about fintech partnerships and dial into our upcoming Global Conference Call to hear Catriona Marshall discuss the challenges of being a first-time CEO.

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Creating a Mindset for Fast Growth

The challenge for the leaders of fast-growth companies is to master the art of reinvention. It’s a matter of creating teams that possess both the capability and desire to keep rebuilding and improving the business model in order to gain competitive advantage.

Not every company will make the journey. Criticaleye looks at some of the common barriers that need to be overcome when scaling-up a business at pace:

Attitude is everything

The priority for any leader of a fast-growth business is to bring in people who can cope with the demands of ongoing change. Jim Macdonald, CEO at Calvin Capital, says: “We altered our recruitment policy. We had always recruited on a skills and capability basis but changed our first priority to recruiting on the character of the individual and whether we believed they could lead us to growth.”

For Joanne Thompson, CEO of Penrillian, a shift in mindset has been crucial as the software company moves from providing clients with one-off technology solutions, to rolling out its own white-label products.

“The most critical barriers for us to overcome are the ones we set for ourselves through our own lack of imagination, or by too readily accepting the constraints imposed by our current environment,” she says. “By accepting a limit on what’s possible, you make it more difficult to innovate and impossible to completely re-envision an environment in which you’re able to grow rapidly.”

Matthew Blagg, CEO of Criticaleye, agrees that leaders must promote a shift towards a forward-thinking approach. “A business going into growth needs to unlock inhibitors and ensure it is not wedded to the things of the past. It must create an adaptive culture, recognise the potential it has and speed up all elements of the business,” he says.

Stay on top of the numbers 

Many promising businesses have strayed off course due to poor financial management. As Jim notes: “One of the common barriers is not having the funds; there’s no point having a strategy for growth if you don’t have the finance behind it.”

This is something Jay Patel, whose experience covers numerous rapid-growth businesses from publishing to online retail, has learnt first-hand.

Jay, who is now CEO of IMImobile Europe, a software and solutions provider for mobile communications, explains: “A lot of entrepreneurial companies misunderstand revenue growth for success. They typically over service clients and don’t make any money. They then tend to struggle when it comes to funding future growth.

“Anyone looking at growth initiatives should make sure they measure it properly − revenue can be a crude measure.”

Walking the M&A tightrope

An acquisition can rapidly change the fortunes of a business, for better or worse. This is why plenty of thought and planning must go into deciding whether the target company is the right fit.

It’s something that Steve Richards, CEO of Casual Dining Group, knows all about. The multi-branded restaurant company, with subsidiaries including Café Rouge and Bella Italia, acquired the chains La Tasca and Las Iguanas last year.

In the case of Las Iguanas, Casual Dining Group set up a devolved structure. Steve explains: “Anything to do with the consumer, people or brand, we left within the business. The Managing Director of Las Iguanas is continuing to run it with his team. We’ve integrated his IT and finance but haven’t gotten in the way of his business. Getting that balance right is at the heart of the matter.

“Whenever you buy a business you have to remember that you’re doing so because you admire it. We loved lots about Las Iguanas and the fact it’s so scalable. The worst thing you can do when you buy a business is to homogenise it and turn it into your own. So many companies do that through M&A, but that certainly doesn’t work for a consumer-facing business.”

The tactics for combining two businesses will vary by sector, but in no case should the newly acquired entity become a distraction. Stuart Lisle, Tax Partner at professional services firm BDO, comments: “One of the big problems is not planning for integration ahead of doing the deal – a lot of companies focus on the deal first and then think about integration. Issues can build quickly when the two businesses are working on different systems or have different cultures.”

Build capability in your team

Questions on talent, capability and resources will dominate the thoughts of a CEO leading a business through rapid growth. Among the many questions, they will want to think about how much to spend on training and development, how you raise professional standards and improve processes, and whether the senior leadership team is capable of stepping up to the next level.

Joanne explains that she will need to build the company’s workforce in order to match its growth trajectory: “What I am doing at Penrillian, as well as ramping up our permanent resources quickly, is looking to work with partners and contractors while in the process of achieving critical scale. That enables you to recruit in slower time the right people who are able to stay with you on your journey.”

For Jay of IMImobile, an individual and collective sense of responsibility is important. “The one thing I always ask when a business is entering a period of growth is which one of my team is going to handle it? If you don’t have that individual who has put their hand up it’s very difficult to sustain growth, or even believe that you’ll succeed,” he says.

“We have people in 15 territories and operations in about 70, and the one characteristic in people across all those areas is that they are entrepreneurial self-starters that we’ve built trust in.”

Matthew notes that the qualities and skills of the team you require are likely to change over time. “Rapid growth doesn’t go on forever. You can have a team in which the executives are great for growth but not consolidation and the converse is true. A team can evolve if the appetite is there but you’ve got to invest in them as you’re going along,” he concludes.

By Mary-Anne Baldwin, Editor, Corporate

Do you have a view on this subject? If you have an opinion that you’d like to share, please email Mary-Anne at: maryanne@criticaleye.com

Interested in reading more? Find out how to stay calm in an overheated M&A market,
Or, discover the six steps to unlocking performance.

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Rethinking Your Business Strategy

Companies that have enjoyed success over a sustained period invariably have leadership teams that aren’t afraid to go into uncharted territory. Whether it’s the likes of Apple, Samsung or Virgin, there’s an appetite from the top team to recalibrate strategy so that they can take advantage of new market conditions.

High-quality leaders are defined by their ability to step back and understand why changes have to be made and how they can be executed. Vanda Murray, Criticaleye Board Mentor and Non-executive Director at distribution and outsourcing group Bunzl, says: “A strategy should be dynamic and constantly monitored to see what parts need to be adjusted to fit the marketplace, your customers’ needs and your competitors’ actions. It’s easy to say but quite hard to do in real time.”

Matthew Blagg, CEO of Criticalaye, comments: “From a leadership perspective, when seeking to improve performance it’s essential for CEOs to have the strategic ability to judge an organisation’s capacity for change. They should also be able to create a sense of trust and shared purpose among the senior executive team that enables them to outperform.

“By contrast, mistakes are made when change is pushed through too quickly. All too often, executives are traded in rather than supported, largely because tactical decisions are mistaken for strategic ones. Nearly all great companies take a longer-term view so that they invest and develop top talent throughout the organisation.”

Criticaleye spoke to a range of business leaders to look at how, in very different circumstances, they’ve set about making decisions that have led to an uplift in performance.

Paul McNamara
Group CEO
IFG Group
Until recently, IFG was quite a diverse company but it decided to refocus about 18 months ago. We changed the emphasis from international expansion to being really clear about our target market. By playing to our strengths and capabilities we’re growing profitably.

We had eight businesses where now we have two. We sold subsidiaries including an advisory arm in France, an employee benefits business in Ireland and a small insurance brokerage.

IFG is now very focused on UK high net-worth individuals. We give financial planning advice through our subsidiary, Saunderson House, and also wealth platforms through James Hay. We were able to demonstrate returns from our new strategic focus and in the six months ending June 2015, revenue from James Hay and Saunderson House were up 10 per cent to £34.5 million.

The important part was figuring out how to accelerate the plans and proposition for the two core businesses and understand what was critical to their success. For example, we needed to get James Hay’s infrastructure, IT and processes really fit for purpose and future-proofed. We also upgraded the whole leadership team other than the managing director.

While executives sometimes fear that shrinking business scope could lead to lower profits, we have shown that narrowing our focus has allowed us to increase our return to shareholders.

Howard Kerr
CEO
BSI Group
During my first 60 days as CEO of BSI Group, I realised that the company needed to change and that meant changing the leadership team.

The organisation was successful despite itself, rather than because of itself. It had a great legacy and customer loyalty but it was full of managers, not leaders, and offered jobs but not careers.

While everyone was very happy to take orders, when I looked around for people who could make a difference, I didn’t see them. I wanted to build a more collaborative, market-based organisation, which needed to be more open to taking business risks.
Over a period of 18 months, I changed almost all of my senior management team and they then changed a lot of their people.

A large part of my effort, and that of the HR Director I brought in, was leadership development. We set programmes to help people on their journey.
After three years of change and three more years of consolidation, we’re in good shape. We’ve invested heavily, made acquisitions and expanded geographically. We’ve had six years of continuous revenue growth and are heading towards another record profit this year.

But it took a lot longer than we expected. It takes time for people to warm up to the idea. Don’t assume that everybody is thinking the same and running at the same speed as you.

David Wingfield
Partner
Rutland Partners
One of our successful investments was CeDo, which sells household disposable products such as bin bags and tin foil. When we acquired the company in September 2009, it had a dysfunctional management team and no clear strategy. It was a market leading business, but there was significant scope for it to improve. We sold it last year and made 2.8x our original investment.

We worked closely with the UK MD, who was promoted to CEO, to develop the strategy. The main tenets were factory and operational improvements, the reduction of overhead costs and efficiency gains.

The lesson was to have clear alignment of the strategy and the right team to execute the plan. In this instance we made wholesale changes to the executive team. Getting the right people in place is critical, because that can cost you a lot of time otherwise.

We also had to be reactive. For example, we had a Chinese factory that was making some of the more labour intensive products, Chinese wage inflation went up considerably so we set up a new factory in Vietnam from scratch. That wasn’t in the original plan.

Vanda Murray
Criticaleye Board Mentor 
Portfolio NED 
I worked at a company that produced high-end security systems which it sold through distributors. We were getting stuck and couldn’t grow, so we decided to change the way we sold.

We moved away from trading exclusively through distributors to selling to the installers of our equipment as well. We had to put a lot of support in place to enable us to do that; much bigger and better customer services and technical support. It required total commitment from the whole team and everyone had to upskill.

We had a good strategic plan in place and that gave us the confidence to begin, but you also need the right people and an understanding of the business, its market and customers.

We tested our strategy with customers and knowledgeable people in our industry. We had a hit list of 100 installers that we wanted to work with. We talked generally with a few of them and had a day when we met them all, which changed the dynamic of the business completely.

We immediately improved the profitability and quadrupled it in three years. I started out as marketing director, led this change and then became managing director.

By Mary-Anne Baldwin, Editor, Corporate

Do you have a view on this subject? If you have an opinion that you’d like to share, please email Mary-Anne at: maryanneb@criticaleye.net

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Creating Value in Private Equity

Not so long ago there was talk of the demise of private equity as an industry. It transpired that such predictions couldn’t have been further off the mark as PE houses, notably from Asia and North America, continue to raise substantial funds. They’re targeting a full range of assets, from infrastructure and utilities through to life sciences and tech start-ups run by entrepreneurs with a desire to change the world.

For those attending Criticaleye’s recent Private Equity Retreat, there were plenty of positives to take away in terms of understanding the global landscape for investments, fundraisings and exit options.

Here are the six key points to surface over the course of the 24-hours:

1) Global PE is Here to Stay

Investors like private equity again. Bridget Walsh, UK & Ireland Head of Private Equity and Head of UK&I Greater China Business Services at professional services firm EY, said: “A few years ago there were questions about private equity as an industry but it is back and it’s here to stay. LPs see PE is performing and want to invest more, not less….

“There is around $3.8 trillion under management globally in private equity… [It’s] a globally connected industry and at present the competition is high for good quality assets.”

PE firms from China are expected to compete more aggressively with US and European firms when it comes to bidding for large companies and assets. Bridget added: “The active presence of big international investors means there are more exit opportunities for PE-backed management teams. Given that is the case, they should be thinking about how to appeal to these different kinds of buyers… All arrows are pointing at Europe at the moment in terms of where investment is going.”

On the flipside, Tim Farazmand, Managing Director of private equity firm LDC and former Chairman of the British Private Equity and Venture Capital Association (BVCA), acknowledged that increasingly there will be opportunities for US and European companies to invest in China, but warned that joint ventures and partnering would be vital for success. “You need that insight and local understanding,” he said.

2) High-Performing Teams Create Great Businesses

It was agreed there needs to be alignment among the top team and a clear strategy for growth which everybody can buy into and articulate.

Andrew Miller joined Guardian Media Group (GMG) as CEO in 2009 and has been pivotal in leading its digital transformation. “It’s important to be open, honest and completely transparent about change,” he said. “It was about following the consumer and creating value and that meant really thinking about where journalism was going to be consumed in the future.”

Prior to GMG, Andrew was Group Chief Financial Officer of the Apax-backed Trader Media Group. The car sales specialist rebranded as Auto Trader in 2014 and listed on the London Stock Exchange earlier this year – it’s now achieved a market cap of £2.5 billion.

He said: “At Auto Trader it was more of a command and control style of management, whereas at The Guardian, with over half of our staff being creatives and journalists, it’s not like that… It’s about influence and taking people with you. With hindsight, I would have invested more time in that from the beginning – more time explaining and getting people to be involved in change.”

Steve Parkin, CEO of 3i-backed Mayborn, a manufacturer and distributor of baby and child products, noted how the company shifted its model substantially to be more international.

“We needed more diversity, and this means you have to work harder on cultural values and getting integration,” he said. “Conflict should be recommended as long as it is healthy and for the common benefit of the business.”

To achieve this, Steve had to reshape the top team: “In order to create a high-performing team we had to concentrate on inspirational leadership and competency to execute the business plan. We needed to build a global leadership team and blend old and new talent.”

By doing this, the business could move faster. Luke Broadhurst, Head of Private Equity at Criticaleye, said: “Trust is key to a team that outperforms. It’s about having that belief in the people around you, while also being able to provide a critique of one another and being able to challenge.”

Lucy Dimes, Chief Operating Officer at Advent-backed Equiniti, a provider of administration and payments solutions, explained how the past year had seen a renewed emphasis on integrating different parts of the organisation.

“Three of the most important things are choosing the right people; providing clarity of purpose and direction; communicating frequently and varying that by level – to create understanding, cohesion and momentum for change,” she said.

“You can’t do everything at once as time and capital are always limited, so it’s important to prioritise and focus on the opportunities that can create the greatest value.”

Luke added: “It’s not all about knowing your five-year strategy, it’s about knowing what the grey areas are and what steps you are taking to maintain that all-important momentum. After all, you can’t predict the future.”

3) Get Clarity on Incentive Schemes

In conjunction with communicating the strategy in a way that inspires and motivates people, it’s essential to be clear about incentives and how equity may be shared in a PE-backed business.

Stuart Coventry, Partner at Jamieson Corporate Finance, urged CEOs to be involved in discussions with sponsors from the outset: “Buy-in from management teams when devising an incentive scheme is crucial – ask yourself: ‘What are your returns in relation to the return profile [of] the PE house over time? What is the target pot for delivering your plan and how should it be allocated across the team?

“Everyone needs to be on the same page but it’s also important to take into account the personal circumstances of managers. For example, a blanket 50 per cent approach to a rollover process is not always the right way.”

Graham Love, Chairman of life sciences measurement and testing company LGC, which is backed by Bridgepoint, observed that the chairman certainly has a role to play in the incentives debate: “You need to ensure that when new equity becomes available it is going to those who contribute to the business, rather than simply giving it to people who have been there a long time.”

4) Be Prepared to Move Fast 

With an effective leadership team in place and backing from a sponsor, a company should be able to move at pace. Ian Edmondson, Chairman and Managing Director of Dunlop Aircraft Tyres, commented: “It’s important to react when an opportunity arises. We expanded into Asia five years ago and now it is 20 per cent of our business. Last year we expanded into the US…

“High expenditure may not be great, however, if you wait and do nothing that all important profit-making chance will slip through your fingers.”

Simon Calver, Chairman of Index-backed Moo.com and former CEO of LoveFilm, said that leaders must be brave: “You need to build a culture where you understand that not everything you attempt will work. Rewarding the people who try to do something different will inspire change.”

5) All Three Exit Routes are Open

The perennial question for management and sponsors is whether to choose between a trade sale, secondary buyout or to go down the public markets route. Ben Slatter, Partner at PE firm Rutland Partners, said that “it is important to get the business in shape as soon as possible so it is in a constant state of readiness for an exit at any point in the cycle.”

Others agreed, noting that running a dual or triple-track process should maximise interest in the business, creating that vital competitive tension among bidders. Trade buyers are definitely back in the market and, given the level of funds at the disposal of PE firms, secondary and tertiary deals are also there for the right kind of business.

Tom Attenborough, Head of UK Large Caps – Primary Markets at the London Stock Exchange, commented that while the IPO market may have slowed down in the first quarter of 2015, there remained interest from PE.

“Market conditions and valuations have vastly improved, driving a significant pick-up in PE-backed IPOs. There is also much better engagement with investors about assets a lot earlier, often six to 12 months in advance of an IPO,” he said, going on to add that “we have moved a long way from the days when the relationship between PE sellers and institutional buyers had broken down”.

6) Management Calls the Shots

If the executive team has a strong grip on the business and the numbers are good the company should, in many ways, sell itself. That said, the executives need to be thinking about the exit, what it means for the future of the business and them personally.

“At the end of the day, it’s the management team who sell the business,” said Graham. “It’s not the investors or the non-executive directors. Indeed, a lot of the time they have more ability to influence the exit process than they probably realise.”

The chairman should also be making a valid input at this stage, working as an intermediary between the various stakeholders. “PE houses want the management team to drive the business and decide where it is going,” commented Simon. “[But] if they don’t agree with your vision, they will challenge it.”

Carl Harring, Managing Director for the UK at private equity and investment concern HIG Capital, said: “When it comes to change, the hard discussions don’t get any easier. It’s really important to have an independent chairman in a PE-backed business. You need someone impartial who can sit between the PE firm and the management team.”
***
It’s natural for there to be points of contention during the lifecycle of an investment. The reality is that, by and large, the strength of the management team’s opinion will be dependent on the health of the business. Provided they’re hitting the numbers and have a plan that all parties buy into, the current set of market conditions seem ripe for seizing opportunities.

As Steve from Mayborn put it: “We needed an aligned strategy that worked at an executive level and across a global leadership team. It needed to be understood by everybody… Clarity of strategy is everything.”

I hope to see you soon.

Matthew

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The 5 Essentials of Good Strategy

All too often the CEO and their top team are consumed by the day-to-day. Such is the extent to which they’re drawn into the business, they lack the bandwidth to really evaluate strategic goals and assess the future direction of the company. In the worst case scenario, the senior executives actually confuse talking about daily operational issues with deeper discussions about strategy.

Given how rapidly business models continue to change, a lack of forward thinking on boards can prove fatal. Criticaleye spoke to a range of business leaders to find out why strategy must be discussed and how it can be implemented effectively:

1) Create the Time and Space

Every board needs to allocate the time to have robust discussions about strategy. Andy Dunkley, CEO of clothing company Lee Cooper Brands, comments: “It’s certainly not easy to get a good strategy session done properly and get the balance with the operational team and the board.

“You’ve got to go back to basics and define what the company is good at… It’s all about starting off with a sound assessment of where you think you are, reviewing what you’ve done in reality over a period of time, then seeing where you think the opportunities are and consequently what issues will come up as you execute your strategy.”

These should be difficult and, at certain points, uncomfortable conversations. Charlie Wagstaff, Managing Director of Executive Membership for Criticaleye, says: “It’s essential to create an environment where executives are really challenging both themselves and one another about the future direction of the business.

“Far too many senior teams fall into the trap of failing to adequately test assumptions about strategy because they are unable to undertake a robust and candid evaluation of the business model.”

Lupus Maltzahn, Managing Director for Strategy in the UK & Ireland at Accenture, comments: “You don’t want to have full buy-in all the time… Having a way of getting other views, other voices, into the discussion is incredibly important.

“What makes a strategic discussion productive is actively searching for your blind spots. Often, the reason you end up making bad decisions is that you weren’t aware of them.”

This point is echoed by Andy: “The worst thing in the world is when you try and define a vision and everybody just says ‘yes’ – that’s not healthy… It’s very important to have an open and honest session.”

Mark Scanlon, Group CEO of Personal Group Holdings, a provider of employee benefits and financial services, says certain topics will often divide opinion: “We look at potential acquisitions that we have targeted… we’re not an M&A business but it is part of our strategy [for growth]. The discussions we’ve had on acquisitions makes some people uncomfortable and others excited, [but] you have to go through all of the issues.”

2) Build a 360-Degree View

Senior executives need to be honest about what the business is currently achieving and take a long hard look at how their sector is evolving. Simon Oates, Director of Strategy and Communications at Southern Water, says: “Successful companies are agile and responsive… The senior executives are constantly scanning the market and looking for insights. They are not only looking at how their products and services are landing with stakeholders, but how competitors are perceived as well.

“Customer preferences change, so you need to keep refreshing your understanding and knowledge of what you’re trying to achieve with what’s happening externally.”

Dominic Emery, Vice President for Long-Term Planning and Policy at BP, comments: “We always start off with the two bookends of the company strategy, which is around the purpose of the company and our investor proposition… and then everything has to flex within that.

“Useful inputs to our strategic thinking come from our economic, geopolitical and competitive outlook, and government policy. Those are the four primary dimensions when thinking about the opportunities and risks to our overall strategy.”

A similar point is made by Simonetta Rigo, Vice President for Global Brand, Marketing Strategy and Planning at Western Union: “Strategy is ultimately about making decisions on where and how to win, leveraging a combination of analysis, facts and judgement.”

3) Think Ahead 

“It’s important to ensure the demands of the short-term financial imperatives don’t overwhelm the long-term investment imperatives,” Dominic says. “For us, that’s particularly important at the moment, with the oil price the way it is.”

“For example we’ve chosen to reduce our capital expenditure, certainly for 2015, as a result of the reduced oil price. We haven’t decreased it so far that it’s going to compromise the future but enough to enable [us to manage] our cash prudently.”

Charlie comments: “If you simply focus on the short term you may be making decisions and encouraging behaviours which lead to quick wins, but actually harm the business over time.

“Discussing the short, medium and long term will enable you to have a meaningful dialogue and set a clear direction for the future. Then, when internal or external changes occur, you can adapt accordingly.”

4) Execute and Empower

The execution of strategy is where discussions become reality. Mark Astley, CEO of Millennium Global Investments, an institutional asset manager, comments: “Strategy is meaningless unless you can execute and deliver on it. It’s crucial that you have people who can implement strategy… It’s only real if you go and do something.”

No matter how great the strategy is, it will be tested so there needs to be room for adjustment. Andy says: “The key issue is balancing your day-to-day decision making with the strategy you’ve set… We don’t need to re-analyse it, we need to think about the execution and follow that through… You shouldn’t be reinventing your strategy with every decision.”

Lupus comments: “You have a direction of travel, an objective and [then] take the steps to get there. After a number of steps… you might change direction a little bit, calibrate and adjust. You need to mould your course that way.

“The reality is that if you made a successful strategy permanent in the way it is successful today, it would die the day after tomorrow because existing or new competitors have moved on. With that in mind, the question is: how do you keep the good parts of an existing strategy while at the same time ensuring it evolves?”

In order for the strategy to adapt leaders need to delegate effectively. “You have to make a concerted effort to push some of the power downwards in an organisation,” Lupus continues. “Those you devolve power to will sometimes make different choices to the ones you would have made or thought you wanted them to make. Getting comfortable with that, and recognising the strength that lies in that, is important.”

Simonetta says: “Being able to link the deliberate strategy to examples of successful emerging strategies builds champions for change in the organisation and provides a real-life source of learning and insight that would otherwise take longer to validate through research and analysis alone.”

5) Keep Communicating 

Clarity is integral when it comes to strategy. Sandy Stash, Group Vice President for Safety, Sustainability and External Affairs at Tullow Oil, says: “It needs to be written in such a way that it’s clear who’s accountable… You need the right people to understand what their accountabilities are, with the right tools.”

Andy from Lee Cooper Brands says: “It’s good to celebrate achievements as you go but you can’t over celebrate. It’s all about day-to-day decision making to… get it going rather than looking for a perfect strategy.

“Strategy is a step towards a goal but it always moves on. You never get there…. There’s always a journey that you have to motivate people with and move on.”

***

Evidently, there is no magic wand when it comes to developing good strategy. It’s hard work and it’s up to the non-executive directors and executives to ask the hard-edged questions so they are able to have frank exchanges about the future of the business.

As Sandy says: “The strategy is not the Ten Commandments: it should be something that’s evergreen and lives and breathes, influenced by both internal and external changes.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeUK

Reinventing the Role of the HRD

In the face of new technology, shifting demographics, the need for greater diversity and international competition, the boards of global companies expect a lot more from the Human Resources Director (HRD). While process and compliance matter, the fact is that the HRDs which provide the most value are the ones who understand why the talent and people agenda must be mapped to the business plan.

Matt Stripe, Group HR Director for food company Nestlé UK & Ireland, says: “The transactional element of the function can’t be ignored. You have to undertake performance development reviews, pay rises and so on, but that’s not the stuff that adds value to the organisation.

“What businesses are really looking for now, and I think line managers and business leaders are far more people-savvy than they’ve ever been, is for HR to participate in determining and shaping business strategy.”

Yetunde Hofmann, former Global HR Director for Imperial Tobacco, agrees that the “traditional terrain of HR” of policy, well-being, employee relations and health and safety, are not going to disappear. At the same time, because of HR’s critical role, it will need to align its agenda so it’s simultaneously operational and strategic.

In essence, it’s having the ability to facilitate the development of an organisation’s capabilities and culture in order to deliver on strategy. Debbie Hewitt, Chairman of retailer Moss Bros, comments: “HR Directors are increasingly around the top table… If you’re having the debate about whether they should be, you’re 20-years’ behind. Great HR Directors have a huge contribution to make in many places across the business.

“The challenge for a HR Director is to make sure they’re not at the board table just for HR. I take it for granted [that] they will do a brilliant presentation on talent, succession and HR strategy. Where I get massive added value from a strong HR Director is when they contribute to issues other than those specific to HR, such as if there’s an acquisition to be made or an investment – they can bring a unique perspective.”

Stuart Steele, Partner for Human Capital Consulting at professional services firm EY, says: “Chief HR Officers [CHROs], HR business partners and subject matter experts need to understand context… [and] have an appreciation of the organisation’s strategy, its competitors, [the wider] economic trends and how these are forecast to impact [the] current and future workforce. I meet practitioners who demonstrate this capability on a daily basis – however, they are probably still in the minority.

“Interestingly, we are increasingly seeing the appointment of CHROs who have not come from the HR function… In part, I believe this underlines the importance being placed on understanding business strategy and operations. As good leaders, these individuals are expected to be able to mobilise the HR function to develop and execute people initiatives in direct support of the business strategy and plan.”

Deborah Cooper, Director at search firm Warren Partners, says: “The strongest HR directors have had experience outside the HR function… They tend to have more business credibility and ask different questions, rather than having a narrow skill-set purely through HR. Those who are rounded and have broader business experience tend to be meeting demands more effectively.
“The most effective HRD is one who can bring strategic thinking, real enterprise vision and business understanding and not one who’s necessarily technically strong in siloed skill-sets.”

The role will continue to evolve in this manner, especially as the more process-driven elements of the function become easier and cheaper to outsource. For many HRDs, the question has to be: Unless they are involved in harnessing capabilities and culture to deliver against strategic goals, what value are they really adding?

A person of influence

The use of data and proper information management are a prerequisite for efficient HR functions. For Matt, the insights provided by technology to enhance performance need to be watched closely: “It’s exciting to think what analytics will give us in a very short period of time – we have bits of it, so I can pull off good information now but in the future, and we’re probably only talking a couple of years, you’ll be able to look at so much more.

“It won’t just be whether a business leader is delivering on their results; you’ll be able to add the 360 degree evaluation to that, plus some others tests to check on emotional and social intelligence, including an ability to measure employee stress levels. It will be a lot more holistic.”

Nicola Pattimore, HR Director for business process outsourcing concern Equiniti, comments that “the use of data analytics to help drive decision-making has increased hugely”. However, in order for this to be meaningful, HRDs need to be commercial in their thinking and strong-willed when presenting information to the top.

If this isn’t the case, there is the danger of data simply being used to create added layers of bureaucracy, or for HRDs to shy away from discussing harsh truths about performance. “It can be a lonely job because often you’re having to act as the conscience of the business, challenging senior leaders and sometimes telling them things they might not want to hear,” says Nicola.

“When you’re sat at the table with a CEO, CFO and COO, you need to be able to inform and help make strategic decisions. A lot of that will entail providing a perspective on people, but you need to have that impact and influence.”

Charlie Wagstaff, Managing Director of Corporate & Public Sector at Criticaleye, comments: “While being technically and commercially competent, effective HRDs are unerring in their focus on how talent can be utilised to deliver against the business plan, both for the short and long term.

“The very best HRDs are distinguished by their ability to collaborate and form partnerships across an organisation – they understand how to influence the CEO and the board.”

It’s a case of having a full appreciation of what levers need to be pulled in order to improve performance. Stuart says: “I aspire for CHROs to contribute to the determination of business strategy, however, where they can really come into their own is during the development of the organisation’s business [plan]…

“CHROs can also challenge untested assumptions around the business… As an example, if an organisation is [setting] up a new business in a new geography, should they implement along the lines of the existing operating model, or use this initiative as an opportunity to adopt a different approach?”

The difference in value lies in a HRD being involved in the formulation of plans, as opposed to merely responding to operational necessity. While some HRDs are functioning at this high level, it’s evident that others have a long way to go.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk