reviewing corporate diagnostic models and applying for finance amp planning department vinaconex

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Dao Quynh Anh REVIEWING CORPORATE DIAGNOSTIC MODELS AND APPLYING FOR FINANCE & PLANNING DEPARTMENT- VINACONEX MASTER OF BUSINESS

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Dao Quynh Anh

REVIEWING CORPORATE DIAGNOSTIC MODELS AND APPLYING FOR FINANCE & PLANNING

DEPARTMENT- VINACONEX

MASTER OF BUSINESS ADMINISTRATION THESIS

Hanoi – 2011

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Dao Quynh Anh

REVIEWING CORPORATE DIAGNOSTIC MODELS AND APPLYING FOR FINANCE & PLANNING

DEPARTMENT- VINACONEX

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Vu Anh Dung

Hanoi – 2011

TABLE OF CONTENT

ACKNOWLEDGEMENT i

ABSTRACT ii

LIST OF FIGURES xii

LIST OF ABBREVIATIONS xiii

INTRODUCTION 1

1 Necessity of the thesis 1

2 Research aim and objectives 2

3 Research questions 2

4 Research methodology 3

5 Scope of the research 3

6 Significance of the research 4

7 Thesis structure 5

CHAPTER 1: OVERVIEW OF CORPORATE DIAGNOSTIC AND MODELS 6 1.1 Corporate diagnostic overview 6

1.1.1 Corporate diagnostic definition 6

1.1.2 Why a corporate diagnostic is so important 7

1.2 Corporate diagnostic process 8

1.3 Corporate diagnostic models 9

1.3.1 Theoretical models 10

1.3.2 Models of consulting firms 19

1.4 Chapter Review 24

CHAPTER 2: ANALYSIS ON F&P DEPARTMENT’S OPERATION OF VINACONEX 27

2.1 Overview of F&P Department-Vinaconex 27

2.1.1 Overview of Vinaconex 27

2.1.2 Overall of Vinaconex F&P 30

2.2 Analysis on F&P’s operations 32

2.2.1 Strategy 32

2.2.2 Organization structure 33

2.2.3 Process 35

2.2.4 Human Resources 64

2.3 Chapter review 72

CHAPTER 3: RECOMMENDATIONS TO IMPROVE F&P’S OPERATIONS 75 3.1 Recommendations of strategy, organization structure, human resources and process 75

3.1.1 Strategy 75

3.1.2 Organization structure 75

3.1.3 Process 76

3.1.4 Human resources 82

3.2 Action Plan 82

3.2.1 Strategy 83

3.2.2 Organization structure 84

3.2.3 Process 84

3.2.4 Human resources 88

3.3 Top 15 Activity Prioritisation 91

3.4 Chapter review 92

CONCLUSION 94

APPENDIX 97

REFERENCES 99

LIST OF FIGURES

Figure 1.3: Organizational performance model of David P Hanna 15

Figure 1.5: Organization intelligence model of Falletta 17

Figure 2.1: Vinaconex’s output from 2005 to 2010 30

Figure 2.5: Prepare principal &interest payment request and report procedure 39

Figure 2.9: Capital Contribution and Financial Ratios Report 45

Figure 2.12: HO Financial statement preparation process 50 Figure 2.13: Financial Report Consolidation process 51

Figure 2.18: Positive comment on working conditions 70 Figure 2.19: Negative comment on working conditions 71

LIST OF ABBREVIATIONS

1 AR/AP: Account receivable/ Account payable

2 BOM: Board of Management

3 CEO: Chief executive officer

4 ERP: Enterprise resource planning

5 F&P: Finance and Planning Department

6 FS: Financial report

7 GD: General director

8 HO: Head office

9 HOD: Head of department

10 IFRS: International Financial Reporting Standard

11 KPI: Key Performance Indicator

12 L&B: Lending and borrowing

13 PMO: Project management office

14 PMU: Project management unit

15 VAS: Vietnamese Accounting Standards

1 Necessity of the thesis

Vinaconex is one of Vietnam’s leading organizations, in terms of size, brand and quality As the world’s global marketplace emerges from the recent financial crises, it will be a key task of Vinaconex to continue its focused expansion, concentrate on profitable business ventures and core-business strategy, and manage its internal and external capital appropriately

Vinaconex governance structure was developed since privatisation of the corporation late 2006 The structure and culture, as a result, inherited several characteristics of the old regime On one hand, this inheritance could be advantageous to maintain stable structure to support growth On the other hand, Vinaconex management should always beware of the characteristics which are no longer suitable in the new business context and need to be replaced gradually to allow stronger development

F&P’s function is planning, budgeting and managing financial issues of Vinaconex in order to support the decision making procedure Therefore, a key success factor will be a competent, value-added and proactive F&P function to support Vinaconex’s business objectives

It is noted that F&P department has been changing rapidly in performance and cooperation with both other departments at HO and subsidiaries for the last two years The feedback from service users which F&P provides is relatively good However, there is several areas to improve in F&P functions to achieve both F&P objectives and the Board expectations

Therefore, the diagnostic assessment to identify F&P’s areas for operation improvement is essential By diagnostic reviewing, the thesis will provide recommendations and action plans for increasing F&P effectiveness

The diagnostic models reviewing is not only useful for F&P application but also can be applied for a number of other enterprises While Vietnam has joined WTO and the competitiveness of domestic and foreign enterprises is increasing, it is essential that Vietnamese enterprises have to raise their performance to boost competitiveness However, it is the fact that many Vietnamese companies are operating inefficiently due to their old inappropriate structure; process and weak capacity or the business are developing too fast which leads to uncontrol of BOM

In addition, Vietnamese firms have little experience in diagnostic assessment; this thesis would be a good practice for other businesses to apply for improving their performance

The objective of this thesis is reviewing corporate diagnostic models and chooses one model which is appropriate for applying into F&P, Vinaconex By reviewing its operation, this thesis will show F&P’s gaps and give recommendation

to improve F&P’s effectiveness To achieve this goal, the thesis will (1) research diagnostic process as well as reviewing diagnostic models in both theoretical and practical side and choose one suitable model for applying F&P (2) give an overview of F&P and its operation in some fields which is shown in the chosen model In particular, the author presents the findings of weakness and causes of the problem (3) The author offers recommendations for improvement operation and a proposed an action plan in the short, medium and long term to solve the root cause Finally, the authors have compiled a list of priority actions

To find out the weakness in F&P’s operation, this thesis should answer the

following questions:

• Major research questions:

o Which diagnostic models should be used to review F&P?

o How to improve the operation of the F&P?

• Minor research questions:

o What are diagnostic assessment and its process?

o What are the weaknesses of F&P’s operation?

o What are the root causes of these gaps?

o What actions is needed to improve the operation of F&P

o Which one should be prioritized?

The research methodology is used in this thesis is case study and this methodology meets the research’s objective Data used in the thesis were taken from both realisable secondary data about F&P’s operation collected in the process

of working with F&P and primary data collected from interviewing head and staff

of F&P about its strategy, structure, processes and human resources and from author’s observation

There are a number of techniques used to conduct a case study research which including:

• Interviewing staff and expert

• Economic statistic method

• Methods of description and comparison

The thesis focused on diagnosis assessment for F&P, Vinaconex before 2011 and to propose recommendations to improve its operation’s effectiveness To conduct this thesis, the author has collected documents about business operation of F&P and researched about diagnostic models in both theory and practice of well known consulting firm as well as best practices in the world The purpose is to compare and analyze these models to find the one which is suitable and appropriate

to apply in this case of F&P, Vinaconex The thesis focuses on the following main points:

• Find the definition and process of corporate diagnostic In addition, the thesis reviews six diagnostic models including four commonly used diagnostic models and two models of McKinsey and KPMG- two big firms in consulting industry After analyze these models, the author choose the most appropriate one to apply for F&P

• Conduct a fact-finding about strategy, structure, processes and personnel Find out the weakness point and root cause of the limitation

• Propose recommendations for improving strategy, structure, processes and personnel In order to make these recommendations more practical, the authors proposed an action plan with specific time frame for short term (three to six months), medium (less than 12 months) and long-term (one to three years)

This thesis has significant theoretical and practical value In this thesis, the author has provided a number of well known corporate diagnostic models from

1955 to 2008 Additionally, the author has compared these models to see the difference and change in the perspective of reviewing a business diagnostic after half a century Besides, by providing the methodology of the famous consulting firms has brought the real insight and to make the thesis be more practical to real business world As well, this is a very new topic for Vietnamese thesis and the number of research about this topic is so limited This thesis is useful for:

• Management of Vinaconex in general and of F&P in particular By conducting a diagnostic assessment, F&P’s leaders can see the gaps and solutions to improve these issues

• Managers of other companies: the thesis provides a methodology of corporate diagnostic for other enterprises to conduct diagnostic assessment Based

on the same business environment and same old style of management, most of Vietnamese enterprises suffer the same issues in operation Therefore, managers of other businesses can see the case of F&P as an typical case to study and consider to apply a number of recommendations to improve their businesses

• Other researchers such as professionals, MBA’s candidates and students who look for a methodology to improve enterprise’s operation

Chapter 2: Analysis on F&P Department’s operation of Vinaconex This chapter conducts a fact-finding about strategy, structure, processes and personnel Find out the weakness point and root cause of the limitation

Chapter 3: Recommendations to improve F&P’s operations This chapter proposes recommendations for improving strategy, structure, processes and personnel in short, medium and long term

Chapter 1: Overview of corporate diagnostic and models

Chapter 2: Analysis on F&P Department’s operation of Vinaconex

Chapter 3: Recommendations to improve F&P’s operations

CHAPTER 1: OVERVIEW OF CORPORATE DIAGNOSTIC AND

MODELS

1.1 Corporate diagnostic overview

1.1.1 Corporate diagnostic definition

Organizational diagnosis is a process based on behavioral science theory for publicly entering a human system, collecting valid data about human experiences with that system, and feeding that information back to the system to promote increased understanding of the system by its members The purpose of organizational diagnosis is to establish a widely shared understanding of a system and, based on that understanding, to determine whether change is desirable (Clayton

P Alderfer, 1976)

Inevitably, the organizational diagnosis has a tendency to provoke change in a human system, but the perspective presented here distinguishes the aims of diagnosis from those of planned change According to the present view, diagnosticians attempt to change an organization only as far as is necessary to accomplish the purpose of diagnosis Otherwise they do not attempt to promote change, no matter how promising are the opportunities that seem to present themselves

This stance regarding change during diagnosis combines an understanding of organizational behavior with a value position regarding effective professional work

in applied behavioral science The work of organizational diagnosis may require the professional to work with the organization as a whole—including organization-environment relations, groups inside and outside the organization, and individuals whose lives are shaped by the organization and who in turn determine the nature of the organization

As a result, theory relevant to individuals, groups, and the organization as a whole is crucial to diagnostic work Simply to survive, the professional must know

how to develop and to maintain working relationships with the system and its major components To complete the work of understanding a system, the professional must know what data to obtain, how to collect it, and how to feed it back to the system to promote understanding

Because resistance to inquiry is a common human characteristic, diagnosticians are ill equipped if they cannot identify and work through resistances

to their work

Therefore, without skills to effect change, diagnosticians' capacity to complete the diagnostic mission may be blocked by the very processes they are attempting to understand On the other hand, normally occurring client resistance cannot become part of the consultants' justification for acting unilaterally and arbitrarily in the face

of that resistance Consultants who aspire to excellence in their diagnostic work cannot achieve this goal without client cooperation

By stating and then maintaining that the initial work with a client system is diagnosis, consultants provide clients with bases against which they (the consultants) can be held accountable Consultants also provide a means for protecting themselves against excessive and unproductive demands by clients during diagnosis This approach sets limits on how consultants will use their skills and knowledge during diagnosis and, in general, develops expectations about what consultants and clients can count on from one another during the diagnostic process

1.1.2 Why a corporate diagnostic is so important

Corporate diagnostic is so important because of these reasons:

• Most entrepreneurs who run owner/operated businesses have major blind spots i.e very strong in sales and marketing but very weak in administration

• They are usually too caught up in daily challenges to see the ‘forest from the trees’

• They often don’t know (or care!) what’s going on ‘in the trenches’

• They are often too emotionally attached to the status quo to objectively champion corporate change

• They are not equipped to drive efficiency improvements

• Proactive change is less disruptive and costly than continuously ‘putting out fires’ i.e an ounce of prevention is worth a pound of cure!

• A proactive approach to organizational change can significantly improve the entrepreneur’s quality of life and peace of mind

1.2 Corporate diagnostic process

Corporate diagnostic includes three main steps as follows:

Figure 1.1: Corporate Diagnostic Process

Sources: Clayton P Alderfer (1976)

Step 1: Entry

This step is to find out initial information about the enterprise This step is aimed at understanding business situation to determine the expectations of the business, the gap and need-to-improved points, to define business scope, management style and other information Planning and the survey approaches were established after this step

Step 2: Data collection

In this step, information is collected through these tools such as:

statistical results, which are then analyzed according to the chosen diagnostic model

In many cases, the surveys are required consultants to implement field work

It may be the normal record/minutes or may be a market survey in large scale, depending on corporation’s need

Step 3: Feed back

The consultant must analyze the information gathered through the survey and make a final report to present to the enterprise management The report includes describing the current operation, some issue raised from consultant’s observation, the gap or weakness of enterprises and giving recommendations for operation improvement

This report helps companies raise awareness on the status of their operation and effectiveness of their decisions it is the basis for the company’s action plan to improve its performance

1.3 Corporate diagnostic models

There have been many diagnostic models for business review in both theory and business practical Due to time limitations, the authors would like to present

some typical models which are well known around the world These models are presented in published books or proven over the years by applying in famous consulting companies in the world

1.3.1 Theoretical models

In this part, the author is presenting four models from 1965 to 2008 They are: star model of Jay Galbraith (1977), Diamond model of Leavitt (1965), Organizational Performance Model, David Hanna (1988) and Organizational Intelligence Model of Falletta (2008)

a Star model of Jay Galbraith

Figure 1.2: Star model of Jay Galbraith

Sources: Jay R Galbraith (2007)

Strategy

Strategy is a company’s formula for success It sets the organization’s direction and encompasses the company’s vision and mission, as well as its short and long-term goals The strategy derives from the leadership’s understanding of the external factors (competitors, suppliers, customers, and emerging technologies) that bear on the firm, combined with their understanding of the strengths of the organization in relationship to those factors The organization’s strategy is the

cornerstone of the organization design process Without knowledge of the goal, no one can make rational choices along the way In other words, if you do not know where you are going, any road will get you there The purpose of a strategy is to gain competitive advantage: the ability to offer a customer better value through either lower prices or greater benefits and services than competitors can These advantages can be gained through external factors such as location or favorable government regulation They can also be secured through superior internal organizational capabilities We define organizational capabilities as the unique combination of skills, processes, technologies, and human abilities that differentiate

a company They are created internally and are thus difficult for others to replicate Creating superior organizational capabilities in order to gain competitive advantage

is the goal of organization design We will also refer to transferring capabilities To transfer and, when necessary, adapt a company’s capabilities or advantages is one

of the key jobs of any manager when opening up a new location or unit

Structure

An organization’s structure determines where formal power and authority are located Typically, units are formed around functions, products, geographies, or customers, and are then configured into a hierarchy for management and decision making The structure is what is shown on a typical organization chart

Organization design is not limited to structural considerations, and many variations

of a structure can be made to work But if the structure is not approximately right, then it will be harder to align the other design elements with the strategy The structure sets out the reporting relationships, power distribution, and communication channels It determines who comes in contact with whom The structure projects a message about what work is most important If the structure does not at least nominally support the strategy, then everyone in the organization will find themselves working around a formidable obstacle

Process

We use the term process to mean a series of connected activities that move information up and down and across the organization This includes work processes, such as developing a new product, closing a deal, or filling an order It also includes management processes, such as planning and forecasting sales, business portfolio management, price setting, standards development, capacity management, and conflict resolution Processes that cross organizational boundaries force organizational units to work together

Their design has a significant impact on how well units work together vertically or laterally Clear articulation of roles and responsibilities at the boundary interfaces is essential for the design of good processes

Rewards

Metrics and rewards align individual behaviors and performance with the organization’s goals For employees, a company’s scorecard and reward system communicate what the company values more clearly than any written statement can

Metrics are the measures used to evaluate individual and collective performance

The reward system motivates employees and reinforces the behaviors that add value

to the organization through salary, bonuses, stock, recognition, and benefits

In complex organizations, the overriding challenge in designing metrics and rewards is how to create incentives for collaborative behavior Rewards based on simple bottom-line measures that work for self-contained units cannot drive business results in organizations that depend heavily on cross unit coordination In complex organizations, variable compensation (that is, pay above base salary) typically tends to focus on team, unit, and business performance more than on individual accomplishment Some questions to consider in designing rewards are these:

team, department or unit, division, or company? How high up in the organization should results be aggregated before being rewarded? What level will still allow

employees to feel they are being measured on the outcomes of their decisions and actions?

Should the product, customer, or geographic unit be accountable for business results? How does the organization create accountability and transparency and minimize overhead cost allocations? How does it apportion credit among the multiple dimensions?

desired strategic outcomes (for example, responsiveness, follow-up and communication, knowledge sharing, leading and participating in teams, cultural acuity, relationship building, influence, developing talent, and other organizational infrastructure contributions)? How do these get acknowledged in the performance management process?

based on? What is the role of customers, peers, direct reports, lower level staff, and colleagues from other departments? How does the organization create rigor around what can become a subjective evaluation of required behaviors?

Human resources

By human resources practices, we mean the human resource policies for

selection, staffing, training, and development that are established to help form the capabilities and mind-sets necessary to carry out the organization’s strategy The complex organizations discussed in this book require a sophisticated management team that understands how to use the organization as a lever for competitive advantage But it is not just managers who need to have strong organizational and interpersonal skills Complex organizations require employees at all levels to have a fundamental set of competencies to interact across organizational boundaries, participate on teams, and make decisions that take multiple perspectives into account The competencies that the organization needs to select

• View issues holistically and from cross-functional and cross-cultural perspectives

• Negotiate and influence without formal authority or positional power

• Build relationships and networks and skillfully work through informal channels

• Advocate and collaborate without bullying or compromising

• Share decision rights and resources and make joint decisions with peers

• Exhibit flexibility and resolve conflicts

According to David P Hanna, the performance of the business will change based on the business situation, business strategy, culture and business results Effective enterprise is formed by six elements, namely:

in the star model; this one is an element of structure factor

Thus, we can see the two models are quite similar The difference lies in assessing the importance of the elements

Figure 1.3: Organizational performance model of David P Hanna

Source: David P Hanna (1988)

The structure variable refers to the authority systems, communication systems, and work flow within the organization The technological variable includes all the equipment and machinery required for the task variable; the task variable refers to all the tasks and subtasks involved in providing products and services Finally, the human variable refers to those who carry out the tasks associated with organizational goals (i.e., products and services) The diamond shaped arrows in the model emphasize the interdependence among the four variables Leavitt has postulated that a change in one variable will affect the other variables For example, with a planned change in one variable (e.g., the introduction of advanced technology), one or more variables will be impacted Such interventions are

products or services) In this example, the other variables would also likely change,

as morale (i.e., people) might increase and communication (i.e., structure) might be improved due to the new technology

Figure 1.4: Diamond model of Leavitt

Source: Leavitt, H J (1965)

Although Leavitt describes the variables within his model as dynamic and interdependent, the model is too simple to make any direct causal statements regarding the four variables Similar to the other model, Leavitt suggests that a change in one variable may result in compensatory or retaliatory change in the other variables; this notion is similar to the opposing forces in Lewin’s model However, unlike the Organizational performance model, Leavitt does not address the role of the external environment in bringing about change in any of the variables

The Diamond Model does not explicitly identify human capital as a critical determinant of organizational effectiveness This may be a bit misleading because human capital is a critical element with respect to each of the four points of the diamond Indeed, it might be better to show the Diamond Model with human capital

as the center I have already discussed how human capital is critical to the core competencies and organizational capabilities I have not pointed out the critical role

it needs to play with respect to strategy and the environment

d Organizational Intelligence Model

The Organizational Intelligence Model can serve as a diagnostic framework

for Organizational diagnostic purposes as well as to facilitate the design and interpretation of most employee and organizational survey efforts In total, the model includes 11 factors and variables

Figure 1.5: Organization intelligence model of Falletta

Table: Factor Descriptions of the Organizational Intelligence Model

Environmental

Inputs

The outside conditions or situations that affect the company/organization (e.g., Sarbanes-Oxley, government policy, competitive intelligence, customer feedback, the economy)

Strategy The means by which the company/organization intends on

achieving its overall mission and goals and creating value for its stakeholders

Leadership The most senior level of executives and managers in the

company/organization

Culture The underlying values, beliefs, myths, traditions, and norms that

guide team and organizational behavior

Information &

Technology

The business systems, practices, and capabilities that facilitate and reinforce people’s work (e.g., IT infrastructure, communication, knowledge sharing)

Direct Manager The relative quality and effectiveness of an employee’s

immediate manager or supervisor

Measures &

Rewards

Measures refer to the ways in which individual and team performance and accomplishments are measured and managed Rewards are the monetary and non-monetary incentives that reinforce people's behavior and actions, including advancement and promotion

Growth &

Development

The practices, resources, and opportunities available for employee skill development and enhancement, including development planning, training and learning, and stretch assignments

Employee

Engagement

Employee engagement involves the cognitive, emotional and behavioral relationship employees have with their jobs and organizations, and effort and enthusiasm they put into their daily work (i.e., the extent to which employees exert their

discretionary energy and effort on behalf of the organizations they serve)

1.3.2 Models of consulting firms

These above models were born in 50,60 years ago Today, these models are still used for research or for reference in universities In real business world, while the service of counseling business performance is growing, the leading consulting firms like McKinsey and KPMG also has their own methodology to perform corporate diagnostics

a 7S model of McKinsey

The McKinsey 7S Framework was named after a consulting company, McKinsey and Company, which has conducted applied research in business and industry (Pascale & Athos, 1981; Peters & Waterman, 1982) The authors all worked as consultants at McKinsey and Company; in the 1980’s, they used the model in over seventy large organizations The McKinsey 7S Framework was created as a recognizable and easily remembered model in business The seven variables, which the authors term “levers,” all begin with the letter “S”

Figure 1.6: 7S model of McKinsey

Source: Robert H Waterman, Jr., Thomas J Peters & Julien R Philips (1980)

The shape of the model was also designed to illustrate the interdependency of the variables; the illustration of the model has been termed the “Managerial Molecule.” While the authors thought that other variables existed within complex organizations, the variables represented in the model were considered to be of crucial importance to managers and practitioners

The seven variables include structure, strategy, systems, skills, style, staff, and shared values Structure is defined as the skeleton of the organization or the organizational chart The author describes strategy as the plan or course of action in allocating resources to achieve identified goals over time The systems are the routine processes and procedures followed within the organization Staff are described in terms of personnel categories within the organization (e.g., engineers), whereas the skills variable refers to the capabilities of the staff within the organization as a whole The way in which key managers behave in achieving

organizational goals is considered to be the style variable; this variable is thought to encompass the cultural

The style of the organization is the shared values variable, originally termed goals, refers to the significant meanings or guiding concepts that organizational members share

The authors have concluded that American companies tend to focus on those variables which they feel they can change (e.g., structure, strategy, and systems) while neglecting the other variables These other variables (e.g., skills, style, staff, and shared values) are considered to be “soft” variables Japanese and a few excellent American companies are reportedly successful at linking their structure, strategy, and systems with the soft variables The authors have concluded that a company can not merely change one or two variables to change the whole organization For long-term benefit, they feel that the variables should be changed

to become more congruent as a system

The external environment is not mentioned in the McKinsey 7S Framework, although the authors do acknowledge that other variables exist and that they depict only the most crucial variables in the model While alluded to in their discussion of the model, the notion of performance or effectiveness is not made explicit in the model

The difference of this model to the others is that it emphasizes the core values

of the company and this value is the foundation to decide how these other factors operate In addition, McKinsey also emphasizes the cultural factors of one organization This is the focal point for corporate governance in the present time

a Governance framework of KPMG

This model is developed and applied in KPMG for the purpose of governance framework review project There are 5 factors in this model as followed

Figure 1.7: Governance framework of KPMG

Sources: www.kpmg.com

Business Strategy

Strategies need to be informed regularly and two-way communication between management to staff to become the strategic of the whole company, not just of the management Strategy must ensure the clarity After setting the strategy, companies need to set goals and objectives that are consistent to strategy It helps to specific what is needed to be done to achieve strategy They must be SMART which are specific, measurable, can be achieved, realistic and timely The company's strategy must be supported by information technology systems to organize resources for the enterprise (ERP)

Structure

The organizational structure reinforces the strategy and must be in sync with the strategy The structure factor includes clear roles and responsibilities between individuals and the division It also defines the powers between the departments

People

This factor comprises the quantity and quality of human resources Does the amount of company’s staff is sufficient or not Do staff have appropriate skills and knowledge to work effectively and where the sources for improving the quantity and quality of personnel in a company

Process

Process is measured by these following criteria:

• The efficiency of business processes

• The relevance of budget and company’s process

• Information flow, reporting mechanisms and quality measurement

• The quality control

1.4 Chapter Review

In conclusion, there are 6 reviewed diagnostic models as followed

interdependence between factors

External environment factor

Emphasized factors

The theoretical models

Not mentioned in this model

Technology elements are emphasized over other models

The focus of this model is work

processes; any changes in other factors are aimed to change the process

The strategy became a factor affecting the remaining elements; the strategy is reflected in the objectives and tasks in the short and long term

on the context of the enterprise, corporate strategy, culture and business results

There is mention of the business context

Elements of decision-making and management

of information flows, roles and

responsibilitie

s be separated

Models Factors The

interdependence between factors

External environment factor

Emphasized factors

− Strategy

− Leadership Culture

− Struture &

adaptability

− Information and

technology

− Direct manager

− Measurement and rewards

− Growth and development

− Employee engagement

− Performance outputs

The elements in the same group have the reciprocal relations

to each others

Emphasizing the factor environmenta

l inputs the performance output is created base

on the inputs plus

enterprise’s capacity

Institutional capacity and governance are the most important indicators

The model of consulting firms

7S model of

Mckinsey's

(1981)

− The structure, strategy, systems, skills, style, staff and shared values

Variables are considered interdependent and

is illustrated by the molecular model

Recognizing the presence

of external factors affect the

enterprise’s output, but not include it

in this model because that's not

considered to

be the important factor

These factors should be changed to match and identify with each other

Models Factors The

interdependence between factors

External environment factor

Emphasized factors

structure, people, processes and values are in close

relationship The strategy and people have two way communications with each other

mentioned the guiding

and always two-

dimensional effects to humans

It can be seen that there are the common and consistent point between these models in the critical factors for a corporate diagnostic The difference between them is the focus on one factor or another These above models also mentions new soft factors that affect the business effectiveness today like culture, shared value and external environment Due to the scope of this thesis as well as limitation of collected data, the thesis would not consider these factors All the factors compiling from 6 models above can be divided into 4 groups as followed:

Strategy including goals and objectives

Organizational structure is about:

• The structure model of an organization

• Role and responsibility between divisions/ individuals

• Functions’ capability and resources

Process including these factors:

• Task (work flow), information flow

• Decision making mechanism

• The technical support

Human resources are:

• The skill and capacity of staff

• Policies of recruitment

• Training and development

• Performance appraisal and promotion

CHAPTER 2: ANALYSIS ON F&P DEPARTMENT’S OPERATION

OF VINACONEX

This chapter is giving an overview of F&P and its operation in some fields which is shown in the chosen model In particular, the author is presenting the findings of weaknesses and causes of the problems

2.1 Overview of F&P Department-Vinaconex

In this part, the author will demonstrate an overview of Vinaconex in general and F&P in particular

Over more than two decades of establishment and development, Vinaconex is now among the top corporations in the fields of construction and real estate

development, whose stakes are listed on Hanoi Stock Exchange with the name Vinaconex Its lines of business include:

Vinaconex is in the progress of focusing their resources into 2

core-businesses: construction and real estate As a result, it is expected that the quantity and structure of its subsidiaries and affiliates is subject to change in the short run The objective of Vinaconex is to become a leader in the field of real estate and construction in Vietnam which can provide services for international large projects Besides, the Corporation desires to develop other industries of its comparative advantages and strengthen its management capacity

Achievement

In the development of Vinaconex, the company has mostly achieved the high and stable growth In these recent years, the growth rate is up to 20%-25% The overall output value, revenue, profit and employees’ life standard is increasing Please see Vinaconex’s achievements in the below figure:

Figure 2.1: Vinaconex’s output from 2005 to 2010

Source: www.vinaconex.com.vn

Figure 2.2: Vinaconex’s organization chart

Source: www.vinaconex.com.vn

2.1.2 Overall of Vinaconex F&P

Before analyzing the F&P’s operation, this part is introducing the roles and responsibilities of this department as well as its four functions

Subsidiaries Affiliates Parent

Shareholder’s Meeting

Supervisory Board

In general, the department’s key responsibility is to manage the financial aspects of the business The department mostly focuses its activities on transactional book-keeping and reporting functions Some other tasks are given to the department

by senior management on a ad-hoc basis

Accounting and consolidation is key activities of F&P in relationship with other departments, along with supporting Investment and Construction with project management There is limited planning and financial investment activities (budgeting, hedging, etc.)

R&R of four functions

The roles and responsibilities of each function are as followed:

Financial Investment

• Take care of financial investment activities of the Corporation;

• Cash management: depositing, lending, collection, etc.;

• Financial analysis activities that relate to financing, financial investment, provide recommendations to senior management in this area

Project Finance

• Develop financial plan and arrange fund sources for the Corporation’s projects;

• Track payment of due installments for the Corporation’s borrowings;

• Keep record and report on the financial position of projects that the Corporation invests in

Accounting

• Conduct and record accounting transactions for Head Office and dependent business units

• Work with Tax Office;

• Develop and consolidate financial statements for Parent company and the whole Corporation

Planning:

• Develop the business plan for parent company and the corporation;

• Report on business progress against the plan by requesting report from subsidiaries/business units

2.2 Analysis on F&P’s operations

By using 4 chosen factors which are strategy, organization structure, process and human resources policy, this part is focusing on analyzing the operations in F&P In addition, it will show out the weaknesses in 4 functions and the reasons for that limitation

2.2.1 Strategy

In this part, the author is going to describe the strategy of Vinaconex set to F&P, the reality of F&P conducting this strategy and reasons behind these limitations

Expectation

The F&P Department is expected to provide more strategic support to enable the Corporation to achieve its business objectives The strategies for F&P are to achieve these objectives:

• Provide consultancy for the Senior Management in financial investment activities

• Guide and support subsidiaries in financial reporting

• Lead business and financial planning in accordance with strategies of the Corporation for specific periods

• Provide fund-sourcing solutions to reduce bank liabilities

However, during operating, the F&P could not meet the expectation of Vinaconex’s BOM There are a number of weaknesses in meeting the strategy as following

Weaknesses

F&P has limited ability to provide strategic support F&P is currently perceived by senior management and business units as passive and focused on

providing traditional accounting roles Also, F&P is sometimes not informed and included in the early stages of decision-making (before pricing and negotiation, etc.) Another weak point of F&P is limited ability to provide leadership and support for subsidiaries The role of F&P as leader of the corporation’s finance professional teams has not been fully understood and demonstrated by staff F&P has not provided the leadership and necessary support for F&P functions at subsidiaries to perform their job and encourage sharing of best practices No feedback and/or support is being provided by F&P staff regarding the reports submitted by subsidiaries so that they can improve

Reasons

There are four main reasons for not meeting the strategy expectations of F&P Firstly, these weak points are caused by capacity limitations Staff lack advanced skills to provide value-added services (analysis, recommendation, instructions)

The second point is that limited cooperation and communication between F&P and subsidiaries’ teams (lack of understanding of business units’ difficulties and needs)

There are no standard processes to clearly segment the range of responsibilities of F&P and other departments in shared duties is the third reason Lastly, there is no mechanism and system to facilitate checking the accuracy and relevance of financial information submitted from subsidiaries

Figure 2.3: F&P’s organization chart

Source: interview with F&P

There are some weaknesses in F&P’s organization chart as followed:

Firstly, there is confusion about roles and responsibilities among divisions For example, cash is managed by both Accounting and Financial investment Project finance staff do transactions and recording for projects which can be overlapped with the accountant’s jobs

Secondly, general weakness in several functions based on limited resourcing

or lack of formal structure, including:

• Budgeting

• Project evaluation

• Funds sourcing & investor relations

• Financial/Market analysis

• Financial Risk Management: hedging, credit, etc

Thirdly, there is a lack of planning capability in:

• Planning function is not meeting its expectation in keeping business activities aligned

• Unclear scope of work