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Friday, December 31, 2010

Mobile Devices Emerging as Preferred E-Commerce Media

by CFO Innovation Asia Staff, 08 September 2010

Mobile devices are slowly gaining ground as the preferred media for e-commerce, a KPMG survey found recently.


Compared with only 18 months ago, the global percentage of respondents who have used their mobile device for banking has more than doubled from 19% to 46%, while the percentage that have used it to buy goods and services has gone from 10% to 28%.


This surge is being led by the world's fastest-developing economies. In China, 77% of respondents say they have used their mobiles for banking and 44% for retail transactions, while in India 38% are using them to shop, and 43% for financial business.


Privacy a Big Issue


But, despite their growing familiarity with mobile commerce, many Chinese and Indian consumers remain deeply worried about risking their privacy, a concern they share with much of the world.


More than 90% of respondents in South Korea, France, South Africa, Slovakia, Romania, Brazil and Russia as well as India and China said they were concerned over privacy and security online, in many cases more now than 18 months ago. Respondents in the Czech Republic and the Netherlands are the most relaxed about this issue, but even here, more than seven out of 10 said it is a matter of concern.


"Compared with our last survey, which used data from late 2008, the 2010 survey shows
conclusively that the mobile Internet is rapidly opening up an entirely new global marketplace," said Gary Matuszak, Global Chair, Information, Communications and Entertainment.


The study found that people are increasingly willing to pay for high-value content. Organisations that can provide high quality material in an imaginative and user-friendly way will be able to generate significant revenues.


"But the twin perceptions of inadequate privacy and poor security are definitely uppermost in consumers' minds, and may be holding back the further development of the Internet as a commercial tool. Consumers around the world see solving these issues as a joint responsibility of service providers, who should improve systems and be more transparent in their reporting on security matters, and regulators, who should introduce privacy and security policies that address the new challenges arising from evolving mobile technology."


More People Willing to Pay


A major challenge for content providers has been how to turn their internet presence into revenue, but these survey results suggest that consumers may be getting used to the idea that they should pay something for what they consume.

Globally, 43% of respondents said they are now willing to pay for access to frequently used online content. Among the Asia-Pacific countries, this rises to 59%, with China and India the clear global leaders at 63% and 65%.

Among those willing to pay for access, the most popular types of content which people would pay for are video, chosen by 56%, and music, chosen by 53%. Paid-for music is especially popular among the young, with 61% of 16-24 year-olds saying they would be prepared to pay.


Asia-Pacific Leads in Mobile Use


Throughout the report, there are some striking differences between online usage and attitudes in the Asia–Pacific countries and those of Europe and the Americas, with Asia-Pacific consumers much more likely to be heavy users of mobile online services. Even within Europe, there is a clear difference between Western European countries and those of Central and Eastern Europe.


Despite the surge in mobile use, KPMG says it sees no signs that those consumers who currently have landline connections are giving them up. Globally, 84% said they still have a landline, although they now use it mainly as an internet connection, rather than for voice calls.

Thursday, December 30, 2010

Pursue China's Small Cities, BCG Tells MNCs

by CFO Innovation Asia Staff, 09 November 2010

A combination of higher living costs and the downturn's impact has led middle-class and affluent consumers (MACs) in big cities to have less enthusiasm for spending than MACs in smaller cities--presenting a huge growth opportunity for international companies, finds BCG's "Big Prizes in Small Places: China's Rapidly Multiplying Pockets of Growth" report.


"Companies that fail to venture into China's small cities will miss out on a significant portion of the middle-class growth explosion and leave an opening for their competitors to fill," warns BCG senior partner Hubert Hsu, a coauthor of the report and based in Hong Kong. Today, in order to reach 80 percent of MACs, a company must be in 340 urban locations; to achieve the same coverage in ten years, a company will need to be in nearly 550 urban locations. By then, there will be nearly 800 urban locations with real disposable income per capita greater than Shanghai's today.


Hong Kong–based BCG partner Carol Liao, also coauthor of the report, explains small cities offer the potential for higher margins from a fragmented trade structure and the opportunity to shape the behavior of new middle-class consumers.


However, companies should not assume that their big-city business models will work equally well in small cities. BCG's research has found that many consumers new to the middle-income segment are less sophisticated about brands and sometimes require education on product benefits. These consumers also do less research before purchasing than big-city consumers and show more trust in local brands and television promotions.


Even small-city markets are not all alike: regional differences in spending habits, product preferences, distribution channels, and trade structures are significant. For example, MACs in cities clustered around Nanjing and Chengdu are the most interested in spending more and trading up, while MACs in the cities around Wuhan and Shenyang are the least interested. Because regional differences are so significant in China, companies must define the source of their opportunity carefully and prioritise growth plans before allocating resources, says BCG.

Top 10 SAP Retail Go-Lives

By Joe Skorupa

I saw a recent reference to Wall Street's addiction to tracking new license deals between IT vendors and clients, and how analysts overweight their importance. While new deals could be a good barometer of momentum, the problem is a high percentage evaporate between signing and deployment. The best metric to track is go-lives. Here are 10 from SAP.

As any junior media writer knows, client-win announcements are barely worth the pixels they are written on. Deals get postponed, modified and cancelled. In many cases, the agreement is contingent upon a proof of concept or pilot phase, which may result in a partial deployment that receives another round of publicity. Then, when the test phase is up the technology is ripped out. In other cases the project becomes so painful for either party that the plug is pulled and everyone walks away.

Go-lives are where the rubber meets the road, and unlike new deal announcements they occur quietly in the night and go unreported. This series of stories aims to correct this and ensure at least some see the light of day. This is the third in the series and it features 10 major go-lives in the last 12 months involving applications from SAP.

7- Eleven is Australia's 2008 Franchisor of the Year Award winner with more than 370 convenience store locations in three states. It recently implemented SAP Business Intelligence (BI7) as part of a larger IT project to increase business efficiency by providing visibility and delivering analytic capability. The BI solution was implemented in conjunction with SAP POS Data Manager (POSDM) and SAP BI Accelerator. Today, 7-Eleven has access to an enterprise-wide reporting system to support improved decision making at the head office and store level. The implementation is a continuation of a major re-engineering of the retailer's its supply chain processes, including ERP software.

Brookshire Grocery Company is a Texas-based grocer operating more than 150 stores in Texas and surrounding states. It recently completed a project to increase data integrity and visibility to ensure it had accurate, consistent and actionable information to better understand and serve shoppers. In conjunction with SAP's Merchandising solution this effort has given Brookshire a deeper understanding of shoppers, and flexibility to quickly and proactively adjust to demand, which has translated into increased sales.

Carsa Megatone is Argentina's largest home items retailer, operating in more than 200 stores. In order to keep up with accelerating growth and expansion, it decided to implement a scalable ERP system including SAP for Retail, CRM and Business Intelligence. The $1.2-million investment was largely made to enable it to go in a new direction and transform the company.

Hastens Beds, a privately owned luxury bed maker and retailer, is currently established in 28 markets globally and 330 retail stores. It deployed SAP business solutions on a rapid schedule to gain transparency across all parts of the business. As a result, Hastens now tracks orders seamlessly across purchasing, planning and transportation, and has achieved a 100-percent line fill-rate on promised orders. Hastens, a mid-sized company, is leveraging SAP's applications and best practices to grow and expand globally while upholding high standards for product quality, customer service and innovation.

Life is good is a New Hampshire-based apparel company that sells and markets an assortment of optimistic and humorous Life is good products, including clothing, accessories and footwear. The brand was growing, but the company was hindered by stove-piped master data management and disparate operating systems. Working on an aggressive timeline, the company implemented an apparel and footwear industry solution from SAP in only 24 weeks. The implementation has resulted in a highly visible, streamlined flow of information and collaboration across the company and its supply chain.

Sport Chalet is a leading retailer of high-quality sporting goods and apparel that also offers numerous services for the serious sports enthusiast. To gain efficiencies as well as attain mandated compliance for its financials, Sport Chalet implemented SAP Merchandising as well as SAP Retail Store, POS Data Management and Financials.  As a result, it is better able to serve shoppers due to increased operational efficiency and deeper understanding of demand.

The Bon-Ton Stores, which operates more than 280 stores and employs more than 30,000 employees, was looking to improve the customer experience while maximizing return on operating payroll. Implementing SAP's Workforce Management Solution has given it enhanced customer service as well as greater visibility into labor spend.

The Fruit Company, located in Hood River, Oregon, is an online retailer of fine fruits and gourmet gift specialties. The Fruit Company required a single, integrated view into all of its departments. SAP Business One provided a flexible business solution so that the company could adapt to meet its dynamic business needs as well as integrate easily with the retailer's existing operations while upgrading from one-dimensional spreadsheets.

Wolverine World Wide is a manufacturer and retailer of footwear, apparel and accessories. Brands include Wolverine, Merrell, Chaco, Cushe, Hush Puppies, Patagonia Footwear, Harley Davidson Footwear, Caterpillar Footwear, Sebago, Hytest and Bates. With SAP's AFS solution already implemented, WWW turned its focus to the retail business and selected SAP Retail to accelerate global growth, enable better views of buying trends, analyze customer demand and supply chain data, optimize inventories, and provide a consistent customer experience in stores. Wolverine implemented SAP Retail in just six months.

Zappos is an online and fast-growing footwear and accessories retailer that selected SAP solutions to support its explosive growth. The first step was to build an infrastructure to secure the purchase-to-pay cycle. After a five-month implementation they are now leveraging SAP Financials to improve financial control.

Posted: 5/5/2009 12:00:00 AM by Joseph Skorupa

Top 10 Oracle Retail Go-Lives

By Joe Skorupa

Marking an X on the calendar for a go-live date is a big deal for any retailer. Leading up to the date, the CIO and members of the IT team work around the clock or are on call 24/7. When the date arrives it means testing is over, the switch is flipped, and the enterprise hums along oblivious to the fact that a major back-end system has been replaced.

It's a high-wire act and something CIOs should be proud of. Unfortunately, a go-live doesn't get much notice outside the four walls of the company doing it. There are lots of reasons for this including fear of the big what-if scenario. What if it doesn't work and the business of the enterprise doesn't hum along when the switch is flipped?

However, CIOs and technology have come a long way in the last 10 years, and ways to avoid the what-if scenario have become fairly (but not completely) bulletproof.

So, in an effort to bring a measure of recognition to retailers who have successfully performed recent go-lives, this is the first of a series of stories covering the subject.

As mentioned, announcements about go-lives aren't widely distributed, but they can be found if you look hard enough through media interviews and quarterly earnings filings. Based on these publicly available resources, here is a list of 10 major retail Oracle go-lives in the last 12 months.

A.C. Moore: This mid-size retailer had a go-live on Oracle Retail merchandising applications to help increase sell-through of seasonal merchandise and derive more value from customer visits. The applications use a hosted and Managed Application Solution (MAS) model, and are installed and managed on Oracle Enterprise Linux to provide a more flexible, reliable, and cost-effective solution.

Abercrombie & Fitch: This apparel all-star will open more of the company's thriving Hollister brand stores this year, complete with new IBM registers running on Linux and using the Oracle application server and database on the back-end. The new POS solution is part of a broader transformation program that will implement Oracle Retail's merchandising, planning, supply chain and stores solutions while also licensing Oracle technology and back-office capabilities.

Dress Barn: The specialty retailer implements the Oracle Retail Merchandising System and Oracle Retail Data Warehouse. According to Dress Barn, the Oracle Retail systems have helped increase same-store sales through improved buying, allocation and inventory planning decisions. "We required a partner that would provide a solid IT foundation to help us support growth for many years," says Dress Barn CEO David Jaffe. "Oracle understood our retail environment and helped us make our operations more efficient."

El Corte Ingles: Spain's largest retail group implements Oracle Retail planning applications to support expansion plans and increase profitability through enhanced product lifecycle management. The chain has 99 department stores in Spain and Portugal. The Oracle solutions are used to more effectively forecast and plan pre-season, track in-season performance, manage markdowns and improve margin control.

Gymboree: This beat-the-recession retailer enjoys a fiercely loyal customer base of moms who expect prompt, accurate service in stores, including quick checkout, easy returns and the ability for sales associates to instantly locate sizes and colors in store inventory. The company implemented a new point-of-sale system in 2008 to all of its stores using Fujitsu hardware and Oracle Retail POS software. The system is integrated with inventory management, time and attendance management, and signature capture to speed service and impact business processes.

Marionnaud: Europe's largest cosmetics retail chain implements Oracle Retail merchandising applications to improve inventory management and boost financial performance in the ultra-competitive French market. The Oracle Retail implementation provides Marionnaud with improved visibility to data connecting the supply chain, stores and back office.

New Look: Leading UK fashion retailer implements the Oracle SOA Suite to increase operational flexibility and strengthen its ability for future growth as it expands internationally. The Oracle SOA Suite is being used to accelerate business performance in buying and merchandising processes, such as markdown management and purchase ordering.

Staples: The office products leader implements the newest release of Oracle's PeopleSoft Enterprise Human Capital Management solution to support the roll out of its long-term, talent management strategy. Staples is using the solution to monitor key performance indicators to increase productivity and control labor costs.

Supervalu: The giant grocer completes the first phase of a planned three-year implementation of Oracle retail technology, going live with Oracle's call-center application as well as planning and forecasting modules. During an October conference call regarding earnings, Supervalu vice president and chief financial officer Pamela Knous reports the forecasting solution "greatly enhances our understanding of retail performance at the category and item level, enabling us to make better business decisions, and represents a major step in achieving a best-in-class merchandising organization."

Wal-Mart: The world's largest retailer implements Oracle Retail applications including Oracle Retail Merchandise Financial Planning, Oracle Retail Item Planning, and other elements of the Oracle Retail Suite as part of its merchandising transformation initiatives.
Posted: 3/17/2009 12:00:00 AM by Joseph Skorupa |

Top 10 RedPrairie Retail Go-Lives

By Joe Skorupa

When an IT team flips a switch on a new system or upgrade it passes a major milestone that triggers a huge sigh of relief. Some team members immediately head to different projects, some stay on to handle ongoing issues, some catch up on lost sleep, and some celebrate with a delightful beverage or two. But each takes pride in pulling off a difficult feat of competitive importance to the enterprise. And so they should. Here are 10 recent go-lives involving RedPrairie technology

It is a shame so many of these potentially risky high-wire acts go unreported and unheralded. Of course, no news is good news, and if everything goes according to plan the organization won't even know a big change has been made. Everyone will just show up on Monday morning and go about their business unaware of all the effort that took place on their behalf.

As mentioned in a previous blog, media announcements about go-lives aren't widely distributed, but if you look hard enough they can be found. I think it is worth the effort to find them, because retailers who have successfully performed go-lives deserve to be recognized in our industry.

This is the second in a series of stories covering this subject, and it highlights 10 major retail go-lives in the last 12 months involving applications from RedPrairie.

Blick Art Materials: The U.S.'s largest retailer of art supplies is now managing all sales channels and increasing inventory accuracy with RedPrairie Warehouse Management and Workforce Management solutions. Besides its company-owned and operated stores, the Illinois-based company also maintains catalog, online, and commercial channels. So far inventory accuracy has jumped to 99 percent while at the same time reducing picking errors and returns.

Carphone Warehouse: Europe's leading independent retailer of mobile phones and services implemented RedPrairie's Execution Management application to gain a single, chain-wide perspective into store operations. The mobile phone and services retailer operates 2,400 stores under The Carphone Warehouse banner in the UK, The Phone House name in European markets, and through a Best Buy partnership in the U.S. The RedPrairie tool improves visibility into store level compliance and reduces unnecessary headquarter-to-store communications. 

Chevron: Chevron's ExtraMile successfully completed an installation of RedPrairie's Site Operations for Retail product in just under six months to almost 400 company operated stores by year-end 2008. This on-time implementation provided consistency in product mix at the Chevron ExtraMile stores with flexibility across geographical areas while improving management of merchandise rebates, accuracy in product pricing compliance, merchandise in-stocks, and controls on cash and merchandise inventories.

Delhaize: The giant, Belgium-based supermarket chain deploys RedPrairie's Transportation Management System to optimize its supply chain, and improve collaboration and scheduling.  Five Delhaize distribution centers use the solution to manage inbound deliveries more efficiently and optimize dock usage. About 1,500 suppliers plan their deliveries using the online collaboration portal.

Finish Line: Leading athletic retailer Finish Line implements RedPrairie's Workforce Management solution to improve customer and associate satisfaction while increasing the efficiency and accuracy of its labor schedules and labor-cost tracking. RedPrairie's time and attendance module lets Finish Line closely monitor labor hours and costs as they are incurred, integrating the time clock with posted schedules, and enabling automatic employee punch validation.

Gaylord Entertainment: This leading hospitality and entertainment company implements RedPrairie's Workforce Management and Performance Management solutions to manage its 10,000-plus employees distributed across multiple properties and for improved analysis of the enterprise.  Both solutions provide information to corporate personnel and to individual property managers for fast decision-making.

Levin Furniture: This Pennsylvania-based furniture retailer is using a RedPrairie Warehouse Management System in its distribution center for improved productivity. It replaces a legacy warehouse system. Levin Furniture gains distribution efficiencies through faster and more accurate order fulfillment as a result of system-directed tasks, improved picking and put-away accuracy

Peet's Coffee & Tea: Coffee shop pioneer Peet's Coffee & Tea, which operates 190 specialty stores nationwide, now uses RedPrairie's Site Operations solution to cut waste. Peet's reduces wasted products through improved forecasting, inventory management and auto-ordering. Through configurable workflows and exception-based reporting, the company possesses the ability to forecast demand and automate restocking of necessary items at each store site.

Sephora: This European beauty retail giant is strengthening its U.S. presence by running its Salt Lake distribution center with RedPrairie's Warehouse Management System. The technology supports Sephora's multi-channel business, directing shipments to retail outlets as well as customers purchasing on The retailer has more than 515 stores in 14 countries, including 227 in the U.S.

Sheetz: This convenience store innovator rolls out RedPrairie's Site Operations technology to direct activities at more than 350 outlets. Sheetz now has a single, chain-wide window into all aspects of its site operations, including cash management, invoicing, food service and inventory management. 

Posted: 4/27/2009 12:00:00 AM by Joseph Skorupa

Helping CFOs Stay Out of Jail -- and More

by Cesar Bacani, 21 December 2010

In 1989, Brian Harte was asked to take on a regulatory compliance role at the Royal Bank of Canada. "I was given a mandate and told all of this regulation would go very quiet after about 18 months, and that would be the end of it," he recently told the Economist Intelligence Unit (EIU). It wasn't. Harte, who is now Royal Bank of Canada's group head of compliance, Europe and Asia, is still plugging away. "It is 21 years later and we're now in another enormous uptick again," he says.

It's all because of the global financial crisis, which is prompting the world's finance ministers and central bankers to speed up work on a new international financial regulatory framework. National agencies, including stock market authorities, corporate watchdogs and accounting and auditing bodies, have turned their back on 'light-touch regulation' for more stringent approaches. And asset managers, corporate governance activists and the media are tracking corporate governance and compliance now more than ever.
The pressure is particularly intense on CFOs and CEOs, who face jail time for violating the draconian requirements of the Sarbanes-Oxley Act in the U.S., J-SOX in Japan and similar laws elsewhere. It's not just governance and compliance. A whole range of new risks has also appeared, ranging from the macro-economic (double-dip recession, volatile economic conditions) to the financial (global credit crunch, volatile foreign exchange movements) to the operational (climate change, workforce availability) to the strategic (green technologies, competitors from emerging markets).
Enter GRC
How can CFOs and other executives possibly cope? One answer is to place all three areas of concern under one umbrella. "More and more companies are looking at reducing risk, cutting costs and improving performance by adopting a more integrated approach to managing their governance, risk and compliance activities," reports the EIU in The Convergence Challenge, a global study released in February this year. Of the 542 C-level business executives surveyed, 64% say integration of governance, risk and compliance (GRC) is a priority for their organisation.
KPMG, which commissioned the report, is not surprised. "The expansion of governance, risk and compliance activity has created a number of large, unwieldy and often autonomous groups," says Oliver Engels, the Big Four accounting firm's European Head of Governance, Risk & Compliance. "It is not uncommon to have dozens of committees dealing with different aspects of risk – many of them overlapping yet not communicating." In the resulting "sea of complexity," he adds, organisations "have been unable to distinguish the critical business risks at both group and entity level."
This is the experience of Australia Post, whose manager for corporate risk and compliance, Scott Farquharson, spoke at a recent CFO Innovation webinar. At one point, says Farquharson, there were 50 disparate systems generating "vast amounts of data" that were difficult to analyse because they sat in different parts of the organisation. For example, the audit group had its audit issues database while the legal people had their legal litigation database. There was a separate enterprise risk management system, claims management system, health and safety system, and so on.
The core GRC systems did not communicate with each other and contained different versions of the same set of governance, risk, compliance and controls information. "It's like having separate finance departments all over the organisation, all running off separate general ledgers with the same set of transactions, and all having completely different views of what's going on," says Farquharson. As a result, no one could tell what the overall risk exposure was, whether it was increasing or decreasing, where the emerging risks were, how effective the controls were and so on.
Initial Steps
So how can companies make convergence happen? At pharmaceutical giant GlaxoSmithKline, which is one of the case studies in the EIU report, the first step is to build a group-wide GRC structure. The company has created a group Risk Oversight and Compliance Committee, into which all GRC-related information is reported. Below this super committee are risk management and compliance committees embedded in each GlaxoSmithKline operating business that are tasked with reviewing, measuring and managing risk exposure.

"The business should pull, rather than having [a GRC structure] pushed upon it," says Nick Hirons, who is the company's head of audit and assurance. "If GRC is going to be of value, the business units should be part of this process [of implementing it] and this should be perceived as adding value to their business. This should not be a bureaucratic compliance process which is pushed on to the business units."
At California-based vegetable oil maker Ventura Foods, another EIU case study, the GRC convergence process started with studying the Red Book, a guide to GRC produced by the U.S. non-profit organisation Open Compliance & Ethics Group. The company identified what components of a GRC program it needed, determined which elements were already in place and whether these needed to be refined, and decided whether the components it did not have were needed by a privately held firm like Ventura Foods.

"There had been some internal auditing but not a fully robust department," Jason Mefford, Vice President of Business Process Assurance, told the EIU. "A lot of these GRC-related items that we should be auditing against were not in place." Ventura developed a code of conduct that defined its core values. The existing but disparate GRC practices were knitted together. "We're getting some committees together," says Mefford. "This means different people talk with each other, see what they are actually doing and have some kind of a reporting mechanism."

Australia Post also took a long hard look at its GRC structures. It was helpful to go back to the basics, says Farquharson. The multifarious risks are categorised into two: 'rewarded' risk, meaning those that provides a premium if managed well, such as M&A and product development; and 'unrewarded' risk, which relates to such areas as financial misstatement. In handling unrewarded risk, the focus is placed on compliance with laws and regulations, and having an integrated management information system. For rewarded risk, Australia Post is guided by two questions: Are we doing the right things? Are we doing the things right?
These risks are handled within an overarching risk and compliance framework that starts, first of all, from the board-endorsed policy on governance, risk and compliance. The Post's sees as its first line of defence the day-to-day risk management activities of business units, which implement policies and directives from the board, executive committee and line management. The risk management committee and CFO are among the key players in the second line of defence, which comprise governance, risk and compliance oversight, policy and standards.
The final line of defence is independent assurance and advice, overseen by the board-level Audit and Risk Committee and provided by external auditors, corporate services and legal services. The players in all three tiers are expected to communicate with each other, use common risk language, act within clearly defined accountabilities and utilise the company's risk management processes and tools (which have ISO 31000:2009 certification on risk management, issued by the International Organisation for Standardisation).
Perhaps the Post's most interesting move is its decision to engage German software maker SAP to provide a GRC suite that will give timely access to the GRC activities undertaken by various parts of the company and generate "a single source of truth in relation to GRC," as Farquharson puts it. The goals include getting a single integrated view of Australia Post's risk, compliance and assurance position, monitoring and testing that position and then updating the risk profile, unlocking risk data in other systems and enabling single view reporting.
Higher costs
 "We're in the early days of implementation, but the initial results are good," Farquharson reports. However, convergence and automation incur high costs. In the EIU study, 77% of respondents say they expect expenses related to GRC activities to rise over the next two years, with 30% saying cost will increase significantly. Extrapolating from the survey's responses, KPMG estimates that a company with US$1 billion in annual turnover may spend as much as US$50 million on GRC initiatives.

Interestingly, respondents are sceptical about what exactly the increased spending will bring them. Only four out of ten respondents say that GRC can improve corporate performance, and just 26% believe it will help reduce the costs of duplication and will identify synergies. Even fewer – 13% – say GRC will help support business units more effectively. The prevailing mind-set seems to be that GRC is an unavoidable business cost that is undertaken to keep the company – and its senior executives – out of legal trouble.
This should not be the case, argues Dr. George Westerman, a research scientist at the Centre for Information Systems Research at the Sloan School of Management of the Massachusetts Institute of Technology, who was interviewed by the EIU for the GRC report. "Some firms tell me their compliance activities have partially paid for themselves by identifying new business process efficiencies," he says. "Instead of sinking money into protecting a bad process, you can rework it and get all kinds of savings."
It's not just the unrewarded risk, in other words. As Australia Post's Farquharson tells it, GRC should also tackle rewarded risk, which will yield efficiencies, synergies and other value-accretive gains. It will be interesting to see whether there is truth to this theory as the Post fully implements its GRC convergence and automation initiative. Watch this space.
About the Author
Cesar Bacani is senior consulting editor at CFO Innovation.

Ernst & Young Gets Sued and Other Hot Stories

by Cesar Bacani, 24 December 2010

It's time once again to look back at the year just past in the hope that, perhaps, this will illuminate what we can expect of the future. As we did for the stories we published in the fourth quarter of 2009, we at CFO Innovation looked at which articles and white papers found particular resonance with you, our 19,000 or so readers, in the course of 2010.

Why? As we wrote last January: "It is useful . . .  to be aware of what your peers as a group are thinking about and where they are focusing their energies. If everyone is focusing on risk management, say, and you are not, you may be putting your company at a competitive disadvantage. And you may find yourself being left behind as your peers acquire new insights and knowledge."    
Death Knell?
It is not surprising that among the most well read articles are those dealing with potential seismic changes involving the accounting profession. The single most read article posed the question: Will Ernst & Young Survive the Lehman Scandal? Published in March, the story delved into Ernst & Young's role in the fall of Lehman Brothers, which caused the global financial system to seize up in 2008, and whether it could mean the decimation of the Big Four into the Big Three.
We analysed the 2,200-page report released on March 11 by Anton R. Valukas, the U.S. examiner tasked by the Bankruptcy Court of the Southern District of New York to investigate Lehman's bankruptcy. He found 'colorable claims' against Lehman's CEO, three CFOs and Ernst & Young, Lehman's external auditor.
"Ernst & Young took no steps to question or challenge the non-disclosure by Lehman of its use of $50 billion of temporary, off-balance sheet transactions [to allegedly manipulate the balance sheet]," he wrote. "Colorable claims exist that Ernst & Young did not meet professional standards, both in investigating [allegations by a Lehman executive about the supposed manipulation] and in connection with its audit and review of Lehman's financial statements."
The legal term 'colorable claim' means that the examiner "has found that there is sufficient credible evidence to support a finding by a trier of fact," Valukas explained. "Whether claims are in fact valid will be for the triers of fact to whom claims are presented."
Those triers of facts are now considering Valukas's findings. Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York is hearing a class-action suit by Lehman shareholders that was amended to include Ernst & Young as defendant in May. The same judge is also presiding over a suit brought by the state of New Jersey and the U.S. Department of Treasury against the actors that Valukas said had colourable claims against them.
In the UK, the Accountancy and Actuarial Discipline Board launched a probe in October of Ernst & Young's conduct in relation to the preparation of a report to the Financial Services Authority "in respect of Lehman Brothers International (Europe)'s compliance with the FSA's Client Asset Rules for the year ended 30th November 2007."
On December 21, Andrew Cuomo, in his last act as New York State Attorney General before assuming the office of New York Governor, sued Ernst & Young for alleged accounting fraud. For more than seven years, Cuomo charged, Lehman had conducted what it terms 'Repo 105' transactions designed to temporarily park fixed-income securities with European banks in order to reduce the amount of leverage on Lehman's books.
"This practice was a house-of-cards business model designed to hide billions in liabilities in the years before Lehman collapsed," the attorney general alleged. "Just as troubling, a global accounting firm, tasked with auditing Lehman's financial statements, helped hide this crucial information from the investing public. Our lawsuit seeks to recover the fees collected by Ernst & Young while it was supposed to be using accountable, honest measures to protect the public."
Will these various triers of fact ring the death knell for Ernst & Young? We doubt it, but perhaps the answer to the popular CFO Innovation February article, Metrics: Who's the Biggest Accounting Firm?, will be different in 2011. Ernst & Young, which had billings of US$23 billion in 2009 to become the world's third biggest accounting firm, may see revenues trimmed because of its various legal and regulatory problems.

Integration vs. Independence
As Ernst & Young stumbled, another accounting firm made a big move in Asia. Also very well read is Why Grant Thornton Jumped Ship in Hong Kong, which was published in November. In that interview, Albert Au, chairman and CEO of BDO Hong Kong, told CFO Innovation about the switching over to BDO of some 500 Grant Thornton partners and other finance professionals in Hong Kong. "A firm of that size, with a track record of more than 50 years – the firm originated originally in 1949 – it's a very rare opportunity," he said. "It is a rare opportunity for us to take up the talents from that firm en masse."
The interview elicited a sharp reaction from Grant Thornton International. "It is disingenuous, or possibly wishful thinking, on the part of BDO to suggest that Grant Thornton is pulling out of Hong Kong," said Hilary East, Head of International Communications at Grant Thornton International. "Many partners and staff from the former Hong Kong firm have already contacted the new Grant Thornton firm and clients will, of course, decide for themselves whether to move to BDO, or remain with the integrated, 'one firm' approach of Grant Thornton."
The widely followed saga should find closure in 2011. Reached by CFO Innovation in Brazil, Alex MacBeath, the member of Grant Thornton International's global leadership board with responsibility for strategy in Asia Pacific, stressed that Grant Thornton will remain a major player in China and Hong Kong. A new Grant Thornton member, Grant Thornton Jingdu Tianhua. has been formed by five partners of the former Grant Thornton Hong Kong (which MacBeath said has been asked to leave the Grant Thornton because of differences in strategy over closer integration with Grant Thornton China).
"We expect to have about 150 people by spring of next year [2011] and grow from there," he said in an exclusive interview. The new entity will be more strongly integrated with the China member firm in a way that the former Hong Kong firm was apparently not willing to do.
"Our clients are increasingly regarding China as a single market and they are driving us, and I think will drive other firms, to an integrated approach to the China market," MacBeath explained. "It's not about one firm controlling another firm. It's really about firms working together closely, being strategically aligned and serving the client seamlessly across the market."
The fireworks between two accounting firms are inherently interesting, but we feel that readers are also paying attention because of Grant Thornton International and BDO's divergent visions on the way forward. BDO appears happy to continue the old model of autonomous member firms that cooperate with other member firms to the extent and depth that they are comfortable with. In Asia, Grant Thornton is bent on closer integration, to the point where important Greater China decisions are jointly made by the China and Hong Kong firms. 
It's a debate about the future of accounting firm models that we at CFO Innovation will follow, report and analyse in 2011 and beyond.
Fraud and Scandal
As in the fourth quarter of 2009, we also find great interest among CFOs in what we think of as there-but-for-the-grace-of-God stories. When the Accountant Disappears was among the best read articles last year. It was again a popular read in 2010 as the BDO-Grant Thornton food fight proceeded – the accountant in question, Gabriel Azedo, was the former managing partner of the Grant Thornton member firm that has now left the network. (Both Grant Thornton International and BDO say Azedo's disappearance has nothing to do with the transfer of former Grant Thornton Hong Kong employees to BDO.)

Almost on cue in November, Azedo was found in Spain; our report on this development was one of the most well-read news items of the year.    
As we wrote last year, we don't believe this obsession with fraud and scandal necessarily means that finance professionals take personal enjoyment from the missteps and misfortunes of their peers. We like to think that it has to do more with sympathy with the travails of others in circumstances that readers know they can easily find themselves in. We think our readers are also interested to discover exactly what happened to draw lessons that may help them avert similar situations.  
Best Practice
Asia's financial executives were as interested in day-to-day financial management as they were in the high-profile Ernst & Young-type cases. Among the most well-read articles are those on talent management, including How to Find and Keep the Best CFO, After Cost Cutting: How to Attract and Retain Talent, and How to Keep Your Finance Staff.
This is consistent with the findings of the quarterly CFO Innovation Asia Business Outlook Survey, which is now on its fifth iteration. In the survey looking forward to the final quarter of 2010, the CFOs, financial controllers, treasurers and other finance executives surveyed said their top concern continues to be attracting and retaining qualified employees. In the first survey for the fourth quarter of 2009, the top internal focus was cutting costs, which has now fallen to second place as a prime concern.
"The number of executives that regard the ability to cut costs and reduce supplier spend has [decreased] to 35% from 40% previously," the fourth quarter 2010 report noted. "In contrast, more respondents are focusing on working capital management – 31% versus 23% in the previous survey. It seems that Asia's companies are making the transition from straightforward cost-cutting to the more nuanced task of managing working capital."
This trend appears to be reflected in the best-practice articles that our readers are most interested in, which include Cash Management in the Post-Crisis Era. That said, other operational aspects of financial management garnered keen interest as well, among them Business Performance: Dashboards on the Go, Finance-Function Cost: The 0.6% Solution, The Art of Cutting Travel Expenses and How IFRS Is Changing the M&A Game.
If you have missed any of the articles that have found special resonance with your peers, we urge you to read (or re-read them). You may just find something useful for your business and your own professional development.
About the Author
Cesar Bacani is senior consulting editor at CFO Innovation.

Privacy Alert: 10 Biggest Threats of 2010

By Dan Tynan | Dec 29, 2010

2010 could go on record as the year the privacy mess hit the proverbial fan.
Companies such as Apple, AT&T, Facebook, and Google all got nailed for sharing users' personal data in big ways, accidentally or otherwise. Police officers were caught tracking people's movements via cell phones, while Web advertisers tracked surfers' virtual movements via hard-to-kill cookies. Schools spied on their students, mobile apps spied on their owners, and the feds caught heat for getting a little too personal with their security searches.
But the biggest privacy headlines of 2010 weren't necessarily the biggest threats, while some lesser-known incidents had far more serious implications. How dangerous are these privacy issues to you [8]? In this rundown, we use the Department of Homeland Security's threat level system to rate the threats, and we provide suggestions on how you can protect yourself.
Be careful out there.
1. Google's Wi-Fi Spying
Threat Level: GREEN
Google's Wi-Fi spying debacle [9] didn't start out evil. By using its Street View vans to map out open Wi-Fi networks, Google could provide better location data to mobile users. If you use Google Maps from your phone, it could employ nearby wireless networks to determine where you are, no GPS required.
The problem: Besides the Wi-Fi network's name and location, Google's Street View vans were accidentally slurping up unencrypted data--including user passwords and e-mail messages. Over three years, Google gathered 600GB of extra data in more than 30 countries, resulting in international sanctions, civil lawsuits, and an FCC probe.
Even so, the impact on average consumers is minimal, says Peter Eckersley, senior staff technologist for the Electronic Frontier Foundation. You're in greater danger of being spied on by nosy neighbors or creeps parked outside your house.
The solution: Password-protect your wireless network (duh) and use encrypted HTTPS connections to browse the Web when possible (see item #3 below).
2. The iPad E-Mail Leak
Threat Level: GREEN
If you bought one of the first Apple 3G iPads, an obscure security group may have purloined your e-mail address.
Last June, Goatse Security exploited a hole in AT&T's Website that displayed an iPad owner's e-mail address when it encountered an HTTP request containing that user's ID number. Goatse flooded AT& with URLs containing random 20-digit numbers and collected 114,000 e-mail addresses of iPad owners. It then shared a few of them with Gawker.
The good news? The Goatse hack didn't reveal passwords, so the group couldn't access information beyond your name. And you're in select company--ABC's Diane Sawyer, New York Mayor Michael Bloomberg, and top government and military officials also had their addresses stolen.
The solution: None needed. AT&T quickly closed the hole--and if a spammer wants your e-mail address, there are easier ways to get it. So is the iPad magical and life-changing yet?
3. Facebook Wi-Fi-Jacking
Threat Level: YELLOW
Updating your Facebook status from a Wi-Fi cafe? A stranger can log in to your account and pretend to be you. Blame Firesheep [10], a free Firefox plug-in that captures login cookies as they fly by unencrypted. Programmer Eric Butler wrote the program to demonstrate how much data people send "in the clear" without realizing it. Using Firesheep, a hijacker can access your account on Facebook, Twitter, and two dozen other sites. Any information you thought was private now isn't. Feeling naked yet?
The failure of sites such as Facebook and Twitter to require secure logins is "an enormous privacy problem," says the EFF's Eckersley. "Google demonstrated this could be done on a colossal scale at minimal cost with Gmail. Now we need to get the rest of them to do that."
The solution: Use EFF and the Tor Project's HTTPS Everywhere plug-in for Firefox to force sites to use SSL encryption if available. And don't log in to sites containing sensitive info from a public network.
4. 'Naked' Security Scans
Threat Level: BLUE
If Firesheep doesn't make you feel naked, passing through airport security might. Major U.S. airports and federal buildings are deploying body scanners that can peer through clothing, rendering you virtually nude to security guards viewing the scan.
It gets worse. Last August, the U.S. Marshals Service in Orlando, Florida, admitted to storing some 35,000 body scans it was supposed to have destroyed. Naturally, some of those found their way onto the Net.
The Electronic Privacy Information Center filed suit against the Department of Homeland Security, attempting to keep airports from deploying the machines. A wave of protest ensued, including everybody from ordinary people to members of the Allied Pilots and U.S. Travel Associations.
The solution: In lieu of a scan, you can opt for an "If you touch me there, you'd better buy me dinner and a movie first" full-body frisk. But we don't think you'll feel any less violated.
5. Mobile Malware
Threat Level: YELLOW
The smartphone in your pocket is catnip to malware authors, yet mobile security is barely on most people's radar, says Winn Schwartau, chairman of security vendor Mobile Active Defense.
Kaspersky Lab identified the first malware known to target Android phones last August, and rogue code targeting jailbroken iPhones and iPads has been available for over a year. Schwartau agrees with estimates that 20 percent of all Android and iPhone apps may be infected.
"Mobile apps are the best hostile-code delivery system ever invented," Schwartau says. "The entire mobile space is in chaos."
The solution: Before you install a new app, do some sleuthing to suss out potential red flags; avoid apps from unfamiliar vendors or sites. "Install Gotcha 1.0 from Bob's App Store?" says Schwartau. "I don't think so."
6. Facebook's ID Giveaway
Threat Level: ORANGE
Facebook is often rightly accused of playing fast and loose with its 500 million members' data. But perhaps the site's worst privacy breach of 2010 was when Facebook and its biggest apps revealed user identities to advertisers and data brokers.
When users clicked ads on Facebook, Web links sent to advertisers contained unique IDs that could be traced back to the users' public profiles--giving the advertisers access to detailed information about a user's religion, politics, sexual preferences, and more. In other cases, app makers simply sold the user IDs to brokers.
EFF's Peter Eckersley says using Facebook IDs to extract personally identifiable information is easy for data brokers. "Tracking people is what they do," he says. "If they're sitting on a gold mine of data, they're going to dig for gold."
The solution: Use Facebook's privacy controls to keep your public profile sparse, and opt out of data-broker databases when possible.
7. Cell Phone Tracking
Threat Level: ORANGE
Geolocation services such as Facebook Places, Foursquare, and Gowalla let you tell the world what you're doing and where you're doing it, but they're voluntary. Other people may be tracking you in secret, thanks to that homing beacon in your pocket.
In September, a federal appeals court in Philadelphia ruled that law enforcement officials do not have to obtain a search warrant before obtaining location data, though a judge may still request one. (Conversely, last August the U.S. Court of Appeals for the District of Columbia ruled that a warrant is required before the feds can put a GPS tracking device on your car.) Until the Supreme Court issues a ruling or Congress enacts laws making location privacy a priority, the rules will vary depending on your location (appropriately enough). Meanwhile, private businesses can use your location data as they wish.
The solution: Turn off all of your handset's wireless antennas when you feel the urge to roam free.
8. Webcam Watchers
Threat Level: GREEN
A high school in southeastern Pennsylvania achieved international infamy after it used school-supplied laptops to secretly spy on students. Harriton High officials admitted that the school remotely operated Webcams on the district's 2400 MacBooks as an antitheft feature, capturing more than 50,000 images of students over three years.
A major kerfuffle erupted. Families sued the school district, prosecutors investigated, and the U.S. Senate held hearings. Tales of remote Webcam spying in other schools came to light. But an investigation failed to find criminal wrongdoing; the district agreed to stop remotely spying and settled the suits for $610,000.
Could this happen to you? Possibly. Any malware that can take control of your system can be used to operate a Webcam remotely. But only a handful of Webcam spy cases have ever been prosecuted.
The solution: High schoolers foiled the cams by disabling them or putting tape over the lenses when they weren't in use; you can too.
9. Zombie Cookies
Threat Level: ORANGE
Don't want online ad companies shadowing you across the Web? Simply delete their browser tracking cookies, and you're free to wander. Right? Wrong. Web advertisers have found a way to follow you anyway, using Adobe Flash cookies that automatically respawn after you delete them--hence their nickname, zombie cookies.
Last summer, privacy attorney Joseph Malley filed class-action suits against ABC, Disney, MTV, NBC, and their advertising partners, charging them with violating federal privacy and computer security laws via Flash cookies.
The solution: You can use Adobe's occasionally flaky Settings Manager, the Firefox plug-in BetterPrivacy, or CCleaner to nuke those zombies. The problem? Sites such as Pandora Radio and YouTube rely on Flash cookies--which can store up to 100KB of data--to improve media playback, and they may not work without them. So choose your undead victims with care.
10. Criminal Stupidity
Threat Level: RED
For years we've been told that online-privacy policies will protect our rights. Now it seems that many of those policies are not worth the paper they're not printed on.
Google flatly denied that it was slurping data off Wi-Fi networks--until the German government told it to check again. Facebook said it had no idea it was sharing user IDs with advertisers--until the Wall Street Journal pointed it out. Body scans weren't supposed to be retained; Webcams weren't supposed to capture teenagers in their bedrooms. Some of the biggest companies on the Web failed to play by their own rules, and didn't even realize it.
But Mobile Active Defense's Winn Schwartau says consumers are equally to blame--for clicking on spam and failing to protect their data, for sharing too much and caring too little.
"The biggest problem is criminal stupidity," he says. "If people follow basic security practices--secure their connections, pick reasonable passwords--they'll be in much better shape."
The solution: You're reading this article. That's a start.
PC World (US)

Wednesday, December 29, 2010

Supply Chain Issues: How the CFO Can Help

Supply Chain Issues: How the CFO Can Help

by Melba-Jean Bernad, 29 June 2010

What do Home Depot, Sun Microsystems and Delta Airlines have in common? According to Mahesh Rajasekharan of supply chain software firm i2 Technologies, the CFOs of these three American giants oversee supply chain management in their respective companies. 

"More and more companies are recognizing that the CFO's skill set is a competitive asset in its own right and well-suited to employing the supply chain to strategically cut costs and increase profits," writes Rajasekharan in Supply & Demand Chain Executive. "Many profound changes in a company's supply chain management processes require strategic financial bets that a CFO is in the best position to make."
As if today's finance chiefs do not have enough to do. Then again, it makes sense in the post-recession environment for a CFO to look at a major cost centre like the supply chain. As companies ease out of the financial crisis and restart procurement, production and inventory-building in a big way, there is an opportunity for finance to rationalize, coordinate and integrate towards the end of promoting efficiency, slashing costs and boosting profits.
Fruits of Visibility
No one is suggesting that finance professionals should take over supply chain management (SCM). Everyone knows it's a specialized field whose nuts-and-bolts processes are best left to the head of supply chain (who typically now reports directly to the CFO, CEO or the board), procurement specialists and others in operations.
What CFOs can do is get more involved in analysis and decision-making around SCM. "They serve as an unbiased entity with no emotional affiliation to the current set of processes, and their top responsibility lies with the financial success of a company," says Rajasekharan. "Their financial training gives them a solid financial foundation from which to evaluate the effect of system-wide changes on the bottom line."  
It's a change from, say, five years ago, when the influence of CFOs on the supply chain was not recognised as some contend that working across functions would slow down decision-making and cause disharmony. The arrival of new technologies is increasingly changing that traditional picture.
"CFOs are adding SCM to the financial levers they already control," explains Patricia Cheong, who is regional director, Asia, at Sterling Commerce, an IBM company that offers integration services. "New technologies and architectures have emerged to make the CFO's quest for visibility and control over complex supply chain processes both possible and practical. Today, applications are available for managing the flow of orders, inventory and shipments both inside and outside an organisation."
Case Studies
Rajasekharan cites several real-life examples to make his case. One semiconductor company decided to reduce production at a high-volume factory after peak Christmas shipments had been completed, something it had never done before. Supply chain managers had always followed the recommendations of the factory, which naturally always wanted to maximise throughput and utilisation, given the risk of not having enough stocks on hand during peak demand.
Not this time. The company had integrated sales and operations planning, which allowed closer links between the supply chain and financial management. Analysis by the finance function indicated that additional shipments would result in excess inventory at distributor- and supplier-managed hubs that could cause future price erosion and inventory write-offs. The conclusion was reached after finance matched forward-looking demand-supply data with financial ratio projections.

In the mobile phone space, companies typically introduce up to 40 new models every six months. These new phones usually have a 3-5-1 lifecycle – it takes three months to design a model, five months to launch and sell it, and one month to liquidate. Cash flow is, of course, negative during the design phase, only turning positive during the selling phase. The challenge is to keep the cash flow positive by managing such issues as the cost of components across the lifecycle, price protection and disposal costs.

As in the case of the semiconductor company, Rajasekharan says integrating the supply chain with financial management is helping cell phone makers take supply-chain actions that benefit the bottom line. "Through proactive lifecycle cash-flow analysis, companies can implement timely decisions that lead to ore products finishing in the black and fewer products dragged back into the red at the end of their lifecycles," he writes.
"Supply chain management can make a difference in these businesses by coordinating product transitions and new production introductions aligned with end-to-end supply chain capabilities and financial indicators of demand, such as point-of-sale information from retail channels."
Touting Technologies
To effectively control costs with supply chains, CFOs will need to tighten the integration of financial and supply chain management to positively impact the bottom line. This means finance people need to become more involved with supply chain management and work more closely with supply chain staff. Fortunately, technology has also evolved to support the increasing need for integration between finance and the supply chain.
According to the eSourcing Wiki, for a company to enjoy the ultimate benefit of an integrated finance and supply chain infrastructure, the appropriate software must be in place, such as e-Procurement and e-Payment to send purchase orders, track good receipts, receive invoices, and automate the settlement processes to the greatest extent possible.
Inventory management and tracking software are also important to appropriately track and manage inventory throughout the supply chain. Another must is collaboration and event tracking software to track supply chain events and permit early detection and resolution of potential problems. More importantly, cash flow management and modelling tools are needed to make sure the right financial decisions are being made at each stage of the chain.
And all of these technologies need to be integrated. For example, information relating to transactions and payments needs to flow from the company's e-Procurement and e-Payment systems automatically into a company's accounts receivable (A/R) and accounts payable (A/P) systems and then, ultimately, into its cash flow modelling and working capital optimisation tools.
Technology vendors offering solutions that integrate finance with the supply chain include i2, SAP, Oracle, Sterling Commerce, and Microsoft, to name a few.
Meanwhile, an increasing numbers of companies are turning to the Internet for web-based applications as part of the SCM solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers.

Citing market research firm Forrester, Bob Violino of CIO Zone says software that help companies run their supply chains more efficiently as a whole have not yet reached the stage of notable SaaS adoption. "But within the SCM category certain areas such as supplier relationship management, global trade management and supply chain event management have started to show movement toward adopting SaaS," he writes.

Long-Term, Strategic Goals
But while cost control will be the main issue for CFOs, the global recession has refocused supply chain managers on the trade-off between cost and resilience, according to "Resilient Supply Chains in a Time of Uncertainty," a new research paper from the Economist Intelligence Unit. Based on interviews with supply chain executives from Lenovo, USG, Fedex, Coca-Cola, Unipart, Whirlpool and other companies, the paper highlights supply chain problems in the aftermath of the extraordinary swings in demand over the past two years.
"Volatile demand and credit availability can easily break a traditional supply chain," says Dan Armstrong, the Economist Intelligence Unit senior editor who managed the study. "Customers are unlikely to have much patience with companies that can't supply products when needed, even if those companies have always been low-cost providers."
Rather than take a short-term approach to managing their supply chains, a number of the executives have turned their attention to more long-term, strategic goals. These objectives include:
  • Strengthening relationships with partners. Many companies have developed stronger ties to suppliers – in some cases taking ownership stakes in them – while continuing to police them closely for signs of financial distress and making any necessary contingency plans. For instance, last year PepsiCo announced plans to acquire its two major bottlers, and Coca-Cola purchased the North American operations of Coca-Cola Enterprises in the first quarter of 2010.
  • Improving forecasts and planning. Companies are striving to improve the accuracy of demand forecasting in order to manage inventories more precisely and to better respond to customer demands. For instance, USG Corp, a US-based maker of construction materials, exploited its advanced forecasting capabilities to cut capacity when the bottom dropped out of the housing market. "Now we are looking at long-term forecasts and running models five to 10 years into the future to help us determine when and what we will need to bring back online first," says Timothy McVittie, senior director of logistics for USG Building Systems.
  • Finding ways to increase both efficiency and resilience.These two objectives do not always represent a trade-off. It may be possible to increase both. For instance, Whirlpool was able to boost both efficiency and resilience by consolidating its brands and increasing the use of standardized components.
About the Author
Melba-Jean Bernad is a contributing editor at CFO Innovation.

How to Mine Social Media for Business Success

by Knowledge@SMU, 27 December 2010

You would be hard pressed to find a person aged 15 to 35 who has not heard of social media sites like Facebook, Twitter, MySpace and so forth. Facebook alone counts more than 550 million users as of mid-2010 and the number is still growing. Put into context, these 550 million users, if regarded as a country, would be the third largest on the planet – after China and India, and just ahead of America.

Clearly, the latent potential of social networking in business, government and society requires research. It was therefore apt that a group of academics and industry practitioners gathered to share their knowledge on social network mining at a workshop organised by Singapore Management University's School of Information Systems. There, participants shared their insights into the issues.
Professor Jeffrey Xu Yu of the Chinese University of Hong Kong discussed the applicability of graph theory to address problems of nodes on the internet being reachable from each other. Each of these queries, known as 'Reachability Query', tries to use classic shortest distance determination via search trees based on its location on the graph to find a pattern matching over the connected set of nodes in the network modelled as a graph.
In the context of mining the social network on the internet by modelling the connected nodes in it as a graph, the method tries to answer questions such as: which nodes are connected to which other nodes on a social network? How many hops does it take for one node to reach another?
Analysing patterns
Bangalore-based Vineet Chaoji, senior associate scientist at Yahoo! Lab in India, lent an industry perspective. Part of his job is to analyse and find patterns within Yahoo's own network of users, many of whom already have informal social networks.
Chaoji presented a case study from Yahoo! which examined the use of social influence for targeting advertisements to a small network of friends as a means for getting users to sign up to a paid service of PC-to-phone calls.
The study was a means of getting traction to increase user adoption for a paid premium service, by observing how a network of influences could better target their constituencies of followers. "As you probably know well by now, social media has the potential of making internet-based marketing much more effective than it now is – which is [currently] more like a hit and miss affair," said Chaoji.
Depending on the click-through rates and views of the relevant advertisement, total viewership is usually in the region of 0.1% to 0.001% – or even lower – of all site visits where there are advertisements. The theory is that people are more likely to click on an ad and respond to it when they know trusted friends are already using or endorsing that service or product.
Using data from Yahoo Messenger, Yahoo! mined the density of connections in a sample of users. Chaoji sought answers from a focused set of questions: Do individuals wield influence over their friends in online social networks? Are highly connected individuals the same as social influencers? How far reaching is the influence in the network? Is it local to its social neighbourhood or is it global? Which targeting methods are suitable?

First-hop friends
What he found was that a small number of highly credible or trusted influencers could indeed have a disproportionate influence on their circle of friends – depending on the level of connectivity of the key 'index users', as measured by the number of people they connected to via their Messenger chat threads.
However the more important attribute was closeness within the network neighbourhood. In other words, highly 'influential' users, while effective in reference to their nearby connections, will experience an exponential drop in their level of influence beyond the first hop most of the time. "Overall, we are more likely to trust our friends and their interests and recommendations, especially if these also happen to be the same as ours," Chaoji added.
How should advertisers reach these first-hop networks of friends? Another finding from the research was that the advertisements had to be non-intrusive and must blend into the sites that these people are likely to visit.
The study explored two complementary targeting/marketing approaches: direct and social neighbourhood. Direct marketing aims to target the users that are most likely to adopt a service, whereas social neighbourhood-based marketing targets the neighbourhood of likely adopters.
Social targeting was found to be more effective since it can influence a larger set of users through the homophily effect (that is, the tendency of individuals to associate and bond with others with similar interests and attributes).
Yahoo! had run pilots wherein advertising and promotions for a movie, for instance, were served via social networks. The advertisement contains hooks allowing users to forward the movie trailers to external social media, such as Facebook, Google Buzz, Plurk, Twitter, and so on. Campaigns using social networks shows some evidence of greater user interaction with the ad, and a larger audience reach.
Trust and relationships
During the workshop, Professor Lim Ee-Peng of SMU's School of Information Systems delivered a paper on rules and behaviours within "trust mining," discovering the drivers for rules regulating networks of nodes in social networks that have reciprocal levels of trust.
Starting from the premise that people care about trust enough to use it as a parameter for decision making, Lim mines the network of trusted relationships in websites like Epinions (, which uses a network of reviewers on anything from food to electronics to cars. Reviewers rate products with stars (1 to 5) and write reviews about the products. Some reviewers eventually develop trust relationships with the website's users.
"We tend to trust people we know and have a relationship with. Within the context of the anonymous web of reviews made by people we cannot see, we have to learn who to trust," Lim noted.
According to his research, new trusted links between users are formed based on some existing trusted links. However, different sets of rules apply for the formation of distrust relationships.

Lim's study showed, for example, that trust within social networks is transitive: in other words, if A trusts B and B trusts C, then A trusts C. But, transitivity does not work for distrust, i.e. if A distrusts B and B distrusts C, then A may not distrust C. A core reason for the transitive nature of trust in social networks is that it is propagated via each pair of trusted connections, he observed.
The power of transitivity also varies with the type of network. These relationships tend to work better in strong web trust links (for example, Web of Trust) than weak ones (for example, Twitter followers, almost all of whom have no real personal relationship with the opinion leader they are following).
Limits of online trust
To be sure, there are issues regarding the general robustness of trust mining as a way to discover rules within social media. Frequent users of sites like eBay, for example, suspect that the system for rating the sellers can be unreliable.
In a trust-based system like eBay, sellers are rated on their reliability by buyers who expressed opinions on the match between what was advertised and what was delivered. In such cases, since the online identities of both buyer and seller are unknown, there is the possibility of a single seller impersonating many buyers, who recommending that seller as a trustworthy seller.
Hence, the fact that 20 people recommended "JohnTAN345" (for illustration) as a trustworthy seller – increasing the probability that someone will buy from him next -- may be meaningless. "JohnTAN345" could have easily sent in recommendations for himself under different aliases with glowing testimonials. As the popular adage goes, "on the internet, nobody knows you're a dog."
Nevertheless, whatever the application and area of interest, it was clear from the workshop that social media has insinuated itself into the collective consciousness of many users. Savvy corporate decision-makers should be looking at it as a means of outreach, whatever the direction social networks will take in the future. It is likely that it is companies that get the right mix of intent and subtlety to keep users engaged that will be more profitable and successful.
About the Author
Knowledge@SMU is an online resource that offers regularly updated business insights, information and research from a variety of sources, including interviews with industry leaders and Singapore Management University faculty. The resource can be accessed at

Corporate Strategy: Business Transformation

by Angie Mak, 12 November 2010

In Part 1 of this interview, Colin Sampson, Senior VP and CFO for Asia Pacific & Japan, and Frederic Laluyaux (pictured), Global Vice President for performance optimisation and finance line of business, both of German software maker SAP, spoke to CFO Innovation's Angie Mak on the role of the CFO post-crisis and talent management.

In this concluding part of the conversation, Sampson and Laluyaux discuss the importance of technology in business, the Asian markets that are ahead of others in analytics and other advanced business applications, and other issues.
How are Asian companies doing in terms of adopting technology-enabled systems?  
Colin Sampson: If I look across the region, Australia tends to be a leader in technology. They adopt new technology, they want to have the technology, they're often the first users of the new technology. I think Singapore is a good example in this region as well.
From my perspective, some of the laggards include Japan, which is slow to adopt ERP-type technology. Companies there are still very much still entrenched in their home-grown system that has developed over many years. The consensus nature of the way Japan operates means that they don't make decisions very quickly, so they're not easy to move into a new adoption area. Australia, you'll find, is the opposite.
Frederic Laluyaux: When I was in China, I was surprised to learn that SASAC [the government body that oversees major state-owned enterprises] is asking SOEs to report their performance based on EVA [economic value-added]. That's a KPI you see in Western Europe, North America or Australia. EVA is the most advanced way to measure performance and [China's SOEs] are now required to report on a regular basis using that methodology. They are going from being a little bit behind to being advanced.
One state-owned organisation in the technology industry had the most advanced analytics that I'd ever seen. They have several PhDs in a room and they have created models around churn and predictability for revenues that are absolutely marvellous.
The last point is there's obviously a lot of cost pressure right now. They know that this problem is going to grow. Labour costs, their currency fluctuating, putting more pressure on the import, costs and so on. We sense a sense of urgency with the Chinese CFOs to get equipped very quickly from the transactional system, all the way to the decision-making system, including EVA. That's going to be a very interesting market.
Colin Sampson: The China market is changing rapidly. What we saw six months ago is not the same as a year ago, or 18 months ago. It's exponential in its acceptance and its desire to use technology. It's going to have to, because organisations are growing tremendously. There are some huge organisations there and if they don't use this automation and embrace technology, they'll get lost. They will not have the same competitive advantage that they're all looking to get.
The other country that is embracing technology is India. It's the whole technology evolution that they've had in their country over the last ten years, before the Wipros and the Tata, all those types of organisations. They do embrace technology. We've got some very happy customers in India, they love technology. They really do.
So the lesson for CFOs from the global recessions is the need to react faster to changes and that means moving towards automation?
Colin Sampson: They need to transform. There's no question that they need to. Most CFOs will probably be pushed by their board anyway. It's not something where you say, 'We had a level of profitability and everyone's happy with it.'

Traditionally, software companies have had a relatively high profitability margin, as opposed to a retail company, but that doesn't mean that we're complacent, because we're looking over our shoulders and seeing what our competitors are doing, and if they're higher than us we push higher.
It's not only us that are pushing, it's the analysts that are pushing, because the analysts will turn around and say, 'Our expectation is that you as a company will grow at this percentage.' You don't get a free ride, you don't get to say, 'I'm going to grow 20% but I'm going to reduce my profitability.'
Most CFOs are very aware of that, and there's no choice but to be in an environment where you are looking at ways where you're improving your business and its effectiveness, the control that you have, the drive to get higher profitability. That's the way it is. 
Frederic Laluyaux: The board and the CEO are looking to the CFO when it comes to compliance. Profitability, growth – that's No. 1, but in the context of compliance and transparency, of sustainability, basically. In addition to that, there's also [the need] to be able to explain to the world how we operate and not be perceived as an opaque organisation. In most cases, and in our experience, it falls under the umbrella of the CFO.
Colin Sampson: And managing the risks. Very often, the CFO can help with risk analysis, and say, what are the risks of that company? You've got an offshore rig drilling in various areas. Are we cutting corners? How are you going to do deal with that risk and are you doing the right things now to actively try to avoid or mitigate such a risk? Those things the CFO and the office of the CFO would be actively involved in.
Say you've got all these automated systems in place. What's next for the CFO?
Frederic Laluyaux: If you look at the different layers, it's like a pyramid. The foundation is going to be the transactional system. One thing that's happening today is that the finance process isn't limited to the walls of the organisation. It starts with the supplier and finishes with the customer, and vice versa. Your supply chain management goes all the way to your supplier. That's something that's not new but it's still going on. That's your foundation layer.
The second layer will be your data layer. Once you've got all of that, you want to make sure you've got one version of the truth. Then you've got your risk management layer. Putting in place all of your controls to automate the controlling process, to move the CFO from being the controller to being the person who manages the exceptions. That's a lot more value for the organisation than just having an army of people controlling.
The final one is the decision-making tools providing the insight, which comes from better planning, forecasting, strategy management and all the tools that allow you to close the gap between strategy and execution.
Start with a transaction system, move into the one version of the truth, move to the controls, to governance, risk and compliance, and then ultimately to the decision-making process. All of this is made available through your BI [business intelligence] structure. That's the way we recommend you look at it.
You can't start with decision-making tools if you don't have your transactions [automated] because the data that you're going to bring into your BI infrastructure is going to be questioned. You need to do that in an environment that offers full traceability. Wherever you are in your architecture, you should be able to look at the data and say, 'It comes from here. It's been modified there." So those are the very important factors.