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Marco Valsecchi

Lack of work experience and key employable skills have serious impact on job prospects

The large-scale layoffs in IT, realty and many other industries in India paint a dismal picture. What is Adecco’s experience in this regard?

We are the largest player in HR solutions space in India. With such massive lay-offs happening in this sector, HR companies do experience certain pressure from players. A strong quarter of headcount reduction in the IT industry has impacted us. But I think the picture is a bit fragmented than the ones we are getting in the news.

In spite of such lay-offs, we have noticed these sectors are moving in the same space. With regard to hiring, they are looking for great talents. We have noticed that this sector is rapidly picking up and sustaining a healthy growth.

Workplaces across the world are changing, so it’s time to push against traditional ways of thinking. For candidates, we remain relevant as employers either through providing them re-skilling, closing gaps in competencies or being flexible in terms of designation and roles. For clients, we keep on reviewing our strategies; customise them as per requirements to search good talent in the market.

Experts say that companies want to hire only the top 10 per cent of job seekers. How does Adecco ensure better opportunities across the employable base?

Adecco is committed to boost the employability of youth. So, we increase employable base via different initiatives and programmes. We equip youth with hard and soft skills that businesses require today. According to the 2014 edition of the Global Talent Competitiveness Index, lack of work experience and key employable skills have a serious impact on the employment prospects of youth across the world. They need to be equipped with hard as well as soft skills.

As a global leader in HR solutions, Adecco had launched the Adecco Way to WorkTM programme in 2013 to fight unemployment. This global initiative, involving Adecco employees in over 60 countries, focussed to address the mismatch of skills and experience that often prevent youth from entering the workforce.

With this pledge, Adecco commits to:

  • Provide 5,000 people with a work-based training experience for three-year period (2015-2018), either with Adecco or with an Adecco partner company.
  • Ensure 30 per cent of the work-based training experience will lead to a permanent employment for those who engage in it.Finance and HR are so intertwined and central to a company’s agility that they are the logical first step towards unifying all back office functions…CFOs need better understanding of their company’s talent needs.

Finance and HR are so intertwined and central to a company’s agility that they are the logical first step towards unifying all back office functions…CFOs need better understanding of their company’s talent needs.

There is said to exist a huge skills gap in India. What is Adecco’s opinion on this?

The advancement in automation and artificial intelli­gence is the source of the most disruptive changes presently in the way we live and work. There will be an unsteady transition, so governments and business must act. The education system reforms are needed to provide right technical skills, and the ability to adapt to change. As a multi-career reality becomes the norm, workers must boost employability by committing to life-long learning. At the same time, employment policies must combine employers’ need for flexibility with social protection. We will respond to challenges only by working together.

As per a study by the Adecco Group in collaboration with INSEAD and Human Capital on Global Talent Competitiveness Index – Talent and Technology, India stood on a relatively solid pool of global knowledge skills compared to other emerging markets but it is not able to retain and attract talent.

Re-skilling is the solution for job seekers to remain relevant in the mar­ket. An understanding of technolo­gies most likely to emerge in their industry of choice will go a long way in creating success for job seekers.

Finance and HR are the new power collaborators in companies across the globe and companies are moving these functions to the cloud. What is driving this and what are the benefits?

These two areas are so intertwined and central to a company’s agility that they are the logical first step towards unifying all back-office functions that exist. As CFOs get more involved with more defining business strategies, they need a better understanding of their company’s talent and resourcing needs.

I think the major benefits which can be achieved will be a single data model, the addition points between two areas can be automated, which will become increasingly important as a company grows. Also, one of the advantages which I can see is that we don’t have to grow headcount to manage all these tactical, back-office lengthy processes that become more complicated as the work gets to expand.

What is Adecco India offering to its Indian customers? How is its approach different from other HR solutions companies in the country?

Work is evolving at a fast pace, and organisations must be ready to keep up. At The Adecco Group India, we not only understand the changing employment landscape but work with clients to ensure they can embrace it. As we understand that businesses across the globe, we become more open to new ways of working. In recent years we’ve seen the global economy fluctuating dramatically. The way we all do business today will be dif­ferent in five years, or in ten years. We don’t know what will happen. But we do know that no business can operate with­out people.

That’s why strategic workforce planning is vital. Make no mistake: we’re not just a service provider. We certainly don’t do ‘off the shelf’. We’ll listen, learn, get to know your business needs in-depth and then tailor the right solution for your organisation. We’ll ensure that you can maximise opportunities and minimise risks. With expertise gained on the global stage, we’re able to deliver the fully integrated HR solutions that will support your organisation’s development. Adecco India, currently, focuses on executive search, recruitment, temporary staff­ing, learning, and training services to its customers. With the help of global resources, we are able to merge our exper­tise with local intelligence to provide customised services to our Indian customers.

We are also in constant interaction and collaboration with leaders and domain experts across industries including retail, telecom, FMCG, engineering, IT, financial services, hospitality, and education. Our experts are skilled and experienced in finding the right candidate. We work on providing consecutive assignments, ensuring talent retention and skill enhancement.

What are the key responsibilities of a CFO in the HR industry? How is the CFO’s role in this sector different from other sectors?

In HR industry, people are supreme asset of an enterprise. An organisation’s employees drive growth and performance; and success is essentially related to skill, talent and knowledge of the workforce. This value is more than any physical asset. As businesses seek to grow, the two most likely hurdles they face are paucity of funds and scarcity of human resource.

High-performing CFOs have to play an active role or have the responsibility in strategic personnel planning and con­tinuous forecasting. He has to move beyond the perception of a workforce plan. They bring acumen and analysis to combine external and internal data in a way to help the busi­ness strike the right equilibrium between building, obtain­ing and deploying talent to support corporate strategy.

The new job market would require a different set of skills to be learnt by employees and prospective employees, and also opens up a new customer base…

I don’t think that CFO roles are different. Of course, a CFO has to wear multiple hats which vary from sector to sector. A CFO with a strategic bent of mind knows well to navigate his way through. Today, CFOs have expanded their skills set and understood the need to control rising com­pensation and benefits costs without affecting recruiting or retention initiatives. In addition, they are also involved in addressing challenges presented by the troubled global economy. They not only display world-class finance skills but they also possess a holistic understanding of business functions and experience in collaborative decision-making.

The HR landscape has undergone sea changes in the past few years. What has been Adecco’s experience in India so far?

The HR as a whole, used to be considered with keeping records, ensuring companies followed regulations and were in compliance with laws, and determining wages, compensation packages, and other benefits. Over the past few years, the entire HR landscape has evolved tremendously. All thanks to technologies that automates much of the work traditionally done by HR professionals, the HR department that exist today looks almost nothing like the ones that existed before.

In addition to programs that can automate payroll and streamline the on boarding process, there are also platforms that simplify the recruiting process and talent management systems that enable companies to quickly determine if their employees are getting the right training opportunities.

What would be the hot areas in HR in the next few years and what is Adecco’s strategy for the market?

This segment has been evolving a lot as a function. It is not just considered as a support but is fully involved in business at strategic level in the last couple of years. The war for talent and engagement has been increasing, and as a result of this many firms are looking at it more prominently than before. The future will be decided by the investment of top leaders in some of the most serious challenges it is facing today. So if we look at the upcoming trends in coming years of HR, here is what will be different:

  • HR will be more flexible, as they understand that today’s youth want flexibility and will excel in their performance if they are allowed to adjust both their work and personal lifestyles.
  • HR will become more social as intranet, internal social platforms, social media platform and many other ways to promote online collaboration and communication across the company.
  • HR will be more mobile. Mobile is the new hot trend in almost every industry. The lifestyle of an HR person will not be desktop-based. It will be wherever they are, whenever they want. • Data will become a key to strategic HR decisions in future.
  • Adecco’s strategy is going to be very simple.
  • Making talent management everyone’s responsibility.
  • Integrate HR services with other function shared services to help deliver seamless experience.
  • Working across the organisation to deliver a seamless employee experience.
  • Create an agile HR operating model that will fit our organisation’s strategy, workforce, and culture.
  • Develop more skills through L&OD, within HR team to improve agility and responsiveness.

With automation threatening many assembly line and routine jobs, also in finance, how do you see the job market being impacted?

While automation might be in the process of replacing many assembly line and routine jobs, it has opened the door to a new job market, involving data analytics and machine learning. The new job market would require a different set of skills to be learnt by employees and prospective employees, and also opens up a new customer base that would require a variety of new services that would appear due to this change in operations and services provided. Thus, it is important for companies and employees to grow and adapt to the changing times.

How is the GST changing the services landscape in India? How do you see it impacting companies like Adecco?

The GST is a destination-based single tax on the supply of goods and services from manufacturers to consumers. GST has replaced multiple taxes. A common base and common rates across goods and services and similar rates across states and between Centre and states will facilitate better tax administration, improve tax compliance, alleviate cascading or double taxation while also ensuring adequate tax collection from inter-state sales.

This new system has led to positive impact on ease of doing business as GST had broken the barrier of state tax regulations. This will also have a direct impact on the job market. Jobs will go up specifically in the sectors that are open to competition and export. In temporary staffing, the demand for technical jobs will rise. In my opinion, more jobs will be created.
GST would bring in a significant change in doing business in India. Companies will invest in GST software to advocate for the best practices, gearing up for a change, training teams and developing IT systems. For this reason, temporary jobs will gain a big boost in the GST regime across all sectors. Talking about the job market scenario, it seems it will gain momentous rise across sectors. However, it will be temporary and fade away eventually.

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Six ordinary qualities defining an inspirational CEO

“Treating employees benevolently shouldn’t be viewed as an added cost that cuts into profits, but as a powerful energizer that can grow the enterprise into something far greater than one leader could envision.” Howard Schultz, CEO of Starbucks

“I think as a company, if you can get these two things right — having a clear direction on what you are trying to do and bringing in great people who can execute on the stuff — then you can do pretty well” – Mark Zuckerberg, CEO of Facebook

An inspirational CEO is one who defines a vision, creates a sense of purpose, articulates the soundness of the logic and assumptions behind the vision and purpose, is surrounded by go-getters, develops a knack for decisiveness, collaborates with all stakeholders and delivers results through an action-packed performance.

In the current dynamic and volatile environment in which organisations operate, wherein innovation and technology are becoming huge disruptors in the external market place, information decay is growing at an alarming pace, work place conflicts and challenges are increasing, the job of a CEO has become extremely challenging, dynamic and carries a larger than life responsibility. Despite having an A-team, availability of enormous resources and talent pool, the CEO most times has to undertake a solo journey, the single most reason being the burden of carrying the entire organisation on his shoulders alone.

The burden may be actual or perceived, but it does not matter. So long as he is in the hot seat, the perception prevails and he has to keep making critical decisions every moment of his tenure. This article examines and provides insights into the qualities that are essential for the person occupying top job, both to succeed in the job and also to become an inspirational CEO.

Purpose and belief “To be truly successful, companies need to have a corporate mission that is bigger than making a profit.” – Marc Benioff, CEO of Salesforce

“A passionate belief in your business and personal objectives can make all the difference between success and failure. If you aren’t proud of what you’re doing, why should anybody else be” – Richard Branson, Founder, Virgin Group Great leadership is really a transfer of belief. Great leaders share their belief, vision, purpose and passion with others and in the process they inspire others to believe, act and impact. Great leaders are positively contagious and they instill confidence and belief in others.

Having a strong vision, a higher sense of purpose and an incessant belief in self and his core team can enable a CEO to overcome any obstacle and focus on the achievement of organizational objectives. Purpose, Vision and Belief can bring a strong alignment among all the key stakeholders which can help the teams to work as one cohesive unit and achieve success against all odds.

It is imperative that the CEO spends a considerable amount of his time in creating this vision, generating a consensual sense of purpose, bring thought level alignment among key stakeholders and empower larger teams in the achievement of organisational objectives.

Patience & perseverance

“Patience is not simply the ability to wait, it is how we behave while we are waiting – Joyce Meyer Great works are performed not by strength but by perseverance” – Samuel Johnson

The CEO position provides a power and authority which can be diligently used in the pursuit of the organizational objectives, by displaying in action, some essential key qualities and characteristics or the position can be abused through aggression and misuse. There are endless examples in corporate history of how the position has been manipulated and misused for personal indulgence and profit making.

Great organisations are built over a period of time based on sound and ethical principles which are upheld through a tenacious display of patience and perseverance from the CEO, aided by a core team and their followers. The twin qualities of patience and perseverance can help the CEO to overcome all challenges and achieve success while becoming a source of great inspiration to people around him.

People: Surrounded by A-team

“I think as a company, if you can get these two things right — having a clear direction on what you are trying to do and bringing in great people who can execute on the stuff — then you can do pretty well” – Mark Zuckerberg, CEO of Facebook

“Treating employees benevolently shouldn’t be viewed as an added cost that cuts into profits, but as a powerful energizer that can grow the enterprise into something far greater than one leader could envision.” Howard Schultz, CEO of Starbucks

In the hands of a capable boss, right and talented people can create wonders in the work environment through their creativity, ingenuity and intelligence. Obtaining such a talent is indeed a difficult proposition but the CEO who understands this and always makes it his priority to recruit right talent into the organisation at the right time can create strong pillars of people resources across the organization, which enables the organisation to not just compete with others, but become a strong differentiator in the market place which can generate tremendous amount of success to the organization.

Independently unbiased

Being unbiased and working in alignment with the same towards people and circumstances is a very difficult ask for the CEO. Most of his time goes in people management, situation management, negotiation, persuasion and presentations.

Availability of information & relevant analysis and effective communication are the two most essential tools that a CEO continuously utilises to navigate through the everyday challenges of being a top decision maker. In this process, he is bound to become emotional and judgmental towards particular set of circumstances or people associated with it. Sometimes it is difficult to draw a line between logic and rationality and emotion & judgment.

Tough situations call for tough decision making, but executing those decisions in an unbiased way is a very difficult challenge, reason being the consequences of those decisions may be felt over a period of time and it may not unfold in the manner it is expected when the decisions were initially made. The CEO who can uphold the moral and ethical values in all situations, assess the environment and people and make right decisions in a rightful manner can go a long way in creating a balanced, harmonious and value based organization, which eventually will have a lasting impact on the external environment as well.

Decisiveness

Decision making at a strategic level is as much intuitive, if not more, as the rational logic behind the process of arriving at a decision. Knowledge and skillset are the essential back bone of the decision making process. However, the breadth and depth of the thought process backed by robust real-life experiences are the hallmark of a qualitative decision making mindset. This essentially is the quality which sets aside great decision makers who walk the life and become great leaders in their respective areas and provide wonderful sources of inspiration and motivation for their followers.

In the VUCA world that is currently in vogue, it is imperative that the chief executive is decisive in almost every single activity that traverses through him. He has to navigate very tough waters, be with his team always, be one step ahead of all others, analyse through a maze of information, keep on radar the organisational objectives and make challenging and effective decisions. The decisions that are thus made can have a lasting impact on the environment, both internal and external and the people who are part of these environments.

The CEO may have support of the Board and his own management team, but his own decisiveness is an integral part of this decision making process which can transform him into a charismatic and inspirational leader. In the hands of such a capable and inspiring leader, the organization can not only achieve its goals but can create and transform the entire eco-system surrounding it into a highly productive and innovative hub.

Sense of being there: Ultimate collaboration

The hallmark of a great CEO lies in how he manages to bring on board diverse set of talented people and enables collaboration among all those people with the singular focus on achieving organizational objectives and building a wonderful and inspiring organization to which people from all walks of life aspire to be associated with. Google, Apple and Amazon are prime examples. Larry page, Steve jobs and Jeff Bezos are all extraordinary leaders who still provide a source of inspiration to large number of people.

This leadership and this inspiration has been a journey, a journey of collaboration among highly talented and intellectual mindsets, through which world-class organisations have been built from scratch and people across the world worship the leaders as much as the organisations.

The CEO, through his personality, intelligence, his sense of judgment and decisiveness, establishes a collaborative working environment and draws upon the collective intelligence of people working with him in the pursuit and achievement of organisational objectives. This collaboration ultimately paves the way for the success of the organisation.
Conclusion
Collaborative and inspirational leadership at the top can help create incremental value across the organisation. Mahatma Gandhi is one of the foremost examples of highly inspirational leadership under extremely challenging and difficult conditions. 
 
An engaging leader who works with his core team and adopts a transformative path in setting and attaining the organisational objectives both short-term and long-term, who becomes instrumental in creating a lasting shareholder value, who involves and inspires everyone in the organisation to be part of this journey, face the challenges, learn by contributing to the growth of the organisation, work like one cohesive binding unit, become stronger through the failures that they undergo, he is the one who essentially will be building an aura surrounding him and truly inspires everyone around him on the path to success.
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Ajay Pai

“Food processing industry is cautiously optimistic that festive season might spur demand”

In an interview with CFO India, Ajay Pai, Finance Director, India and SSEA at AB Mauri, talks about the impact of the COVID -19 pandemic on the food processing industry, cash management strategies and the role of finance leaders, priorities and outlook for the coming quarters, investment sentiment in the sector and how the government can help.

How has the COVID-19 pandemic impacted food processing industry and AB Mauri’s business in India over the past six months?

The current pandemic had a significant adverse impact in the initial few months on the food processing industry and also AB Mauri’s business in India. This was due to supply disruptions arising from stringent implementation of lockdowns, reverse migration of labour and also demand disruptions arising from the atmosphere of fear and uncertainty which curbed discretionary consumer spending.
In the past few months, we have seen a greater divergence of impacts across the food processing industry due to a multitude of consumer behaviour changes.

First is the increasing consumer demand for better health and nutrition, which has resulted in a rapid growth for products servicing this space.For example, Dabur Chawanprash saw 7x growth in Q1 reported sales. Second is sustained and strong demand for essentials and in-home snacking, which was visible in the Q1 results of companies such as Britannia. Britannia posted a 27% revenue growth in Q1 on the back of biscuits consumption increase.

Third is consumers’ preference for trusted brands as a sign of good quality, health and nutrition and this places companies with established, trusted brands at a significant advantage compared to players without good brand positioning.
Lastly, consumer spending is growing faster in rural compared to urban India on the back of higher MNREGA spending by the government and expectations of a normal monsoon this year boosting rural demand while uncertainty in urban India continues to moderate urban demand.

AB Mauri operates across multiple business divisions and has a range of trusted product offerings for the bakery market in India and our export customers outside India. The diversity of AB Mauri’sIndia business, along with strong risk mitigation undertaken by the business, has helped the business recover from a performance dip in March and April 2020.

What was the impact on your supply chain? How long will it take to get back to normal and stabilise?

In the initial few months of Covid-19, our supply chain was hugely disrupted due to challenges in operating plants in areas where lockdowns were imposed to protect lives of people, and subsequently due to the reverse migration wave that started in India, which disrupted both the logistics and manufacturing industries.

However, the situation has stabilised in the last couple of months as we have worked closely with our supply chain partners to arrive at optimal supply chain models while prioritising the health and safety of our employees, suppliers and customers. Due to the evolving nature of the Covid-19 crisis, we are constantly on the vigil and working with stakeholders across the value chain to ensure timely customer service.

More importantly, the learning for businesses from Covid-19 is the need to be better prepared for such events in future, acknowledging that this was not a black swan event. I have seen several articles published that the industry and supply chains have been disrupted from the black swan event of Covid-19, but these interpretations are wrong and hence future business responses linked to these interpretations also risk being flawed. A black swan event is an unpredictable, rare, catastrophic event as Taleb defines in his best-selling 2007 book “The Black Swan”.

However, Covid-19 is not an unpredictable or rare event. If we look at human history, pandemics have occurred with frightening frequency, whether it is SARS, Swine Flu or Spanish flu. Also, several studies conducted by US administration under President Obama as early as 2009 and speeches of several global personalities already flagged a major pandemic as probable event. Covid-19 has challenged traditional business supply chain models and we need to be better prepared to handle such situations in the future, adopting end-to-end operational responses.

What has been the role of the finance function in surviving through this crisis?

The finance function was instrumental in preparing and executing a holistic response to the Covid-19 crisis, understanding the likely business impact and considering the overall socio-economic context of the crisis in India. The immediate responses were supporting business with structured cash and cost management strategies, health and safety investments, IT investments and leveraging automation to ensure continuity of critical business processes and mitigate impact of Covid.

From an economic perspective, the crisis clearly has a significant medium-term impact on specific business and Indian economy due to the complete shutdown at the start of the crisis and disruption of supply chains. Hence, appropriate cash and cost management strategies were required not only to mitigate the impact of the crisis, but also to emerge resilient to capture future growth opportunities. Subsequent reports have validated this stance.

Indian GDP contracted 23% in April-June 2020 and is expected to contract anywhere between 10% and 12% on a full-year basis, depending on which reports you choose to refer – OECD, Goldman Sachs, or Moody’s. Hence there is continued need for the business to focus on cash and cost management and finance played an instrumental role in spearheading the organisation-wide efforts in this area.

The technology dimension of the crisis gained salience due to the need to keep teams connected while the Covid crisis placed severe restrictions on travel and mobility and increased the importance of social distancing to prevent further spread of the pandemic. Investments were made in technology capacity and capability building, working closely with business partners to ensure the business can operate under the new normal conditions. In addition, across the industry the pandemic has challenged the finance function to evolve from its traditional approach of evaluating investment based on financial returns to consider the broader aspect corporate responsibility towards employees and other stakeholders’ health and safety.

AB Mauri, with a strong culture of prioritising health and safety, adopted additional measures across its business operations and made investments to automate manufacturing processes in order to protect the health and safety of employees and other stakeholders.  Lastly, the current crisis stressed on the need for businesses to enhance traditional enterprise risk management frameworks and business continuity planning, which typically prioritises business specific risks, to cover situations such as Covid-19.

Working with stakeholders within and outside the business to build structurally sound business models has helped build a more robust business, which can withstand such pressures in the future.

What is your outlook for the food processing sector over the next two or three quarters?

I think the current situation is very fluid and in the next two or three quarters companies in health, nutrition and essentials segments will continue to do better than those in indulgence categories until the situation has stabilised and the spread of the pandemic is contained. Also, industry players with a focus on the rural market and strong innovation of new products to meet requirements of cost sensitive customers will perform better.

While some of the high frequency indicators of the Indian economy gained in August, pointing towards potential recovery, there is still a long way to regain the growth momentum in India and we need to be aware of the potential downside risks of the resurgence of Covid-19 during winters, weak consumer sentiment while Covid infections are still rising, and risks of NPA and rising debt resulting in low credit creation stemming recovery and demand formation.

The food processing industry remains cautiously optimistic that the festive season might spur demand and it will have to maintain a close eye on demand during the upcoming festive season. My view is the food processing industry in India needs to prepare for an extended period of recovery from Covid-19 and should work to provide high quality and trusted branded products to consumers to drive growth in the current environment.

What would be the priorities over the next two-three quarters?

The priorities over the next few quarters will be to continue to explore growth opportunities and embed a strong cash and cost management culture within the organisation. While companies might find driving growth challenging in the current environment, specific product segments and channels are growing rapidly and hence business should grab the growth opportunities available.

We’ve already discussed the product segments which are expected to perform better earlier and businesses can prioritise growth in those segments. From the channel perspective, hygiene and risk factors will continue to propel faster growth in the E-commerce channel, whereas rural demand and convenience will provide a boost to traditional trade. In the current scenario, modern trade needs to evolve to offer more differentiated and relevant consumer experience in the new normal. Hence, the challenge for business in the coming quarters will be to offer the right product portfolio in the right channel to drive growth. Second, “cash is king” is an adage that is oft repeated in business and this gains more significance in periods of uncertainty as we are witnessing right now.

 

Prudent cash management strategies need to be applied to secure business through current crisis and also build adequate cash reserves to meet any future eventualities. Effective cash management will remain a key priority for business even beyond the current pandemic.
Last but not the least is to evolve the business cost management strategy from cost to value optimisation. While businesses routinely adopt cost optimisation programs to drive structural cost improvements, a value optimisation strategy is different since it invests in business value generating activities while eliminating non-value-added costs from the business, thus creating a sustained long-term advantage for business.
 
In the current business scenario, businesses need to reassess their value propositions considering that customers and other stakeholders’ requirements have evolved during the current pandemic. What was relevant yesterday may not be relevant today. Hence businesses need to constantly review their value proposition and align their business and cost models using the strategic value optimisation methodology.
 
What has been your strategy for cash management? Do you plan to defer any projects?
Our business in India and across the region has adopted a prudent cash management strategy to ensure we protect cash in these uncertain times. We have split our cash management strategy into four areas: working capital, operating expenses, balance sheet, and capital expenditure. Working capital management is the life line of the business and strong work is required to optimise working capital to support business in a rapidly evolving scenario. Operating expenses are another key lever for cash management and involved decisions to reduce costs as an immediate response to mitigate Covid impact and adopt value optimisation models to generate benefits in the long term.
 
A key principle in managing operating expense is to take decisions ensuring long-term business growth potential is maximised. On the balance sheet, depending on company’s situation, there can be a variety of measures undertaken to unlock the hidden value in balance sheets. Last, but not the least, is instituting strong governance around discretionary capital expenditures (capex), which requires stringent business prioritisation.
 
Communication is a critical element of a strong cash management strategy and adoption of a cash-based culture needs to be communicated well across the organisation and across the business value chain. Good communication is characterised by transparent two-way communications: top down around leadership thinking and direction via a clear and concise message, but also feedback from different parts of the business on how to manage liquidity more effectively. However, we have not taken any knee jerk reactions by deferring business critical projects.
We will continue to invest to meet evolving customer requirements, capture business growth opportunities and to meet our commitment towards health and safety for our employees.
 
What role has technology/digital transformation played in dealing with the COVID-19 crisis?
Technology has played a critical role in dealing with the Covid-19 crisis. We need to consider the significance of this from the perspective that all business operations had to be managed remotely for an extended period of time and even the entire technology support for the initial few weeks had to be managed remotely without access to servers and offices. In this context, the key priorities were setting up effective business collaboration tools for remote team working, ensuring seamless technology to enable business operations and supporting financial accounts and audit close in the new normal.
 
The information technology team worked on both capacity building to ensure availability of critical technology for business operations as well as on capability enhancement, engaging with our global teams and external partners to ensure availability of the right technology to support business. Another critical area to consider was addressing the cybersecurity risk, but we had a head start in this area even before the Covid-19 crisis emerged since we had been working on this over the last couple of years.
 
In the current environment, cybersecurity risks are much higher but it was easier for us to scale up our cybersecurity program quickly to ensure critical business assets are protected and there are no disruptions to business.
 
What will be the new supply chain model in the future? What kind of a role will technology play?
The pandemic has clearly challenged the just-in-time supply chain business models with excessive focus on cost leadership but with low redundancy. Businesses need to use this crisis to take a fresh look at their supply networks, reassess the need for greater redundancy working with channel partners across geographies and evaluate the need to work with partners with a different scale of operations to make supply chains more robust in the future.
 
In the new post-Covid era, business might choose to leverage capabilities across the world but build greater resilience through building greater redundancies, buffer stocks and supply chain modelling tools to enhance their existing models to mitigate risk of future disruptions. I think adopting technology is an imperative for future supply chain to gain end-to-end visibility to enable better planning.
 
Already before Covid there were examples of how businesses were able to create value by adopting technology, for example Nestle adopting blockchain technology to allow customers to trace the origin of potatoes used in one of the major mashed potato brands, thereby building customer trust and also ensuring end-to-end product traceability. In the post Covid world, the trend for supply chain automation will gain more momentum. A World Economic Forum study in April 2020 highlighted the need for supply chains to adopt cognitive technologies that mimic human decision-making behaviours.
 
Whether this would head there is anyone’s guess at this stage and depends on the individual context of each business. But one thing is certain, that artificial intelligence, internet of things (IoT) and blockchain technology adoption will allow strategic partners to collaborate and react to disruptions faster, with rapid scenario planning to unlock hidden insights and augment business ability to determine optimal options in a crisis and take quick action.
How will Covid 19 affect investment sentiment in the food processing sector?
Businesses today are surely more selective about their investments. It is important, however, to make investment decisions keeping in mind the long-term growth potential of India. The India long-term growth story is still intact on the back of a huge demographic dividend in the country, rising middle class and a strong digitisation trend. I expect investment sentiment should bounce back to pre-Covid levels in the next year with stronger economic recovery.
 
What sort of policy reforms do you expect from the government that would aid recovery in the food processing industry?
On the supply side, the government can aid faster recovery of the food processing industry through several measures. The first is incentivising of investments in the food processing sector through investment promotion schemes to attract new investments, also thereby generating more employment.
The second is through simplification and reduction of GST tax compliance requirements, simplifying procedures to start business and register property which will also further enhance India’s ease of doing business rankings and attract further investments in food processing industry.
 
The third is making the Indian food processing industry globally competitive through the right mix of export promotion scheme and infrastructure building. The last measure, subject to the fiscal deficit situation, is GST and income tax relief to facilitate small and medium enterprises to enable them to recover faster from the COVID impact.
 

Through these measures the government can support the food processing industry, which plays an important role in the food value chain of the country. On the demand side, government’s higher budgetary allocations by 60% to MNREGA, which shows a commitment to support people’s livelihoods during this period of crisis, is expected to have a positive impact in rural demand. Similar benefits can be extended to the urban poor and tax breaks provided for the middle class to jump start flagging demand in the Indian economy.

The Indian government today faces the difficult task of promoting economic recovery supporting industries while protecting the lives and livelihoods of Indian citizens and managing the rising fiscal deficit.Fitch recently estimated India’s fiscal deficit for the current year at 8.2%, which leaves the government with some manoeuvrability to support industry and the government is proactively working out steps it can take to support industry.

However, given the nature and extent of the health, humanitarian and socioeconomic crisis created by COVID-19, the need of the hour is for collaborative and innovative joint efforts of the government, civil society, NGOs and industry to address this challenge comprehensively and emerge stronger in future.

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V.S. Parthasarathy

Living in a vuca world

Wearing the Group CIO’s hat, only a few weeks back, I had penned an article on ICE, an acronym for innovation, climate change and e-commerce. I feel it is already passé today, such is the speed of transformation in the IT environment. We are living in a VUCA world – a world of volatility, uncertainty, complexity and ambiguity. This has become the new normal and we have to continuously adapt ourselves and be abreast with new developments.

We have moved from merely innovation to ‘Innovation and Adaptability’ and from e-commerce to ‘Experiential Commerce’. Therefore, I believe it is already time to modify the acronym to ‘ICE 2’ which stands for “Innovation and Adaptability, Climate Change and Experiential commerce.”

Research and innovation in IT are bringing newer technologies like cloud computing, big data analytics, Internet of all Things (IOT) etc. These will impact everything but most notably they will affect PPM – People, Processes and Machines.

“IT is now playing a much bigger role in making businesses future ready. However, this requires it to not just enable but enhance and engender businesses.”

Bill Gates had said that, “information technology and business are increasingly becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other.” This very aptly captures the importance of IT in business and how IT is playing a much bigger role in making the business future ready.

However, achieving that would call for a change in philosophy of IT teams from simply enabling businesses to help them with a trifecta of ‘Enablement, Enhancement and Engenderment.’ This is to say that IT should take lead in driving business rather than just enabling it.

“IT is now playing a much bigger role in making businesses future ready. However, this requires it to not just enable but enhance and engender businesses.”

From the global Top 100 companies by market capitalization in 2009, only 66 managed to survive in the list in 2015, while, driven by innovation, technology companies recorded the highest increase (177%) in their market capitalization during the same period. Apple and Google top this list, while there are another 10 technology companies in the Top 1000. This reaffirms the importance of innovation and adaptability in current business scenario and it’s a clear demonstration of how the world has evolved from cost arbitrage to innovation arbitrage.

Innovation, be it in products, processes, position or paradigm, is unlocking new value for businesses. And channelling it into creative disruption has made some of the most successful business models. In business context, adaptability is an equally important aspect. In the past, scenario planning was a powerful tool in a strategist’s arsenal, but today, scenarios are changing at an exponential rate, not a step-by-step linear fashion.

To survive in such an environment, businesses have to be adaptable, which I believe is a combination of agility, ability to adapt to changes and resilience, ability to keep going in face of adversity. Just like an orchestra, where all instruments have to hit the right note at the right time or risk pandemonium.

Similar analogy applies to the business, if the company doesn’t keep up with trends, catching up will be expensive and if it’s too early it will incur huge investments. Those who change ‘as’ change happens, not before or after it, will be the ones who succeed. Just like a surfer has to ride the wave as it comes, otherwise he risks being under the wave or fall flat.

Earlier, innovation had a different dimension and could be done at its own pace. Today, it is about riding that wave and having the tools to do so. Each wave will require different types of surf boards and other tools.

Climate Change:

A lot of people today are talking about global warming, the hazards from increasing carbon emissions and a need for sustainable source or renewable source of energy. The environment as we know is changing fast but, change is happening with much more vigour in the business environment as well – in business models, customer interface, regulatory requirements and many more areas. The important thing for businesses here is to be conscious of and to understand these changes.

A lot of businesses are moving to electronic platform but if they don’t understand and account for climate changes inherent in the business model, they are going to face a huge amount of turmoil. An automotive company has to understand the impact of its business model on climate change.

Another buzz word today is driverless cars. Businesses, therefore, have to understand the context of these changes and adapt accordingly. A more delicate climate change is happening at our workplaces. We have four generations (baby boomers, GenX, millennials and GenZ) working together, and each come with a very different approach. This is especially the case with millennials and GenZ, in part due to digital advancement. This diversity in mind-sets has both its challenges and opportunities. We have to be open to these changes and apprehend the opportunities which presents itself.

In today’s business environment, it is of utmost importance for a business to understand and to some extent anticipate also, the change in its climate, and align its strategies and priorities accordingly.

Experiential Commerce:

Today, selling your products and services through a web-page or a mobile app is in. Everyone is trying to ride this wave without understanding it completely. What people are often overlooking is the fact that things are not going to change dramatically as far as experiencing the product is concerned. If a person wants to buy a car, he would like to sit inside it, take a test drive, to see whether it meets his needs. This experience is important for him to be convinced to invest in that car.

A virtual reality room too, cannot provide him the same experience. This concurs with my point that the digital arena will wrap itself around the business model (brick-and-mortar shops) and not replace them. Those who comprehend this upfront will succeed faster and these will be the built-to-last companies. Whereas, those who simply slap e-commerce on top of their business, what I call ‘un-experiential commerce’, will be riding two horses at the same time and will find it difficult to manage in the long run.

However, the direction is very clear, digital is going to play a much bigger role in business as space availability shrinks, working from office becomes difficult and many other reasons. E-commerce obviously will be a big chunk of this new change, but it has to be experiential-commerce. Though there may only be a subtle difference between the two words, the business models may be very different. It may mean different answers to the question how do you complete a consumer’s experience?

For an online clothes retailer, the consumer’s need for touch and feel can be satisfied by providing a return policy without any cost dimension. The experience then is complete and the model is good enough to replace a brick-and-mortar showroom.

“Players which wrap digital commerce and analytics around their offline businesses to provide a complete customer experience will win”

However, even here I am given to understand that many stores now offer immediate pick up from the ‘brick unit’ and hence the brick will complement the click. To conclude, the success of any e-commerce venture would largely depend on their ability to provide the consumer with a complete experience. Eventually, players which wrap around digital, e-commerce and analytics to give customer a complete experiential commerce that they need are the ones which will win. And often it will be organisations which are innovative and adaptive and look at these two megatrends of climate change and experiential commerce with a hawk’s eye. Only the paranoid will survive and thrive in this new world.

Meet the author:

Mr. V. S. Parthasarathy (Partha to all) is currently Vice Chairman of the board of Allcargo Logistics. He wears many hats and is actively engaged in the upliftment of poor women from rural and informal sectors.

He has served as the President of Mobility Services Sector, Mahindra Group. He was also the Group CFO & Group CIO at Mahindra Group for 7 years.
He has worked closely with the Ministry of Finance through CFO Board, and on global advisory boards for CISCO/ SAP.

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S. Vishvanathan (Ravi)

Why small business are important for corporate India?

Medium and large enterprises have several advantages such as a large pool of capital, easy access to credit, a huge marketing reach, access to the best of human resources and the ability to withstand economic downturns. But does this mean that over time the role of small and medium enterprises (SME) in the economy would diminish to a point that they become marginalized as a sector?

Civilizations that thrived in the past had one thing in common. A strong base of entrepreneurs who were willing to take risks, identify opportunities, provide employment and generally drive consumption. Through its history, civilization in the Indian subcontinent thrived due to its large pool of small entrepreneurs who had trade and commerce in their DNA and spread their wings to other regions of the world such as Sumatra, Indonesia, South Korea etc.

That entrepreneurial tradition has been passed on through generations of Indians and, to a large extent still, drives the country’s economy from an employment and consumption perspective.

India’s growth story is largely fuelled by internal consumption and this is one of the primary reasons why a large economy like ours can be relatively immune to global shocks compared to export driven economies. With the balance of trade between countries becoming a major factor in their commercial relationships in the medium to long-term, large internally driven economies are likely to be better placed than export driven economies.

Also, with technology now disrupting business models all the time, any country that thrives only on large businesses and has an insignificant SME sector runs the risk of seeing a decline in job opportunities in the medium to long-term.

In the current scenario, large enterprises derive their consumption demand from the masses who in turn are often employed in the SMB sector. Corporate India no longer has the capacity to employ the large number of engineers, accountants and other skilled and semi-skilled personnel who come out of our universities year after year. The large SME sector encourages many of these youngsters to don the entrepreneurial cap quite early in their lives. This reduces the burden on the economy from a jobs perspective and also opens up a window of employment in these small businesses.


Small Business Entrepreneurs–How they can be supported and encouraged

The two most important conditions that any small entrepreneur requires for conducting business are: –’

  1. Availability of finance
  2. A conducive regulatory and business environment

Easy availability of small ticket loans and innovative working capital finance at a reasonably competitive rate is extremely important for small businesses. Banks have been not been able to devise many suitable products to finance the SME sector. Where the banking sector has provided finance, it has been accompanied by a lot of paperwork and the requirement of collateral security. SMEs are weak in both areas and asking a small entrepreneur who is just commencing his or her journey to provide collateral security is discouraging for entrepreneurship.

The government has recognized this issue and has devised schemes to address the financial needs of SMEs. However, such schemes have their own limitations. For example, they often work top-down, which has its own challenges. The Working Capital Gap in the SME sector, as per a report by the Reserve Bank of India, is a whopping 365 billion USD. The existing banking setup is ill equipped to address this need.

The mushrooming Fintech sector is coming out with innovative finance products for SMEs and would be able to address this gap to a large extent. It is important not to over-regulate Fintech lending as technology-based digital lending is still evolving and needs to go through several rounds of successes and failures before it matures.

The interesting thing is that the fintech lending space tries to address the finance requirement of SMEs and at the same time it is largely a part of the SME sector itself. Thus, it plays the dual role of generating employment and also simultaneously helping SMEs to grow and provide further employment.

While Fintech lenders may be regulated from a funding perspective to ensure that gullible small savers are not caught in any devious schemes, it is important that such fintech are actively encouraged through less interference by the government and its tax and inspection agencies. And most importantly, through a tax regime that is transparent and just.

Meet the author:

S. Vishvanathan (Ravi)is CFO & Director, Paymate. Prior to PayMate, Ravi built his own consultancy practice that focused on helping technology and financial services companies. He has also served A F Ferguson & Co, a leading accounting firm, and offered consultancy on corporate, strategic, financial and legal issues to some of the biggest businesses in India. Ravi is a sports buff who loves distance running and playing soccer.

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Anita Ananthan

Rebuilding The MSME Ecosystem

The current economic and political environment have left everyone cautious. While big corporates are able to sail through, it is the Micro, Small and Medium Enterprises (MSME) – the highest employment generator and the backbone of the economy – are struggling in the B2C segment. These enterprises are grappling for assistance and protection from big companies as they lack robust resources and technology. These are mostly enterprises in manufacturing and services with an investment and turnover lower than Rs 50 crore and Rs 250 crore, respectively.

The initiative of the Government of India, in the last five years, has played a major role in the protection, sustainability and growth of MSMEs. The government has introduced schemes, rebates and counselling to these enterprises from time to time.

Basic Requirements:
MSME applicants need to be in business for two to three years and should have filed income tax returns at least for a year. The credit score ought to be 750 or more. Registrations can be made online or offline.

Individual Sub-segments:

  • Micro: Investment less than Rs 1 crore; turnover less than Rs 5 crore.
  • Small: Investment less than Rs 10 crore; turnover less than Rs 50 crore.
  • Medium: Investment less than Rs 50 crore; turnover less than Rs 250 crore.

Basic Facilities:

  • Bank loans are collateral free.
  • Subsidy on patent registration.
  • Overdraft interest rate exemption.
  • Industrial promotion subsidy eligibility.
  • Protection against delayed payments.
  • Fewer electricity bills.
  • ISO charges certification reimbursement.
  • Guaranteed Emergency Credit Line (GECL) facility to MSME borrowers, including interested MUDRA borrowers
    Special consideration in international trade fairs

Apart from the above subsidies, there are a few salient features to build quality products. MSMEs can benefit from innovation and digitalisation tools available at affordable funding.

Zero Defect Zero Effect:

Goods manufactured for export have to adhere to a certain standards so that they are not rejected or sent back to India. Exported goods are eligible for rebates and concessions.

Quality Management Standards & Quality Technology Tools:

MSMEs can implement quality standards required for new technologies. Businesses are sensitised through seminars, campaigns, and various other activities.

Grievance Monitoring System:

Business owners can check the status of their complaints, raise their concerns, if not satisfied with redressal mechanisms. The online grievance registration is quite simple and is similar to the consumer redressal court/ arbitration.

Incubation:

This scheme helps innovators to implement new designs, ideas or products. In fact, the government can finance up to 75 to 80 per cent of the project cost.

Credit-Linked Capital Subsidy:

New technology is provided to the business owners to replace obsolete ones. Capital subsidy is offered for upgradation and enterprises can directly approach banks or financial institutions to avail these subsidies.

Women Entrepreneurship:

The government provides capital, counselling, training and delivery techniques to women entrepreneurs to manage and expand their business.

However, the ground reality is most MSMEs are ignorant of the schemes and fail to take the advantages. In many cases digitalisation poses a concern for regular retailers who are unable to access to these systems. There is a crying need to educate these retail enterprises to rebuild a robust ecosystem and help the Covid-hit enterprises regain their growth path.

(The author is the Chief Financial Officer at Credence Analytics, a micro-certified MSME software company. The views expressed are personal and inspired by activities initiated by the Government of India with the intention to reach out to young entrepreneurs. The author can be reached at anitakumar@credenceanalytics.com)

 

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Vaibhav Sharma

Digital transformation is more of a need than a ‘good to have’ in modern times

Modern times require CFOs to part from their traditional roles of being bookkeepers and compliance managers to being strategists and business partners and technology plays a huge part here, says Vaibhav Sharma, India CFO at Steelcase, a global furniture and technology products company. In an interview, Sharma says digitalization of the regular business processes has allowed him to focus on taking the business to the next level.

1. What drew you to finance as a profession?
I grew up in times where everyone was moving towards IT as a career (the early 2000s) and it was the obvious choice for everyone. I wanted to stand out from the crowd, and had an inclination towards finance as a career since it presented one of the best opportunities to work in international markets.

2. How has the role of the CFO transformed over time in your experience?
There has been a pronounced shift in recent years as CFOs have moved beyond their traditional duties to guide company strategy. CFOs are expected to be the change agents, which means that they have to be motivational, inspirational and they have to lead by example. They have to be cross-functional. They have to drive the talent agenda. It’s a very different muscle to leverage. In my view, charismatic leadership from the CFOs will be the requirement going forward.

3. You have moved across very different industries in the course of your career. How did you adapt to these changes?
I firmly believe that change is the only “constant” and in order to be a well-rounded professional, one needs to adapt to different businesses, economic environments and people. Adapting to change doesn’t come to me naturally but over time I have learned to welcome change and embrace it. It’s the only way to make progress.

4. What are the challenges that you have faced as an exceptionally young finance leader?
The biggest challenge for me was how to get people to accept me as their leader (especially people in my team who were more senior than me), look up to me and be inspired. It took some time as I also had to settle into my position and understand my roles and responsibilities.

5. What are the specific challenges you face as the finance leader of a top end global furniture company in India?
It’s a great privilege to be working as a CFO for a leading company like ours. I don’t take it as a challenge but as an opportunity. An opportunity to work with some of the great leaders of the industry, take the business forward and do much more than what’s been done in the past. I find it really motivating.

6. What are the different hats that you wear simultaneously? How has this made your role more complex, challenging and interesting?
There are many hats a CFO has to wear to be successful in the modern business world. When I work with my CEO, I work as a ‘strategist’. When I work with my team, I work as a ‘coach and mentor’. When I work with other business leaders I work as a ‘business partner’. This makes my job much more complex yet interesting.

7. Is the current economic climate a difficult one in which to plan business expansion?
Absolutely not. If your leadership has depth and strategy, and is driven to adapt to a changing business climate, it is bound to succeed. We have shown that recently by expanding plant capacities, launching new product lines and foraying into new markets. It’s been a resounding success.

8. Where is the expansion coming from in your business and what is your strategy?
Expansion in our Indian business is completely organic and is driven by growing market size, market share increase and introduction of new product lines.

9. What is the most exciting challenge ahead?
Business wise, in India we have been growing continuously and have been staying on top in the industry for last 15 years. Staying ahead of the curve was, is and will always remain an exciting challenge.

10. Do you see yourself as a digital age CFO? How have you related to and adopted new technologies over the years?
Yes, I absolutely do. Modern times require CFOs to part from their traditional roles of being book keepers and compliance managers to being strategists and business partners. Technology plays a huge part here. Businesses deal with huge chunks of data these days and culling out the right information from the data requires CFOs to use modern technologies such as automation, artificial intelligence, blockchain and RPA. I started with simple excel based automations and am now working on implementing technologies mentioned above to help my organization.

11. How has use of digital transformation affected your work sphere?
Digital transformation is more of a need than a ‘good to have’ in modern times. This is because it provides a valuable opportunity for core business functions such as finance to move away from manual processes and automate key areas like payables and receivables, enabling leaders to focus on wider business opportunities. I have done digitalization of my regular business process so that I can focus on taking the business to next level with my leaders. Therefore, I would say it has been a blessing for me.

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Bharat Goenka

Mining your way into a Technological Landscape! Vedanta makes it a ‘suhana’ safar for themselves by Bharat Goenka

The Metals & Mining industry is dominated by century old behemoths like BHP Billiton, Alcoa, Noersk Hydro, etc. Against these Goliaths, we at Vedanta, see ourselves as David – always on the lookout of new ways to create disruption in the market place. 

Technology, when intelligently integrated with your business model, can be a big disruptor and source of unconquerable competitive edge – so, can Vedanta be the Amazon of Metals – can it make the big elephants of Metals & Mining dance to its techno tunes?

There is a dynamic shift in approaches adopted by companies to sustain increasing profitability and a competitive edge. Having thrived during the boom of the 2000s and then survived the global financial crisis of 2008, mining companies are now competing for growth in the next stage of the industry’s development. A wide array of industry participants—diversified global majors, national champions seeking to go global, commodity specialists, and juniors aiming for the big league—are all looking to increase their presence on the global stage.

With the price of commodities standardized by the market, efforts should be made to increase profitability by focusing primarily on maximizing the output from operations and reducing the unit cost of production and transportation of minerals. The quality and nature of ore extract is governed by the cost and techniques used for mining. Business leaders have been constantly working on the companies’ core capabilities suitable for optimizing operations thereby minimizing costs.

While digital technologies offer a gamut of solutions and distinct benefits, employing the most relevant technology that suits the company’s business model is most crucial. From defining the facets of digitization, to bringing the concept into reality, both strategically and operationally, there is a need to inculcate digital algorithms into organizational planning. Collaborative practices adopted by multiple stakeholder groups lead to the realization of these achievements.

With this thought in mind, exactly a year ago, we launched Project Suhana (Hindi word meaning pleasant) with a pun on S4Hana. There is enormous value stuck across the value chain as we convert Mud to Metal or as the small Bauxite rocks mined in Odisha reaches as Aluminium Billets to Extruders in North America. Technology needs to play an integral part of the business chain. Adoption of cloud-based solutions like SAP S/4 HANA is a first step towards simplifying the business processes and re-engineering them towards value creation. It enables companies in cutting down the processing time, driving one version of truth ubiquitously available, multi-skilling employees, seamless interaction with customers and end to end visibility on supply chain.

The metal industry aims to improve efficiency, productivity, adaptability and sustainability of the supply chain system and their integration within agile business models and processes. For example, a company which is able to track the Quality (not just the traditional Quantity) of Minerals (like Coal) from the Mine Top to the Boiler (from the Shovel to the Socket) will be able to create value that can only be envied by its traditional competitors.

Successful digital transformation is not only limited to emergent technology but also governs several other factors that are critical for achieving success. Aligning enterprise goals and organizational strategy with digital intervention, enabling a technology mediated workforce, ensuring the existence of a well-defined operating model and facilitating the culture of innovation across various teams while communicating clearly defined implementation goals are some of these factors that determine the fate of a successful digital transformation journey.

Intelligent enterprises embrace information technology, process automation technology and communication technology to create value across the supply chain. They also adapt intelligent user-centred design concepts like SAP Fiori 2.0 that focuses on how employees work and provide business benefits catered to the data collected. It helps increase transparency, customer satisfaction and productivity by ensuring faster and direct access to relevant information.

So, with “Project Suhana” our safar (journey) has started – the quest is on for a technology that can disrupt the Metals and Mining space – the industry desperately needs new techno tunes!

– The writer is Chief Financial Officer, Aluminium and Power,

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Finance Leaders On Travel And Expense Management

As part of a CFO India – SAP Concur initiative, senior finance professionals descended in Bengaluru for a roundtable around the trends in travel and expense management for organizations. Here are some perspectives from some of the attendees:
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Financial & Retirement Planning – A Structured Roadmap

“Time is more value than money. You can get more money, but you cannot get more time.” JIM ROHN

“If you do not find a way to make money while you sleep, you will work until you die.” WARREN BUFFETT

“If you must work for money, find a way to work and be happy. That is Financial Intelligence.” ROBERT T KIYOSAKI

Long term financial and retirement planning has become an essential requirement in everyone’s life. It has become more so with an increase in the health risk due to lifestyle disorders and environmental pollution. Technological advances in medical field are providing adequate protection and cures to new set of lifestyle diseases; however, they come at an alarming cost as well.

Hence, inadequate financial resources during working life and post retirement can create havoc in one’s lives. Based on my experience and understanding, I have outlined in this article a financial and retirement roadmap that one needs to consider during their working life and it helps if one gets an early planning and investment start to leverage the power of compounding and time value of money.

Current cash flows, investments and a detailed financial analysis

  • One has to understand and analyze their current income streams, expenses, investments and liabilities either on their own or with the help of a financial advisor. This is nothing but the preparation of a running cash flow statement and a balance sheet consisting of assets and liabilities.
  • It is very important to understand current sources of income, which may be 100% or predominantly from salary and the saving potential possible. There are no rules to decide what saving ratio is good but generally a minimum of 25 per cent saving from the earnings is recommended, which can help in building a good long term investment portfolio.
  • Current investments if any needs to be analyzed in terms of their nature, duration and how they fit in with the ideal investment portfolio more described below.
  • The financial analysis of the current family situation, the financial spending habits of the family, their future requirements form an essential base for deciding the saving potential, investment options and formulating a financial planning template.

Identifying long term goals and financial requirements

  • Holding a longer time-frame helps decide on the required long-term financial goals which helps in deciding on the ideal and balanced financial investment strategy.
  • It helps to define short-term, medium term and long-term goals and put it on a piece of paper. Children’s education and marriage and funds needed for the same are long term and have to be planned accordingly with investments starting very early. Pilgrimage travel can be considered as medium term goal. Buying a car can be a short-term to medium term goal. Once the goals are clearly identified, it becomes easier to formulate a strategy which can help in achieving most of those goals by investing smart and early.
  • On reflection, it is easier to look back and see how the years have passed, what investments were done and what opportunities were missed out. It is easier to think that had we invested INR 1-2 lacs immediately after college in real estate, in 15 years’ time, there would have been very good appreciation. It is easier to think that had our father invested in real estate in his early working days, we would have been richer by now. But, alas, are we thinking the same for our children? Are we doing the right investments for long term and are we carrying enough patience to actually invest and wait?
  • Right, balanced thinking with a long horizon is the need of the hour. Whatever is one’s current situation and whatever be the stage of the career one is in, one can still apply the principles outlined in this article and match their short/medium/long term goals (which are like creating those assets) and invest accordingly for the said periods to reap maximum returns over time.

Creating an ideal investment portfolio

  • Balanced Portfolio is generally considered as ideal. Balanced portfolio is a portfolio which balances both the return and risk from a long term perspective and generally can include diversified asset classes to weather all kinds of market environments spread over a long period of time. The objective of creating a long term balanced and diversified portfolio is to minimize risk and increase return. In times of market downturns, if possible, one can look at increasing the exposure to equity so that they can generate an enhanced return on those additional investments. History suggests that after land, equity as an asset class generates the next highest return over a long period of time. It means that opportunities for generating very high return exist during market downturns. If one can utilize these opportunities on an active basis while passively investing in the market through mutual fund SIP’s, the incremental return can be lot higher than the average return.
  • Balanced portfolio is generally considered ideal because the investments are diversified and the inherent risk on the overall portfolio is reduced. If one asset class is not doing well, the same may be offset by another asset class doing well.
  • The ideal asset classes can include bank fixed deposits, balanced mutual fund SIP’s, stocks, Jewelry, Land, Property, Insurance, PPF etc.
  • Obtaining a right portfolio mix may be not be possible, but the idea is to be as diversified as possible while creating a matching balance between investment periods and time-bound goals.

Identifying gaps in relation to ideal investment portfolio

Gaps always exist between an ideal investment portfolio and the current one being followed. Gaps could be:

  • Not having awareness about ideal and balanced investment portfolio.
  • There is no current portfolio or what is available is randomly done without any careful thought.
  • Mismatch between investment and goal durations.
  • Not having a long term perspective at all.
  • Blindly following someone else’s footsteps. Each person’s understanding and circumstances will be unique and most times copying someone else’s strategy can backfire badly.
  • Last but not the least is investing in good products for long term but not having enough patience to hold onto the investment. Utilizing long term investment (both profits and capital) for short term uses is a cardinal sin in the investing world.

Formulating short-term and long term financial investment strategy

There can be several ways to formulate short-term and long-term investment plans. A basic understanding of the options available, their evaluation both for short-term period and long-term periods, the current allocable surplus can help in devising a bare minimum strategy to start with. There is no order to what options to choose from, how many to do. It depends on the surplus available now, recurring surplus possible year on year, risk taking ability. But, always it helps to start small with some SIP’s and build onto it year after year. Given below are few options starting with an assumption on the saving ratio.

  • Keep a savings ratio and always save portion of earnings as per the decided ratio. For eg., saving a minimum of 25 per cent of monthly earnings.
  • Keep minimum amount of idle cash and keep some contingency fund in short-term fixed deposit or liquid mutual fund.
  • Invest in long term equity/diversified/balanced mutual fund SIP in the name of children. Different funds for studies, higher education, marriage etc.
  • Invest in Recurring deposits to fund short-term goals of 1-2 years. RD’s provide a slightly higher rate of return than a normal FD.
  • Utilize PPF limits to invest. This is purely for long-term.
  • Park some amounts for emergency/contingency needs.
  • Opt for Voluntary PF at the work place, always transfer PF post a job change. Let the corpus accumulative over time and generate a decent tax free return over a long period of time.
  • Take medical insurance. One should have mediclaim, critical illness and term insurance.
  • Invest in land (not apartment) at-least twice over a 20 year period to obtain the benefit of appreciation in land.

Use of debt

One always wonders whether to take debt or not for investments on house or land or car. Simple rule of debt is that one has to keep paying interest over a long period of time. Most of the current working generation is living on EMI’s only. While it is a good thing that credit is easily available these days, the burden of EMI’s over a long period of time can put oneself into an undue stress. Hence, it helps to have a clear plan of retiring the loans early.

A key principle to follow is not to have too many EMI’s simultaneously and that the portion of EMI’s do not cross 50% of the net salary, leaving still some scope for other investments.

In my own experience, debt has been a great motivator to work and clear the loans faster. No debt on the personal Balance Sheet can act as a key motivator not to work and explore other things that life has to offer. It is an individual choice to make, but prudence has to be exercised in either scenario.

Dos and don’ts of financial investment

  • There is no such thing as perfect time or perfect money. Now is the ideal time and even small amounts matter. One should be consistent and increase as and when their cash flows permit.
  • There is plethora of information and multiple investment products available in the market. Focusing on trying to find the best product and the best return is never an optimal strategy.
  • Avoid investments based on unclear assumptions and unreasonable expectations, most likely they may become counter-productive.’
  • Avoid hyped, over marketed and high return investment products.
  • Keep cool and stay put when market is in downward direction.

Some examples of bad financial strategies in general

  • Keeping cash at home and idle money in bank account.
  • Not saving money and spending all earnings.
  • Not having insurance.
  • No investments in Land.
  • Excessive use of credit card and paying high interest.
  • Hand borrowings at high interest rates.
  • Pledging jewelry to borrow loans at high interest.
  • Hurried investing in March to save tax.
  • Withdrawing PF money with every job change. Currently, withdrawals are restricted for certain purposes only. But, holding PF till retirement is the best form of investment as it generates a tax free surplus which can be considerable.

What are the challenges that you have faced as an exceptionally young finance leader?

The biggest challenge for me was how to get people to accept me as their leader (especially people in my team who were more senior than me), look up to me and be inspired. It took some time as I also had to settle into my position and understand my roles and responsibilities.

What are the specific challenges you face as the finance leader of a top end global furniture company in India?

It’s a great privilege to be working as a CFO for a leading company like ours. I don’t take it as a challenge but as an opportunity. An opportunity to work with some of the great leaders of the industry, take the business forward and do much more than what’s been done in the past. I find it really motivating.

What are the different hats that you wear simultaneously? How has this made your role more complex, challenging and interesting?

There are many hats a CFO has to wear to be successful in the modern business world. When I work with my CEO, I work as a ‘strategist’. When I work with my team, I work as a ‘coach and mentor’. When I work with other business leaders I work as a ‘business partner’. This makes my job much more complex yet interesting.

Is the current economic climate a difficult one in which to plan business expansion?

Absolutely not. If your leadership has depth and strategy, and is driven to adapt to a changing business climate, it is bound to succeed. We have shown that recently by expanding plant capacities, launching new product lines and foraying into new markets. It’s been a resounding success.

Where is the expansion coming from in your business and what is your strategy?

Expansion in our Indian business is completely organic and is driven by growing market size, market share increase and introduction of new product lines.

What is the most exciting challenge ahead?

Business wise, in India we have been growing continuously and have been staying on top in the industry for last 15 years. Staying ahead of the curve was, is and will always remain an exciting challenge.

Do you see yourself as a digital age CFO? How have you related to and adopted new technologies over the years?

Yes, I absolutely do. Modern times require CFOs to part from their traditional roles of being book keepers and compliance managers to being strategists and business partners. Technology plays a huge part here. Businesses deal with huge chunks of data these days and culling out the right information from the data requires CFOs to use modern technologies such as automation, artificial intelligence, blockchain and RPA. I started with simple excel based automations and am now working on implementing technologies mentioned above to help my organization.

How has use of digital transformation affected your work sphere?

Digital transformation is more of a need than a ‘good to have’ in modern times. This is because it provides a valuable opportunity for core business functions such as finance to move away from manual processes and automate key areas like payables and receivables, enabling leaders to focus on wider business opportunities. I have done digitalization of my regular business process so that I can focus on taking the business to next level with my leaders. Therefore, I would say it has been a blessing for me.

 

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Sunil Sayal

I see telecom as the vehicle which all digital tools…will straddle to be able to move forward

You have been part of the mobile and telecommunications sector for long. How would you describe the developments that have taken place in India in the last decade or so? Where do you see the country headed?

The telecommunication sector has been perhaps one of the fastest evolving sectors in our country. For many of us who have been associated with this sector ever since the journey started, it has brought in its fold a variety of emotions – of excitement, of challenges, of fear, of uncertainty, of adrenalin rush – and there has never been a dull moment. The face of the Indian telecom sector is now dotted with just a handful of names. And what a journey it has been for those who survived! It is a sector where the size always matters and Big is Beautiful (supposedly) – big on subscribers, big on data volumes, big on capex spend, big on debt and big on risk – certainly not for the weak-hearted.

The last decade has been more tumultuous as compared to the earlier years. A decade ago we had a whole lot of new players on the block who got attracted by the sheer potential of the volumes, but were short-lived, thanks to some irregularities and judicial pronouncements. When things started to stabilise a couple of years ago, entered fresh competition. Everyone knew that things would change after the latest entrant, but I think the pace of change has left quite a few stranded, high and dry.

Apart from the competitive disruption, the Industry has also undergone a technological disruption. Growth in subscriber base and hunger for data, thanks to a thriving social media connect, has forced the operators to move quickly from an existing technology to a higher one. While 4G or LTE as we call it is currently being deployed we find the operators and Infrastructure providers already cosying up to the next generation, namely the 5G.

“The track record of the ICAI on disciplinary aspects has been under question every time an untoward incident on corporate fraud comes to light much the same way as of other professional bodies. There is merit in the stand that the executor and the regulator need to be separated from each other as is the case in many other countries.”

The third disruption has been driven by the consumers who have just loved the battle of the Titans. Propelled by the low cost offerings, low cost of devices and easy accessibility, the demand and usage of data has just exploded beyond everyone’s imagination. We seem to be using more data than even our Chinese neighbour forcing the operators to increase their spend on capacity, coverage and efficiency.

The fourth disruptor has been the high cost fees and taxes which this sector has had to bear. High spectrum auction prices, revenue sharing, interconnect charges, GST, to name the bigger ones. All this has had two effects, converted the operators balance sheet to a debt intensive one with a massive servicing cost and at the same time converted the telecom landscape from a spectrum starved to a spectrum sufficient one.

Going forward we should witness the effects of consolidation getting translated into some stable financial numbers for the current players as now there is enough room for all to play their cards without having to be constrained by the also rans.

From the digital divide to digital thrive, our mobile network language seems to have undergone a sea change. How do you see mobility driving India’s next lap of growth?

Digital is the new buzz word and digital disruption is the new fear in everyone’s mind irrespective of the industry you belong to and the skill set you possess. All of us run the risk of getting ‘dinosaured’ if we do not keep pace. Telecommunication plays a very important role as it is the PRIME ENABLER of the digital revolution. Without communication channels we cannot transfer and use information which is currently sitting on the cusp of the Fourth Industrial Revolution. I see Telecom as the vehicle on which all digital tools like RPA, AI, Machine learning, Cloud, Cognitive Learning will straddle to be able to move forward.

How would you rate the policy changes in the industry? Have the policies been progressive and in keeping the needs of the time? How have they helped India’s telecom sector’s growth journey?

Being a fast moving progressive sector, the Government has been trying to keep pace with the changes. A slew of measures have been taken regularly over the past years to help free spectrum, transparent allotment of spectrum through open auctions, input credit through GST, consolidation rules and regulations, reduction of interconnect charges, etc.

Lately, there has been a lot of support in terms of moving towards next generation of 5G technology with the state-run players also signing up collaboration measures with the technology providers. There seems to be a strong support and belief that India needs to digitalise and to be able to do that we need to have the best telecommunication infrastructure. 

Yes, a lot needs to be done to ease the financial stress in the sector as we have seen five players folding up in a span of 12-15 months, which may be kind of acceptable in the West, but in our country it plays havoc with peoples livelihood, both direct and indirect, pressure on banks balance sheets, and on the economy on general. We all await the New telecom Policy with a lot of hope!

On the finance side, how has the recent shift in policy like GST impacted the sector?

GST has been good for the sector where the operators can get full input credit without gaps or leakages. The GST rate is something worth a relook, given the usage by the common man of this service and the fact that this will be the prime enabler of the digital regime going forward.

Ind AS has complicated the accounting side of finance. Or has it? How has it impacted your company? What about its impact on M&A activities?

Ind AS will bring about uniformity in the way the world reads and interprets financial statements, which should be good for the investors. Yes, during the transition period, it does cause pain for some industries and sectors. Some of the companies who are subsidiaries of multinationals or those who were listed on the SEC, etc., may not feel the discomfort as much as the others. But as they say, no pain leads to no gain.

The return of the dreaded Long Term Capital Gains Tax resulted in a furore with demands of roll back. Given your expertise in the field, what are your views?

Given our society and economy and the demands on it, every income earned needs to make its due contribution to the exchequer. If we make money on the stock exchange, there will be an element of taxes which it will suffer. However, the Government needs to make up its mind whether it wants to tax every transaction (STT) or it wishes to tax the income earned as LTCG. It doesn’t augur good if the stance of the government in terms of the mechanism to be used for taxability changes with the pace of growth or otherwise of the Sensex. A flip flop approach needs to be avoided to provide stability and trust.

The government has been talking about the Institute of Chartered Accountants of India’s poor disciplinary record. However, it has failed to notify National Financial Reporting Authority (NFRA) so far. What do you think is lacking in the current set up? Do you think such a body is necessitated?

The track record of the ICAI on disciplinary aspects has been under question every time an untoward incident on corporate fraud comes to light much the same way as of other professional bodies. There is merit in the stand that the executor and the regulator need to be separated from each other as is the case in many other countries.

It would have been an excellent situation had the ICAI been somewhat more proactive and forward leaning on the discipline aspect. However, the new body needs to pick up momentum and both need to work in a coordinated manner between themselves so that tangible results can be seen on the ground. Both of them have to work in tandem and respect each others domains and jurisdiction besides building trust and faith in the users of the financial statements.

The recent scams involving banks has put the spotlight on the role of auditors. What do you think needs to be done to strengthen the segment?

I think the involvement of the top management in the findings of the Audit, the upgradation of audit tools and methodology by using more and more digital tools, and close coordination between other watchdogs and regulatory bodies is what is required. An audit per se doesn’t guarantee the authenticity of all the financial numbers given the enormity of the volumes and the geographical spread of the operations.

Do you feel that despite corporate governance regulations, it is the lack of business ethics in companies that has hamstrung its implementation? What should be done to ensure strong corporate governance in companies?

A two fold approach -“ inside out and an outside in” is required. A self disciplinary culture, walk the talk behaviour, objective assessment of issues and long term view of the enterprise is required on one side. On the other side, we need comprehensive guidelines, rules, procedures and a quick remedial mechanism which doesn’t take months and years to dole out the required corrective/punitive actions will make the governance effective both in reality and in perception.

What is your view on the recent protectionist stance adopted by the government?

Make in India is something which I personally feel is very important for our long term growth stability and progress. Whether the protectionist measures alone will help is anybody’s guess. We need to get the entire ecosystem in place, ensure ease of doing business, ensure stability of our tax laws, get high quality infrastructure in place concurrently. The world seems to be starting to move towards protectionism and this could have a multiplier ripple and adverse effect if more countries start to retaliate such measures!!

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Kanwar Singh

Technology is overwhelmingly the most important enabler of financial transformation

As enterprises adopt digital, the finance function is expected to lead the digital transformation. What are the specific expectations from finance in this transforma­tion that companies have?

 

Digital transfor­mation is creating new demands on CFOs and their finance teams, which is driving finance to rethink their mis­sion and operating model. CFOs are increasingly being asked to act as cor­porate strategists or “co-pilots” to the CEO to ensure the business adapts to the digital age. The finance function has to balance ‘operational efficiency’ with ‘operational agility’.

‘Operational efficiency’ is focused on cost, quality, perfecting transac­tional processing and workflow.

‘Operational agility’ is about har­nessing the ability to manage hyper-growth, using predictive analytics and modeling to uncover insights. Robotic process automation (RPA) and machine learning further improve process efficiency, as well as securing skill sets required to be collaborative and partner with the busi­ness to help guide the business forward.

The finance function must provide forward-looking guidance to the busi­ness, helping their management and line of business executives make the right decisions on future investment avenues in order to drive profitable growth, mitigate risks, and maximise shareholder value.

What are the primary com­pulsions/concerns that are forcing enterprises in India/globally to adopt digital? Are these concerns universal or are there some issues specific to Indian markets?

The digital age and turbulent market conditions present opportunities and threats to all current business models. There’s a perception that large organ­isations are built to survive by default due to their size, strength and history/legacy. It is believed that they become almost institutionalised in thought, processes and infrastructure; however, this limits their ability to innovate and adapt to change. Digital technology enables innovation, agility, efficiencies and, when leveraged appropriately, provides enterprises with a distinct competitive edge.

Adoption of digital technology and automation, leveraging cloud services, is a global trend. The challenge faced by all companies is to grow at, or above the pace of their industry without los­ing control of their operations. The Innosight (a growth strategy consult­ing firm) study shows that very few companies achieve this goal. Most corporations fade, meaning that most firms see their performance and their stock price fall as new technologies and startups with new business mod­els enter and disrupt the economy.

Research suggests that many large companies have moved out of the For­tune 500 list in the past 10 years and in multiple instances, have been replaced by a company that would have started operations in the last 20 years or even less. We have examples of technology-driven businesses overtaking market capitalisation of corporations with a significant legacy. Here at Oracle, we believe that to survive and thrive, organisations need to be increasingly agile.

Companies should be able to make informed decisions swiftly about how to adapt to rapid and constant changes and then implement new strategies. In addition, they need to be able to manage performance nimbly, constantly monitoring what is working and what is not working, as well as redeploying resources to where the returns or opportunities are best.

Digital transformation is taking time in advanced coun­tries like France despite the availability of various tools and technologies. Do you think Indian businesses are ready for it in such a scenario?

Change is the new constant – 88 per cent of organisations are undergo­ing some type of transformation today (Altimeter Group The 2014 State of Digital Transformation (http://altimetergroupdigitaltransformation.com/img/dt-report.pdf). I don’t think Indian businesses have any choice but to embrace digital transforma­tion.

To secure their future, they need to radically reshape their business models. That has big implications on finance teams and the types of sys­tems they use, in addition to the data needed to run the business. India’s transition to GST is a superb example of digital transformation for indirect taxation in India. Businesses large and small have to adopt “digital” to leverage GST.

 

“Finance transformation is a major change project. The starting point is to have three important properties: a clear understanding of the new role for finance; sponsorship from the leaders of the business; and buy-in from those going on the journey.”

At Oracle, we’ve seen a big shift in our customers’ willingness to embrace cloud applications. This pace is accelerating and Indian companies can only benefit from this digital transformation. Very recently we announced the availability of Oracle Enterprise Resource Planning (ERP) Cloud in India. The GST Bill was passed in Parliament in March 2017, and Oracle was ready with the solu­tion two months before it was to take effect nationally in India.

What is the roadmap to digital transformation for businesses and finance? Is there a strategy companies must adopt? If so, what are the elements one should consider in developing such a strategy? Is digital transformation strategy adopted by a company cross-functional, or is each department including finance expected to develop its own strategy?

Every business is unique in terms of their digital transformation journey. Their vision, driving force, how they leverage their existing set up & resources, scalability, security/reli­ability, ability/cost and readiness to adapt with the latest technologies are some of the factors that could impact their digital transformation roadmap. We often help our customers define such a digital roadmap.

During these disruptive transforma­tions, finance leaders and their teams might find it challenging to assess such a transformation could impact. Would it be sales or marketing or even the ser­vice side of the business? At Oracle, we believe that digital transformation helps companies to step into the future, and it enables them to be more competitive. The wonderful benefit of an enlight­ened digital enterprise, aside from making better decisions and optimising assets, is spending less on initiatives and programs that don’t advance the agenda of the company or empower employees/ customers, and spending more on core strengths.

What are the key elements to be considered in digital transformation of finance?

While factors like leadership and having a mandate are undoubtedly important, technology is overwhelm­ingly the most important enabler of financial transformation. As appropri­ate cloud-based solutions are available, technology is not the biggest chal­lenge. Far from it – cloud technolo­gies put the new operating model for modern finance within the reach of most businesses. The challenge then is to implement a change program and to develop or recruit the talent that’s needed to do so.

“I don’t think Indian businesses have any choice but to embrace digital transformation. To secure their future, they need to radically reshape their business models. That has big implication on finance teams.”

Oracle recently partnered with the Association of International Certified Professional Accountants in the US to conduct a study on finance trans­formation and business agility, and that study made the following recom­mendations on how CFOs and their finance teams can jumpstart their digital transformation strategy. Some of the findings included:

  • Finance transformation is a major change project. The starting point is to have three important properties: a clear understanding of the new role for finance; sponsorship from the leaders of the business; and buy-in from those going on the journey. In addition, suc­cess stories that provide proof of concept by showing what finance can contribute may improve finance’s credibility.
  • A gap analysis should also be car­ried out. Where are we now relative to where we want to get to? What resources will we need? What capabili­ties do we need to develop? Do we have the capacity and culture to be flexible and implement change?
  • The CFO must agree to a map for the journey, the milestones to be achieved, and the measures of per­formance. The software-as-a-service cloud-computing model limits the level of capital expenditure required. But, as this will inevitably be a major project, sign-off will be required on the business case.
  • Partners with experience of similar projects and expertise in technology must be selected on merit, based on their track record and reference clients.
  • Project and change management disciplines must always be applied.
  • To manage the transformation, organisations will need measures of their progress towards the new operat­ing model for modern finance.
  • To build credibility and maintain buy-in from internal customers across the business, organisations will need measures or evidence of how finance supports business agility.

While automation provides agility, there are concerns around it especially in an era which is witnessing massive job cuts. How will it affect the finance function in India?

New tools such as machine learn­ing and artificial intelligence (AI) enhance human decision-making, they do not replace it. Automation has always served to free up people to focus time and energy on what mat­ters most and the new era of digital automation is no different. We believe that an enlightened digital enterprise allows you to focus on your customers and new innovations that can advance the well-being of everyone. We con­tinue to be positive on finance talent in India.

What are the technologies and tools available for digital transformation of finance?

Digital transformation of finance leads to “Agile Finance” and has three broad KPIs:

i. Greater Efficiency : through relent­less automation:

a. Simplify, standardise, and automate transactional processes using cloud, machine learning, artificial intelligence and robotic process automation

b. Centralise subject matter expertise in integrated business services, shared services, and centers of excellence

ii. Better Information : to predict the future:

a. Manage performance with plan­ning and driver based forecasting

b. Stretch FP&A into a powerhouse to develop innovative strategies

c. Unleash potential in big data, advanced analytics, and artificial intelligence

iii. More Influence : to drive business outcomes:

a. Develop new skill sets in statistics, data analysis, and data visualisation

b. Implement cross-functional teams with multidisciplinary and busi­ness partnering skills

c. Support rapid decision making and strategic guidance to lines of business.

Your advice to our CFOs on digital transformation?

Digital transformation is critical to securing a competitive edge. CFOs should consider the following to effectively manage the transformation journey:

  1. Secure an executive mandate to implement transformation.
  2. Simplify operations as much as pos­sible before embarking.
  3. Develop optimised business processes and then deploy using modern systems that follow vendor best practices.
  4. Implement a shared services or outsourced model that follows these standardised processes globally.
  5. Transform customer experience to stay ahead of the competition.
  6. Empower the workforce with collaborative tools and modern, socially-enabled self-service applications.
  7. Move fast and stay on the course.
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A lot of investment is required in transmission and sub-transmission networks

Q: What is the current power sector scenario in India? Is the May 2018 rural electrification target achievable?

Harsh Shah: We are in a unique situation in India where as of end of FY15 we have technically become a power surplus nation but still have thousands of villages in the country which are still not electrified. We feel there is a lot of investment required in transmission and sub-transmission networks for utilising existing generation assets to the fullest and achieve 24×7 power. However, with the Ministry of Power’s launch of Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) for rural electrification, increased investments in transmission infrastructure, participation of key states like Uttar Pradesh in UDAY scheme, etc., we believe that the May 2018 target is achievable.
Q: The private power generation sector is stressed due to falling tariffs, and private firms are reeling under cost-overrun pressure, while the PLFs and tariffs in the short-term market are not likely to rise in the near term, as pointed out in the Economic Survey. It is being said that the budget has failed to address these issues. Please explain the concerns of the sector.

Harsh Shah: We believe the power generation sector in India should broadly be looked at in two parts – renewable and thermal. Solar cell prices are falling globally led largely by over-capacity in global markets and improving efficiencies, which has resulted in a fall in prices as the recent bids show. On the thermal side, state discoms are under financial stress and are not signing power purchase agreements (PPAs) and hence, we are in a situation where plants are ready but there is no coal linkage since there are no PPAs. There is also resistance to sign long-term PPAs in a falling tariff environment. However, as the balance sheets of discoms improve under the UDAY scheme and a higher GDP growth post GST leads to higher demand, we see these issues getting resolved. In fact, several discoms have already started increasing tariffs and it will lead to better results in coming years. We believe with UDAY in place, investment in reduction of losses, and with discoms able to increase tariffs, there may be a good chance of revival of the sector. In addition, plan to separate carriage from content for electricity will also result in simplification of privatisation of distribution, and its profitability and sustainability. This will also require a very robust transmission backhaul network.
Q: Compared to global standards, how advanced is India’s energy delivery scenario? What is Sterlite’s technological advantage?

Harsh Shah: Historically, India has significantly under-invested in transmission. The growth in genera­tion capacity has far exceeded the growth in transmission capacity. However, the scenario is changing and the share of transmission in overall power sector investments from FY17–21 is expected to grow 1.7x from 20 per cent in FY12–16 to 33 per cent in FY17–21.

All our assets have been designed as per Indian and inter­national codes and standards and they have a useful asset life of 50 years, according to Lahmeyer, a global technical consul­tant. We have deployed technologies such as aerial stringing of transmission lines using helicopters, thermo-vision scan­ning, puncture insulator detector and corona measurement devices for preventive maintenance, etc. All this has helped us ensure improved business performance, reduce costs and also increase revenues generated by the assets by maintain­ing high transmission availability.
Q: Why and when did Infrastructure Invest­ment Trusts (InvITs) come up in India?

Harsh Shah: Sebi notified the Sebi (Infrastructure Invest­ment Trusts) Regulations, 2014, on 26 September 2014, providing for registration and regulation of InvITs in India. Final notification came in November 2016. The rationale behind these trusts is that investors today don’t have high-yielding stocks in India, companies don’t give dividends because there is a dividend distribution tax and the decision is in the hands of the management and not the shareholders.

The idea behind InvIT is that investors should get divi­dends which will ensure that they put in more capital into infrastructure assets/owning infrastructure operating assets. Investors had a mixed or rather bad experience 2007 onwards because the investment happened in under construction assets which seemed to be risky. That kind of tarnished the image of infrastructure in the hands of banks, people, investors, regulators and others.

From the banking perspective, banks can lend to operating projects and under construction projects separately. In under construction projects, there is a higher risk, but they can’t increase the pricing beyond a point; whereas in completed projects, the risk is low that the sponsors will demand a much lower rate of return. Banks still have to finance to keep the balance sheets growing. Hence, banks have both operat­ing and under construction assets in their books.

A lot of people tried to make bond markets successful, but unfortunately it didn’t become so big. In India though, it is the case because the regulations didn’t catch up, people didn’t shell out money, and investor education didn’t hap­pen, among other things. InvIT is supposed to bridge that gap so that public can invest in instruments/operating proj­ects, get yield in return and banks can continue to invest.

There are four companies which have filed for draft red herring prospectus – IRB, NEP, Sterlite Power and ILFS (Pri­vate InvIT). We are the only transmission company or say, power company which has filed for an infrastructure trust.
Q: Is this kind of instrument new to India? Is there precedence globally?

Harsh Shah: The instrument in this regulation is for the first time. But if I draw a parallel, it’s a good old mutual fund. REITs, business trusts and InvITs are nothing but a common ownership of a large asset. In Singapore, there is an extremely developed business trust and real estate mar­ket. People invest in REITs and business trusts. There the largest investor is the Singaporean citizen who invests in the real estate, water projects and hospitals. If you go to Hong Kong, there also you will find a developed market several times than Singapore market. The US has about several hun­dred billion dollars of MLP market. MLP or master limited partnership is similar to InvIT, where they have large gas pipelines, transmission lines, primarily gas in the US, and the entire network of gas and oil is owned by MLPs. Europe also has one but that’s less in size in comparison to US, Sin­gapore and Hong Kong markets. US MLP market is 30–35 years old. REITs, InvITs and business trusts are 20 years old markets. Both public and private investors are in the market.
Q: What is the structure of an InvIT and how does it differ from other investment instruments?

Harsh Shah: InvIT is a perpetual vehicle like equity stock of a company and the units will be freely traded on the stock exchange. There is no redemption, nor is there a guaran­teed coupon. Hence, from these two perspectives it is not purely a debt instrument. However, if the underlying cash flows from the assets owned by the InvIT are reasonably cer­tain, which we believe is the case with IndiGrid’s transmis­sion assets, unit holders can expect a certain yield every year. In addition, any unit holder looking for an exit can sell units on the stock exchange to get liquidity.

IndiGrid also offers potential for future growth by offering a Right of First Offer to the InvIT on eight assets of the spon­sor which are not included in the initial IPO assets. Thus, this product offers both yield plus growth.
Q: What are the risks involved? Please elaborate.

Harsh Shah: We have disclosed detailed potential risks in our Offer Document under the ‘Risk Factors’ sec­tion and would urge investors to go through them. But if you think from a business perspective, our assets have the contractual right to get annuity payments based on ‘avail­ability’ of our transmission lines for transmission of power, irrespective of whether the users actually transmit power or not. Tariffs under the TSAs are billed and collected pursuant to the ‘point of connection (PoC)’ mechanism, a regulatory payment pooling system offered to Inter State Transmission Systems (ISTS) which reduces risk significantly.
Q: What is in it for investors? How will InvIT give better cash returns vis-à-vis pure debt or dividend yield stock? Harsh Shah: There are several advantages for investors. IndiGrid is an opportunity to participate in the India infra­structure story by owning only operating assets with no execution risks. Our sponsor has experience and track record in this industry. The nature of our assets result in long-term stable cash flows as we discussed earlier. Our sponsor already has eight additional transmission plants at various stages of operations/development which will be offered to IndiGrid under the ROFO arrangement thereby giving reasonable certain IndiGrid is mandated by law to distribute at least 90 per cent of cash flows regularly assuring unit holders of a regular yield on their investment. Dividend yield stocks also carry greenfield risks while pure debt instru­ments do not offer growth. IndiGrid addresses both these issues by owning only revenue generating assets with potential for future growth.
Q: What are the tax implications?

Harsh Shah: There are multiple ways to look at taxa­tion. From the investor or unit holder perspective, there will be a withholding tax on payment of interest (5 per cent for foreign investors and 10 per cent for domestic investors). For foreign investors, there will be no further tax post the with­holding tax while the final tax liability for domestic inves­tors will be based on their respective tax status. Since mutual funds are not subject to tax, they will have zero tax liability and they can claim the 10 per cent withholding as refund in their I-T returns, while individual and HNI investors will be taxed according to the income tax slabs. On dividend, there is no dividend distribution tax when SPV pays the InvIT and the InvIT pays the unit olders. Further, this dividend is tax free in the hands of unit holders. This is one of the key advantages of InvIT over other instruments. InvIT on its own doesn’t pay any taxes as its nature is that of a ‘pass-through’ entity. Thus, InvITs are more tax efficient than other instruments available in the market today.
Q: What are the tax implications?

Harsh Shah: There are multiple ways to look at taxa­tion. From the investor or unit holder perspective, there will be a withholding tax on payment of interest (5 per cent for foreign investors and 10 per cent for domestic investors). For foreign investors, there will be no further tax post the with­holding tax while the final tax liability for domestic inves­tors will be based on their respective tax status. Since mutual funds are not subject to tax, they will have zero tax liability and they can claim the 10 per cent withholding as refund in their I-T returns, while individual and HNI investors will be taxed according to the income tax slabs. On dividend, there is no dividend distribution tax when SPV pays the InvIT and the InvIT pays the unit olders. Further, this dividend is tax free in the hands of unit holders. This is one of the key advantages of InvIT over other instruments. InvIT on its own doesn’t pay any taxes as its nature is that of a ‘pass-through’ entity. Thus, InvITs are more tax efficient than other instruments available in the market today.
Q: What is the vision for this InvIT and how do you see it unfolding down the line?

Harsh Shah: We are very committed to IndiGrid and hope that it grows in size as more assets are added to it from our existing pipeline under the ROFO agreement. We believe that based on our experience and investor response to Indi­Grid, other infrastructure developers across asset classes, not just transmission, will pursue this route to raise capital. We believe that InvITs have the ability to add a new dimen­sion to the Indian capital markets. Indian sponsors may be able to create large platforms of dividend-paying operating assets, and offer yield growth through asset injections. We believe that global investors have been keenly looking for such yield platforms in emerging markets and India may be the first to fulfil this demand.
Q: What is the vision for this InvIT and how do you see it unfolding down the line?

Harsh Shah: We are very committed to IndiGrid and hope that it grows in size as more assets are added to it from our existing pipeline under the ROFO agreement. We believe that based on our experience and investor response to Indi­Grid, other infrastructure developers across asset classes, not just transmission, will pursue this route to raise capital. We believe that InvITs have the ability to add a new dimen­sion to the Indian capital markets. Indian sponsors may be able to create large platforms of dividend-paying operating assets, and offer yield growth through asset injections. We believe that global investors have been keenly looking for such yield platforms in emerging markets and India may be the first to fulfil this demand.
Q: As far as awareness of InvIT is concerned, it is very low in India…

Harsh Shah: Yes, that’s one of the reasons why Sebi has ensured that it does not get marketed to everyone right now. Their vision is that eventually a retail owner can subscribe but right now they have restricted it to a person who can put in `10 lakh. They have found that’s the easiest way to ensure that participation is restricted to financially savvy investors. If a retail investor wants to participate, he can do so but `10 lakh ticket size acts as a big deterrent. Sebi wants only professionally savvy investors to invest so that InvIT does not become a bad experience and eventually their vision is to open it for public market. The core vision is that public should own InvIT and public market should develop.

It is to the credit of ministry of finance and Sebi that they have devoted last two years in making these projects a suc­cess. They have gone on international roadshows to meet investors and people in those markets – Singapore, US, UK. And they have ensured that the mistakes of these countries are corrected in our regulations. The crux is that these laws have said whatever these assets we earn, 90 per cent of that must be distributed. This kind of mandatory distribution gives visibility to investors, and they can be assured that they are going to get whatever the company earns, which is not there in any other vehicle.

Secondly, Sebi has kept a cap on borrowing. No listed com­pany has a cap on borrowing except banks. This investment trust can’t borrow more than 49 per cent of the consolidated funds, while infrastructure gets financed 18-20 per cent. That results in stability of cash flow and improves quality of residual cash flow. A unique move!

Third is that the InvIT platform is must to grow. Other­wise, it becomes a bond. As you are distributing 100 per cent of your income, how will you grow because you need to buy assets? For buying those assets, you need to raise additional capital. In that scenario, existing unit holders are like share­holders. They have absolute authority to vote out a proposal and will have more power than a normal shareholder.
Q: As far as India is concerned, the opinion on the power sector is very low. What is your vision to develop the investor market? Harsh Shah: Education about the sub-sector is limited. People carry perceptions based on the experience they have. As an investor, we need to segregate the sector to see which parts are the good parts to invest in. First is power transmis­sion as a sector, which has been safe and is safe to invest. The Power Grid Corporation of India Limited, an Indian state-owned electric utilities company, is highly regarded.

Transmission has such strong contracts and is such a small part of a value chain that it has extremely good cash. Whatever happens, they continue to get paid once they build the line. They don’t get paid on the amount of power they carry, whether the power is transmitted or not, they get paid. Eventually the consumer may not be happy but the transmission company gets paid because they have built the capacity. This makes power transmission as a sector extremely safe sector to invest in. Do people perceive transmission as separate power sector? No, because it has never been marketed like that.

If you go three years back, you will not find any news about transmission. Over the last three years, awareness about the transmission sector has grown multifold. As such, it’s a smaller part of the value chain. Transmission sector is worth only Rs 25,000 crore. That’s why it’s not getting attention, as media wants to talk about only big numbers and big issues. But if this Rs 25,000 crore is not done well, it impacts the entire other `4 lakh crore value chain. A trans­mission plant which is built for Rs 25,000 crore, in the case of any congestion ahead, can affect the entire power plant.

Coming to the investment part, you can do investor education based on the facts you have. We have DRHP which has all the facts but we need to communicate them in a better manner. For example, Infosys’ investors trust the management team. But what if Mr Trump changes the regulations? The Indians stocks will tumble. There is a risk of business model interruption in their business. From that perspective, transmission is an extremely safe investment. People don’t understand this differentiation right now but that’s something that we are marketing. Our cash flows are fixed for 35–40 years, as long as we maintain the line which is already built.
Q: What is the status of your InvIT?

Harsh Shah: We filed on 2 December last year for DRHP and received some comments from Sebi and have applied for them. We expect final approval from Sebi soon. We put in two clear assets – 100 per cent shareholding, two years operational, less structuring, etc. Once we get the approval, then we will be able to launch the InvIT. It’s exactly like an equity. All the regulations of stock markets apply to an InvIT also.

Q: Will it be complicated?

Harsh Shah: Not complicated but onerous. There are three things which this vehicle stands for – stable distribution, transparency, and governance. How do you ensure transparency and governance if these regulations are not in place? As a country, we are trusting the management team to do what is permissible. But in a new product, this is risky. If one person does something wrong, the whole system crumbles and also shakes the faith of the people. That’s one of the reasons why the government is cautiously making rules of the game. The focus is on the development of the market.

The US took 15 years to develop this market while we are trying to develop ours in four years. Being a follower, there is always an advantage for India. For example, in mobile sector because technologies were ready, experiences were there, regulators didn’t make the same mistakes, and we didn’t have to figure out how the spectrum auction happened. The same goes for electricity.

GAAR, by its very nature, has the potential of leading to uncertainty and litigation

Q: Sandvik is a high-tech global engineering group active in a variety of industry segments. What are its interests in India?

Jyotsna Sharma: Sandvik is a global industrial group with advanced products and world-leading positions in selected areas like tools for metal cutting, equipment and tools for the mining and construction industries, stainless materials, special alloys, metallic and ceramic resistance materials as well as process systems. Sandvik group with representation in 130 countries and 45,000 employees is widely known for its innovation and pioneering technology in each area of operation.

Sandvik in India was established in 1960 and started with a moderate sized local manufacturing unit at Pune. Over the years, the company has expanded its base across five other locations within India, with an annual turnover of over `3,000 crore and providing employment to over 3,000 people. It is now a well-established major export hub for Sandvik, globally, with sizable export revenue. Sandvik’s interests In India include Sandvik Mining & Rock Technology, Sandvik Machining Solutions and Sandvik Material Technology. Sandvik Mining operates in India as a developer of mining solutions including equipment and tools, for rock drilling, rock cutting, rock crushing, loading and hauling and materials handling. It also offers solutions for virtually any construction industry application encompassing diverse businesses.

We are a leading supplier of tools, tooling solutions and know-how to the metalworking industry with presence mainly in automotive, defence and aerospace sector. We have an application centre in India that supports special customer projects through component solutions and building prototypes. Sandvik Coromant recently unveiled its CoroPlus suite of Industrial Internet of Things (IIOT) solutions aimed at helping manufacturers prepare for Industry 4.0. It provides visibility into manufacturing operation and gives access to connected tools and software to effectively monitor machining performance in real time. We offer expertise in aluminium machining through advanced cutting tool technology that aids aerospace manufacturers. This is extremely crucial since a number of different tool criteria need to be fulfilled in order to meet the increasingly stringent cost and quality demands associated with the successful machining of aluminum aerospace components.

We see significant opportunities in the O&G downstream segment where there will be investments in refining space as there is a government mandate to move to Euro 6 fuels which will spur capex here.
Q: The private power generation sector is stressed due to falling tariffs, and private firms are reeling under cost-overrun pressure, while the PLFs and tariffs in the short-term market are not likely to rise in the near term, as pointed out in the Economic Survey. It is being said that the budget has failed to address these issues. Please explain the concerns of the sector.

Harsh Shah: We believe the power generation sector in India should broadly be looked at in two parts – renewable and thermal. Solar cell prices are falling globally led largely by over-capacity in global markets and improving efficiencies, which has resulted in a fall in prices as the recent bids show. On the thermal side, state discoms are under financial stress and are not signing power purchase agreements (PPAs) and hence, we are in a situation where plants are ready but there is no coal linkage since there are no PPAs. There is also resistance to sign long-term PPAs in a falling tariff environment. However, as the balance sheets of discoms improve under the UDAY scheme and a higher GDP growth post GST leads to higher demand, we see these issues getting resolved. In fact, several discoms have already started increasing tariffs and it will lead to better results in coming years. We believe with UDAY in place, investment in reduction of losses, and with discoms able to increase tariffs, there may be a good chance of revival of the sector. In addition, plan to separate carriage from content for electricity will also result in simplification of privatisation of distribution, and its profitability and sustainability. This will also require a very robust transmission backhaul network.
Q: Compared to global standards, how advanced is India’s energy delivery scenario? What is Sterlite’s technological advantage?

Harsh Shah: Historically, India has significantly under-invested in transmission. The growth in genera­tion capacity has far exceeded the growth in transmission capacity. However, the scenario is changing and the share of transmission in overall power sector investments from FY17–21 is expected to grow 1.7x from 20 per cent in FY12–16 to 33 per cent in FY17–21.

All our assets have been designed as per Indian and inter­national codes and standards and they have a useful asset life of 50 years, according to Lahmeyer, a global technical consul­tant. We have deployed technologies such as aerial stringing of transmission lines using helicopters, thermo-vision scan­ning, puncture insulator detector and corona measurement devices for preventive maintenance, etc. All this has helped us ensure improved business performance, reduce costs and also increase revenues generated by the assets by maintain­ing high transmission availability.
Q: Why and when did Infrastructure Invest­ment Trusts (InvITs) come up in India?

Harsh Shah: Sebi notified the Sebi (Infrastructure Invest­ment Trusts) Regulations, 2014, on 26 September 2014, providing for registration and regulation of InvITs in India. Final notification came in November 2016. The rationale behind these trusts is that investors today don’t have high-yielding stocks in India, companies don’t give dividends because there is a dividend distribution tax and the decision is in the hands of the management and not the shareholders.

The idea behind InvIT is that investors should get divi­dends which will ensure that they put in more capital into infrastructure assets/owning infrastructure operating assets. Investors had a mixed or rather bad experience 2007 onwards because the investment happened in under construction assets which seemed to be risky. That kind of tarnished the image of infrastructure in the hands of banks, people, investors, regulators and others.

From the banking perspective, banks can lend to operating projects and under construction projects separately. In under construction projects, there is a higher risk, but they can’t increase the pricing beyond a point; whereas in completed projects, the risk is low that the sponsors will demand a much lower rate of return. Banks still have to finance to keep the balance sheets growing. Hence, banks have both operat­ing and under construction assets in their books.

A lot of people tried to make bond markets successful, but unfortunately it didn’t become so big. In India though, it is the case because the regulations didn’t catch up, people didn’t shell out money, and investor education didn’t hap­pen, among other things. InvIT is supposed to bridge that gap so that public can invest in instruments/operating proj­ects, get yield in return and banks can continue to invest.

There are four companies which have filed for draft red herring prospectus – IRB, NEP, Sterlite Power and ILFS (Pri­vate InvIT). We are the only transmission company or say, power company which has filed for an infrastructure trust.
Q: Is this kind of instrument new to India? Is there precedence globally?

Harsh Shah: The instrument in this regulation is for the first time. But if I draw a parallel, it’s a good old mutual fund. REITs, business trusts and InvITs are nothing but a common ownership of a large asset. In Singapore, there is an extremely developed business trust and real estate mar­ket. People invest in REITs and business trusts. There the largest investor is the Singaporean citizen who invests in the real estate, water projects and hospitals. If you go to Hong Kong, there also you will find a developed market several times than Singapore market. The US has about several hun­dred billion dollars of MLP market. MLP or master limited partnership is similar to InvIT, where they have large gas pipelines, transmission lines, primarily gas in the US, and the entire network of gas and oil is owned by MLPs. Europe also has one but that’s less in size in comparison to US, Sin­gapore and Hong Kong markets. US MLP market is 30–35 years old. REITs, InvITs and business trusts are 20 years old markets. Both public and private investors are in the market.
Q: You have been on board Sandvik Asia for the past couple of years. What are challenges you face as the finance head? What changes have you brought into finance operations? What are the core competencies CFOs require to work in global companies like Sandvik?

JS: I have been employed at Sandvik for over two years as CFO of Sandvik Asia and a Director on SECO, Walter and Dormer. Like most global companies, Swedish MNCs are highly matrixed organisations with business verticals with split authority and responsibility across business, locally and globally, and for the finance function it is very challenging to drive effectiveness and competency. The IT systems in use are tailor-made to Sandvik, are legacy systems and sparsely used widely. Thus, the skill set to program them easily and quickly at correct cost is always a challenge. Also, they are owned globally and are thus cost effective, but understanding the need or India specific requirement becomes a deterrent. Sandvik is a decentralised organisation with non-integrated IT systems and common work practices under a legal entity. The CFO at Sandvik needs to play the effective role of change management leader, with excellent people skill and also be business solution oriented. Stakeholder management is very critical and the CFO needs to have an end to end understanding of finance, accounting and tax matters.

A hugely decentralised finance function which had upset business expectations badly was brought to stability in all areas, including vendor payments, accounts and audit, customer reconciliations, budgeting process, cost control, indirect tax matters and legacy challenges. With me joining in, all these were systematically and sustainably built up to optimum performance and to provide respectable financial services to business.

I brought in a huge sense of ownership and responsibility to the teams – cross functional work environment, team building and skilling, recognitions and rewards – was all a part of the game.
Q: General Anti-avoidance Rules, in its current form, has a lot of ambiguity and uncertainty in its practical application. Foreign portfolio investors (FPIs) are jittery as the recently revised India-Singapore tax treaty has created confusion over GAAR overriding bilateral tax treaties despite recommendations of the high-level panel under tax expert Parthasarathi Shome against it. As a finance professional, what issues do you see in GAAR? Your suggestions for the way forward…

JS: Globally, several countries have introduced general anti-avoidance provisions, in different forms. GAAR provisions vest tax authorities with wide powers to, inter-alia, disregard, look through or re-characterise arrangements, ignore arrangements, etc. Apparently it is open-ended residual power in the statute that the tax consequences will be determined in a manner, which is deemed appropriate. Therefore, invocation of GAAR could have very wide and far reaching ramifications.

No corresponding or consequential relief is available to the counter party irrespective of whether or not such counterparty is a related party or part of the same group as the taxpayer. In fact there is no provision for grant of corresponding relief even to the taxpayer for, say, a different year.

GAAR, by its very nature, has the potential of leading to significant uncertainty and litigation. It therefore, becomes critical to put in place adequate safeguards to ensure that GAAR will be applied objectively, judiciously and in a fair, consistent and uniform way.

A significant shift in the approach to tax planning in various cross border transactions will be imperative once the GAAR provisions become effective.

Businesses often face a situation of opting for equity or debt for funding Indian ventures. While currently, India does not have any form of thin capitalisation norms, choice of funding instrument could come within the purview of GAAR. For instance, in cases where the overseas parent has funded the Indian subsidiary through fully convertible debentures (FCDs), there could be an attempt to re-characterise the interest on FCDs as dividend by invoking GAAR especially if the debt-equity ratio is considered skewed.
My suggestions for the way forward are: Clarity on guidelines: The introduction of GAAR does not mean that there would be no place for any thinking on bringing about savings in taxes; nor does it mean an end to tax planning. However, it does call for a paradigm shift in thinking and in mindset, about what would now be acceptable as tax planning and as to how that would be demonstrated.

Tax will not be seen to be driving businesses any more – it should be business driving tax. Business reasons and commercial rationale will be central to any planning in a GAAR environment.
Q: While finance operations in most companies are still being digitised, Sandvik, as a high-tech engineering giant, is miles ahead of others. What are your key recommendations on digitalisation of finance operations? How can CFOs become strategic partners in a company’s digital journey?

JS: A company needs to build excitement in the people towards digitisation by conducting workshops and showcasing the future and the directions. It needs to have the buy-in from various internal stakeholders like sourcing and marketing. This is to ensure that the company can lay down basic rules, which customers, suppliers and employees need to adhere.

Standardisation of documents would be my next suggestion in order to make digitalisation work. We should not forget that many laws and rules prohibit us from moving to a no paper environment. Integration of various digital platforms with the core ERP of the companies needs to be evaluated. Additional controls needs to be designed to ensure that the digital world is working as per the intended functionality.
What are the technologies finance operations must look at while digitalising?

1. Smart Scanning would be the top on my list. This can ensure seamless input of data from paper to digital form.

2. Robotics in processing information and throwing exceptions is another technology to look for.

3. BI tools need the next gen change to have capability of integrating internal and external data to provide value analysis.

4. Easy training/learning tools to self help.

What should be the roadmap for digitalisation of finance operations?

1. First step is to identify the need and do a cost benefit. Just that the whole world is moving does not mean everyone needs to move or can move immediately.

2. Draw a roadmap for digitisation.

3. If warranted, then the processes and the corresponding docs need to be identified.

4.Each process can then be clubbed under the P2P or O2C cycle.

5.Tools can be evaluated to carry out digitalisation. One needs to be cautious of need vs desire here as the costs may vary hugely.

6. Lastly, adequate controls need to be put in place to ensure smooth functioning of the digital platform.
How can CFOs become strategic partners in a company’s digital journey? The journey of industry for standards cannot be successful if the CFO and his/her team are not on boarded to the same day one. The change is a rapid one and needs a well coordinated understanding as eventually a lot of data is at the CFO’s desk.

All operations of the company have a finance implication, so it is needless to say that the CFO needs to be an integral part of the digitalisation of the company. The CFO can look at the end to end process and give advice on missing links. Also, the CFO can be the linking pin between various functions like IT, Sourcing, Sales, Production, etc. Costs on this journey are a major issue, and need to be controlled/monitored very closely, in which the CFO can assist.
Q: A slew of taxation reforms like MFR, Ind-AS, GAAR, DTAA, BEPS, and PoEM, are set to kick in, while the goods and services tax (GST) is expected be rolled out from July 1. What are the challenges for finance fraternity with so many compliances coming into effect in 2017? Your suggestions…

JS: Resource skill and speed management is the biggest challenge. Finance fraternity has always been open to changes and will continue to do so, but given the lean organisation that we all have now managing so many projects with the existing team is difficult.

Costs which are a major focus area take a beating as all these compliances increase the costs for the company.

In an MNC, there are multiple systems working and integrating each system with these changes is another complex issue which we need to handle.
How will the deferred date (July 1) of GST impact businesses?

JS: We started our GST project LAGAAN pretty early in May 2016. The deferment will positively help as we get some more months to do better on GST.

How will MFR affect the quality of audits, especially with regard to global firms?

JS: Audit is an end to certify controls and financial discipline at work. MFR thus should not matter and the auditee has to continue to do better. Quality of audit will not be affected unless it is the intent, especially if the rotation is to and from the big four audit firms in the world. Challenge is with regard to business understanding by the new firm and consequent time planning to conduct the audit. It is Important to ensure the audit process improves.
Q: With the phase-1 implementation of Ind-AS kick-started in FY17, uncertainty prevails on the tax treatment, especially under the provisions of minimum alternate tax (MAT). The provisions of MAT would have to be amended to incorporate the changes on account of first-time adoption of Ind-AS and on the subsequent accounting of fair value changes. What are the issues and what are your suggestions on MAT?

JS: No clarity with regard to MAT was provided in the budget. So the ambiguity of which profit should be considered for MAT continues. With implementation of Ind-AS and various fair valuations, the book profit is bound to change, which may distort the MAT provision. MAT should be calculated on the profit as per companies act excluding the impacts of the provisions and fair valuations.
Q: India’s uncertain tax implementation regime is said to be impacting ease of doing business. What is the experience of Sandvik Asia in this regard? Your observations on how India can go about improving ease of doing business?

JS: We, as an organisation, believe in being compliant with all the laws of the countries and tax matters.

Ease of doing business is not just about tax. It involves major administrative and individual reforms. Starting right form change in our school text books which should build responsible generations ahead who care for the country, respect the legal systems and the environment.

A good country to do business with ease is one where all systems work well, infrastructure is available at ease, and tax systems are simple to comply with.

In India, the tax system has been highly abused and misused at all ends. GST in India is the single big reform across the globe and a complex change for any one man or government to drive. It is for the people to drive and demand the right changes to happen.

Q: Sebi, in 2015, made it mandatory for all listed companies to appoint one women director. Can diversity improve the functioning of the board, especially with regard to empowerment of independent directors?

JS: I believe diversity gets in a totally different perspective to senior management including the board.

Diversity in India is not new, with India having women leaders like Savitribai Phule, Jhansi Ki Rani, Ahilyadevi Holkar, Indira Gandhi, amongst many more.

Women are multitaskers and good administrators as they can see various angles to an organisation with ease and have the ability to take balanced decisions. They also have a fine IQ and EQ balance. It is a pity that Sebi had to make a law to recruit women directors, and our leaders in boardroom had no competency to drive diversity fearless of competition.

I believe diversity in any form – be it gender, cultural, geographic – brings in a huge value to team work on the board. Don’t recruit women to merely comply with the law, get them on board for their competency. Treat them at par.

GST has nothing to do with any specific sector. It will impact all industries.

SRF’s Profit After Tax (PAT) rose 8 per cent from 97 crore to 105 crore during Q3 FY17 over corresponding period last year. What are the factors which helped the company reach this target?

Anoop K. Joshi: We are into many businesses includ­ing technical textile, chemicals, and polymers. Our mother business is the production of fluorochemicals which is used in refrigeration. We are the biggest producer of refrigeration chemicals in India and our market share is more than 50 per cent. There are still more verticals associated with the com­pany and we also provide materials to agro-industries and pharmaceuticals.

However, agro is doing poorly across the world due to high price of commodities, farmers not being encouraged enough to produce more and currencies in the agro-based countries are not being stable. Our agro-business also did not perform well in 2016. But SRF performed well because some of our verticals such as technical textile and packaging did very well. Moreover, we took several steps to reduce cost and increase utilisation. We really worked hard on interest reduction which helped us reap benefits. As we operate in many other sectors, all of them cumulatively helped remain profitable during Q3 in the finan­cial year 2017 over corresponding period last year despite there being many challenges in agro side of the country.
What is the current status of the technical tex­tile industry in India? Do you think India’s techni­cal textile industry is growing at a good rate as compared to leading players in the world?

AKJ: Let me first explain what the technical textile industry is. We have always heard of textile which largely consists of cotton textile or polyester, used mainly in manufacturing gar­ments and clothing. The technical textile is an unknown term for the common man. Essentially, it covers two parts: one is the reinforcement side and another is covering. Reinforce­ment is used in a lot of applications—be it agriculture, auto­mobiles, infrastructure, and roads, among other things. So, technical textile is a very wide term. Covering side consists of tar-poling and awning. In fact, cricket pitches also have a cov­ering made of such textile. We have recently supplied materi­als for pitches in some of the stadiums in India.

There is a lot of scope for growth in this sector as India is growing in terms of infrastructure, agro-tech, building, and stor­age. We are making use of soft as well as hard coverings. We are now making use of such textile in stadiums and car parks as the fabric is far more flexible, less costly, and adds aesthetic value wherever used. Apart from traditional usage of technical textiles such as nylon tyre cord fabric, there are also other usages.

SRF is greatly into the production of nylon tyre cord fabric. This is used as reinforcement material for dyes. Further, the belting fabrics and the polyester fabric are used to provide rein­forcement to conveyor belts. These are two traditional business with which the SRF started. Today, SRF’s role in the sector is more around automobiles and the belting fabrics. Recently, we have started producing coated fabrics like trampoline and lami­nated fabrics used in making temporary huts. India has huge potential to grow in this sector as it is a developing economy. However, nylon tyre cord fabric is not growing as people are shifting to polyester and steel radial tyres. More and more cars now rely on radial tyres that use polyester. Trucks and buses use the steel radial. So from SRF’s point of view, there is no big growth in this area. The reason why we have added sub-segments like coated and laminated fabrics which have growth potential due to consumerism. The technical textile sector as a whole is a growing segment in India.
Asia is at the forefront of technical textiles. Besides Vietnam and China, which other coun­tries are emerging strong and how different are they in their approach?

AKJ: China is giving us tough time in production of laminated fabrics and nylon tyre cord fabric. In fact, China is making its presence felt in almost all commodities. Developed countries are on sell-out mode as they do not want to concentrate on this segment any more. That means countries like China, India and other Southeast Asian countries can grow easily in this seg­ment with no competition from the West.
Chemicals and polymers are basic products used in day-to-day life right from shirts to cars. However, it does not attract the atten­tion it deserves. Automobile and IT sectors attract all the noise. Why is this industry not getting that much attention in India?

AKJ: The chemical and polymer are backhanded or inter­mediary products whereas automobiles and IT sectors are at the forefront. You will get to know about the car. You may also get to know about tyres, which may be provided by MRF or Apollo. But you may not know who provided the nylon tyre cord fabric which is used manufacturing those tyres. Companies like SRF or Century Enka may provide such fabrics. These are by definition B2B products. Moreover, you do not use chemicals and polymers in their purest form as a consumer. People don’t know which chemicals were used to make such products. For example, SRF manufactures aerosol, utilised in GoodKnight and also in other mosquito repellents. People know GoodKnight is manufactured by Godrej but nobody is aware that SRF provides the chemical used in making it. Similarly, air conditioners manufactured by Daikin, Samsung and LG utilise gas manufactured by SRF which nobody is aware of.

Further, drugs and pharmaceuticals companies make use of chemicals that you may be unaware of. SRF provides those chemicals but you only know about Sun Pharma and Ranbaxy as brands. You would not know who has provided them raw materials. Those who are not interested in getting minute details would not know who provided what to whom. They will only know Infosys and Maruti and other big com­panies. So this is typical of any B2B company.
The global technical textiles market is esti­mated to be around $100 billion in which India has a negligible share. Unlike traditional gar­ments wherein India has made a dent in the global market on quality and pricing, in the technical textiles sector, its investments are still low. What should be done to boost invest­ment in this sector? AKJ: This market is least understood in that sense because it has more industrial applications. The garments and cloth­ing sectors are consumer-centric so people know about them. India has been a front runner in the production of fabrics such as cotton. There were so many textile companies in India during 1960s and 70s and some of them were shut down too. After some time, the government-owned National Textile Cor­poration came into light which comprised many textile mills which produced yarn and fabric.

The technical textile has a variety of fibres and has got an array of applications. You need to know what kind of labour, innovation and research and development you require to devel­op a specific segment. India as a developing country has now started working on these factors. You may not find any particu­lar area in the sector to be big enough to attract bigger player in the market. There are so many sub-segments, clubbed together to be known as technical textile. However, these sub-segments are not doing good in India but may work well in time to come.

America’s per capita consumption of technical textile is 17 kg, where India’s consumption is 1.7 kg which is barely 10 per cent as compared to America. It will grow as a differ­ent segment over a period of time. Sub-states, customers, applications and markets are different for this sector, but we have clubbed everything together to call it as technical textile. Each of these segments has to grow considerably to attract investment. Unless it assumes significant size, you will not see that kind of investment and growth in the sector. Over a period of time, the potential being large, demand will increase and the sector will grow.
SRF’s new chloromethane plant with an annual capacity of 40,000 tonnes is scheduled to be commissioned in December 2017. Please share some more information related to this development.

AKJ: This is the backward integration of our refrigerant chemicals. This chloromethane plant will produce three sub-products – chloroform, methyl chloride and methyl dichloride. We utilise two of these products in-house that is why it is called backward integration. We sell one of them to pharmaceuticals firms. This is the second plant as we already have a plant with an annual capacity of 40,000 tonnes in Bhiwadi, Rajasthan. India is short on the supply of methyl dichloride. This plant will produce 65 per cent of methyl dichloride out of its total production. Some of them will be utilised within while some will be sold out, depend­ing on the market price. There is a big difference between what India produces and what it requires, so there is a good opportunity for us to increase our production so we will be doubling our capacity through the new plant.
What are the challenges and opportunities for technical textiles, chemicals and polymers industries in India?

AKJ: The technical textile sector is fragmented in India. The sector has to grow considerably so as to attract other players that can help it grow further. Of course, innovation and research are also important to help it grow. When it comes to chemicals, you need to manage the environment as well and treat the effluents properly. Safety is the measure challenge in the segment we operate because it deals with highly hazardous chemicals, for example, fluorochemicals. Handling of materials, getting proper skill and training, and safety of workers are major challenges when it comes to manufacturing chemicals anywhere in the world. You also need to continuously indulge in innovation and R&D to help sectors such as technical textiles, chemicals and polymers flourish in India. Our country is not used to spending much on R&D as this doesn’t bear fruits immedi­ately. SRF started spending on R&D in 2001 with 250 people working to upgrade the technology. Presently, we spent `70-80 crore annually on R&D. You need to keep on upgrad­ing technology as nobody will share that with you and if any country shares, it will demand a lot of money. If you have to compete with other countries, especially China, you need to upgrade technology and reduce cost. SRF, especially its chemical vertical, is continuously working to upgrade tech­nology. You need to look for those methods which can be less harmful to the environment and boost growth.
Chemicals business in India has long suf­fered under added taxations on their produc­tion capacity as well as their consumption demands. Given this background, do you think GST can have long-term positive impact on the chemical sector?

AKJ: The chemical industry is a highly regulated sector because of its nature. It has to be regulated because of the kind of effluents it sends to air, water and soil. The area in which SRF operates is fluorochemical, which is a hazard­ous chemical as it adversely impacts the environment. Its production emits gases which are undesirable and contrib­ute to ozone depletion and global warming. So the chemi­cal industry should be far more regulated than a regular company. Textile is far less regulated as compared to the chemical industry.

In China, you need to pay extra tax on the income generated by venting out harmful gases in the atmosphere. Once there was a programme carried out by Europe, according to which anyone who limited carbon emissions would gain credit which could be sold in the market. The Chinese government levied 70 per cent tax at that time. India, of course, did not do that as it wanted to boost the industrial growth. India is a developing country and its priority is development rather than reducing greenhouse gases. Developed countries would focus more on environment and would try to reduce the pollution level.

It is a challenge for our country to set up industries and generate employment and add to Gross Domestic Product (GDP). But over a period of time, there would be restrictions on India too. It has already signed many environment-related protocols. Moreover, the chemical industry is very important for any country to flourish, especially for India. The country is doing well in manufacturing chemicals as it is relying on research. The country has the required technology and there is a big market to supply. The government is also supporting this sector to grow but in a controlled manner. We too have a plant in Gujarat and there are certain rules to be followed. I don’t think Goods and Services Tax (GST) has to do anything specific to chemicals. It will impact all the industries and will be beneficial as well. It will help in seamless transfer of credit. It will help unorganised sector such as micro, small and medium enterprises (MSMEs) to become part of the main system and this will only add to efficiency of the system as a whole. Under this new tax regime, whatever you pay, you will get credit for it. It will be good for industries as well as the country.
Q: While finance operations in most companies are still being digitised, Sandvik, as a high-tech engineering giant, is miles ahead of others. What are your key recommendations on digitalisation of finance operations? How can CFOs become strategic partners in a company’s digital journey?

JS: A company needs to build excitement in the people towards digitisation by conducting workshops and showcasing the future and the directions. It needs to have the buy-in from various internal stakeholders like sourcing and marketing. This is to ensure that the company can lay down basic rules, which customers, suppliers and employees need to adhere.

Standardisation of documents would be my next suggestion in order to make digitalisation work. We should not forget that many laws and rules prohibit us from moving to a no paper environment. Integration of various digital platforms with the core ERP of the companies needs to be evaluated. Additional controls needs to be designed to ensure that the digital world is working as per the intended functionality.
What are the technologies finance operations must look at while digitalising?

1. Smart Scanning would be the top on my list. This can ensure seamless input of data from paper to digital form.

2. Robotics in processing information and throwing exceptions is another technology to look for.

3. BI tools need the next gen change to have capability of integrating internal and external data to provide value analysis.

4. Easy training/learning tools to self help.

What should be the roadmap for digitalisation of finance operations?

1. First step is to identify the need and do a cost benefit. Just that the whole world is moving does not mean everyone needs to move or can move immediately.

2. Draw a roadmap for digitisation.

3. If warranted, then the processes and the corresponding docs need to be identified.

4.Each process can then be clubbed under the P2P or O2C cycle.

5.Tools can be evaluated to carry out digitalisation. One needs to be cautious of need vs desire here as the costs may vary hugely.

6. Lastly, adequate controls need to be put in place to ensure smooth functioning of the digital platform.
How can CFOs become strategic partners in a company’s digital journey? The journey of industry for standards cannot be successful if the CFO and his/her team are not on boarded to the same day one. The change is a rapid one and needs a well coordinated understanding as eventually a lot of data is at the CFO’s desk.

All operations of the company have a finance implication, so it is needless to say that the CFO needs to be an integral part of the digitalisation of the company. The CFO can look at the end to end process and give advice on missing links. Also, the CFO can be the linking pin between various functions like IT, Sourcing, Sales, Production, etc. Costs on this journey are a major issue, and need to be controlled/monitored very closely, in which the CFO can assist.
Q: A slew of taxation reforms like MFR, Ind-AS, GAAR, DTAA, BEPS, and PoEM, are set to kick in, while the goods and services tax (GST) is expected be rolled out from July 1. What are the challenges for finance fraternity with so many compliances coming into effect in 2017? Your suggestions…

JS: Resource skill and speed management is the biggest challenge. Finance fraternity has always been open to changes and will continue to do so, but given the lean organisation that we all have now managing so many projects with the existing team is difficult.

Costs which are a major focus area take a beating as all these compliances increase the costs for the company.

In an MNC, there are multiple systems working and integrating each system with these changes is another complex issue which we need to handle.
How will the deferred date (July 1) of GST impact businesses?

JS: We started our GST project LAGAAN pretty early in May 2016. The deferment will positively help as we get some more months to do better on GST.

How will MFR affect the quality of audits, especially with regard to global firms?

JS: Audit is an end to certify controls and financial discipline at work. MFR thus should not matter and the auditee has to continue to do better. Quality of audit will not be affected unless it is the intent, especially if the rotation is to and from the big four audit firms in the world. Challenge is with regard to business understanding by the new firm and consequent time planning to conduct the audit. It is Important to ensure the audit process improves.
Q: With the phase-1 implementation of Ind-AS kick-started in FY17, uncertainty prevails on the tax treatment, especially under the provisions of minimum alternate tax (MAT). The provisions of MAT would have to be amended to incorporate the changes on account of first-time adoption of Ind-AS and on the subsequent accounting of fair value changes. What are the issues and what are your suggestions on MAT?

JS: No clarity with regard to MAT was provided in the budget. So the ambiguity of which profit should be considered for MAT continues. With implementation of Ind-AS and various fair valuations, the book profit is bound to change, which may distort the MAT provision. MAT should be calculated on the profit as per companies act excluding the impacts of the provisions and fair valuations.
Q: India’s uncertain tax implementation regime is said to be impacting ease of doing business. What is the experience of Sandvik Asia in this regard? Your observations on how India can go about improving ease of doing business?

JS: We, as an organisation, believe in being compliant with all the laws of the countries and tax matters.

Ease of doing business is not just about tax. It involves major administrative and individual reforms. Starting right form change in our school text books which should build responsible generations ahead who care for the country, respect the legal systems and the environment.

A good country to do business with ease is one where all systems work well, infrastructure is available at ease, and tax systems are simple to comply with.

In India, the tax system has been highly abused and misused at all ends. GST in India is the single big reform across the globe and a complex change for any one man or government to drive. It is for the people to drive and demand the right changes to happen.

Q: Sebi, in 2015, made it mandatory for all listed companies to appoint one women director. Can diversity improve the functioning of the board, especially with regard to empowerment of independent directors?

JS: I believe diversity gets in a totally different perspective to senior management including the board.

Diversity in India is not new, with India having women leaders like Savitribai Phule, Jhansi Ki Rani, Ahilyadevi Holkar, Indira Gandhi, amongst many more.

Women are multitaskers and good administrators as they can see various angles to an organisation with ease and have the ability to take balanced decisions. They also have a fine IQ and EQ balance. It is a pity that Sebi had to make a law to recruit women directors, and our leaders in boardroom had no competency to drive diversity fearless of competition.

I believe diversity in any form – be it gender, cultural, geographic – brings in a huge value to team work on the board. Don’t recruit women to merely comply with the law, get them on board for their competency. Treat them at par.