2012 NovemberMyCFO Blog | MyCFO Blog

Monthly Archives: November 2012

How CFOs can use Business Intelligence tools to maximise business performance

Author’s Note: “To do more with less” a much clichéd phrase reserved for CIOs earlier, has become a mantra for all CXOs, in today’s difficult time. For CFOs who are required to support the strategic vision of CEO and board with   correct allocation of funds and resource, it is most important to stay on top of the KPIs of the company and take corrective action, before it is too late. BI implementation and its effective usage are therefore as important as implementation of ERP a decade back. 
Sabyasachi Ch Thakur
Intelligent way of doing Business – BI
The old adage is that you cannot manage what you cannot measure. Enterprise performance management using effective BI tool is thus a must to have tool for CXOs as much as ERP was for the company a decade back.  In today’s difficult market its importance is even more.  However CIO alone may not be able to justify the business case for a BI project without the active support of his CFO or CEO. I remember a board member in one of my previous organisations asked me why I needed   BI. This is because the company implemented SAP R/3 two years back and it is supposed to be the panacea for all problems. I faced the same question from the CFO a month back, and I could explain to him why it is required. The supportive CFO came to my rescue, at the board and the decision for BI was approved.
Does everyone need a BI solution- perhaps no.  If the volume is low or product or service ranges are less, then good old spread sheet is good enough. But if the company has volume and diverse systems, it’s impossible to do measurements on a regular basis in   consistent manner without a proper tool, and hence BI solution is required.
Before implementing a BI solution, it is absolutely important to identify the KPIs that are relevant for the company and the must to have reports. Most BI solutions and implementation partners come with default   15-20 reports which cover the routine, operational requirements. But there will always be strategic requirements unique to the company, and these should be thought beforehand. There are companies who run their entire budgeting process using BI, and monitor budget vs actuals using BI. Thus each BI implementation will always have its own unique requirements and challenges. It is always good to take one department at a time and then scale to others over a period of time, rather than taking a big bang approach covering all departments.  The BI project steering committee needs to have CFO, if not the CEO, to make it a success. After implementation, BI should be the only source for performance measurements across organisation (including bonus of an employee) and only then the project will be beneficial to the organisation.
Actionable Information vs Data
In any company, data generated from transactions can reside in multiples systems, databases, and spread sheets. A large diversified corporate may have ERP, CRM, and custom systems on different platforms. Valuable information are residing on silos and to generate actionable information out of  data, giving a holistic view to the top management, one needs Business Intelligence System. Data from different transactional systems are replicated to a data warehouse, often at day ends, using ETL (extract, transform , load) tools. BI systems work on data warehouse, and are designed in a way so that once operational, end users can easily slice and dice data and create new reports without depending on IT. There are certain BI solutions, which use in memory techniques, and do not require a data warehouse to provide result.
Some of the key parameters that CXOs would like to consider are:-
  1.  Product/ services analytics like, top selling products and services across various dimensions such as geographical regions, seasons, customer segments
  2. Customer analytics, to understand customer behaviour in various segments, by   measuring sales and enquiries by customer dimensions such as gender, age, location, economic status Needless to say this is possible  more accurately if the company has a CRM  and customer loyalty programmes
  3. For retail business, analytics on merchandising is important, which helps store manager to keep products with high sales correlation, to be placed nearby
  4.      Supply chain  measurements  like  rate of demand, average inventory, inventory turnover, rate of return, perfect order rate, back order rate , inventory to sales ratio, percentage of out of stock items
  5.  Financial parameters such as  cash flow, average receivable & payable days, working capital per unit sales, fixed and   variable costs  across product & service lines, product margins etc
  6.  Sales analytics on sales processes like  opportunities (sales pipeline),  prospects, proposals , client win rate, sales  by sales person, team, region , time period etc
CFO being a custodian of company’s finances should have visibility to the KPIs across departments and not just finance related. Dashboard reports, exception reports, usage of traffic light colour codes etc can be used so that it is easy for CFO to quickly take note of any area that needs immediate attention. This will help the management to stay on top of   key operational issues on a daily basis, before it is too late. e.g If the percentage of stock outs increases, there is some problem with production or distribution schedule and if the process is rectified immediately, it will prevent sales loss going forward. Sometimes this leads to dispute between departments, but   a progressive CEO /CFO will address them in the best interest of the company and BI is a tool which empowers them to detect the vital parameters of the company, like a doctor detects the one for a human body. The delivery channel of reports will be increasingly on   Apple, Windows and Android smartphones and tablets as actionable information will be available to CXO s on the move.
BI trends and way forward…
Big Data is supposed to be the next big thing in the analytics world as the importance of deriving information out of non-structured data is increasingly becoming important for a company.  One of the catalysts for Big Data is explosion of data from social media like Facebook, Twitter, and Linked in. Corporates with consumer facing products and services will require measuring the sentiment of their brands in social media as much as their average inventory cycle. Hence the traditional KPIs will expand and new KPIs will require new methods to measure. Explosion of data from various sources and devices, require new ways of capturing data efficiently, which traditional databases (RDBMS) cannot handle. Non SQL databases and technologies like Hadoop, with massive parallel processing capability have already started making inroads in the corporate world.
There are various global and local BI solutions available in the market today and the objective of this blog is not to compare any particular solution with other.  At the end of the day one should identify a solution which is best suited for its existing IT landscape and budget. But before selecting the package, a company should be ready with what actionable information it requires from the project and make it a part of the RFP, so that the project gives the best value for money.
email: deepak@wealthtree.in

Re-skilling – A key component of the CFO’s role

The author examines the evolving role of a modern day CFO and believes that for the survival of the CFO ‘breed’, its essential to move out of the comfort zone.

Atul Kumar Agarwal is the Chief Financial Officer of MedPlus and has more than two decades of experience in Finance and Accounting in organizations like Tata Steel, PT Texmaco Group (Indonesia), Genpact, AB-InBev India. He has worked in the areas of Business and Corporate finance that included business planning, capital structuring, budgeting, creation of business support system (ERP implementation), corporate funding , working capital management, M&A, financial process outsourcing. Atul has hands-on finalization experience of accounts, financial audit, cost accounting, building cost systems and activity based management. Amongst other activities, he has been responsible for HR and commercial activities. He has chaired performance committees and advised boards on matters of corporate performance and governance.Besides being a permanent invitee on boards of various organizations, he also worked as CFO and member of board of Ab-InBev (India Operations) group entity.

Worldwide, the profession of CFO has not just undergone a change but is dynamically changing on an ongoing basis that can be witnessed in our daily lives as a CFO. This is due to constant changes in the economic & regulatory scenario worldwide and the uncertainty of the impact this would have on the organisational performance. The CFO’s role therefore is important not only as the custodian, but as a successful change manager who has the ability to ensure sustainability and effect business goals at minimum risk. The CFO has also moved on from a person just reporting to the company head or CEO to the mainstream and is the prime resource for shareholders/ boards/ other stakeholders who rely on this person to take decisions and take the organisation forward.

 The CFO is required to have pre requisite skills and these are not just being good at numbers but as a strategic action implementer who is required to focus on key areas like sustained organisational performance, proactive de- risking of organisational challenges, ensuring corporate governance and being futuristic about technology. Some of these skills are as discussed as below:

Resourcefulness

Having access to right people and right information resource that can be strategic business enablers. Quality and timeliness of resource can hugely benefit the organization.

Relationship & change management skills

Ability to influence internal and external stakeholders to get initiatives implemented. A good amount of negotiating skills & clear communication skills is of great importance especially with stakeholders whenever there is a need to work on change- management.

Strategic Planning skills

Plan organisational future well ahead and be ahead of time. Create thought process that emulates strategy into action in various challenging scenarios and document it to enable future successors to build upon.

Analytical and forecasting

Forecasting is not just playing with numbers. It has also to do with gut feeling of the CFO that can be relied upon. Besides having a good hand on the numbers, a CFO also needs to have a few core team members who can build on a dynamic business model that can keep improving over a period of time. This business model should be used to play with different scenarios that can aid the CFO to decide.

Understanding of present and future technologies

Understanding technology is not just to know the present and future hardware and software requirements to take care of information management but to understand the ever changing dynamics that would support scalability, dilute human intervention in operations that allows them to focus on analytics and other high value-add domains. He should also look at promoting acquisition of intelligent systems that can build strategic edge over competition. At this point, I must say that the CFO is without doubt an inevitable part of information management of the organisation.

The CFO has to cut across boundaries in the organisation to push certain initiatives. For instance, lets take an example of an organisation that is low on performance and is in a high growth. The CFO knows that the best and the quickest way of turnaround of performance can happen with implementing KPI’s (metrics) and then bringing in a discipline that can monitor those KPI’s. The CFO constructs a list of performance based KPI’s related to sales, profitability, liquidity, HR, logistics etc., creates benchmarks, circulates & monitors them. I had the opportunity of doing this and it showed tremendous results in the employee morale especially when organisational performance parameters started improving. At times, the CFO may not get support at times from various stake holders in an organisation, but he should cut across boundaries to ensure that certain time tested ways of performance improvement exercises should be implemented to improve organisational performance.

Communications is an important attribute and soft skill for a CFO to have, since the metrics and expectations that are set for the Internal (employees, board and shareholders) and external (auditors, regulatory bodies, government agencies) are relationship based and require buy-in from all to succeed.

The CFO needs to constantly acquire new skill sets with an aim to create sustained value as the CFO is a powerful engine that not just designates the person as a custodian of shareholder wealth but as a value addition tool with sensors to predict organisational challenges, mitigates risk and factors them in his plan to ensure continuity, growth and a zero surprise environment.

Today’s CFO is highly stressed and pressured to constantly improve the results. Cost control, banking relationships, raising capital, financial restructuring make today’s CFO’s position at the centre of business as the CFO holds the key to company’s financial security. Hence the CFO also needs to ensure that a good work life balance is maintained.

MyCFO is Special Situation Finance and IT service. MyCFO is useful to companies who are in a High Growth Phase and to those, which have specific, legacy issues that need resolution. Main client groups are Family Managed Businesses, PE Invested companies, Technocrat Promoters and Large Corporates. MyCFO’s focus is on actual implementation and execution, rather than merely on advisory with mandates executed to agreed KRAs/ Balanced Scorecards. In terms of functional areas, MyCFO is most active in development of Business Plans, Budgetary Systems, Developing KPIs, Establishment of Advisory Boards, running monthly business review meetings, Raising PE funds, preparing for IPOs, Implementation of ERP/ BI (all these generally for FMBs, PE invested companies and Technocrat Promoters) and in resolution of relatively complex legacy issues, IT roll out support, post merger integration support (these in the case of Larger Professionally Managed corporates). For more details about the MyCFO service, please get in touch with Deepak Narayanan at deepak@wealthtree.in or visit www.mycfo.in