No Match Found
Whether driven by a shift to digital, the ESG agenda or changing regulation, transformation has been a major theme of 2022. And the scale, pace and expectations seem to keep increasing. But delivering that degree of change is a different challenge - especially as resource pinch points, cost pressures and inflation put budgets and scope under scrutiny. This episode, we go behind the scenes of how that change works in practice - and the importance of relationships and trust in making sure everyone feels part of the journey.
Host Rowena Daines is joined by Richard Bailes, PwC UK’s national leader of governance, risk and compliance and Mercedes Bermejo Alvarez, Global Head of Internal Audit for Ferroglobe to use their recent work around internal audit and SOX reporting as a case study for ‘human-led, tech-powered’ transformation.
Rowena Daines: Hello, and welcome to our business in focus podcast. I'm your host, Rowena Daines. As we approach the end of 2022, one of the most significant themes we've seen this year is transformation. Whether in response to ESG, a shift to digital, change in regulations, or especially in recent months, driven by a need for cost-efficiencies, the scale, pace, and expectations seem to only ever increase, but delivering on it is a different challenge. We're still seeing real resource pinch points following the great resignation, and now with rising costs and inflation, budgets are also under scrutiny. Ambitious transformation may feel needed now more than ever, but will the realities of achieving it really push C-suite to lose their long held optimism bias on the opportunity? Well, not necessarily. Today we're going to be taking a closer look at how the methods that you use to achieve your ambition is just as important as that end goal, and we'll be digging into the importance of relationships, and making sure your people are kept part of that journey. Joining me today are Richard Bailes, PwC UK's national leader of governance, risk and compliance, and Mercedes Bermejo Alvarez, global head of internal audit for Ferroglobe. Hello, both, thanks very much for joining us in our virtual studio today.
Mercedes Bermejo Alvarez: Hi, Rowena.
Richard Bailes: Hello, great to be here.
Rowena: Mercedes, the work that you've done at Ferroglobe is going to be a fascinating exploration of the art of the possible. Before we get into the details and specifics of this particular example, I'd like to take a moment just to help set the scene against that balancing act we're really seeing at the moment. Where the internal need for transformation to be more secure, or resilient, to improve the use of technology, and insights, or to drive efficiencies, is really coming up against that market pressure and challenge. Richard, how are we seeing the ambitions of business to transform changing as a result of that current market environment, and its new, or evolving challenges?
Richard: Well, that's quite a big question really. I mean, the space where I focus is really helping organisations design the right shaped, and resilient governance, risk, and control systems. The triggers that I would ordinarily see are very simple, actually. It's firstly regulation. So, by way of example, in the UK the corporate governance standard is evolving to a new expectation that will reveal itself in time. Secondly, transformation. So, most organisations I deal with have some form of digital transformation ongoing, and really those want to be designed right first time from a controls perspective. Then finally, new stakeholder expectations. So, a good example of that might be the disclosure requirements that will be necessary in ESG, for example, by boards in the very near future. There are two sides to this really. One is firstly the desire to be kept safe. So, 'Safeguarding assets,' is a phrase that's often used in my space, but effectively get across the line from a compliance perspective safely. The second is to be efficient and cost effective in what you're doing, which is a lot of what you were alluding to in your build up. This latter aspect is becoming more and more relevant day by day as the macro economic pressures mount.
Many want to stay lean, and they don't necessarily want to retain heads, for example, for certain compliance requirements that they do not see as core to the business. Of course, the compliance outcome is core to the business, but the execution of, say, testing, for example, is not necessarily something that's seen as core. So, there is an increase in appetite of many to have others, third parties essentially, execute on components of, or indeed entire compliance arrangements, in a way that adds value and is cost-effective. This is where the concept of, we certainly are seeing the concept of managed services come in, and can be really helpful.
Rowena: So, it's a really good starter for ten on that overview. This seems like a great opportunity to dig in to more around how this feels and plays out in practice, which is a great time to bring you, Mercedes, in. So, Mercedes, given Ferroglobe have been working with Richard, and our operate managed services teams to transform your approach to SOX compliance testing, can you tell the audience a little bit more about how this came about?
Mercedes: We have been working together now with PwC for four years to mainly deliver the internal control testing required for our SOX attestations. Three years ago we moved from our multi-location local team model to our centralised managed service approach. From our risk and business perspective it was important to us to establish a process which ensured estimisation of the testing process, and assured the quality of the testing results. We understood that estimisation was key to locking in digitalisation as well. To us, digitalisation meant efficiency gains such as better visibility of trends, better ability to monitor, less time spent in testing, and an added process which was less intrusive to Ferroglobe. Overall, I think that we have established a much more efficient SOX testing process.
Rowena: That's brilliant to hear, Mercedes. Richard, do you maybe want to pick up on your perspective on that work?
Richard: Yes. It's been a really interesting journey with Ferroglobe. In many ways the language that we used together at the start of this journey was, 'Could we simplify, standardise, and digitise the way that this programme was being delivered?' If I could just elaborate on that? So, simplify, really what we meant there was, I mean, Mercedes alluded to it, it was a seven territory model, and it had many different control environments that were separate in many ways. So, actually, fundamentally going and looking at what the risk was associated with those controls that were identified, and reducing the volume of controls to a more definable level. Of course, the less you define, the less cost it is to maintain. So, that simplification was really necessary. Then simplification on the programme, as Mercedes said, was really important. If we had one centralised programme lead looking at all of the delivery, it was obviously going to be more efficient than seven different territory leads in each country looking at their own ecosystem. If that makes sense?
The second word I used there was standardise. So, standardise to an extent means developing a common taxonomy, and that allows better insights to come through. I think that point insights is really important, because if there's a common taxonomy, and you can then take themes if you're centrally administering this, you can start to lift themes from, say, a testing of an environment in the IT domain within the US, how that looks and compares to the testing of the IT domain in Spain, for example. These were very important outcomes. Then what that allowed us to do was essentially get from a much more heterogeneous testing system to more of a homogeneous approach, which was a really important outcome in maintaining and driving cost. Then finally, digitise. In many ways we were very lucky. As Mercedes said, we were four years together on this journey so far. In year two, Ferroglobe themselves brought on a technology platform. That allowed us to really accelerate the efficiencies, because it allowed us to then move in and build all of that standardised logic into a common platform which could look across all of their control owners. So, in this type of programme, there are control owners all over their world in different roles, and allow us then to actually drive the programme in a way that had work flow within it.
That final piece, that digitised piece, I think was really the element that allowed the idea of our centralised managed service, if you like, which is delivered through a team in Belfast that we have at PwC, that allowed it to be much more powerful. So, I think what we saw very quickly was actually there was real beneficial outcomes quite early on.
Rowena: So, it sounds like across that simplify, standardise, digitise, lots of moving parts with a project like this, whether it was business continuity around the day to day, or getting all the needed people feeding into the project, and working really effectively together. Mercedes, can I come to you, were there any other areas where you knew getting it right would really help support the success of the overall project, thinking through the learning points that we can flag here for other businesses listening?
Mercedes: So, as Richard said already, for us year two was key in terms of transition. We have always perceived PwC as one company, and I think that during the transition, PwC global network acted as such. The transfer of knowledge to the new team was considered key in the programme, and it was started as part of the programme. During year two, this is basically the year that we moved from the multi-location approach to the centralised testing team, the different PwC components worked collaboratively as one team towards the objective of giving the service as a company. I think that due to this service we were able to move smoothly to the new model, and I've not regretted the move. We always introduced the PwC team as part of Ferroglobe. Our team is known as our internal audit testing team, and this basically my testing team.
Rowena: That's great to hear. Richard, what were the strategic, and logistic steps you prioritised to really create that brilliant client experience?
Richard: I think, just a few reflections. I think dedication and continuity was really important. A lot of this is a people programme, right, and it involves relationships, and nuances. One thing I would say is the continuity of our team was necessary. We couldn't really have this scenario where people were coming in and out as needed. So, therefore, we actually created a very core dedicated team that were multilingual. Having to address different cultural nuances was also important. Programme discipline and change management is essential. If we implement something like this and do not have quite detailed discipline programme protocol then there's a risk that things get loose very quickly, and that's certainly for a company like Ferroglobe, they definitely valued, I believe, that approach. Then the other thing that came through quite quickly was to develop dashboards and insights that could actually hopefully reassure people like Mercedes, and actually beyond within the organisation. That was allowing us in this very complex multi-control testing environment, it allowed us to track very closely the progress, and we could then see where there were spikes, where there were overruns in time, and where there were underruns.
Therefore, we were getting gains in the budget, and actually track both the qualitative effectiveness of the testing itself, but also the progress of the programme. This meant that we were able to react much faster. It's okay to say that, I think it's okay to say, that in the first year it was a very multi-territory, very manual spreadsheet driven approach frankly. What we did is we fully evolved that in to a much more digitised, but also the progress, the programme visuals, and tracking was very much more real time. So, that we could address issues quickly as they arose.
Rowena: So, if I pick up on that last point you just made around that complexity. With many multinationals having clearly very complex organisational structures, and models, and operating on a similar local to local basis, that level of shift to a remote centralised managed services approach, I imagine really takes courage and a real willingness to really try something different. So, it would be good to explore that in a bit more detail. Richard, from the perspective of the team tasked with pushing through that change, and how to approach something as core as compliance, what do you think really made the difference?
Richard: Yes, it's interesting. As I reflect on where we were together, Mercedes, I think it's a really interesting case study, because there was actually a mix of, as I see it, there was a business imperative that was a mix of continuous improvement, right, to make it more efficient, but there was also a necessity. By necessity, to an extent I think about cash, and cost of the programme. Times had got tougher from the first year, and some of the dynamics in terms of raw material prices, and escalations, meant that cash had become king for Ferroglobe. Thankfully, those issues have alleviated over time, but at the time in the second year we really needed to get much more cost conscious. So, actually, we both wanted to improve, and needed to be creative to an extent. They say that necessity is the mother of invention, but I think it's probably to an extent the truth here. What I also noted was, you mentioned the word trust, I really felt it took trust. We already had an established relationship by being, I guess, to an extent, sort of, in the trenches of the challenge of the first year together, and we resolved things together as we went. This made it much easier.
If I was introducing this centralised approach, this managed service approach from day-one to Mercedes, and, you know, a Madrid based team, from an operation that's based in Belfast, that might have seemed probably a harder idea to grasp, but because we had worked through it together we had the trust, and the history. It may sound a little bit corny, but this pioneering spirit is something I think about. We both went into it saying, 'Look, let's take this on. Let's learn as we go, and let's sort issues out as we go.' I would probably say that that spirit of trust, and being as one team, was probably the most important principle that I take with me.
Rowena: Hopefully, Mercedes, you'll agree with all of that. Any reflections to build from your side on that?
Mercedes: No, from me, from my side, I think that we were both committed to make it work, and we worked together as Richard said, as one team. I feel that that is the only way to really trust, be committed and work together.
Rowena: So, that's taken us nearly to out of time. Before we wrap up, we really like to end with a single action, or piece of advice that our audience can take away to the next board meeting, or strategy session. So, Mercedes, what would be your top tip for pushing through this sort of change?
Mercedes: I think that Ferroglobe was never afraid of the change. We managed and understood what was the risk of changing. We knew that the benefit was to improve the service that we, as an internal function, were providing to our company. We got a good partner to make it work, and I think that, as I said before, I will not regret the change. I'm very happy with the service, and I think that if I had to suggest what to do to change, to take this direction again, I would take it.
Rowena: That's brilliant to hear. Richard, what's your top tip, or piece of advice?
Richard: This type of arrangement's a partnership, and it's long-term ideally. I would see it as a three-year journey, not a one-year journey, and it's important to understand that, and to work together to resolve issues as they come. The other thing I would say is that technology today can be a great enabler. I was doing this sort of thing twenty years ago, and technology was a bit more clunky then. It was an on premise type solution. Today we have cloud based technologies which actually can be brought in at the front end of these programmes to allow the programmes to accelerate. I'm seeing that it's quite cost-effective now compared to in the past. So, technology is an accelerator, and also seeing this as a partnership over a longer term than one year, are probably the two things that I would probably advise people to consider.
Rowena: Brilliant. Great place to end on, I think. Thank you, both of you, for your time, and really lifting the lid on what sounds like a fascinating project. For our listeners, for more information on how managed services is being used to solve complex problems of all sorts, please head to pwc.co.uk/services/executionmanagedservices to find out more. Otherwise, thanks to everyone for listening. Don't forget to subscribe to keep up to date with future episodes. Thanks again, and goodbye.