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BW Businessworld

Immediate Need For Resilience And Agility In Finance For Recovery

BW Businessworld engaged a few leading CFOs in a virtual roundtable discussion to understand their experiences and practices during these times. Here are excerpts of the discussion

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The CFO’s role has gained significant importance since the pandemic set in last year. No matter what, the CFO had to ensure that the home fires were kept burning without any reasons, as valid as they may be. The onus of ensuring business continuity was suddenly thrust on the shoulders of the CFO  who from being perceived as an all-out number’s person had to plan for tomorrow and the near future and ensure that the plans were executed despite huge resource constraints and uncertainty. The CFO also had to ensure that in all  the planning they did, the culture and ethos of the organization remained intact despite the pressing need to make cuts wherever required. The second covid wave was even brutal than what was imagined and it further changed things that seemed to have stabilized since early 2021. How then did CFOs manage to steer their ships to safer waters? BW Businessworld engaged a few leading CFOs in a virtual roundtable discussion to understand their experiences and practices during these times. Here are excerpts of the discussion

BW Businessworld: How exactly has your role as a CFO changed? And what are the challenging aspects that have got added to your role during this this period?

Deepak Ojha, CFO – Operations, Electrosteel Steels Limited:

Historically there have been similar events that have disrupted life and business. There have been several changes due to these. This time the organization stakeholders’ behavior has undergone drastic change and it is difficult to predict behavior.  Now, the CFOs’ role has become even more crucial and several matters have come on our plate. These I believe are the two most important ones:

  1. Cross-functional intervention to ensure no money leakage in procurement, marketing, capex and Opex. Now even small and mid-size value transactions are reviewed and approved by the CFO to keep tighter control on funds outflow which otherwise was handled at a lower level.
  2. The responsibility to ensure security of Information and prevent leakage outside the organization. IT does report to CFOs in most organizations and the risk seen due to the Work from Home scenario has increased. India has witnessed three times the rise in cybercrimes and was 2nd most targeted country in the pandemic. The impact of a cyberattack on the business can be unpredictable and large and the CFO now need to upscale efforts for faster adoption of risk mitigation technologies for smoother and secured remote operations. 

These are uncertain times; the highest priority is Business Continuity and forward-looking risk management practices. We do continuous monitoring and review of funds position to meet exigencies and support operating expenses. The prime focus is on how to address declining revenue, balancing working capital increase since supplier wants advance and customer wants credit. 

The entire thrust is on liquidity and as a CFO, I am focusing on three/four important things 

(1) Tech-Driven Real time financials and analytics in the situation through intervention of Technology tools, Data Analytics etc. to pick the right indicators at the right time. 

(2) Top line and Bottom-line protection through engagement with customers to address revenues, receivables, and product mix.

(3) Working Capital - Inventory norms are challenged and focusing on models like "Pay as you Consume", Liquidate idle Inventory and Dead assets and other ways of funding Capital expenditure through "BOO" or "BOOT" Model. 

(4) The third wave is also expected and the plan is now to how to sustain the success out of initiatives taken in Covid first phase and prepare for the worst by identifying the unexplored avenues to raise funds, Credit Lines, Service Debt and meet loan covenants compliance to assure our investors and stakeholders 

Lalit Malik, CFO, Torrent Power: The role of a CFO has become that of a Chief Risk Officer. It is now that of a business partner to look for opportunities, in view of the prevailing uncertainty, ensure their decisions are flexible, prompt, supportive of business functions, and looking into cross-functional areas, not just of their own teams, but also of vendors distributors. Considering that this is not going away anytime soon, CFOs should prepare for any eventualities. 

The second important role is to be a change leader within the organization to drive the cost and technological penetration. When there is a challenge in revenue, the focus has been on costs and it is not just cost reduction but cost optimization. There is a need to look at zero-based budgeting to identify every expenditure. But that does not mean it is a one-way reduction. There is a need to invest in technologies in areas where it is required. You are looking at a crazy financial scenario when all payments are made online, audits are done remotely, board meetings are done remotely and shareholders meetings’ are done remotely.  

The third, is the skillset one needs to keep upgrading among the finance team to adapt to changes and convert challenges into opportunities.

Lastly, the only permanent thing in life is change. Being ready to adopt to change and to be always at the forefront to convert a challenge into opportunity will be the key this year.

BW Businessworld: Most organizations indicated that things have stabilized and they were working with new practices towards the end of last year. This however has changed again. Have any of these new practices that you adopted until the past few weeks ago become redundant? What are these practices? And how specifically are you changing them again?

Prabhakar Iyer, CFO, Ingram Micro Pvt India Ltd: Last year we all had to change our way of working, mode of driving the business and we saw a dramatic shift in the role of a CFO. We all adopted to digitalization, work from home culture, virtual meetings and virtual audit practices. When we faced the first wave we allquickly put up certain processes which were adequately good and leading to a lot of cost efficiency despite loss of productivity. However, on the flip side since the last wave the uncertainty has increased and has led to a higher level of capital engagement, rigorous planning, frequent review and monitoring the business. What used to be a monthly forecasting became weekly forecasting and sometimes daily reviews.

MSMEs and those in enterprise space too were facing stress and needed support for capital. We had to deploy more working capital in inventory, to support the customers. We had to engage with the vendors to see how we can explore to get more support from them. Working Capital Management was the number one challenge we were facing. In the first wave, it was fairly under control as there was a certainty within uncertainty. But today, some region is closed and others are partially open. Suddenly the regions gets into lock down. And in the process, capital engagement in the business has further increased due to inventory locked in due to the regions lock down. Forecasting what revenue, you can achieve and how you could drive in terms of achieving the numbers and the bottom line has become challenging. We are in the technology sector and to that extent we are not affected by the demand generation but we are affected by the supply chain constraints and challenges of delivery as it  was dependent on the ability of our channel partners and customers to open their warehouses and accept deliveries.

Nitin D Parekh, CFO, Cadilla Healthcare Limited: The pharma sector is relatively less affected by the pandemic. After the lockdown, we started working on several new practices and we continue to work with them today.

First is liquidity management and we started doing it in a formal manner by establishing a liquidity management office. The second is how we used digital tools and techniques to manage various functions. 

The third point is cost rationalization and cost optimization. We have been able to successfully reduce the cost in absolute numbers. It is reflected in our financial results. We have formally worked on zero-based budgeting (ZBB) concept. We are currently working on ZBB in our human formulations and biologics business in India. Our target is to get at least Rs 150 crore in savings over a two-year period. 

The fourth point is that we have taken several risk management initiatives for business continuity plan. We started with a number of small initiatives, like work from home, use of MS team for meetings and Office 365 and VPN. Then there is cybersecurity. Pharma companies are among the most vulnerable target groups for cyberattacks, more so when they are working on vaccines.

BW Businessworld: The Indian economy is expected to shrink or show stagnating growth in the near term as lingering effects of the COVID-19 pandemic continue to impact on population and business environment. What are trends identified on how organizations can better position themselves for the long term by strategically deploying technology that can help tighten control over spending? 

Mankiran Chowhan, MD-India, SAP Concur: COVID-19 has accelerated digital adoption, which has taken a quantum leap at both the organizational and industry levels.

Here are some key ways that companies are positioning themselves for the longer term.

The future of work has arrived ahead of schedule and for us to create an employee experience that provides a feeling of meaningfulness, we must show we value employees across every touch point throughout their employment and that also means providing technology that frees people from menial tasks so they can do the work that gives them the most satisfaction, while contributing to the organization’s bottom line.

The second trend is to considering the ROI which is risk of inaction. We did a survey last year and we found that only 11% of companies in India use fully digital intelligent solutions for handling business expenses – this is a good example of a low hanging change management opportunity given that this disruption period has allowed for change to be more acceptable.

The third trend is around strengthening innovation. In times of crisis and when emerging from a crisis, innovation can be a critical component of growth.  We often say change isn’t constant. That’s definitely true but when we think of the future ahead, we have to understand that the pace of change will never be this slow again and prepare accordingly

The fourth trend is about using intelligent technology to work smarter. Decision makers are drowning in data and, as the complexity increases, they struggle to identify what data is most important and how best react to what the data says and that’s where technology can help. 

The final trend is sustainability. Growing attention has to be paid to directing capital toward sustainability businesses and infrastructure, accounting for the risk posed by climate change and ensuring that investments serve to protect, rather than destroy our planets.

Sanjay Bohra, Group CFO, Force Motors: I feel the slowdown is temporary, with the proviso that we cannot afford a Covid third wave. If this continues for another 12 months, we will be completely out of shape. In May last year, soon after the lockdown started, we began looking into every portfolio. We figured out that the tractor, which was a low-contribution product, now all of a sudden had started becoming the main product. We have to really look at such changes and to see whether we can scale up. You have to be judicious in spending now. We have taken some decisions that have added to our bottom line. I think this will continue for a while. The CFO should have vigilance, risk management, compliance, and controls in place so that there is no leakage. I'm pretty optimistic about the situation in the next 6 to 8 months.

Sunil Bansal, CFO, Bikanervala Foods Private Limited: I agree with Mr Bohra that we have to be optimistic. It is not as harsh as it was last year. But the impact is very sector specific. There are certain sectors which are gaining out of it, especially healthcare, food processing and e-commerce. For CFOs, spend control is the code this year. It is the governance of spending rather, because these days a CFO does not simply control, but takes the lead in spending decisions. We can trim down our manpower, but we have to keep the human factor in mind. 

BW Businessworld: At this stage, for what period do you plan? Is it a quarter, one month or longer? And how are you managing this constant change?

Swayam Saurabh, CFO, OLA Cabs: A number of CFOs during the last one-and-a-half years have done far more micromanagement and that reflects on the planning process too. Everybody wanted to take control as nobody knew the bottom. Now, however, there is far less panic as we have seen a recovery cycle.

If I take a step back and look at what has really changed between a traditional planning cycle and now, I put it in three different dimensions. First is the frequency -- While the planning rigor is similar, rigor and focus are far more on shorter periods. The second is agility – Now the plans are less static and far more nimble and mostly with scenarios, especially for consumer business like ours. The last change is  more use of technology -- leveraging digital and IT tools, something one would absolutely need to be effective in today’s dynamic situation. 

Lalit Malik, CFO, Torrent Power: Currently, the focus is on short term, especially when we talk about liquidity or cash. It is but natural that people have micromanaged cash. The need is to focus short term as things are fluid. Today we look at technology to manage on a real time basis and look for analytics to help us take decisions. We look for business support in all areas, not just in finance. We need to continuously focus on planning and managing it in a short term, but with a clear eye on the long term. 

BWBusinessworld: Now, Cash is King or rather Cash is God. How are you managing your liquidity in an ever-changing scenario?

Nitin D Parekh, CFO, Cadilla Healthcare Limited: Liquidity is a lifeline of any business. Just after the lockdown was declared in March 2020, my top management told me to come out with certain measures to achieve three main objectives. (1)  To ensure continuity of business operations, (2) to conserve cash and (3) to rationalize costs and come out with original and novel ideas. My management told me in March 2020 that we had Rs 1,200 crore in bank balance, while annual global remuneration for employees is Rs 2,400 crore. My management told me that employees is our first priority and 6 months’ remuneration amount, which is in bank balance should be maintained at all times and not a single rupee should be less than the said amount of bank balance. We established in a formal manner our liquid management office. It was for the first time after I passed my MBA from IIMA in 1985 that I implemented precautionary motive of holding cash as per Keynesian economics.

We decided five priority areas for payments. One, employee payments. Two, for materials and services. Third, for essential services like power, fuel, and insurance. Fourth, statutory e payments such as income tax and GST. Fifth, was repayment of loans and interest. We revisited all the payments based on these priority parameters and decided what can be postponed. We also worked on sensitivity analysis of business projections taking optimistic, most likely and pessimistic scenarios, at a time when OPDs and hospitals were not working during the first wave. We offered cash discounts to promote digital payments and also extended credit in certain geographies to support the business partners. The important monitoring matrix that we formulated included four parameters which include (1) collection versus sales (2) sales versus production, (3) production versus purchase and (4) purchase versus payments. Between April 2020 and March 2021, we managed to reduce our net debt by Rs 2,500 crore. This is over and above another Rs 1,000 crore reduction in net debt which we achieved reduced because of a capital raise we did for Zydus Wellness Limited, our subsidiary company. 

Lalit Malik, CFO, Torrent Power: As people say corporates go bad not because they're a problem or profitability, but the problem of liquidity. Given a choice, I think liquidity comes as priority, especially during this crisis. It also gives you some cushion to meet contingencies. 

We set up a cash war room so that it could be monitored and any exigencies addressed. We looked at every expenditure to see if it can be avoided, deferred or any other option was available. We overachieved our target in terms of cost reduction. 

The third aspect was cost reduction and we also looked at investment, including in technology. On the cash side real time information available was built in so that we have a real time of receipts and payments data available. In the last one year, instead of a positive working capital, we were negative working capital.

The other was that taking a decision on Capex versus Opex. Wherever there were opportunities to invest into new categories, we went ahead. 

BW Businessworld: Most organizations have a long-term vision and plan. All of that would have been derailed over the past 14 months. How has it impacted your organization? And how are you handling these changes given a tight revenue situation especially from the perspective of your long term planned investments?

Sanjay Bohra, Group CFO, Force Motors: All of us generally work with five-year and seven-year vision. But the whole thing was severely impacted. Last year, we moved to the new emission norms BS6. By March 20, we ensured that all our pending inventories were sold. We had new platforms for our ambulances, school buses, delivery vans and hospitality vehicles range of products. We invested Rs 1500 crore last couple of years on these platforms.

Lockdown impacted in commercial launching of these new platform and  50% of our segment such as school, travel and hospitality industries are markets  yet to open.  Hence it had a severe impact on our sales. However, we have continued our capex program assuming that better times are ahead. Simultaneously now the need of employing micromanagement is required. In fact, I am looking at accounts department for figures every two hours. We have to ensure banking support as well as our ability to have sufficient resources. We managed to reduce our costs by 25% and which includes not only material, but also on the overheads. Also, to control on inventories, new ordering policy i.e., made-to-order has been implemented. This will help in many ways. It has impacted overall orders definitely, but at least we know what we have to manufacture. There is pent-up demand and once it opens up, we will definitely have a better time.

Prabhakar Iyer, CFO, Ingram Micro Pvt India Ltd: We do both technology and distribution services to different segments. We have multiple verticals in our business. The impact to our strategy is varied for each vertical. One of the vertical is advanced technology and services which is catering to large enterprise, large projects and government initiatives. The second verticals is towards the consumer side, which is catering to the demands from consumers towards work from home, learn from home and entertainment etc. etc. The third vertical is from the commercial side, like large servers and IP networks etc. needed by enterprise. We had a strategic plan for all the three verticals and but had to rule it out as the pandemic struck. We had headwinds because of lower spend in capex by large enterprises.

Also, the government had to shift its priorities to healthcare which affected the government lead demands in technology sector. But there was spending on capex and projects post-Q3 of last year. However, the Covid second wave came in and is becoming a spoil sport. What has continued as usual is the revenue and demands from consumer business. It has grown in double digits with the need for tablets and other IT products by consumers. That enabled us to match the applecart and enabled to move towards our growth vision in terms of achieving the strategy numbers. We are trying to expand and invest more resources in terms of technology, services and resources to support customers, and to support capital investment by giving larger credit to customers and providing financing solutions.

Sunil Bansal, CFO, Bikanervala Foods Private Limited: A: The economic impact is going to be short term. The long-term effect will be on unemployment, inflation and consumer confidence. But for FMCG and food services, it has been positive. The impact on us was temporary during the lockdown, not because of lack of demand but because of supply chain disruptions. In short and long term, the processed food industry will grow because consumer behavior on food consumption is going to change as they will move from non-branded to branded food products. Those who come out with innovative products that are ready to consume, ensure hygienic packaging and quality certifications will grow.

Deepak Ojha, CFO – Operations, Electrosteel Steels Limited: The highest priority for everyone now is business continuity and adopting forward-looking risk mining practices. The behavior of vendors and customers are changing. We are monitoring and reviewing our fund position to meet exigencies and also to support operating expenses. The focus now is addressing the declining revenues. Managing credit lines to meet operating day to day cost is important. We are identifying ways to rescue ourselves from this situation. With every industry, you want to keep the Capex unless you want to invest it. We need to explore unexplored avenues to raise funds and secure more credit lines. With these, we will be able to assure our investors and stakeholders that the organization is ready with plans to deal with any scenario. 

BW Businessworld: In times of crisis, what are your recommendations for CFOs to turn adversity into advantage? 

Swayam Saurabh, CFO, OLA Cabs: I believe that full recovery will take time, but it will recover. I think the first opportunity which exists is in executing inorganic plans. There is a significant stress in many industries and this would create consolidation scenarios especially with business who wants to grow aggressively and have access to cash. 

Covid forced many CFOs to reshape their financials and priorities – be it cash or costs or working capital – by accelerating or leveraging smarter IT tools. With a higher organizational acceptance for “change”, this allowed companies to become agile and smarter and they showed much better results under pressure during Q3-Q4 last year. If held well, this would create a huge positive leverage when situation completely go back to normal and your customers fully return. I strongly think that CFOs/ Companies who continue to invest and stay committed towards newer technology especially around analytics and decision support tools, would return much stronger as against precovid times.

Mankiran Chowhan, MD-India, SAP Concur:

A crisis creates the opportunity for us to dig deep and to rise to the levels of confidence, strength and resolve that otherwise we didn’t think we possessed. The very same applies now - The technologies needed to reimagine Finance are already here and we can focus on adapting and adopting them. There was a research by Gartner that talks about how companies that continue to invest while keeping cost management at the forefront outperform peers as markets and that nearly 70% of board of directors say that the effects of COVID-19 are accelerating their digital business initiatives. I That acceleration is designed to deliver continuous value and agile strategy-setting, real-time risk assessment and mitigation, better informed and faster decisions, and hyper automation (any process that can be automated should be automated). 

There is two-fold pressure on the CFOs to accelerate the digital enterprise and the digitalization of the finance function itself, which is why CFOs are focused on digitalization imperatives, but also on improving the workings and outcomes of the function’s core activities. 2 key aspects to consider on how to get the most from digital& financial transformation are to 1. Challenge your core assumptions about digital transformation based on the experiences of the recent crisis and 2. Prioritizing initiatives that enhance cash generation, reduce operating costs and improve remote work conditions.

Companies that get the right approach to digital transformation can help re-invent and reimagine how they do business. None of us knows for certain what the future will hold, but we all have a responsibility to be thinking about what’s likely to happen, and to prepare for it. In Finance, that means working now to get the right people and technology in place to take advantage of the inevitable disruption ahead.

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