Mr. Jagdish Agarwal is the CFO at Owens Corning India.
Today’s business world operates in VUCA (Volatility, Uncertainty, Complexity and ambiguity) scenario and that demands a CFOs role beyond the traditional boundaries. Now the expectation from CFOs is not limited to financial matters alone but they have to partner and support CEO to drive the business and maximize the shareholders value. CFOs are custodian of the shareholders wealth and considered next to CEO with lots of expectations. I think there are five critical areas that need CFOs focus and attention to drive planning, performance and maximize the shareholders value.
Talent Development and Growth: I believe the first and foremost thing to have great results is having a robust talent strategy in place and in order to formulate the same, the CFO has to play a critical role along with the HR. Talent is not about number of people but it is all about quality of the people. There has to be a policy on the hiring process, nurturing the talent by identifying and working on the development needs, reward and retaining them and performance management system. Leaders should strive to utilize the full potential of each of their team members for which they have to position them for the best fit roles keeping their strength in mind. It will help a leader to connect well with his people and also at the same time to challenge enough to get the desired result. At beginning of the year goals should be finalized for each individual and held them accountable against those goals during performance review. I am sure this process (should be well documented) will help to build a great place to work that will help to attract and retain the people.
Business Partnership: CFO should not only report the numbers but should partner with cross functional leader to maximize the value. In general finance, CFOs meet mostly with Auditors, consultants, Bankers and Govt. officers and it is important to have relationship and interaction with all such people. However meeting with customers and suppliers will provide insights to the business as well as help to maximize the value of the relationship. I have seen finance teams partnering with sourcing and commercial teams on negotiations with suppliers and customers adding a lot of value. CFO should play from the front on strategy formulation and execution and support CEO and others to realize the true potential of the business.
Driving Business Performance: Driving business performance should be an integral part of the CFOs routine activities and this includes in-depth review of the operations, cost, market, suppliers and customers. Creating awareness and educating people on the financial impact of their action and also provide tools to enhance the margins. Detailed study/discussion should be done for the risk and opportunity over plan on periodic basis and monitoring the same till the conclusion. Ensure that risks are mitigated and are encashed. This is only possible when the CFO has good knowledge on operations and market.
Process, Systems and Controls: Controls and compliance are bread and butter, so it is expected to be within the CFOs grasp. There has to be a balance between compliance and supporting the business. Simply acting as a police officer on the pretext of control does not help the business and in today’s world none of the organizations prefer to have a CFO who just talks about controls/compliance. CFO should be good enough to come out with solutions that will help in mitigating control risk and at the same time support business. SOP’s should be well drafted, circulated and training has to be imparted to cross functional teams and making sure that the team understands the objective behind all such things. It is human tendency that if we force something the impact will be short term, instead if we educate on the objective/importance; the impact will be longer term and people will partner to drive this. In many organizations today, the CFO manages the IT department, even if they do not, the focus should be to make the best use of available technology. I feel that data processing / routine reports should be automated and the quality time should be devoted on the analytics and decision making process.
Cash and Capital Efficiency: This part is really critical and should be one of the core items in the CFOs agenda. As we all know that Cash is very precious and it has cost embedded in itself, so managing the same is really vital for the organization’s success. There are three main parts that comes under Cash and Capital efficiency are a) Operational cash generation b) Capital efficiency and c) Treasury management.
In operational cash the critical piece is optimization of working capital (WC). First thing is benchmarking the WC cycle against the industry peers and then improving further to have an edge over the competitors. Forecast accuracy, credit terms to customers, payment terms with suppliers and production planning are main aspects to control the working capital. CFOs who partner with operations, sourcing and commercial leader on business front have better control to improve the working capital. It involves educating the functional leaders that how DSO, DIO and DPO can impact WC and in turn ROC (Return on Capital Employed). CFOs should talk about correlation between working capital Vs Profit on ROC calculation as it will give nice perspective to understand the importance of WC. In addition to ROC the optimum Working capital helps the organization to maintain the healthy current ratios and in turn better bargaining powers with banks on borrowings.
This is primarily related to capital expenditure or new investment (Capex) . So before any decision on the Capex, there has to be a robust review mechanism and making sure the investment should able to provide the investment grade returns defined by the organization. Initially all projections looks lucrative but having robust due diligence system in place throws the reality and help on the decision making. Another point to remember is to have many options and selecting the best available options before committing anything, it might be buy or lease, investment vs. strategic tie-up with other player etc. There are many examples wherein the companies went overboard either on Capex or acquisition have lost big time in the market.
Maximizing the value of money either through investment or borrowing. CFO should be updated with latest financial instruments available in the market either in the borrowing side or investment but risk mitigation plan should be in place.
There are many more points to discuss inside each of the above, but too much of nitty-gritty sometimes dilute the message. I am sure all of us are aware, what has been discussed above but the key for successful planning and delivering the performance is focused approach and execution.
More about the writer:
Jagdish is a senior business and corporate finance professional with more than 18 years of experience in achieving revenue, profit and business growth objectives within turnaround and rapid change environments. He is presently working with Owens Corning India as CFO. Owens Corning is a US based manufacturing Company of Building Material and Composite products (Revenue of $5.4bn, NYSE listed). He has previously worked with Reliance Group, ICICI Bank and Kanoria Group in the areas of accounting and controls, taxation, auditing, company law, treasury, risk management, commercial and credit appraisal of loans.