17 February 2004
CIMA has just made a major contribution to an innovative study on the causes of corporate success and failure by developing the 'Strategic Scorecard'.
CIMA is playing a key role in improving corporate governance by joining forces with IFAC (International Federation of Accountants) to release an original report on the emerging concept of enterprise governance. The published report, Enterprise Governance: Getting the Balance Right, includes an in-depth analysis of corporate successes and failures in 27 case studies in 10 countries. This leads to several valuable conclusions about the causes of each example/case.
As part of this report, CIMA has developed a Strategic Scorecard as a means of avoiding the sort of strategic failures that were apparent in the case studies. These showed that companies were particularly vulnerable at times of transformational change and that there was a real need for improved strategic oversight.
The Strategic Scorecard is a pragmatic means of addressing what CIMA terms the strategic oversight gap. It covers four key elements of the strategic process: has four basic elements: strategic position, strategic options, strategic implementation and strategic risks.
The Strategic Scorecard is not a detailed strategic plan. Its aim is to give the board a true and fair view of the company’s strategic position. It helps the board to understand the company’s strategic position, identify the key decision points and then the timing of strategic options, milestones in strategic implementation together with the identification and mitigation of strategic risks.
Bill Connell, Chairman of IFAC’s Professional Accountants in Business (PAIB) committee and Chairman of CIMA Technical Committee, said:
"Unlike the corporate governance dimension, there are typically no dedicated oversight mechanisms or ways of checking such as audit committees in the arena of strategy. Several of the high profile case studies in this report fell into difficulties as a consequence of their strategic choices. There is a danger that in the laudable attempt to improve standards of control and ethics, insufficient attention is paid to the need for companies to create wealth and ensure that they are pursuing the right strategies to achieve this. It is quite easy and common for boards to fall into the trap of getting immersed in detail at the expense of focusing on overall strategic risks and future opportunities that drive long-term shareholder value."
The Strategic Scorecard is a pragmatic tool to assist boards to:
Bill Connell added:
"The Strategic Scorecard provides a useful framework for boards to improve their strategic effectiveness. This falls somewhere between the controversial establishment of a strategy committee and the inappropriate reliance on the balanced scorecard for transformational change. In fact, the Strategic Scorecard is complementary to both these approaches as well as many other strategic tools and techniques. The purpose of the Strategic Scorecard is to set out the landscape and allow a state of preparedness."
The telecoms industry provides a good example of the consequence of strategic failure and the "oversight gap" that may have been filled by the Strategic Scorecard approach. The report highlights Marconi, whose shares were suspended in 2001. At the time, commentators suggested that the directors were slow to admit to themselves that the company was heading for trouble despite clear evidence to the contrary (profits warnings by other competitors, the peaking of the stockmarket and European mobile phone auctions that left its customers strapped for cash).
A more positive example of how a change in boardroom decision-making processes can reverse the fortunes of a company is Tesco. Having bought a chain of supermarkets in France that proved unprofitable, they learnt from their mistake and exited France swiftly. They redefined their acquisition strategy and over the last ten years have grown by merger to make major profitable inroads into the emerging markets of central and eastern Europe and the far east. The key to this change of fortune was having a board that learnt from its mistakes, truly understood its strategic position, options and risks and had the information to take major strategic decisions quickly."
Bill Connell also said:
"The tools and techniques that can be used to ensure effective enterprise governance, such as the Strategic Scorecard are very much the domain of the professional accountant in business. The challenge is to ensure that the quality of information being delivered to the board is understandable, reliable, relevant and timely."
He concluded:
"We do not pretend to present a guaranteed formula for success. However, greater attention paid to strategic oversight, through the use of the Strategic Scorecard, will go some way towards ensuring both effective corporate governance and performance. We look forward to working with a number of organisations who would like to adopt the Strategic Scorecard approach.
For further information please contact Lottie Muir, Press Manager, CIMA, on +44 (0)20 8849 2407 or email jasmin.harvey@cimaglobal.com
Enterprise Governance is an emerging term, which describes a framework covering both the corporate governance and the performance management aspects of an organisation. The definition chosen by this report as its starting point defines Enterprise Governance as "the set of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately and verifying that the organisation’s resources are used responsibly." (Information Systems Audit and Control Foundation, 2001).
Enterprise Governance: Getting the Balance Right includes 27 case studies from 10 countries. These countries are Australia, Canada, France, Hong Kong, Italy, Malaysia, the Netherlands, Thailand, the United Kingdom and the United States. 10 industries were covered including telecomms, retailing, financial services, energy and manufacturing.
IFAC (International Federation of Accountants) is the global organisation for the accountancy profession. It works with its 159 member organisations in 118 countries to protect the public interest by encouraging high quality practices by the world’s accountants. IFAC members represent 2.5 million accountants employed in public practice, industry and commerce, government and academia.
CIMA’s Strategic Scorecard appears in Enterprise Governance: Getting the Balance Right. The Professional Accountants in Business Committee (PAIB) of IFAC has prepared this report.. The PAIB Committee serves IFAC member bodies and the more than one million professional accountants worldwide who work in commerce, industry, the public sector, education, and the not-for-profit sector. Its aim is to enhance the profession by encouraging and facilitating the global development and exchange of knowledge and best practices. It also works to build public awareness of the value of professional accountants. The PAIB Committee was formerly called the Financial and Management Accounting Committee.
CIMA members are Accountants in Business. We represent financial managers and accountants who work in industry, commerce, not-for-profit and public sector organisations. Our key activities are related to Business Strategy, Information Strategy and Finance Strategy. CIMA members are not trained in audit.
CIMA's focus is to qualify students, support members and employers, and protect the public interest. We represent the voice of over 77,000 students and 60,000 members in 154 countries.
CIMA's focus on management functions makes us unique, and we are internationally recognised as offering the financial qualification for business.
CIMA is 'rapidly becoming the chartered qualification of choice' according to recent independent research*, and we work with leading employers in the UK and around the world to train and qualify financial managers. We pride ourselves on the commercial relevance of our syllabus, which is continually enhanced to reflect the latest developments in business. In an age of growing globalisation and intensified competition, the Chartered Management Accountant is fully prepared to meet the need for timely and accurate financial information.
Our members and students work across all business sectors at all levels throughout the world, demonstrating the flexibility of the qualification.
