CFO Roundtable: Through The Looking Glass And Into The New Normal

In a post-crisis mode with a watchful eye over a possible third wave, CFOs are now beginning to pause and look back on the rapid transformation that they’ve sustained on the path to survival and sustainability.  From digital adoption to digital transformation, from rethinking capital allocation to re-evaluating To-Dos, the key to a strong financial strategy has undoubtedly been better informed by the pandemic. 

With business activity resuming and financial teams settling into the oft overused term-‘new normal’, Mankiran Chowhan, MD India at SAP Concur begins her remarks at a BW CFO Roundtable with a bout of introspection. She distinctly began, “What are the parts of ‘the normal’ that are worth getting back to? And how do we commit to a program of reinvention? Be it for restructuring of operations, or responding to the unpredictable, how do we design for disruption?”

New CFO in New Normal

Chowhan spots four structural lessons, “In my view, there are four things that are coming out of the pandemic. First, putting people first. Next, we are all looking at scenario plans in terms of what works and what needs to be reinvented or reset. Third, is really the elasticity in the cost structure, whether it's short-term liquidity or long-term financial health, moving rapid cost reduction to more resilient cost management. And finally, it's about getting future ready, ultimately change is inevitable, but growth is optional. The growth will depend on how we leverage this opportunity to pause and to rethink,” she adds.

To Pramod Menon, Group CFO of RPG Enterprises, the disruption of existing givens was interesting. He adds that the pandemic ushered in a level of questioning in existing processes that wasn’t seen before. “It has also facilitated the impossible to become possible, in terms of work from home which is now a business need. Though there were concepts on paper, it was not being pursued with right vigour; but now the whole mind-set has undergone change.  What I'm also seeing is that there's a lot of ownership coming in from the businesses on cost take-outs & collections and it's no more a push by the CFO's office,” he says. 

Ashish Adukia, CFO, Grasim Industries views that these changes that go beyond survival in terms of cash, cost and digitisation are interesting to note. He adds, “What I’m noticing is more progressive corporates, who have started focussing on new products that cater to the new environment in fields like health and hygiene. Another, is creating or finding a new distribution channel at a time when the only way to deliver your products is through online platforms. Some of these changes have opened have opened our eyes and they're becoming a permanent change.”

Changes in the new way of working from the emergence of permanently remote jobs to a re-evaluation of the supply chain are also noteworthy future faced changes that would have not emerged if not for the pandemic. 

One-Of-A-Kind Collaboration 

The pandemic has also helped revisit the need for cross-departmental fluidity and communication. As a CFO, a financial leader had to connect with CTOs, COOs, CMOs and CEOs. It inspired an organisational-wide connectivity which became necessary to solve problems. 

“As a CFO, we needed to stitch everyone together. It resulted in the kind of interaction that I should have probably done much earlier. I think that was the big eye-opener, that in order to understand business objectives and solve the crisis, I had to interact with all CXOs in the organization rather than just being a partner with CEO.” Adukia elucidates. 

But the change in attitude is not limited to CFOs. Companies are now seeing a greater leadership interest and investment in building initiatives like that of risk management, crisis management, technology adoption and employee care. 

Agility - The New Black

Wearing a technology leader’s shoes, Chowhan adds, “In terms of driving scale and acceleration, from what we’ve seen for others and as well as in our organization, efficiency and effectiveness are becoming the two main sources for agility in an organization

Agility also spills over into financial strategizing. The role of the CFO has been replete with changes in the last 5 years. Beginning with demonetisation, followed by GST, the NBFC crisis and now the pandemic, making CFOs adept at living with changes and altering the perception of strategy from a singular to plural - as ‘strategies.’

Menon remarks, “It was never about one (big) strategy. We’ve always used multiple (small) strategies, so it’s really about agility.” Explaining capital allocation for multiple new initiatives he adds, “Capital allocation strategies have undergone a change, as the periods of uncertainty are far longer in the business cycle, compared to a decade back.  Faced with its smaller capillaries and allocation of capital across different strategies at the same time, being agile becomes key.” He explains how allocating capital and seeing success in one particular strategy isn’t enough, one should look at evolving further and ensuring that the strategy can phase out over a longer period.

The bug of agility has bitten big in terms inspiring a new wave of supply chain developments too.

 Manoj Bhat, Group CFO, Mahindra & Mahindra explains, “During the pandemic, businesses had to adjust rapidly to a changing landscape.  For example, take a look at the supply chain previously there was a large dependence on one supplier, businesses have now shifted to multi suppliers and multi-location setting. We can’t have a business-as-usual approach, for example data-based analysis around some of these elements would be very relevant.” 

A CFO’s To-Do List

With a global black swan event, a flurry of new operating models dominate businesses leaving companies keen on surviving. The digital adoption which has now paved way for a business landscape-wide digital transformation is one such example. Talking about goals on the CFO to-do list, Menon looks at the changes in capital management.  “It was always been a struggle in terms of trying to bring down the number of NWC days or the TSO days. But I do believe that capital management has become efficient with collaborative effort from businesses. And we’ve seen a YOY decrease in the number of days too, with two of our companies becoming net debt free entities.” Reflecting on the cash and capital management judgements, he adds that cash for premium and deferment of possible expenses reaped positive benefits.   

Bhat adds that while the list hasn’t changed for him post pandemic, the focus and weightage for some of the items have changed. He says, “There's been a lot of change in approach over the last five to six quarters. In terms of looking at capital allocation, we have looked at what is our core, analysed what would lead to increased growth as well as have thought through our investments.”

He explains that these items have remained on the agenda but are now seeing an accelerated focus. Keeping in mind the demand revival and talking of the reallocation of human and financial capital ahead, he goes on to explain, “There are a lot of things we had to learn. Post pandemic, my focus will be on how as a group we institutionalize the good practices? How do we put in mechanisms to reinforce measure track monitor change?”

Pillars of Financial Strategy

A recent Gartner survey highlighted that nearly 95% of finance leaders have a vision of the finance function becoming leaner with fewer employees and more digital, data-driven focus. Looking ahead Chowhan adds that the pillar to a sound financial strategy rests on the digital infrastructure and the innate innovation that will propel the organisation.  “Investing to strengthen internal digital infrastructure and capability is really about transformation to be able to better support the business, empower agile decision-making, strategic planning for strong financial health and grant better access to capital. The second pillar that comes to my mind is innovation. Whether it's innovating new products or services, the needs of our customer and our employees have changed. And in such times of crisis, innovation becomes a very critical component of growth. Finally, with all the financial data now available, how are we going to use the data to make changes and strengthen costs? Cost control will continue to be a priority going forward. ” she adds. 

Adukia goes on to explain that all numbers have stories and all stories can also be converted into numbers to understand them better. To him the cost of capital is an important pillar when strategies materialize into numbers. 

“One very strong pillar is the cost of capital, one has to try and optimize the cost of capital and keep the right balance of debt and equity. Your business performance and ongoing business will also be evaluated on the basis of it. Now, this also means focussing on maintaining a certain level of liquidity. Because a lot of times when you maintain a treasury or maintain liquidity, it may not return you the cost of capital because that has certain importance of its own to negotiate with lenders and not to be at their mercy, etc.…But overall I think as a CFO, my focus is on the cost of capital as a central point whenever I'm converting certain strategies into numbers,” he explicitly answers.