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Partnering with the business to create value

An interview Chang Qing, chief financial officer of Shanghai Huayi (Group) Co.

Chang Qing is the chief financial officer of Shanghai Huayi (Group) Co., a state-owned Chinese enterprise that manufactures raw materials and products for the chemicals industry. Huayi has more than 20 wholly owned or holding subsidiaries in China and also operates a number of ventures in Africa, Hong Kong, North America and Southeast Asia. Mr. Chang is a member of the Shanghai CPPCC Standing Committee, chairman of Shanghai Huayi Technology Co. and general manager of the Huayi Group (Hong Kong).

Outlook Q&A: What is your background and how did your career path lead to your current role as CFO?

Chang Qing: When I was an undergraduate, I actually majored in thermal and power engineering and not finance. I eventually became one of China’s first MBA students and received my degree in 1991.

After graduation, I started working with the Shanghai Chlor-Alkali Chemical Co., one of China’s earliest and largest listed companies. At that time, the enterprise was transforming from a manufacturing entity to a joint-stock company, and urgently needed to reform its internal management systems.

During my work, I was rotated across six or seven internal functions, beginning with strategy, then assets, and later the secretariat. At this time, I was recognized by the general manager as someone with good ideas, but who lacked experience in factory management. So he sent me to work as an assistant director of a business with about 3,000 employees. There I gained experience managing frontline employees in the workshop. Later, the company set up a marketing group and I assumed responsibility for that function. After a number of years in human resources and as deputy general manager for sales, I was appointed as Huayi CFO in 1999.

So this broad range of experiences exposed you to many aspects of how a company operates.

Yes, those different roles helped me understand almost every part of an enterprise. This is valuable because, as CFO, I need to be able to put myself in the shoes of workers anywhere and everywhere across the business.

My expectation is that our company’s finance staff will also have backgrounds that go beyond finance. For instance, half of Huayi’s current CFOs did not major in finance at university.

Of course, understanding finance is essential, but I do not want them to have only worked in finance. I want them to be familiar with the business as a whole, to seek solutions from the business’s point of view, and to take the initiative to help people in the business line, even if they haven’t been officially requested to do so.

Tell us more about taking initiative to help the business.

This involves an important balancing act. I see my role as being a valuable intermediary inside the organization. We may suggest new ways of doing things, or a general manager or a line worker may suggest new business processes. But by definition, by being new, they will differ from existing procedures. As a CFO, I must exercise discretion in these situations. I can’t always say yes, because then our company may have difficulty complying with key procedures and this could trigger issues in the future. However, we can’t always say no. If we do, our business will find it hard to innovate and grow.

So I believe that a CFO should help the business to be creative and innovative. On the other hand, the CFO must ensure that the operation is stable and robust, and that it complies with the rules.

Ultimately, our goal is to help create value. This requires practical approaches at work. I would describe my approach to financial value creation as encompassing best practice and simplicity.

From your experience, what are some examples of partnering with the business to create value?

One of our businesses is a Hong Kong–based company that Huayi once prepared to shut down because it was a cost center only and produced no profits.

When I reviewed the business, I discovered that it would have been nearly impossible for us to establish another enterprise in Hong Kong that could be authorized to undertake the investments this company was responsible for. So it would be a great loss for Huayi to close this business. Further, the losses it was incurring were the result not of bad operations but rather an inappropriate business model. I expressed this point of view to the chairman and, as a result, Huayi purchased the company. Now the company has grown into a fully functional, profitable entity.

This is a challenging time for many businesses to be engaged in budgeting. What have you learned at Huayi regarding budget management?

Budgeting is, of course, an essential task for a business. Budgeting seeks several goals: to give a business control over its income statement, cash flow statement and balance sheet; to make sure an enterprise is working toward the board’s strategic objectives; and to give CFOs access to information about their subsidiaries.

This latter point about information access is increasingly important. As a process-oriented group, Huayi needs robust information management systems because the capacity of an upstream enterprise may affect the manufacturers’ operations downstream.

At present, we have eight secondary companies manufacturing more than 100 varieties of products. In such complicated portfolios, each company cannot determine its own maximum production efficiency without considering how the other companies operate. I need to plan at the group level to find the best model for all our businesses.

Another point relative to information management is that, compared to multinationals, Chinese enterprises often find it more difficult to implement ERP systems. We see substantial resistance to this kind of change. However, ERP systems can help impose robust corporate rules and processes, which is useful for many Chinese companies. Also, a number of successful Chinese companies have already implemented ERP systems with good results.

Do you worry that, in some cases, the budgeting process is so heavily focused on daily operations that it risks ignoring a company’s key strategic objectives?

Yes, and I have encountered such challenges. During my work at Shanghai Chlor-Alkali, I identified three improvements to correct flaws in the budgeting process.

First, we used linear budgeting methods to improve the accuracy of the budget process. Second, we took steps to make sure that budget management did not become too rigid, because when it does, workers may find it difficult to gain spending approval and may become discouraged. They may not suggest innovations, even if such plans and suggestions involve relatively low costs. Workers may give up in the face of complex procedures, even though a few more thousand yuan could have helped retain an important client.

Finally, I noticed that during the budgeting process, we were too concerned about the current situation instead of focusing on strategic budgeting. For example, how could we double our sales from 50 billion to 100 billion yuan within five years? Should growth be driven by sales alone or also by M&A? These are ambiguous questions, but the finance organization needs to have a voice in answering them.

As the domestic economy grows, labor costs are rising dramatically. What steps are you taking to reduce such costs?

One important answer is shared services, which I started considering in 2009, when we began our trial of centralized fund management throughout Huayi.

At that time, I wanted to set up a shared finance center in Jiangsu rather than in Shanghai to save on labor costs. This plan aligned well with our long-term development goals. But in considering this plan, we recognized several challenges. We own hundreds of companies that are individual legal entities, each equipped with separate finance departments. Therefore, at present, there is no shared services model that would work for us in China, but we continue to examine possible options.

At a meeting to discuss the reform plans for Shanghai-based state-owned enterprises, I stated that if we could set up a shared services center, it would raise the competitiveness of those businesses. Shared services centers help boost our management efficiency because we can substantially reduce our finance headcounts.

About this interview
This interview was conducted by Bob Li, the Accenture lead for Finance & Enterprise Performance in Greater China, and Xuyu Chen, senior marketing manager in Accenture Management Consulting in Greater China. For more information about this interview, please contact Xuyu Chen.


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