Last week, the Company's management held extended meetings with employees, where they discussed the current tasks and strategy for the development of the Financial and Economic Bloc (FEB) of ALROSA in the midterm.
As part of the development strategy, the management of the FEB also presented a draft of a new enterprise - the United Service Center will launch in October this year.
According to Aleksei Filippovsky, Deputy General Director, the planned transformation of the objective functional and the structure of the financial and economic bloc will be taking place until 2019 inclusive.
The goal is to form a unified interrelated structure to improve the efficiency of the Company's financial and economic bloc.
- As an experienced financier, how do you assess the current state of the economy and finance functional of ALROSA?
You know, I cannot give a monosyllabic reply to this question. In some areas, we fully comply with the modern practices of large Russian companies, and in some areas we are lagging behind. In my understanding, the greatest potential for the development of the financial and economic bloc (FEB) lies in improving the effectiveness of basic functions, such as accounting and settlement, and in increasing the role of economists in supporting management decision-making. At the end of last year, my colleagues and I diagnosed the current state of our FEB, which showed that we are several times behind the practices of other Russian companies in terms of the number of processed documents per accountant or the number of payments per employee of the Treasury. This is primarily due to the fact that in our Company the accounting and settlement functions are performed locally, while in most other companies they are centralized on the basis of the General Service Center (GSC), which in turn makes it possible to obtain benefits from the implementation of the economy of scale and facilitates automation. As for the potential for increasing the role of economists in supporting management decision-making, last year's budget campaign showed that in a number of cases, asset economists do not own the asset economy, cannot explain the reasons for changing the performance of assets, in extreme cases do not even see their task as understanding the economy of assets. In my standards for the work of the FEB, this is unacceptable. Economist, here I am referring to the head of the Economic Planning Department or the Financial Director of the asset, should not only better understand the economy of the asset entrusted to him, but also see among his tasks a regular analysis of the dynamics of the asset development, the search for development opportunities and bottlenecks, report the results of activities to line management, as well as modeling and forecasting the future economy of the asset. Ideally, the Financial Officer or the head of the Planning and Economic Management of the asset should be perceived by the asset director as a trusted advisor and expert on all issues related to efficiency and the economy. In this direction, we still have a long way to go, but we will cope.
- How do you see the further development of the FEB? What will it give you?
At the beginning of this year, a strategy for the development of the FEB was developed for the next few years based on the results of diagnosing the current state of the FEB. The strategy provides for the creation of a General Service Center, where all accounting function will be transferred, the establishment of the Unified Settlement Center, where all bank settlements will be transferred, the development of planning and analysis functions, improvement of the investment process and corporate finance, and much more. The FEB will become significantly more effective as a result of the implementation of the development strategy. For example, the indicators of the specific productivity of accountants and employees making payments will grow several times. The immersion of economists in business will significantly increase, which will create prerequisites for increasing the efficiency of the Company as a whole. The qualitative work of economists should allow us to identify those levers of increasing the efficiency of our business, the use of which will have the greatest effect. I very much hope that we will be able to improve the budgeting process, in particular, shift the focus of the budget from authorization of expenditures and dozens of different agreements to generate creative activities and initiatives to improve our business. I expect that we will be able to improve the image of our Company in the eyes of investors, which should affect the increase in the value of our Company.
- Do you plan a change of the organizational structure of the FEB?
Yes, we do. The FEB will be organized in four main directions: controlling, which will include all accounting functions, preparation of all types of reporting, internal control and taxation; treasury, which will be responsible for all cash settlements with our customers and suppliers; planning and analysis, where all the functional of the economy, planning, budgeting, forecasting and analysis will be concentrated; and, finally, corporate financing, which will include the functions of working with the debt and equity markets, including attracting external financing and maintaining relations with investors, banks and rating agencies. This structure completely corresponds to world practices and it has a clear logic. For example, the treasury should be allocated in a separate functional direction in order to comply with the basic principle of internal control: employees engaged in cash transactions should not participate in the primary accounting and in making decisions on the use of funds. In turn, the controlling and planning functions require completely different skills and even a psychotype. Controlling requires knowledge of accounting rules and tax laws, the ability to organize work with large data sets, and in the good sense of the word accountant mentality, i.e. the habit of clearly following the formed rules and algorithms. Planning and analysis functionality requires a deep understanding of the production and drivers of the economy, the ability to structure complex analysis, the ability to speak with producers in one language and the natural curiosity that stimulates a person not to put up with the status quo and often ask questions such as: "Why do we do this? But can it be any other way? And how do the others do it? Why not, let's try? etc." A good economist will be close-bodied in controlling, and a good accountant will be uncomfortable in the planning and analysis functionality.
- Will the structure of subordination of financiers and economists change locally?
Yes, it will. Implementation of the FEB strategy will be possible only if the FEB is organized as a single functional vertical. This will also change the geographical distribution of the functional. For example, all accounting and settlement functions will be withdrawn from the assets and concentrated in the General Service Center and the Single Settlement Center in order to realize economies of scale effect, and the Planning and Analysis functionality will instead focus on assets, since economists should be there where production is located. The employees of controlling and treasury will be subordinated to the financial controller and the head of the treasury, respectively. Asset economists will have a dual subordination: direct submission to the asset manager and functional subordination to their manager within the framework of the Planning and Analysis functionality. All appointments to the managerial positions of the FEB, including the positions of the heads of the Planning and Economic Administration and financial directors of the assets will occur on the basis of the presentation of the Head of the Planning and Analysis Functionality and in coordination with the asset director. This structure of subordination fully corresponds to the world practice and will allow to improve the coordination of the FEB staff among themselves, ensure strict observance of the methods and policies of the FEB, and provide uniform approaches in hiring, evaluating and motivating the staff of the FEB. I would also like to note here that in all areas of the FEB we will move from a three-tier to a two-tier management system. In controlling and treasury, this will be the Corporate Center in Moscow and the General Service Center / Single Settlement Center, which will have offices in Mirny and Novosibirsk. For Planning and Analysis, it will be the Corporate Center, the employees of which will be distributed between Moscow and Mirny, and the assets themselves, where this functionality will be mainly concentrated.
- How do employees respond to the upcoming changes?
The strategy for the development of the FEB was first presented in February at a meeting of the TOP-100 in Mirny. Before that I was able to discuss it in detail with the general director, his first deputy, chief engineer, a number of heads of the Mining and Processing Plants and some other managers of the Company. Some discussions were rather tense and lengthy. For example, with Igor Vitalievich Sobolev, we sat down to discuss the draft strategy for the development of the FEB at 02.00 pm and finished only after 07.00 pm. Colleagues gave a lot of useful comments, which led to significant changes in the first version and, on the whole, allowed to significantly improve this document, adapting it to the current specifics and features of ALROSA. Therefore, a carefully worded document has been submitted to the TOP-100. However, after the submission to the TOP-100 entered a number of important observations and comments by other Company executives. Most of the comments were taken into account by us, for some specific comments we explained the logic of our position that stroke a chord with our colleagues. Thus, at the meeting of the management of the FEB on April 4-5 in Mirny, I already presented the version of the document that was generally accepted by the majority of the Company's managers and reflected not only my position, but also the position of the Company's management as a whole. Now, answering your question, I can say that the colleagues from the FEB reacted differently to the upcoming changes. A well-known fact from psychology is that people eventually get used to any reality and usually react painfully to changes. Especially if these changes require the mobilization of forces, changes in the processes that you yourself have been building for years, making difficult personnel decisions for people with who you worked side by side for many years. Therefore, there were employees who reacted painfully, with a lack of understanding, why any changes are needed at all. There were questions like this "Is not it better to leave everything as it is? After all, the Company earns so well ..." At the same time, some people reacted positively and with interest. Some even said: "Oh, finally! It is high time!". And these were not isolated cases.
- But really, why touch something that works so well? After all, these changes will directly affect people. For someone, moving is inconvenient, someone may not fit into the new structure at all.
You know, this is a very good and difficult question that I constantly ask myself. Let's start with performance. The consequence of low productivity performance of the basic functions is the relatively high number of staff for the FEB. For example, as of the beginning of this year, a company similar to us in complexity, Novolipetsk Iron & Steel Works, had 16 FEB employees per 1.000 people in total. Severstal - 11, and this list can be continued. ALROSA has 42 now! We are not talking about miners who risk their health under the ground and ensure the extraction of diamonds, but about white collars, who are engaged in interesting work and earn very good money in comfortable offices. I myself was in the mine and understand the words my father once said: "Miners can be forgiven many things." We are financiers, we are not miners, we do not produce even a carat of diamonds and I believe that our responsibility to our colleagues from the production bloc is to perform our functionality as efficiently and cost-effectively as possible. This is the first part of my answer to your question. The second part is that, yes, our Company is financially stable for today, yes, we earn well, but to be honest, these cool results are explained not by the super-efficient work of the FEB staff, but by the uniqueness and quality of our deposits. These deposits belong to our shareholders, primarily the state and the Republic of Sakha. And we do not have the right to spend this additional profit on the excessive number of personnel of the FEB. Especially when we ourselves see and understand the reserves of our productivity and ways to improve it. And finally, I believe in development. I believe that in business, as in life, standing still means going back. Yes, now our Company has a certain margin of safety, but look at the pace at which production technologies and synthetic diamond markets are developing. Prices for diamonds are declining for many years. The situation on the markets is changing, and I believe that we cannot always expect such a margin of safety. The only way to keep our competitiveness is to constantly evolve, constantly become more efficient, constantly move forward. And it is here that I see a great potential for strengthening the role of economists - in creating a culture of constant improvement, rejecting the status quo, in anticipating future opportunities and risks, assessing how they affect our business and developing optimal scenarios for further development. If to sum up my long tirade, then yes, I am convinced that we need to change, no matter how difficult and painful it is.