MIS SuperStrategies - The Five Disciplines of Innovation for Internal Audit

Innovative Techniques to
Drive Successful Audits
Sessions #A6, G6
Wednesday, May 1, 2013
3:15 – 4:15
Dan Samson
Executive Director, Internal Audit Services
SRI International

MIS Training Institute Session #A6, G6 - Slide 2
© SRI INTERNATIONAL All Rights Reserved
• SRI – Our Story
• Five Disciplines of Innovation – how it creates focus for value
added audits
• Leveraging the Need, Approach, Benefits and Competition (NABC)
model to ensure value
• Calculating Audit Value Factor
Overview

SRI- Who We Are
A world-leading independent R&D organization
• SRI
headquarters,
Menlo
Park,
CA

• SRI
Princeton,
NJ

• SRI Washington, D.C.• SRI State College, Pennsylvania • SRI Tokyo, Japan• SRI Harrisonburg, Virginia • SRI St. Petersburg, Florida
  Founded by Stanford in 1946
  Based in Silicon Valley
  Non-profit corporation
  Independent in 1970
  Acquired Sarnoff Corp (formerly RCA Labs) in 1987
  2,100 staff members
  800 with advanced degrees
  More than 20 locations worldwide
  Consolidated 2011 revenue ~$570M

SRI - Our Point of View
Bridging basic research and commercialization

Diverse Technology Expertise and Interest
Multidisciplinary teams leverage our value creation process
Health, Education,
and Economic Policy

SRI - Our Impact on Society
The past...
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SRI - Our Impact on Society
…and the present
• Technical
exper-se
for
DHS

• Cyber
Security
R&D
Center

• Assess
exposure
to

radia-on

• Radia?on
Detec?on

• Removal
of
CO2

from
atmosphere

• Carbon
Capture

• First
VPA

• Siri

• Preclinical
therapeu-cs

for
heart,
lung,
and
blood

• Novel
drugs
• Real-‐?me
Computer

Vision
Systems

• Acadia®
II:
the
leading

video
processor

• Surface-‐climbing

robots

• Robo?cs

SRI Five Disciplines of Innovation

#1: Important Customer and Market Needs
Ø  What customers really want addressed
• Does the Internal Audit Plan have a positive
impact?
• Review every proposed project – are they the
one’s your customers want? What is missing?
• “Blue sky” approach
Ø  Help ensure your enterprise stays ahead
• Will the audit advance the company’s success?
Ø  Allow you, your team, and your enterprise to
make meaningful contributions
• Easier to raise the necessary resources
• Attracts the very best people
• Provides opportunities for team members to
learn new skills

#2: Value Creation
Ø  Customer Value Definition
Critical for any Internal Audit Organization
Ø  How do you define value?
Ø  Benefits and Costs are determined by the customer (not by us!)
Ø  All efforts are devoted toward creating value (increasing benefits,
decreasing costs) for customers.
Ø  Every engagement should have a value proposition – even those focused
on compliance. Score and rank proposed audits by Value Factor.
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More on Value Factor
Ø  Collaborate with customers on universe of possible audits / projects to
solicit their priorities based on value
§  Requires audit team to do advanced work using data analytics, benchmarking,
initial diagnostics, and best practice research. If audit team hasn’t done its
homework…why should customer invest time?
§  Guide customer on ways different audits could generate value
• Direct cost savings (process inefficiencies, resource allocation, sourcing options,
waste, etc.)
• Cost avoidance (process inefficiency, fines / penalties, etc.)
• Recoveries (royalties / licensing, warranties, overpayments, improper
reimbursements, etc.)
Ø  Collaborate with customers to understand potential costs – remember this
includes cost, such as time, to their organizations too
Ø  Prioritize audits / projects with highest overall Value Factor

Value Proposition Definition
“Every organization needs one core competence, innovation”
Peter Drucker, management consultant icon
Approach
Need
Benefits
Competition
per cost
and alternatives
Important
Customer
or solutions

Value Proposition Definition
Need
§  Specific customer need: pain killer, not a vitamin
§  Articulate burning audit need – why is this a high priority?
Approach
§  Offering: what the audit / project will deliver, quantitatively described
§  Bring it to life: demonstrate importance through early analytics. Early “ah-ha”
moment for customer by telling them something they didn’t know
§  Audit / project approach. How will it be executed? What resources, tools,
methodologies? Bring credibility to the business case for the audit
Benefits per Costs: Value
§  Value Factor Analysis
Competition and Alternatives
§  What are the implications of not doing the audit?
§  Alternatives / other options to address the Need?
§  Substantiate that audit / project is best approach

Value Proposition Example – SRI Project Deliverables
Deliverables compliance needs to improve to 95%.
Need
(1) SRI Contracts and Internal Audit will profile late deliverable data by division, project, and owner by
XX XX, 20XX.
(2) Project directors will be engaged via survey and discussion to understand the underlying root
cause/s, pain points in the process, and recommended improvements to empower staff to meet
deadlines. Completion by XX XX, 20XX.
(3) Contracts and IA will present recommendations to executive leadership by XX XX, 20XX.
Approach
Value Factor of 40: 40 x return on cost.
(1) Delighting the end user customer
(2) Meeting contractual commitments
(3) Staying competitive relative to peer firms - also see competition
(4) Maintaining SRI’s strong brand of excellence
(5) Reducing Contracts organization administrative time for tracking late deliverables
(6) Increasing Contracts time available for new pursuits
Benefits
per costs
Peer firms that do not have Late Deliverable disclosures to customers. Given the increasingly
competitive award environment, all aspects of a contractor’s performance is evaluated including the
timeliness of deliverables. Peer firms may use this metric as a competitive differentiator.Competition
/alternatives
How do you
articulate
customer
value?

#3: Innovation Champions
SRI’s Motto: “No Champion, No Project, No Exception”
Ø  Has a champion (Internal Audit and customer) been designated for the
audit?
Ø  Does the champion have the right level of authority, commitment, and
resources to see the audit / project through to success?
Ø  Mind set – championing innovative solutions to important problems

What Project Managers and Champions Do Best
Leading the project versus Championing the cause
Project Manager
  Generally assigned
  More analytical/disciplined
  Managerial skills
  Hierarchical/positional
authority
  Very current with project
management systems & tools
  Commands respect
  Wants to make things “right”
  Solve problems as presented
Champion
ü  Self-selected, volunteers
ü  Passion and commitment
ü  Leadership skills
ü  Enrolls teammates
ü  Constantly learning innovation
skills and sharing with others
ü  Cross-disciplinary
ü  Wants to create customer value
ü  Looks beyond immediate
problems

#4: Innovation Teams
Ø  Forming a productive internal audit team is a
project
Ø  Tapping into the genius of your teammates
can transform your value proposition
Ø  Teams do not form naturally or easily
§  Dysfunctional teams are common
§  Projects often fail for “people” issues
Ø  Open innovation requires special skills
Ø  Vision, plan, milestones
Ø  Continuous review and …
Ø  There are “rules” that must be followed to
have productive Innovation Teams

Key Elements of High-Performance Teams
Ø  Strong audit teams only exist with trust-based rules. No single team
member hogs the spotlight. Share the risk, share the glory. No arrogance
Ø  Absolute integrity and respect for others. There are no bad ideas…need
audit team to have open minds to spur ideas. Actively seek customer
participation and ideas.
Ø  Complementary skills. Soft and hard skills.
Ø  Involvement & empowerment
§  Audit team members do what it takes, don’t just follow directions. Champions.
§  Audit team members wear multiple hats. Flexibility. Especially important in
small team environments. The Chief Audit Executive makes copies too!
Ø  Celebrate achievement – actual celebration!
Ø  Success starts with the Champion and is owned by the Team

#5: Organizational Alignment
Ø  Develop your value creation “architecture”
Ø  Common language & methodology
§  Use the language of innovation wherever possible
§  Establish innovation metrics for Internal Audit
Ø  Continuous Improvement
§  Always be vigilant to MUDA and value for every process audited
§  MUDA – waste. Unnecessary movement, excess inventory, waiting time, over
processing / production, mistakes / defects. Toyota Production System.
§  Constantly challenging what’s working and what’s not
§  Best practices – actively seek perspective from other organizations with best
practices.
“Every
organiza?on
is

perfectly
designed
to
get
the

results
it
is
geJng.”

–Tim
Kight,
CEO
of
Focus
3

Ø  Prioritize the most important audits / projects using customer perspective.
Articulate Need. Once an audit is scheduled, prioritize the most important scope
items for your customer
Ø  Focus audit outcomes on Value Creation. Will your customer perceive that value
has been created?
Ø  Create a Value Proposition for every audit. If a compelling Value Proposition
doesn’t exist – the audit may not be justified.
Ø  Calculate the Audit Value Factor with your customer. Perceived benefits /
perceived costs. Use the value factor to prioritize audits and audit scope.
Ø  Recruit and designate Innovation Champions for your audit team / project. This
includes customers and subject matter experts that embrace change.
Ø  Empower and equip Innovation Teams to be successful. Establish runs rules for
success.
Ø  Ensure Organizational Alignment. Establish systems, processes, and metrics to
support and empower success. Align with customers.
Key Takeaways

The way we work is our most important innovation
SRI Internal Audit:
Empowering High Value Innovations and Solutions
Dan Samson
Executive Director, Internal Audit Services
SRI International
617.901.6022
www.linkedin.com/in/danielasamson

MIS SuperStrategies - The Five Disciplines of Innovation for Internal Audit

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