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Over 90,000 SHRM certified HR professionals globally. Isn’t it time to raise the benchmark for HR in Greece?


By Dr. Constantine “Dino” Kiritsis, SHRM-SCP, Founder StudySmart & Lead for the StudySmart – ICAP SHRM partnership


I am extremely proud of the fact that the Society for Human Resource Management (SHRM) has become the benchmark for HR in the past 2 decades. One of the main reasons for this is the fact that the Society has focused more on its well-prepared new competency model, developing world-class certifications and gave attention to international HR issues, not just issues that are American. Our work at StudySmart and our strategic partnership with ICAP has certainly seemed to have raised the benchmark for HR professionals.


Its competency model focuses on strategic behavioral competencies while the material is applicable to HR professionals around the world. The fact that it now uses Situational Judgement Test Questions and a case analysis approach make it unique in terms of professional qualifications. In essence, SHRM has correctly identified that countries or regions deal with issues differently as cultural aspects play a role in decision making.


There are close to 50 certified professionals in Greece and this shows the potential in the market. We certainly have a number of qualified professionals based on experience in Greece but not based on a globally approved certification. The same way professionals certify themselves in Accounting, Finance or Project Management and a number of other areas it is imperative that HR professionals have an association / society that not only sets the standard, but evolves, supports and networks professionals in every part of the world.


For more information on how to get certified, or

How to stay employable in a global changing job market – 5 important tips


Dr. Constantine “Dino” Kiritsis, Founder StudySmart, International Curriculum Development Expert, PwC Serbia and Consultant, PwC Middle East


Introduction - The new business environment:


The employment arena has been changing drastically especially from the start of the 21st century mainly due to the amazing technological advances. Virtual jobs, the rise of automated tasks, the changes in organizational structure due to the internet, globalization and the speed of change have created an unprecedented employment framework. My experience from consulting and delivering training in more than 30 countries has proved that the changes are global, constantly changing and professionals are still – unfortunately - dealing with these issues with “weapons of the past”. The new job market requires a new way of thinking, a focus on new skills, a continuing development approach in becoming sustainable in the job market and a great degree of flexibility. Furthermore, we are becoming more diverse, international, multicultural, project oriented, short-term and need to be prepared as these changes are affecting all of us.


We need to challenge conventional thinking. We need to understand how fast employment is changing and we need to be prepared. What do these changes mean for us individually? How often should we change directions? Should we specialize or generalize when it comes to our continuing development? What competencies & skills do we need? How will the future organization look like?

Tip 1: Embrace change:


The first tip is that we all need to embrace change. For example less and less people have “working hours” in the 21st century. I always ask this question and get the same answer from groups I coach: We do not have any strict working hours any more. We work on Sundays, on Saturdays during the evenings always trying to check our emails, finish a report or a proposal and/or get informed about what is going on at work. This is a fact. We cannot seem to be able to distinguish between our personal life and our work life. Given that anyone can find us and we can work from anywhere, time management has become increasingly important as we will need to juggle time 24/7. There are too many overlaps. Therefore, in order to find our “work-life balance” we do not need to fight this, but – on the contrary – we need to find solutions that have to do with appropriate management of time, effective judgement, effective communication, adequate delegation and other such softer solutions. The problem is that we have been mostly trained in terms of knowledge and not competencies and therefore are not competent in these areas creating frustration, stress and – in some cases - burn-out (apart from the effects these have to our families). In any case, changes will continue to take place within this amazingly fast business environment and we need to be ready, prepared and able to anticipate.


Another example of change is the increased automation of tasks. A recent article in Harvard Business Review (Davenport & Kirby, June, 2015, p. 61) suggests augmentation as a solution to machines taking over a number of jobs. “We propose a change of mindset, on the part of both workers and providers of work, that will lead to different outcomes – a change from pursuing automation to promoting augmentation”. Augmentation, as they define the term, means starting with what humans do today and figuring out how that work could be depended rather than diminished by a greater use of machines. If you have not done that already it may be a good time to start…


Tip 2: Work from…”anywhere” - The “office” concept:

One of the most important characteristics of the new professional in the job market is that of the new “office”. For many researchers, “office” has become a verb. “Where will you office today”? A rising number of young professionals and free lancers are actually working from café’s answering emails, Skyping, holding meetings in order to be in-synch with their virtual lives. This implies lower costs for organizations, flexibility and mobility. As MIT’s Professor Tom Malone has argued (2010), cheap communication has made all the difference in that it has allowed people to do things cheaper, faster and better.


Given that an increasing number of individuals are working from home, a rising number of employees work remotely on projects and a rising number of young aspiring professionals use common space and – essentially – only require wi-fi, it makes you wonder what organizations will do with their office space in the future. This has also been nicely supported by Fried and Hanson’s (2015) book “Remote”. As the authors state: “Say you spend 30 minutes driving in rush hour every morning and another fifteen getting to your car and into office. That’s 1.5 hours a day, 7.5 hours per week or somewhere between 300 and 400 hours per year, give or take holidays and vacation…imagine what you could do with 400 extra hours per year. Commuting isn’t just bad for you, your relationships and the environment – its bad for business. And it doesn’t have to be that way” (p.17). Furthermore, size has become irrelevant and therefore small organizations can make a huge impact. Let me remind you that companies that have developed a small application have even been able to become listed on well-known stock markets (i.e. King, who developed candy crush is listed in New York since 2014).  


The fact that office space (in its classical sense) is not required along with the fact that small is the “new big” (to use Seth Godin’s well known title of his book), has given rise to numerous small organizations and the rise of free-lancers. This has even triggered Entrepreneur Loulou Khazen Baz in 2013 to set up (which means search in Arabic) that connects business with freelance professionals. It has a rising community of 40,000 people in 130 countries (Gulf Business, 2015). It would be interesting to see how many of these actually own or rent an office!

Tip 3: “Competencies requirement”


A very important point that I like raising is that of competencies. Most employees feel that career advancement can be greatly fulfilled by opting for another academic degree. This assumption has been greatly challenged in the past 15 years, however a significant number of individuals continue to agree with it. An additional degree does not necessarily offer you a greater salary or an additional competency. This is mainly because University degrees (especially in the business area) are more knowledge based than skill based. In the 21st century, organizations are looking for competencies. As I like saying, degrees can get you in, but competencies make you stay. The problem is that Universities do not focus on teaching us competencies. They focus on knowledge. Therefore, the question arises: How can I gain competencies? How can I become better in the areas in which an organization will appraise me? These areas are usually leadership, communication, working with teams, presentation skills and others? These skills are learnt – in many cases – practically or, as they say, “on the job”. They need to be supported by workshops and seminars as well as action based learning methods.


A great example of this move is portrayed by the Society for Human Resource Management (SHRM), the largest HR association in the world, which has developed a competency based qualification for HR professionals. The qualification includes situational judgement questions that have two (2) possible ‘correct’ answers, acknowledging differences in dealing with business situations.


We should always ask ourselves, what is missing from our arsenal? Do I need a new skill? How can I get better? How should I tackle this problem? The solution may lie in a seminar, a workshop, a MOOC (Mass on-line open course) or even a new certification that will “verify” this skill, soft or hard. This leads us to tip number 4.


Tip 4: Continuing Professional Development

Isn’t it amazing that despite the rise of unemployment in Europe and many parts of the world, organizations are still finding it extremely difficult to find the right employees with the right skills? Universities feel that they are doing an excellent job in preparing graduates for employment and employers feel that they need extensive training and they are ill-prepared. What we all need to understand is the fact that we need to continue to invest in ourselves if we intend to stay employable. One of the solutions is to become a specialist in an area through a qualification and eventually re-certify in order to continue developing skills. We need to stay on top of our game given the amazing changes globally. This is why the title of my forthcoming book is called “From Degreefication to Certification”. Becoming certified can certainly help, especially due to the fact that to retain your certification is designed around updating your knowledge and gaining credits that need to be submitted to the respective association. This fact assists not only the certified employee but also the HR Manager who can verify this fact with the association and also confirm the candidate being up to date.


The book does try to give solutions in terms of career paths, as career management has become more important than ever. This problem has numerous repercussions for Human Resources professionals not only from their perspective as HR managers but also for themselves.

Tip Number 5: Personal Branding


The rise of small organizations, start-ups in general, the irrelevance of ‘office space’ in its traditional sense and the rise of free-lance or part – time work has forced us to actually start building our personal brand. Employees are staying less time at one organization, participate in projects and therefore it is imperative that we create a track record that will enhance our personal branding. Linkedin has assisted us greatly in this. Most headhunters are using linkedin to search, check connections, links and also evaluate networks. Even though we have been using such tools for years, we need to find ways to optimize our social media footprint and gear it towards career opportunities (among other). Organizations are becoming more and more interested in hiring ad hoc given the constant changes (and in some cases the inability of employees to be agile) and due to the fact that organizations deal with more and more “projects” that have a beginning and an end.

Gratton (2011) in her book “the shift” talks about Micro – entrepreneurs and ecosystems as one of the possible “futures”. If this becomes a reality, our digital footprint becomes imperative. How well so you promote yourself? Your CV is now digital and your work may be ranked by former employers in the future. We need to have this in mind moving into a digitized, cloud oriented business ecosystem.



The question, therefore, to ask yourself is how will these changes affect my area of interest? What should you do to confront these challenges? How can you get better prepared? There is also an educational perspective in all this, apart from the more obvious Human Resource Management perspective as indicated above. As the Economist (2015) noted in its March special edition, more and more money is being spent on higher education and too little is known about whether it is worth it. This comment reinforceσ the changing times in the supply chain of employees. Workforce diversity, the rise of remote employment, virtual organizations, the irrelevance of size as well as automation require all of us to follow the trends, evaluate them and get prepared.

This article had as its objective to stimulate employees and HR professionals and stress that the changes are non-stop and constant. Whatever the case, society changes forcing organizations, employers and employees to change. These changes will continue and we need to be prepared to navigate our careers. As Bobby Unser stated, success is when preparation and opportunity meet…





  • Deloitte, (2015) “Tech Trends – The fusion of business and IT” Deloitte University Press

  • Economist, March 28, 2015, Leaders – The world is going to university, p. 11

  • Fried, Jason & Heineman Hanson (2015) “Remote – office not required” , Crown publishing, USA

  • Gratton, Lynda, (2011), The Shift – The future of work is already here, William Collins publication, UK

  • Gulf Business (2015) “Top Entrepreneurs” article, p.56, Volume 20, Issue 04, August 2015, Motivate publication, UAE

  • Harvard Business Review (2015) Beyond Automation – Strategies for remaining gainfully employed in an era of very smart machines, Davenport Thomas and Kirby Julia (June 2015), USA

  • Harvard Business Review, (2011), “The age of hyper-specialization” Harvard Business Review, Malone, Tom, Laubacher, Robert (August, 2011), USA

  • SHRM (2015) Society for Human Resource Management, USA,, assessed August 2015



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Kaizen Costing – an Operations Management philosophy and practice.

Part I

Content writer: Chris Ragkavas, BA, MA, ACCA

No distribution or reproduction permitted without prior written consent of the content writer. All rights reserved.


Athens, July 2014


“It is not necessary to change. Survival is not mandatory”, W.E. Deming


Kaizen is much more than a costing method. It represents a transformative philosophy of Operations Management, supported by all encompassing Human Resource Policies and Practices, resulting into Continuous Improvement aligned with Corporate Strategy.  This is the first out of two articles, dedicated to Kaizen.


In order to understand how Kaizen works, it is worth juxtaposing it with the more traditional Variance Analysis of Cost control. Organizations invest in order to render services or develop products. A cost must be attached to the output, based on which decisions will be taken, e.g. regarding profitability, growth potential, micro and macro market share, to name but a few. Irrespective of the method used to determine the price of a product or service, it is essential that the cost attached to them reflects true and accurate consumption of (mainly) scarce resources. Even if a resource is not per se scarce (“we have more Direct Material ‘C’ available that necessary to produce the projected Quarter quantities”), we are all familiar of the resource that is always scarce and this is money.  Therefore accurate costing should enable decision makers make optimum decisions in terms of allocation of any resource in order to generate profitable, sustainable products / services.


I will briefly review the method of determining Cost structure and control of products as these are more tangible in nature, although the pattern described is equally valid for rendering of services. 


Manufacturers traditionally identify the quantities of Direct Material & the time of Direct Labour that is is needed in order to produce 1 unit of output. Let’s assume Direct Material costs $10 per kg and Direct Labour is paid at a rate of $25 per hour. A unit of production requires 1.5 kg of Direct Material and 0.5 hours of Labour. On top of this, manufacturers would add the Variable Overhead, for example energy consumption to produce 1 unit, let’s assume this is $6.5. Based on the amounts given we may proceed with the generation of the Cost card of our product:


Direct Material                      15

Direct Labor                         12.5 


Prime Cost                           27.5

Variable Overhead                6.5       


Total Variable Cost                34   



Fixed Overheads are an integral part of the manufacturing process, these may be for example lease costs of plant or the fixed element of energy costs, etc. Depending on the Cost method applied, manufacturers will treat differently the incorporation of the Fixed Costs in the Cost structure.


Marginal Cost method

Should they choose a Marginal Cost approach, they will “ignore” Fixed Costs in the Cost card. Pricing decisions will be based on the Marginal Cost of each unit of output. Assuming the cost accountant applies a mark-up, e.g. 25%, on the marginal cost described above, this will result into a Sales price of $ 42.5.


The difference between the sales price and the total variable cost, i.e. $8.5 is called contribution and it reflects the amount of money generated by selling one additional unit, which will be used to contribute to covering the fixed costs.


The main inherent weakness with this approach is that management obtain no transparency with regards to the generation of the fixed costs. They are taken to be indisputable and management aims at covering them by applying a sufficiently high mark up and ensuring sufficient quantities are sold to generate contribution and profit. Depending on the total period output and sales, Fixed Costs incurred in the period may or may not be covered.


Absorption Cost method

Alternatively, should the management accountant choose a Full Absorption Cost approach, she will decide on an Overhead Absorption Rate (OAR) in order to absorb Fixed costs in the Cost card on a per unit basis. The management accountant will decide on an absorption tool, which is more likely to reflect generation of Fixed costs. Let’s assume there is a correlation between total Fixed costs and labor hours and that total budgeted labor hours are 100,000 in the month and total budgeted Fixed Overheads are $ 1million, then the OAR is $10. This Fixed Cost per unit would be added to the Total Variable Cost of $34 calculated above and result into a Total Cost of $ 39 ((34 + (10*0.5)). The inclusion of Fixed Costs in the Cost card ensures that as each unit is sold, the budgeted level of fixed costs apportioned are considered before deciding on the price of each unit.  Applying a mark-up of 25% to the total cost would result into a price of $48.75.

The main inherent weakness with this approach is again the fact that the drivers for generating the fixed costs are not challenged. This may result into inefficiencies not being challenged and loss of opportunities for economies, inappropriate cost structure, pricing and loss of market share. Consumers will not be prone to accept a price at which no value is deemed to exist. Think for example that you are being asked to pay $42.5 for a unit when the competition offers the same model for $38. The entity asking for $42.5 base pricing on inappropriate cost base and pass on inefficiencies to the consumer who declines the offer and the entity consequently suffer from loss of market share, contribution and profits.


Once the Cost card is decided upon, then manufacturers set budgets/targets for the month, quarter, etc. and these budgets are used as the yardstick to measure performance, by means of  “actual vs. budget”. Based on this comparison managers investigate differences between budget and actual, assign responsibilities, hold people accountable, reward them for achieving the budget, etc. The thorough investigation of differences between budget vs. revised budget and revised budget vs. actual is a process called Variance Analysis, where all elements of costs/ sales/ mix/yield are identified one by one with the aim to get an insight into the performance of the period at stake. I am not advocating in favor of any of the 2 methods described above (Marginal – Absorption), neither will we get into the details of Variance Analysis as this is beyond the scope of this article.


Although this process of deciding on a unit Cost card, pricing a unit, setting targets and investigating variances seems to be straightforward, it has serious shortcomings. I will highlight these shortcomings and contradict this process with the Kaizen philosophy and the resulting cost approach.


Creating a Cost card, with the multiple aims to:


  • Set the tone of the expected performance,

  • Decide on the price of a unit of production,

  • Hold employees accountable and decide on their rewards based on achievement of results,

  • Compare actual with the budget and investigate a range of Variances,


denotes that the following assumptions are held to be true by manufactures:


  • Data produced are valid for a longer given period and can therefore be used for the purposes mentioned above.  It is safe to assume that staff will spend time and effort to create a Cost card per unit only if it is taken to be useful and provide accurate information, for a longer period of time.

  • It follows that the focus upon the creation of a Cost card is cost control of predetermined levels and not process improvement.

  • The system therefore does not provide insight into the Activities/Processes that generate costs and only initiates action towards Cost Control and Variance Analysis (feedback control) as briefly outlined above. There is very little transparency as to if the related activities/processes are value adding or not. In simple terms, we take an activity to be value adding if the consumer will accept a price covering the costs related to this activity as it resulted into a product feature/condition that the customer appreciates.     

  • Employees are involved to a limited extend in the target setting process. Management decide how to cost and price the units of output and employees are expected to achieve those targets.

  • Little attention is paid into the way the results will be achieved. Management set the tone on the “what” and not on the “why” or “how” of performance.  

  • When results are not achieved, people are considered to be the source of problems, being unable to follow methods and processes as expected (dogmatic approach in Job description, methods and processes).   





Meaning of Kai-zen in English:


Kai = to change.

Zen = the virtue of being good. 


The etymology reflects a much deeper meaning, than a simple short-term, repetitive, cost control process. 



I briefly outline the core elements of the Kaizen philosophy:


  • The aim of Kaizen is to ensure employees at all levels of the organization develop the necessary skills to become better problem solvers, decision makers and innovators. It is expected they continuously eliminate non-value adding activities, enhance value adding ones and improve processes.

  • Consequently, the organization will be able to realize many small incremental changes on a continuing basis. Management stimulate a proactive stance with the focus on process improvement that will result into major innovations and economies.

  • Cost reductions and innovation will be the result of active Process Optimization performed by empowered employees turned innovators and problem solvers.

  • The environment within which employees operate tolerates errors as a result of experimentation to optimize processes at the actual workplace (at the “Gemba”).


The focus on Process optimization implies that the current status quo of service or manufacturing processes is not seen as the infallible and unique way of production, from which Standard costs are derived, the achievement of which is checked with the aim to control them (see beginning of Article).


The current status quo is rather the object of fact verification and eventual change and improvement. Simply put: the current processes should serve the purpose of delivering continuously improved products based on actual client specification and anticipated changes due to technology development.


Even if the current processes do result into production of output according to specifications in terms of both features and costs, then they are still subject to verification. Case in point: Kaizen philosophy compels the organization to verify whether the achievement of the target performance was due to circumstantial factors (e.g. luck) or because the process was followed as expected and it did deliver the target results. Even if we get what we want, we need to ensure this is because the process is both adequate and cost efficient and was followed as expected.


If the process did not result into production of output according to specifications in terms of either features or costs, then either one or both of the above mentioned factors does not hold true. It follows that inevitably the process will be subject to substantial scrutiny to eliminate non-value adding activities, improve, and cut out muri (waste).  


It should be evident by now, that Kaizen is a continuously proactive philosophy that is fact driven. Its proponents are not advocating that financial competitiveness is subordinate to process improvement. On the contrary, the argument is that process improvement that is based on facts that confirm better products are manufactured at a lower cost or with enhanced features, will lead to increase in the wealth of Shareholders. In order to achieve this process optimization people centered Human Resource Policies and Practices must be put into practice. 


Candidates sometimes struggle with seemingly conceptually complicated areas as Kaizen, especially as to  “how can I apply this in practice”. Truth being told, everyone daily adopts (subconsciously) either Kaizen or anti-Kaizen practices.

Individuals that continuously seek self-improvement by:

  • Discontinuing habits and practices that hinder them from achieving their goal of enhancing their performance, improving their social relationships, or advance their career;

  • Redirecting their career path in anticipation of developments in the job market, and learn new skills in order to enhance their employability;

  • Being open to learn from individuals they look up to and especially focus on the “why” and “how” these individuals are better than themselves, not just “what” they do better;

  • Not seizing to apply ethical practices in their business and personal relationships;

  • Being eager to help others improve themselves, in a sense gain fulfillment from seeing others grow, too;

  • Seeking to shape the future;

  • Not shying away from aspiring a leadership role for themselves;



…are indeed applying in practice the basic Kaizen principles.


In my second article, I will analyze how Kaizen is further applied into practice.







Kaizen Costing – an Operations Management philosophy and practice.

Part II

Content writer: Chris Ragkavas, BA, MA, ACCA

No distribution or reproduction permitted without prior written consent of the content writer. All rights reserved.


Athens, August 2014


In the first part of the article I contradicted Kaizen with traditional costing systems and I made a preliminary description of the nature of Kaizen and why it is considered to be much more than a costing method, in fact a new operational philosophy. The first article is to be found in my home page in LinkedIn.  


How does this work in practice within an organization?  When companies adopt Kaizen:


  • All employees, are stimulated to propose improvements and experiment with innovations. This can be done at the Gemba (with proper supervision) or at regular intervals during breaks or before the shifts begin.

  • Management support proposals of new ideas, and stimulate experimentation. In fact, management hold employees accountable for proposing improvements, as part of their regular job.

  • Quality Circles are formed with the twofold purpose of both stimulating innovation at higher (than the shop floor) level and transferring knowledge across the organization. Quality circles are interdisciplinary, multifunctional groups of employees. As the term denotes, members of the group represent multiple departments of the organization and are knowledgeable of more than one disciplines. Think for example finance professional with knowledge of Operations Management. The QC composition ensures all business aspects are considered (e.g. finance, operations, logistics, sales, marketing, after sales, engineering, development) before proposals for major process optimization / innovation are submitted. Duration of membership in the teams ranges from some days up to an unlimited period.

  • The dynamics of such a group, result in a total that is greater than the sum of its parts.  Highlighting multiple areas of the business should help secure optimum results, transfer knowledge and champion innovation across the organization, and overcome resistance to necessary change as all related departments have been represented in the QC. 



Let’s take a simple example where various tests performed by manual workers at the production site of a car manufacturer confirm that 2 new features can be added to the breaks of an existing model. It is preliminary tested and it works, this is the result of small incremental improvements at the site. These features will lead both to the prolongation of the Expected Useful Life of the breaks (say from replacement every 1.5 to 2 years) and improved performance. Before deciding to invest in the machinery that will add this feature to all models of the brand (assuming this is a considerable investment), the organization needs input regarding the following areas from its QC:


  1. Availability of necessary finance & cost of capital to obtain the funds?

  2. Technical ability and feasibility of innovation?

  3. Acceptance of this new feature by the market?

  4. Is this indeed a value-adding feature for which the consumer is willing to pay, say, an extra $300, assuming this costs the company $240?

  5. Will this give the entity a competitive advantage?

  6. Will the company be able to launch it to the market sooner than the competition?

  7. Will this innovation be the first of many to follow in this area?


It is important to realize that the answers to these (and many more) questions will be optimized when members of the QC see themselves as serving the entity as a whole with the constancy of purpose of creating value for the consumer and the shareholders, and not defending their departments’ interests against the common good. Doing good through continuous improvement (Kaizen) is therefore a philosophy that permeates all aspects of the organization and requires adequate support from the top. 


Contrast the approach outlined above with the Variance Analysis / Cost control explained at the beginning of the Article, it will be a good exercise to realize for yourself the difference in viewpoints. The aim of the Standard Cost card, Variance Analysis approach would be to ensure that processes that are believed to be infallible are strictly followed in order to adhere to predetermined standards that are unquestionable, and ensure no cost overriding occurs. There is no focus on innovation, process improvement, value creation, and proactivity.   


Corporate Culture and Kaizen


The paradigm shift in the Corporate Culture of organizations implementing Kaizen, does not happen overnight and without overcoming resistance to change. The importance of achieving such a shift however cannot be overstated, as it may be the main key for securing a sustainable competitive advantage.

Case in point of Kaizen: how to transform Corporate Culture on the pillars of:


  1. Employee derived excellence, based on quality oriented Human Resource Policies and Strategies. An organization’s primary aim is to enable its staff become decision makers and innovators, achieve continuous self-fulfillment and by so doing ensure financial competitiveness for the Shareholders.

  2. Customer focused operations from A to Z (meeting and exceeding client expectations).

  3. Process Innovation leading to product and service innovation.

  4. Financial Competitiveness in terms of both profitability and wealth creation.


Sustainable Financial Competitiveness will be the end result of the Kaizen practices, which themselves must fulfill a greater scope of management excellence. In other words, as important as Financial Competitiveness might be, its degree and sustainability depend on the solidness of the pillars to which it is based upon, which are pillars 1-3 mentioned above.  Short term margin improvement achieved through, for example, ad hoc downsizing is not only an inadequate strategy on the long run but an arrogant attempt by organizations to achieve financial success without improving their services and products by creating value for the clients. Short termism that aims to improve financial performance while ignoring the determinants of value creation is a typical case of ‘putting the car before the horse’. It may last for a couple of quarters but it will hardly secure long-term viability.


In order to create and sustain a Kaizen culture, we need comprehensive and well rooted Human Resource Policies and Strategies.


The paramount aim of Kaizen, is to achieve a shift in an organization’s Corporate Culture, so that the latter enhances a continuous focus on process improvement, value creation, subsequently resulting into the increase of the shareholder’s wealth.


One of the most often cited quotes from Peter Drucker is that “Culture eats Strategy for breakfast”. Organizations that aim to succeed by means of Kaizen do wise to realize early on, that the only way Kaizen will be effective is by achieving a paradigm shift in the Corporate culture. Pre-Kaizen Corporate Culture is Kaizen’s ultimate victim. Management that understand Kaizen and want to see it succeed in their organization are dissatisfied with the present status quo of re-activeness, short-termism, firefighting, lack of innovation.


Post-Kaizen Corporate culture will be characterized by: employee focused motivational schemes aiming to achieve the highest levels of quality out of which process and product/service innovation will result, leading to financial competitive advantage. Main tool to achieve set goals is the individual at 3 distinct levels:


  1. The employee and his needs for self-fulfillment and the capabilities she/he can put into practice for personal growth at the organization’s benefit. Employees are considered to be the most valuable Asset of an organization and the Board have the moral duty to see that they provide the best possible means to their staff at all levels to achieve self- fulfillment and obtain the maximum input from their staff for quality improvement and innovation.

  2. The customer whose needs and expectations must be met and exceeded, primarily by Continuous Improvement of processes and products/services initiated and implemented by the employees.

  3. The shareholder. The ultimate purpose why profit-seeking organizations exist is to increase the wealth of their shareholders. Process innovation and excellent products/services are determinants of the increase of the Shareholder’s wealth.


Kaizen centered organizations realize that the interests of these individuals are not in conflict; truly motivated and satisfied employees produce optimum results at both process and service/product level, for the benefit of customers and shareholders. They do so through Continuous Improvement of manufacturing processes and service rendering at an ever improving pace and versatility.  Management’s job is to ensure employees’ capabilities are optimized by encouraging them to continuously propose, and experiment with, incremental improvements of processes and products. This is the way to achieve employee commitment, sustainable margin improvement, and product innovation.


We just described the raison d’etre of Kaizen, in a nutshell.


Kaizen is also based on the conviction that empowered employees that are willing to take on the responsibility for improving the daily processes in which they are involved, are more prone to be held accountable for achieving the revised standards that result from these improvement and to live up to the increased expectations to continuously improve their scope of work.



“Creating a Kaizen culture”, Miller, Wroblewski, Villafuerte / Mc Graw Hill, 2014

“The machine that changed the world:, Womack, Jones, Roos / Simon & Schuster, 2007 

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Leadership and Navigation:

It’s All About Teams

Effectively leading organizations means getting the right tools to the right people.


By Marcus Buckingham


In 2016, most CEOs will tell you that talent is their organization’s most precious asset and that their culture is their best competitive advantage. Yet for many companies there remains a gaping hole between that rhetoric and reality. This presents a tremendous leadership opportunity for HR, the one team that touches all parts of an organization. HR professionals are in a prime position to assess what the most productive and engaged teams are doing—and to build a culture around them. Here are four ways to do that in 2016:


Serve the organization by serving the team leader. Engagement is driven by team leaders. Yet in most organizations, HR measures engagement in an annual survey, with team leaders getting their data months later. HR professionals must put the right tools in the right hands, which means developing strong relationships with team leaders.


Engage in dynamic teaming. Teaming today is shifting rapidly as new employment models emerge and more workers think of jobs as short-term gigs rather than lifelong journeys. Our tools should reflect this reality, rather than being deployed through static, hierarchical boxes on an org chart.


If we don’t have the agility to keep up with dynamic teams in real time, we’re acting on data that’s out-of-date or irrelevant.


Gather real-time, reliable metrics. Most engagement surveys ask a long series of questions that show no correlation to retention or improved performance.


To address this disconnect, we must identify the questions that drive the outcomes we want and put the data back in the hands of team leaders to deploy right now. Mission Health and Hampton Hotels are great examples of companies getting this right.


In addition, as many organizations are discovering, performance assessment is in need of an overhaul. General Electric, Accenture and Deloitte this year joined a growing number of companies in abandoning traditional annual performance reviews. While there’s certainly a need for innovation, doing away with ratings altogether is not viable. Organizations will always need a way to differentiate talent.


Yet we know that rating people based on goals produces bad data. In fact, studies show that 61 percent of a performance assessment reflects the person assigning the rating rather than the one being evaluated.


Fortunately, we can accurately assess people’s own intentions. To gather good performance data, regularly ask team leaders a few questions about their plans for every team member: Who deserves a promotion? Who needs more training? By aggregating the data, the organization will see, quarter by quarter, what to do with each person


Employ machine-learning algorithms. Once we have the right methods in place, our systems should be smart enough to learn, over time, the rating patterns of each individual. That will help neutralize people’s inescapable biases.


We can even apply algorithms to measure individuals’ strengths, thereby ensuring that all training and coaching fits each person’s particular style and talents. Facebook has adopted an approach like this and infused it through the company at the team leader level.


To build high-functioning organizations, we must identify the best teams and build more just like them. If HR professionals can do that, they will lead their organizations to greatness in 2016.


Published at: HR Magazine December 2015/January 2016


Anchor 5

HR Expertise: Facing the Future of Work


A look at tomorrow’s HR today.


By John Boudreau


As this year’s headlines proved, there is no shortage of criticisms of HR. Whether the reproaches came from the popular or business press, it seemed everyone wanted to share why they think HR is hated, unnecessary or ill-equipped for the challenges ahead. But wouldn’t you rather hear about the future of our profession from the people who are actually leading it?


That’s what Project CHREATE (The Global Consortium to Reimagine HR, Employment Alternatives, Talent, and the Enterprise— sought to do when it began in 2013. Through interviews, focus groups and research reviews, more than two dozen top HR executives revealed this year how they think HR should evolve over the next decade. The group included CHROs representing many industries in the public and private sectors, including Disney, Gap, LinkedIn, Shutterfly, the Society for Human Resource Management (SHRM), Starbucks and others.


As it turns out, HR’s toughest critics may be themselves. Our own leaders often rated HR’s effectiveness lower than those outside the field. Even some of the world’s most accomplished CHROs indicated an urgent need for HR to improve its ability to keep up with the demands of a rapidly changing world. The project team identified five forces shaping the future of work—and how HR leaders must address them.


Exponential technological change. The rapid adoption of sensors, autonomous vehicles and artificial intelligence will trigger a fundamental rethinking of work. HR leaders must be equipped to manage flexible and transient workforces that can adapt to continual change, including frequent job loss and obsolescence of skills.


Social and organizational reconfiguration. The “democratization” of work will shift power away from traditional hierarchies toward more-balanced organizations. As work relationships become less employment-based and more project-based, HR will need to source and engage talent in diverse work arrangements that include more part-time, freelance and crowdsourced workers.


A truly connected world. The world will be increasingly linked through mobile devices and the cloud, allowing work to be done anywhere, anytime. It will be up to HR to manage newly defined talent systems that support a distributed global workforce.


An all-inclusive global talent market. Work will be seamlessly distributed around the globe, and women and non-white ethnicities will become talent majorities. Moreover, as people live longer and healthier lives, their work lives will extend as well. In response, CHROs must lead organizations in segmenting their workforces and directing tasks to the best talent, whether inside or outside the company. They’ll also need to address cultural preferences in policies, work design, pay and benefits.


Human/machine collaboration. Advances in analytics, algorithms and automation will improve productivity and decision-making. The challenge for our leaders? To successfully migrate tasks from people to machines or robots and use “big data” to find the optimal human/machine balance.


These are not roles traditionally associated with HR, yet it’s critical that our leaders take them on by 2025. The SHRM Competency Model represents substantial progress toward preparing HR leaders to succeed. At the same time, we must keep thinking beyond our conventional notions of HR’s goals and responsibilities. That’s the only way to ensure that our leaders are poised to tackle the demands of tomorrow’s world as well.


This article was adapted from an essay that appeared in the fall 2015 issue of People + Strategy, published by HR People + Strategy, titled “HR at the Tipping Point: The Paradoxical Future of Our Profession.”


Published at: HR Magazine December 2015/January 2016

Anchor 7

Activity based costing  - a survival guide for gaining competitive advantage 

Athens, January 2016


Content writer: Chris Ragkavas, BA, MA, ACCA

Management consultant, senior finance and accounting tutor.

(No distribution or reproduction permitted without prior written consent of the content writer. All rights reserved).



The purpose of a profit seeking organization is the creation of value for its shareholders, commensurate with value creation for its customers. The process is simple to describe. 

An entity creates value for its customers by manufacturing products/rendering services that meet/supersede clearly defined customer’s expectations. Assuming the entity does so at an ever-decreasing cost, or/and assuming the incremental cost of a service/product function, is always lower than the price the customer pays for it, the entity creates value for its shareholders. The monetary value paid by the customer on top of the incremental cost of a service/product function, is called a premium. Proper credit control policies should result in timely cash inflows, which discounted at the company’s WACC, reflect value creation for the shareholder, at today’s prices. This monetary value can be expressed in various ways. It can be for example, the result of a stand-alone net present value calculation or it can be incorporated in the share price. 


Simply put: 

  • We create value for the customer when we clearly identify our customer’s needs in terms of service perception, content of service, key elements of performance (timing, place, alternatives), and by ensuring our service meets these requirements or even surpasses them. 

  • We create value for the shareholder by charging a premium for the incremental cost of delivering the service, which naturally, the customer must be willing to pay for, in a timely fashion. 


The subject of this article, namely activity based costing (henceforth ABC), is equally applicable to services and products. I will mainly refer to the costing of products, as they provide a more tangible reflection of the ABC substance. 


So how did we end up talking about value creation in a costing article? Well, a thorough insight into the cost basis of any service/product we offer, is necessary in order to avoid taking substandard decisions. Remember that entities do not function in an isolated world. All sorts of direct and indirect competitors strive to earn a piece of the market for themselves. Inappropriate decision-making can have serious repercussions regarding positioning, pricing, promotion, withdrawal, benchmarking of a model, jeopardizing the going concern of an entity. 



So let’s agree early on, that any self-respecting organization:


  • Must be aware of the proper price to offer its products, i.e. 

  • What are the pricing opportunities present?

  • Why do we ask the consumer to pay for this price, i.e. what is the justification for asking “$60/unit”?  

  • How much do we really earn per unit. 


  • Must have a proper information system in place regarding the cost structure per unit, i.e.

  • What is the unit prime and marginal cost?

  • What are the necessary overheads in order to manufacture budgeted output? 

  • How can we best rationalize consumption of resources? 


We will now proceed with a number of illustrations from the viewpoint of the manufacturer, by addressing amongst others, points 1 & 2 above. 


So, how much does a product cost?

Direct material and labor, should be clear to calculate assuming a proper information system is in place. For the rest, I’m afraid the answer to this question, is “it all depends on your definition of product cost”. 

Manufacturers work with cost cards in their ERP’s. As a minimum, I expect to find for every item we manufacture the following information. (In the remaining part of the article, I will use the example of a product I call “financial calculator”). 


Financial calculator cost structure


Direct material         10.5

Direct labor                7.5

Prime cost                18.0


Variable overhead       2.0

Total marginal cost    20.0



Variable overhead relates to, say, energy consumption.  The $20 are referred to as “marginal”, “variable” cost and are a monetary reflection of the costs incurred that are absolutely necessary to produce one additional unit of production. 


Marginal costing

Companies applying this costing method would answer the question by a straightforward “it costs us $20 to produce one unit of a financial calculator”. On top of this, the company is aware they incur fixed overheads of $1million. The company is hopefully taking action to ensure the $1 million does not get out of hand, but this is as far as it goes. A margin (or mark up) on top of the marginal cost is set as a target in order to arrive at the sales price, with the aim of ensuring that overheads are covered. 


Assuming we apply a 45% mark-up on marginal cost, sales price will be $29. We will breakeven only once we sell $1million/$9 = 111,111 units.  


Absorption costing 

Companies applying this costing method include overheads in the cost card, to ensure the total cost is reflected on a per unit basis. The argument is that this is a safer method to calculate budgeted price, as the fixed overhead cost deemed necessary to produce the financial calculator are incorporated in the cost card and are thus made visible. (ABC philosophy disputes the approach of $1m being “fixed” as we’ll see in the following pages). Taking action towards cost reduction is more probable when we apply this method, though far from optimal. Let’s assume the so-called “fixed overheads” are classified as follows:


Wages and salaries           223,000

Depreciation                     174,000

Repairs and renewals        145,000

Rent and rates                 208,000

Other expenses                250,000

Total overheads             1,000,000


Entities will apply one Overhead Absorption Rate (henceforth OAR), to effectively incorporate the consumption of resources in the cost card. Let’s assume the way to go is to relate the overheads to machine hours. Total budgeted machine hours are expected to be 400,000, so the OAR is $1,000,000/400,000 = $2.5 per machine hour. What we’re saying in fact is “we incur $1 million overheads, because we incur 0.4 million machine hours, therefore we will charge each product with $2.5 for every machine hour it consumes”. Assuming a financial calculator needs half an hour to be produced, its total cost would be 


Total marginal cost      20.00

Fixed overheads            1.25

Total cost                    21.25


Can we really tell if the apportionment of $1.25 per unit reflects the actual incurrence of the necessary fixed overheads to produce 1 unit of a financial calculator? We can not. Then why do companies use this approach? Because it is simple, and takes little time to calculate. Absorption costing is often used as an example of a method resulting to “effectiveness at the expense of accuracy”. 

This is one of the main issues addressed by ABC.


In both approaches outlined so far, no thorough exercise has been made regarding the necessity of the $1 million of fixed overheads. We may incur overheads that are unnecessary. On the other hand, we may need to invest in order to expand/improve some seemingly unnecessary activities as the customers appreciate them. However, due to the cost classification presented above, these activities undertaken by the entity are not made visible, so there is a considerable chance we underinvest in necessary activities or we keep non-value adding ones.    


Activity based costing

ABC approaches overhead costs as being the result of a group of activities undertaken to support the manufacturing of products. These activities are deemed to be identifiable, separable and are the subject of scrutiny.  

The pillars of ABC are outlined below:

  • In the process of value creation, we need to collect meaningful information of costs incurred.  

  • We will reclassify costs based on activities in the workplace. There is no justification for undertaking activities unless they are value adding. We should, however, avoid “paralysis by analysis” so classification must be succinct and straightforward. 

  • The raison d’être of each activity is called driver. The total number of drivers per activity is divided by the activity costs to arrive at the cost per driver. (So for each distinct driver we calculate a unique and justifiable OAR!).

  • The consumption of each driver by a product, will result into a proper cost structure. 

  • Non-value adding activities will be optimized, outsourced or eliminated altogether. 


Reclassification of our fixed factory overheads per activity, is presented below: 



















This classification maps out the various activities reflecting consumption of resources. Let’s take “procurement” activity, for example. The $185,000 annual costs are the sum of:

  • 100% of wages and private health insurance of 2 senior buyers + 1 manager. 

  • Rent and rates of the m2 they occupy.

  • Depreciation of their furniture, laptops and smartphones.  

  • Stationery and other expenses they consume. 

  • 5% of all the costs mentioned above related to the 3 sales directors (wages, rent, and so on). Sales directors invest 5% of their time to the procurement activity as part of the business planning process; it is therefore fair to include 5% of the sales directors’ costs in this activity. 


Let’s agree therefore, for the sake of clarity that the cost of $ 4.63/PO reflects much more than the cost of the paper the PO is printed on.. 

By grouping costs this way we may objectively allocate them to each unit produced based on consumption of resources. The company in question manufactures numerous products. 

Let’s assume that manufacturing 45,000 units of financial calculators, requires:

  • 10,000 PO’s.

  • 10,000 deliveries.

  • 3,000 machine set-ups.

  • 22,500 machine hours.

  • 65,000 components. 

  • 15,000 minutes of phone calls. 


This follows that we will need to incur the following overhead costs for producing financial calculators:

  • Procurement: 10,000 x $4.63 = $46,300.

  • Deliveries: 10,000 x $0.85 = $ 8,500.

  • Machine set-ups: 3,000 x 24 = $ 72,000.

  • Machine running costs: 22,500 x $0.90 = $20,250. (Remember: half an hour/unit).

  • Inventory management: 65,000 x $0.40 = $26,000.

  • Customer service: 15,000 x $1 = $15,000.


Total overhead cost = $188,050 / 45,000 = $4.18 per unit.


Overhead cost allocated based on the ABC exercise is 3.34 times higher than based on absorption costing, i.e. $4.18 vs. $1.25. Final cost is $20 + $4.18 = $24.18, vs. $21.25. 


Assuming the entity would apply in both cases a mark-up of 65% on cost, retail sales price based on absorption costing would be $35.06, whereas based on ABC it should have been $39.90. The benefits of applying ABC in our example can be outlined as follows:

  • We have a clear, objective allocation of fixed overheads. Overhead costs are not allocated per unit based on an arbitrary OAR, but on facts. These facts reflect the “usage” of the driver of each activity.  

  • Based on the fact-based data, the entity can proceed into rationalization of the activities and their consumption. Fact based questioning can be a lifesaver. For example, “why do we have to raise 10,000 PO’s (25% of the total) for 45,000 units, i.e. “why do we include only 4.5 units on average per PO”? Is this a value adding activity?”.  There appears to be enough room for improvement at this level. Likewise “Why do we spend 15,000 minutes, or 250 hours, serving customers over the phone?”. This costs us $15,000 for financial calculators only. Are the phone calls related to defects? What are the issues most commonly addressed? Are they complaints, or do they relate to product specifications? (Next time you call an organization and you hear “your phone call is recorded for safety and quality reasons”, remember: you may indirectly contribute to an ABC exercise of that organization).

  • The entity can include the findings of the ABC exercise into a value analysis and value engineering investigation. Simply put: the entity can identify all manufacturing and service features of a financial calculator as required by their customers and make a cost/benefit analysis as explained above. Such an investigation may reveal for example, that the financial calculator needs to be customized very often in terms of functions, shape, color and size, as some industrial customers placing large orders give their employees the opportunity to customize the calculators they use. It may then be justifiable that the entity raises so many PO’s or that they have to set-up the machines so often (30% of total set-ups relate to this product), or that they need to spend so much time on the phone. If that is the case, and the industrial customers are willing to pay the corresponding premium for that purpose, maybe the entity is justified at increasing the mark-up, at say, 70%. 

  • Extreme as it may sound, all activity costs are deemed to be variable. Scrutinizing the reason why we undertake any overhead activity, questions the existence of all activities, so at the extreme end of ABC, there is no justification for using the term “fixed cost”.  


I consider useful at this stage to refer briefly to target costing, as it is often the driver for ABC. At the outset of the design phase of any product, the entity will make an investigation to identify whether there is a gap in the market. Let’s assume that 4 competitors dominate the market. The former 2 are cost leaders and produce “cost conscious calculators for the masses” at a range of $20-$25. The other 2 are differentiators and known for producing state of the art scientific calculators that retail for $41. The entity identifies a gap in the market and plans to offer a calculator in the range of $33-$37. This range would give the entity enough level playing field to distinguish itself from the entry level models, without seeming to ask for “too much”, as they are still no market leader. 


Without an ABC exercise, the entity would proceed with the production of the calculator, launching it in the market for $35.06 under the impression they earn the target 65% mark up on cost. However the actual mark up earned based on the actual overhead consumption would be only 45%, calculated as follows: ($35.06 retail price - $24.18 actual cost = $10.88, $10.88 / $24.18 = 45%). This is 20% less in nominal terms than the target, and in light of this, the entity may take the following actions:

  • Investigate and rationalize consumption of non-value adding activities, outsource them or eliminate them altogether. For example, deliveries can be:

  • Restructured. This can be achieved by delivering at 2 instead of 3 stages, i.e. deliver directly from plant to customers and not through the central warehouse, reducing total cost and nr. of deliveries. All related implications must be considered, i.e. effect on inventory controls, quality checks, IT backbone necessary, etc. 

  • Outsourced to a 3rd party. 

  • Eliminated altogether, i.e. agree with industrial customers they arrange pickup from the entity’s plant. 

  • Increase the price to $39.90, though this may be less likely, taken that the established differentiator charges $41. If however, the high level of customization justifies such a price, this is clearly an allowable option. 

  • Revisit basic and secondary features offered as part of the value analysis and engineering exercise. The removal of a secondary function or the reengineering of a prime one, may result into a reduced total cost, making production of the financial calculator a sensible option. 


These actions may result to downsizing of personnel involved in an activity, investment in people and other resources involved in another activity, outsourcing of an activity, pooling of resources to optimize their usage, etc. These decisions will be based on hard facts and not intuition, based on the method described.  


Care should be taken, though, to avoid eliminating any seemingly non-value adding activities, which are nevertheless necessary to stay in business. For example “market building”, “public relations”, may seem superficial as there is not always a direct link to value creation for the shareholder, however it is clear that no business can survive without them. 


ABC is one of the most valuable toolboxes to use when optimizing cost structures, in the pursuit of competitive advantage. ABC should not be examined in isolation. For starters, its findings are used at the budgeting level, in a process referred to as Activity Based Budgeting (ABB). ABB is a budgeting method that uses the findings of the ABC exercise, to plan on activities and corresponding driver consumption and costs for the budgeting period.


Activity Based management (ABM). Simply put, ABM is the institutionalization of the ABC philosophy across the board of decision-making. All supporting activities are subject to the check of “value adding vs. non-value adding”. The consumption of activities per product is carefully examined, and decisions about pricing, positioning, value analysis and engineering, are based on facts and results of the ABC exercise. ABM signifies that ABC is not an one-off, ad-hoc activity, but an ongoing process carefully managed across all levels of an organization.  


ABC is also often combined with other modern management accounting techniques as: Kaizen costing and the Plan Do Check Adjust methodology, as part of an exercise to reduce the cost of the necessary activities. 



Anchor 6

Lean management and the Toyota Production System 

Athens, December 2015


Content writer: Chris Ragkavas, BA, MA, ACCA

Management consultant, senior finance and accounting tutor.

(No distribution or reproduction permitted without prior written consent of the content writer. All rights reserved).


“We are what we repeatedly do. Excellence is not an act, but a habit”, Aristotle. 


Management practitioners and students, the public I mostly have the honor of dealing with, are very keen on understanding the mechanics of any seemingly complicated concept which happens to be the subject of a teaching session. Rightly so, I may add, as who is really in for another jargon that sounds “interesting”, unless it also has a tangible value?


Lean and the Toyota Production System have been practiced since the 1960’s, their value and applicability has anything but diminished, though. They also form part of U.K. chartered accountants’ exams. Both facts were the motive for kicking off the discussion on Kaizen and Total Quality Management (TQM) by means of a short series of articles (!articles/prjig). I advise you to go through these articles before going any further, unless you are familiar with the basic TQM terms.  


Let me remind you very briefly what TQM stands for. “Total” indicates that what we will describe is not an isolated procedure occurring at the “quality department”, but a process permeating the whole organization. “Quality” reflects the focus on addressing customer’s needs, and an inherent expectation of higher level of performance (not a simple “value for money” relationship). “Management” reflects the existence of the necessary support from top management, and the ongoing need for coordinating any related activity. 


The current article aims at answering the main questions related to the matters around the basic principles of the TPS and lean in the workplace.


A case for improvement

Anyone that has not always worked for Perfect and Co. has probably encountered one or more issues of the following nature: inefficiencies, conflicting priorities, substandard addressing of customer issues, firefighting, feeling too much supervised or too little led, etc. We’ve all been there and had hoped that the problems would at some stage be solved, God, we even came up with some brilliant ideas which we shared with our colleagues during lunch breaks, even during the company Christmas dinner (nothing beats talking about work during such an occasion, he?). However, we either never addressed these issues at a higher level within the organization, or little attention was paid to our ideas that one time we dared to. We could nevertheless see the harm done in terms of productivity, sales opportunities lost, obsolescence of inventory, demotivation of staff, and the likes. 


Thinking about it, I can come up with 4 reasons why companies stifle productivity this way. 

  • Management inertia & complacency. Decision makers are unwilling to seriously undertake root problem solving, due to lack of interest. “Things seem to be working fine for us, we’ve been in business forever and there is really no reason for stirring the waters of politics and the status quo”. 

  • Tunnel vision.  Short-termism prevails; “hitting next quarter figures” seems to be the name of the game and anything else, must simply wait. 

  • Individual efficiencies at the expense of company economies. Each division working for its own good, overseeing the big picture and the effect of its actions to the company. Inventory is piling up in front of machine “A” that cannot be processed further by machine “B”. Division A operates at full capacity making full usage of economic benefits derived from its equipment, but the company invests in idle WIP, as no further processing is possible in real time. 

  • Not understanding the physics of the processes. There is a genuine lack of understanding of the connection between inbound logistics, various processing activities and delivery of a product/rendering of a service to the end user. There is no cause and effect analysis. Our operations are either unnecessarily too complicated or we do not understand them. 


The Japanese way forward 

As in most solutions developed by the Japanese as part of the TQM philosophy, so also in lean and the TPS, we identify the following core elements:

  • These methods are more than a project that must be completed on time. That is why Project Management techniques are hardly ever used when lean is implemented, certainly not in the sense of “key deliverables by that date, or else..”. These are techniques whose aim is to transform organizations into a learning, continuous self-improving vehicle on the journey towards excellence and competitiveness. 

  • The methods are employee centered, in the sense that employees at all levels are expected to both contribute and benefit from the continuous application of the principles underlying these methods.

  • Entities should display the necessary commitment from the top down to the operational level if they are serious about reaping the benefits of applying the TPS and lean. 


So what is TPS? 

The TPS sows the seeds of a philosophy that will result into an environment that is continuously improving, i.e. into a lean environment.  TPS is (in our context) applied by the Plan Do Check Adjust methodology and results into lean. 

The building block for getting lean is the TPS, the main principles of which are:


  • All work must be specified, i.e. content, sequence, timing and outcome. 

The problem addressed is that job descriptions are often unclear, their content is outdated, or employees are left at their own devices to fulfill their role, the best possible way.

  • Every customer-supplier connection must be direct and prerequisites for passing on something to the next stage must be clear. 

Some of the most common problems in the workplace, stem from the fact that:

  • Reporting lines are unclear or also not in line with current business needs (i.e., again, outdated). 

  • Work is duplicated. 

  • No clear sense of ‘zero defects’ is in place, so a substandard product (e.g. a mobile phone in progress) or service (e.g. a management consulting report) is passed on to the next stage of production/engagement. This results into rework, which translates into time and money spent in non-value adding activities.    

  • The pathway for every product or service must be both simple and direct and the flow of sequence must be clear. 

Once walkthroughs are performed and flowcharts are sketched, inefficiencies will be made visible. It is very likely that there is room for optimizing procedures, cutting out unnecessary steps, frontload controls and streamline standards.  

  • Any improvement must be made according to the scientific method, under the guidance of the sensei, at the lowest possible level.  


Sensei is a highly respected teacher with sufficient experience and feel for lean, capable of continuously leading and inspiring practitioners. 

Improvements must be the result of fact finding exercises and approved by a qualified individual. The TPS encourages improvements at the operational level. They are not devised behind closed doors by the top experts at the board. In fact, top management’s duty is to provide the necessary tools across the entire organization so that improvements are stimulated continuously by the people performing the actual work, at the gemba (the workplace). 


So what is lean?

The continuous application of the TPS results into lean, lean being a system of production or service rendering, that promotes continuous improvement by ensuring problems (gaps between standard and actual) are brought to the surface, has a clear way of prioritizing the problems based on business objectives and ensures people are in place that can take ownership of problem solving. The latter is achieved by means of the method devised by W.E. Deming -the most influential practitioner and academic in the field of lean- routinely described as Plan Do Check Adjust (see later). 


Allow me to repeat, that lean is not an one off improvement in an existing system, but a continuous transformation of the organization (i.e. of its processes through its people), in the pursuit of excellence. 


What is PDCA?

The point of reference of any TQM method is addressing the customer’s needs, meeting and surpassing customer’s expectations. By so doing, entities achieve quality, and create value for their customers. Customers will pay a premium for that, which is the amount above the incremental costs necessary to render the service or manufacture the product. Premium is the monetary reflection of value creation for the shareholder, which is the ultimate purpose of all profit seeking companies. Performing procedures all the more better and at an ever-reducing cost, results into a continuum of value creation for the customer & the shareholders, which is the quintessence of TQM. 


Customer chain starts from the end user (the actual external customer) whose expectations are clearly identified at the outset of the design phase of a product/service. A backward chain is then constructed including all internal production/service steps necessary. The work cells performing each stage of production/service are called the “internal customers”. A value stream mapping is then created. Stream is the visualization of the necessary processes in order to deliver the product/service. As explained, the existence of value is reflected in the premium paid by the customer above the cost of any activity, which is part of the processes. 


TQM includes more than one methods in its pursuit of excellence, e.g. the PDCA (see further on) methodology, the DMAIC methodology (Define the problem, Measure current performance, Analyze the current process, Improve the process and Control the improved process & start the cycle again). Regardless of jargon used, the focus of all TQM methods is the continuous improvement of the internal processes resulting into value creation for the customer and the shareholders.     


PDCA as developed by W.E. Deming is a way of thinking that recognizes that businesses are dynamic, so its aim is to drive people to develop a disciplined method of identifying, defining, and solving problems as they occur. 


PDCA short case study

Let’s say, we are dealing with a 450 room, 5 star hotel, in the city center of a European city. The hotel is known for its ability to deliver a bundle of ‘custom made services’, a source of competitive advantage for the last 6 years. Hotel vows to offer any sort of 12 hour combined services in 10 languages at their customer’s will e.g. custom made sightseeing, combined with lunch, sporting opportunities and real estate visits. A considerable part of their customer portfolio consists of affluent tourists that explore real estate investment opportunities during their short holidays in the city. The hotel has a wide range of long term partnerships with local companies as real estate agents, tour guides, sport centers, Michelin star restaurants, etc. 


Target time between receiving a request for a bundle of ‘custom made services’ and planning and confirming it to customers, is 1.5 hours. Average current performance of the last 4 months is 7.5, an unacceptable deviation of 6 hours. This results into bad publicity on social media, deteriorating customer reviews and a reduction in bookings. Note that there is no increase in the volume of requests; backlog is created due to substandard handling.






This looks like a first class opportunity for a PDCA exercise, doesn’t it? Let’s have a go. 


  • Planning stands for identifying the gap between targeted and actual current performance, i.e. 6 hours. These are opportunities for improvement identified at the gemba by practitioners, under the guidance of a qualified sensei, subject to scientific fact finding. The aim is to identify the root cause of the gap. TPS philosophy encourages people to “ask why 5 times” i.e. not to rush but seek for the actual cause of the problem. 

We may think the root of the problem is absenteeism or lack of interest in the department dealing with the “custom made services”. Further investigation reveals that the employee turnover in the department is unusually high during the last 4 months, resulting into loss of intellectual capital. The main reason for this, is employee demotivation due to lack of supervision. The newly appointed supervisor, Janet, partially fulfills also her previous role of operations assistant manager, as no full time replacement for that role has been found. She has not managed to update her new employees on the “custom made services” handling techniques, new partnerships with 3rd parties, new business opportunities, etc. 

The root cause of the problem is the human resource practices (or lack thereof). No proper personnel succession, insufficient training and inappropriate supervision. 

  • Do.  Once the root cause has been identified, we need to develop countermeasures to tackle it. 

  • Speed up the process of filling in the position of operations assistant manager. Set a target of, say, 15 days. 

  • Update the “custom made services” manuals, and explain their content to the department personnel.  Target: within 48 hours. Incur overtime, if necessary. 

  • Ask Janet to do 2 hours overtime for the next 15 days. These will be spent on analyzing the root cause of complaints to ensure timely resolution and ensure proposals are in place to gradually eliminate their root cause. 

  • Janet to report daily her findings and recommendations to her sensei. Sensei to provide Janet with all means necessary so she can act both as a supervisor and an instrument of continuous improvement.   

  • Janet to organize by the end of day 2, a series of cohesive presentations, explaining to her employees, their role in: handling, proposing and improving services and preventing complaints. Practitioners to understand their role in the value stream, why it is essential they act swiftly and professionally, how their role fits into the equation of the “hotel experience” and how the organization and themselves will benefit from this. Practitioners must also receive training on how to report problems to Janet in a timely and succinct way to prevent repetition, and improve the services offered. These are the people primarily dealing with the 3rd parties while arranging a “custom made services” package. They should be supported to develop the professional acumen to sense any deterioration in the level of service offered by these parties, before this hits the value stream.      

  • Check. Janet and the sensei will check daily the process improvement by means of fact finding and comparison to targets. 

  • Adjust.  When the new process is proved to work fine, this is in itself an adjustment of the old practice.  


I would also suggest a similar improvement cycle in the human resources department, but I will not elaborate on this. My intention is to provide you with the gist of the process.     


Recapitulating, I’d highlight: 


  • PDCA improves the system that generates defects by identifying their root cause; it does not firefight the defects. 

  • Its main tool to do so is training and retraining people so that they know why they are performing their job and how they may add value to it. Management and the sensei must lead and inspire, not command.

  • PDCA allows mistakes in the process of improvement, however it does not tolerate substandard work.  

  • The solution to any business opportunity (closing the gap between target and actual) is not context-free, i.e. there is no ‘one size fits all’ solution to all problems. We are not mass-producing solutions. We develop people that take ownership of quality for their work. We depend on their input to gain competitive advantage; we therefore provide them with all means necessary for that purpose. 

  • This is a dynamic process. As none of the variables of any process stay constant, the PDCA cycle is redone at regular intervals to ensure excellence. In our example above, all inputs are dynamic, i.e. the customer profiling, the services offered, eventually also the practitioners. 


Empowerment is a term we come across very often in the context of TQM. Are employees in a TPS, lean, PDCA environment, empowered? It depends on how we approach empowerment. 


A false perspective is that empowerment stands for absolute freedom to go your own way, cost what may, as long as financial Key Performance Indicators are achieved. That’s definitely not the case; in fact such a pattern has been the source of many problems associated with empire building, corporate failure, and moral hazard.  

If we define empowerment as the provision of the necessary freedom to come up with innovative ideas, that are fact checked and closely monitored by the sensei, and shared across the board so that the whole company benefits from it (a process known as yokoten) then yes, employees in our environment are empowered and openly recognized for their contribution.  


I finish by emphasizing that the lean environment is only sustainable, when the TPS practices as PDCA are applied continuously. Irrespective of the success enjoyed in the past, unless top management are committed to persist in promoting these principles, entropy will creep in. Entropy is defined as the amount of energy in a system that is not available to do any productive work. Most business environment’s parameters are dynamic, e.g. the market, available technology, personnel, infrastructure, tastes and expectations of the consumer, competition. An organization will outperform competition and surpass customer expectations, even produce every now and then a new Toyota Prius, an iPhone, a smart TV set, to name but a few, only when it continuously demonstrates its commitment to develop people that are its spearhead on its way to excellence. 



“The Toyota Way to Continuous Improvement”, J. Liker, J. Franz, McGraw-Hill, 2011


“The Goal”, E.M. Goldratt, J. Cox, Ashgate Publishing Ltd., 2004



Anchor 8

ACCA for CBE, computer based exams


It’s full steam ahead for the introduction of CBE exams this September, says ACCA’s Director of Qualifications, Catherine Edwards..

The computer-based exams have been ‘three years in the making’, and students will be expected to answer using spreadsheets and word processing with table creation functionality. In addition to specimen exams, ACCA is planning to release a blank spreadsheet and word processing sheet so students can practice with them. Again these will be released late April time.

PQ also discovered that ACCA plans to use a specialist supplier to provide its worldwide computer based centre network. The supplier is very established at running computer-based exams worldwide and will ensure dedicated centres for ACCA students to take their exams in a professional and uninterrupted manner.

Edwards stressed that ACCA will be running parallel exams – both paper and CBE exams. She said a CBE-only offering will only happen when students and tutors are ready, and will be introduced on a country-by-country basis, starting small with selected centres available in certain cities initially. UK and Ireland will be in the first set of countries to come on-line.

Edwards explained under the new CBE regime PQs will be still receive a mark for their exam and sitters will still need 50 per cent to pass. When it comes to the CBE exams themselves she explained exams won’t all be the same but ACCA has taken steps to ensure all exams are of the same standard, and as the exams are controlled across the different time zones that ACCA offers exams in, steps are also taken to ensure the exam content is protected. ACCA will be releasing details of how the model works. It comes with a lot of research and has been explained to the regulators, who are all happy.

ACCA has had to work closely with the regulators – the likes of SQA, QAA and FRC, and a number of others around the world. They too have had to be taken on the journey.

Anchor 10

Non current assets – IFRS roadmap, Part I

Athens, August 2016


Content writer: Chris Ragkavas, BA, MA, ACCA

StudySmart management consultant, senior finance & accounting tutor

(No distribution or reproduction permitted without prior written consent of the content writer or StudySmart. All rights reserved).


There is hardly any practitioner or auditor immune to the realm of non current assets(henceforth NCAs). Accountancy candidates are sometimes overwhelmed by the fact that the same piece of property’s treatment may be governed by more than one financial reporting standards. Whereas the concerns are understandable, the reasonwhy this happens is because each standard deals with its own “part of the deal” of a transaction.


The purpose of this article is to clarify a series of issues related to the recognition and treatment of NCAs based on the nature of the transaction and the party in whose financial statements this transaction is recognized. It is not an exhaustive article on NCAs, however I refer to all material aspects deemed necessary to gain an insight into the mechanics of the mainstream transactions of which NCAs are a part.  


The element of cost

All NCAs are initially recognized at cost. If purchased and not self-constructed, cost is most probably their fair value. Notwithstanding that, this fair value for the buyer is its cost. There are some slight differences amongst standards dealing with NCAs as to what constitutes cost of a NCA, however the general guidelines are that it includes:

  • Purchase price including import duties and non-refundable purchase taxes, less trade discounts and rebates. Early settlement discounts are recognized as a periodic income and are not deducted from the cost of the asset.

  • Any other directly attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management as electrical installations, site preparation, initial delivery and handling. 


Any subsequent costs that increase the expected economic benefits expected to flow into the entity, are capitalized. These would be material expenditure incurred to either prolong the expected useful life of an asset, or enhance the economic benefits during the original expected useful life.  


The element of fair value

As we will see later on, in some cases, NCAs may be subsequently measured at fair value. Since 2013, IFRS 13 Fair value measurement provides the framework for defining fair value whenever fair value is referred to, in individual standards. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly (previously referred to as “arm’s length”) transaction between market participants at the measurement date. 


In order to calculate fair value, entities must use a range of inputs:


Level 1 inputs

These are quoted (unadjusted) prices in active markets for identical assets, which the entity can access at the measurement date. 


Level 2 inputs 

Inputs other than quoted prices included in Level 1, which are observable for the asset, either directly or indirectly, e.g. quoted prices for similar assets in active markets. 


Level 3 inputs

Unobservable inputs for the asset should be used to the extent that observable inputs are not available. For a cash generating unit, this would be a cash flow forecast developed using the entity’s own data, provided there is no reasonably available information that indicates that market participants would use different assumptions. 


We will now refer to a range of standards referring to NCAs.


Owner occupied properties, plant and equipment

IAS 16, Property plant & equipment is applicable. 


Initial recognition

Once the asset meets the definition of an element and has a cost that can be measured reliably, the entity must recognize it. These would be owner occupied properties, or other forms of tangible non-current assets (NCAs) held by an entity for use in the production or supply of goods or services, or for administrative purposes. 


Cost is defined as the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction, or, the amount attributed to that asset when initially recognized in accordance with the specific requirements of other IFRSs (e.g. IFRS 2 Share based payments). 


Cost elements have been referred to, above. In addition, for owner occupied NCAs, the entity should include where applicable:

The initial estimate of dismantling and removing the item and restoring the site on which it is located. The present value of these costs is recognized as part of the non-current asset and a corresponding provision is recognized for the same amount. Any subsequent amendments in the estimated value of the future obligation are applied prospectively and any difference is also duly recognized in the value of the non-current asset and the provision.  This is a typical example where more than one standards are combined in the same transaction: IAS 16 related to the non current asset side of the entry, IAS 37 Provisions contingent liabilities and contingent assets related to the provision side of the entry, and IAS 8 Accounting policies, changes in accounting estimates and errors, stating that changes in estimates be treated prospectively. 


Subsequent measurement

Allowable subsequent measurement of the NCA according to IAS 16 is either based on historic cost or on revaluation (fair value). 

The entity should apply the same model for subsequent measurement to all assets of each class. So an airline owning both cargo (Class 1) and passenger (Class 2) aircrafts, should apply the cost or revaluation model to all aircrafts belonging to each class. 


When an entity applies the revaluation model to a class of assets, the fair value of each asset is determined individually and the corresponding upward revaluations or impairments are recognized per asset. This means that losses in one asset may not be offset against gains in another asset, with the purpose of avoiding the recognition of the losses. In the financial statements, gains and losses of all NCAs are presented as a total in the Statement of Profit or Loss and/or under Other Comprehensive Income. You need to consult the IAS 16 specific guidelines, for further reference. 


Irrespective of the model used, all NCAs under IAS 16 are subject to impairment testing, i.e. if the recoverable amount is lower than the carrying value at each reporting date, a corresponding impairment loss/reduction of revaluation gains is recognized. For NCAs carried at history cost, the recoverable amount is always the higher of fair value less costs to sell and value in use. For NCAs carried at fair value, the fair value at the measurement date is compared to the carrying value and any differences are duly recognized. 


Value in use is the sum of discounted relevant cash flows expected to flow into the entity from the continuing use of the asset. 

Entities must consider at the end of each reporting period if there are any indications of impairment. Indications of impairment may be internal or external. 

Examples of internal indicators are obsolescence, physical damage, or the fact that the asset is idle for a long period.

Examples of external indicators are increased market rates affecting the present value of the cash flows to be derived from the use of the asset, comparison of the fair value of the asset with similar assets in the market. 


IAS 16 states that an asset is depreciated over its expected useful life, i.e. a systematic allocation of expensing must occur to match the economic benefits of the asset withthe part of its value being consumed to obtain these economic benefits. Any changes in the expected useful life of an asset or its depreciation method, are applied prospectively, based on IAS 8. 


IAS 40 Investment property

Investment property is defined as being property (land, building, or both) held by the owner or by the lessee under a finance lease, to earn rentals, for capital appreciation or both, rather than for:

  • Use in the production or supply of goods or services or for administrative purposes, or;

  • Sale in the ordinary course of business. 


Items within the scope of IAS 40, are therefore:

  • Land held for long-term capital appreciation rather for short-term sale in the ordinary course of business;

  • Land held for a currently undetermined future use; it is regarded as being held for capital appreciation;

  • A building owned or held under a finance lease by an entity and leased out under operating lease(s);

  • A vacant building that is being held to be leased out under an operating lease(s);

  • Property that is being constructed or developed for future use as an investment property;



Items outside the scope of IAS 40 are :

  • Owner occupied property, where IAS 16 Property plant and equipment, applies;

  • Property that is held for sale in the ordinary course of business or is under construction for that purpose, where IAS 2 Inventories, applies;

  • Property leased under a finance lease to another entity, where IAS 17 Leasesapplies.   


Initial recognition

Investment properties are initially recognized at cost. Investment property is recognized as a tangible non current asset, when:

  • Its is probable that the future economic benefits that are associated with the investment property will flow into the entity; and

  • The cost of the investment property can be measured reliably. 


Subsequent measurement

  • There is a rebuttable presumption that the fair value of an investment property can be measured reliably. Investment properties should therefore be measured at fair value. If the property is measured upon commencement of operation at fair value, the entity must continue to its measurement at fair value until de-recognition or reclassification. There is no justification to withdraw from this measurement principle, even when comparable market transactions or market prices that would both assist in arriving at the fair value of the propertybecome less readily available during the life of the investment property. 

  • Movements in fair value are recognized in the statement of profit or loss, and investment properties measured at fair value are not subject to depreciation. 

  • When fair valuing an investment property, the entity should ensure that it reflects among other things, rental income from current leases, and other assumptions that market participants would use when pricing the investment property under current market conditions [IAS 40:40]. 

  • In exceptional cases, when an investment property is initially acquired, constructed or reclassified as such, there may be clear evidence that its fair value is not readily measurable on a continuing basis. In this case, that particular investment property, is measured using the cost model as described under IAS 16 Property, plant and equipment.   



IAS 2 Inventories

Any non-current asset, which is purchased or constructed with the sole purpose of being sold in the ordinary course of business, is subject to IAS 2 Inventories. 

It should be obvious that entities manufacturing cars, buildings, machineries, treat these elements as inventories. They are meant to be sold in the ordinary course of business, and are therefore current assets. 


Initial recognition

Self-constructed NCAs, which are inventories, are recognized at cost during the construction period. Naturally, purchased NCAs, which are inventories, are recognized at purchased cost, please look at the beginning of the article for more information regarding the element of cost. 


Subsequent measurement

Post manufacturing/construction or purchase, they are carried at the lower of cost and net realizable value. 


No revaluation gains should be recognized on these assets, as it is never justified to recognize prematurely gains on assets, which are meant to be sold in the ordinary course of business. 


Impairment losses however should be recognized immediately once they are determined. An entity recognizing an asset as inventory at cost, claims that the future economic benefits to flow into the entity by selling the asset as part of its ordinary business are at least its cost. If there are any indicators that this is not the case, the entity must recognize immediately impairment losses, which are the difference between the asset’s net realizable value and its cost. Net realizable value is defined as “the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale”. 


Assuming entity A is a developer constructing properties to be sold in its ordinary course of business. Properties are recognized at cost during the construction period, based on IAS 2 rules, as regular inventory. Generally speaking directly attributable costs must be included in the cost of the property, i.e. purchase, conversion and other relevant costs. In IAS 2, there are some deviations from the general cost rules as explained so far, related to overhead absorption. [Based on IAS 2, cost includes a systematic allocation of fixed and variable overheads, whereas under IAS 16 (self-constructed NCAs) such an allocation is not permissible. Any additional details on this matter are beyond the scope of this article]. 


Once B buy the property, they will recognize it as a NCA (IAS 16) or Investment property (IAS 40). The same goes for cars, machinery, etc. A recognize them at cost as inventories, B upon purchase, as NCAs.


IFRS 15 Revenue from contracts with customers

If however, a NCA, let’s say a property, is constructed by A based on an order placed by B, it is very likely that this transaction is subject to IFRS 15, Revenue from contracts with customers. This means that it is very likely that A will not recognize the property as inventory and de-recognize it only on disposal to B. Οn the contrary, A gradually recognize the revenue and related costs incurred in order to complete the building, during the construction period.  


A will gradually recognize revenue and related expenses during the construction period if any of the below mentioned criteria are met:


1. A’s performance creates or enhances an asset that the B controls (see below) as the asset is created or enhanced.

2. A’s performance does not create an asset with an alternative use to A and A has an enforceable right to payment for performance completed to date. 


As for 1, control is deemed to exist when B, can do any of the following with the property A construct:


  • Using it to produce goods or render services;

  • Using it to enhance the value of other assets;

  • Selling or exchanging it; 

  • Pledging the asset to secure a loan. 



As for 2, it should be straightforward that provided A can not use the property at stake for any other purpose, e.g. direct it to another customer should B decline the contract and A is contractually entitled to payment for work performed to date, as in 1 above, A gradually recognize revenue and expenses related to the construction of the property.


If neither 1 nor 2 apply, then A will recognize the property as inventory based on IAS 2 and recognize revenue and cost of sales on disposal of the property to B. 


This article will be followed up by a second part dealing with IAS 38 Intangible assets and IFRS 5 Non current assets held for sale, and discontinued operations.


Queries, comments, are welcome at   

Non-current assets - IFRS Roadmap, Part I

Chris Ragkavas, BA, MA, ACCA

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