CFO Series | MyCFO Blog - Part 2

Category Archives: CFO Series

IT an integral part of the modern day CFO responsibility?

Sohil ParekhMr. Sohil Parekh is Vice President – (Finance and Accounts) with Sai InfoSystem (India) Limited (SIS), one of India’s fastest growing ICT conglomerate with group turnover of Rs.2000 crore, backed by a team of 2000 professionals. SIS has the business expertise in verticals of Hardware manufacturing, Software development, System Integration, Telecom Products, Disaster Management, eHealth, Data Center and Call Center Solutions. SIS has more than 100 support centers across India with overseas operations in Canada, US and Dubai.

He has overall 10 years of experience in the areas of Finance and Accounts. Academically, Mr. Parekh holds a degree in Law and is a Chartered Accountant from The Institute of Chartered Accountants of India.

Mr. Parekh is part of Management Core Team and Head of Department of a 30-member team, covering the functions of Accounts, Finance, Audit – (Statutory & Internal), Legal and Secretarial affairs. He is actively involved in advising management on strategic business partnerships, joint ventures and viability of new business avenues. He further manages evaluation, due-diligence, documentation and post-merger integration for all acquisitions both – overseas and domestic for different business verticals at SIS.

Prior to joining SIS, he was working with Azure Knowledge Corporation as Chief Financial Officer and has also worked with Motif Infotech as Director Finance in past.

Is IT a part of modern day CFO responsibility?

In today’s world there is no denying the importance of IT. The last decade has seen information and communication technologies dramatically transforming the world, enabling innovation and productivity increases, connecting people and communities, and improving standards of living and opportunities across the globe. The scope of today’s IT includes complete process of computer based information systems, Functional IT systems like MS, statistical analytical software, Network IT Systems like email, IM, electronic conferencing, Management IT Systems like HRMS, Financial MIS, Dashboards, Enterprise IT Systems like accounting software, CRM, Computing Hardware, Telecom equipment and services, E-Government, e-commerce, e-security, e-health, e-banking, ITES, BPO, Application development, Operating Support and security services, Networking, Data design, development, communication and conversion, Storage and Retrieval and many more.

There are few reasons that attributed to an IT failure like System failures and breaches of data security, great expectation and inability to deliver, inadequate spending due to lack of long-term strategy & high risk, lack of adequate skilled manpower and infrastructure, IPR, compliance and transfer of policy issues, poor project planning, weak business case, lack of top management involvement, new technology advancements etc.

It’s important to put the relationship between IT and the CFO into historical context as a backdrop for effective discussion on this topic. The good news is that IT has become better aligned with other areas of the business; the bad news is that IT has lost most of the benefits of reporting to the CFO (i.e., scrutiny, rigor, professionalism, credibility, legitimacy, etc.). We shall discuss the need for IT and CFOs to reengage – to perhaps forge a new relationship – one that will favorably impact the IT ROI.

Today, successful CIOs blend few roles that seem contradictory, but are actually complementary – To make innovation real, being a value creator, raise the ROI of IT and expand business impact at lower costs. Top of CIO’s agenda today is business involvement, business transformation with clear objectives, choosing a single vendor for integrated suite of application, having a clear business case for outsourced vs. in-house and benefit tracking during and after implementation.

The challenges to CIOs are that they are sometimes challenged to bring meaning to the vast amounts of data across the organization, lack of clarity around data and analytical requirements and data ownership, poorly defined business requirements and unclear business processes and data integration.

The CFO’s agenda today reveal a shift in focus from core finance to more enterprise focused activities. CFO today needs to have direct operational experience to think beyond budget and annual financial plan. A CFO with a long-term view on growth and profitability will segment IT spend into operational and investment buckets.  Looking for cost reduction in the former and viewing the latter as an investment to drive scale efficiencies and speed to market across the enterprise. A broader enterprise focused role requires core Finance efficiency be in place to reliably support business insight and decision making.

The challenges to CFOs with respect to IT are that they are challenged to bring fact-based business insight on financial performance, lack of clarity on the performance scorecard, poorly designed predictive models, structural complexity of data and processes and adapting to changing business dynamics. Nowadays CFOs are more actively involved in Enterprise cost reduction, Selection of KPI’s, Capital asset management, Risk Management and Strategy/Business model innovation.

These are the few survey results that have been conducted by different agencies to understand the CIO-CFO relationship 2011 Gartner FEI technology study: More than 51% of the CFO has increase in their roles and responsibilities then in 2010; More than 27% are delaying work on IFRS. 40% of IFRS impacted organization has not yet involved IT and only 32% CFO see CIO as true partner in strategy.

Many organizations have experienced friction between CFOs and CIOs. Much of it stems from these two executive roles having different backgrounds and not completely understanding the challenges and complexities of each other’s world. When projects experience difficulties, for example, return on investment is affected and frustrations rise. This often causes CFOs and CIOs to “grow apart.” Here are few actual business scenarios where CIO reporting to CEO and CFO can be broadly categorized:

Business Scenarios where CIO can report to CFO:

  • CFO can ensure that IT spending is controlled
  • CFO can help liberate CIO with the problem of negotiating prices and maintenance fees with technology vendors
  • If the business is only looking towards new IT investments and continuous improvements
  • Companies which have business driven by costs which can offer low prices by achieving economies of scale, cost control and efficiency
  • Can help CIO become strategic partners rather than simply purchasing managers for IT equipment
  • CIO should welcome CFO who takes interest in where a company places its IT Investment bets
  • As the business is all about profit and revenue earned, CIO should review the requirements in financial terms for executive decision making
  • IT enabled Intelligence is what CFO should command as a task master from his CIO and MIS teams
  • CFO directs decisions and budgets purely on basis of information and its reliability rather on subjectivity
  • CIOs choose and evaluate systems, but cannot direct and execute decisions without a 360 degree view which the CFO commands and enjoys

Business Scenarios where CIO can report to CEO:

  • As CEO focus is on business’ overall strategy and management, CIO should report to CEO in order to recognize and promote the relevance of IT to the business
  • Where the company and industry is highly information-intensive (for example, banking and media) or moderately information-intensive (for example, services such as travel and retail)
  • While a technology-dependent business model or company transformation is under way — for example, merger and acquisition process integration
  • While a heightened state of information-related threat or risk is in play — for example, cyber warfare, industrial espionage, regulatory compliance or information-intensive business volatility
  • With both IT and CFO reporting to CEO, CEO can break any ties regarding strategy versus costs
  • With CIO reporting to CEO, some of the innovations will not get stifled due to a cost issue alone
  • CEO can look across all business segments and can actually account for the productivity, innovation, and synergies

Everyone uses the same set of tools to select IT projects (payback, NPV, alignment with corporate goals). Everyone uses common industry indicators (IT as % of revenue). Existing measures aren’t perfect but they are good enough. Assessing IT ROI is difficult. The key point here is that we should not blame the tools. Although improved tools always help, the means to IT value is improved governance procedures to guide IT investment decisions – not measurement. Below are the relevant questions that CFOs should ask for right integration with IT:

1.  Whether IT understand the information need from stakeholders’ perspective – shareholder, Board, Statutory reporting, Top Management.

2.  Are the IT investments meeting the organization requirement?

3. Whether the enterprise strategy is as detailed as possible with respect to definitions and integrity? Global systems have local variation which should be factored into to provide analytics.

4.  Whether the company has the right tool to manage, retrieve and analyze data?

5.  What are the correct way to use the multiple tools for information access and delivery, how to deploy them and have the business adopt the same?

6.  Whether the IT cases and budgets are in line with the organization strategy?

7.  Whether the charge back mechanism is identifiable and pre-defined?

8.  Evaluate the opportunity costs of investments in IT. It should compete with other capital projects in terms of feasibility assessment. All internal IT projects should be certified and should compete with other IT projects. It is best if CIO has no money and is forced to spend “everyone else’s money”

9.  The IT projects should be accepted and evaluated on merit rather than on ego. If a system fails to receive funding or gets cancelled, it reflects badly on the sponsor/owner.

10.  The project is forced to pass through a “gate” at the end of each stage of development. The gate is basically a “go/no go” decision. Both the costs and benefits should be evaluated at each stage by the CFO. Revisit current KPIs, departmental goals, and metrics to ensure that technology and IT are aligned to these important business measurement

11.  How much time it will take to recover the costs? How the IT assets are to be written-off? What are the maintenance costs of any IT project?

12.  Whether it has been determined to which projects and cost centers the IT costs be allocated and in what basis?

A responsible CFO invests time and energy in understanding dashboard views that predicts and reflects state of affairs. Multi locational, high volume companies suffer from creating and storing data that has not been analyzed and provide very little value to decisions support systems; it is the CFO who points to such data and coverts into information that can fortify MIS. With islands of information available on different set of systems, CFO would be a pivotal force in making bridge and view that showcases sensible data assists CIO in setting up of process aimed at higher value of returns from existing investments. CFO also needs to get close to the CIO and understand technology so that they both can work together and implement the best possible solutions in their organizations

One of the important thing that comes out of this is the fact that a CIO today needs to upgrade his skill set and be aware of finance and business dynamics to ensure that his position in the company is viewed with equal importance like that of a CFO. IT should become the bridge between the CEO and CFO and thereby integrate business leading and lagging functions.

CIOs and CFOs can collaborate to address their challenges above by defining the company performance scorecard, developing and supporting “one version of the truth”, instituting a data governance process, improving performance reporting with defined risk indicators, implementing Governance Risk and Compliance solutions to monitor business process changes, supporting automation and collaboration efficiency with enabling technologies, developing consistent policies and standardization of processes. The IT function should take ownership of the technology, the business takes ownership of the organizational transformation and the CFO takes stewardship of the benefits

www.mycfo.in deepak@wealthtree.in

Is Budgeting merely ‘Number Crunching’?

Dr. Abhijit Phadnis worked as the Chief Operating Officer of UBS Investment Bank in India and as Head – Finance, Operations and Administration with Credit Issues. He also served on the board of a leading co-operative bank. Abhijit has experience in manufacturing and consulting sectors in a wide variety of interesting engagements.

Abhijit’s academic record is quite exemplary in the accounting & finance domain with high ranks in all the professional examinations such as CWA (1983), CA (1984), CS (1987) and CFA (1989). His all-India ranks were 2nd, 11th, 1st and 3rd respectively. He was recently awarded a PhD by IIT Bombay for his pioneering work on ‘Factors influencing investments into Indian states.’ Abhijit’s teaching experience also spans over 26 years. He has participated in over 250 executive education interventions. Abhijit has in the past served on the Academic Council and Board of Governors of the Institute of Chartered Financial Analysts of India. Abhijit has devoted significant time for non-profit activities. 

Abhijit Phadnis

Budgeting is a hotly debated tool. There are companies that swear by it. There are companies that have long abandoned it citing the dynamic nature of this world. Its proponents emphasize use of budgeting as a strategic, planning and control tool. Its opponents reject it as a ritual with huge costs and little benefits. Any tool is useful if we engage its heart and soul. At the soul of budgeting is the trio of communication, involvement and ownership.  Often this soul is completely forgotten and then budget circulars, budgeting calendar and deadlines take over. Finance professionals are busy crunching numbers throughout the year. Six months before the year begins, they begin their work on the budget, three months into the year there is an updated budget, in the middle of the year there is a mid-term review, the rituals go on but we hardly find any involvement of and communication with the people who are at the forefront executing the company’s strategy in the operations and market place. They hardly get to know what the firm’s strategic thinking is and how it is panning out. The question of seeking their views and involvement just does not arise at all! The ego at senior levels that we know everything often pushes firms to take a top-down approach to budgeting. But if one lets it go and accept the reality that intelligence and knowledge resides at all levels of the organization, it opens up the wonderful door to the real soul of budgeting: communication, involvement and ownership with lasting benefits for the organization.

I had an opportunity to serve on the Board of a leading co-operative bank. Come budget season, we gave up the past processes of a top-down approach and focused on the trio at the soul of budgeting. We began with a communication session in which the Board had an open session with all the operating and branch managers. Important aspects such as emerging banking environment, bank’s strategic imperatives, opportunities, critical organizational action issues were communicated with the operating and branch managers. The branch managers shared their views as well. More importantly, they carried these discussions forward at the branch level. The branch managers with support of senior executives held communication sessions with the branch staff. They together worked on the opportunities at the branch level, challenges and areas of improvement. Some of the operations staff even carried out surveys in the market place, giving them a feel of what the customers are looking for and emerging competition. The branches had a nearly a month to work together and prepare themselves for today and the future. This exercise wonderfully created a sense of camaraderie and involvement. The branch budget was no longer that of the senior management or of the branch manager. The staff members were focusing on certain business opportunities not because they were told to do so but because it was they who felt such opportunities were waiting to be exploited and they had to be done with alacrity for their common good.  This baby step of involvement and communication had a lasting impact on the ownership paradigm and I am really delighted to see that this sense of involvement and ownership has benefited the bank immensely with the bank being a proud winner of many awards and laurels.

www.mycfo.in

deepak@wealthtree.in

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