Corporate governance is constraining CEOs in China

30 November 2015 Consultancy.uk

CEOs of the Chinese arms of multinational companies are facing an increasingly challenging business environment. Chinese growth is slowing while regional stock-markets have taken a turn for the worse. Dealing with the situation is hampered for many, according to a recent McKinsey survey, by the need to align key business strategies with those higher up the management chain – executives who in many cases do not find themselves in the best position to oversee key decisions and guarantee agility.

Growth in Asia’s powerhouse economy has been slowing of late, with growth at 6.9% in the third quarter of 2015, the weakest rate since the global financial crisis, and in addition the Chinese Stock market has seen considerable losses recently as investor confidence cracked. One of the consequences of the turbulent times in China is pressure at the top of multinational companies, as their local leaders face growing uncertainties in their respective business environments. As such, CEOs of multinationals in China now find themselves under severe time constraints. 40% say that they do not have the time to respond quickly to the rapid changes in the Chinese market, while a further 40% admit that they are hard pressed to do so.

To identify how the locally situated leaders of the Chinese arms of multinationals are faring, McKinsey & Company surveyed 70 China-based CEOs ('China CEOs'). The companies they lead are some of the largest B2B and B2C players in the country, although 90% are European or US headquartered, generating more than $200 billion in revenue in the region between them. 40% of the heads are Chinese nationals, with a similar number from Europe or North America. Half the CEOs had more than ten years’ experience before taking the lead, while around 30% were new to the region or had been there for less than two years.

China CEOs reporting to HQ

China-based CEO constraints
The survey finds that responding CEOs tend to face two main issues. The first is the large amounts of time required to hit the numbers within the uncertainty of the downturn, combined with building their local teams. The second major issue is navigating themselves through corporate governance structures, with in particular managing headquarters standing out. Headquarters-focussed CEOs spend 40% of their time at or dealing with headquarters, while even locally focused China CEOs spend about 20% of their time at or speaking with the global command centre.

This is because, while many have direct line control over support functions such as branding and corporate affairs, they face direct line reporting in upstream areas like product development, operations, and supply-chain management. As such, fewer than 50% are permitted to make overall strategy decisions for China. Further, independent decisions making about pricing (40%) and product strategy (27%) were even lower, while independent decisions about annual budget, investment stand at 35%, and long-term, multi-year China investment planning at 24%. Hiring and firing was something that China CEOs could autonomously do at 71% of organisations surveyed.

A further complication faced by CEOs in China is the internal reporting hierarchy within the wider business. The survey finds that 41% of China CEOs report to an Asia head, and 20% to the global CEO. The global functional head is the go-to for 16% of the respondents, while 13% report to the business-unit CEO. The McKinsey report highlights that reporting to the regional Asia head can be problematic, as China sometimes accounts for an over-large part of the Asian region’s capacity, thereby increasing the risk that they will duplicate approaches to targeting and reaching customers made at a regional level, along with lengthy planning and decision cycles.

China CEOs reporting to directly

Improving the corporate governance
Given the rapidly changing environment in China, reporting can be a hobble to business performance as China CEOs and their superiors lose time through their correspondence, says McKinsey. The authors highlight that a number of strategies are being considered by those surveyed to provide more speed and agility to China-base CEOs.

These include, removing the regional structure and elevating China to a position equal to that of the rest of Asia, consolidating all Chinese activities under a China CEO with direct access to the global CEO or even bringing a China CEO into an executive position within the company. Some companies are moving full business units and global senior executives to the country to boost leadership ‘power’, while others have created a dedicated China advisory board of senior global executives who coordinate and accelerate the local agenda.

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How First Consulting generates more insight using fewer reports

08 March 2019 Consultancy.uk

Organisations are continuously investing in more advanced data collection and manipulation methods to enable smarter and more informed business decisions. In order to maximise their business value, companies understand the growing need for performance related insights from their data. First Consulting, a consultancy firm specialised in business change, has helped many clients in the utilities sector to deliver effective change through improved use of their data.

Most utilities firms are structured in such a way that every business unit has a team of analysts who are responsible for providing relevant data insights to their business colleagues. The business analysis teams form the link between business decision making and IT by translating business requests into meaningful actions and delivering information via reports.

Typically, the business user will receive a unique report for each information request, with each new report requiring individual, tailored support from the analyst team. This limits the productivity of the analyst teams and minimises their ability to address new data requests. The growing demand for information puts additional pressure on these teams, as a significant amount of time is required simply to gather and update the required data. This has caused reporting portfolios to expand dramatically. However, due to the analysts’ already stretched capacity, reports do not always deliver the most vital information and documentation is often incomplete.

Redesigning information delivery

At First Consulting, business consultants work in close collaboration with their clients to improve the mechanism for the delivery of information and analysis in response to business requests. The improved structure focuses on providing information per role type, rather than per request. As such, one dashboard is designed for each organisational role type, with all the relevant information presented in a single overview. This allows all individuals of a given role type to open a single dashboard and view what they need, as opposed to collating a large range of disparate links and unique reports which, previously, were all required to enable business decision making.

Moving from unique reports for each request, to reusing KPIs in a select group of dashboards

By implementing this new way of working, clients are able to reduce the reporting portfolio from over 100 reports to fewer than 20 dashboards (see figure above). In addition, the capacity for data maintenance can be reduced significantly by using modular KPIs, allowing for the re-use of data across multiple dashboards.

Changing while everyday work continues

In order to deliver effective change, it is essential that day-to-day processes remain unaffected whilst transitioning to a new reporting landscape. First Consulting achieves this by embedding business consultants within the client’s analysis team to gain feedback and determine exactly what visuals are necessary within the dashboards. This focuses effort on the outcome (such as what should be presented in the final dashboard) and allows a broad range of requirements to be considered in the business context and combined, where appropriate.

Key users and stakeholders are involved from the outset to help define what makes a high-quality dashboard. Adopting this approach helps the team to produce an optimal output that contains the key business information for the appropriate roles in an easy-to-use format.

Once it is clear what should be included in the final dashboard and how this should be presented, the team works according to the priorities set out by the product owner. This ensures that analysts work on the requirements which deliver the most value and which form the most coherent dashboards.

Main results

The advantages of implementing straightforward, no-nonsense solutions using fewer reports are particularly noticeable for the business and for the analyst teams:

  • Making adjustments is easier and maintaining and updating data costs less time
  • Management information is displayed in one location and is displayed according to defined standards, facilitating decision making
  • There is greater capacity within the business for complex analysis and project support

First Consulting combines process, technology, and implementation consulting to deliver impactful and value-adding solutions. The firm has more than 200 consultants based in the UK and the Netherlands.