Re-Think & Reset: Top Strategies for Financial Transformation in 2021

The coronavirus pandemic is one of its kind and has forced businesses worldwide to evolve in ways they would never have otherwise. The pandemic exposed economies to liquidity challenges and made organizations to RETHINK, REINVENT, RESTRUCTURE! The change had to be quick and efficient to let the businesses survive and grow.

As we walk into the 4th quarter of the “new normal”, the question of what fundamental shifts have companies experienced up until now arises. In a conversation with BW Business World, CFOs of the leading organizations in India share their views and best practices.

Group CFO & Interim CEO of OLA Financial Services, Mr Harish Abichandani expressed that the first and the foremost concern of the group was safety; the safety of their stakeholders, drivers, customers and their assets. “During the initial phase, we moved from safety, to risk management, to the protection of business and financial health of the organization.” But the real challenge after the business kickstarted was, “How do you fundamentally come out significantly stronger, agile and more digital in the new ways of working?”, he added. "Our main focus, as we progress from the current quarter to the next, is to capitalize on business momentum in a much stronger and agile way. Technology is at the forefront of everything we do, so everything today is digital." 

Agreeing with Abhichandani on the significance of digitalization and the need to focus on the same in future, CFO of Escorts Limited, Bharat Madan mentions a different business experience. According to him, their industry had a strong pick up after the initial days of complete lockdown. “The challenge we faced was of demand surge. Although a positive one, we had to make sure that the supply chain kept working and that there was sufficient inventory since we supply pan India and there was a partial lockdown in many areas.”

Madan said that the second biggest challenge they had to face was sustaining minimum costs. “The base has really gone down, so if we are able to sustain the lower cost structures, the margin would be sustainable.”

Conferring to the new digital world that the pandemic created where locations are now virtual, Finance Controller of Value Labs, Vivek Raju, recalls the way the industry worked changed overnight. This change brought with it the challenge of remote working, connectivity, security, and ensuring productivity.

Raju said, “The other major challenge was on the client side; they had their budget limitations due to the pandemic. The big names of the IT industry, too, saw a fall of 6-9% in the first-quarter revenue. Apart from revenue, there are your own cost constraints. This condition, fortunately, lasted only till the first quarter, and the business started picking up after that."

Referring to the insignificance of locations in the digital world, Raju added, "The silver lining that we see in the industry right now, is defined as the Y2K 2.0 movement where the location is now digital. The cost of travel, need for physical presence at locations, and the complications it had no longer exist.” He also mentioned that the budget sheets prepared at the beginning of 2020 completely lost their relevance due to pandemic.

Averring that the general belief of the healthcare industry not being affected by the pandemic is a myth, Group CFO of Narayana Hrudayalaya, Mr Kesavan Venugopalan says, “Just like any other industry, healthcare has seen the worst, in fact much more, and has gone through a painful transition. There was a phase when as an industry , we were ready for treating regular non-covid patients, having painstakingly separated the Covid treatment areas from the non-Covid ones, but the patients were not ready to come to the hospital because they thought the hospitals were channels for getting COVID." There are many takeaways during this pandemic which will be everlasting in terms of benefits for the time to come. 

Highlighting the change in customer segments and the need for viable cost management, Kesavan shares the financial issues they faced, and the changes he thinks are essential to implement for the same. "In the shorter timeframe, one had to get rid of the temptation of chasing M&As at ‘attractive’ prices. The focus was on how to recover from the pandemic with minimal damage and be brave enough to let some acquisition opportunities slide. The other significant effort was to effectively communicate and share the pain with stakeholders, including employees or other associates or vendors or the customers, for them to be able to appreciate what we were doing and what was happening from time to time.” 

"The market segmentation is not the same, for example, a moderate percent of our market share used to be from international venues. People came from abroad, and now they are not turning up because of travel restrictions. So it has been a big challenge for the last nine months for us to see how we will positively mitigate that loss of channel to a more viable channel, more valid channel for us to do the business”, he adds. 

Sharing his thoughts on the same, CFO of SRF Ltd., Rahul Jain believes that the change has always been a part of financial lives. “The only thing that I believe that has happened with the COVID pandemic is that it has accentuated the need for change, and the ability to actually continue the business in a manner which is sustainable.” The pandemic has affected the way industries make their decision and the perspective has changed, while the requirements of statutory and internal reporting are now more important than ever.

He adds, “Without a shadow of a doubt, cashflow forecasting, and the ability to manage your cash flow has become of utmost importance. On the softer side, I think the requirement of upscaling the team's ability, and to provide them with a safe environment are the key priorities.” Stressing on redesigning, and reactivating business continuity plans which got activated in a short timeframe due to the pandemic, Jain says, “It is important to ensure that your supply chain remains effective because, from the manufacturing industry standpoint, it is the most important piece for you to be able to service your customers.”

While the pandemic has made a few many changes, the most permanent one is the cultural change. There is no going back from the Work From Home model. CFO of Rain Industries Ltd., T Srinivasa Rao explains, “It is not for cost reduction alone, but our efficiencies achieved through WFH and improved flexibility, and the ability to take people who are not able to join in the service earlier.”

He also brought to light the effect it will have on the real estate sector. “The demand for the office space or the commercial space will reduce or will remain at the current level, but the demand for the residential space will change substantially. The demand for houses closer to business hubs may or may not increase as you have the flexibility to work from home, people will move away from the major hubs to maybe sub-urban Tier 2 Cities.”

Rao told BW Business World that the role of CFOs has also changed significantly due to the pandemic. “Previously restricted to financial management functions such as sourcing of funds for expansion, support for capital allocation, or working capital management, the role of CFO has become much more digitalized now. Whether or not the businesses want to get into e-commerce, they have to be ready to do business or certain business processes electronically.”

Mankiran Chowhan, Managing Director, Indian Subcontinent at SAP Concur, sheds light on how the finance function has unimaginably expanded and diversified. “While the crisis has created challenges and uncertainty, it has also presented an opportunity to pause, reassess, and develop strategies to help organizations not only survive but also become more resilient against uncertain conditions in future. Each business has to take a unique path that goes beyond simple recovery to drive reinvention instead.”

“Organizations are focusing on reskilling as they realize that the digital era is creating a skill disconnect. So, reskilling the teams or hiring based on new business requirements will be the key now. While looking at reskilling, organizations are also thinking about restructuring and the decentralizing the finance function to create a balance between centralized and decentralized services. And finally, once operations are largely automated, finance teams will double down on business insights and service, since, organizations with good visibility to what they are spending, are better equipped to identify the saving opportunities. So, when you are looking at financial transformation, having a connected, powerful and integrated end-to-end process is critical, and this is what powers an intelligent enterprise. It helps with financial discipline, so you can strengthen control over spending and create a resilient and sustainable cost structure," she further added.

G N Gauba, CFO of Motherson Sumi Systems Limited, shared how they were better prepared for the extreme business measures because their facility in China faced lockdown months before India did. He said, "Today, it is a priority for a CFO to look forward as well as look at things like ESG or sustainability because the shareholder value can only be enhanced if you create a sustainable organisation, not just have a spike in shareholder value ,  One year, it goes to the top, the next period, it goes down.  Governance becomes one of the very key aspects , so, therefore, it is very important to stand between your stakeholders and business managers to ensure that the highest level of governance is followed."

"I think we have to step back and think slightly differently, and not just get carried away by the new technologies like the blockchain. I suggest the CFOs to think like a bank, and how you are a bank inside an organisation. We all have seen how the banks have created a scalable organisation with checks and balances. So, whenever we are thinking about digitalization, don't just think about the use of technology, but bring it into the picture that this is going to help us scale up to the next level.", he added.

Concluding with recommendations, Asia CFO of RR Donelley, Venkatesh Viswanathan said, “The main priority of businesses will be to grow as we mature out of the pandemic and de-risk possible customer deditions. The pattern of spending from customers can change as they come off equally as the pandemic. It is because they would want to reduce costs. The other big point is the "cost to serve" or the indirect/support costs. Its performance as a percentage of your total revenue is important. The Indian business ecosystem needs to be more nimble and agile in their products and services to suit a wide spectrum of consumers. The pandemic has hit many businesses in different ways, and each business, whether an MSME, or SME, or large business, is coming at different points of commercial stability to this party. So, as they go into 2021, the Indian business ecosystem will have to evolve to suit different consuming patterns.”