We need quick-change strategies that provide effective solutions in these transformative times believes, Robin Banerjee, Managing Director, Caprihans India.
SPENCER JOHNSON’S WHO Moved My Cheese is the most fascinating book I have ever read about dealing with change. The two mice in the story, as opposed to the two humans, do not over-analyse circumstances, but keep looking for the new ‘cheese’ of success, changing strategies quickly. The tactic is to be nimble-footed. The world is innovating at a faster pace than we can even conjecture. Over seven million people are working in technology-related research with the numbers growing in India, China and Brazil.
In the past 15 years, these countries have commenced establishing a big footprint in R&D. The finance fraternity needs to make sense of it, convert opportunities into deliverable ROIs, and arrange funding to carry-out the changing modernism.
The CFOs and their understudies of today and tomorrow will need to think more like businessmen. Ability to lead a team, motivate others to perform, strategise the next moves, provide quick business summaries, offer a bird’s-eye view and effective communication, are all to be rolled into one. You need to be turn-around specialists. Someone, on whom the top management can depend upon to let them know what is going wrong and likely steps needed to perform better.
After the financial crisis in 2008, the world has become more difficult place to do business. India is no different. The Government at the Centre has changed. And it is a very significant change. After 30 years, there is a Government which is not dependent upon the largesse of its coalition partners. The majority party can now decide on its own the destiny of over a billion inhabitants.
I expect transformational times. Good or bad, time will say. The CFO community will have to measure up to the changes that are expected to happen. A bit of crystal-ball gazing will perhaps help us to tighten our belts and pull up our socks.
An ‘entrepreneurship’ approach will be the key. The finance-man inevitably gets to see the company’s big picture early. While nitty-gritty of financial numbers cannot be ignored, the macro picture of business, including the global scenario, will need more focus. ‘The world is flat,’ said Thomas Friedman in his famous book. It is true. India is now totally integrated with the world. If it snows in the US, we catch cold in India.
I would look to the following trends to predict future developments.
The world is innovating at a faster pace than we can even conjecture. CFOs need to think more like businessmen.
Globalisation of our economy has ensured that ‘cloud’ no longer refers only to the abode of the Hindu Gods and Goddesses, but is a virtual location in 21st century reality. ‘Cloud-computing’ how we store and access our zillions of corporate data. This will be critical in days to come.
Raising funds will supersede many other tasks. NPAs and difficult times have led numerous companies run to their bankers for restructuring debt. Yet, fund requirements are going to get enhanced. The demand on finance guys will be to convince bankers to open their coffers and take more exposures.
The need to understand project funding and its concomitant details is also increasing. Only then can the bankers be convinced. With NPAs in the banking sector at over two lakh crore rupees, getting funds from banks will become more and more difficult. This will shift the spotlight on optimising working capital. Reducing it through stocks and debtors control, and then to fund it appropriately, will be the challenges the finance-fraternity will need to gear up for. Direct dealing with bank managers, is what I suggest, rather than depending upon middle-men. No one knows the company better than you and me, who work for it. How can someone else explain better the risk profile, the profitability numbers, the future cash flows and the asset cover?
Shadow Banking and Checking Fraud
With the change of times, one important development in the finance world is ‘shadow banking’. This is going mainstream. This involves lending by the non-banks from crowd funding boutiques to insurance companies, including pension funds, hedge funds, exchange traded funds, money market mutual funds. Knowledge of these markets is going to be very important.
The traditional method of looking at financing proposals and return expectations of these lenders, are changing. For those who are interested, the ‘shadow-banking’ industry is now over trillion, or about one-fourth of the world’s total financial system.
Global Funding and Differential Interest Rates
Global funding and using the differential interest rates will become more and more popular. Not only does the finance team need to understand global banking and sources of funding, but also foreign exchange risk management techniques. Apart from the vanilla hedging techniques, options and derivatives may need to be used more often. But remember, sometimes these may turn out to be ‘instruments of mass destruction’.
Unless corporate frauds and scams are kept in check and internal controls are adequate, a large loss can eat away all the good works done.
Cyber Crime and Corporate Fraud
Every day scores of computers are being broken into with criminal intent, through hacks and malicious codes. Around billion is lost by victims every year globally due to cyber-crime. The finance community needs to be the guardian that protects companies from such crime. Moreover, it may be hard to believe, but a massive trillion is the estimated loss each year worldwide owing to corporate frauds, accounting for five per cent of a typical companies’ revenue. Unless corporate frauds and scams are kept in check and internal controls are adequate, a large loss can eat away all the good work done.
Outsourcing and Cost Effectiveness
In earlier times, we used to maintain our own accounting records and argued the best way to reconcile variables. However, nowadays, the ‘outsourcing’ industry is so strong almost everything can be out-sourced from third-parties. Let’s take advantage of this development.
Cost will be the focus. The term is no longer ‘cost-reduction’, but it is ‘cost effectiveness’. Never lose sight of it. The top-most area to improve the company’s bottom-line is cost.
Switch to Long-Term Value-Creation
Is short-term more important than long-term goals? While the finance community will need to work on financial analytics to identify short to medium term opportunities in the stock and bond markets, I believe that long-term business prospects will gain credence. While ‘high-frequency-trading’ involving split-second stock buying-selling will remain popular, focus on long-term value creation will gather momentum.
Communication provides effectiveness. CFO-fraternity will need to increasingly “market” their companies in the public domain—to the bankers while raising debts, to potential investors while raising equity or bond funds. ‘Road-Shows’ will become part of life.
India is likely to change fast. Investments, growth and profitability will be the talking points. Investors like PEs, VCs and Angel funds are going to look for quick deals and outcomes.
Finance Managers therefore need to find the ‘cheese’ for organisational stakeholders within the maze of business opportunities in changing times.