We’re interviewing leading members of the CGMA community to gain their insights into future ways of working within organisations.
Nick Read is Group CFO for UK-headquartered telecommunications multinational Vodafone. Mr Read outlines some of the challenges facing the organisation as it moves to a more open workforce.
How has your approach to the open workforce evolved?
We used to outsource a complete activity. For example, with application development we might partner with an IBM / HP or an Accenture to do the whole thing for us. We’ve now had to become more sophisticated in terms of what sits in-house and what is outsourced ensuring that we retain key skills and capabilities that help us manage our partners effectively.
What has driven that change?
We found that we lost a degree of control when we outsourced whole activities and we found that the quality, speed and cost weren’t at targeted levels. We have now rebalanced our relationships ensuring that key knowledge areas, such as architectural design, project definition and program delivery activities are retained in-house as core skills.
How challenging is it to ensure external partners share your values?
If a firm wants to be a strategic partner to us, then clearly they need to meet some minimum requirements as a starting point. As an example, our code of conduct would be embedded within the way they do business with us and how they do business with the market. It is our view that having a strong code of conduct enhances our relationship with partners by adding both clarity to what we expect of them and what they can expect of us as a trusted customer.
And how do you enforce that?
If we look at Health & Safety as an example, we have three levers to support enforcement. Firstly at the tender stage we assess our partner’s safety plan and this is given a 15% weighting in the evaluation process, which is significant. Secondly, whilst the contract is running we have developed a card system whereby partners will receive a yellow card if we find discrepancies or a red for a serious issue or breaches of our code. If a yellow card is issued then work is suspended until the partner resolves the problem and a red card means all work packages are stopped and a halt on all new potential work can also be called. Thirdly to add balance, we also recognise our partners who achieve high levels of performance and make public awards on an annual basis.
Is it difficult to achieve visibility over those firms?
It is fundamentally about reporting requirements. Once a partner becomes material to us, the requirements they must meet are substantial, including reporting. Clearly we need a demonstration of value add, so we need to understand the components that build that value add, which is more than cost components, including areas such as innovation or time to market advantages on technology. We have a number of global reporting systems and processes already in place and we are currently building our next generation of management tools to help increase visibility and transparency of supplier performance.
Will you look to a different set of indicators to measure performance in future?
We need a blend of financial, commercial and operational measures. I think a CFO must have a balanced scorecard of metrics and be able to articulate the business through the balanced scorecard, so for example, being able to say “we see this behaviour from our customers, which is having this operational impact, and the resultant financial implication is this”. This approach is also valid for our key strategic partners, where we use balanced scorecards in both the initial selection process and also in the evaluation of their performance which we assess formally every six months. In this process we measure 5 key performance pillars: Health & Safety; Sustainability; Quality; Delivery & Commercial, thus gaining a balanced view of performance.
What are the biggest risks you encounter with strategic partner relationships?
We have to be very clear about intellectual property (IP). This is especially true in our business where we create IP with some of our key partners in dedicated innovation labs. Accordingly, we are very clear with our supplier partners from the beginning, ensuring what IP we will or won’t own from the outset and making this contractual, as it is a lot easier to have that conversation before you’ve awarded the business!
As a telecoms company, data risks must be front of mind too?
We have a lot of people that are a virtual member of the Vodafone team, sitting in our strategic suppliers, providing services to our customers or teams with access to important data. We have very strict user access management rights and physical security provisions in place. The requirements in protecting data are fully embedded in our contractual relationships with partners and they are very aware of our compliance requirements which are non-negotiable.