CIMA Accountants, M&A and Business Optimisation

This second instalment of a five-part series looks at the stories of management accounts who have added significant value to their companies’ mergers and operational excellence initiatives by utilising the management accounting tools and techniques learned from CIMA.

 

The story of the takeover of UK catalogue retailer Argos by Great Universal Stores (GUS) in 1998 is an excellent case study of value creation. The deal was instrumental in turning around the fortunes of home-shopping giant.

 

By using management accounting tools and techniques, David Tyler and his team were able to narrow down a list of potential targets for acquisition, which culminated in the successful takeover of Argos.

 

The business models of large energy suppliers have traditionally concentrated on selling greater amounts of energy to an increasing number of customers, yet in the past few years, growing costs and legislative demands have ensured that the purchasing, selling and use of energy must be strategically managed in order to gain rewards.

 

Royal Dutch Shell, driven by group chief financial officer Simon Henry, is a prime example of this new thinking, and has implemented a system that enables them to define strategies for asset groups and report clearly on risk profiles and likely returns, Shell’s net present value has grown by over 15%.

  

Meanwhile, Alex Buckthorp, site finance director for Procter & Gamble, has succeeded in creating a higher-performing and agile business culture at the manufacturing plant by applying management accounting tools and techniques in combination with the closer integration of managers and production line staff.   For Capgemini Consulting UK, the decision-making process was considerably enhanced when the finance team was able to provide targeted, real-time information for each individual and business unit, rather than blanket reports that did not get to the heart of the issue. This enabled clear accountability on sales, cash management and revenue, which largely impacted the bottom line.

 

Armed with the tools and techniques gained from CIMA, these four management accountants were equipped with the skills to make key decisions and spearhead strategic planning initiatives, which enabled their companies to excel.  

 

GUS-Argos takeover

The £1.7bn deal was conducted after extensive analysis of the UK’s retail sector, carried out by then finance director David Tyler, FCMA, and a team of finance professionals. Many of them, like Tyler himself, were CIMA qualified. Although GUS was cash rich, its board was concerned that its home-shopping businesses were in decline. The management team was looking for a new business to help secure growth.

  

‘I think CIMA people are very interested in business itself: the excitement of how to run a commercial organisation; understanding the market and the competition and responding to it in a dynamic way,’ says Tyler.

 

Tyler and his team investigated potential targets by utilising many management accounting tools and techniques. Their focus was on assessing the strategic strengths and weaknesses of target companies, as well as the obvious hard financial metrics. When Argos emerged as the frontrunner, GUS made two approaches, both of which were rebuffed. 

 

Tyler comments, ‘Chartered management accountants were particularly suited to this task; they are orientated to look to the future and to see how financial information and an understanding of the business from a financial point of view can help management make decisions about the future. [This was] exactly the skill set that was needed at the time.’ In 1998, GUS launched a hostile takeover bid, leading to a major public battle, which it eventually won. Tyler says the deal would not have gone ahead without the sound pre-transaction analysis carried out by the team. ‘The board of GUS would not have taken the bold decisions that it took to acquire this business and go after it in this battle, if it had not had a reasonable amount of confidence in the assessment of the business that we carried out,’ he says.

  

In Argos, GUS acquired a ‘growth engine’ – a company more in tune with consumer trends than GUS’s legacy businesses. Thanks to the management accounting skills of the team, costs, such as buying, IT and finance were consolidated. Eventually, an overhauled Argos and GUS management team helped grow profits at Argos, from £120 million to £300 million over five years, which significantly helped boost the group’s bottom line.

  

Royal Dutch Shell

For the past five years, Royal Dutch Shell has engaged on a mission to improve the way it handles strategic and operational data for its energy projects globally, in an effort to facilitate better strategic planning.

  

The system has helped inform a multibillion dollar portfolio management and acquisition programme, due to the greater insight and granularity it provides, and has helped increase Shell’s net present value by over 15%.

  

Henry, a CIMA member, has spearheaded an initiative in which the company brings together data from some 1200 projects and opportunities across 40 countries. The idea is to implement a single system that enables Shell to define strategies for asset groups and report clearly on risk profiles and likely returns.

  

Henry’s team has grouped projects by strategy type and then developed a single system that ensures each class of project can be clearly reported on throughout the corporation and at board-level, with a workable economic model.

  

The approach meshes strategy with management accounting principles. Cash is king, says Henry, so financial and operational data are held together with the common language of cash flow, value and risk.

  

Bringing the information together has been a hugely complex task, given the diversity of Shell’s product portfolio, market sensitivities and the political risk associated with some locations. However, the system, operational in one year and efficient enough for external analysts to rely on its outputs in three to four years, gives the executive committee greater clarity on where they should allocate resources, and gives the board a better sense of current and potential performance.

  

‘We brought the data together and it was an eye-opener to look not just at what our assets were, but also how the economic performance of our assets or opportunities in each strategic ‘bucket’ or asset class plays out,’ says Henry.

 

‘From my perspective, chartered management accountants have the right balance of professional knowledge and understanding of what the numbers mean and what you can do with them. Taking us from ‘here are the numbers’ through to helping to create a corporation that has a strong competitive edge and good financial position is, for me, the differentiating factor,’ says Henry.    

 

What’s recognised is an evolution rather than a revolution in the role and practice of finance professionals. The finance function now has less emphasis on back-office duties and much more on finding ways of being outward-facing and creating value. It places new demands on finance professionals while still requiring them to be technically competent and in a position of independence. Procter & Gamble’s Alex Buckthorp and Capgemini Consulting’s Clive Hart are both chartered management accountants. Their positions require them to have a diverse range of competencies and skills. Both business-oriented and technical competency are crucial. The modern financial professional needs to have the capacity to adapt to a wide range of roles and demands.

 

Procter & Gamble

In the early 1990’s, Procter & Gamble (P&G) launched a major restructuring programme aimed at making the company’s brand-name products more price-competitive through private-label and generic brands, bringing products to market faster and improving overall profitability. With multiple brands and high volumes, targets were met with relative ease at the UK manufacturing plant, but when P&G made the strategic decision to rationalise its investment in certain brands, volume decreased by 20%. The organisation realised they needed to look into the situation more closely and find out what happened.

  

‘The application of management accounting tools and techniques combined with the closer integration of managers and production line staff changed the ‘them and us’ dynamic, ensuring a higher-performing and agile business culture at the P&G plant ,’ says Alex Buckthorp, site finance director for P&G.

  

By pulling in all the relevant data and information into one central place, the organisation matched the core financials to cultural and organisational conventions. The team used a variety of methods, such as labour-variance analysis and deploying managers on to the production lines, to garner deeper insights into performance obstacles. As a result, the plant was able to reduce waste and improve cost enough to stay open for a further three years and win business for another brand.

  

Capgemini Consulting UK

‘Management accountancy is about being able to interpret information to enable you to identify the key drivers influencing the business. You should then be able to translate and communicate their impact to empower key decision makers,’ says Clive Hart, chief financial officer at Capgemini Consulting UK.

  

Hart joined Capgemini in 2001 and took on the position of Capgemini Consulting UK’s financial controller in 2007, working closely with chief executive officer Tom Blacksell. Together, they set up a new method of working that went beyond looking at the numbers, and allowed them to act on them and develop strategy accordingly.

  

Between 2006 and 2009, Capgemini Consulting UK bucked the recessionary trend, increasing its profitability by 8% by the end of that period and, in doing so, added some £36 million to the bottom line. 

 

Hart feels that his CIMA training has made a real difference in this area. ‘I needed to interpret the information available quickly to identify what needed to be done. CIMA gives you that confidence to react quickly, so the training made a real difference.’ With the systems set up, Clive was able to improve the profitability of the company by analysing the activities of the organisation and highlighting to the chief executive officer where further analysis and action was necessary.

  

The key was being able to provide targeted, real-time information for each individual and business unit, as opposed to blanket reports that did not get to the heart of the issue. This enabled clear accountability on sales, cash management and revenue, which considerably enhanced the decision-making process and thus largely impacted the bottom line. 

 

Hart explains, ‘When comparing results over the last four years, there has been an 8% improvement in profitability. The business is now so dynamic that we are able to react very quickly and better protect the bottom line against unforeseen circumstances.’

 

About the Author
Irene Teng is Regional Director based in CIMA’s Kuala Lumpur office. She leads CIMA's strategy across ASEAN and Australasia, including student growth and related alliances and partnerships.
 
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