Practical finance applications Practical finance applications for HRfor HR- and why it is business - and why it is business criticalcritical
PPhilip Chow hilip Chow 周子诺 周子诺 [email protected]@gmail.comhttp://t.qq.com/tmsphilipchowhttp://t.qq.com/tmsphilipchowtmsphilipchow.blogspot.hktmsphilipchow.blogspot.hk
“The Strategic Talent Management Model”
Corporate Branding-Best practices- public recognitions - local /overseas awards - publicity in medias - Icons
Succession Planning-Hi performers-Career choices-Development programs - Sr mgt mentorship - BSC w/ KPIs - Assessment panel - mentee > mentor -
Strategic Partner-BD involvement-L&D / Performance review provision- Service, OD models-BSC, KPIs- strategic workshop - strategy /culture map-Staff survey
Training & Development- technical & mgt competence analysis- training curriculum- project mentoring- mgt process models-- certification & awards
Com and Ben-Market intelligence-Reward for the best-Educate and outplace worst- continuous reward the best- retention
Performance Review -BSC and competence base - career planning - rating/feedback t standardization - hi/lo performers - continuous monitoring
Recruitment-Job description- structured interview- interview template- assessment centers and tool-S r. mgt buy-in- performance follow up
Competence
Compensation, performance review – HR meets Finance
Some basic definitionsSome basic definitions
Sales Expenses Profits- =
SalariesPeople cost
Non-people cost
Traditionally HR’s key concern…
Figures in HK$ millions
TV Station and Furniture TV Station and Furniture MakerMaker
Salaries 1,533 687
Total expenses 3,261 3,177
Salaries as % ofexpenses
47.0% 21.6%
TV Station Furniture Maker
Q: Assuming a 5% increase in salaries, which company will suffer a steeper decline in profits?
+5% salaries -77 -34
New profit 2,110 65
Fall in profit -3.5% -34.7%
Sales 5,448 3,276
TV Station Furniture Maker
Salaries 1,533 687
Total expenses 3,261 3,177
Salaries as % ofexpenses
47.0% 21.6%
TV Station and Furniture TV Station and Furniture MakerMaker
Profit 2,187 99
Profit margin 40.1% 3.0%
Same answer?
+5% salaries -77 -34
New profit 2,110 65
Fall in profit -3.5% -34.7%
Sales 5,448 3,276
TV Station Furniture Maker
Salaries 1,533 687
Total expenses 3,261 3,177
Salaries as % ofexpenses
47.0% 21.6%
TV Station and Furniture TV Station and Furniture MakerMaker
Profit 2,187 99
Profit margin 40.1% 3.0%
Operating leverage
How salary rise affects profit depends on◦Salaries as % of total expenses◦Operating leverage/company profit margin
A life-and-death gatekeeping A life-and-death gatekeeping rolerole
Port terminal 34.8% 15.3%
Margin %Salaries as %of expenses
TV station 40.1% 47.0%
Restaurant 8.8% 29.4%
Property agency 11.3% 61.6%
Export factory
Fall in profitsif salaries +5%
3.0% 21.6%
-1.4%
-3.5%
-15.3%
-24.2%
-34.7%
“The Strategic Talent Management Model”
Corporate Branding-Best practices- public recognitions - local /overseas awards - publicity in medias - Icons
Succession Planning-Hi performers-Career choices-Development programs - Sr mgt mentorship - BSC w/ KPIs - Assessment panel - mentee > mentor -
Strategic Partner-BD involvement-L&D / Performance review provision- Service, OD models-BSC, KPIs- strategic workshop - strategy /culture map-Staff survey
Training & Development- technical & mgt competence analysis- training curriculum- project mentoring- mgt process models-- certification & awards
Com and Ben-Market intelligence-Reward for the best-Educate and outplace worst- continuous reward the best- retention
Performance Review -BSC and competence base - career planning - rating/feedback t standardization - hi/lo performers - continuous monitoring
Recruitment-Job description- structured interview- interview template- assessment centers and tool-S r. mgt buy-in- performance follow up
Competence
Sales as a KPI –how to Sales as a KPI –how to cheat…cheat…
Sales 2,704 2,076 +30.3%
2010 2009 Change %
Profit 272 226 +20.2%
Profit Margin 10.06% 10.91% -0.84%
Net assets 2,303 1,518 +51.8%Good year for company M. Sales +30%CEO asks Chairman for performance bonus
Should he get it?
Sales as a KPI –how to Sales as a KPI –how to cheat…cheat…
Sales 2,704 2,076 +30.3%
2010 2009 Change %
Profit 272 226 +20.2%
Profit Margin 10.06% 10.91% -0.84%
Net assets 2,303 1,518 +51.8%
Profit increase less than sales increase“Cheating” with expenses
Sales as a KPI –how to Sales as a KPI –how to cheat…cheat…
Sales 2,704 2,076 +30.3%
2010 2009 Change %
Profit 272 226 +20.2%
Profit Margin 10.06% 10.91% -0.84%
Net assets 2,303 1,518 +51.8%
Performance measurementshould also refer to profit margin
Sales as a KPI –how to Sales as a KPI –how to cheat…cheat…
Sales 2,704 2,076 +30.3%
2010 2009 Change %
Profit 272 226 +20.2%
Profit Margin 10.06% 10.91% -0.84%
Net assets 2,303 1,518 +51.8%
Assets +50% - e.g. 50% bigger factory;+50% uncollected cash from customers
What is wrong with more assets?
Collecting CNY5,950mil meansInterest income of 200mil per year from
bank depositsInterest expense savings of 400mil per
year – if used to repay debtsUse cash for business development –
returns = ????Opportunity costs! All things equal
companies should strive to be asset light…
A A ccertain PRC company’s accounts ertain PRC company’s accounts receivables – ie. Uncollected cashreceivables – ie. Uncollected cash
22,720m CNY 16,770mil +5,950mil
2012 2011 Change
Sales as a KPI – how to Sales as a KPI – how to cheat…cheat…
Sales 2,704 2,076 +30.3%
2010 2009 Change %
Profit 272 226 +20.2%
Profit Margin 10.06% 10.91% -0.84%
Net assets 2,303 1,518 +51.8%
Return onnet assets
11.82% 14.92% -3.10%
Performance measurement shouldrefer to return on net assets too
Assets +50% - grew faster than sales and profitShould be penalized
Sales as a KPI – how to Sales as a KPI – how to cheat…cheat…
Sales 2,704 2,076 +30.3%
2010 2009 Change %
Profit 272 226 +20.2%
Profit Margin 10.06% 10.91% -0.84%
Net assets 2,303 1,518 +51.8%
Return onnet assets
11.82% 14.92% -3.10%
Performance measurement shouldrefer to return on net assets too
Some basic definitionsSome basic definitions
Profit
Net assets
Return onnet assets
____________ =
AP Moeller Maersk – World’s #1 shipping company
Returns as a KPI – widely Returns as a KPI – widely employed by MNCsemployed by MNCs
ConclusionConclusionOperating leverage – A small
increase in salaries can completely wipe out profits
Setting KPIs – Sales growth is easy to cheat! Refer to expenses and assets also
Where do I find all these?
Sales
Profits
A variety of expenses, some other items too
Where do I find all these?
Usually “hard”labour – e.g. factory
Head office costs,salespersons, etc
More details in the footnotes
Directors’ rewards as well…
Assets/Liabilities on the balance sheet
Assets Liabilities Net assets- =
Other topics I talk about…Other topics I talk about…Capital raising – China and overseasBest investor relations practicesCyclical industry analysis
