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CEMENTING GROWTH CFO profile: SUNJOY PODAAR p 30

MERGERs & ACQUISITIONS

How IT helps in integration p 20

taste of hakkasan India’s date with the michelin star p 53

Volume 03 Issue 01 Rs.50 JANUARY 2012

CFO India volume

03

5 Technological solutions CFOs should look forward to in 2012 —­tools that will help them revolutionise the way they work and see their organisations become more efficient

Issue

01

A 9.9 Media Publication


CFO J anuar y   |   2 0 1 2

Inside

14 COVer story

i THINK 10 YUNUS BOOKWALA The CFO of Capgemini India discusses why volatile currency rates and managing expectations of clients keep him awake at night

how tech is changing business 20 M&A Integration: How IT Helps The ultimate goal of any M&A is not about doing the right deal but about doing the deal right. IT can play a major role here

BRING YOUR OWN DEVICE

A TECH-TONIC

REVOLUTION

DATA PROTECTION

Cloud Computing DATA STORAGE

GREEN It

INSIGHT 43 ORGANISING FOR M&A Few executives expect the number of deals their companies start or complete, to rise next year. Many indicate that there’s room to improve key planning and integration capabilities

CFO profile

cementing ultratech’s growth story

30

Sunjoy Podaar, Jt President Finance at UltraTech Cement talks about his move from Muzaffarpur, giving up a stagnating practice and then making it big in the corporate world

New or upgraded technological solutions and business tools will play a more-importantthan-ever role in shaping the finance function and the future of organisations in general in 2012

CASE STUDY

40 A test of character

Pramod Dubey, the CFO of Accutest Research Laboratories, talks about the challenge of setting up systems, processes and new accounting benchmarks in the organisation and how it helped the company grow radically

Cfo lounge 50 ON WHEELS | NISSAN LEAF 54 TRAVEL | COLOMBO 52 GIZMOS | NOKIA LUMIA 800

leader’s world 47 IS THAT THE BEST

53 M&E | HAKKASAN, MUMBAI

YOU CAN DO?

Regulars

A masterclass in asking for and giving concessions in negotiations

CEMENTING CFO PROFILE: GROWTH SUNJOY PODAAR P 30

MERGERS

& ACQUISITIO NS

HOW IT HELPS INTEGRATION IN

P 20

CFO I NDIA

TASTE OF HAKKASAN INDIA’S DATE WITH THE MICHELIN STAR P 53

56 NOT JUST THE LAST WORD 06 O-ZONE

VOLUME 03 ISSUE 01 Rs.50 JANUARY

2012

ILLUSTRATION & Cover design Atul Deshmukh

VOLUME

AD index 03

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5 Technolo gical solution to in 2012 they work — tools that will s CFOs should and see their look help them revolutio forward organisations nise the way become more efficient A 9. 9 MEDIA

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Bharti Realty FC | GM Motors IFC | Finacial Executive 02 | Polycom IBC | SBI BC

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from the

managing editor

dhiman chattopadhyay dhiman.c@9dot9.in

Why tech will change a CFO’s job

When we came published the first technology special issue in June 2011 (Get Tech, Go: Technologies CFOs Must Know) — it received a very encouraging response from our readers, the CFOs. In a separate survey conducted in the same issue, an overwhelming number (nearly 40%) of CFOs said they would like to learn more about cloud computing, particularly usages that would benefit the organisation. Many others wished 2012 would bring in new technologies and access to fit enterprise applications and new reporting and analysis tools. Data warehousing also was something that CFOs hoped would become easier to tackle in 2012. So this time around our cover package looks at key technology trends, new business solutions and tech tools that await you in 2012 — some upgraded versions of existing technologies, other brand new solutions that organisations in general, and CFOs in particular, should embrace with open arms. Read our cover story (Vision 2012: A Techtonic Change, page 14) to find out what experts in the domain have to say. The accompanying articles offer fresh insights in specific areas. While one article deals with IT’s role in managing M&A integration, the other, a syndicated article from Financial Executive International, talks about how cloud continues to transform business. Also read the article by my colleague, Assistant Editor Ankush Sohoni, where we discuss other key trends such as handling mobility and using social media to leverage business (Page 36). This issue could well be the CFOs guidebook to which technological trends to watch out for in 2012, and the solutions, technologies and tools to acquire during the year. Of course the New Year brings with it other good news as well, and in our Lounge section we review a car that’s still a year away from launching in India — the eco-friendly, electric car called Nissan LEAF. And for those suffering the January chill, we offer a quaint getaway this month — head to the tranquil beaches of Colombo and Bentota. Let there be prosperity, peace and happiness not just during your holidays this year, but in your businesses and personal lives as well. Have a great 2012!

Managing Director: Dr. Pramath Raj Sinha Editorial EDITOR: Anuradha Das Mathur managing editor: Dhiman Chattopadhyay managing EDITOR (Copy Desk): Sangita Thakur Varma SUB EDITORS: Radhika Haswani, Mitia Nath Design Senior Creative Director: Jayan K Narayanan Art Director: Anil VK Associate Art DirectorS: PC Anoop & Atul Deshmukh Visualisers: Prasanth TR, Anil T & Shokeen Saifi Senior Designers: Sristi Maurya, NV Baiju & Chander Dange DesignerS: Suneesh K, Shigil N, Charu Dwivedi Raj Verma, Prince Antony, Binu MP & Peterson chief photographer: Subhojit Paul photographer: Jiten Gandhi The CFO Institute Executive Director: Deepak Garg Assistan Brand Manager: Nisha Anand ASSISTANT MANAGER: Dr Leena Narain Assistant Manager - Corporate Initiatives: Deepika Sharma Sales & Marketing VP SALES & MARKETINg: Krishna Kumar KG (09810206034) ASSISTANT REGIONAL manager (sales): Rajesh Kandari (+91-9811140424) National Manager (Events & Special Projects): Mahantesh Godi (+91-9680436623) Assistant Brand Manager: Arpita Ganguli South: Vinodh Kaliappan (+91-9740714817) West: Sachin N Mhashilkar (+91-9920348755) For any customer queries and assistance please contact help@9dot9.in Production & Logistics Senior General Manager (Operations): Shivshankar Hiremath Manager Operations: Rakesh Upadhyay Asst. Manager - Logistics: Vijay Menon Executive Logistics: Nilesh Shiravadekar Assistant Production manager: Vilas Mhatre Logistics: MP Singh, Mohamed Ansari officE addrEss Nine Dot Nine Interactive Pvt Ltd Kakson House, A & B Wing, 2nd Floor 80 Sion Trombay Road, Chembur, Mumbai- 400071 INDIA. Published, Printed and Owned by Nine Dot Nine Interactive Pvt Ltd. Published and printed on their behalf by Kanak Ghosh. Published at Bungalow No. 725, Sector - 1, Shirvane, Nerul, Navi Mumbai - 400706 Printed at Tara Art Printers Pvt ltd., A-46-47, Sector-5 NOIDA (U.P.) 201301 All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.

subscriber services: Call +91-120-4010999 Visit CFO India’s Website www.cfo-india.in

january 2012

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Letters

CFO INDIA

january 2012

Timely cover story

COVER STORY

It was fascinating to read how some of the biggest accounting frauds were committed in the corporate world and more importantly how an increasing number of checks and regulations are now being put into place to detect and prevent such frauds. Hats off to CFOs like Mr S Durgashankar for the role they have played in highlighting some of these issues and coming up with relevant suggestions. I also enjoyed reading the CFO profile this month, that of Sunil Kakar, the CFO of IDFC. His eventful career made for great reading. — Vaibhav C Rao, VP Finance, Systa Technologies, Hyderabad

01.12 Reach out to more decision-makers I feel CFO India is doing a great job as a magazine. The articles are well written and address relevant issues. However, you must brush up your circulation/ distribution network and ensure copies reach not just all CFOs but also people who influence decisions — senior bankers, PE funds, analysts and senior executives of the big auditing firms. It also seems to me that you are not trying to market or sell your product aggressively enough. Nevertheless, I remain an avid reader and supporter of your magazine, purely for its well thought out editorial content. —Robin Banerjee, CFO, Suzlon Energy, Pune

Not getting regular copies I keep reading the magazine online but for the past several months I have not been receiving the print issue in my office. Could you please start resending me the copies each month? — Ajay Kapoor, Chief Finance Officer, Tata Power Delhi Distribution Ltd, Delhi

LOVE THE LOUNGE SECTION While I obviously enjoy reading the well researched cover stories in your magazine as well as the profiles

4

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january 2012

PREVENTING FINANCIAL FRAUD

Every move you

Make... Fraud investigation experts and CFOs who have dealt with fraud in their organisations discuss best practices and proactive steps to detect and prevent fraud in India Inc DHIMAN CHATTOPADHYAY

O

ne thing is for certain. Corporate India is now far more proactive in the way it looks at financial reporting fraud thanks to the wake up call following the Satyam scam. More companies are now looking at strengthening their internal audit teams while audit committees and boards are asking more uncomfortable questions. Whistleblower policies too are being put in place. Yet, obviously a lot more needs to be done to minimise the chances of a Satyam-like scandal happening again. The good news is that there is no dearth of global best practices to take inspiration from, nor is there a dearth of ideas from experts.

A POSITIVE CHANGE “Earlier my proactive work was just 10 to 15 per cent of the total work we handled in terms of fraud investigation, detection and prevention. Almost 90 per cent of it was reactive work, once the fraud had already taken place. In the last six months the proactive work has gone up radically to between 35 and 40 per cent. This is a clear indication that India Inc has woken up to the need to prevent fraud instead of acting only after the damage has been done,” says Arpinder Singh, Partner and India Leader of Ernst & Young’s Fraud Investigation and Dispute Services (FIDS). Mr Singh says even on the reactive side, as opposed to earlier instances when many companies would try to deal with the situation themselves and hush up matters, vigilant audit committees now demand proper external investigations. “It is no longer couched in secrecy,” he says, adding, “Not too long back most annual reports didn’t even mention fraud prevention measures in their annual report.” Mr Singh however, sounds a warning note. “The worrying thing is that the nature of fraud is changing. People are imaging documents on their BlackBerry and iPhones,” he says. Thankfully as more Indian organisations acquire companies abroad or expand their operations into other continents, corporate governance is becoming tighter as well. “The zero tolerance to fraud that most top British or American firms now have, is rubbing off on us. Give it another couple of years and things will get even better,” he says. But hasn’t the magnitude of fraud also grown over the years in India? “That is primarily because the size of the economy has grown. Also a lot more fraudulent practices are coming to light because they are being exposed unlike before,” he counters.

ANIL T

14

CFO INDIA

DECEMBER 2011

DECEMBER 2011

CFO INDIA

Your voice can make a change: Share your viewpoint on what’s happening in the community and your feedback on the magazine at editor@cfo-india.in

and opinion pieces, I look forward to the Lounge section with great anticipation. The car reviews are very well written and researched as is the gadget section. — RK Sinha, GM, Finance, Barrackpore Wagons, Kolkata

Great issue, but an error in the calendar Thank you very much for a well-produced December issue and the lovely 2012 calendar. However, in the section, where the names of the winners have been mentioned, there was someone else’s name against my winning photograph. The calendar however, has the name correct. Needless to say, this came as a disappointment to me since I believe the magazine has more visibility than the calendar. — Sharvari Murkute, Vice President, Finance & Accounts, Lazard India Pvt Ltd, Mumbai

Managing Ed replies: Our sincere apologies for the inadvertent error in the advertisement we carried in the magazine. We are sure however, that every subscribing CFO will keep the calender on their table for the next 12 months where your winning entry and your name have been given correctly. Congratulations once again for clicking such a lovely photograph.

15


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SMART STRATEGIES

WINNING TEAMS | 2012

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01.12 BUZZ

Babu doom

photos.com

Corporate India’s suspicion about policy paralysis in the country has come true. Indian bureaucracy has topped the list of worst performers in Asia, according to a report by a prestigious Hong Kong-based consulting firm. With a score of 9.21 out of 10, India fared worse than Vietnam (rated at 8.54), Indonesia (8.37), Philippines (7.57) and China (7.11), said the report by Political & Economic Risk Consultancy Ltd released on January 11, 2012. Singapore remained the best with a rating of 2.25, followed by Hong Kong (3.53), Thailand (5.25) Taiwan (5.57), Japan (5.77), South Korea (5.87) and Malaysia (5.89). The report said India’s inefficient bureaucracy was largely responsible for most of the biggest complaints that business executives have about the 6

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january 2012

country. The complaints included inadequate infrastructure and corruption, where officials were willing to accept under-the-table payments and companies were tempted to pay to overcome bureaucratic inertia and gain government favours, the report claimed. The report also highlighted onerous and fickle tax, environmental and other regulations that could make business in India ‘so frustrating and expensive’. It said dealing with the court system in India was an unattractive option for companies, and would be best to avoid. The bureaucrats were rarely held accountable for wrong decisions and it would be extremely difficult to challenge them when there were disagreements, it said. “This gives them (bureaucrats) terrific powers and could be one of the main reasons why average Indians as well as existing and would-be foreign investors perceive India’s bureaucrats as negatively as they do,” said the report. There were few plus points when India was compared to countries within BRIC (Brazil, China, Russia and India) economic development group. India was second to Brazil but well ahead of China and Russia for the quality of regulation and supervision of the securities exchange. It was also better than the other three nations as the fastest place to deal with construction permits.


What’s AROUND ZONE CFO Book: Sathya Kalyanasundaram Pg 08 Jargon Decoded: Facipulate.................................. Pg 08 Water powered phones!........................................Pg 09 People Movement.................................................Pg 09

THE CFO POLL result

Have interest rates on loans reached a peak and will now see a reduction?

6% No 15% Maybe

79% Yes

current POLL question

Will India grow at 8 per cent by the second quarter of 2012 ? Vote now at www.cfoinstitute.com/poll

REAL ESTATE

GENETICS

photos.com

The shrinking Y The male-specific Y-chromosome is shrinking at different rates across species — but there is no risk of men being extinct, at least in the near future, says a new study. The Y-chromosome is one of the two sex chromosome’s carried in males from most mammal species. It contains male-specific genes, including the testis determining gene, which triggers the male sexual development. A team led by the Australian National University had discovered that a marsupial’s Y-chromosome is genetically denser than human Y-chromosome, meaning they are ahead on the ‘manliness’ scale. “This means there are different rates of gene loss on Y-chromosome across species,” said Paul Waters, study team leader.

Here is one more lesson in sustainable development and energyefficient technology that we should be learning from China and trying to replicate! The Chinese tycoon behind the 30-storey energy saving building that went up in just 15 days, says he intends to duplicate his model across China. The prefabricated building, the five-start T30 hotel at Hunan that opens later this month became an internet sensation after a video showed it being constructed by 200 builders in just 360 hours. (http://www.youtube.com/ watch?v=Hdpf-MQM9vY) . Zhang Yue, the billionaire CEO of the Broad Group said the speed with which his buildings go up reduces waste of materials and energy. He said the buildings which feature quadruple-glazed windows and only use energy saving lighting, would become his biggest business in 2013. Zhang founded Broad Group in 1988 with his brother Zhang Jian. Together they revived an old energy-saving technology for non-electrical air conditioning which they have now sold in 75 countries. “We need to speed up our environmental thinking, We need buildings like this all over China,” Zhang said of the pre-fabs which he claims are six times greener than most European buildings. “In 2013 we will build 20 buildings a month, and by 2014, we will be up to 50 buildings a month. And that’s just from one factory.” Zhang and his company incidentally won the UN Environment Programme’s ‘Champions of the Earth’ award last year. january 2012

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photos.com

Green and fast


O-ZONE cfobook

JARGON DECODED

THE PHRASE: Facipulate

Sathya Kalyanasundaram Wall

Info

Boxes

+

What’s on your mind? Attach

Share Sathya Kalyanasundaram Subscribed to updates from Rajinikanth January 22 at 10.30 pm · Comment · Like

March 2010 to Present – CFO, Personal Netambit. Dec 2008 – Feb 2010 – CFO Zodiac: NA Bothli & Mining Views: Chemicals Liberal 2006-2008 – National WORK Commercial Manager, Spencer's Retail Director Finance Texas Instruments 1999 – 2006 – Sr Manager, CFO Mos Chip Semiconductor Seagram CFO Alliance India EDUCATION

Sathya Kalyanasundaram Likes Rohit Verma photography January 19 at 9.05 pm· 2 people Commented · 1 person likes this

Sathya Kalyanasundaram Enjoys going on wildlife holidays and clicking elephants! December 17 at 11.00 pm · 5 people commented · Like

I Read...

MBA - University of Hartford BCOM - Loyola College Chennai

Sun Tzu - The Art of War December 30 at 6.26pm · Comment · 4 people Like this

I Listen... Classic rock, Hip Hop, Eminem January 4 at 7:14pm · Comment · 1 person likes this Recent activity Sathya Kalyanasundaram likes CFO India, Daniel Craig and 2 others

CFO India, Daniel Craig, MS Subhalakshmi and others December 17, 8.55 pm · 2 Comments · 7 people Like this

HEALTH

Polio free? India is on the verge of being declared polio free. For the first time in history, India will be free from the viral disease for a full year as on January 13, 2012 and could be taken off the ‘endemic’ country list by the World Health Organisation as early as midFebruary. “This is absolutely unprecedented, there is no denying it,” said Deepak Kapur, Chairman of Rotary International PolioPlus office. “However, the biggest threat is reimportation of the virus and complacency. We must remain vigilant if India is to remain polio free,” he said. India will be removed from the list subject to pending samples of people suspected of having the disease turning negative and of no further cases of polio being detected in the coming weeks. 8

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WHAT IT MEANS: An unfortunate mix of ‘facilitate’ and ‘manipulate’, this contrived verb refers to influencing the course of a discussion by indirectly promoting particular lines of thought THE USAGE: Now you know what your colleague meant when he whispered ‘let’s facipulate this meeting’ just before you met the client. Next time, wisen up!


O-ZONE

PEOPLE TECH

Soon: Flipping e-Books A research team from Korea Advanced Institute of Science and Technology headed by Prof Howon Lee, has developed a technology that will make reading on smartphones and tablet PCs easier. The technology called the ‘Smart E-book System,’ allows users of smartphones and tablet PCs to effortlessly flip through the pages of an e-book or cross-reference its contents, just as they would with paper-based books and magazines. Unlike conventional displays and

user interface technologies, where users’ finger movements are locked within the screen of display, the Smart E-book System recognises finger touches made beyond the screen. In other words, this algorithm-based conversion technology detects touch and entry events’ on the bezel (circumference) of smartphones and tablet PCs and connects them with the ‘events’ occurring on the screen, thereby preserving compatibility with traditional e-book interfaces while providing users with new functions.

GADGETS

Water powered phones! ‘PowerTrekk’ a new recharge system developed by Signa Chemistry along with Stockholm’s myFC produces electricity with a spoon of water which can be used to recharge your phone, GPS devices, iPod/mp3 or camera when you are far away from power outlets. This system doesn’t use sunlight; you just need a tablespoon of water to make it work. Unlike solar chargers PowerTrekk is lightweight and generates power more quickly and reliably. Moreover it doesn’t need clear water, so you can use any type of water whether it is from a stream or a pool, hard water or soft water, it really doesn’t matter. PowerTrekk acts both as a portable battery pack and a fuel cell which makes it a twoin-one solution. This two-in-one portable charger is the first one to use MobileH2 technology (Mobile-H2 cartridge called a PowerPukk) in addition to a Li-ion battery pack. These PowerPukk fuel packs are offered in three forms; 5-pack Tube, 10-pack Tube and 24 ct Tray. When the PowerPukk is placed inside the PowerTrekk and a tablespoon of water is added to the core part of PowerPukk, then the device’s Proton Exchange Membrane starts to convert the hydrogen into electricity. It can generate an output of 5V, 1000 mA and can store the power in its Li-ion battery if not used right away.

New MD for RIM

Research In Motion (RIM) has announced the appointment of Sunil Dutt as Managing Director for India. Dutt is an industry veteran with 27 years of extensive experience in the Indian mobile technology and telecom sector. Commenting on Dutt’s appointment, Urpo Karjalainen, Senior Vice President, APAC for Research In Motion, said, “Sunil Dutt brings a wealth of experience to RIM. His strong managerial and communication skills, as well as an institutional understanding of the technology and telecom sector will be instrumental in driving the next stage of our business’ growth in India.”

HT Gets New Business Head

Pankaj Tibrewal, who has put in his papers as COO and Business Head for Pantaloons, is headed to Hindustan Times as Business Head, South & West. He is replacing Salil Sadanandan and will be reporting to Rajiv Verma, Group CEO, HT Media Group. At present, Tibrewal’s date of joining is not known. On his move to HT, he said, “There is tremendous potential for growth in this industry and HT has a long way to go in the south and west.”

Bloomberg-UTV Editor Quits

A media and news professional with over 19 years of experience in print, internet and TV, Pranjal Sharma has quit Bloomberg UTV where he was Executive Editor, a post he held from August 2007.

january 2012

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cfo

i think

Facts & Trivia Education: St Xavier’s HS, Mumbai Qualification: Chartered Accountant Career: Has worked in Taiwan and UAE prior to joining Capgemini nearly 15 years ago

CFOs these days anyway have more sleepless nights than before thanks to their expanded job role. Given the current economic scenario and the outlook for the next few quarters however, there are a few specific issues which keep us on our toes during the day and sometimes, wide awake at night as well. Rupee depreciation, of course, is on top of the mind. Whether it is an export focussed organisation, or one dealing in imports, currency fluctuation and volatility affects us all. The dilemma of whether to hedge or not is a perennial issue. Now that the dollar is rising against the rupee, it may be a good time for an organisation like ours to increase our bets on hedging, but to me comments like “hedge 100 per cent” come across as a rather adolescent way of dealing with the issue. 10

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january 2012

YUNUS BOOKWALA The CFO of Capgemini Consulting India reveals why volatile currency rates and managing the expectations of clients and colleagues in the face of rising inflation, wages and costs, are keeping him on his toes

“This volatile situation will continue for months to come and will definitely have an impact on pricing. How severe this impact will be of course is tough to forecast”

Also I realise that this volatile situation will continue for months to come and will definitely have an impact on pricing. How severe this impact will be of course is tough to forecast. Your guess may be as good as mine. But it is imperative that a CFO is on his toes and watches the currency trends like a hawk. I would say hedge around 60 per cent of your funds and at the same time keep all challenges of dialogue open with your customers since pricing will be a factor soon. The other issue that concerns me as we speak is that of cost pressure and margin maintenance in these times. In a way it is linked to the depreciating rupee too. The challenge before a CFO here is threefold. Customers expect prices to come down even if inflation falls by one per cent. Internally people expect


JITEN GANDHI

their wages to keep pace or outpace inflation. And for MNCs based in India, an additional issue sometimes is making the HQ understand what it means to work in an economy that has an annual inflation rate of 10 per cent. It is a tough job, since most developed nations do not see inflation

rates beyond three per cent! Tie all this in with a depreciating rupee and you can imagine the pressure on margins and the challenge to maintain competitiveness in the market. CFOs should, of course, bear in mind that while the effect of rupee depreciation is immediate, there is

a clear lag factor, sometimes of four to five months when it comes to pricing or cost effects to kick in. CFOs must be able to anticipate the effect on pricing and communicate this message effectively and as early as possible to both the management as well as to clients. january 2012

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2011 AWARD WINNERS

Rajeev Agarwal, HAL | Manuhaar Agrawalla, The Oberoi Group | Sharat Airani, Forbes Marshall Group | Ajit Awasare, Larsen & Toubro | Joy Bagish, Apeejay Surrendra Corporate Services | Manoj Bhat, 3DPLM Software Solutions | Pradeep Chaudhary, Shree Cement | Johnson Cherian, Varun Beverages | Vijay Choudhary, HRH Group of Hotels | G.P. Singh Chugh, Vodafone Essar | Kaustav Das, Highbar Technologies | Goutam Datta, ICICI Lombard GIC | Harin Dave, Cognizant Technology Solutions | Keyur Desai, ESSAR Information Technology | Sanjay Deshmukh, Mercedes-Benz India | Yogesh Dhandharia, Rashi Peripherals | Suresh E, Paterson Securities | Sreekanth Elkuri, Mindtree | Shiju George, Shoppersstop | Somasekhara Rao Gonuguntla, TESCO Hindustan Service Center | Deepak Gupta, JK Tyre & Industries | Dinesh Gupta, Godrej Consumer Products | Gyanendra Kumar Gupta, IFFCO | Kapil Gupta, MTS | Sandeep Gupta, TCS - Global Consulting Practice | Tarun Gupta, Lanco Solar | Ravindra H.S., Sasken Communication Technologies | Archie Jackson, Steria India Pvt | Sandeep Jha, Africare | Asad Joheb, Taj Group of Hotels | Makarand Joshi, Deepak Fertilisers & Petrochemicals Corp | Hitender Kanwar, Tulip Telecom | Dipthi Karnad, HyperCITY Retail India | Aniket Kate, Mahindra & Mahindra | Suresh Khadakbhavi, Bangalore International Airport | Farhan Khan, Radico Khaitan | Feroz Ahmad Khan, Godrej Consumer Products | Ashish Khanna, The Oberoi Group | Pradeep Khanna, Infosys | Shishir Khare, TCS | Manoj Kumar, Jai Suspension Systems | Prajwal Kumar, ACG Worldwide | Prakash Kumar, Delta Power Solution (India) | Santosh Kurhade, IDFC Securities | Sushanta Kumar Lenka, Mitsubishi Electric Automotive India | Satish Mahajan, Consultant | Suchit Malhotra, Sapient | Umesh Malhotra, Hero MotoCorp | Kamal Matta, Sonic Biochem Ext | Kapil Mehrotra, iYOGI Technical Services | Ajit Mishra, Sistema Shyam Teleservices | Amit Mishra, Mothers Pride Education Persona | Samad Mohammed, iSpace Global Services (India) | Ramkumar Mohan, Orbis Financial Corporation | Ranganathan N, Mahindra & Mahindra Financial Services | Satyen Naik, Surat District Co-operative Milk Producer’s Union | Rajkumar Nair, Kanakia Spaces | Alagar Raj Nallasamy, Perfsystems India | SDPL Narayana, Neuland Laboratories | Subhasis Nayak, Bata India | Beena Nayar, Forbes Marshall Group | Manish Pal, Mahindra & Mahindra | C.O. Parmar, IFFCO-Kandla | Nitin Parmar, Welspun | Naresh Pathak, Promed Group | Shyamanta Phukon, SIRO Group of Companies | Dinesh Pote, Mahindra & Mahindra | Puneet Prakash, Mahindra & Mahindra | Prasad Pudipeddi, Hamilton Housewares | Adarsh R, Kerala Financial Corporation | Gracekumar Rajendra, Cognizant Technology Solutions | Dharmaraj Ramakrishnan, ING Vysya Bank | Ajay Rana, Amity University | Manvendra Singh Rana, IBM India | Subha K. Rudra, Usha Martin | Anil Saini, Ricoh India | S. Saravanan, IBM Global Process Services | Makarand Sawant, Deepak Fertilisers & Petrochemicals Corporation | Rupendra Sharma, RJ Corp | Vivek Sharma, Reliance Power | Udupi Arunkumar Sheth, Gati Corporation | Shobha Shetty, Godrej Properties | Berjes Shroff, Tata Services | Avtar Singh, Bajaj Capital | Dinesh Singh, SJM Technologies | Jagdish Singh, Ramtech Software | Prashant Singh, Sistema Shyam Teleservices | Sanjay Pratap Singh, Medical Information Technologies | Sanjay Kumar Srivastava, Andritz Hydro | Anuroop Sundd, Siemens Industry Software (India) | Kanaka Durga Bhavani Prasad Suravarapu, Fifth Avenue Sourcing | Dinesh Tandel, Capgemini India | Balaranjith Thangakunam, Atul | Rajesh K. Thanua, Carzonrent India | Sanjay Tiwari, Star Union Dai-ichi Life Insurance | Mangal Verma, Eon Infotech | Sandeep Walia, HT Media | Rajnish K. Wangoo, Nokia Siemens Networks | Kishor Yadav, Adani Power | R.A. Yadav, Hero MotoCorp

Zoeb Adenwala, CIO (Global), Essel Propack | Srinivas Kishan Anapu, CEO, Cloud Ready Solutions | S.P. Arya, Sr VP (Corporate IT), Amtek | Vandana Avantsa, CIO, Motherson Sumi Systems | Niranjan Bhalivade, CIO, CEAT | David Briskman, VP & CIO, Ranbaxy Laboratories | Manish Choksi, Chief - Corporate Strategy & CIO, Asian Paints | Satish Das, CSO & AVP - ERM, Cognizant Technologies | Vikram Dhanda, Sr VP, AEGIS | T.G. Dhandapani, CIO, TVS Motor Company | Ajay K. Dhir, Executive Director & Group CIO, Lanco Infratech | Nandkishor Dhomne, CIO, Manipal Health Systems | U. C. Dubey, Executive Director (IT), Iffco-Tokio General Insurance Co | Vikas Gadre, VP - New Business Initiatives, Tata Chemicals | Rajesh Garg, VP & Head (ISS) & (NPP), Nucleaus Software Exports | Vishnu Gupta, GM Operations, Aditya Birla Health Services | Kinshuk Hora, Head of IT- India Subcontinent, GlaxoSmithKline Consumer Healthcare | Sachin Jain, Head - IT, Evalueserve | Shailesh Joshi, Head - IT, Godrej Industries | Asmita Junnarkar, CIO, Voltas | Sudhansu Karmokar, GM - IT, Meru Cab Company | Sumant Kelkar, Advisor, Essar Information Technology | Sanjeev Kumar, Group CIO & Group President - Business Excellence, Adhunik Group of Industries | Vinay Mehta, CIO, Escorts Construction Equipment | Suhas Mhaskar, Sr GM and Head - Business Consulting & Special Projects, Mahindra & Mahindra | S.C. Mittal, Group CTO, IFFCO | C. Mohan, Head of IT Shared Services, Reliance Capital Group | Rajesh Munjal, Head - IT & AVP - Operations, Carzonrent India | B. Muthukumaran, Head - Operations & IT Security (India), SecureIQ | John Nadar, Head - IT, Tata Chemicals | C.R. Narayanan, CIO, Tulip Telecom | Venkatesh Natarajan, Special Director IT, Ashok Leyland | Ratnakar Nemani, CIO, Himatsingka Seide | Neena Pahuja, CIO, MaxHealthCare Institute | Prakash K. Paranjape, CIO, Idea Cellular | V.S. Parthasarathy, Group CIO, EVP - Finance & M&A, Member of G E B Mahindra & Mahindra | Daya Prakash, Head - IT, LG Electronics India | Girish Rao, Head - IT, Marico | Subhasish Saha, CTO, Apeejay Surrendra Group | Dhiren Savla, CIO, Kuoni Travel Group | Rajeev Seoni, CIO, Ernst & Young | Vijay Sethi, VP & CIO, Hero MotoCorp | Shiva Shankar, VP & Head - IT Infrastructure, Security - Ops & Engineering, Reliance Tech Services | Jagat Pal Singh, CTO, Cybage Software | Shantanu Singh, Director - New Intiatives, ValueFirst Messaging | Dheeraj Sinha, Head - Corporate Management Services, Apollo Tyres | Swaranjit S. Soni, Former Executive Director (IS), Indian Oil Corporation | Shivaram Tadepalli, Advisor - IT, GMR Group

JURY


COVER STORY

Vision 2012

MANAGING MOBILITY

A Tech-Tonic

Revolution Cloud Computing DATA STORAGE

GREEN It

New or upgraded technological solutions and business tools will play a more-important-than-ever role in shaping the finance function and the future of organisations in general in 2012 Dhiman Chattopadhyay with Ankush Sohoni

14

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Vision 2012

BRING YOUR OWN DEVICE

ERP ON DEMAND

SOCIAL MEDIA

DATA PROTECTION MANAGING MOBILITY

T

he crystal ball says 2012 will be the year when technology will play a far more important role than ever before — not just in how an organisations evolve but also how its finance functions work. While many companies will upgrade existing technologies and move on to the next level, others will embrace the latest business tools (some of which are still in the pipeline) by the end of this year.    Experts across India, some of them CIOs of organisations, others CEOs of firms in technological solutions, and still others who lead IT functions for multinational consulting firms put their heads together this month to talk about five key technologies and IT solutions that will change the way CFOs do business. To be honest the experts came up with a few more than five such tools and solutions, but in the end we agreed on the “most important five” from a finance point of view.   Some of them are already being used by a handful of organisations and these systems and tools themselves are not unknown. What makes 2012 special however, is the way in which these solutions have been upgraded and how the corporate world is waking up to their many other usages. ‘Optimum usage

of evolving technology to revolutionise the way we work’ will be the battle cry of India Inc this year. Here are the five main weapons of war they should be using to stay ahead of their rivals.

ERP ON DEMAND For years now ERP has been the backbone of many organisations. So what will change in 2012? “ERP solutions are now available on cloud and an organisation can purchase only the required modules and pay for only that usage. There is a huge cost involved for deploying an ERP for the organisation. Multiple high configuration servers need to be built along with operating system and database licensing. You need to maintain an internal team of administrators to monitor the smooth functioning as well.   Instead, with a cloud-based ERP, all you need to maintain and pay for, is the number of users who are using the ERP solution on a per user per month basis,” says Neeraj Mediratta, Managing Director, Ace Data Devices Pvt Ltd. Mr Mediratta says Ace has been using SAP’s Business by Design product for four years now. “Even in the initial stage, we were not required to invest on large multiple servers like test and

development, quality and production server. No fresh IT purchase was required to be on board with this new milestone journey. We started with the minimum required 25-user pack and have been paying on a per-user permonth basis as per the active users using the system.   The future expansion is equally simple. We just need to order for more users in a five user pack everytime we think we have more users to work on,” he smiles. And why should this tech jargon necessarily excite the CFO? “From the CFO’s prespective, the entire capex investment on infrastructure, hardware and software is being taken care of through a nominal monthly payout. For the lifetime of this application, the CFO does not need to worry about infrastructure upgrades and warranty renewals,” says Mr Mediratta. Sounds like it’s Christmas all over again, doesn’t it?

MANAGING MOBILITY The new global phenomenon is to allow users to bring their own device to work, be it a laptop, an iPad or a phone that can scan pictures, read and store data, do complicated math and yes, also make calls. january 2012

CFO india

15


Vision 2012

“We expect that 2012 will see many business proposals for cloud adoption being taken towards implementation... CFOs can drive significant business process changes to ensure a greener IT ecosystem” —Samiron Ghoshal Partner and IT Practice Leader, E&Y

This means you allow your users to be comfortable with their personal equipment like laptops in the office for official use as well. Does the CFO view this as a possible security threat? Or should he/she take this as an irreversible tech trend and instead try to get maximum mileage from this mobility? “IT needs to be careful about ensuring complete security, both to the personal equipment, and corporate networks with the introduction of the personal equipment. Once formalised, this is another area where CFOs can help save their investments both in terms of acquisition cycles and managing the organisation assets. This can be coupled with using the virtualisation techniques,” says Mr Mediratta. “With employees preferring to use their personal computing devices, organisations might be required to modify their IT operating models to accommodate these devices in the organisational ecosystem. This may also have an impact on the nature of IT assets required to be owned by an organisation and impact the security 16

CFO india

January 2012

landscape. CFOs would need to evaluate business proposals carefully to balance between the need for easier access to information versus business costs and risks,” adds Samiron Ghoshal, Partner, Ernst & Young, and Head of the IT Advisory Practice in India. “The best thing that has happened to corporate India is the mobile phone. With GPS enabled mobile devices, apps that can be deployed where some amount of data entry can be done, would go a long way in allowing decent service. The platform would allow auditing mechanism to ensure service is delivered on time, at the right place,” says K Mukesh, CIO, Tata Sky. Of course mobility also poses challenges of a different kind for the CFO in particular and the organisation in general. “With the launch of affordable devices like Aakash, challenges to enterprise governance and control structure have achieved a completely new dimension. Even junior level employees will soon own such tablets. They will connect to free apps, storage on the cloud and social

networking sites,” says GN Nagraj, a technology strategist and consultant. Taking the discussion back to the core, Mr Mediratta says, “Organisations have already started investing in a virtual desktop environment rather than having physical equipment for each user. This means at the front end, the user has his desktop up and running 24x7, and at the back end, the CFO has invested in one consolidated infrastructure for the desktop needs of the entire organisation. These are now also available on the cloud so the CFO could end up paying only the cost of a desktop for the time it is used during the month as against investing in a large number of desktops.” Virtual desktops, he feels will give another innovative way to the CFO to utilise his assets optimally and avoid investments in large desktop infrastructures in 2012.

MEGA DATA PROTECTION Data Protection will be another key aspect for an organisation in 2012 and


Vision 2012

“For the “Even junior level lifetime ERP employees will on demand, the CFO does soon own such tablets. They not need to will connect worry about to free apps, infrastructure upgrades storage on the cloud and and warranty renewals” social networking sites” —neeraj mediratta

—GN Nagraj

Technology Strategist & Consultant

MD Ace Data

beyond. The need, as experts point out, is to map structured and unstructured data and perform analytics on the combination. And this is where new technology will play a large role. For a small organisation, it is a reasonably sized investment to go for data protection solutions and then manage its day-to-day operations instead of investing in an online remote Disaster Recovery Solution for all applications. Backup can be taken remotely now, using a cloud infrastructure provider. Ace Data’s Backup Vault for instance, is one of the leading cloud-based backup solutions available today. The solution duplicates, compresses and encrypts data locally before sending it off to the remote cloud service provider data centre to ensure minimum usage of the bandwidth and fully secure data transfers. The first initial backups of large size can be manually imported to the cloud data centre and all subsequent backups will be incremental. In fact, data today is available way beyond what an organisation can store. People are increasingly discovering

unstructured data or doing analytics on structured data and using inferences from the unstructured data to arrive at logical conclusions on results. The amount of unstructured data in fact is so high that consumers rely a lot on social networks to make purchasing decisions. “As a result, the internet is full of usage patterns of these consumers, which is a rich hub of information. If companies ignore this data and formulate strategies based purely on structured data, they may not get desired results,” says Vijay Sethi, CIO and VP, Hero MotoCorp. The big risk the CFO and the CIO face, of course, is the risk of data loss. 2012 offers fresh hope in this realm too. “Several options can be deployed so that the latest backups reside locally for quicker recoveries and older backups can be kept remotely from a disaster recovery viewpoint. Remote online disaster recovery solutions need much larger infrastructure and may not suit all application requirements. Backup Vault is a low-cost remote backup solution wherein if the primary data

goes off, data can be recovered either from local copy or remote backup,” says Mr Mediratta of Ace. This, as Mr Ghoshal adds, means data can be recovered from the public cloud anywhere anytime even if the primary site goes down. One can maintain older backup versions remotely, and if they are required merely for compliance, one can archive the older backups altogether. “From a CFO’s perspective, the payout is on per GB per month usage. No initial investment in tape libraries and software is required, nor are there regular expense on tape cartridges. Disaster recovery could be provided for all applications on a usagebased expense and monthly payment cycle,” he informs.

THE RISING CLOUD The concept of cloud computing has already revolutionised the way IT works and has brought in a new way for organisations to look into their IT investments without compromising on the quality of solution and service january 2012

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17


Vision 2012 offerings. E&Y’s Mr Ghoshal believes thar since cloud computing promises rapid turnaround for business technology solutions, businesses are likely to see a rapid adoption of cloudenabled solutions this year. “Over the last couple of years, cloud computing has been much spoken about. We expect that 2012 will see many business proposals for cloud adoption being taken towards implementation. The initial adoption might revolve around non-mission-critical applications with the private cloud model being preferred. In this context, CFOs would need to sharpen their focus on how their organisations are using cloud computing and the business models being proposed,” says Mr Ghoshal.   As a first step, says Milind Joshi VP, Essar, IT Services, “Organisations can put non-critical applications on the cloud. The cloud is now beyond the initial hype as well as fears.” Tata Sky’s K Mukhesh predicts that, “Through 2012 and beyond, usage of public cloud will certainly increase. We will see models — infrastructure as a service, software as a service and other matters becoming more prevalent.” Mr Ghoshal however, warns CFOs about certain red flags such as shadow IT procurements. “Related to the proliferation of cloud is the emerging risk of shadow IT procurements. With the cloud models enabling business users to procure software and hosting facilities easily, there is a possibility of controls being bypassed and procurements being done without a proper IT procurement process. Such procurements can lead to potential regulatory and statutory compliance issues if adequate due diligence is not carried out. CFOs may need to watch out as they may pose business risks if not managed well,” he says.

EPMA, COMPLIANCE, RISK AND GREEN IT To many these may seem very different arms of IT-led business solutions. 18

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January 2012

“With GPS enabled mobile devices, apps that can be deployed where some amount of data entry can be done, would...allow the auditing mechanism to ensure service is delivered on time, at the right place” —K MUKESH, CIO TATA SKY

  Look closely though and you will see how intricately they are linked to one another, specially from a CFO’s perspective, and how enterprise performance and compliance solutions being driven increasingly by new technology, will lead to a greener, more sustainable organisation. There is little doubt that Enterprise Performance Management & Analytics (EPMA) solutions will continue to be IT led and driven by new and emerging IT solutions. With the advent of in-memory computing, big data and rapidly scalable IT infrastructure offerings, businesses would be able to leverage EPMA tools and solutions far more effectively.   “Business planning, consolidation and reporting solutions would be beneficial for businesses and CFOs can derive significant benefits through deployment of these technologies,” says Mr Ghoshal.   He adds that on similar lines governance, risk and compliance solutions too would become more vital for business operations to manage risk and improve compliance. GRC solutions would also deliver significant value in M&A scenarios.

“CFOs can drive significant business process changes in the finance function to drive towards a greener IT ecosystem and reduce the carbon footprint of the business,” says Mr Ghoshal. He further elaborates, “In the Indian context especially, government regulations are changing to enable electronic statutory and shareholder reporting and evidencing. This provides the incentive for CFOs to drive and sponsor major changes within their organisations on how IT is used, and thereby contribute significantly to reducing the carbon footprint of the business.” In enterprise performance management, compliance matters as well as in the other areas such as ERP, data storage and increasing mobility of information — new and emerging technological solutions will go a long way in reducing carbon footprints of organisations that welcome this tech-tonic revolution unravelling before our eyes, and make them financially stronger. On all counts then, 2012 promises to be an exciting year full of technological marvels that the finance community can look forward to.


COVER STORY

TECH IN M&A

BRING YOUR OWN DEVICE

M&A Integration:

MANAGING MOBILITY

How

Technology Helps GREEN It

ERP ON DEMAND

The ultimate goal of any M&A is not about doing the right deal, but doing the deal right. Companies often place too much emphasis on cost synergies, ignoring those that impact future growth Sibjyoti Basu

M

ergers and acquisitions are increasingly powering growth across different sectors. The last few years have seen consolidation in various industries to achieve economies of scale. In the recent years, Indian companies have been adopting the Merger & Acquisition (M&A) route to expand their footprint in other geographies as well. At the same time, the failure rates of mergers and acquisitions continue to remain high. A recent global survey by Ernst & Young shows that only 38 per cent of corporates and 22 per cent of private equity respondents put significant 20

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January 2012

emphasis on IT in their approach to transactions. In the survey 47 per cent of the respondents say in retrospect that more detailed IT due diligence could have prevented value erosion. In any organisation, the business plan hinges around four main pillars namely the customer segment, the profit pools, the strategic control points and scope of products and services. During an M&A scenario, an organisation ends up altering one or more of the aforementioned pillars, thus altering the business plan for the new entity. Therefore, there is a need to align their operating model, competencies, cost structures and policies in order to drive the new business architecture to succeed.

While evaluating a merger deal, proper planning is crucial to understand the deal’s business intent. Businesses need to evaluate what skills and structures that are required to manage the integration and develop a complete integration strategy. The plan must be discussed between both parties’ teams prior to closing. Existence of very good chemistry between managements of the two companies is crucial to deal with the potholes, and clear roles for the key executives defined ahead of the transaction. There are three main areas to focus on before a deal • Financial aspects: Proper due diligence, synergy evaluation


TECH IN M&A • Planning: Integration of processes, business models and systematic execution Selecting the right management team to carry out the merger and also selecting the right management team for integration & communication. Understanding the strategic rationale behind the deal and developing clear insights into the integration risks and its mitigation. • Soft Issues: Integrating the cultural aspects, adequate communication to stakeholders; perception management

Charu Dwivedi

Even with all the right strategies and planning, why do many deals fail? The ultimate goal of any M&A is not about doing the right deal, but about doing the deal right. Every deal is unique in itself and implementing it successfully is a challenging task. Companies often struggle in evaluating cost and revenue synergies during a merger and as a result place too much emphasis on cost synergies and ignore those that point to the future growth. They overestimate growth potential and miss the short-term value that comes from improving efficiency. Six critical pitfalls that occur during various stages of the M&A process leading to integration derailment are: 1)Complex integration of two businesses 2)Differences in organisation cultures 3)People issues 4)IT 5)Customer retention 6)Time management It is estimated that in highly technology-driven businesses, more than half of the synergies are derived from IT rather than the overall business strategy or customer base. These synergies could result in low IT management costs, better customer and revenue management due to faster availability of integrated data of both the entities, efficient supply chains, lower procurement costs, better visibility of risks and ability to reach out

For your most recent transaction, did you conduct separate pre-deal IT due diligence? Yes

No

47%

54%

53%

46%

Corporate

Private Equity

100

90%

80%

70%

60%

50%

40%

30%

20%

10% 0%

In retrospect, could more detailed IT due diligence have reduced the amount of lost value? No Yes

53%

47%

to employees of the merged entity in a streamlined fashion. However, we are observing that most IT issues remain unaddressed during due diligence or earlier stages of merger planning. As a result, the merger completion and overall time-to-market of the merged products and services depends heavily on how quickly, easily and cost-effectively the IT systems can be merged. Not paying adequate attention to the IT landscape results in costly post-merger issues hampering the functioning of the integrated entity. Day one business continuity and data migration issues are emerging as major integration challenges. In addition, the absence of a longer-term view of which IT systems needed to be upgraded and which needed to be replaced entirely, directly impacts the value of the deal and the planned synergies. To achieve integration from an IT standpoint, there are three fundamental things that every company needs to undertake: 1) IT must be used to understand the operation requirements of the business both during and after the merger 2) CIO’s must assess the entire company through IT lens to determine how they can and must support the integration of business units and corporate functions — finance, HR, operations, administration — along with any rationalisation of product lines and or services in those functions 3) IT department must generate a comprehensive list of IT objectives for all business lines. Those objectives are then prioritised based on risk, potential saving and available IT resources Once the fundamentals are in place, the next most immediate IT priorities are to integrate: 1) Financial Reporting Systems (due to risk of missing key reporting deadlines) 2) Field use systems 3) Corporate architecture from the two corporate platforms, which required members of both of the IT departments and their complementary skill sets In the end, the company must identify opportunities to rationalise resourcjanuary 2012

CFO india

21


TECH IN M&A es, capture the best practices and talent from both organisations, and imple­ ment the new operational capabilities it has sought. Once applications and architecture are successfully combined the IT department itself can be inte­ grated, which involve staff rationalisa­ tions, resource and talent management, operational capabilities etc.

How closely are the following areas/departments examined during due diligence in your experience?

100% 90%

05%

09%

15%

18%

23%

30%

37%

37%

42%

38%

38%

79%

54%

48%

40%

39%

42%

Finance

Operations

Sales & Marketing

IT

HR

R&D

16%

80% 70%

Role of IT in the complete merger lifecycle Every merger is unique, still all mergers go through the following three phases: Pre-merger Phase – The first step in merger integration occurs dur­ ing the due diligence phase, when IT helps develop an initial understand­ ing of all technological requirements and complexities due to the merger. This involves evaluating requirements within as well outside the IT depart­ ment itself. CIOs here need to develop a comprehensive understanding of the IT resources on both sides of the deal to determine how the two entities can fit together, what all possible syner­ gies can be found and where integra­ tion risks might lie. This involves a full census of IT infrastructure and plan for rationalising resources and eliminating redundancies in the department. Areas of analysis include: • Business impact, including regula­ tory compliance, risk management, and possible rationalisation of services or product lines • Hardware, software, and network systems • Enterprise platforms (e.g. ERP or CRM systems). Corporate programmes for specific lines of business, products, services and vendor platforms A very common pitfall in merger integration planning is to place more emphasis on the IT cost savings from integrating IT resources — and not enough on the IT requirements or new

60% 50% 40% 30% 20% 10% 0%

Very closely examined

Somewhat closely examined

business capabilities needed to bring the company’s other functions together or to support future growth. This occurs when executives from IT and the main business are not in alignment during the strategic framework, analysis, and design stages. Planning Phase or Ongoing Merger Phase – Given that IT resources are likely to be stretched thin during merger inte­ gration, technology leaders must take a systematic approach to ensure that these resources get deployed in the most effec­ tive way. When IT is looped into the pro­ cess of integration plan­ning early on, it can work in conjunc­tion with business teams to decide how best to prioritise projects. These priorities include • Ease of implementation, including technical complexity, resource demands (both personnel and hardware), and the degree to which certain projects are inter­ dependent with others

Not closely examined

• Expected business benefit, including potential cost savings and growth in revenue and/or market share Post-merger Phase – During this phase the key decision-makers need to identify and resolve integration issues across the merging organisations. This includes qualifying integration initiatives, outlining integration programmes, managing the communication between organisations internally and externally and continual leadership assessment.

Key drivers of an M&A integration Broadly there are three main drivers of an M&A integration — infrastructure, people and process. It is utmost important that a synergy be achieved in these three areas while doing a transition. It is recommended that a S.C.O.R.E.


TECH IN M&A approach be followed while planning and executing an M&A, with S – Simplicity C – Communication O – Organisation-first R – Rationalisation E - Effectiveness Simplicity – More often than not merging enterprises have different legacy IT applications and bringing together these in as-is creates a huge set, which becomes difficult for a controlling CIO or IT support staff to manage. The solution is to keep things ‘simple’. Transparency and standardisation in documentation is the key, which ensures that transitions are smooth and management of the now bigger-set of systems is easier. Communication – The failure story of many recent large merger attempts bear testimony to the most important component in M&A — cultural fitment. These differences may be experienced in ordinary dayto-day things like the local IT helpdesk responsiveness, payroll software, legacy ERPs, communication tools, etc., which together multiply the already present stress and add to failure of mergers. Companies undergoing mergers

usually have staff which resists adoption of new methods and technologies, usually seen at the acquired companies. They also have the anxiety of jobsecurity in the new merged firm and tend to leave for another job at the drop-of-a-hat, leading to a break in the transition plan due to a key cog not available in the entire machinery. During the acquisition phase there are also gaps in instructions and operations due to confusions in chain of command for the now-merged enterprise. Organisation-first – Before starting the process of the merger focussed plans and extrapolations must be made, with maximum tolerances counted in, for the post-merger entity. Both acquiring and acquired companies must make necessary adjustments in operations/processes to work towards the merged-entity. All decision-points must keep this in primary focus. Legalities relevant to Licensing and Partnerships with application vendors must be evaluated negotiated in advance for the merged-entity. During the Tata-Corus deal it was seen that both firms had the same legacy ERP, but their licensing rates varied for the same product owing to the difference

PEOPLE

INFRASTRUCTURE PROCESS

in rates for Indian rupees and the euro, with the cost for licence at Corus becoming significantly higher when converted to the Indian rupee from the Tata perspective. To foresee scenarios like this, it is pertinent that licensing rates be reviewed and negotiated well before execution of the M&A, and these being factored into the value realisation for the entire deal. Rationalisation – There might be instances wherein processes/innovations in IT might be more mature or better in an acquired company. In such events, the usual practice of imposing the acquiring company’s processes might not be a good idea. Instead a rational approach to building a common best practices median should be considered, even if roll-out might need to be phased over a longer period. A pragmatic approach to doing ‘only the needful for present’ may be advisable. During a 2009 legacy ERP consolidation at DuPont — with the parent corporation trying to unify all ERP systems, which till then were operating under different JVs, with independent standards, it was seen that many systems were on technology from decades back. However, during reorganisation these were all not integrated immediately, but a concerted effort was put in place by the parent company’s corporate governance body to make individual Application Owners comfortable with the corporate philosophy and then transitioning them in a phased manner into the central body. This move did not hamper productivity or compromise the value realised from the merger. Effectiveness – Effectiveness must be driven for IT integration from an M&A in transition time, cost, training effort and the post-merger follow-up. While from the CEO, CFO perspective a successful M&A requires primarily financial backbone, technology and process integration often sour the deal and the true potential of the M&A is not realised. However, if a planned approach around future M&A is in the paradigm, it is advisable to invest in january 2012

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TECH IN M&A

Master Data Management, Application Portfolio Management and such tools for own company well in advance. Having an agile and robust IT process in one’s company can be the touchstone for a smooth integration to happen. In addition to such models, a number of technology approaches are easing the burden of M&A execution and increasing the chances of success. Virtualization is enabling acquired business services environments to be virtualised on the acquiring company’s infrastructure. Service oriented architecture has also played a role by breaking down applications into transportable web services. Planning and execution of the IT integration resultant of an M&A needs to take place in a phased and granularly planned manner. The planning must begin with a detailed list of scope and due-diligence.

Top questions for CXOs involved in m&a Focussing on key issues gives access to value areas and improvements. Businesses need to ask themselves the right questions to identify operational risks as well as the integration challenges. Ap p l i c a t i o n a n d Te c h n o l o g y Architecture • Do you heavily rely on custom or proprietary systems or technologies? • Do you rely on technology to improve operation efficiency and gain competitive advantage? IT Infrastructure • Do you have many small data centres in several locations? • Do you fail to prioritize IT needs and assert that everything else is important? • Do you see IT as a service tasked simply to ‘keeping the lights on’ i.e. it’s a nice to have? Organisation and Governance 24

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Post M&A

• Chain of command • KLO/KSR • Hardware consolidation • System audits • CII • Preferential vendor

Integration Phase

• Training • Communication • Chain of command • Security management • Escalation path • Risk management

Pre M&A

• Due diligence • Project planning • Licensing & partnerships • Change management • Mobilisation • Data sharing

• Do you have a strong governance structure between IT and business? • Do you feel the need of strong IT governance in a fast-paced environment? Corporate Culture • Do you find it critical to build a uniform corporate culture? • Do you have a well-laid out communication strategy?

Conclusion: With IT playing an increasingly per­ vasive role in today’s organisations, successful merger integration requires close alignment of IT and business throughout the lifecycle of the M&A process. The goal should be to identify the synergies. After deciding which technology is best, companies should look at the critical data from a higher level architectural perspective. The last area to focus is the organisation structure — merging the acquired team into the existing IT department or function. Unless the acquired company will be a standalone entity, most organisations will have only one leader, so it’s important to rationalise and identify synergies among staff. Estimating how many people will be required incrementally on your team by assessing both skills and workloads. Keep in mind that there will be a period of time where retaining the acquired team will be critical. CIOs and CFOs have an important role in preparing businesses for inorganic growth approaches. A CIO with deep understanding of business functions and how IT is supporting them will be an invaluable resource in supporting an acquisition strategy. The author is Partner, Advisory Services, E&Y. The views expressed here are personal


cover story

Cloud in 2012

SOCIAL MEDIA

MANAGING MOBILITY

Cloud The

Transforms Business

GREEN It

DATA STORAGE

Cloud is not the future — it’s now. It’s an enabling force for business evolution, allowing organisations to more efficiently re-engineer the company’s corporate strategy. For transformative power, the new model is blue — as in ‘sky’ Mark A Goodburn and Steve Hill

T

he cloud has reached an important inflection point that is impacting corporate strategy and changing business models. Organisations that recognise and are able to effectively manage risks around cloud will create a sustainable competitive advantage. Years of technological advances have allowed the internet to become a viable backbone for ‘virtualized’ technology. The information technology community is well aware of this shift and has largely driven the discussion about cloud and its impact on IT.

Less prevalent has been discussion about the much broader impact cloud is beginning to have on business. Make no mistake about it, with the virtualisation of technology comes the virtualisation of business applications, processes and services. In effect, it means the virtualisation of an organisation. This shift is profound and is poised to have a transformational impact on business models and core drivers of competitive differentiation. The cloud allows large organisations to move away from managing their own data centres to focussing their attention and their resources — financial and

human — on their core competencies. Smaller players see the dynamic implications of a future unrestrained by the need to build extensive IT infrastructure. Cloud is bringing about transformational change in value chains, enabling companies to respond much more effectively to customer demand. Cloud networks are evolving, linking companies through complex, multiparty processes into single, virtual organisations. As with any transformational shift, technical and operational hurdles need to be overcome. Data security, privacy and a host of other issues must be fully considered, and the right balance between these january 2012

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Cloud in 2012 risks and performance must be achieved. Still, at a time of economic recovery, when organisations are seeking new paths to growth, both business and government leaders must seize this ideal moment to think hard about the possibilities a cloud operating environment presents.

What is Cloud? Cloud is a business imperative. It is more than just virtualised technology. It’s an amalgamation of many years of technology innovations and development that has evolved into a model for enabling convenient, on-demand access to a shared pool of virtual computing resources, including networks, servers, storage, applications and services. Cloud includes business services (applications) deployed and maintained over the internet on a pay-as-yougo basis. It provides agility like never before, taking people and latency out of systems, thus allowing companies to adopt new systems in days or weeks, rather than several months or years. Cloud service providers generally use

one of three cloud service models: Software-as-a-Service (Saas) — business operations over a network; Platform-as-a-Service (PaaS)  — deploy customer-created applications to a cloud; or Infrastructure-as-a-Service (IaaS) — rent processing, storage, network and other computing resources.  Cloud deployment models for organizations moving to cloud environments include: Private — a ‘closed’ environment for a single organisation hosted by a third party; Public — a shared environment used by many organisations; or Community  — perhaps the most interesting and potentially transformational of the three, which involves an environment shared by many organisations in particular industries, by geography, along similar supply chains or otherwise connected. In the community cloud model, agreed-upon rules establish cooperation between suppliers, providers, customers and the value chain that can become paradoxically businessenabling. This is where the rubber real-

ly meets the road, and provides opportunities for business models to  change. It’s when involvement becomes not just a competitive advantage for those who join but a competitive imperative for similar organisations that hope to compete over the long-term.

What’s Driving Cloud Adoption? Shifting business models and the numerous cloud alternatives available to organisations are accelerating the adoption curve. Today, through business process outsourcing, a company can leverage an almost unlimited range of resources and business processes from any location. The cloud operates on a similar principle and has much the same advantages. Like other forms of business virtualisation, it offers large-business capabilities and processes at relatively low cost. Cloud allows a start-up organisation to access the same technology infrastructure and support as a Fortune 500 company. It permits a company to access all its information technology

On-demand self-service Usage-based billing

Cloud Environment=

Internet-based data access and exchange + Internet-based access to low cost computing and applications

Cloud Environment Characteristics: Internet accessibility

Elastic capacity

Pooled resources

Understanding the Cloud Operating Environment Cloud Service Models

Cloud Deployment Models

Platform-as-a-service

Private: Operated for a single organisation Public: Available to the general public or large industry group owned by an organisation selling cloud services Community: Shared by several organisations

Software-as-a-service Business operations over a network SaaS

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Infrastructure-as-a-service

Deploy customer-created Rent processing, storage applications to a cloud other computing resources PaaS

January 2012

IaaS


Charu Dwivedi

Cloud in 2012 services as if it were plugging in to the electricity grid, paying for exactly what is needed, when it is needed. The comparison between the advent of the cloud and the development of the electric utility grid is worth exploring. In the early years of industrialisation, if power was needed to run a business — whether water or steam — the business had to locate near the power source. Then, in the early 20th century, came the utility grid. Businesses could now operate from almost any location, tapping into that virtual power source only when it was needed. Cloud similarly allows technology to be accessed as a utility, creating a lean and mean virtual enterprise positioned wherever customers need to be served in the marketplace. This means industries highly dependent on maintaining huge IT resources to accommodate seasonal spikes in activity — the retail industry, for example — no longer have to have their IT servers sitting idle year-round waiting for the run-up to the December holiday season. That is the cloud’s promise to business. This ability to ‘plug in’ to IT services via the cloud opens up many, often transformational opportunities, well beyond technology efficiencies and cost savings. Among the opportunities: • Cloud makes it easier to deploy solutions or to combine enabling technologies in response to changing market needs. Cloud environments often have thousands of applications built to quickly meet specific needs, and many of these applications are built to be integrated. • There are also many applications that companies can ‘try before they buy,’ letting them be more experimental in their approach to solving complex problems. • Cloud increases speed to market, reducing or eliminating information latency, a devilish issue common to conventional value chains. With no latency, companies can reduce product development cycle times and rethink key processes, especially in planning,

CLOUD IMPACT ON BUSINESS

Cloud Environment=

Internet-based data access and exchange + Internet-based access to low-cost computing and applications

Virtualised Technology

Virtualised Organisation

Virtualised Processes 

Opportunities to leverage commoditised enterprise applications and economies of scale

Speed to market

Virtualised Business Models Improve Reduce invested working capital capital

fulfillment and promotions. • Cloud platforms make it possible for organisations to leverage the collective mind-share and development efforts of the extended cloud community. In this way, everybody benefits from advances made by others in the cloud. • Cloud cuts IT costs and fundamentally changes how IT services are funded, shifting IT spending from a capital expense to an operational expense. This move from capital expenditures (CAPEX) to operational expenditures (OPEX), from a fixed cost to a subscription-based model, can have significant implications on procurement. • Cloud has proven itself an effective tactic for achieving greater efficiency

Reduce SG&A Reduce cost of goods sold

in applications ranging from email to photo storage to web hosting. Consider that those who use an email service, such as Gmail, are utilising a cloud service. In the last year, many public and private organisations have adopted cloud operating environments, changing dramatically the way their technology is deployed, accessed and managed. For example: • A large American city, in one of the most extensive migrations of its kind, is shifting 34,000 employees from an onsite email system to Google’s cloudbased email system, making a muchneeded cut in the city’s operating expenses and providing strategic flexibility for its planning. january 2012

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Cloud in 2012 • The US federal government launched a cloud computing storefront (www.apps. gov) that provides agencies with one-stop shopping for cloud services. In addition, it has recently launched a programme to promote cloud standards in areas like security and data portability. •Two major retailers have successfully piloted cloud-based, point-of-sale replenishment solutions to connect the store shelf to their upstream supply chains. These private supply networks allow suppliers, transportation carriers and retailers to simultaneously operate on a single platform to balance supply and demand from shelf to manufacturing. Results have been significant, with chain-wide inventory reductions of near 50 per cent, as well as a 30 per cent improvement in out-of-stock performance. • A large technology company wanted to move to a demand-driven supply chain and needed a way to quickly connect all of its customers, suppliers and manufacturing facilities in one ‘lean rope’. The company opted for a cloud supply chain platform and was up and running its core processes across all partners in less than six months. The platform has helped reduce overhead by 50 per cent, doubled inventory turns and improved replenishment cycle times by more than 50 per cent.

Social Connectivity ‘Virtualisation of a Nation’ In addition to business process improve-

ment and cost savings, cloud also enables people to be connected to governments, businesses and each other in new ways. This connectivity, linking customers and with them their data, provides opportunities for driving new levels of intelligence around consumption. This is especially true in Asia, where companies and governments are making huge investments in the cloud. One major analyst projects total spending of about $55 bn between now and 2014 — a 27 per cent growth rate. By comparison, according to another analyst, spending growth in the West is now about 2.5 per cent. In China, cloud is seen as a solution to providing cost-effective internet services to the masses, both businesses and consumers. The virtualised nature of cloud is particularly appealing as an opportunity to leapfrog some of the IT infrastructure hurdles China faces in its efforts to bring computing to its billion-plus population. With the majority of the China population not having access to personal computer environments, the use of applications targeted for mobile use would allow greater access to basic services such as messaging and information. With more than 800 million mobile phones already in use in China, analysts predict that by 2015 the smartphone market in China will include 50 per cent of all mobile phone users in the nation supporting this strategy. China’s ambitious attempt at the ‘virtualisation of a nation’ has been

bolstered by significant investments from western technology leaders such as Hewlett-Packard Co, IBM Corp, Microsoft Corp and Oracle Corp. But the bulk of investment is coming from China’s domestic market, where China Mobile is investing $58 bn over three years — a level of investment and related infrastructure development outpacing those in the West. Fuelled partly by the need to improve legacy communications infrastructure and due to the sheer vastness of the China nation, this level of investment addresses the full stack of technology and management associated with delivering a large-scale cloud infrastructure. In addition, China’s domestic software development industry sees the cloud as a route to markets it has not yet been able to reach. By having access to enterprise-ready environments without the set-up costs usually associated with such efforts, small and medium-sized software providers will be able to offer their applications and services to the increasing number of multinational corporations looking to invest in the region. Though it’s unlikely that China will reach the market values of the US in the short-term, some suggest it is possible that China will produce software service providers equal in scale to Salesforce.com within five years.

Cloud Requires Strategic Business Approach

Cloud allows technology to be accessed as a utility, creating a lean virtual enterprise positioned wherever customers need to be served. This ability to ‘plug in’ to IT services opens up transformational opportunities 28

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Cloud in 2012

Current AdoptionMaturity

Adoption of Cloud Deployment Models

When managed properly, cloud should improve the risk profile of a project. Cloud technologies generally take less time to deploy than traditional technologies, and process design is generally more iterative and more efficient as well. Lower costs, combined with quicker time to value, generally equals lower risk — especially if vendor incentives are carefully aligned and managed and service-level agreements tightly enforced. However, change on this scale — often involving core assets — naturally requires a hard look at the technology and operational risks organisations will continue to face as they adapt to a cloud operating environment. First, it’s important to recognise that even a relatively small shift to the cloud is the beginning of a large strategic change for an organisation. Companies making the shift need a governance model and strategy for evaluating, selecting and deploying cloud technologies, no matter how ‘insignificant’ those technologies appear to be. It also means, from the outset, the organisation’s board of directors and senior leadership must be involved in the decision-making process. A company that shifts IT services and other processes to a cloud environment is, in essence, redesigning its infrastructure. At what point does this process reach an inflection point, making it ‘good business’ to transition from existing infrastructure to a cloud-based infrastructure? What does that mean to the larger business model and strategy? There is also a large changemanagement dimension, as a move to cloud will invariably bring about shifts in corporate culture.

Opportunities

Deployment Model

Private

• Opex reduction • Capex deferral

PUBLIC

• Opex reduction • Capex deferral • Speed to market Public

COMMUNITY

• Opex reduction • Capex deferral Private • Speed to market Community • New value chains

Cloud also has significant tax implications. The physical location of a company’s information can come into play, as can the location of a company’s servers. The exact flow of a transaction will need to be monitored to determine which government entities have taxing authority over the transaction. At the state and local level, cloud service providers must understand fully their sales and use tax collection responsibilities. If not addressed, these issues could expose the businesses to significant sales/use tax liabilities. Maintaining data security and privacy is of course a huge consideration as organisations move to the cloud. Cloud owners and service providers will have unprecedented responsibilities and control of vast amounts of data, resulting in the need for robust new data security and privacy protocols, policies and service delivery models. Companies utilising cloud internationally will also need to focus on regulatory compliance issues. Data privacy is a serious issue in Europe,

for example, and in the United States, the Patriot Act makes privacy an important concern as well. Each of these issues present varying levels of risk for organisations moving to the cloud, and the real challenge will be in making a well managed transition so an organisation realises the full benefits, while retaining optimal transparency, compliance and assurance controls. These and other matters around cloud require deep consideration among an organisation’s technology and business leaders. Ultimately, cloud is about corporate strategy and business leadership. Organisations that understand how to manage the risks and take advantage of business virtualisation will create sustainable competitive advantage, excel at creating new types of value chains and better leverage the value of globalisation. Mark A Goodburn (mgoodburn@ kpmg.com) is vice chairman and head of Advisory for KPMG LLP. january 2012

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cfo

Profile

SUNJOY PODAAR

Joint Executive President, Finance & Commercial UltraTech Cement

Cementing

UltraTech’s Growth Story

He gave up a 10-year-old practice to join the AV Birla empire 16 years ago. Now Joint Executive President of its cement business, Sunjoy Podaar is focussed on making UltraTech India’s most preferred cement brand with a third of the market share Dhiman Chattopadhyay

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When Sunjoy Podaar chose to step outside his family’s textile business, the first person to do so in three generations, more than a few eyebrows were raised. Growing up in small town India (he spent his first 30 years in Muzaffarpur in Bihar), Mr Podaar had the choice of taking over the reigns of the family empire. Instead, he chose to do his chartered accountancy course and started his own practice in Muzaffarpur. “That was way back in 1987. But after a decade I realised that the political and economic circumstances were no longer conducive to business; I would not be able to go up in life unless I moved,” recalls Mr Podaar. So in November 1996, after 10 years as a practicing CA, he took up his first job at Grasim and was posted in Raipur. “It was the first time I had stepped out of home to work on a longterm basis,” he recalls. More than 15 years later, he remains with the same parent company —


Milestones FIRST JOB Practising CA BIG BREAK Becoming the India Commercial head for marketing for UltraTech in 2005 A HA! MOMENT Receiving the ‘Chairman’s Individual Award for Exceptional Contribution’ in 2011 LITTLE KNOWN FACT I write rather good parodies DREAM To get UltraTech to capture 30 per cent market share

january 2012

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cfo Profile now as Joint Executive President, Finance & Commercial at UltraTech Cement, part of the same AV Birla empire. Over the next decade, Mr Podaar worked and lived across India as his wife and child travelled with him. First came the posting in Kolkata as Regional Commercial Head (1997) and then in July 1999 he moved to Bangalore as the Zonal Commercial Head for the entire southern region. “By this time though I wanted a change in job role. Luckily, around 1999 the AV Birla group underwent a restructuring exercise. A new cement business unit was carved out and the cement divisions of both India Rayon and Grasim came under one roof. Suddenly my responsibilities doubled,” he recalls. Still, the ambitious and restless spirit of this boy from Muzaffarpur refused to give in. He wanted a bigger share of the pie, a larger responsibility and job role. So in 2004, he moved to Delhi as the Zonal Commercial Head of the much larger Northern Zone. “Around this time we acquired the cement business of L&T and I suppose my experience across different zones made me a top contender for a bigger role,” he laughs. Sure enough in December 2004 Podaar became the All India Commercial Head, Marketing for UltraTech Cement and moved to the company’s headquarters in Mumbai. The gypsy life had finally ended and he had reached his destination — India’s financial capital, the Maximum City. “Mumbai has been home since 2005. In 2007, I briefly moved to the ready-mix business of the company since it was at the take-off stage and I was given the task of systemising and managing the commercial side of growing the RMC business,” he says, the pride unmistakable in his voice. His success at achieving this near-impossible task along with his team, was rewarded when he became the National Commercial Head (Marketing) of the cement business of AV Birla group in 2009 with a designation that read: “Joint Executive President, Finance & Commercial, UltraTech Cement.” Life since then has been challenging to say the least, but more often than not, under his commercial management, UltraTech seems to have come up on top. “The last year in particular has been challenging with increasing focus on customer satisfaction in a tough market. The cement industry as a whole is going through rough times,” he says. 32

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Favourite

Picks

NEWSPAPERS ET/Mint/DNA MAGAZINES Outlook Business; HBR FILM Chupke Chupke

BOOK License to Live by Priya Kumar HOLIDAY Goa ICON No one in particular

a practising ca, Podaar’s career saw a steep upward climb after he moved out of muzaffarpur to work in the corporate sector

Yet, he feels that UltraTech’s decision to focus on customer service has paid rich dividends. “A recent survey of cement dealers revealed that we are not just way above the industry average but better than all our rivals when it comes to matters such as issuing credit notes, timely solution of queries, invoicing and accounting practices. I consider this a genuinely noteworthy achievement in a tough year,” he says. That UltraTech’s bad debts and outstanding too are now firmly under control (for the 2011-12 period), is a measure of how good this year has been for the organisation. Podaar thanks “a robust credit management


cfo Profile

“The last year in particular has been challenging with increasing focus on customer satisfaction in a tough market”

policy” for this success. Looking back, Mr Podaar feels fortunate to have worked in an organisation that sincerely believes in ethics — something he is himself very keen on. And it is this path — that of working with honesty and integrity — that he feels will take his organisation to greater heights in the years ahead. “My mission is to help UltraTech become the preferred supplier of cement to dealers and be known for the quality of our products. By 2014, I hope we can capture a 30 per cent market share, up from the present 19 per cent,” he adds. Doesn’t he worry about rivals trying

below-the-belt tricks to unsettle dealers or other problems which the cement industry is often beset with. “I prefer to see the good first and the bad later. There are some people whose trust you have to win. In my case, you have to break my trust. Otherwise I trust you,” he sums up, smiling back, making us wonder how someone can reach such a state of calm and almost-nirvana in a world full of stress. As if guessing our thoughts he says, “It’s not that I am forever at work you know. I love playing squash and spend a lot of time with my family whenever possible — watching films and reading books.” In his youth, Podaar would

play a bit of cricket and football too, excelled in tennis which he played for his college and table tennis in which he represented his school. Today, like a true C-Suite exec, squash is his game. A keen Rotarian he also loves to travel, whenever time permits. As we close our interview, he lets us in on another gem, giving us a fresh insight into this able finance leader and how he keeps his calm in turbulent times: “When I get stressed I like writing parodies of popular poems and songs,” he laughs. With a role change coming his way soon, one can only expect better things from this young-atheart man from Muzaffarpur. january 2012

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in practice

SUSTAINABLE GROWTH

“If the CFO and CEO are not engaged...the process will break down” Lauralee Martin, Global COO and CFO, Jones Lang LaSalle, speaks about how carbon measurement in India Inc is still a work-in-progress and the role CFOs can play in ensuring reduced emissions in their organisations Dhiman Chattopadhyay

B

oth at a corporate and at an individual level we need to reduce carbon footprints. But what are the biggest hurdles to this in a country like India? Is it lack of willingness on the part of companies, a feeling that as a ‘first mover’ they may lose out unless others follow the same green norms? Or, is it lack of proper regulations? Awareness of carbon footprint measurement and reporting varies widely in India. At one end of the spectrum, some corporate occupiers and building owners aggressively monitor, measure and report their carbon emissions, while on the other end are owners and occupiers who are not sensitive to such issues. The Government of India has formulated acts and policies revolving around sustainability issues such as the Energy Conservation Building Code (ECBC) and the National Action plan for climate change (NAPCC), and has drawn up 34

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— Lauralee Martin COO & CFO, Jones Lang LaSalle

plans to make energy audits mandatory, to encourage renewable energy, and other measures to reduce carbon from buildings. We expect it will take a while for state and local governments to enact and enforce these laws, and that’s when we will see more consistent compliance. Around the world, we see the best results on energy and sustainability when city governments and local private stake-

holders are engaged. Often, countries are so geographically and demographically diverse that different regions have much different priorities, and it becomes difficult to create a single strategy that works for everyone. Carbon reduction is a global issue — if one country reduces carbon emissions and another country increases them, then we have made no progress. Carbon emissions come mainly from consumption of oil, coal and other nonrenewable fuels, and cities need fuel to maintain and grow their economies. Luckily, energy efficiency not only reduces carbon but also reduces costs, improves local air quality, enhances energy security and helps preserve land and water habitats — all of which help local economies and drive corporate performance. CFOs have an important role in making this work. The process of monitoring, gathering and reporting data on energy, water, carbon and waste requires participation from every part of a company. If the CFO and CEO are not engaged, department leaders won’t be either, and


in practice

Charu Dwivedi

the process will break down. Also, the finance department has a system in place for measuring and reporting financial performance, so it’s the logical place to manage carbon reporting. In the real estate sector where you come from, what are the best practices worldwide? Can the Indian real estate sector work towards reduced emissions? Some countries are more advanced in addressing energy and sustainability issues than others, but it is hard to say one regions practices are better for everyone else. It’s a balancing act between nearterm resource needs and the recognition that we can’t go on depleting those resources forever. That balance is going to be different in different places. There are some concepts that hold true everywhere, though. Greater transparency almost always will lead to greater awareness and ultimately better practices. Having a consistent framework is also important, which is why we favour organisations like Greenprint Foundation and the Carbon Disclosure Project Cities programme that can help provide a common ‘language’ for sustainability. Our business is commercial real estate, where the common language often centres on LEED. There are many ways to enhance energy and sustainability in a building, and some of them may be better for the environment than LEED certification, but LEED is an easy way to recognise a building as green. LEED started in the USA but is now recognised in dozens of countries, including India. The Indian Green Building Council (IGBC) administers LEED in India, where more than 63 million sq ft of space has been certified and owners of another 800 million sq ft have started the certification process. There are also Energy Benchmarking Standards in India. To compare commercial buildings on various indices derived from energy use data of a sample set of

“Measuring and reporting the data doesn’t directly reduce carbon, but it reveals who is and who is not meeting their goals, just as financial reporting tells us where we stand on revenue and profit goals” more than 860 buildings. These provide a transparent and verifiable standard to benchmark the energy performance of buildings. How will some of these steps help reduce carbon footprints? Ultimately, reducing carbon is about reducing energy consumption, or shifting to non-polluting energy sources like solar and wind. Reducing energy is something everyone can do. Workers can power down their computers at night. Building managers can operate heating and air conditioning systems more effectively. Building owners can invest in automated systems that help

buildings run more efficiently. Corporate leaders can invest in teleconferencing systems to reduce the need for air travel. Cities can create incentives and mandates to encourage efficiency. You need to have engagement at all these levels to achieve real success in reducing carbon emissions. The proper role of the CFO is to ensure that engagement occurs at all levels of the organisation and in every department. Measuring and reporting the data doesn’t directly reduce carbon, but it reveals who is and who is not meeting their goals, just as financial reporting tells us where we stand on revenue and profit goals. january 2012

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in practice

technology

TOP TECHNOLOGY TRENDS OF 2012 With tumultous times comes the need for innovation. We look at a few key trends that are here to stay and take enterprises to the next level of agility and profitability. We explored some of these trends in detail and spoke to those who have already taken the first step and benefitted from such technologies. Here are some emerging trends and the implications they can have on your enterprise ANKUSH SOHONI

Cloud Computing

The usage of public cloud will increase in 2012

T

he last two years have seen a lot of hype around cloud computing. Although this trend has been around, it is only now that we are seeing it permeating into the enterprise. Many CIOs have been apprehensive about this technology, and for good reason. Issues ranging from security to ownership of data and SLAs, have in the past thwarted implementations of this technology within enterprises. Today, however, more and more CIOs are looking to the cloud and are either piloting or implementing it within their enterprises. Consequently, the year 2011 has seen more mission critical applications being put on the cloud as compared to any previous year. 36

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“Although cloud computing as a concept started long back, it is only now that it is understood well by all. The early adopters have gone through some good experience and all appear to be satisfied now. As a first step, typically, organisations put non critical applications on the cloud. Portal applications, PMS, etc., were the targets. The cloud is now beyond the initial hype as well as fears. The mission-critical applications however will stay away from the cloud till a few more years,” says Milind Joshi, Sr VP, IT Services, Essar Information Technology. “Through 2012 and beyond, usage of public cloud will certainly increase.  We will see the models — infrastructure as a service, software as a service become more prevalent. We already see infrastructure providers dipping their toes into services like disaster recovery on demand. There are third party cloud based Indian service providers who provide payroll with all its complexities

peculiar to the Indian environment and other HR related functions.  CRM as a service has been a staple for a while.  ERP as a service is already available,” says K Mukesh, CIO, Tata Sky. Tata Sky has itself been an avid user of the cloud for the last few years and it has converted the organisation into a believer in the capabilities of the cloud. According to Mukesh, the set-up cost of cloud-based services tends to be very attractive. When it comes to flexible capacity management with a very robust infrastructure, it would be hard to beat cloud providers. “Over a period of time — from a cost standpoint it is not entirely obvious that cloud trumps in-house data centres.  Security concerns are unlikely to disappear any time soon. The single biggest reason for moving to public or hybrid cloud is the pathetic state of available infrastructure — be it reliable power supply — or simply a road wide enough to allow a fire engine to approach the


in practice tion, however, would be increased adoption of the public and hybrid cloud.

Challenges in Adoption

“As a first step organisations put non-critical applications on the cloud...The cloud is now beyond the initial hype as well as fears” —Milind Joshi

JITEN GANDHI

VP, Essar, IT services

facility in case of fire. The second reason, cost and availability of real estate to build a robust data centre, is not easy. So there would be trade-offs involved,” says Mukesh. For large enterprise that have significant sunk costs in infrastructure and human resources that are comfortable

managing infrastructure in-house, the adoption would be slow. They are more likely to opt for private or hybrid cloud. As large enterprises run out of processing capacity or get to a point where they need to replace some of their systems — cloud will be an option that would be considered by many. The overall direc-

Although cloud adoption is on the rise, there still exist obstacles that can come in its way. According to Joshi, “To begin with, the business case for moving applications to cloud environment can be quite unclear and requires solid business backing. Another issue is that of standards. Standards are not defined in terms of service levels and expectations are not set. Also, adding to this processes are in terms of taking data to cloud, and more importantly taking the data out of cloud, are undefined. The legal frameworks for security and ownership of the data are just getting formed, and thus, leave a large scope for improvement. Joshi adds, “The bizarre thing here is that while the application and data are hosted in the cloud, CIOs are in a very unique position of not being in a direct control of the situation, while they are fully responsible for performance, security and uptime on the cloud.” Mukesh suggests, “CIOs should, at the minimum, dip their toes should there be a compelling need to do so. Further, given that most CIOs do not face the challenge of upfront capex, this would help in reducing lumpy cash outflows. He adds, “It is always a good idea to be friends with the CFO.”

Going Forward Although a lot of enterprises are implementing the cloud, there is still quite a long way to go in terms of making this a standard within most organisations. While public clouds will serve SMEs and the non-critical business applications for larger enterprises, hybrid clouds will still be the dominant force in most large enterprises. Milind Joshi, leaves us with some recommendations to make sure smooth delivery when it comes to the cloud. january 2012

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in practice “Make sure that cloud services providers are chosen based on their maturity of processes and security of data. Go through the fine print of the agreements very carefully especially for consequences for breach, termination procedures and most importantly the ownership of the data on the cloud,” he says. “Be aware of the fact that providers can attract with lower prices now but when you get in to their clutches, they can increase the pricing or make pricing model changes which are very costly in the long run. Cap the pricing for long term now in the agreements to avoid problems later. Make sure that the data storage locations are safe and proper DR is planned,” he adds.

Social Media

Enterprise will increasinly leverage social media to improve communication, and productivity

S

ocial media is emerging as a big trend today. More than anything else, this technology is breeding ground for ideas that enterprises can use to improve communication, collaboration, innovation and productivity. Social media and tools can often be used by enterprises in many innovative ways. Since there is still no assured way of measuring success, social media generates a lot of apprehensions. But in our view, the best is still to be seen in this space. CIOs are just beginning to play around and understand this space. “Most CIOs we’ve met and spoken to about social media seem somewhat lost. A commonly heard statement — We have deployed all the necessary technologies and built the framework, but don’t know what to do now. This is a sign that they are currently missing out on certain aspects of social media and what it can do,” says Mark McDon-

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“Most Indian CIOs have all the social media technologies present, they don’t know what to do to get results” —Mark McDonald GVP, Gartner

ald, GVP & Gartner Fellow, Gartner. Meanwhile, GN Nagaraj, Tecnology Strategist and Consultant tell us a little about the key difference between organisational behaviour and social behaviour. In his view, there is that although social media is very important for organisations, it is the lack of structure that causes issues when try-

ing to understand the business value behind it. “There is no second opinion about the fact that most corporations have taken a very serious note of the existence of social networking sites and are keen to explore what it means to them and for their respective businesses. Everyone agrees that it is a new ball game and no one really is an


in practice authority. Everyone is learning,” says Nagaraj. According to him, while organised business is built on a hierarchy, where the various components of the organisation are inclined to work towards the goals of the organisation as a whole ;focus in this case is on core business. Here everything is measured, KPIs are set, and short term and long term goals are established. ”When you compare the above with the social media universe, you have the other end of the spectrum, where information is unstructured, unorganised, and completely contextual to a certain opinion, topic or conversation. Here, there is no end goal, or KPI so to speak. People are free to post on topics that excite them personally,” he added. Nagaraj further adds that the inhabitants of the corporate world and the social enterprise, even though most people play in both worlds, exhibit behavior at extreme end of every spectrum in each of these worlds. In such a scenario, does the enterprise culture and way of life come in the way of an enterprise participating in the social networks?  It should be noted that most corporate employees are voluntary participants in a social network too and behave in a completely different manner on these networks.

Challenges There are many challenges facing the CIO primarily in understanding how to utilise social media and strategise in the right way. “There needs to be a way in which enterprises can utilise social media, by adding structure to it and build a funnel of information. Social media can be utilised to boost commerce and create immense brand value. From the commerce perspective, social media is a way where enterprises can interface with their consumers through social networks so as to have access to highly focussed sets of information, guidelines perhaps of how to

go about building their products for their customers; knowing their likes and dislikes,” mentions Nagaraj. There are primarily two ideologies that are currently floating about when it comes to social media. One as described above looks at social media and networks as an opportunity to reach a focussed set of people. The other looks at social media as a tool to achieve mass collaboration. According to McDonald, social media is a tool that can lead to mass collaboration. In this kind of ideology, the important thing is to use social media to drive a certain train of thought or derive useful information from a group of connected people. “The common mistake that is made, and is therefore a challenge, is the fact that most Indian CIOs we have met and spoken to have mentioned to us that although they have all the social media technologies present, they don’t know what to do to get results,” explains McDonald According to McDonald, any kind of mass collaboration effort using social media needs to have purpose. One has to have a clearly defined goal which defines what the organisation wants to achieve with social media. If this goal, or this basic structure is not added, the whole effort can flop. “I always read so many articles expressing that a lot of people don’t understand the business value of social media. But one of the things we learnt about social organisations is that you cant calculate the business value in this kind of effort,” explains McDonald. Sometimes it becomes difficult to convince the top management about social media and a lot of it has to do with the lack of definition of the word ‘structured’. Leaders and managers will need to be shown a basic structure in terms of a purpose. Once this purpose is in place, everything that one does naturally conforms to this structure, and revolves around this purpose. When

it comes to leaders of organisation the idea is to ensure the activity is managed so when progress is being monitored one has an idea of where it is going and what kind of results are shaping up.

Mass Collaboration According to McDonald, the thing that CIOs need to be chasing is the purpose. To give an example, he talks about how a company called Cemex utilised social media to see some pretty innovative results. Cemex is a global company that makes cement. They decided to use social media to deploy their strategy in 2010, through a campaign called Cemex Shift. The purpose was to make the company more environmentally responsible. Cement companies are tremendous traders of carbon. In order to reduce its carbon footprint, Cemex decided to burn biofuel in their factories as opposed to oil or natural gas. The entire idea was to increase the use of alternative fuels. This is what Cemex did in five weeks: They formed a community of 500 people that were from across the company and defined what they meant by alternative fuels. The community came up with a definition. They took this definition and analysed 186 of their plants around the world against that definition. What they then did was define the top two performing plants and held webinars of how these two plants were working and documented these best practices on video while deploying that video across their company. As a result of this exercise, Cemex saw a five percent increase in the usage of alternative fuels in the company. Now traditional processes which say I need to look at this in a top down approach estimated that it would have taken 18 months to do the same amount of work. That’s the power we are seeing people being able to achieve! january 2012

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Case

Study

Project Map The challenge: Setting up financial controls and processes at Accutest and bringing in greater focus on growth TIMELINE: 2007-2010 People Involved: Top management as well as various unit heads Key Takeaways: Understand the business to focus your ideas better Be upfront and honest in communicating thoughts

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Case Study

A

Test of Leadership and Character In the past four years as CFO of Accutest Research Laboratories, Pramod Dubey has taken on the challenge of setting up financial controls and processes within the organisation and successfully channelising the company’s focus towards profit-oriented growth Dhiman Chattopadhyay

JITEN GANDHI

I

n 2007 when Pramod Dubey j o i ne d Ac c ut e s t Re s ea r c h Laboratories as its CFO after heading finance at Camlin, he had a fair idea of what he was getting into. Having worked in established mid-sized organisations for over a decade, Accutest, he realised, would pose a new kind of challenge. To begin with Contract Research Organisations (CRO) are a relatively new industry in India and so, raising capital is often tough for a sector where PE funds cannot always look at past records of similar CRO firms — one of the ways in which they judge whether investing in a business is worth it or not. The brief to him from the founding directors — Dr Satish

Sawant (CEO) and Dr Santosh Joshi (COO) was clear — the CFO would have to scale up operations. Secondly and more importantly, the company itself needed to undergo an attitudinal transformation.

THE CHALLENGE Set up in 1998 by technocrat duo Dr Sawant and Dr Joshi, Accutest had done reasonably well to become a 20-crore company in the first decade of its existence, but it was clear that the growth rate was slow. Finance would have to play a key role in taking the company to the next level, drive growth and at the same time, ensure that rapid growth did not adversely affect the bottom line.

“Simultaneously while I was meeting investors to get a new PE on board, I was also meeting the promoters and the top management on a regular basis. The company had so far focussed on quality and investing in infrastructure but it was very apparent that financial planning, budgeting and forecasting were areas they had not really looked at. Nor were there proper financial reporting systems and processes in place. My first job was to streamline the finance function and put systems in place,” Mr Dubey recalls. It was not an easy job by any means. Apart from the usual doubts and suspicions that creep into any team when any ‘change’ is ushered in (particularly if it means new regulations, rules and january 2012

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Case Study

“It took Accutest almost a decade to reach 20 crore revenues but just four years after that to touch the 100 crore mark. Hopefully in the next few years we will be looking at even greater numbers”

rationalised and controlled. “Issues such as revenue generation, ideas for growth, etc., were not always seen as part of a CFO’s job role. Luckily again, the management soon realised that the CFO’s role had changed globally as well as within India, from being a glorified accountant to a partner to the CEO who also looks at growth, revenues, risk management and human capital issues,” he says. Within months of his joining therefore, Mr Dubey had met all operational and unit heads, set up the MIS platform, set in place budgetary controls for each department and instituted a cost-control committee to monitor expenditure. Soon, even forecasting became an accepted practice at Accutest, helping the company budget and plan for potential growth and revenue generating opportunities in the following few quarters. One measure of his success: Accutest managed to get a new growth-focussed PE on board in 2010 (the PE now has a majority stake in Accutest), thanks to Mr Dubey’s negotiating skills. And that the promoters had enormous confidence in his abilities was proven when he was recently given additional charge of a Joint Venture operation that Accutest runs in Mexico.

LEARNINGS processes), even the top management needed convincing about the benefits of setting up controls. “I had to impress upon my senior colleagues that while controls, budgeting, MIS and other processes could sometimes slow down the pace at which decisions were implemented, it would also mean a more efficient risk management system, checks against impractical plans and in the end — a healthier bottom line,” he says.

HOW IT WAS TACKLED Fortunately for Mr Dubey, both the top management and the operational heads of various business teams were soon convinced about the benefits that financial controls and systems would bring 42

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in. “The proof of the pudding is in eating it. And what better proof of the benefits than in numbers,” says Mr Dubey. Despite the slowdown of 2008-09 Accutest has shown a CAGR of over 30 per cent between 2007 and 2011, touching revenues of 100 crore in 2011 while improving its bottom linessignificantly. “It took Accutest a decade to reach 20 crore and just four years after that to near the 100 crore mark. Hopefully in the next five years we will be looking at even greater numbers,” he says. Another area on which Mr Dubey had to work was the somewhat traditional mindset of the top management. For instance, his initial brief (apart from raising funds) to ensure that costs were

Turning around Accutest’s fortunes from a finance point of view has taught Mr Dubey a few valuable lessons. The most important one? “A good CFO cannot be an expert in finance alone. That is a given. He or she has to understand how the entire business works. Only then can he genuinely add value to the organisation,” he says. The other lesson of course is the importance of effectively and fearlessly communicating one’s beliefs and thoughts — both to superiors and also down the line. “Unless you speak up, how would people know what you are thinking or why a certain decision is being taken,” he reasons. Seems Accutest’s finance function is in able hands all right.


insight

M&A outlook

Organising for M&A Few executives expect the number of deals their companies start or complete to rise next year. Many indicate that there’s room to improve key planning and integration capabilities. Team McKinsey

M

photos.com

erger and Acquisition activity may have slowed during the third quarter of the year, but it’s unlikely to stay slow, the results of a new McKinsey global survey suggest. In this survey, we asked finance and other senior executives to weigh in on how M&A will change in the coming months and years: the expected size of deals, the capabilities in place, and the amount of attention devoted to differences in organizational cultures. The results show that in spite of the difficult economy, most executives still think M&A is an important strategy for growth. In fact, nearly half of the respondents expect their companies to explore more deals in the next 12 months than in the past 12, and small majorities expect them to start or complete at least as many, if not more. In addition, nearly half of the respondents report that their companies are looking outside the core business for new ways to grow. There’s no consensus on whether deal size will increase, but january 2012

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insight Exhibit title: More deals made at larger, public companies executives do indicate that they expect to focus more on deals that bring specific strategic advantages, such as new geographies, products, or intellectual property. The results also indicate that many companies still need to build critical capabilities, including integration planning, responding to cultural issues, and establishing standardized deal teams. That effort may well be complicated by a striking number of areas in which CFOs’ opinions differ from those of other C-level executives on topics as basic as which deals to do and what capabilities a company has.

Exhibit 1 Less than once made Once at per year times 5 or more times More deals larger,2–4 public companies per year

per year

% of respondents1 Frequency of M&A deals completed at respondent’s company 5 or more times per year

2–4 times per year

Once per year

Total, n = 868

5

39

CFO india

january 2012

Don’t know

Privately owned, n = 533 7 4

18

14

12 14

17

17

63

23

Defining deals

44

Less than once per year

Publicly owned, n = 335 2

9

54 54

A majority of respondents agree that M&A remains a necessity for growth. The most common rationale cited for deals is to acquire products, intellectual property, and capabilities. Executives at private companies are likelier than those at public ones to say that their companies have done deals to acquire products or intellectual property, to incubate new businesses or enter new geographies, or to acquire scale. Seventy-seven percent agree that M&A is an important factor driving consolidation in their industries. Respondents at publicly owned companies and at larger ones (with annual revenues of at least $1 billion) say their companies complete more deals than others. Among all respondents, a majority report that their companies complete deals less often than once a year. (Exhibit 1). Given that finding, it’s no surprise that more than half of the respondents report that their companies invested 10 percent or less of either their market capitalization (at publicly owned companies) or their annual revenues (at privately owned companies) in M&A over the past 12 months. Moreover, although nearly half of the respondents expect their companies to explore more deals over the next 12 months than they did over the past 12, few expect that they will start or complete more (Exhibit 2).

Don’t know

per year

Revenues ≥ $1 bn, n = 325 2

Revenues < $1 bn, n = 519 2 7

19

11

37

15 20

1 Figures

may not sum to 100%, because of rounding.

65

22

Exhibit 2

Better prospects for exploration % of respondents, n = 818 Expected changes in the number of deals respondent’s company will explore, start, or complete next year Higher number

About the same number

47

Explore Start

19

Complete

16

As for the size of deals in the next 12 months, the respondents are divided. Just over a third expect deals to remain about the same size, while a quarter expect the value to decrease—the same share expecting it to increase. Most common over the past three years,

Lower number

Don’t know

30 44 36

16 24

31

7 13 17

respondents say, were deals worth less than 10 percent of their companies’ market cap or annual revenues. Smaller shares of respondents expect such small deals to be a focus of their become more important—especially acquiring companies to add products,


insight intellectual property, and capabilities (Exhibit 3). Putting the pieces together In our experience, it’s critical for companies to take a systematic and fact-based approach to understanding corporate culture if they hope to retain critical people and capabilities after a transaction. Responses to this survey show that many don’t. Nearly a third of the respondents report that their companies put off integration planning until after negotiations have begun. And while nearly three-quarters of the respondents say the companies they work for understand their own cultural strengths and weaknesses, far fewer conduct internal organizational due diligence to confirm that understanding: less than half say their companies do so to diagnose strengths and weaknesses in the context of specific deals, and just over a third say they do so when they’re not doing a deal. Furthermore, 29 percent say their companies are not willing to make changes or launch targeted interventions to address cultural gaps. One reason so many companies fall behind at managing integration and cultural differences may be a lack of resources and formalization. Only a slim majority of respondents believe their companies have the right number of people and organizational resources to meet M&A aspirations, and only 49 percent report that their companies have standardized deal teams (Exhibit 4). Moreover, only a bit more than a third of the respondents report that their companies have standardized integration teams, and just over half report that their companies’ M&A capabilities rest in specific individuals rather than the institutions. This lack of structure may also underlie other merger-management weaknesses: around a third of the respondents report that their companies have failed to capture synergies because of factors such as slow decision making (chosen by 35 percent), unclear decision-making criteria (31 percent), and implementation plans lacking

Exhibit 3 Exhibit 3

Future focus on strategic acquisitions Future focus on strategic acquisitions % of respondents, n = 818 % of respondents,1 n = 818 1

Past three years Next three years

Focus of M&A activity at respondent’s company over time

Focus of M&A activity at respondent’s company over time Small deals2 worth less than $3 bn

33

39

Small deals2 worth less than $3 bn Acquiring companies to add products, intellectual property, capabilities, etc.

36

Acquiring companies to bringto scale Acquiring companies add products, advantages to smaller businesses or add intellectual property, capabilities, etc. customers to existing businesses

33

Acquiring companies to incubate new scale Acquiring companies to bring businesses or enter new geographies advantages to smaller businesses or add customers to existing businesses Medium-sized deals

29

22

Joint ventures

33

39

15 17

Divestitures

46

Deals driven by market 36 of knowledge 46 are which companies undervalued

40

12 Divestitures 14

Large deals worth more than $3 bn 33

40

40

22 23

No deals

Acquiring companies to incubate new businesses enter new geographies 1 Respondents whoor answered “don’t know” are not shown.

29

40

28

Joint ventures

Deals 12 driven by market 13 knowledge of which companies are undervalued 12 7

Large deals worth more than $3 bn

2For

the small deals, we asked public-company respondents about deals worth less than 10% of their companies' market cap and private-company respondents about deals worth less than 10% of their annual revenues, or, in either case, less than $3 bn. Medium-sized deals are worth 10% to 30% of either market cap (public companies) or revenues (private companies), and large deals are worth more than 30% of either market cap or revenues, or more than $322 bn.

Medium-sized deals

Exhibit 4

1 Respondents

No deals

23

who answered “don’t know” are not shown.

Lack of resources and standardisation the small deals, we asked public-company respondents about deals worth less than 10% of their companies' mar

2For

private-company respondents about deals worth less than 10% of their annual revenues, or, in either case, less than Medium-sized deals are worth 10% to 30% of either market cap (public companies) or revenues (private companies % of are respondents with the market following deals worth morewho thanagree 30% of either capstatements or revenues,about or more than $3 bn.

their companies, n = 818

Availability of resources and standardised deal teams Currently has the right number of people and organisational resources to realise its M&A aspirations

52

Currently has the right quality of people and organisational resources to realise its M&A aspirations

56

49

Has a standardised deal team

Has a standardised integration team

sufficient detail (31 percent). More active companies seem to lean toward standardization: the companies where respondents are significantly more likely to report that they have standardized deal teams are those where respondents also say that they do more deals by value, do deals more frequently, or generate higher revenues. In addition, standardized deal teams are more common at companies whose respondents also expect them to explore, start, or complete a high number of deals in the

37

next 12 months than at companies planning fewer deals. These teams also are more likely to exist at companies where respondents agree that M&A is important for consolidation in their industries. Looking at integration, executives of companies with standardized teams in place are significantly likelier to report that they have the right number and quality of people in place to meet their aspirations—more than 80 percent say so. This finding is consistent with our experience: we’ve seen that january 2012

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insight standardized deal teams tend to be both more experienced and more capable of realizing value that cuts across functions. Respondents who say that their companies don’t have standardized deal or integration teams most often cite functional skills as the factor to consider in standardizing team setups (Exhibit 5). Different functions, different perceptions CFOs’ views differ from those of other C-level executives on a number of topics we asked about in this survey. CFOs are much likelier to agree that M&A is important for their companies’ growth, that it’s important in consolidating their industries, and that their companies have a clear understanding of cultural strengths and weaknesses. CFOs are markedly less likely to agree that their companies are looking outside the core business for new ways to grow (40 percent of CFOs say that, compared with 51 percent of other C-level executives), that they have the right number of people and organizational resources to realize M&A aspirations (42 percent to 52 percent), or that they have the right quality of people and organizational resources (52 percent to 57 percent). Furthermore, CFOs expect their companies to do deals different from those cited by other senior executives: for example, they are more likely to expect their companies to focus on mediumsized deals and deals driven by market knowledge of which companies are undervalued (Exhibit 6). These differences may arise because CFOs are more connected to the financial rationale of any given deal than to the business rationale or because CFOs are more frequently brought in on larger deals.

Looking ahead • The results and our experience suggest that many companies have an opportunity to boost their chances of making successful deals if they formalize their approaches to M&A planning and integration and ensure that know-how is 46

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Exhibit Exhibit 55

Considering skills in teams Considering skills in teams % of respondents, n = 82

% of respondents, n = 82 Factors respondent’s company should consider to standardise deal or integration teams

Factors respondent’s company should consider to standardize deal or integration teams Members’ functional specialties

52

Members’ functional specialties Pace of integration required

Value of the deal Members’ industry expertise

Overall size of team

Value of the deal Exhibit 6 Exhibit 6

32

Don’t know

10

Other Don’t know

18

11

8

Overall size of team 8

39 Other

32 18

11

Size of the other company

52

39

Pace of integration required Members’ industry expertise

Size of the other company

8 8

10

CFOs diverge on future deals deals CFOs diverge on future % of respondents,1 by job title

CFOs, n = 101

Focus of M&A activity at respondent’s company over the next 3 years

All other C-levels, n = 464

% of respondents,1 by job title

Focus M&A activity at respondent’s company over the next 3 years Acquiringof companies to add products, 51 48

intellectual property, capabilities, etc.

Acquiring companies to add products, Acquiring companies to incubate new intellectual property, capabilities, etc. businesses or enter new geographies Acquiring companies to bring scale

advantages to smaller businesses or add Acquiring companies to incubate new customers to existing businesses businesses or enter new geographies Medium-sized deals2

35

25 Acquiring companies to bring scale advantages to smaller businesses or add 33 customers to existing businesses Small deals worth less than $3 bn 33

1 Respondents who answered “don’t Medium-sized deals2 know” are not shown. 2

30 28

Joint ventures

46 41

Deals driven by51 market knowledge of48 which companies are undervalued

41 44

Large deals worth more than $3 bn 46

41

No deals

35

A n

Joint ventures 24 13

Deals driven by market 19 knowledge of 12 which companies are undervalued 14 17

Divestitures

41 44

C

Large deals worth more than $3 bn 3 6

Divestitures

25 10% of their companies' market cap and For the small deals, we asked public-company respondents about deals worth less than private-company respondents about deals worth less than 10% of their annual revenues, or, in either case, less than $3 bn. Medium-sized deals are worth 10% to 30% of either market cap (public companies) or revenues (private companies), and large deals are worth more than 30% of either market cap or revenues, or more than $3 bn.

Small deals worth less than $3 bn

33 33

No deals

broadly disseminated. Besides standardexecutives. Clear senior guidance is cruwho answered “don’t know” are not shown. izing teams and dedicating expertise, cial to successful transactions, so execu2For the small deals, we asked public-company respondents about deals worth less than 10% of their companies' mar the helpful actions we’ve seen include tive teams spend moreor,time private-company respondents about deals worth less than 10% ofshould their annual revenues, in either case, less than Medium-sized deals are worth 10% 30% of eitherbuilding market cap (public companies) or revenues building M&A playbooks and to tool kits, a shared understanding about(private companies) deals are worth more than 30% of either market cap or revenues, or more than $3 bn. as well as conducting a postmortem the role of M&A in executing strategies after each deal. and the types of M&A that organiza• It is critical for companies to retain tions should pursue. talent and manage cultural differences. The contributors to the development The results suggest that most compaand analysis of this survey include Robnies would benefit from examining ert Uhlaner, a director in McKinsey’s whether they have established the culSan Francisco office, and Andy West, a ture and structures to make the most of principal in the Boston office. the different skills, values, and insights available in acquired organizations. This article was originally • Given the increasingly common role published in McKinsey Quarof many CFOs as operators and strateterly,  www.mckinseyquarterly. gists, it’s important to acknowledge and com. Copyright (c) 2011 McKinsey explore any differences between their & Company. All rights reserved. expectations and those of other C-level Reprinted by permission.  1 Respondents


leader’s

world

Is That the

Best

You Can Do? A masterclass in asking for, and giving concessions in a negotiation David Lim

ABOUT THE AUTHOR David Lim, Founder, Everest Motivation Team, is a leadership and negotiation coach, best-selling author and two-time Mt Everest expedition leader. He can be reached at his blog http:// theasiannegotiator. wordpress.com, or david@everestmotivation.com

As CFOs, you never get the deal you deserve but the deal you negotiate. Last month, I covered multidimensional negotiations, focussing on how we all need to examine the three key aspects of a negotiation — the set-up, the deal design and the tactics across the table; with emphasis on the first two points. In this issue, the focus is on the tactics, and what is key to learn is how to deal with concessions. As Samuel Johnson said, “Life cannot subsist in society but by reciprocal concessions.” How can we effectively ask for, and get the concessions we want? How can we effectively make reasonable concessions allowing the other party to feel like they are getting something, without giving up the entire company? Understanding the psychology behind the concession-making process is essential. After studying this process in many negotiations, I’m convinced that there are certain principles or guidelines that can help anyone to be more effective in this art of both getting and giving concessions. One of the key initial things to consider is whether or not you have issues about asking for a concession. Many people are reluctant to do so because they don’t want to give the appearance of being cheap or grasping. Many people give concessions because a) they don’t want to seem unreasonable, b) they want to be liked. So here are some of the basic guidelines and sample conversations to help you get better at this: January 2012

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leader’s world

On the major issues, use the strategy of forbearance. In other words, simply hold fast to those important items, making no offer to compromise. This presumes, of course, that you may make concessions on other less important items. You may use those concessions as reasons you cannot compromise on the more important (to you) items. IMPORTANT FACT: Know the relative importance of each item to each party so you can develop a strategy for concession making. Use questions like: “Issac, what really is most important to you here?” “Of these three things, Isaac, what is the least important?” Give as little as possible, but what you do concede should be things that are of high value to the other party (and hopefully of less value to you). Example: “Satish, I could give you A, B, C. All I need in exchange is D.” On the surface it would appear that Satish is getting the best of the deal. But, in reality, A, B, and C were items you built into your proposal to enable you to concede them easily, while holding fast to D.

“With practically every negotiator, some concessions are possible. Begin every negotiation by saying to yourself, ‘Every negotiator will concede something!’”

2) ONE OF THE BEST TIMES TO GET A CONCESSION IS WHEN YOU ARE ASKED FOR ONE Stated another way: Don’t give a concession without getting one in return, even if the concession is just a ‘small one’. The law of reciprocity comes into play here: People expect value for value. Capitalise on basic human nature and remember... one of the best times to get a concession is when one is asked of you.

Points to Ponder • Understanding the psychology behind the concessionmaking process is essential • Develop a strategy for concession-making • If you accept the first offer, about 99% of the time you could have done better • Make people work for the concession if you want them happy

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When asked for a concession (even a small one you know you can give) ask, “If I do that for you, could you do [this] for me?” or even better yet, create an open-end question like this: “If I do that for you, is there anything you could do for me?” Listen to the careful and soft wording of that question. Actually, there are two reasons for asking that question: a. You are likely to get something of value that you hadn’t bargained for. Most good negotiators have some concession they can throw in, if simply asked for it. b. It will discourage the other party for asking for additional concessions. They realise every time they ask for a concession, you will ask for one in return. I’m truly amazed at how people think they can ask for a concession without giving up anything, and how many people actually do that. When you phrase something like this: “When you mean a cost reduction, is your expectation that I reduce the cost to you without any other benefit accrued to me by your side?” you will be surprised at the response. When put in this light, many people often step back, and not wanting to appear unreasonable, often offer some benefit in exchange for the concession.

photos.com

1) DON’T MAKE THE FIRST CONCESSION ON A MAJOR ITEM


leader’s world 3) RARELY ACCEPT THE FIRST OFFER

4) MAKE PEOPLE WORK FOR THEIR CONCESSIONS

the evening with my family on the boat.” I just got exactly what I asked for the boat in less than an hour from the very first person who approached me to buy it. Put yourself in my position. I’m happy, right? Wrong! Why? I’m saying, “I could have made more money from the sale! I asked for too little! I should have asked INR 600,000! I left money on the table!” Why do I feel that way? Because you didn’t make me work for any concessions. Go back to the beginning of the transaction. You look at my boat. You find a few problems with it. (Every boat has got some problem!) We negotiate for some time. You end up paying INR480,000 for my boat. And yet…I’m happy! Remember: Make people work for the concession (if you want them to be happy, that is).

Let’s assume you want to buy my boat. You ask, “What do you want for the boat, David?” “INR 500,000.” After a quick inspection and brief test run on the lake, you say, “OK. I’ll have a cashier’s cheque here at noon. You get the title ready and we’ll complete the deal then. I want to spend

DAVID LIM IS A LEADERSHIP AND NEGOTIATION EXPERT. Learn more from his blog http:// theasiannegotiator. wordpress.com, OR contact hin david@everestmotivation.com

With practically every negotiator, some concessions are possible. Begin every negotiation by saying to yourself, “Every negotiator will concede something!” Ninety nine per cent of the time, you will be right. Explore the deal together to see if you can maximise the value for everyone. Remember, you want the best deal for all parties. By not accepting the first offer and by creatively probing for areas where concessions are possible, you open your mind, and hopefully the mind of the other party, to every possibility. If you accept the first offer, about 99% of the time you could have done better!


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This new year we test drove the world’s most ecofriendly car — the soon-to-be launched Nissan LEAF before heading off for a serene vacation in Colombo to ring in the New Year. Back home we checked out the Nokia Lumia 800 and finally dined at the Michelin Starred Hakkasan’s Indian outlet.

DID YOU

Nissan LEAF

Green and Leafy

It’s green, it’s a Leaf, but the World Car of the Year for 2011 is much smarter and more appetising than any vegetable ever produced! Amit Chhangani Electric cars may be the new buzzword for the eco brigade, but the environmental credentials of these vehicles are still somewhat under a cloud. The Nissan Leaf in that context is a major global breakthrough. Nissan has been researching and developing electric vehicles since ages now, and the Leaf is the fruition of the company’s unrelenting focus on developing an EV which is not just ecofriendly, but practical, fun and comfortable as well.

We drove the Leaf EV recently and came away impressed with the capabilities of this cute looking electric car. The Leaf is widely considered as the world’s first ‘practical’ electric car. With a range of about 175 km, an 80 per cent quick charge time of 30 minutes, quick acceleration and a spacious interior, the Leaf is indeed making a name for itself as a true-blue (forgive the pun) green car. Having won the World Car of the Year and

KNOW?

The Nissan Leaf (leading, environmentfriendly, affordable, family car) is a five-door hatchback electric car manufactured by Nissan and introduced in Japan and the United States in December 2010


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on Wheels tHIS ELECtRIC CAR IS NOT JUST ECOFRIENDLY BUT IS QUIET, HAS AMPLE SPACE INSIDE, OFFERS AMAZING SAFETY FEATURES AND DRIVES LIKE A DREAM

European Car of the Year Awards for the year 2011, the Leaf has only added its ‘environment-friendly’ credentials. While there is still some time before the Leaf is introduced in India, the car is selling successfully in North America, Japan and European countries where an EV recharging infrastructure is in place.

The Look The Leaf has 48 lithium-ion battery modules with four battery cells inside each module which fit snugly beneath the floor of the car, thus optimising cabin space and providing a low centre of gravity for a smooth and stable ride. Power is provided by the 80 kw (108 bhp) electric motor that generates its maximum 280 Nm of torque as soon as the car begins its motion from a standstill. The result is commendable acceleration and an equally impressive top speed of about 150 km/h. Inside there’s ample space for five adults. Nissan Leaf is awfully easy to drive. The electric power train does not idle and only rotates when the vehicle is moving. To start the engine, the driver presses the start button, and electricity is ready to flow to the motor. Using the electric shift, the driver then selects ‘D’, and the vehicle starts to move. It’s that simple.

The Power Driving range depends on several factors, including external temperature, air-conditioning usage, battery age and driving style. An onboard screen shows key battery data, including maximum driving range, power output and regenerated electricity. An eco-indicator on the meter displays the status of electricity consumption, giving real-time feedback on the driver’s performance. To increase regenerative braking capability, there’s a driver-controlled Eco mode setting, which can also be used to reduce air conditioning and

NISSAN LEAF Price:

$35,000 (in USA)

Motor: 80 kw (108 bhp)

electric motor

Battery: 48 lithium-ion

battery modules

Torque:         

280 Nm

Speed:        

150 km/h

Positives Spacious and practical; long range; peppy to drive Negatives Not chargeable quickly; expensive for its size; not suitable for intercity travel VERDICT Expensive but ecofriendly. Owners would be making a definite statement about making the world less polluted

thus improve driving range by 10 per cent when driving in urban areas.

The Toys Standard equipment is comprehensive — it includes air conditioning, satellite navigation and a rear-view parking camera — so the only optional extra is a solar panel integrated into the rear spoiler which can harvest energy from the sun to power accessories. Using a domestic electricity supply, Leaf can be recharged to full capacity overnight, but there is also the potential to ‘Quick Charge’ the car, using a new QC charger developed by Nissan. This can deliver up to 50 kW of high voltage direct current to recharge up to 80 per cent of the battery capacity in just 30 minutes. Other safety systems include airbags, ABS, Brake Assist, Vehicle Dynamic Control along with a rear-view camera for safe and easy parking. The Leaf is priced at $35000 in the US, which translates to about Rs 18 lakh in India, not counting import duties. Right now only film stars and millionaires will love to have one parked in their garages. Expensive as it is now, it is expected that like others, this innovation too will soon become more affordable. We just hope we have the infrastructure to embrace this new wave by then. january 2012

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Gizmos new launches

PSP Vita

(Japanese edition)

Hot Spot

Nokia Lumia 800

The first Windows Phone device from Nokia is promising Vishal Mathur The Lumia 800 feels good to hold, and has a sophisticated and minimalist look. Powering it is a Qualcomm Snapdragon MSM8255 1.4 GHz processor with 512 MB RAM. The interface is zippy, transitions are smooth and the phone doesn’t slow down at all. The 3.7-inch display is the AMOLED type with 480x800 resolution. It isn’t reflective. The rich colours and the deep blacks mean that viewing videos or reading text is fun. There is 16 GB on board storage on the Lumia 800, but no memory expansion slot. Contact handling has been improved extensively with the Mango update. Now, you can even transfer all contacts from any phone to the Lumia via Bluetooth. We tried this with a Blackberry phone, and all 750 contacts were transferred to the People list on the Lumia, complete with any tagged images. The 8 MP camera is extremely finicky when it comes to lighting. The camera takes time to focus, particularly when taking close-up shots. The battery life of the Lumia 800 is impressive. Despite constant connectivity to the internet, a bunch

of calls, messages, and lots of web browsing, the battery lasted two full days on a single charge. It was a long wait for the first Nokia smartphone with Windows Phone OS. And we believe that wait has been long but worthwhile. The Lumia 800 seems to be a well-designed package — looks far superior than any other WP phone out there, excellent display, good battery life and WP 7.5 are thrashing Android’s ageing UI hands down. Specifications: Qualcomm MSM8255 Snapdragon 1.4 GHz processor; 512 MB RAM; Windows Phone 7.5; 3.7-inch AMOLED display, 480 x 800 pixels; 16 GB storage; 8 MP camera with 720p HD videos; micro SIM slot only; 1450 mAh battery Price: `29,990 Contact: Nokia India Phone: +91 (city code) 30303838 Email: http://www.nokia.co.in/support/ask-nokia Features 7.5 Performance 8.0 Build Quality 8.0 Value for Money 6.5

The much awaited PSP Vita has made its entry on the Japanese shore. In what looks to be a promising handheld the Vita sports a quad core ARM Cortex A9 with 512MB of memory with 128 MB of VRAM. Screen is 5 inches in dimension with an OLED display. Approx price `20,000.

Orbotix Sphero You might remember this robotic ball from CES earlier this year. Sphero has finally made its appearance on the block and looks like a fun thing to do. Sphero comes with a power charger and has around five apps to navigate it on both iOS and Android. Approx price `6700

Motorola Xyboard 8.2 Xyboard is the Xoom 2 elsewhere apart from US, an 8.2 inch variant of the Xoom tablet features battery life of about 5.25 hours. A 5 megapixel camera capable of 720P recording sits in the back while its front has 1.3 megapixel one. It’s got an IPS display. Approx price `22,360 (starting) powered by

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ad Re Y st OG Mo L E ’s NO ZIN dia CH GA In TE MA


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M&E

Best new Meeting & Eating Place

A taste of Hakkasan

The Michelin-starred London restaurant’s first branch in India is wowing diners. Dhiman Chattopadhyay hakkasan MUMBAI India finally has a restaurant that boasts of Michelin star antecedents. Hakkasan, the Michelin-starred Londonheadquartered Cantonese fine-dining restaurant opened its first branch in Mumbai recently. It was with a degree of uncertainty that we walked into the awe inspiring front entrance of the restaurant.

Location: Krystal, Waterfield Road, Bandra, Mumbai phone: 022 2644 444/ 59 Seating: 120, including 16-seat private dining area. Note: Children below 8 not allowed. Unconsumed food not packed.

the dimsums (featured left and above) are scrumptious and the main courses offer great variety LIKE THE GRILLED SEABASS (TOP)

After all we knew what Michelin-star restaurants cost! And how snooty they can be. But from the moment the elevator door opened till we were handed our key back to get into the car, every bit was as pleasant and stereotype-breaking as it could get. With its four distinguished by-products, the set menu known as ‘The Taste of Hakkasan’, the main dining section Ling Ling Lounge, the private dining area and the bar, Hakkasan possesses a unique combination of glamour and elegance, contemporary yet traditional food, modern yet ethnic decor, and superlative food and service. We tried the award-winning ‘taste of Hakkasan’ set menu (Rs 2,100 per person plus taxes) and honestly, Cantonese cuisine had never tasted or looked or felt this great. We started with the four dimsums on offer (one person can choose any two) Lotus Roll, Har Gau, Shimeji Dumpling and Crystal Dumpling. After the soup, the main course arrived: Steam Rawas in Homemade Spicy Sauce, San Pei Chicken clay pot and stir fried French beans. One word to describe them: awesome! The noodle was good, the rice better and the sorbet? Heavenly. The sommelier advised a glass of Chilean Merlot to go with the main course. We would advise you to listen to him as well! Overall, let’s just say, this is one dining experience you will not want to miss if the thought of Cantonese food brings a smile to your face.

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travel

Colombo

Chilling Out In Colombo

Tranquil, relaxed and stunningly beautiful. This is the best time to discover the joys of Colombo Anil Mulchandani The workload had been a bit too much in recent months and we were looking for a holiday destination that was both beautiful and peaceful. In the end we chose Colombo, the capital of Sri Lanka. Thank God we did. For amidst the political tension and economic chaos in the Island nation, we discovered bliss. Having arrived in the evening at Colombo, we decided to check-in at the Gateway Hotel Airport Garden , located a few minutes from the airport in the Seeduwa-Katunayake. The next morning, we woke up to a view of the Negombo Lagoon from our room and set out after an early breakfast for the wetland of Muthurajawela which lies to the south of the Negombo Lagoon and is a short drive from the hotel. We took a twohour boat trip along the Dutch canal watching kingfishers, egrets and other wetland birds as well as reptiles like a checkered keelback watersnake and two water monitors. After lunch we set out for Colombo which, expectedly for a national capital, is a bustling city with crowded roads, administrative blocks and towering commercial buildings. However, we could not help but be impressed by the traffic discipline and cleanliness of the city. We checked-in at the Taj Samudra, which is a grand edifice set in large gardens

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facing the Galle Face Green. After dinner at the Golden Dragon Restaurant in the hotel we strolled along the seafront promenade to enjoy the sea breeze. After breakfast the next day, we set out to see the National Museum which has an outstanding collection of sculptures and artifacts showcasing the entire range of Sri Lankan art-


cfo lounge

travel Below: a birdâ&#x20AC;&#x2122;s eye view of the negombo lagoon from the taj samudra hotel in colombo; facing page left: a sea-side resort at the picturesque bentota beach

Jyoti Mulchandani

left: a kingfisher enjoys the morning sun on the banks of the dutch canal in colombo far Left: one of the fun things you can do at negombo, is take an elephant ride on the beach

istry including exquisite Buddhist sculptures and Hindu images. The driver took us to various shops where we bought some garments, Sri Lankan tea and ceramics, though we were rather disappointed with the handicrafts. The next morning, we drove down to the Pinnewala Elephant Orphanage. Taking an early start from Colombo, we visited the Kelaniya Raja Maha Vihara, a really fine and interesting Buddhist temple. We stopped for an early lunch, a traditional Sri Lankan meal of fish, beef, chicken and vegetarian curries, pol roti (coconut roti), rice and milk pudding. After lunch we arrived at the Pinnewala Elephant Orphan-

age. Set up in 1975 to take care of a few orphaned elephant calves, this orphanage now houses about 80 elephants. We saw the elephant calves being bottle-fed and then headed for a restaurant above the river from where we could gaze down on a huge herd of elephants bathing and playing in the water. At Pinnewala, we also visited a workshop making and selling pachyderm paper. This novel initiative involves drying the fibre rich elephant dung in the sun and then boiling it, resulting in a pulp that is used to make artistically textured paper. We bought some interesting elephant dung stationary to take back home as gifts. The next morning, we took the road south to Bentota. Though this is a haven of tourists staying at the many resorts in the area, the Bentota beach stretches are not overcrowded and quite enjoyable. Bentotaâ&#x20AC;&#x2122;s lagoon is popular for waterskiing, jetskiing, windsurfing, banana boating, speedboating, sailing and other watersports, and boat trips are offered on the Bentota River to see the biodiversity. Operators also arrange snorkelling, diving and glass bottom boat trips at sites near Bentota, like the coral gardens of Hikkaduwa. GETTING THERE: You can fly to Colombo from most Indian

metros PLACES TO STAY: At Negombo: The Gateway Hotel Airport Garden offers a pleasant environment (www.thegatewayhotels. com/airportgardencolombo) At Colombo: Taj Samudra is a luxe property ideally situated at the Galle Face Green (www.tajhotels.com/business/taj%20 samudra,colombo) january 2012

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not just

the last word

Time to get real, Mr CFO… T

he uncertainty around life pales in significance in the context of the uncertainty around numbers in the corporate world. The latter is not acceptable as suggested by the alarm bells that go off when forecasts are even somewhat awry. Is there sense in this expectation given the world we live in? Should CFOs (and investors) begin to look for something different? Proverbs all around us scream that the only constant is change. From weather patterns to human behaviour — everything is uncertain and increasingly unpredictable. Against this backdrop, CFOs demand predictability in revenues, costs, profit margins, EBITDA and client behaviour! If their performance depends on the precision of these forecasts/commitments — what is the chance that they will succeed? Negligible, is my view. Each of the indicators I mention above is linked, in some way, to one or another moving part. As an economist, I am acutely aware of the nonsense that ceteris paribus implies. In the real world, nothing stays the same. What then is the chance or the sanctity of predictions made by a group of business managers or entrepreneurs? The bigger question to my mind is should there be such a focus on numbers — quarterly? Often the need is to predict to the percentage point, between businesses, or between products and service 56

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lines. I recall our admiration for all the CFOs who were able to foretell quarter after quarter how their companies would perform. Is that what we should aspire for? Or are businesses about more than that? In 9.9 Media’s line of work, for example, it is about accurately estimating print revenues, online, research and events. How does one estimate when a large multinational client will change their mind and postpone their marketing plans by a quarter or two or indefinitely? As seasoned professionals, we try and build into our plans an approach that can de-risk such uncertainty. But frankly, Plan B is equally prone to the vagaries of human or corporate behaviour! In a world where entrepreneurship is providing the bulk of growth, even investors recognise that hardly any plans materialise as expected. But we still go through the charade each time — internally and externally. Modern

businesses are meant to be institutions; they are about management teams and their capabilities; how they do things as much as what they do…then shouldn’t it be about the direction and journey as opposed to the precise point of arrival? You must have guessed that this matter has been on my mind for a while. And therefore I am not going to end with saying here’s the problem. The world over, assessments have moved from marks to grades. India’s education system has finally acknowledged the ills of judging performance and potential on the basis of one number. Can the ecosystem around corporate evaluations and assessments move to grades or a range as opposed to pinpointed growth rates, costs, profits and EBITDA? Surely look at all of these, but in a context? Not the grading on credit worthiness as done by the credit rating agencies, but even within the ‘bankinginvesting-CFO’ world of those who determine ‘worthiness’ for resources? Of course it’s from left-field, but what do you think? PS: Don’t mean to single out the men, so Ms CFO as well! Anuradha Das Mathur, Publisher CFO India


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CFO India - January 2012