Developing a Global Managerial Mindset

Developing a global managerial mindset is crucial in today's interconnected and diverse business environment. It involves expanding your perspective beyond local boundaries and understanding the complexities of operating in a global context. Here are some steps your organization’s managers can take to develop a global managerial mindset:

1. Embrace cultural diversity: Gain an appreciation for different cultures, traditions, and business practices. Recognize that there are multiple ways to approach problem-solving and decision-making. Actively seek out opportunities to engage with people from different cultural backgrounds, both in your personal and professional life.

2. Stay informed about global trends: Stay updated on global economic, political, and social trends. Read international news, follow industry reports, and attend conferences or seminars that focus on global issues. Understanding global trends will help you anticipate challenges and identify new opportunities.

3. Develop intercultural communication skills: Effective communication is essential in a global setting. Learn to adapt your communication style to different cultural norms and be aware of potential language barriers. Improve your listening skills and develop empathy to understand different perspectives. Consider learning foreign languages to facilitate better communication.

4. Expand your network globally: Build a diverse professional network that includes individuals from various countries and industries. Engage in international business forums, join professional associations with global memberships, and leverage social media platforms to connect with professionals around the world. Networking with a global mindset will provide you with valuable insights and opportunities.

5. Seek international experiences: Actively pursue opportunities to work or study abroad. International experiences expose you to different business practices, cultural norms, and ways of thinking. It helps you develop adaptability, cross-cultural leadership skills, and a broader perspective on global business challenges.

6. Foster a global mindset within your organization: If you are in a managerial position, promote a global mindset within your team or organization. Encourage diversity, create opportunities for cross-cultural collaboration, and support initiatives that foster cultural understanding. Provide training programs or workshops on intercultural competence and global business practices.

7. Continuously learn and adapt: The global business landscape is constantly evolving, so it's crucial to be open to learning and adapting. Pursue professional development opportunities, such as attending workshops, obtaining certifications, or pursuing advanced degrees in international business or global management. Stay curious and embrace lifelong learning.

Remember that developing a global managerial mindset is a continuous journey. It requires a genuine interest in understanding and embracing diversity, as well as a commitment to ongoing learning and self-improvement. By developing this mindset, you'll be better equipped to navigate the complexities of a globalized world and effectively lead in a global business environment.

Challenges of Global Business Services

Embracing global business services enables companies to drive organizational effectiveness while driving down the overall cost of finance. It also allows companies to outsource, where appropriate, processes which are not core to their competitive advantage while also leveraging technology investments made by the outsource provider. However, global business services (GBS) face several challenges in today's dynamic and interconnected business environment. Organizations need to think through these issues before embarking on the redesign of their organizational model. Some of the key challenges include:

1. Cultural and Language Differences: Operating in a global context means dealing with diverse cultures and languages. GBS organizations need to navigate and understand these differences to effectively communicate and collaborate across borders. Managing cultural nuances, language barriers, and local customs can be challenging but crucial for successful global operations.

2. Regulatory and Compliance Complexity: Different countries have varying regulatory frameworks and compliance requirements. GBS entities must ensure they adhere to local laws, regulations, and tax requirements while maintaining global standards. Staying up to date with ever-changing regulations and ensuring compliance can be complex and demanding.

3. Talent Management and Skill Gaps: Building a skilled and diverse workforce is essential for GBS success. However, finding and retaining talent with the right skill sets can be challenging in a competitive global market. GBS organizations often face skill gaps in areas such as language proficiency, cross-cultural communication, and specialized expertise, requiring ongoing training and development programs.

4. Technology Integration and Infrastructure: GBS heavily relies on technology to streamline processes, enhance efficiency, and facilitate global collaboration. However, integrating different technologies, systems, and platforms across various locations can be a significant challenge. Ensuring seamless connectivity, data security, and infrastructure scalability are essential for effective global operations.

5. Data Privacy and Security: Global businesses handle vast amounts of sensitive data, including customer information, financial data, and intellectual property. Ensuring data privacy and security across multiple jurisdictions is a critical challenge for GBS. Compliance with data protection regulations, implementing robust cybersecurity measures, and safeguarding against data breaches require constant vigilance and investment.

6. Supply Chain Complexity: Global businesses often have complex supply chains that span across different countries and regions. Managing and coordinating suppliers, logistics, and inventory across borders can be challenging due to varying regulations, transportation constraints, and geopolitical risks. Supply chain disruptions, such as natural disasters or political instability, can have a significant impact on GBS operations.

7. Communication and Collaboration: Effective communication and collaboration are essential for global business success. However, coordinating teams spread across different time zones, languages, and cultures can be a challenge. GBS organizations need to establish clear communication channels, leverage technology for virtual collaboration, and foster a culture of inclusiveness and teamwork.

8. Economic and Political Uncertainty: Global businesses are exposed to economic fluctuations, geopolitical tensions, trade disputes, and policy changes. These uncertainties can impact market conditions, supply chains, and customer demand. GBS entities must monitor global trends, anticipate potential risks, and develop agile strategies to adapt to changing circumstances.

Successfully addressing these challenges requires strategic planning, strong leadership, adaptability, and continuous learning. GBS organizations that can effectively navigate these obstacles can leverage the benefits of globalization and achieve sustainable growth in the global marketplace.

Driving a successful benchmarking project

Benchmarking can be an incredibly useful tool to identify areas of opportunity in transformation, both to reduce cost and to improve service delivery effectiveness. To ensure a successful benchmarking project, consider the following key factors:

1. Clear Objectives: Define your project's goals and objectives clearly. Determine what specific aspects or processes you want to benchmark, such as performance, efficiency, quality, or costs.

2. Relevant Metrics: Identify the key performance indicators (KPIs) and metrics that are relevant to your project's objectives. These metrics should be measurable, meaningful, and aligned with your organization's strategic goals.

3. Comprehensive Research: Conduct thorough research to identify benchmarking partners or organizations that have achieved excellence in the areas you want to benchmark. Look for best practices, innovative approaches, and industry leaders.

4. Data Collection and Analysis: Collect accurate and reliable data from both internal and external sources. Ensure that the data is relevant, comparable, and consistent. Use appropriate data analysis techniques to derive meaningful insights and identify performance gaps.

5. Stakeholder Engagement: Involve relevant stakeholders throughout the benchmarking process, including employees, managers, and subject matter experts. Their insights and perspectives can help in identifying improvement opportunities and gaining buy-in for potential changes.

6. Adaptability: Be open to adopting new practices and processes based on the benchmarking findings. Benchmarking is not just about comparing performance but also learning from others and implementing improvements within your own organization.

7. Continuous Improvement: Benchmarking should be seen as an ongoing process rather than a one-time project. Regularly review and update your benchmarks to stay competitive and continuously improve your performance.

8. Confidentiality and Ethics: Ensure confidentiality and respect for intellectual property rights while conducting benchmarking activities. Obtain necessary permissions and agreements when sharing or using proprietary information.

9. Communication and Knowledge Sharing: Share the benchmarking findings, insights, and best practices with relevant stakeholders within your organization. Promote knowledge sharing and collaboration to drive improvement initiatives.

10. Leadership Support: Obtain support and commitment from top management for the benchmarking project. Leadership involvement helps in securing necessary resources, overcoming barriers, and driving change within the organization.

Remember, successful benchmarking requires a systematic approach, attention to detail, and a commitment to continuous improvement.

Latin American Shared Service Centers are leveraging digital technologies

According to a press release from the Shared Services and Analytics Network, Shared Service Organizations (SSOs) are increasingly using digital technologies to automation their processes and reduce the human footprint in the Centers. According to the release:

• 29% of Latin American countries are integrating AI Chatbots,

• 31% are using Artificial Intelligence,

• 29% are using Machine Learning. SSON data includes how Latin American SSOs are planning to expand the scope of their operations this year by offering new services.

• Around 40% of Latin American SSOs are also planning to scale down their footprint while they broaden their operations as automation becomes more prevalent.

It remains to be seen if these cost savings will be put back into the business for additional technology or re-skilling of now redundant human resources.

Determining the keys to globalization success

The complexity of globalization precludes any easy answers when it comes to achieving success for the finance organization. Every finance organization needs to understand the competitive landscape in which it exists in order to position finance as a true value-added partner that understands and provides strategic context around business decisions.

In order to do that, the finance organization needs to incorporate the following seven key lessons to position finance as a truly global organization that provides the capabilities, flexibility, and scalability to drive continuous business value over time. This first post introduces the seven keys. In subsequent posts I’ll expand on each one.

The seven keys to globalization success are:

• Align finance capabilities with strategic intent

• Align finance operating model to support strategic capabilities

• Establish global operating standards

• Control through a global governance model

• Develop a global managerial mindset

• Maintain a global performance monitoring system

• Create a scalable yet agile organization

Global Business Services is a key design consideration as finance organizations position themselves for the future.

Defining process costs for benchmarking - personnel costs

Note: This is part of an ongoing series on benchmarking process costs.

When benchmarking for process costs, employee expenses are going to be a large portion of the cost for the typical organization.  Consequently, it's critical that companies understand their FTE structure for a given process and what that FTE count actually costs the organization.  One of the challenges in tracking down FTEs is that there is often a shadow organization.  That means there are personnel in the organization, often in far-flung plants or distribution centers, where employees perform finance process related functions but don't necessarily have a finance title.  They may not even officially be counted as part of the finance organization, but if they're involved with in-scope activities, the cost should be included.

In order to count personnel cost properly, it's important to include compensation and fringe benefits for both full-time and part-time employees, either salaried or hourly.  Specifically, compensation should include salaries, wages, overtime pay, bonuses and the cost of all benefits.  Fringe benefits include expenses such as medical, dental and life insurance, pension contributions, 401k matches, and employee stock programs.

A question often comes up if salaries for special projects should be included in the definition of process costs.  If the salaries are part of a permanent position such as Project Manager, and those costs are expected to continue for the foreseeable future, then they should be included.  If the compensation costs are related to a one-time effort, such as the implementation of a new software program, then those expenses should be excluded.

By properly identifying the actual FTE count and including compensation expenses, companies can receive a higher degree of assurance that their calculated costs are accurately represented.

Defining process costs for benchmarking - overview

Benchmarking is a valuable exercise for companies as a way of determining how to prioritize transformation efforts.  Benchmarking is a great way of holding your organization accountable for the costs incurred in delivering finance and accounting services.  Of course, benchmarking has value beyond the cost dimension, particularly around cycle times and quality.  For now, this series of posts will focus on the cost perspective.

A common challenge is that it can be difficult to determine which costs to include to get arrive at a realistic assessment of process cost.  At Pangaea, we believe there are five main categories of costs that companies must incorporate into their benchmark assessment.  They are:

1. Personnel costs

2. Systems costs

3. Overhead costs

4. Outsourcing costs

5. Miscellaneous costs

In subsequent posts, we delve into the individual categories to define the exact costs that should be captured as part of a benchmarking project.

IASB considers delay in revenue recognition standard

The IASB had previously set an implementation date of January 1, 2017 for its new revenue recognition standard.  The Journal of Accountancy is reporting that the IASB is seeking feedback on a delay of the effective date to January 1, 2018.  Early application would be permitted. 

From the Journal of Accountancy:

Upon issuing the standard jointly with FASB in May 2014, the IASB set an effective date of Jan. 1, 2017. But discussions of implementation difficulties with the boards’ joint transition resource group have led the boards to decide to propose targeted amendments to assist financial statement preparers in implementation.

The discussion led the boards to propose the delay; the IASB’s new effective date for IFRS 15, Revenue From Contracts With Customers, would be Jan. 1, 2018, if the delay is approved. Early application would be permitted.

The IASB is seeking comments on the proposed delay. Comments, which are due July 3, can be submitted at the IFRS website. Feedback is scheduled to be considered at the IASB’s meeting in July, when the board plans to decide whether to change the effective date.

In addition, the IASB plans to issue an exposure draft of targeted amendments to the revenue recognition standard, which will include clarifying some of its requirements and adding illustrative examples to assist implementation.

Choosing the Starting Point for a Finance Transformation Effort

When discussing potential transformation opportunities with clients, the question that inevitably comes up is "Where do we start?"  Given the myriad of challenges in the typical finance organization, it's a natural question to ask.  And often the answer is not the obvious one people often expect.

Many companies, particularly if they have a benchmark project commissioned as part of a transformation project, will often focus on the areas that offer the greatest cost savings or perhaps meet a critical delivery need that is not currently being addressed.  Under appropriate circumstances, these may not be bad choices.  However, there are other considerations for the leadership group evaluating a portfolio of improvement opportunities.

Generally speaking, the following factors should be evaluated as part of the decisions as to how and where a transformation initiative should be launched.  In my experience, a company should choose an initial transformation project where:

• There is strong executive support for change.  Very little will happen if the senior executives in the area under consideration won't back the project in word and deed.  Transformation teams should find a specific area: a business unit, a region or a specific process, where the executives in charge of that area have publicly recognized the need for change and are clearly willing to support transformation efforts.

• The barriers to successful change are not huge.  Let's face it.  Some transformation opportunities are tougher than others.  It often makes sense to get a transformation program started by choosing an initiative that doesn't have huge obstacles to change.  Typically, transformation programs that involve large technology implementations can take a year or more to fully compete.  Project like that can take too long to build momentum. Or perhaps a particular initiative lacks executive support.  That can make it difficult to get the budget and personnel to make the project successful.  The point is, you and your project team don't have to climb Mt. Everest on your first hike.

• The scope can be clearly defined.  Actually coming up with a proposed scope is typically not the problem.  Far more often the team proposes a scope and then over time the scope increases, typically because management is pushing for the greatest value for as little investment as possible - without a corresponding increases in the budget and project team.  There's nothing wrong with challenging the assumptions in the business case, but projects with constant scope creep after deliver less than expected. It's critical to define the scope in such as way that it is clearly defined and relatively achievable.  Which brings me to the next point.

• The initial project has a strong chance of succeeding and can succeed in a relatively short time frame.  Nothing is more frustration to senior management and to the project team than to be a part of a project that drags out with no discernible benefit to the organization.  I personally believe that first victory should occur within six months.  Any longer than that and you risk grumblings in the company about how money is being poured into a project with no realized benefits.  This first win is critical to prove to the broader organization that the transformation team can in fact deliver value.  Once that occurs, you'll find more managers jumping on the bandwagon.

• The chosen scope of work has a strong project team members behind it who actually have time to be involved.  Few things can stall out a project faster than a "dedicated" project team that in reality is working their day job and performing transformation opportunities on the side.  Your company's first project should have sufficient resources dedicated to the project to virtually ensure success.  Some positions may need to be back filled on a temporary basis, but that is a cost of successful transformation.

• The project chosen can serve as a model for future transformation efforts.  The transformation program should look for a project that can serve as a model for future efforts.  That means the project has to be large enough to make an impact, but not so impossibly large that benefits are delivered late, if at all.  This initiative needs to be your "case study" of how your team can transformation finance and drive real benefits to the organization..

No project has a 100% guarantee of being successful and delivering on the promised value.  However, by following these steps, the project team has a good change of success, driving confidence from future project sponsors that tangle benefits can be realized within a reasonable timeframe.

EU institutes mandatory auditor rotation

The European Union recently mandated the rotation of auditors for public companies.  The ruling requires a rotation after 10 years, although there are ways for companies to extend the rotation period, including putting the audit contract out to bid, even if the incumbent firm is chosen again.  European Internal Market and Services Commissioner Michel Barnier was quoted as saying “These new measures will reduce risks of excessive familiarity between statutory auditors and their clients, encourage fresh thinking, and limit conflicts of interest".  

Additionally, there are additional reporting requirements as a result of the audit process, including the requirement to provide a detailed to the company's audit committee that is not necessarily intended for public disclosure.

How corporate strategy informs reporting strategy

An effective reporting strategy supports corporate strategy by supplying the measures and metrics that align organizational behavior with organizational objectives. The choice of corporate strategy, such as product innovation, customer intimacy or operational excellence will influence what information is emphasized in a company’s reporting strategy. 

There are different strategy frameworks but at a basic level they can be divided into cost leadership or differentiation.  Types of differentiation include product innovation and customer intimacy.  The choice of strategy will dictate the types of measures and metrics that are important to the organization, both at the senior leadership level and throughout the organization.  A comprehensive management reporting strategy will include measures and metrics that focus on effectiveness of delivery as well as the efficiency of the processes, but each company will craft it's performance scorecard in a way that provides critical information about strategy execution to its managers.

More broadly, the choices of strategy execution will also inform the choice of management reporting measures chosen.  Is a company pursuing its strategy by focusing on individual countries or Strategic Business Units (SBUs) that are managed globally?  This overlaps with the choice of organizational structure, but effective management reporting aligns measures and metrics with the key responsibility centers within the organization.

If a company is pursuing its strategy through country-focused execution, then the management reporting system will align critical measures with the country management structure.  On the other hand, if a company pursues strategy execution through global SBUs, then the management reporting structure will align with the SBU responsibility centers to ensure that the information received through the management reporting structure provides critical information to the SBU leaders.

The choice of strategy and the organizational alignment created to execute that strategy go hand-in hand.  In a future post I'll discuss in further detail how the choice of organizational structure informs the requirements of a company's management reporting systems.

The Six Levers of a Comprehensive Reporting Strategy

A company’s reporting strategy provides the foundation for a robust and mature information management program designed to deliver timely, relevant and actionable information to the company’s management in order to make sound decisions when executing the corporate strategy. Regrettably, most companies have have an incomplete reporting strategy, not having considered all of the dimensions required to produce a mature reporting environment.  

A mature reporting strategy is based on six levers:

1. Corporate Strategy,
2. Information Management,
3. Process Management,
4. Organizational Alignment,
5. Reporting Governance, and
6. Technology Enablement

These six levers work together to effective drive a company’s information management program. Managed as a strategic asset, the information generated and reported to a company’s management group will yield valuable and actionable insights. All of these levers must be incorporated into the reporting strategy in order to yield the most effective reporting environment.  In future posts, I'll delve into each of these dimensions to show how a company can establish and maintain a robust and mature reporting environment.

The PCAOB proposes changes to the Auditor's reporting model

In the drive for greater transparency in financial reporting, the Public Company Accounting Oversight Board (PCAOB) has issued a proposal to enhance audit reports by identifying and reporting on critical audit issues as part of a company's audit.  An article in the Journal of Accountancy identifies four key areas of focus for the proposed standards:

• A statement of auditor independence. This would explain that the auditor is a public accounting firm registered with the PCAOB and is required to be independent with respect to the company.
• Tenure disclosure. The audit firm would disclose the year it began serving as a company’s auditor.
• Other information explanation. The auditor would be required to describe the procedures and evaluation the firm performed on other types of information included in the annual report outside the financial statements.
• Language enhancements. These would change existing language in the auditor’s report related to the auditor’s responsibilities for fraud and notes to the financial statements.

A key component of the proposal would be the requirement to identify and report on critical audit matters, which are defined as matters addressed during the audit that:

• Involved the most difficult, subjective, or complex auditor judgments;
• Posed the most difficulty to the auditor in obtaining sufficient appropriate evidence; or
• Posed the most difficulty to the auditor in forming an opinion on the financial statements.

When critical audit matters are determined, auditors would be required in their report to:

• Identify the critical audit matter.
• Describe the considerations or reasons that the matter was identified as critical.
• Refer to the relevant financial statement accounts and disclosures that relate to the critical audit matter, when applicable.

Among the other requirements, auditors would be required to evaluate the company's 10-K filing and review selected financial data as well as the Management Discussion & Analysis. 

Argentina and the truthiness of government statistics

Argentina was recently in the news for being in trouble with the International Monetary Fund (IMF).  It seems that the IMF, and many others, have an issue with the truthfulness of Argentina's government issued statistics, particularly with the stated inflation rate.  In 2012, the official inflation rate as determined by the government was 10%.  However, many private economists, both in Argentina and elsewhere, think the actual inflation rate is around 25% per year.

For the multinational looking at countries to locate operations, including Shared Services, the actual and expected inflation rate for a country is a critical factor in determining labor costs.  To that end, it's critical to have an understanding of the true economic factors of a country and city before committing to a long-term presence there.  So if you can't completely trust a country's published economic information, how can a company be sure that the data, particularly labor costs, it incorporates into its business case are reliable?  Here are three ways to corroborate, or refute, labor cost information published by a government:

1. For a first cut look at salaries, there are free resources such as Glassdoor that can give you some sense of the salaries in a particular country or city.  This data is unlikely to meet all of your data requirements, but it can give you a sense if the government published numbers are reasonable.
2. For a more comprehensive survey of global salaries, you can purchase information from companies that specialize in this type of information.  One example is Mercer, and their global salary survey.
3. A third option, if you have access to a consulting firm, is to get their take on particular countries and cities.  As an added bonus, they may be able to set up a call with one or more of their clients in that country or city to get a first hand assessment of life on the ground.

These options are by no means mutually exclusive, and it's likely that you'll incorporate one or more of them into your analysis.  It's important not to take government statistics at face value, even for more industrialized countries.  It's important to trust but verify.

City Profile: Chengdu, China

The Chinese government has actively worked to create additional economic zones for international investment.  Increasingly, these have been further inland to leverage population centers where wage inflation hasn't been as strong.  The city of Chengdu, the capital of Sichuan province, is one city that has been developing to serve the needs of multinationals.

In 2007, this city of 14 million was designated as a Special Economic Zone (SEZ) by the government to spur investment and development.  Among the incentives are favorable tax programs to promote investment.  Investment in Chengdu is being driven by both the national government as well as Foreign Direct Investment (FDI).  Much of the FDI is directed towards the information technology sector, but manufacturing, transportation and financial services have also benefited from FDI.  Chengdu is one of 21 cities designated by China's State Council to serve as a model for the outsourcing industry.

Chengdu is one of the four major international air hubs in China after Beijing, Shanghai and Guangzhou.  An Airbus 380 can land in Chengdu.  In late 2012, British Airlines established a non-stop flight from London Heathrow.  A number of other international carriers, including Air China, Lufthansa, United, Cathay Pacific and others also fly into Chendgu.  The city is not more than 2.5 hours flight from Shanghai, Beijing, and Hong Kong. 

Language capabilities in Chengdu include Japanese, Korean, English and, of course, Mandarin and Cantonese Chinese.  Other languages such as French, German, Russian and Thai are also available.  A number of companies have set up in Chengdu to establish Asian regional hubs or global service centers capable of serving operations outside of China.

Salaries are typically lower than more established cities like Shanghai or Bejing.  In Shanghai or Beijing, for instance, a college graduate can earn a salary of 3,000 RMB or more per month.  In Chengdu, an equivalent degree would bring a salary of around 1,850 RMB per month, a savings of almost 40%.

Office rent for Class A office space is very competitive with more established locations in China.  Following are typical rents in RMB/Square Meter/Month (Source: Cushman & Wakefield analysis)

• Beijing                 525
• Shanghai            415
• Shenzen              288
• Guangzhou         220
• Chengdu             161

Multinationals with operations in Chengdu include Intel, Amazon.com, ANZ Bank, Microsoft, Motorola, Toyota, GE, JP Morgan Chase, and Nippon Steel.  More than 200 of the world's top 500 enterprises has a presence in Chengdu.  Additionally, a number of companies have set up Shared Service Centers to support business in China and across Asia.  These include Siemens, DHL and Maersk.

If you're looking for an Asian city to establish a Shared Service Center, it may make sense to look at Chendgu and discover what a number of other multinationals have discovered.

CFOs look for non-accounting skills in accountants

A new survey by Accountemps discusses the qualities CFOs look for in their accountants.  The survey polled 3,200 CFOs to get their perspective on the types of non-accounting skills that would make these accountants more valuable.

According to the survey, CFOs wanted:

• General business knowledge (33%)
• Expertise in information technology (25%)
• Communication skills (14%)
• Leadership abilities (13%)
• The remainder said they didn't know or did not provide an answer (I hope it was that they didn't answer and not that they didn't know!)

I find these responses to be interesting.  It makes sense that general business knowledge is desirable.  In fact, it often one of the top complaints of Operations managers that their company's accountants don't really understand their business.  

Expertise in IT can mean a lot of different things, but here they mean the ability to leverage technologies like SAP and Oracle to perform their work.  This makes sense as new employees can be more productive sooner and the workforce overall can leverage technology to improve their efficiency.

Interestingly, leadership and communication were down on the list.  I actually believe both of these are important in order for a finance organization to build competencies over time.

One thing not on the list jumped out at me.  That's having global work experience and a global perspective.  As the finance function becomes more globalized, it will be essential for finance and accounting staff to work effectively with different cultures and locations around the globe.

What other skills do you think accounting staff should posses?  You can post your answers in the comments section below.

FASB moves forward with controversial lease accounting standard

The Financial Accounting Standards Board (FASB) narrowly voted to release a draft statement on lease accounting for public comment.  The draft proposal would require all leases to be put on the balance sheet and would create two models for accounting based on the level of expected consumption during the life of the lease.

Dissenting members of FASB thought the proposed standard increased financial reporting complexity by placing lease information in multiple areas of the financial statements.

FASB Chairman Leslie Seidman noted that the FASB standard was coordinated with the IASB, which intends to release an exposure draft by June 30, 2013.

You can read the Journal of Accountancy article here.

Five ways for Finance to know it's time to engage in organizational redesign

In an increasingly global environment, a hallmark of leading finance organizations is the ability to reorganize to meet changing demands.  But how does Finance leadership know when it's time to make a major change in the structure of its organization?  Here are five ways to know it's time to realign organizational resources:

1. Change in strategic direction. Each organization has a basic strategy that guides its focus in the market.  These strategic intents focus on differentiators such as product innovation, customer intimacy or operational excellence.  A change in focus could warrant a redesign.  And it doesn't have to be a wholesale change.  Even a change in emphasis between the various dimensions of competitive advantage should drive changes in the organization.
2. Acquisition or divestiture. Mergers, acquisitions and divestitures can change the economics of previous design decisions.  An acquisition might bring with it certain in-house expertise that wasn't previously available.  A change in focus that comes with a major acquisition could drive the decision to outsource a number of finance functions.
3. Expansion into new product markets.  The introduction of new products or product lines could drive organizational change  to align finance resources more closely with the business.  Business units focused on industries with faster product introduction and obsolescence rates would likely warrant a higher degree of finance support embedded in their business.
4. Expansion into new geographic markets.  Entering into a new geographic market where the company has little to no experience may warrant a redesign.  In this situation a business case could be made to partner with a 3rd party service provider to facilitate the learning curve in a new market, as well as to assist with the development of a captive service center, if that's the long-term direction of the company.
5. Finance needs to improve its game. Even if none of the above are true, it may still make sense to engage in organizational redesign if the Finance group isn't meeting expectations.  This could be in the area of business partnership, or cost efficiency, or both.  The Finance organization should be continuously evaluating its performance through benchmarking and customer satisfaction surveys to monitor performance and improve accordingly.  An organizational redesign may be necessary to improve service delivery effectiveness and drive down cost to world-class levels.

Leading finance organizations focus on aligning their structure with corporate strategy. By evaluating these five factors, finance leadership can stay on top of changes in their organization to drive lasting value creation.

Four ways for Shared Services to remain focused on serving their Strategic Business Units

One of the biggest fears of business unit managers when discussing the move to Shared Services is that they'll lose control of their processes to a bureaucratic nightmare.  And it is not completely unfounded.  For too many years corporate services has provided too little value for too much cost.

While a Shared Service Organization can take serve their business units in a variety of ways, there are some essential elements that must be incorporated to ensure long-term responsiveness to the business units and to ensure that the Shared Service Organization is focused on those activities that are truely valued by the business.

1. Implement a sound governance structure that properly represents business unit interests.  Having the appropriate level of business unit representation will go a long way to ensuring the the SSO understands and is meeting the needs of the business.  These BU representatives should have strong organizational and political authority to represent the business.  Business Unit representatives should be high enough in the organizational hierarchy that they are taken seriously.
2. Clearly define what success looks like.  There should be clearly defined metrics that measure specific goals, such as cycle times and costs.  There should also be clear agreement with the business on how these metrics are collected, and how often, so that there aren't arguments over who's data is correct.
3. Regularly reevaluate what has value for the business.  As a general rule, business units value analysis and insight over pure transaction processing; however, that isn't to say that transaction processing isn't important.  It must be done efficiently and with sufficient control to maintain integrity of financial and management information.  But if the SSO is cranking out a monthly management reporting package that no one uses, then the business units has not only spent money needlessly, but they have been deprived of the time spent that could have been allocated towards value-added activities.
4. Regularly reevaluate the organization structure and responsibilities of the Shared Services Organization.  Markets and businesses change over time.  And these days that happens much faster.  As 3rd party service providers mature, it may make sense to move activities out of the captive SSO and to these 3rd party providers.  Or maybe it makes sense to move an activity back to the business units if the goals for that process haven't been reached after a set amount of time.  The point is that nothing stays the same, and Shared Service Organizations should constantly be looking at how they can reinvent themselves.

By focusing on these four areas, the captive Shared Service Organization can ensure that it remains relevant to the needs of the business it's serving.

China FDI falls. Are cheaper rivals to blame?

While China as been a go-to destination for all sorts of work, including back office service centers, Foreign Direct Investment (FDI) has fallen relative to last year.  No firm conclusions can be drawn from this one statistic alone, but it does raise the question of investment choices as companies evaluate where to make future investments..  

It's no secret that China's coastal cities aren't the bargin they once were.  However, they're still proven locations within China to set up shop, and there are up-and-coming locations in China's interior such as Chengdu, in the Sichuan province in Southwest China.  The challenge for China is that it's lower cost neighbors have been watching China's success and working to emulate them.  That means more choices for Western companies to invest.

A recent article from the South China Morning Post has the details.  Here's an excerpt:

China’s foreign direct investment inflows fell at their fastest rate in more than three years in January, highlighting the challenges it faces competing for funds with cheaper rivals in a sluggish global growth environment.

China Commerce Ministry data on Wednesday showed the world’s second-biggest economy drew in US$9.3 billion (HK$72.12 billion) of foreign direct investment (FDI) in January, down 7.3 per cent on a year ago.

The fall was the steepest in year-to-date inflows since a 9.9 per cent drop in November 2009, and it was the worst January performance in four years.

January FDI was down from December’s US$11.7 billion, with inflows from key Asian economies and the United States down in the latest period, reflecting what analysts say are foreign perceptions of a decline in China’s near-term growth prospects.

Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said the continuing fall in FDI – the longest consecutive run since the global financial crisis – was indicative of the rising competitive challenges facing the world’s biggest manufacturer of exports.

“We expect more multinational companies will increase investment in cheaper countries, such as Vietnam and Indonesia,” Zhang told said.

If nothing else, this story illustrates that companies increasingly have choices when it comes to Asian operations.  A country like Vietnam doesn't necessarily have the infrastructure or trained labor pool that China has, but it isn't for lack of trying.  These countries are making investments in these very areas and may soon be credible alternatives to China for locating operations, including back-office staff for finance and accounting.