Auditing Corporate Strategies

Transcription

1 Auditing Corporate Strategies Beyond traditional auditing Mohamad Nassar - Grant Thornton 10 November 2016

2 What is a Corporate Strategy audit? A strategy audit involves assessing the actual direction of a business and comparing that course to the direction required to succeed in a changing environment.

3 Why conduct a strategy audit? When everything is clearly strategic, often nothing strategic is clear. When everything is designated as a high priority, there are, in reality, no priorities at all. The objectives: To evaluate the methods, tools, channels and mechanisms that were applied to identify and set the organizational objectives To evaluate the process of transformation of objectives to strategic directions and plans To ensure that the right people were engaged in the process to generate the right inputs and filter the right outputs of the process To arm managers with the tools, information, and measurements to evaluate the degree of advantage and focus provided by their current strategies Produces the data needed to determine whether a change in strategy is necessary and exactly what changes should be made.

4 Why do we rarely see Corporate strategy audit assignments as part of Internal Audit plans? Maybe because: a. Internal auditors are not competent/ trained enough to handle this critical area. b. Top management/ owners do not allow / accept to be challenged with regards to this sensitive area. c. There are no real scientific well structured strategic planning processes to be audited. d. All of the above

5 What is the problem? The majority of the audit plans if not all focusing on (Traditional Audits) which is all about testing and examination of controls and risks related to: Cash & Banks payments ad receipts Revenues & sales Procurements & controls Human resources Projects IT controls Asset management Other operational & environmental processes But very rare audit plans get into action to challenge: 1. Corporate strategies development and execution 2. Disaster Recovery and Business Continuity 3. Enterprise Risk Management

6 Observations: Internal audit functions fail to build an audit plan from company objectives. This is mainly due to: - the fact that the strategies remains in the range of being hopes and dreams rather than real directions for moving forward. - absence of treating the root causes of risks related to strategy Audit Committees rarely move towards encouraging their internal audit functions to shift the audit focus from traditional to non-traditional audits gradually till it reaches the level of 50/50 to maintain a tangible contribution to the organization strategy setting and monitoring processes and this is where the real added value. Accordingly, audit findings will continue to happen again and again no matter the number of times the traditional audits takes place raising almost the same recommendations.

7 Strategic Planning Life Cycle

8 Causes of Failures/ Downfalls/ Loses Vs Audit Coverage Finnacial & Operational Risks 18% Audit Coverage for strategic risks 5 7% Strategic Risks 82% Audit Coverage for financial and operational risks 95 97%

9 Causes of Failures/ Downfalls/ Loses Board Lack of vision Unrealistic objectives Lack knowledge about methods, tools and mechanisms to develop a strategy Lack of full awareness about the market, competitors, internal capabilities on the short and long run Inconsistency / Continuous changes leads to loss of credibility in strategies Poor or absence of follow up mechanism and reporting system Management Weak or no involvement in strategy development Lack of tools to turn Strategies to plans then to execution Absence of measurement tools to detect deviations Poor information system Poor communication horizontally and vertically Loss of trust and credibility of the whole process as a result of continuous changes People Lack of information about strategies In ability to link strategies to actual practices Absence of feedback tools Loss of trust

10 How to conduct a strategy audit? The examination and evaluation of a Corporate s Strategy should mnt be designed to provide assurance on the methods and techniques used by the strategy developers to understand, analyze, apply and formulate a set of strategic objectives and turn them to realistic, practical, and attainable strategic directives and plans. The Strategy Audit is normally conducted on two levels: 1. The External Assessment 2. The Organizational Assessment

11 Part 1: The External Assessment Step 1: Understand the external environment at a macro level Capital markets Industry capacity Technological factors Pressure from substitutes Threat of new entrants Economic factors Political factors Regulatory factors Geographic factors Social factors

12 Part 1: The External Assessment Step 2: Understand the industry/sector components in detail Competitors Customers Stakeholders. Questions that should normally be asked of each key competitor include: BUSINESS REVIEW Strategy Issues What is the strategy of each competitor? Where do they appear to be heading? What is their business emphasis? Do they compete on quality, cost, speed or service? Are they niche or global players? Capabilities What do they do better than anyone else? Where are they weaker than others? Where are they the same as others? Business Objectives Who are their primary customers? What types of business do they not do or say no to? Who are their major partners? Why are they partnering? What do they gain from it? What are they doing that is new or interesting?

13 Part 1: The External Assessment Questions that should normally be asked of each key competitor include: FINANCIAL REVIEW Financial Strength - Internal How much cash does each competitor generate annually? What are the drivers behind their financial success (from a cash perspective)? How do they allocate resources (funds)? How fast are they growing and in what areas? Strength as Perceived by Capital Markets Are competitors resource constrained or do they have strong financial backing? Is this perception consistent with the internal analysis? Why or why not? How has the company performed in the financial markets? Why? What constraints/opportunities do they have with respect to financial markets? Why?

14 Part 1: The External Assessment Questions that should normally be asked of each key competitor include: ORGANISATION REVIEW Top Management Organisation People Culture Has management kept the company at the forefront of the industry? Why or why not? Are the key players seen to be moving the company forward? Is the company centralized or decentralized? Does the corporate parent act as a holding company or as an active manager? Is the organization perceived as being lean and able to get things done? How many people are employed? Is the company overor under-staffed? Are people managed to achieve mainly business objectives, human objectives or some of both? How does this affect the company? What skills are emphasized during recruitment? Is the culture results-oriented? Bureaucratic? Flexible?

15 Part 2: The Organizational Assessment Once the company's environment has been examined and analyzed, managers should consider the qualities and characteristics of the organisation itself that influence what can be accomplished in terms of strategy. This section is about organizational assessment. The following approach will provide insights into the effectiveness of the company's current strategy, and provide guidelines for increasing strategic effectiveness.

16 Part 2: The Organizational Assessment Strategy Clarification the direction of the business in the market Internal capabilities and resources framework or criteria for making strategic decisions in the future. If people at any level of a business are unclear about any of these areas, it is difficult for them to focus their attention, cooperate with other teams, and organise their efforts to gain competitive advantage in the marketplace. Business Processes the overall work flow within a company and includes the policies, procedures, rules, programs, controls..etc A good process analysis will help a leadership team to see what must be done given the company's strategy, and how those processes can be improved. Culture the set of shared values and beliefs that influence behavior and direction over time. the management philosophy and operating style The above must be determined in order to ensure alignment and execution of the strategy.

17 Part 2: The Organizational Assessment Capabilities the capabilities needed to execute the strategy must be determined. the current level of ability in terms of those capabilities must be assessed. Organisation design and resourcing alignment between: - the environment - the strategy - the skills required to achieve that strategy, and - the organisation structure. Without knowing what capabilities should be focused on and improved, competitive advantage will be difficult to achieve. Without the above alignment no matter what strategy is declared in fancy meetings it will remain as just hopes.

18 Concluding the audit Having completed each of these assessments, findings and deficiencies must be reported and the conclusions from the Strategy Audit are presented and discussed at a seminar with the management. Suggestions on adjustments in the business plan are discussed. The objective of the seminar is to reach a shared commitment from the management team to the vision and the prioritized strategies for the company s future development.

19 Concluding the audit The most common mistakes made by teams conducting business strategy audits: Assigning the wrong people to the assignment Expecting all data to be equally useful and reliable Report audit findings to the wrong parties Not obtaining the top management / the Board buy in to the audit process Failing to communicate audit findings and strategy changes to people throughout the organisation is a clear and simple language Failing to maintain a follow up on the mitigation of the audit findings and the implementation of the action plans

20 Q & A