taking the road less travelled - cpa canada

Taking the roadless travelledTaking the roadless travelled

Supply chains —Seeking a new

strategic advantage

How black holes formin organizations

www.managementmag.com

DECEMBER/JANUARY 2010 $5.50

Going green l Skilled talent l Shareholder rights

Carol Patterson, CMA,president, KalahariManagement Inc.

Carol Patterson, CMA, uses herpassion for travel and wildlife todevelop long-term plans for sustainabletourism destinations.

FOR STRATEGIC BUSINESS IDEAS

Unfortunately, you can’t know for sure.

But there are ways to greatly increase your

chances of finding the right fit. One is to

work with a recruiter who truly under-

stands the importance of corporate culture.

So how do you find that mythical

recruiter? Those people who have actually

demonstrated that they get it? Not just for

their clients, but for themselves?

Well, you can start with Lannick.

Our commitment to developing the right

corporate culture is more than just talk. We’ve

recently been recognized as

one of the Best Workplaces in

Canada. For the second time.

“Our core purpose is to help quality people

and quality companies find the right fit,” says

Lannick CEO Peter Jeewan, “and that

applies to our internal team, too. We hire

great people and we work hard to provide

them with a great environment.”

Very simply, we know how important it is

to get the right fit. How important it is to

find, not just the candidate who delivers all

the appropriate skill sets and experience,

but one who will fit in with and make a real

contribution to your business.

We’ve done it for ourselves, and we do it

for our clients every day. If you’d like to find

out how we can do it for you, just give us a call

at (416) 340-1500.

With deep expertise in accounting and

finance recruitment, Lannick Group of Companies

specializes in placing qualified professionals in contract,

permanent and temporary roles. Our singular focus

on getting the right fit

quickly and professionally

has helped our clients

and candidates succeed

for close to 25 years.

TORONTO • MISS I SSAUGA • NORTH YORK • OTTAWA www.lannick.com

“How do I know that apotential hire is goingto fit our culture?”

Andrea CivichinoEditor-in-Chief

Volume 83 Number 8from the editor

CMA MANAGEMENT 3 December/January 2010

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Competitive advantage Organizations today are competing on how effectively they can move rawmaterials, components and finished products globally through their supplychain to customers. Supply chains and their continuing improvement havebecome a major driver of profits. Whether an organization is large or small,management accountants need to work with their colleagues to supportthe development of a greater supply chain competitive advantage andmanagement accounting practices that facilitate their long-termsustainability. Management accountants must also form a strategy thataligns with the organization’s overall objectives. To do this, organizationsshould evaluate their current strategic positioning.

In this issue, Bill Langdon, FCMA, sat down with Ed O’Donnell, vice-president, business analysis for Teknor Apex Company, a manufacturer ofthermoplastics, and Paul Massey, finance leader, Cummins TurboTechnologies, a supplier to original equipment manufacturers in theautomotive industry, to discuss some of the challenges and issuessurrounding supply chain management. Based on a ManagementAccounting Guideline (MAG)®, the article focuses on the importance ofsupply chain management accounting (SCMA), along with key techniquesand how they can be used in practice. Through a series of Q&As, thearticle, Supply chains — Seeking a new strategic advantage, illustrates theapplication of management accounting techniques in specific supply chainsituations.

Promoting environmental (green) standards within your organization isanother opportunity to create financial and environmental benefits.Virtually all organizations are conscious of the image they project, andcorporate responsibility is an important part of that image. Greentechnologies represent an opportunity for corporations to extend beyondbrand reputation and affect overall profitability. Jacob Stoller joins CMAManagement in this issue with his column IT’s growing role as a greenenabler. Stoller explains IT’s integral role in becoming a green(er)organization and the importance of complying with external requirementsto run a more efficient operation.

Lastly, as we move into 2010, I’d like to take this opportunity to thankour readers. Your continuous support, feedback and suggestions during thecourse of the year have been integral to the growth of the magazine.Thank you for helping us continue to be a valuable resource formanagement accountants. Happy holidays!

Features

25 Black holes and irrational thoughtAccording to Statistics Canada, “almost half of the firms in Canadathat go bankrupt do so primarily because of their own deficienciesrather than externally generated problems.” To understand why thishappens, it’s important to understand what black holes are and theimpact they have on organizations.By Ron Lutka, CMA

28 PROFILETaking the road less travelledTravelling for over two decades and learning more about wildlife aroundthe world has made Carol Patterson, CMA, a braver and bolder person. Sheexplains how she uses her passion for travel and wildlife to develop long-term plans for sustainable tourism destinations.By Andrea Civichino

20 Supply chains — Seeking a new strategic advantageOrganizations are continuously striving to meet customerexpectations as effectively and efficiently as possible — a strategicimperative all the more critical in today’s economic climate. Theadvent of customer-centered organizations, “everyday” low prices,and expectations that prices will drop, not rise, is a huge change inthe structure of the global economy. Introduction and interview by Bill Langdon, FCMA


Cover Photo: James May


8 News and viewsNew and noteworthy information youcan use

l Software: Intuit ProFilel Private Canadian companies poised to

excel internationally

Columns

Departments

10 Human resources The search for skilledfinancial talent. Even in adown economy, locatingexperienced accounting andfinance professionals in keyspecialties remains a challengefor employers worldwide.By Connie Stamper, CMA

33 Legal notesShareholder rights – Morethan meets the eye. Thosewho advise companies orshareholders need to befamiliar with “shareholderoppression.” By Stephen Antle

6 Media bitesMotivate and captivateyour audience l Super Traderl The Presentation

Secrets of Steve Jobsl How Full Is Your Bucket?

l Volunteer opportunitiesl Investing in real estate

Next issue:

37 Information technology IT’s growing role asa green enabler.Becoming greeninvolves bothcomplying withexternalrequirements and

running a more efficient operation. Keepingtabs on the variables involved is aninformation-intensive activity that calls forstrong IT capabilities.By Jacob Stoller

17 Management trendsWhy IT matters in 2010As uncertainty has becomethe norm, today’sorganizations are seekinginformation technologysolutions that drive clarity intheir business and visibilityacross their businessnetworks.By Mark Aboud

12 Business strategies During economic chaos,organizations must evolve – Hasyour cost/profitability system(CPS) evolved? While a company’sbusiness model has likely evolved inresponse to the current dynamiceconomic climate, its CPS has failedto reflect these changes. Until thesystem is updated, the CPS will function inefficiently.By Denis Desroches, Toby Hatch, Raef A. Lawson, CMA, andWilliam Stratton, CMA

Super TraderVan Tharp combines psychological insightwith sound fiscal principles to help peopleunleash financial success. His book SuperTrader combines decades of experience andbest practices to deliver wisdom to thrive inany financial storm. Training readers todesign a portfolio as if they were running asmall business, Tharp’s book includes thefollowing core lessons: how to let profits run

while consistently cutting losses short; tapping the principlesof position sizing; what every trader’s “business plan” shouldinclude; vanquishing counterproductive thinking; the correctway to monitor holdings and potential buys; making thecommitment to thinking, planning, and being a full-timetrader; reading the big picture and tips for staying realistic,systematic, and enthusiastic. Super Trader reveals how tomaster the psychology of trading and the simple methods thatgreat traders use to code and streamline their own tradingsystems.

Van K. Tharp. McGraw-Hill.

The Presentation Secrets ofSteve Jobs

Steve Jobs, CEO, Apple, has elevated productlaunches to an art form. The PresentationSecrets of Steve Jobs, by Carmine Gallo, is aroadmap to presentation success. “Jobs is themost captivating communicator on the worldstage,” Gallo says. “People stand in lineovernight to get a seat at one of his keynotes.YouTube has more than 35,000 video clips

from his presentations. It reflects the interest in hispresentations which are more like theatrical performances.”How does Jobs do it? Is it by sticking to the rule of three(three stories, three parts, three basic messages) that alwaysplay a role in his messaging? Is it because he always introducesa hero and a villain? Is it that he rehearses so diligently that hemakes it look effortless? Gallo has studied and analyzed thevery best of Jobs’ performances and offers point-by-pointexamples, tried and true techniques, and presentation secretsthat work every time. Gallo’s tips offer seasoned presenters an

opportunity to improve their skills and make their messagemore exciting and memorable — whether they’re in front of agroup of colleagues or an auditorium of shareholders.

“The book is software agnostic,” Gallo says. “In otherwords, it doesn’t matter if you’re a Mac or a PC, whether youuse PowerPoint, Keynote or another software program.Although in some chapters you will learn how Jobs createsmore visually engaging slides, the majority of what you’lllearn is how to successfully express your ideas in all forms ofcommunication. It’s not about the slides, it’s about the story.The slides compliment the story.”

Carmine Gallo. McGraw-Hill.

media bites

Motivate and captivate youraudience

How Full Is Your Bucket?How did you feel after your last meetingwith your boss, colleague, best friend,spouse, or even a stranger? Did any ofthese people “fill your bucket” by makingyou feel good about yourself? Or, did they“dip from your bucket,” leaving you morenegative than before?

How Full Is Your Bucket? looks at the effects of positivepsychology by using the analogy of the “dipper and thebucket.” Each one of us has an invisible bucket. We arehappy when our buckets are overflowing and unhappy whenour buckets are empty. Along with our buckets, each of usalso has an invisible dipper. The dipper’s function is toeither fill or dip from other buckets.

How Full Is Your Bucket? is filled with advice forexecutives hoping to reap the tangible benefits of apositive atmosphere in the workplace. It reveals how thebriefest interactions affect relationships, productivity,health and longevity. The book also contains a guide thatincludes self-assessment tests and creative tips on how toapply the bucket and dipper concept in organizations andteams. Overall, the book offers insight to anyone who wantsa better life — at home and at work.

Tom Rath and Donald O. Clifton. Gallup Inc.



Tax professionals will beable to work faster, moreefficiently and serve morecustomers with the newproductivity featuresavailable in ProFile, thelatest tax preparationsoftware for accountantsfrom Intuit Canada.

The software, nowavailable for the upcoming tax year, makes it easier toelectronically link documents to a tax return, eliminating theclutter and confusion of working with paper receipts andother supporting information. In addition, the softwareincludes a fresh, customizable user interface, a corporateEFILE option for ProFile Basic users, and access to otherprofessionals through the online, in-product LiveCommunity.

“Tax prep pros tell us productivity is job number one, sowe’ve equipped them with the power to do more,” RickJensen, general manager of Canada Tax, says. “Whetherthey’re delivering top-level tax strategy to clients in a world ofchanging legislation or are moving to a paperless office,ProFile helps users be more productive at a critical time ofyear.”

HyperDocs: Less paperwork, more time for customers HyperDocs, included in ProFile Premier, links client sourcedocuments and working papers to their corresponding taxreturns. Users can simply drag and drop to add new

documents, and view associated paperwork, such as receipts,on screen while preparing a tax return. HyperDocssynchronizes all supporting files with the original client file,and automatically updates any changes to the originaldocument. It also supports popular file formats, includingExcel, Word, PDF, JPEG, and TIFF.

Other features and improvements

ProFile includes four other features to help tax professionalswork more efficiently: l Refreshed user interface — Makes it faster and easier to

find most features. Icons have a fresh new look and userscan adjust them to their preferred size. Navigation remainsthe same, so there’s nothing new to learn.

l New corporate EFILE — Lets ProFile Basic users takeadvantage of the speed and efficiency of electronic filingfor T2 returns. Already included with ProFile Premier, T2EFILE for ProFile Basic is available as an easy upgradeoption that can be purchased either as a bundle withProFile Basic or as an add-on.

l Live Community — Provides a fast, online connection tothousands of peers in the tax preparation world. Lookingfor a second opinion on an obscure tax rule? The answer’slikely a click away.

l Improved T1/TP1 help content — Adds official CRA andRevenue Quebec content to ProFile’s context-sensitive in-house expert help topics — saving time when searching forgovernment answers.

New and noteworthy information you can use

Intuit ProFile: New software electronically links documentsto returns

Over half (57 per cent) of Canadian private companies saidforeign operations were important to their company’s overallgrowth strategy, according to a KPMG EnterpriseTM survey,Taking on the World: Positioning Canadian Private Companiesfor Global Success.

More than three-quarters of respondents indicated thatthey sell or export outside the country, import goods orservices, and/or use foreign vendors or distributors. Nearlyone-half of survey respondents said they considered theirforeign expansion to be successful, while one-quarteradmitted to being unsuccessful. Respondents were seniorexecutives, with more than half of them CEOs, presidents,and/or owners.

“As we enter a period of global economic recovery,foreign markets will become the places to be if anorganization is to achieve maximum growth,” DennisFortnum, national leader, KPMG Enterprise, says. “Canadaseems poised to excel as the global economy recovers, givingCanadian organizations an edge in doing business globally.”

The survey documents the extent of private companies’foreign operations to date; sheds light on the benefits ofglobal expansion for private companies, and the keychallenges and risks of doing so; and provides informationabout local employee and supply resources in foreignmarkets.

Key findings include:

l 60 per cent of private companies surveyed said they planto expand their presence outside Canada during the nextfive years.

l More than half of respondents said less than 40 per centof their total revenues came from operations outsideCanada.

l Looking ahead, leaders of Canadian private companiesindicated that revenue from foreign operations wouldgrow over the next five years and, specifically, 14 percent indicated their revenues should grow by more than80 per cent during this period.

Just over one-half of the private companies surveyed saidthat they would not change their global expansion plansduring an economic downturn, which was up from justunder one-half in last year’s survey. However, thepercentage of companies who said they would increase theirforeign expansion during a downturn fell to 25 per cent,from 36 per cent a year ago, and 18 per cent said they woulddecrease expansion, compared with 12 per cent previously.

During good economic times, 60 per cent said they wouldretain the status quo, down slightly from 63 per cent last

year. One-third said they would increase foreign expansionduring an upturn, up from one-quarter a year ago, whileonly six per cent said they would cut back, compared with 10per cent in 2008.

While Canadian private company owners and CEOs areenthusiastic about the prospects for global expansion in thecoming years, lessons learned from the recession provide areminder of the need to be cautious. Yet, at the same time,the downturn has also demonstrated just how competitiveand global the new business world has become — and,consequently, of the need to identify and exploitopportunities abroad.


Private Canadian companies poised to excel internationally

Editorial Think TankAnthony Atkinson, PhD, FCMA

Professor, University of Waterloo, Waterloo, ON

Pierre-Jean Dion, FCMA, CHRP, M.Sc.Vice-president, OptimaManagement Inc., Trustee, CMACanada Research FoundationMontreal, QC

Clare Isman, FCMADeputy minister, Ministry ofAdvanced Education,Employment & Labour, Regina,SK

John Mould, FCMAOmbudsman, HSBC Bank Canada,Vancouver, BC

Todd Scaletta, FCMADirector, Knowledge Management, CMA Canada,Mississauga, ON

Ramesh Swamy, CMASenior manager, DeloitteFinancial Advisory ServicesLos Angeles, Calif.

Darcy Verhun, MBA, CMC, FCMAPartner, Conroy Ross PartnersCalgary, Alta.

remain especially acute in Asia, with large majorities of managers inHong Kong, Japan and Singapore reporting talent shortages. The onlycountry outside of Asia indicating the same level of struggle in thetalent search is Brazil, where 79 per cent of hiring managers polled saidthey can’t find enough skilled financial professionals. The situation isquite different in the United Arab Emirates, however, where 62 percent of hiring managers said locating qualified candidates was not aproblem.

Talent in demand

The report results revealed that the types of positions hiring managersfind most challenging to fill vary by country, but, overall, skilledfinancial managers are the professionals toughest to find around theglobe. This is also true in Canada, where respondents identifiedfinancial management as the most difficult area for recruiting (10 percent). Managers here ranked the job categories of accounting andfinancial/business analysis equally in second place (8 per cent for each).

Accounting, controller and financial/business analysis roles werecommonly cited as problem areas for hiring by respondents worldwide.

The search for skilled financialtalentEven in a down economy, locating experienced accounting and financeprofessionals in key specialties remains a challenge for employersworldwide.By Connie Stamper, CMA

While the worldwide economic crisis has left manyaccounting and finance professionals looking forwork, employers in countries around the globe arestill finding it can take weeks, even months, toidentify candidates who meet their qualifications.Canada is no exception.

Challenges are the result of a number of trends,including continued competition for top performersand the unwillingness of many professionals to leavesecure positions. Even in the face of these difficulties,businesses are more cautious about personnelinvestments and are taking more time to identify staffwho are the best fit for their organizations over thelong-term.

As companies search for the right talent, they arealso requiring more from their current employees,who constitute a smaller workforce due to layoffs,hiring freezes and other cost-cutting measures. Manyemployers, recognizing that excessive workloads andheightened stress can quickly undermine morale andretention, are taking steps to ensure their accountingand finance teams remain motivated and productive.

This is a current snapshot of the employmentlandscape in the accounting and finance fields,according to findings reported in Robert Half’s thirdannual Global Financial Employment Monitor. Thesurvey of more than 4,800 finance and humanresource managers in 21 countries revealed that therecession has brought significant change to thepersonnel structure of many accounting and financedepartments. And 56 per cent of managers worldwidelooking to add financial staff say they are strugglingto locate skilled talent. (Interestingly, this figure hasremained unchanged in the past three years of thesurvey.)

Nearly half (47 per cent) of respondentsinterviewed in Canada cited difficulty in fillingfinancial positions in key areas. Hiring challenges


human resources


human resources

Tax and treasury was a high-ranking category in manycountries, too, including in Brazil and Japan. However,Austria (20 per cent) was the country where hiringmanagers reported the most trouble findingprofessionals with this type of expertise. This was thehighest percentage recorded for any single job categoryin the survey.

When asked to identify the most importantattributes they consider when making an executive-level hire, almost two-thirds of respondents (63 percent) pointed to “experience and knowledge of theindustry/sector.” Strong desire for this type ofexpertise is not surprising, given the challenging times;businesses need accounting and finance executives whocan make immediate contributions and are familiarwith their industry’s competitive realties. Rankingsecond (42 per cent) was “regulatory-complianceexpertise.” If new regulations are issued in response tothe financial crisis, this knowledge will likely becomeeven more critical for financial organizations, movingforward.

In third place was a “legal background,” with 27 percent of hiring managers around the globe saying thiswas the most desirable area of knowledge for financialexecutives. In Canada, however, a legal backgroundranked only fourth in importance, along withknowledge of enterprise resource planning systems.The number one attribute cited by 70 per cent ofCanadian hiring managers was “experience andknowledge of the industry/sector,” followed byregulatory-compliance experience (48 per cent) andpublic company experience (35 per cent).

Adapting to change

Many organizations have made significant adjustmentsto their personnel structure over the past year due tothe recession. Virtually all of these changes are drivenby a need to “do more with less” because of budget-tightening. Among managers worldwide whose firmswere restructured, the three most commonly citedchanges were consolidation of jobs (47 per cent), hiring

freezes (38 per cent) and layoffs (37 per cent). These were also the topthree changes reported by Canadian survey respondents. Other cost-cutting strategies include reducing hours and outsourcing.

The financial crisis has had other effects on accounting and financedepartments, as well. Melding of roles and hiring slowdowns haveadded to the burden on remaining staff. Thirty-nine per cent of allsurvey respondents said their financial teams were experiencing higherworkloads and more stress. Canadian respondents (42 per cent) citedstress as the most significant effect of the recession on theirdepartments, followed by greater workloads (38 per cent) and lowermorale (21 per cent).

Supporting financial teams in tough times

Seventy per cent of hiring managers polled said their departmentshave taken action to address the impact of reduced workforces. Themost commonly cited techniques were redistributing work (39 percent), increasing the level of communication between managementand staff (31 per cent), and postponing projects (30 per cent).

Only 12 per cent of respondents worldwide said they haveimplemented new work/life balance programs. The immediate focusappears to be on carefully distributing current work and making surethe most critical projects are being addressed by the right people.Despite efforts to ease stress and boost morale, however, manybusinesses remain concerned about losing their most valuable teammembers to other job opportunities — even in this difficult economy.More than half (53 per cent) said they were either concerned or veryconcerned about this possibility.

Looking to the future

Even when in-demand talent can be found, the hiring process istaking longer today because employers are being more selective toavoid costly hiring mistakes. In addition, organizations must oftenundergo painstaking efforts to justify their hiring needs. The averagetime to hire for management positions remains eight weeks, andemployers worldwide now spend an average of seven weeks hiring forstaff-level roles. Canadian firms are actually the quickest to completethe process — it takes an average of five weeks to fill both staff andmanagement positions.

It appears Canadian hiring managers are feeling optimistic abouteconomic conditions for the country in the near future. Nineteen percent said they expect to see improvement by the end of 2009, andone-quarter predict the Canadian economy will be stronger by early2010. Sixty per cent of all survey respondents predicted improvementin their national economies by mid-2010. Meanwhile, accounting andfinance departments are taking time to hire exactly the talent theyneed and make the changes necessary to retain current staff. This waythey can ensure they will have a strong workforce in place to helpthem grow and compete after the recession subsides. n

Connie Stamper, CMA, is a branch manager for Robert Half International.

Accounting, controller and

financial/business analysis roles

were commonly cited as problem

areas for hiring by respondents

worldwide.

By Denis Desroches, Toby Hatch, Raef A. Lawson, CMA,and William Stratton, CMA

Managers have long known that understanding thecosts of activities, products, services and customershas a big impact on their profitability. “Do theright things right” and “Know your CCCs (costs,competitors and customers)” are well-knownproverbs in the business world.

Historically, organizations have soughttechnology to perform cost and profitabilitycalculations that are often tedious and complex. Butthe complexity of business, the market climate(especially the current chaotic environment), andthe methods for calculating and reporting cost andprofitability have changed considerably over theyears. The challenge now is to keep the calculationstransparent enough to understand, yet complexenough to accurately reflect reality. Thejuxtaposition of these attributes should yieldactionable information that improves insight and,ultimately, bottom-line results.

A CPS is a well-thought-out, fully integrated setof techniques that are used to collect, accumulate,assign, and report both cost and/or profit for anorganization’s numerous cost objects. Examples ofcost objects include a critical process in theproduction function, a cost centre like adistribution centre or a department, or it can be afinal product or customer for a division or entireentity. In short, cost objects are whatever is ofinterest to a manager at any level. CPSs supportevery business process from research and

development, design, production, sales and marketing, distribution, tocustomer service and shared services.

An effective CPS can support these ends; enabling organizationalefficiencies, resource alignment, and financial performance along theway. However, managers often disagree with the activity, product, andservice costs reported by their CPS. Managers often need to change or


business strategies

During economic chaos,organizations must evolve — Hasyour cost/profitability system(CPS) evolved? While a company’s business model has likely evolved in response to thecurrent dynamic economic climate, its CPS has failed to reflect thesechanges. Until the system is updated, the CPS will function inefficiently.


business strategies

ignore those numbers to reflect realityin order to make better strategic andoperational-control decisions. Theolder a CPS system is, the more likelythis issue exists; while a company’sbusiness model has likely evolved inresponse to the current dynamiceconomic climate, its CPS has failed toreflect these changes. Until the systemcan be updated to capture the mannerin which a company currently conductsbusiness, the CPS will functioninefficiently.

To determine the extent of the gapbetween operations and the systemsused to track cost and profitability ofthe enterprise, the Business Researchand Analysis Group (BRAG) conducteda world-wide survey about costing andprofitability. The goals for the surveywere to identify major benefits realizedfrom an organization’s CPS, todetermine the key success factors for aneffective CPS, to identify major reasonswhy an organization’s CPS fails, and todetermine best CPS practices. Over 400organizations provided responses abouthow they measured their costs andprofitability, the benefits they received,and the issues they were experiencing.

The survey provided valuable insightsinto how technology impacts the task ofcalculating activity, product/service, andcustomer costs, and how it can hinderor help companies’ understanding oftheir businesses and competitiveenvironment. The results indicate thatmany organizations are dissatisfied withthe information provided by their CPS.

Key finding 1: Benefits from CPSsare not being realized

Identifying, measuring, and under-standing the disconnect was at the coreof the BRAG survey. The resultsrevealed that companies use a CPS forthree major purposes: external financialreporting (including inventory valuationand cost of sales), strategic decision

making, and operational control. Sincethe first purpose is primarily an issue ofcompliance with external reportingstandards, the second and thirdpurposes are more of interest to thosecharged with operational management.

In order to achieve significantbenefits from a CPS, certain key successfactors must be present. The CPS mustfit the organization’s business model, beflexible, be integrated with the planningprocess, have an effective reportingarchitecture and yield information thatis understandable and actionable. When

these factors are present, it is reasonableto expect benefits to accrue. Suchbenefits can be classified into fourgeneral areas: strategic decision support,operational control support, planning,and performance evaluation.

Respondents were queried aboutmore specific beneficial componentsand asked to specify the extent thattheir organization’s CPS had achievedeach component (Exhibit 1). Forexample, components of strategicdecision support included support forproduct pricing, design, value-chain

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Benefits received

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Strongly agree Agree Both

outsourcing, and profitability analysis of both customers andproducts. Components of operational control includedsupport for making operational improvements, cost control,and accurate measures of activities or processes. By assessingthese components, the BRAG team was able to extract threemajor findings about how cost/profitability systems are used(and misused) in organizations.

Key finding 2: Top concerns are with cost allocations

One of the key findings from the survey is that, while thevast majority of respondents believe that at least some benefitsare present, only a small minority (25 per cent) agree orstrongly agree that their CPS accurately assigns overheadcosts to customer, products, or services (Exhibit 1). Furtheranalysis revealed that CPS users overwhelmingly complainedabout all aspects of cost allocation (Exhibit 2). Managers wantrealistic accuracy; they want the results to reflect reality, notgive them more decimal places. They want more timely

feedback and greater ease of maintaining and updating CPS asprocesses change. The findings also indicate thatorganizations are dissatisfied with their existing costingmethods. Finally, it appears that the weakest link in the CPSchain is the manner in which costs are allocated.

Confirming results of other reported surveys, a wide varietyof costing methods are used, including equal allocations,output-based, and activity-based allocation; but no singlemethod dominates usage. In fact, a significant per cent oforganizations do not allocate many internal value-chainfunctions — a fact that most likely reflects the generaldissatisfaction with cost allocation results — better to notallocate arbitrarily if it distorts costs and results indysfunctional decision making and behavior that is notcongruent with organizational goals.

Key finding 3: Activity-based costing/management(ABC/M) provides superior decision support

An ABC/M system is a well-thought-out methodology foraccumulating the cost ofactivities or processes(logically related groupingsof activities) that are criticalsuccess factors for anorganization or subunit. Whygo to the trouble and expenseto accumulate hundreds oreven thousands of activitycosts? The answer lies in the“well-though-out” part of thedefinition. If managers thinkthrough the critical activitiesor processes that are beingperformed and managed intheir area of responsibilityand then a system is designedto report these costs alongwith the metrics that causethe costs, a powerful tool iscreated for cost control andmanagerial effort exerted incongruence withorganizational goals.

This is certainly not aneasy proposition, but to manywho have developed ABC/Msystems, the benefits farexceed the costs. Do ABC/Msystems have to be deployedacross the entire


Exhibit 2: Current system concerns

Current system concerns

% o

f re

spon

dent

s

70%

60%

50%

40%

30%

20%

10%

0%

Need

bet

ter

way

s to

allo

cate

cos

t ac

cura

tely

Allo

cati

ons

do n

ot r

efle

ct h

ow o

ur b

usin

ess

proc

esse

s co

nsum

e re

sour

ces

Cann

ot m

ake

tim

ely

busi

ness

dec

isio

ns b

ased

on

it

It is

diff

icul

t to

upd

ate

the

mod

el w

ith

new

res

ults

data

It is

diff

icul

t to

des

ign,

bui

ld o

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aint

ain

the

allo

cati

on c

alcu

lati

ons

Cann

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eno

ugh

(bad

allo

cati

ons

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s)

The

repo

rts

do n

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rovi

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l inf

orm

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n

It is

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sults

We

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how

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Allo

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are

too

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plex

to

unde

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nd

Concern

business strategies

organization? No. Identify the functions in the value chainthat are core competencies and designate these as targets forABC/M deployment. For example, a company like Kroger (aretail food chain) might deploy ABC/M in its distributionfunction because of its substantial cost and critical impact onfinancial performance.

Contemporary thinking, reported by many professionalsand researchers, is that activity-based methods do not pass thecost-benefit test and are being abandoned. The BRAG studyreveals that relatively few organizations in the study thatdeployed ABC abandoned it. To the contrary, ABC providessuperior decision support for both strategic and operational-control purposes.

The study revealed that standard costing systems are stillthe most popular, especially in the production function of the

internal value chain (42 per cent use standard costingcompared to only 18 per cent for ABC). ABC systems areused across the value chain, but do not dominate like standardcost systems. All respondents were asked to compare thevalue of ABC to standard costing in the production functionregarding major decision support components. As shown inExhibit 3, the results lend additional support to the value ofABC and demonstrate that the vast majority of organizationsbelieve that:l The use of activity-based costing helps them to under-

stand their operations better than standard costing.l ABC provides more useful product costing information

than standard costing.l ABC provides more useful information for process

improvement programs than standard costing.

Key finding 4: Capability gap in best practices organiza-tions

The BRAG study team investigated how well organizations’CPS serve strategic decision making and cost controlpurposes in order to gain insight into best practices. Of the400 respondents to the survey, BRAG isolated the top threeper cent by determining stringent criteria for best practices.

Further evidence of the staying power of ABC wasdisclosed when best-practice organizations were isolated. Ofthese best-practice CPS organizations, 80 per cent currentlyuse ABC in some form while only slightly more than 30 percent of the other companies do so.

In addition to the gapfound in the use of ABC,the study also found asignificant gap in the CPScapabilities of best-practice organizationscompared with those thatwere not best practice(Exhibit 4). Most notably,the CPS for a non-best-practice organization wasless likely to includecapabilities to analyzecustomers — customer-facing activities,profitability, and resourceconsumption. Thesecapabilities are criticalwhen dealing with tightmargins and demandingcustomers. Anothersignificant capability gaprevealed best practice

Exhibit 3: Decision support — ABC and standard costing

% o

f or

gani

zati

ons

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%Understand

operations betterthan standard

costing

Provides moreuseful product

costing informationthan standard

costing

Provides moreuseful information

for processimprovement

programs

Primary benefit isits cost control


Managers want realistic accuracy; they

want the results to reflect reality, not

give them more decimal places. They

want more timely feedback and greater

ease of maintaining and updating CPS as

processes change.

AgreeDisagree

business strategies

organizations had CPS integrated withother management decision systems,where non-best practice organizationsoften did not.

Interestingly, these results remainedconsistent when considering the lengthof time organizations had used theircurrent CPS. In each case, thesignificant capability gap remainedbetween best practice and non-bestpractice organizations. BRAG suggests,therefore, that when an organizationapplies the appropriate resources todesign a CPS correctly upfront, it hasthe staying power to adapt as businessconditions change — that is, it is a dynamic CPS.

Getting the most out of your CPS

What is clear from the BRAG study findings is that CPSimplementations have not evolved at the same rate aseconomic pressures, customer requirements, and productcomplexity.

Based on the survey findings and their expertise in thefield, the BRAG team recommends that if an organization isnot realizing benefits from its CPS, executives should assessthe organization for root causes. For example, a cause mightbe:l The technology itself could be revealing its limitations;

missing the flexibility, features, integration, or reportingrequired for attaining expected benefits of a CPS. This is astrong indication that an upgrade may be in order.

l Lack of education about CPS or systems training could bepreventing users from getting what they need from anexisting CPS.

l Management could be a barrier, in which case a cost/benefit analysis could make the case for moving to a modern system. The issue might be as simple as gettingfunding for a much needed upgrade — or more complicated like funding for a whole new system.

It is clear that there are benefits from having a strong anddynamic CPS, and it is up to organizations to ascertainwhether their current CPS will help them achieve thosebenefits or not. If your organization is one of the majority,unsatisfied with its CPS, it may well be worth the time tolook into an internal process improvement in the costaccounting area. Give some consideration to deploying aneffective allocation system — and perhaps an ABC allocationmethod is worth a second look.

Denis Desroches is a principal for the enterprise planning field with Oracle Corporation.Toby Hatch is a senior strategist for enterprise performance management with OracleCorporation. Raef A. Lawson, PhD., CFA, CMA, CPA is vice-president of research and pro-fessor-in-residence for the Institute of Management Accountants (IMA).William O.Stratton, PhD., CMA is professor of accounting at the Udvar-Hazy School of Business ofDixie State College of Utah.


Exhibit 4: Capabilities of best practice organizations and non-bestpractice organizations

CPS Capability

Calculation of the cost of our customer-facingactivities

Integrated with other management decisionsystems

Accurate identification of which customersare profitable and which are not

Accurate identification of whichproducts/services are profitable and which arenot

Calculation of channel, product, and regionalcost

Cost information at all necessary levels(customer, product/service, key processes, keyactivities, etc.)

Calculation of the proportion of resourcesconsumed by each customer type

Calculation of the proportion of resourcesconsumed by each individual customer

Ability to handle reciprocal costing

Traceability of allocations — how they wereassigned at any level

Best PracticeOrganizations

100 per cent

100 per cent

100 per cent

100 per cent

90 per cent

90 per cent

80 per cent

80 per cent

80 per cent

80 per cent

Others

31 per cent

41 per cent

46 per cent

60 per cent

41 per cent

42 per cent

26 per cent

26 per cent

29 per cent

44 per cent

Difference

69 per cent

59 per cent

54 per cent

40 per cent

49 per cent

48 per cent

54 per cent

54 per cent

51 per cent

36 per cent

Contemporary thinking,

reported by many

professionals and

researchers, is that

activity-based methods do

not pass the cost-benefit

test and are being

abandoned.

business strategies


Why IT matters in 2010As uncertainty has become the norm, today’s organizations are seekinginformation technology solutions that drive clarity in their business andvisibility across their business networks.

By Mark Aboud

Customers need clarity in order to manage every aspectof their business so they can define better strategies,make more insightful decisions and execute moreefficiently. In addition, clarity in the form oftransparency is becoming a priority for businesses tonot only adhere to changing government regulation butalso to help build trust among stakeholders. In light ofthe ongoing economic volatility, major IT (or “majortransformational IT infrastructure”) projects arecurrently on hold. Because of the increased pressure todeliver additional business value with limited budgets,the total cost of ownership is as critical as it has everbeen for IT buying decisions.

Companies are shifting to smaller projects thatoffer quick implementations, lower risk, and ultimatelya faster return on investment. In addition, more line-of-business executives are exerting influence on ITdecisions because they are being asked to do more withless. Their chief IT purchasing criteria is more aboutusability and time-to-value and less about enterprise-wide integration and homogeneity. Without oversightto the overall enterprise IT strategy, this may poseissues in the mid-long term, but the economy is franklyin uncharted waters and all of us need to deal with thebusiness challenges and issues of today. In response,companies have been looking for solutions that have aclearly articulated business value and that can deliverthis value steadily over time.

In 2010, chief information officers (CIOs) will becharged with strategically using IT to help theirorganizations to become a “clear enterprise,” one that

has transparency and visibility into operations throughout thebusiness and business network. Helping executives and workers to seeinto the organization, the supply chain, the business network and theneeds of customers is the role of IT in the clear enterprise.

There are many new technologies that are helping to make theclear enterprise possible. Enabling technology trends, such asinexpensive, fast main memory, increased bandwidth, smart devices,virtualization and cloud computing will enable businesses to becomeclear enterprises. Companies are now able to achieve real-timeinsight and make more confident decisions, be more effective bytaking better advantage of the data they already have and anticipateand react to changing conditions, becoming more flexible and agile.

Many of these new technologies will help businesses reduce costs,demonstrate quicker time to value, and produce business outcomes atevery step of a project or implementation. Delivering the true powerof speed will enable new, breakthrough user-experiences and radicallynew business behaviours, while at the same time rely on simplersystem landscapes to reduce the cost of IT operations.

In the clouds

From a business perspective, cloud computing allows organizations topool computing resources delivered over the Internet and have them

Virtualization is another technology

that is allowing for powerful

improvements in the efficiency of

networks, computing and storage.

management trends


management trends

configured and managed by software. These areinstantly scalable, delivered as needed and with ascalable cost model based on consumption of resources.Cloud computing is attracting attention because itpromises reduction in costs, device and locationindependence, scalability and sustainability, amongother benefits.

Virtualization is another technology that is allowingfor powerful improvements in the efficiency ofnetworks, computing and storage. Virtualizationanswers the question, “Why can’t IT systems be morecost efficient?” Virtualization brings efficiency to manyIT infrastructure components, including storage devicesand network resources. The shift to virtualization is anatural one considering businesses are looking toreduce costs and maximize return on investment.Virtualization is an increasingly popular strategy as itallows companies to dramatically increase their server-to-admin ratios.

Of smart choices and other things

Opening up a new dimension for our society, the“Internet of Things” connects the virtual world withthe physical world, communicating with all thingsaround us and vice versa. Digital memory inmanufacturing, a new business model for the mobilityindustry, and the effective use of different types ofenergy are just a few examples of how the Internet ofThings can increase efficiency and revolutionize manybusiness areas to the benefit of society and theenvironment.

Technologies such as sensors and smart devicesequipped with radio frequency identification (RFID)tags are expected to have a dramatic impact on almostall sectors of the service economy. Additionally,automated services save consumers time and energy andover the last decade, the service sector has become thefastest-growing business sector in the world, employingthe most people worldwide. In order for this growth tocontinue, services should become more widely andeasily available and should also yield higherproductivity.

IT can significantly help achieve these goals, andthrough the “Internet of Services,” innovativetechnological developments drive the creation of newdelivery channels for services and entirely new businessmodels. These services are facilitated by an openplatform and interface architecture, as provided by theenterprise service-oriented architecture (SOA).

The Internet of Services takes the enterprise SOA approach to thenext level by making services easy to implement, consume, and trade.In combination with Web 2.0 technologies, the Internet of Servicesis expected to improve service innovation. It will become acornerstone for the Internet of the next generation leading to Web3.0.

So much data, so little time

With these enabling technologies, we are moving to the creation ofthe digital enterprise, but fortunately or unfortunately, with theincreased connectedness comes more data. In response, the industryis witnessing an acceleration of information-processing capabilities,disrupting traditional database approaches by offering a quantum leapin terms of access and performance at a fraction of the costs. In thisvolatile economy, it’s now critical that organizations provide all userswith immediate answers to “on-the-fly” questions, a deeper data-driven understanding of their business, and instant access to relevantinformation. These new data management capabilities will be a coresource of differentiation for applications and for business.

One approach is the in-memory database, which allows analyticalapplications to become so powerful it offers instantaneous visibilityand insight from terabytes of data. This, in turn, empowers businessanalysts and executives to make decisions based on real-time data,revolutionizing the way business decisions are made. In-memoryindexing reduces the need for manual performance tuning — a keybenefit, considering that a significant amount of IT efforts intraditional business intelligence projects are allocated to building andmaintaining aggregates needed to handle an ever-expanding amountof data and number of users.

With immediate insight into critical data, information workers canintuitively explore business information quickly and independently,enabling a better-informed workforce that makes sound and timelydecisions. The result: a stronger organization that’s ready to reactquickly in competitive, unpredictable environments. n

Mark Aboud is president and managing director at SAP Canada.

Enabling technology trends, such as

inexpensive, fast main memory, increased

bandwidth, smart devices, and virtualization

and cloud computing will enable businesses

to become clear enterprises.

CMA Canada is pleased to partner with Université Laval’s Faculty of Business Administration to provideCMA members with French online learning opportunities to help advance their career.

Strategies for Creating Value through InterdependenceDate: March 15-28, 2010Cost: $395 CMA member/$445 non-member

CMAs play an active part in ensuring that value creation for stakeholders is maximized by balancing andinfluencing strategic factors. Strategy, as one of the pillars of the CMA profession, involves using boththe numbers and an awareness of external and internal forces to manage existing strategies andgenerate new ones. This module builds upon the CMA Competency Map and is designed for experiencedmanagers who are interested in developing new strategies for their organization.

NOTE: This course qualifies for 8 CPLD credit hours.

www.cma-canada.org/ulaval-en

The Université Laval Faculty of Business Administration reserves the right to defer or cancel the course ifthe number of registrations is below the minimum required to ensure the viability of a given course (10 participants). Participants would then be refunded.

Improve your abilities to thinkstrategically with online trainingfrom Université Laval.

®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.

©2009 The Society of Management Accountants of Canada. All rights reserved.

Supply chains – Seeking a


Organizations arecontinuously striving to meet

customer expectations aseffectively and efficiently as

possible – a strategicimperative all the more critical

in today’s economic climate.The advent of customer-centered organizations,

“everyday” low prices, andexpectations that prices will

drop, not rise, is a hugechange in the structure of the

global economy.

Introduction and interview byBill Langdon, FCMA

new strategic advantage


he ability to increase market share and lowerprices is the result of implementing superiorlogistical and distribution systems. Organizationstoday are competing on how effectively they can

move raw materials, components and finished productsglobally through their supply chain to customers rather thanjust those who have the most efficient manufacturing plants.These new supply chains and their continuing improvementhave become a major driver of profits.

There is not, however, a “one size fits all” supply chainsolution — strategies and tactics differ by groupings ofsuppliers. For example, suppliers of components with lowtechnical content are bought on price alone. Supply chainexpectations for service and in plant support are low andvendor managed inventory is a given.

At the other end of the spectrum are suppliers where largeinvestments in highly technical components are required.Here total cost approaches and partnerships between supplierand customer in the product development process are oftenfound. Costs are designed out from the outset and oftenaccompanied by contractual obligations and open-bookcosting to share benefits.

A number of supply chains fall in the middle of these twoapproaches with cooperative development of components, butencouragement to manufacture in low-cost countries withsuppliers bearing the risk of logistical and inventory holdingcosts.

In defining supply chains, Ed O’Donnell, vice-president,business analysis for Teknor Apex Company, a manufacturerof thermoplastics, suggests “…the supply chain begins at thepoint of origin for each raw material and ends at the point ofconsumption for the finished item. Presumably, value is addedthroughout the supply chain, and it is our job to reduce oreliminate no- and low- value-adding steps and assure thatrisks along the chain are adequately assessed and managed.”

Paul Massey, finance leader, Cummins TurboTechnologies, a supplier to original equipment manufacturersin the automotive industry, contrasts a traditional, versus amore current, view of supply chains. “The traditionalapproach focuses on only the price of the item and there is alack of understanding of the full supply chain costs or awillingness to consider the opportunities. On the other hand atotal supply chain view looks at all the entities in the supplychain that modify raw materials into finished productsthrough various added value operations as connected entities.The extent to which these entities cooperate determines thecohesiveness of the supply chain.”

Why is there so much interest now being shown in supply chain management?

Massey: With the various quality and lean initiatives themanufacturing environment has been the focus ofimprovement for a number of years. This focus has extendedbeyond the traditional company boundaries to look for thenext major improvements in the supply chain. In additionwith the changes in company core processes the amount ofproduct cost outside the company has become much higher.Many companies no longer make products directlythemselves. They are outsourcing the full manufacturingprocess, but controlling the design.

O’Donnell: We believe only manufacturing costs trumpsupply chain costs in order of magnitude. So, there issubstantial motivation to optimize the five primary supplychain management processes: plan, source, make, deliver and(if necessary) return finished products.

Additionally, the process of balancing the supply of rawmaterials with the demand for finished goods andaccommodating the inevitable variability in both requiresinventories to be maintained. Inventories often require asubstantial investment of working capital and so, they mustalso be brought to optimal levels so that precious cash is nottied up in excess quantities. There is no ROI on dollars“invested” in excessive quantities on hand. When it comes toinventory, our maxim is “Enough is a feast!”

In general, what impact has this interest in supply chainmanagement had on relations with suppliers and cus-tomers?

O’Donnell: We are looking much more critically at oursupplier relationships across more parameters than just costper unit. For example, we are concerned about the resiliencyin our chain and how much at-risk we are to interruptions inkey raw material supplies. This is of concern in situationswhere materials are sole- or single-sourced.

With customers, our supply chain management has causedus to involve them as much and as often as practicable in ourforecasts for the finished goods that they buy from us.Without a doubt, the forecasts have added a new dimensionto our customer interface.

Massey: The major impact on our relationships with keysuppliers and customers is closer long-term relationshipsresulting in long-term agreements, open-book costing andjoint-cost reduction initiatives to improve profitability andgrowth for all members of the supply chain. Suppliers have

T


become a further extension of the business and exchange ofinformation to support planning processes has becomeprevalent throughout the supply chain. The reliance onsuppliers and customers has created the need for a consciousreview of sourcing practices both with suppliers, bycustomers, by commodity and whether to single or dualsource after reviewing the various risks and benefits

How has this focus on supply chain managementchanged your company?

Massey: In 1997, we created an initial supply chain group outof our traditional materials function to focus on NorthAmerican supply development, supplier quality improvementand cost reduction. In 12 years, this group has grown tobecome global with dedicated groups in low cost countries todevelop new suppliers and to introduce new products. Inaddition, the function has delivered year on year costreductions for existing products. The focus was adjusted to becommodity focused and used competitive quoting processesacross all of our divisions. It has evolved into globalcommodity teams across the corporation with specificcommodity teams for unique commodities. This team nowhas dedicated financial support, legal support and a key seat atthe management table.

O’Donnell: It has caused us to:l Plan centrally and execute locally; and not just with our

raw materials and finished goods, but maintenance, repairsand operations (MRO) items, too.

l Be much more conscious of the need to balance supply ofraw materials with the demand for end item compoundsand eschew the formation of excess quantities.

l Rethink volume purchases of raw materials solely to garnera better cost per unit.

l Bring our operations (e.g., manufacturing) people into theforecasting process to make sure that they build preciselywhat has been agreed to in S&OP — no more and no less.

l Leverage our investment in enterprise resource planning(ERP) to a much greater extent than before. Much of theROI on our ERP investment came from inventory reductions.

l Keep a weather eye on critical suppliers and shippers tomake sure that we are not exposed to inordinate risk ofinterruption or delay.

l Revisit our decision to maintain captive fleets (we out-sourced our largest fleet as a result of one such analysis).

l Become much more analytical and process oriented in ourdecision to use outside warehouses and value-adding con-tractors.

l Evaluate customer requests that we hold safety stocks forthem by using statistical methods that flex with the cus-tomers demand rather than arbitrary quantities thatremain static and all too often forgotten over time.

l Apprise our customers that want consignment inventoryarrangements of the hidden costs to be borne by both ofus under such programs and the alternatives that may bemore suitable.

What have been some of the benefits you have experi-enced in your company as a result of implementing supplychain management techniques?

O’Donnell:l Significant reduction in inventory and a measurable

improvement in working capital.l A statistical, dynamic and programmatic approach to set-

ting supply lead times, safety lead times and safety stocks.l Use of mathematical programming techniques rather than

gut instinct to convert a highly seasonal sales forecast intoa flatter production plan that helps to level-load ourplants, and plan inventory and crewing levels well inadvance of need.

l Earlier visibility to inventory quantities that are headedtoward becoming excess or obsolete and more aggressivedisposition strategies.

Massey: We have been able to grow much faster by utilizingexternal sources for components previously made in house,reducing our capital requirements, and using supplierexpertise to reduce component costs. In addition we haveidentified excellent global sources for our growth into newcountries that have subsequently led to the importation ofsignificantly lower total product costs. The development ofglobal sources has resulted in vendor-managed inventorywhere an overseas supplier becomes “local” by managing thepipeline of inventory to a local warehouse. This hassupported our ability to become a global company andsupport our customers in all parts of the world.

What have been some of the barriers you have had toovercome in implementing modern supply chain manage-ment?

O’Donnell: Resistance to change. Also, there can be asignificant amount of time between the date a system isimplemented, e.g., available for use, and the date on whichpeople begin to use it.

Massey: With global sourcing there have been a number ofdifficult situations where our high volume business was suitablefor global sourcing, but local sources retained low volumeproduct. The lower volume business remaining requiredsuppliers to re-evaluate their true costs for proliferated businessresulting in cost increases on some parts.

Although vendor managed inventory (VMI) is often used,the agreed commitment in the supply chain requiresadditional discussion, agreement, and management forproduct changeovers. The pipeline can also be an issue whenquality problems are uncovered. From a supplier perspective,the cash flow tied up in the supply chain during startup andgrowth periods can become an issue unless well planned atthe outset. With tier two suppliers being managed by tierone suppliers, problems can be hidden or used to drive costincreases if the wrong tier one supplier is chosen.

How has a change in your supply chain produced a sig-nificant benefit for your company?

Massey: Global sourcing benefits have reduced product costs


of some components by 30 per cent. Our supply chain hasbecome global resulting in the ability to supply ourmanufacturing plants from a local “proven” source indeveloping countries speeding up the learning curve and costbenefits. Our ability to invest in new products and globalgrowth has been shared with our key suppliers. This sharedgrowth and capital investment has allowed each company togrow faster.

O’Donnell: Quantitatively — inventory reductions of asmuch as 20 per cent in two of our U.S. divisions (vinyl andgarden hose) and our most accurate and credible assessmentof excess and obsolete inventories to date. Qualitatively —everyone is talking to each other using a common supplychain lexicon. Inventory matters, with their attendant impacton working capital, get as much attention in business decisionmaking as matters affecting EBIT.

How has the current economic crisis impacted your sup-ply chain and supply chain management?

O’Donnell: We have grown more concerned about thefinancial viability of suppliers and certain customers. On thesupply side, we closely monitor the health of those withwhom we single- or sole-source. On the demand side, we arewatching shipments and payments patterns more acutely. Weare also seeing an increase in requests for consignmentarrangements from customers anxious to preserve their cash.

Massey: The current economic crisis has intensified the

complex relationships within our supply chain. The financialexpertise identifying supply chain total costs and savings hastransitioned to a cash flow focus, understanding companyfinancials and the risks at today’s volumes. Supportingcommodity manager’s negotiations by identifying risks andopportunities within suppliers, confirming approaches andstrategies within the financial options available and ensuringthe correct accounting for liabilities has become a criticalrole. With open book approaches and a willingness to discussjoint cost opportunities we are looking for opportunities toavoid exposures to both companies in the supply chain withthe realization we need each other to succeed in the longerterm.

What will be the enduring changes in how people thinkabout and manage their supply chains in the future?

Massey: The relationships developed during the difficulttimes should strengthen as things improve for those that haveworked together to lay a strong platform jointly for thefuture. For those with suppliers that adopted an adversarialapproach, improvements in the economy will createopportunities to exit and find new sources for the future.Financial risk will become a stronger part in understandingfuture supplier selection for the long haul.

O’Donnell: Weakness anywhere in the supply chain placesall of the component organizations at risk. Increasingly, it isnot one business competing against another; rather, it is one


supply chain competing against another. Simply pushing costto another enterprise in the supply chain doesn’t makeanyone more competitive. Competitiveness lies in gettingcost out of the entire chain and constantly working to make itmore efficient.

What steps should organizations follow if they wish toimplement supply chain management techniques?

Massey: Understand the business strategy and key goals thatthe supply chain function is expected to achieve. Identify thetypes of supply base required to achieve these key goals.Review the existing supply base for the right fits, those worthdeveloping and those that require exit plans. Execute the plansand continue to revise the plans in line with strategy,economic and supplier changes.

O’Donnell:l Get good advice; learn what best practice is and use it as

your implementation guide.l Assess your system and people capabilities to handle the

demands of supply chain management processes. Train —before and after implementation — until you are confidentthat the people who will run the system can run it well.

l Execute the supply chain transformation in stages. Webegan our transformation project by focusing on bringingour inventories under control and, thus, implementedmaterial requirements planning (MRP). When we beganrunning MRP, we also saw the full extent of our excess andslow-moving inventories — the stuff that MRP won’ttouch because there is no demand for it. We developedreports and each of our divisions convened teams thatcould get at the root cause of excess and slow moving andthen execute disposition strategies to get rid of these items.

l Get senior management support. Talk to them about thebenefits of supply chain management in terms they under-stand (usually improved earnings, cash flow and economicvalue added [EVA]). To support the implementation,establish a core group of the few senior managers to quick-ly resolve any points of contention or pushback from divi-sional management. Once functional, involve relevant sen-ior management in your S&OP meetings so that supplychain concerns get equal consideration with those of sales.

l Educate those who will be affected in change managementconcepts.

l Remember that what gets measured gets done. Set a fewkey metrics that are designed to show whether cost is beingwrung from the system without any degradation in cus-tomer service.

If you had to implement supply chain management tech-niques again what would be the pitfalls you would try toavoid?

O’Donnell: At the outset of our supply chain transformationproject, we pulled together a team of managers from each ofthe functional areas involved in or affected by supply chainmanagement processes. They were our “best and brightest”

and they developed an implementation plan that still makessense four years later. However, in comprising that group, weleft out rank-and-file members of the user community whowould actually run the system. So, what would we have donedifferently? I would identify each of the key participants byname — managers and users — and get them involved in theplanning from the get-go. Many of the people involved havespent a career developing relationships with suppliers andcustomers and they are justifiably concerned about the impactsuch change will have. Making them part of the system designgives them equity in its rollout and ultimate success.

Massey: The integration of suppliers can cause too muchdependence on one supplier and a difficult separation processwhen the relationship changes. An improved early warningsystem was needed for supplier issues – financial, relationship,management team changes etc. Another pitfall we have seenhas been the use of amortization for tooling or equipmentduring growth times. This approach has caused a number ofdifficult issues during the recession on amortizationcommitments and volume guarantees. The additionalintegration and reliance on supply chain members requires amore thorough understanding of supplier financialcommitments and how important cash is and the managementof supply chain inventory during a downturn.

What role do you see professional accountants playing inthe managing and implementing efficient and effectivesupply chains?

Massey: Professional accountants need a thoroughunderstanding of supply chain relationships plus a flexibleintegrated support role to partner with the supply chainleadership. Finance needs to be part of the discussions toprovide options and input into negotiations not anafterthought. This role can only be fully realized as part of thesolution and not just a scorekeeper role.

O’Donnell: A professional accountant from our financedepartment with no previous supply chain experience leadsour worldwide supply chain transformation project. He hasrelied heavily on his skills to understand supply chain systems,plan their implementation and test their effectiveness oncethey have been put into service.

He also saw the favorable impact supply chain efficienciescould bring to the balance sheet. Putting the benefits of thesupply chain transformation project into financial termshelped us to gain senior management support. n

Bill Langdon, FCMA, is a past-president and CEO for CMA Canada. He’s currently a knowledge management consultant for CMA Canada.

The preceding interview is based on a Management Accounting Guideline(MAG)® written by Professor John Cullen and published by the CharteredInstitute of Management Accountants, The American Institute of CertifiedPublic Accountants and CMA Canada. Mr. O’Donnell and Mr. Masseywere reviewers of the MAG®.

According to Statistics Canada,“almost half of the firms in Canada that

go bankrupt do so primarily because of theirown deficiencies rather than externallygenerated problems.”1 To understand why thishappens, it’s important to understand whatblack holes are and the impact they haveon organizations.

By Ron Lutka, CMA

Black holes and irrational thought



A black hole is an area of anorganization where, unbeknownst tomanagement, an abundance ofundesirable activities occurs, or a lackof desirable activities occurs inabundance. Both activities may lead tothe destruction of an organization.

The above definition containsthree characteristics:1. There is an abundance of undesir-

able activity, or a lack of essentialdesirable activities, not merely anoccasional occurrence;

2. Destruction, in some form, occurswithin the organization;

3. Management might or might not beaware of the destruction, but man-agement is unaware of the rootcause of the destruction.

Black hole-creating items

Several failures of basic activities,referred to as black hole-creating items,can cause a black hole to form:l Failing to perform cross-checks in

accounting: Does this account mir-ror that account as it should; doesthis account clear to zero as itshould?

l Setting up customer accounts thatdo not follow the predeterminedaccount numbering etiquette. Thiscan foul up reporting. Is the south-ern region receiving credit for salesmade by the northern region?

l Delivery personnel “cherry picking”easy deliveries and not performingthe more difficult ones (e.g. avoid-ing deliveries that are the furthestaway).

l The supervisor giving the installernew work orders without ensuringthe installer completed the lastbatch he gave him.

These are examples of simple blackhole-creating items. Many black hole-creating items are so convoluted andirrational that it is easier to correct thesituation than it is to describe them. Anemployee can actually becomephysically sick trying to describe one ofthe rougher black hole-creating itemsto a persistent boss, because he/she willnot be able to do so. However, thereare ways to locate black hole-creatingitems, no matter how complex they are,

so they can then be eradicated.Operating below management’s

radar, black hole-creating items formand propagate long before damage isvisible. Organizations that believe theyare free of black holes should search forblack hole-creating items.

Over time, as many black hole-creating items are identified, companiescan see larger problems that the blackholes have caused and the opportunitiesthey have thwarted, such as:i) The company will not make a profit

as long as the real contribution mar-gins are negative;

ii) The budget will not be met if itremains out of sync with the con-straints of the plant.

These real-life examples withinpublic companies provide a glimpse ofthe magnitude of issues that can bediscovered and resolved by addressingblack hole-creating items.

Below business processes

When addressing black holes,management is primarily interested infixing the larger problems. To do so,management needs to locate anderadicate the failures of basic activitiesin volume because they are often at theroot of larger problems. When thefailures of basic activities are identifiedand handled, companies find that largerproblems diminish or disappear.

Aggravate much larger problems

Over time, both simple and complexblack hole-creating items can threatenthe survival of an organization if they’re

not eliminated. If they’re noteliminated, they can cause problemsthat threaten the survival of theorganization. Here’s an example ofhow this concept of “failures of basicactivities can cause or at least aggravatemuch larger problems” played out at acompany that prepared its budget usingmachine run speeds that exceeded thestandard run speeds of the machinery inthe plant.

This black hole-creating item led tomachine operators being pressed to runmachines in excess of the standards setfor the machines, which causednumerous quality problems. As lowerquality became the norm, it causedproblems that led to customercomplaints. This in turn causedcustomers to short pay invoices and ledto lost customers, which caused cashflow problems and reduced margins.

An organization can realizetremendous relief by locating anderadicating black hole-creating items —even the ones that seem petty —because accumulated black hole-creating items can morph into a witch’sbrew of problems.

Failed actions

There are many ways activities/actionscan fail. For example, no action, such asno inspectors hired; omitted action,such as the inspector failing to inspect;too many actions, such as differentlayers of management issuingconflicting directives; wrong sequence,such as pricing an order beforecalculating the cost to produce it.

Failed actions can be simple, such asno one calling prospects during theweek; or they can be complex, such asan important aspect of a costly ITinstallation gone awry. A black hole canform when too many actions failrepeatedly.

Layering anything on top ofsomething that is broken will give a lessthan desirable result. Would a hockeyplayer tape his stick without firstremoving the old tattered tape? Anyinitiative or result that sits on top ofthese basic activities will suffer unlessthe failures of basic activities are locatedand then eradicated. Corporate

An organization can realizetremendous relief by

locating and eradicatingblack hole-creating items—even the ones that seem

petty—becauseaccumulated black hole-creating items can morph

into a witch’s brew ofproblems.

governance, compliance, basicreporting and new product launcheswill suffer; as will risk reductioninitiatives, sales and marketing, ITprojects, the fair assessment ofemployees and other initiatives orresults. To succeed, one must identifyand eradicate the failures of basicactivities before layering on newprocedures and processes.

Broad ranging damage

The damage caused by black holes canbe as broad ranging as the answers tothe question, “What are you as anexecutive trying to achieve, bothpersonally and professionally?”

The damage black holes cause canfeel personal, such as your bossaccusing you of being the source of theproblem when the issue is reallysomewhere else.

At the corporate level the damagecaused can include:l Wastel Lost opportunitiesl Loss of transparencyl Reduced marginsl Reduced cash flowl Loss of productivityl Confusionl Bickeringl Upset customersl Upset suppliersl Low employee moralel Corporate bankruptcy

A vacuum forms

Management was borne out of thedesire for leverage. Over time,management became removed from ahands-on approach. The manager wasno longer “hands on” and managementwas no longer the best and brightest“doer.” Instead, management gravitatedtoward specializing in planning,organizing, and other high-endstrategic thinking. A vacuum formedbetween management “strategizing”and “performing basic activities.” Thisgap exploded in the last 100 years as thelarge companies grew from dozens andhundreds to thousands and tens ofthousands of workers.

Management no longer had time totend to basic activities, and as a result,

lost sight of the basic activities. That iswhere we are today — at a point wherebasic activities of organizations havebeen neglected because so muchattention has gone into high-endstrategies in an attempt to chaseleverage.

The vacuum that has formedbetween basic activities andmanagement has caused a crumbling ofthe base. Both daily operations andmanagement initiatives are dependentupon a base that has grown weaker overtime. Entropy (the breaking down oforder) gets the upper hand oversyntropy (the constructing of order)and confusion sets in. Incompleteactions set in. A lack of actions sets in.Wrong actions set in. Errors remainuncorrected. These failures propagateand pile up and lead to major problems,even bankruptcy.

Management then asks, “Whathappened?” They might conclude thatit was a cash flow problem, predatorycompetition or a downturn in theeconomy. These can be real issues.However, too often they are presentedas an excuse for the failures of basicactivities.

Irrational thought

The most devastating result of thisvacuum forming is it allows the entry ofirrational thought into the organization,without any mechanism to stomp it outwhen it occurs.There was a mechanismat one time. It is now lost.

In earlier times, the mechanism usedwas “management close at hand.” If thecook wanted to serve all the oranges thefirst week at sea of a long voyage,management would prevent that from

happening. Management was closeenough to the basic activities to seewhat was occurring and to put thebrakes on irrational thought.

Today, however, management is toofar removed from the basic activities tospot irrational thoughts as they arise.Management that is many layers awayfrom the basic activities is not close athand. Therefore, the success andsurvival of today’s organizations areconstantly threatened.

High-end strategies are essential;however, there needs to be somebalance between big picture strategiesand the management of basic activities.The two need to go hand-in-hand.

Like financial leverage, managementleverage can backfire or implode. Manyorganizations have gone under withoutmanagement or financial coroners everknowing the real reason why ithappened. That reason is often blackholes.

What would your organization looklike in the absence of black holes?

Irrational thought, and black hole-creating items, have been allowed toenter organizations because of thevacuum that has formed between basicactivities and management.Organizations have grown too largeand too multi-layered for “managementclose at hand.” Since close at handmanagement is no longer available,organizations need to work diligently atdeveloping a mechanism or process thatwill eradicate irrational thought andblack hole-creating items when andwhere they occur. They need todevelop, foster and implement othermechanisms that reach deep down tothe level of basic actions and activitiesso they can identify and eradicate blackhole-creating items.

What mechanism does yourorganization have in place to preventthe cook from serving all the orangesthe first week at sea of a long voyage? n

1 John R. Baldwin, “Failing Concerns,” (Ottawa: StatisticsCanada, 1997), 9.

Ron Lutka, CMA, ACIS, P.ADM., CorpS, Acc. Dir is thepresident of Corporate Streamlining Company Inc. basedin Richmond Hill, Ont. and author of Black Holes inOrganizations.

Like financial leverage,management leverage canbackfire or implode. Manyorganizations have gone

under without managementor financial coroners everknowing the real reason

why it happened.



Phot

o: J

ames

May


ravelling for over two decades and learning more aboutwildlife around the world has made Carol Patterson, CMA, abraver and bolder person. “I grew up in Regina, Sask., and Ididn’t hang out with a lot of travellers,” she says. “I dreamt ofgoing to places like Africa. I never thought I’d spend time in

the Himalayas (Kingdom of Bhutan), where only 20,000 people get to visiteach year, and sleep in a farm house with no running water. Travel hasmade me thirsty for experiencing different things. I told my parents thatafter my first trip to Africa I’d settle down and become an accountant,” sherecalls.

However, that’s not the way Patterson’s journey unfolded. After receiving a Bachelor of Administration from the University of

Regina, Patterson worked with one of the big five firms doing audits.Realizing that it wasn’t what she wanted to do for the rest of her life,Patterson looked at becoming a CMA.

“What attracted to me to the CMA designation was the continuity,” shesays. “I wanted to be part of the solution. I liked the CMA designation forits focus on business. I appreciated the emphasis of looking at the biggerpicture and being part of the solution. I’ve taught ‘accounting for the non-accountant’ seminars at the University of Calgary for a number of years,”she adds. “I used to tell people that accounting is about power. It’s notabout reading numbers; it’s about having the language and the knowledgeto make the best decisions and to know things on your terms to make thebest decisions.”

Patterson’s decision

When Patterson moved to Calgary in 1980 to do accounting work for anenergy company, she discovered volunteer opportunities with the CalgaryZoo. She led tours at the zoo and became a member of the zoo’s educationcommittee. Wanting to learn more about the zoo’s operations, Pattersonmoved on to become a trustee on the board of directors. She chaired thelive collections and business operations committees and became chairmanof the board of directors. As she moved through these various roles,Patterson discovered the zoo’s ecotourism program.

TAKING THE ROADLESS TRAVELLED

Carol Patterson, CMA,explains how she uses her

passion for travel and wildlifeto develop long-term plans for

sustainable tourismdestinations.

By Andrea Civichino

T

http://www.aicpa.org


Five years later, the zoo offered a trip to Namibia,Botswana and South Africa with wildlife watchingopportunities. Although there was no reason for anaccountant to run off to Africa, Patterson saw this as anopportunity to take an exotic adventure before she “settleddown.”

“I was fascinated at seeing the wildlife I’d only read aboutas a child,” she writes in her book Reinventure: How TravelAdventures Can Change Your Life, a collection of her personalstories and memories and how travel transforms people.“Furthermore, I was enchanted by the idea that travel couldhelp these animals. Ironically, habitat land is scarce in Africaand I quickly recognized that tourism provided the economicjustification to keep vital wildlife land out of agricultural orindustrial development.”

Patterson’s trip to Africa inspired her to look for ways thatshe could make a living by combining her CMA designationwith her passion of travel and wildlife conversation.

She created Kalahari Management Inc., in 1991 and workswith government agencies and community groups around theworld as a tourism consultant. Her job is to help thempromote their region, develop new nature tourismdestinations, and create long-term plans for sustainabletourism destinations.

“I work specifically in the area around nature and ruraltourism … so it’s not casinos and golf courses, but birdwatching trails, spas, culinary tours. Each project can takeseveral months to a year to finish.”

She says having the CMA designation has helped her builda successful business because it gives her credibility with herclients.

“There’s a strong brand around a professional accountingdesignation,” she says. “A tourism consultant doesn’t need tohave an accounting designation to do a tourism master planfor a community, but at the same time, it can be very helpfulbecause it implies that you are a credible business person andthat you are able to look at something and determine if it’sviable or not and whether it’s realistic given its chances ofsuccess,” she adds. “Knowing how to do a businessassessment, reading financial statements and performingbusiness forecasts has been very helpful. Some of what I domay not look like pure accounting, but having and using theskills that I obtained through the CMA accreditation processis very important.”

Although travelling and seeking new adventures is anexciting aspect of the job, Patterson notes that it has been a“rough year” for the travel industry.

“After 9/11, the government stepped up and really investedin tourism,” Patterson says. “I was really busy in 2001/2002.This year is slightly different. There are fewer jobs tocompete for so it has been more difficult for tourism on theground.”

Although the lack of investment in tourism by localgovernments has created some challenges, there have beenother opportunities to capitalize on the slow economy.

“I did a project with Northeast Iceland,” Patterson says.

“Iceland’s had their fair share of financial problems, buttourism is one of their bright spots. The government did a lotof good ground work marketing and identifying theirproducts. A lot of people have Iceland on their ‘life lists’ sowhen Iceland’s currency collapsed it was like the country wenton sale. A lot of people went to Iceland last year.”

Patterson says there are indications that the industry isstarting to pick up and that next year may offer a slightimprovement. In the meantime, Patterson says she is going toexercise the same optimism and courage when she left alucrative position with an oil and gas company to venture outon her own.

“I’ve really come to appreciate having the CMAdesignation because it’s given me financial stability while I’vepursued a fairly unusual career,” she says. “For a lot of people,it’s what I recommend. People need to look and see whatstrengths they have in terms of skills, connections or potentialclients before starting out as a freelancer or owning abusiness. When I went this way, I had the delusion thatchange would happen much faster than it did. It’s a marathon,not a sprint. It’s also important to give some thought on howyou are going to support yourself and your family whilefollowing your passion.”

When Patterson isn’t travelling, she teaches a workshopcalled The Road Less Travelled: Finding Unconventional Work-Life Solutions. She encourages her students to look attraditional careers such as accounting because it’s a type ofcareer that works “well around transition because you can doproject-type work.”

“There are many 40 to 50 year olds who are looking fortheir next act … realizing that there is more to life,” she says.“A lot of baby boomers are going to be active a lot longerthan perhaps previous generations, especially with some of thereverses we’ve seen in the market. I think a lot of people arelooking at a second career as part of their retirement plan. Inaccounting, you can become a CFO and follow the traditionallinear career path or you can use your designation as anopportunity to ‘pick up and go.’ There are other ways to usethis skill. It’s very much in demand.” n

Andrea Civichino is the editor of CMA Management.

Ironically, habitat land isscarce in Africa and I quicklyrecognized that tourismprovided the economicjustification to keep vitalwildlife land out of agriculturalor industrial development.


Learn how to implement industry-recognizedpractices with CMA Canada’s ManagementAccounting GuidelinesManagement Accounting Guidelines (MAG®s) are publications that advocate appropriatepractices for specific management accounting situations. Each publication addresses currentfinancial management challenges and provides practical implementation guidance.

CMA members may download existing MAG publications at no charge:

®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.

©2009 The Society of Management Accountants of Canada. All rights reserved.

www.cma-canada.org/foundation

Nomination Deadline: Friday, January 22, 2010

For more information on the awards, revised criteria and eligibility requirements, visit:www.comptrollershipaward.com

Submit your nomination today and helpcelebrate excellence in public sector financial management.

Take this opportunity to recognize the success of federal public servants who havemade significant contributions to financial management and/or comptrollershipwithin the Government of Canada.

In its second year, the Award of Excellence for Comptrollership in the Public Sectorincludes awards for Innovation, Financial Leadership (CFO) and LifetimeAchievement.

™ Trade-Marks are owned by The Society of Management Accountants of Canada.

©2009 The Society of Management Accountants of Canada and CIPFA. All rights reserved.

Shareholder rights — More thanmeets the eyeThose who advise companies or shareholders need to be familiar with“shareholder oppression.”

By Stephen Antle

Suppose you advise a shareholder whose companyhas not produced audited financial statements orheld an annual general meeting for years. Theshareholder complains to the company. You write tothe chairman of the board of directors. No result. Isthere anything you can do?

Suppose you advise one of several equalshareholders in a company who has always beeninvolved in its management. Now your client hasfallen out with the other shareholders. The othershareholders vote your client off the board ofdirectors, fire them and stop providing them withcorporate information. Attempts to work somethingout dissolve into confrontation. Does your clienthave options?

Or suppose you advise the majority shareholderof a corporation, who also controls its board ofdirectors. The shareholder proposes to have theboard approve the payment to them of anextraordinary dividend or abnormally highmanagement fee. You review the articles of thecompany, which leave such things to the discretionof the board. Are there any risks in proceeding asproposed? The answer to all three questions is “Yes.”While the company or its shareholders may bewithin their strict legal rights to take those steps, thatis not the end of the story. In all common lawjurisdictions in Canada, the legislatures have addedother obligations to those legal rights. This iscommon as the law of “shareholder oppression.”Everyone who advises a company or a shareholdermust be familiar with it.

If shareholders can persuade a court that theyhave a reasonable expectation about how theircompany will be run and that the company has notmet that expectation in a way which is “oppressive,”“unfairly prejudicial” to them or “unfairlydisregards” their interests in the company, the courthas a very broad power to remedy that situation. The

shareholder’s expectation must be both subjectively held and objectivelyreasonable, given the corporate situation.

For conduct to be oppressive, it must be coercive, demonstrate anabuse of power or suggest bad faith or a departure from standards of fairdealing. Examples include: excluding from management a shareholderwith a reasonable expectation of continued involvement, payingunwarranted management fees, making wasteful loans to shareholders,improperly appointing or removing directors, not providing required orcustomary financial information, and not holding required shareholdermeetings.

For conduct to be “unfairly prejudicial,” it must prejudice theshareholder and, in the circumstances, do so unfairly. Conduct can beprejudicial, but not unfair, for example: excluding a shareholder frommanagement where their working relationship with the other managershas collapsed. For conduct to “unfairly disregard” a shareholder’sinterest, it must treat that interest as unimportant. Remedies are notavailable for such conduct under the legislation of all provinces andterritories.

This additional protection is not just available to minority registeredshareholders of closely held companies. In fact, registered and beneficialshareholders, minority and majority shareholders, and shareholders ofclosely held and publicly traded companies all have the same protection.

legal notes



legal notes

So do entities such as parents ofcorporate shareholders, beneficiaries oftrust shareholders and even creditors.Under the federal, Alberta and Ontariolegislation, former shareholders, anddirectors and former directors, alsohave this protection.

To seek such a remedy, ashareholder must start a lawsuit in theprovince or territory in which thecompany is incorporated. Specificprocedures for doing so differ acrossthe country. It is important tounderstand that, for this protection to

be available, they must seek a remedyboth in a “timely” manner (while theconduct they complain about can stillbe remedied) and in any event, withinthat jurisdiction’s limitation period.

If a shareholder persuades the courtthat there has been oppression, unfairlyprejudicial conduct or conduct whichunfairly disregards their interest, thecourt can grant any remedy it thinksappropriate which will remedy thesituation. In the examples at thebeginning of this article, the courtmight order the company to produceaudited financial statements or hold theshareholders’ meeting within a specifictime, order the majority shareholders tomake a “shotgun” offer to either buythe excluded shareholder’s shares or selltheirs to them at the same price, orforbid the company paying themanagement fee and order the majorityshareholder to repay to the companyany fees already paid. Other possibleremedies include adding or removingdirectors, varying or setting asidetransactions, correcting corporaterecords, ordering the company or othershareholders to buy the complainingshareholder’s shares at a value set bythe court, and liquidating the company.

The oppression remedy is a flexibleand powerful tool. What can beaccomplished with it depends on thespecific facts of the case. The keyconcept is that shareholders are notalways limited by their legal rights, norare companies and majorityshareholders always free to exercisetheir legal rights. If you are advising ashareholder who is unhappy about theway things are going at their company,or a company which is pushing itsactions to the letter of its legalentitlement, you should consult alawyer familiar with this area of the lawto get the full picture. n

Stephen Antle is a partner in the Vancouver office ofBorden Ladner Gervais LLP. He practices in the area ofcommercial dispute resolution, including negotiation,mediation, arbitration, administrative proceedings andlitigation. He is particularly interested in disputes amongshareholders and between companies and their share-holders.


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By Jacob Stoller

For a growing number of Canadian companies,becoming green is not a matter of “if,” but“when.” Imperatives such as governmentregulations, de facto industry standards, green PRcampaigns of competitors and mandates frommajor buyers are forcing the issue in manysectors.

The good news from an accounting perspectiveis that green initiatives, if managed properly, aremore likely to help than hurt the bottom line.The logic is fairly straightforward — an excessivecarbon footprint represents waste, and wastetranslates into costs. Excessive gasolineconsumption, heating losses, scrap frommanufacturing, and use of paper all cost money.Even chemicals emptied into a river or spewedinto the atmosphere represent money throwndown the drain.

Consequently, becoming green is often a by-product of projects designed to improveefficiency. “I think there’s a direct link,” says TimPerron, manager of professional services forSYSPRO Business Solutions, a provider of ERP(enterprise resource planning) software solutions.“Being more efficient will contribute to a greenerorganization.”

Things can get dicey, however, when theimpact of green initiatives has to be demonstratedin hard numbers. There are a number ofscenarios. Environmental regulations requireaccounting for the various aspects of theirconsumption. Financial decision makers need tosee how green initiatives are affecting the bottomline. Tough questions may come from the supplychain as well — Wal-Mart, for example, hasrecently announced that they will be asking

suppliers to report on the carbon profile of their products, which will belabeled accordingly.

Gathering and presenting evidence of this sort is essentially aninformation management problem. The challenge is in collecting andinterpreting information relating to consumption that may come fromdisparate departments — or even disparate organizations — and thenconnecting the dots.

The magnitude of the task depends on who you are. A large multi-national concerned about displaying a green public image might havemonitored hundreds or even thousands of data points, many of whichchange on a regular basis. Paul Hepperla, director of energy services forVerisae Inc., a Minneapolis-based provider of web-based process

IT’s growing role as a greenenablerBecoming green involves both complying with external requirementsand running a more efficient operation. Keeping tabs on the variablesinvolved is an information-intensive activity that calls for strong ITcapabilities.

information technology


management solutions uses a familiar illustration.“A McDonald’s Big Mac is made of beef patties,special sauce, lettuce, pickles, cheese on a sesameseed bun,” he says. “Each one of those products ina Big Mac has a carbon footprint. The bread has afootprint associated with how it was milled, theland use, how it was captured from the farm, howit was transported to a manufacturer or bakery,how the bakery was used from an energyperspective, that was then transported to anotherwarehouse and then ultimately to a McDonald’slocation.”

Needs are usually more modest, however, andmost companies start with the basics — findingprojects that are both environmentally sustainableand profitable. “As you put more systems in place,and as you grow the business, whatever you canreduce helps,” says J.D. Surrette, vice-president ofSurrette Battery in Springfield, N.S., a supplier tothe renewable energy sector. “If you can integratethem into more of an electronic way, it’s easier tomanage. Some of it is nothing more than trackingthings with an Excel spreadsheet. Other thingsget more involved.”

Surrette uses SYSPRO’s ERP system to handlesome of the more complex chores. “There arethree areas — energy efficiency, waste reduction,and recycle and reuse,” Odete Passingham,marketing manager, SYSPRO Canada, says. “Oneof the ways to help reduce energy would be, forexample, load planning, which helps companiestake delivery loads and reduce the number andfrequency of trucks. Another is factory scheduling,where you can take your materials, your people,and your power, and efficiently allocate thoseresources. Another way for waste reduction isbeing able to forecast — to eliminate surpluses in

inventory, and therefore storage space and so on. Or an electronic datainterchange (EDI), where you can send purchase orders and sales ordersall electronically.”

Specialty tools, which are designed to track and calculate carbonfootprints, are useful, but according to Hepperla, are most effectivewhen used in conjunction with a comprehensive platform. “You can goout and buy an XYZ carbon footprint tool,” says Hepperla, “but it needsto be incorporated as part of a larger platform where you can use it notonly for carbon, but for all the other business reasons you have. Andthat’s where the ROI increases significantly.”

The challenge, according to Hepperla, is not so much in adding upfigures, but setting up a workable system for collecting and accessingdata. “Within an organization that has many disparate sources ofinformation, ongoing tracking becomes a very difficult thing to do,primarily because the information needed to pull together any sort ofsustainability initiative typically exists in many different parts of theorganization that don’t necessarily ‘talk’ to each other.”

Data pertaining to a sustainability initiative, for example, could existin a spreadsheet, in an accounting system, or in a facilities application,and all these sources could be managed by different people withdifferent ways of defining their information. There’s also a need tonavigate the complex and rapidly changing world of comparativeindustry data. “If you look at some of the industry benchmarks acrossindustries,” says Hepperla, “they are radically different. When you lookat your numbers and potentially compare those with other companies inyour industry, you want to know that you’re looking at apples to apples.One of the problems with sustainability right now is that there is notnecessarily any governing source that says that this is how you shouldlook at your emissions. Therefore, if people have questions, they have tobe able to easily understand where the numbers came from, how theywere calculated, and how they’ve been presented.”

These requirements are particularly daunting for smallerorganizations with limited resources. However, as Passingham pointsout, compliance should be handled in conjunction with processimprovement. There’s also a tendency to undervalue IT and itspotential role in making green initiatives profitable. “I think that insmall businesses it is difficult for the owners to really understand howtechnology should be part of the business plan, and not an isolateddepartment,” she adds.

From a global perspective, green initiatives are one more area wherethe business relies heavily on information. “The same needs keepcoming up,” Hepperla says. “You need the data, good data integrity,collaboration, and the ability to connect the dots. And frankly, you needto have a worldwide view.” n

Jacob Stoller, ([email protected]), is a Toronto-based independent writer and researcher.

information technology

The good news from an

accounting perspective is that

green initiatives, if managed

properly, are more likely to help

than hurt the bottom line.

A new level of possibilities for CMAs. The AU Executive MBA builds on the CMA foundation of financial expertise and strategic leadership, and broadens your knowledge and understanding in critical management areas like strategy, human resources, marketing and operations. And with our online flexibility, you can advance your career without putting it on hold. Rise further faster with the Executive MBA that has been ranked one of the best in the world by the Financial Times of London.

AU Executive MBA. Today’s way. 1-800-561-4650. www.mba.athabascau.ca

taking the road less travelled - cpa canada

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