ANIL SAXENA NOT MERELY A GLORIFIED BOOKKEEPER P. 20
CFOs ON CLOUD 9? CLOUD COMPUTING IS HERE TO STAY p. 16
BONHOMIE CFO - CIO PAIRS BRING BIG CHANGES p. 38
VOLUME 01 ISSUE 08 Rs.50 JULY 2010
PROFILE : ANIL SAXENA 20 | CFOS ON CLOUD 9? 16 | BONHOMIE 38 VOLUME
A 9.9 MEDIA PUBLICATION
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30 Anil Saxena
JULY 2010 VOLUME 01, ISSUE 08
24 CAUTION: MERGER AHEAD
An M&A deal may make or break a CFO’s career. What can a CFO do to avoid post merger blues? By Bennett Voyles
24 Cover Story
cfo profile 30 NOT JUST A FIGURE HEAD Group CFO at Religare Enterprises, Anil Saxena believes today’s CFO is much more than just a deal-maker By Anoop Chugh
big picture 16 CFOs ON CLOUD 9? India CFOs appear receptive to the concept of cloud computing, but need a little more time to get convinced By Deepak Garg
in practice 34 HOW GREEN IS YOUR OFFICE? If not a ‘paper less office’, we can aim to have a ‘less paper office’. It has resultant cost benefits By Jayant Dwivedy
52 WHAT BOARDS NEED FROM CFOs
COVER DESIGN BY PRASANTH TR
Here are some questions that should be on the minds of finance executives sitting in on boards By Eleanor Bloxham
56 David Lim
58 POST MERGER INTEGRATION Some Asian companies take a different approach to M&A outside their borders By David Cogman and Jacqueline Tan
12 THE CFO LEADERSHIP CONCLAVE Some of India’s most respected CFOs converged at the First CFO Leadership Conclave in Kuala Lumpur
leader’s world 56 ON-FIELD LEADERSHIP How teamplay and leadership lifted the Soccer World Cup in South Africa. Relive the extravaganza By David Lim
cfo lounge 61 TRAVEL 62 GIZMOS 03 04
While the classic debates on reporting structures haven’t ended, CIO-CFO pairs have brought about big changes By Geetaj Channana
editorial letters to the editor topline art review books
Leaseplan Inside Front Cover | Empronc Solutions 02 | LifeSize 05 | Ace Data Devices 09 | Edenred 11 | AD INDEX Leaseplan Inside Front Cover | Life Size 05 | Empronc Solutions 09 | Financial Executive 19 | Everest Motivation Team 33 Financial Executive | |Speaker Bureau 29 | Cover Sodexo Inside Back Cover | ICICI Bank Back Cover | Sodexo Inside Back 23 Cover Birla Sun Life Back
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ANURADHA DAS MATHUR firstname.lastname@example.org MANAGING DIRECTOR: Dr. Pramath Raj Sinha
Lessons for CFOs from the Mahatma
IT WAS A seminal past month for us as a magazine (and as the CFO community, The CFO Institute). July saw us launching our first CFO Leadership Conclave in Kuala Lumpur, a three-day event that saw 50 distinguished CFOs from India and abroad in attendance, taking part in discussions and debates about the way forward for the CFO community as a whole . One of the key takeaways for me from the conference was an invigorating talk by Mohandas Pai, one of India’s best known CFOs who is now the Director HR, Education & Research at Infosys. Pai in his characteristic way reaffirmed that CFOs would be at the heart of leadership in the next 20 years, the two most exciting decades this generation would be priviledged to see. He drew an interesting parallel between Mahatma Gandhi and CFOs. Like the Mahatma, he said CFOs must serve as leaders to protect, nourish and grow the financial integrity of their companies, the same way that the Mahatma enhanced the dignity of our country. We too believe there are a few attributes that CFOs must leverage from Gandhiji – a broad vision, balancing the interest of all stakeholders, simplicity in communicating that vision, immense courage and conviction, leadership by example in adverse situations, articulation of the value system of the organisation and last, but not the least, the conviction to ‘live’ and the judiciousness to ‘leave’ on your terms. You might be wondering, what good is such a CFO, with great attributes but no ‘M&A’ deals to flaunt. Indeed CFOs consider a big ‘M&A’ deal as the high-point of their career, the same way an athlete would rate an Olympic gold. Hence, there’s a possibility of getting carried away by it. Our cover story this issue deals with how to pull-off a perfect merger, or when to say ‘no’ even if it seems like a perfect deal. The story focuses on the elementary issue faced by CFOs around the world - how to meld two cultures post a merger. Considering more and more Indian companies are expanding by buying out foreign companies, it becomes essential to push for some sensitivity to local customs. Another debate we have highlighted in the issue is how smart CFO-CIO pairs have brought about big changes in a company’s bottomline, all starting with a good relationship. Can we really conclude – irrespective of the reporting structures — that the CFO-CIO team needs to work together tirelessly in order to meet organisational goals? Read on. Enjoy the issue and be prepared to lead us into world dominance.
EDITORIAL EDITOR: Anuradha Das Mathur MANAGING EDITOR: Dhiman Chattopadhyay ASSISTANT EDITOR: Anoop Chugh CONTRIBUTING EDITOR: Bennett Voyles DESIGN SENIOR CREATIVE DIRECTOR: Jayan K Narayanan ART DIRECTOR: Binesh Sreedharan ASSOCIATE ART DIRECTOR: Anil VK MANAGER DESIGN: Chander Shekhar SENIOR VISUALISERS: PC Anoop, Santosh Kushwaha SR GRAPHIC DESIGNER: Suresh Kumar SENIOR DESIGNERS: TR Prasanth & Anil T DESIGNER: SRISTI MAURYA CHIEF PHOTOGRAPHER: Subhojit Paul THE CFO INSTITUTE EXECUTIVE DIRECTOR: Deepak Garg NATIONAL HEAD: Bindu Krishna MANAGER: Shreya Pilani ASSOCIATE: Priyam Mahajan SALES & MARKETING V-P SALES & MARKETING: Naveen Chand Singh NATIONAL MANAGER (SALES): Pranav Saran (+91-9312685289) NATIONAL MANAGER (EVENTS & SPECIAL PROJECTS): Mahantesh Godi (+91-9680436623) NATIONAL MANAGER (ONLINE): Nitin Walia (+91-9811772466) ASSISTANT BRAND MANAGER: Arpita Ganguli CO-ORDINATOR (AD SALES, MIS, SCHEDULING): Aatish Mohite SOUTH: Vinodh Kaliappan (+91-9740714817) WEST: Sachin N Mhashilkar (+91-9920348755) PRODUCTION & LOGISTICS SENIOR GENERAL MANAGER (OPERATIONS): Shivshankar M Hiremath PRODUCTION EXECUTIVE: Vilas Mhatre LOGISTICS: MP Singh, Mohamed Ansari, Shashi Shekhar Singh PUBLISHED, PRINTED AND OWNED BY Nine Dot Nine Interactive Pvt. Ltd. c/o K.P.T. House, Plot 41/13, Sector 30, Vashi Navi, Mumbai – 400703, India PUBLISHED AND PRINTED on their behalf by Kanak Ghosh PUBLISHED at Nine Dot Nine Interactive Pvt. Ltd. c/o K.P.T. House, Plot 41/13, Sector 30, Vashi Navi, Mumbai – 400703, India PRINTED at Silverpoint Press Pvt. Ltd. TTC Ind. Area, Plot No. A-403, MIDC Mahape, Navi Mumbai 400709
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letters to the editor AJAY SETH MARUTI’S CFO IS DRIVING FOR RESULTS p. 20
RIVALRY HELPS LESSONS FROM RENAISSANCE p. 40
A 9.9 MEDIA PUBLICATION JUNE 2010
LOOK OUT, SUPERMAN!
SUPERMAN! n on Have CFOs take
too much? p.14
The right mix
VOLUME 01 | ISSUE 07
VOLUME 01 ISSUE 07 JUNE 2010
INNOVATION IS KEY CUT COSTS, BOOST MANAGEMENT CONTROL p. 26
THOUGHT PROVOKING ‘Look Out Superman’ (CFO, India cover story, June, 2010) was a thought provoking piece. While their powers have grown enormously over the past two decades, so has their work load and responsibilities. It was never an easy job, only it has become that much more challenging now. —Rishi Dhamecha, Delhi
WANTED: CASE STUDIES I like reading the profiles and also the column ‘view from the top’ in your magazine. As a young chartered accountant who aspires for greater things in life, I would however, like to read more on how leading CFOs have met and overcome challenging times or a crisis situation at work. This would be immense value to young finance professionals. —Richard J Carvalho, Pune
JARGON BUSTERS I like reading the topline section, since the articles are shorter and easy to read. Couldn’t you give us interesting snippets on CFOs and perhaps new business jargon that is in vogue as well? It would help young managers like me. —Meenakshi Kakar, Mumbai
Must say the magazine is like the Bible for finance heads. I am an aspiring CFO, having recently completed an MBA in finance and marketing. I believe the magazine has the right mix of education (learning), information and leisure reading —Rahul Bansal, Delhi
MARUTI NEEDS TO WORRY I don’t agree with Maruti Suzuki CFO Ajay Seth’s suggestion that his competitors haven’t really got the product strategy right for India. (CFO Profile, June 2010). In fact it is Maruti that has seen its sales dip sharply this quarter, for the first time in five quarters. Competitors such as Hyundai and Honda are fast catching up. —Ravindranath TR, Hyderabad
MORE ON LIFESTYLE PLEASE As a regular reader of your magazine I find the CFO profiles and the inpractice sections informative. But your pieces on travel, art etc almost seem like an afterthought. As a senior financial professional myself, I would love to be given suggestions about investments in art, new holiday destinations where one could also hold conferences and on subjects such as automobiles. —KB Iyengar, Mumbai
ACCIDENTAL READER I read your magazine by accident recently. I picked up a copy of your magazine at a friend’s office in Gurgaon out of curiosity but quite liked what I read. Keep up the good work. —Rajen Sarkar, Delhi
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topli n AMENDMENTS
The Group of 20 leading countries is set to endorse the complete Basel III package in November
Revised Basel III bank reforms CENTRAL BANKS AGREED ON A RAFT OF CHANGES ON MONDAY TO THE PLANNED Basel III reform that will make banks hold more capital and liquidity to withstand shocks without taxpayer aid. The full scope of Basel III won’t be clear until later this year when regulators agree on a new figure for a bank’s Tier 1 capital requirement -- currently 4 per cent -- and how long the sector has to phase out lower quality capital. The Group of 20 leading countries, which is spearheading the reform, is set to endorse the complete Basel III package in November with implementation from the end of 2012. The following are the main elements of Basel III as amended:
DEFINITION OF CAPITAL Aim is to improve the quantity and quality of capital. The predominant form of Tier 1 capital must be common equity and retained earnings. Banks can include deferred tax assets, mortgage servicing rights and investments in financial institutions to an amount no more than 15 percent of the common equity component. 6
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The capital requirement of a minority interest in a bank can be counted in the group’s capital only if the investment represents a genuine common equity contribution. A buffer range will be established above the regulatory minimum capital requirement, and capital distribution constraints will be imposed on a bank when capital levels fall within this range.
IN WHOSE INTEREST?
ECONOMISTS EXPECT THE REPO RATE TO REACH 6.50 PER CENT BY THE END OF THE FISCAL YEAR
Interest rates to peak by Q2, 2011
RISK COVERAGE These proposals aim to strengthen capital requirements for counterparty credit exposures arising from banks’ derivatives, repo and securities financing activities. They aim to apply capital buffers against these exposures and provide incentives to clear bilaterally traded derivative contracts in central counterparties.
The Reserve Bank of India (RBI) has just raised interest rates more aggressively and there is fear that the RBI may announce a further hike by the end of the year, a new Reuters poll found. Most economists polled, after the rate hike was announced, expect interest rates in India to reach their peak by the second quarter of 2011, the poll found. Economists expect the repo rate, at which the Reserve Bank of India lends to banks, to reach 6.50 percent by the end of the fiscal year in March, compared with a poll last week that put the figure at 6.25 percent, the median forecast of 14 analysts showed. The reverse repo rate, at which the RBI removes excess liquidity from the system, is likely to reach 5.25 percent by the end of March, the poll found, compared with the 4.75 percent forecast made in last week’s poll. Recently, in its quarterly review, the RBI lifted the repo rate by 25 basis points to 5.75 percent, as expected, but raised the reverse repo rate by 50 basis points to 4.5 percent, more than the 25 basis point increase economists had expected. Of nine economists who participated in both polls, five increased their outlook for the repo rate by the end of December, but only one raised their outlook for the end of March, showing that they expect the central bank to accelerate raising rates without necessarily tightening by a greater degree. Eight of nine economists in both polls increased their outlook for the reverse repo rate by the end of the fiscal year by between 25 and 75 basis points.
LEVERAGE RATIO Aims to put a cap on build-up of leverage in the banking sector on a global basis for the first time. Will help to lessen the risk that eventual deleveraging could destabilise the sector, and introduce extra safeguards. A trial leverage ratio of 3 percent of Tier 1, or balance sheets cannot exceed 33 times Tier 1 capital, to be trialled before a mandatory leverage ratio introduced in January 2018. LIQUIDITY The world’s first set of common liquidity requirements aim to ensure banks have enough liquid or cash-like assets to tide them through a very severe short-term shock and for less severe conditions in the medium to longer term. A one-year horizon liquidity buffer, known as a net stable funding ratio, will be trialled and become mandatory in January 2018.
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RBI plans tough stress tests of banks INDIA PLANS TO START CONDUCTING twice-yearly stress tests on its banks, following in the footsteps of financial regulators in the US and Europe. The Reserve Bank of India said that it had conducted rudimentary stress tests during the global financial crisis to check credit and interest rate risk. The bank said it would undertake more sophisticated tests in the future to build confidence in the country’s banking system. The comments by the RBI come just days after Europe published the results of stress tests of the region’s leading financial institutions. Seven of the 91 banks tested failed to meet capital requirements set by the Committee of European Banking Supervisors. India’s banks, which are largely state-controlled, emerged remarkably unscathed from the global financial crisis in spite of suffering a widespread liquidity squeeze. Only ICICI, India’s largest private sector bank, required explicit liquidity support from the RBI during the global financial crisis. The government borrowed from the World Bank to inject capital into some smaller state-owned banks whose capitalisation was a concern.
UK means business with India British Prime Minister David Cameron tried to persuade India to do more business with Britain as he sought new sources of economic growth to offset deep cuts in public spending at home. On his first visit to India since taking office in May, Cameron said, “This is a trade mission, yes, but I prefer to see it as my jobs mission.”
IMF grounds yuan debate THE INTERNATIONAL MONETARY FUND HAS CHOSEN NOT TO call the yuan “substantially” undervalued, a move that recognises China’s efforts to free up its exchange rate and avoid friction with an increasingly influential shareholder. The summary of an annual review of China’s policies omitted the contentious word, used by IMF Managing Director Dominique Strauss-Kahn as recently as June, which has long riled Beijing. Several members of the IMF’s 24-member executive board believed the Chinese currency was too cheap, the fund said. But others said a structural reduction in the balance of payments surplus was already unfolding thanks to past steps to boost consumption, while others took issue with an assessment by IMF staffers that the yuan was substantially undervalued. 8
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BEIJING DROPPED THE YUAN’S OLD PEG TO THE DOLLAR AND REVERTED TO A MANAGED FLOAT ON JUNE 19
Fortis bows out of Parkway MALAYSIAN STATE INVESTOR KHAZANAH TRUMPED INDIA’S Fortis Healthcare (FOHE.BO) in a takeover battle for Singapore’s Parkway (PARM.SI) with an offer that values Asia’s biggest listed hospital operator at $3.3 billion. The deal pitted a state investor and private enterprise in a rare asset tussle and ended two months of sometimes hostile wrangling over the healthcare firm. Both Fortis and Khazanah had sought to spearhead their expansion in the region’s booming healthcare market via Parkway, which runs hospitals in Singapore, Malaysia, India and FORTIS, IN ACCEPTING THE KHAZANAH OFFER, SAID IT China. The deal follows the sale of Australia’s Healthscope to WOULD USE THE S$116.7 MN PROFIT ON ITS PARKWAY private equity firms TPG and Carlyle for $1.73 billion. STAKE TO LOOK FOR OTHER OPPORTUNITIES Khazanah -- in its biggest acquisition overseas -- said it was offering around S$3.95 ($2.88) per share for all Parkway shares it does not own, or about 76 perSACH OR LIE? cent, topping the S$3.80 offered by Fortis, confirming an earlier Reuters story. Fortis, in accepting the Khazanah offer, said it would use the S$116.7 million profit on its Parkway stake to look for other opportunities. “At the end of the day, you have to take an economGOLDMAN SACHS GROUP INC (GS.N) HAS PUT SEC CIVIL FRAUD ic call. You can’t take an emotional call on the assets charges to rest, but a host of regulators and lawmakers are still you want to own,” Shivinder Singh, managing direcon its trail, leaving the firm with headaches as it tries to move on. tor and one of the two billionaire Singh brothers who A federal commission investigating the causes of the financial control Fortis told reporters in New Delhi. crisis has been among the most visible challengers, suggesting it Shares of Fortis, controlled by Shivinder Singh could hire outside accountants to audit the data Goldman keeps and his brother Malvinder, had surged more than 6 on its derivatives businesses. percent in Mumbai just ahead of Khazanah’s confirThe Financial Crisis Inquiry Commission (FCIC) also mation. The brothers, heirs to Ranbaxy Laboratories obtained records showing that Goldman bought insurance from RANB which was built by their grandfather and Citigroup and other banks against the risk that American Interlater sold to Japan’s Daiichi Sankyo, have ambitions national Group might fail. to build their healthcare business in a series of The disclosure shows that Goldman depended on Citigroup deals. Malvinder, who like his brother has an MBA and other weakened banks that themselves had large exposures from Duke University’s Fuqua School of Business to AIG, a U.S. insurer that had to be propped up with up to $182 in North Carolina, said Singapore would be the billion of government aid. company’s hub for international expansion. Details of those records were leaked to the media last week, Parkway shares were suspended on Monday pendgiving new life to concerns that Goldman benefited from the ing the announcement by Khazanah and closed at government’s rescue of AIG -- and showing that the company’s S$3.88 on Friday (July 23). The price of S$3.95 would troubles with regulators and watchdogs are hardly in the past. be the highest for its shares since October 2007. “They still have the target on their back and it is going to be a “This is a good price for investors to cash out,” long time before that target comes off,” said Cornelius Hurley, said Lynette Tan, an analyst at DMG & Partners in director of the Morin Center for Banking and Financial Law at Singapore, referring to the offer price. Boston University. “The change in ownership won’t make much On July 15 Goldman paid $550 million to settle civil fraud difference to Parkway’s future growth strategy charges by the U.S. Securities and Exchange Commission, or operations because Khazanah was already a ending a three-month ordeal that cost the company as much large shareholder.” as $25 billion in market capitalisation and led to calls to remove the firm’s top brass. SOURCE: REUTERS
Goldman Sachs still under a microscope
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insight THE CFO
Kuala Lumpur, Malaysia July 2- 4, 2010 Some of the most respected Chief Financial Officers in the country converged at the First CFO Leadership Conclave - a historic event that met with astounding success. The two day conference in Kuala Lumpur during July 2 -4 was the first step towards building a meaningful and relevant platform for the finance fraternity in India.
DR PRAMATH RAJ SINHA, GROUP MANAGING DIRECTOR AND CEO 9.9 MEDIA ADDRESSES THE GATHERING
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With the theme of “Now That You Are A Strategist…What next?” the conclave with ICICI Bank as principal sponsor was witness to inspiring discourses from eminent speakers from the world of finance, thought provoking sessions and interactive workshops. The participants reiterated the fact that a congregation of this scale was not only the need of the hour, but also helpful in enhancing knowledge and sharing views. In her welcome address, Anuradha Das Mathur, co-founder and director, 9.9 Media, emphasised the relevance of such forums. “We are overwhelmed by the response. Just consider it a soft launch, this group will grow bigger, better and stronger,” said Mathur. The conference began with an inspiring leadership talk by Dr Pramath Raj Sinha, group managing director and CEO, 9.9 Media. While reiterating the importance of leadership in delivering high performance, he recollected his vision from the past when
insight TOP: MOHANDAS PAI OF INFOSYS ADDRESSES THE CFOS; ABOVE: DELEGATES ENJOY THE CULTURAL SHOW AND SOME GREAT FOOD
he was steering the task of setting up the Indian School of Business in Hyderabad. “ISB was a big challenge for me and it remains my best performance. You as leaders in your respective fields need to answer the question – Have you found your ISB yet?” said Sinha. The talk was followed by the launch of a report titled ‘The DNA of the CFO’ by Farokh Balsara, partner – Ernst & Young. The report threw up certain unexpected revelations. It challenged the myth that any ambitious CFO would want to be a CEO. The survey conducted amongst 670 senior finance professionals in Europe, Africa, India and the Middle East, projected quite a different picture. In many countries and companies, CFOs or senior finance professionals who had deservedly earned their place as the head of the company’s financial division, saw their career choice as one to be celebrated and not just a stepping stone enroute to finally becoming the CEO. The opening day of the conference concluded with a talk by Nawshir Mirza, Independent Director and SN Mukherjee, COO-IL&FS. They discussed the thin line between responsible corporate strategy and risk management encouraging the delegates to brainstorm and find a happy middle path between the two. The evening was marked by a cultural performance by
members of a troupe from Malaysian Tourism. The delegates enjoyed every moment of the evening and were seen chatting and relaxing with colleagues. Day 2 began on an equally enthusiastic note with a talk by Mohandas Pai, Director HR, Education & Research, Infosys. Speaking on “ The CFO as a Business Leader”, Pai made a very interesting analogy between a corporate leader and Mahatma Gandhi. He shared a list of attributes CFOs can leverage from Gandhiji as having broad vision (for the corporation), balancing the interest of all stakeholders, simplicity in communicating a vision, grand strategy (ensuring the core of the organisation remains intact), immense courage and conviction, leadership by example (in adverse situations), articulation of the value system of the organisation, subdued ego (to create a layer of leaders under you for when you are not there), to live and leave on your own terms.
SHOW ME THE MONEY: FUND RAISING, CFO’S BIGGEST CHALLENGE A subsequent session saw issues such as investor relations and the problems of raising funds being debated and discussed. Presenting his views on what he felt an investor primarily looked for in a company, Kamal Pande, Director
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insight ABOVE: SANTOSH BABU WITH PARTICIPANTS; BELOW RIGHT: SANJEEV MANTRI OF ICICI DELIVERS HIS SPEECH
finance, Genesis Colours said: “An investor always invests in the management team. He is wary of one man army. It’s extremely important that an investor gets to meet a set of professionals who are leading each function and who have a good track record. A CFO who works alone may send out a wrong signal.” Taking the discussion further, Giri Giridhar, former CFO, Aditya Birla Retail said, “Retail is an industry setup in exuberance. It’s important to understand the dynamics of the business, but unfortunately many of us who have set up shop in the last 3-4 years haven’t really understood how difficult the retail business is. Despite the scale and size retail is a low profit business; the biggest challenge is fund raising.” Amidst the interesting talks and presentations, the delegates also sat through a highly charged interactive workshop with Santhosh Babu, Managing Director, Organisation Development Alternatives (ODA). In this session Santhosh took participants through an inspiring journey into their own inner self and their own inner opponent, and talked about creating an inner shift. According to Santhosh “It’s not your position or what you know that makes you a great leader, nor is it the tools or processes that you use to lead; it is who you are and how you project yourself.” In a session on refocusing on sustainable growth, the panelists Arpinder Singh, Partner - Ernst & Young; Hari Mundra, visiting professor, IIMA and former Director Hindustan Lever; Adarsh Bhargava, senior Practice Partner , Functional Consulting - Wipro Consulting Services and Raghu Venkatnarayan - Ernst & Young shared their strategies for effectively harnessing the economic turnaround. The keynote session on “Leadership at 20,000 ft” gave goose bumps to delegates as Captain Raghu Raman, CEO – National Intelligence Grid, exposed the audience to the hard-
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ships of a soldier. This workshop was based on the backdrop of the Siachen Glacier - unarguably considered to be one of the toughest battlefields on earth. During the workshop, delegates saw the battle field through the eyes of a soldier, felt his pain, anxiety, fear and uncertainty. And in that frame of mind, they experienced the redefinition of leadership. “Because you will have to lead and take decisions, you will realise what it means to truly motivate, what is the difference between managing and leading and what you could do ‘starting Monday morning’ to implement some of the learnings”, said Raghu. The last session of the conference was at The Petroleum Club, an exclusive lounge at the 42nd floor of the famous Petronas Towers. Vikas Arora, Group Director – Cloud Services, Microsoft launched its CFO Survey Report on “The Economics of the Cloud… Cloud 9 for the CFO?” and left the delegates with the thought: “The big question now isn’t whether to adopt cloud computing or not, but rather, where and when to adopt it.” The delegates then explored the aptly called “biggest shopping hub” in Kuala Lumpur on the Day 3 and left all geared up for the next CFO Conclave.
THE ECONOMICS OF THE CLOUD…
India CFOs appear receptive to the concept of cloud computing, but need a little more time to get convinced DEEPAK GARG
The advantages of cloud computing are commonly known — you don’t need upfront infrastructure investment, scaling up is relatively easy; and the service provider is likely to be more efficient than your company. The ability to pay as you go from a service provider rather than spending upfront feels natural to a CFO — there’s nothing new about buying services. What’s new then? Cloud computing offers a delivery and financing alternative to one of the bastions of corporate capital expenditures: IT. If a CFO can see better cash flow, lower risk and visibility, he or she will, likely, become a cloud computing convert in no time. It is, however, not always a bed of cash flow for everyone. Service 16
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big picture VIKAS ARORA (LEFT) OF MICROSOFT ADDRESSES THE CFO LEADERSHIP CONCLAVE DELEGATION AT THE MALAYSIAN PETROLEUM CLUB OF PETRONAS TWIN TOWERS IN KUALA LUMPUR, MALAYSIA
Do you consider investment in technology as a means to cut cost? 7.4%
What are the benefits of implementing a cloud computing solution? 80 70 60
30 20 10
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Provides competitive advantage
Allows to focus on its core business
Helps react quickly to market conditions
Helps the company be more flexible
Reduce upfront costs
level agreements, increasing monthly costs and data ownership are all potential trouble spots that need to be resolved. While it may not make sense for a company to apply a cloud computing model to every enterprise service, smart CFOs should seriously examine the trend for some of their services. The big question now isn’t whether to adopt cloud computing, but rather, where and when to adopt it? At the CFO Leadership Conclave, held in Kuala Lumpur in early July, Malaysia, knowledge partner Microsoft hosted a special session at the Malaysian Petroleum Club of Petronas Twin Towers, around the findings of a recent survey on cloud computing executed by the CFO Institute and Microsoft. The study was conducted to analyse the Indian CFO’s prevailing perceptions of cloud computing and its potential economic benefits. “Microsoft is working towards making cloud computing a reality for its customers and partners, helping them make the transition, today. The 9.9 CFO Leadership Conclave was a great opportunity for Microsoft to interact with the CFO delegation to discuss the market context in detail, while we were literally in the clouds,” said Vikas Arora, group director, Cloud Services, Microsoft India. It is not surprising that a majority of CFOs considered investment in technology as a means of cutting costs. Those who thought otherwise considered investment in technology as a means to improve processes. “The fact that costs are reduced is simply a side effect,” says SK Joshi, director finance, Bharat Petroleum Corporation. The majority of respondents considered reduced upfront costs, increased flexibility, and competitive advantage as key benefits of implementing a cloud computing solution. Surprisingly, however, most did not consider its ability to enable a company to react quickly to changes in market conditions as a key advantage. INSIGHT: Michael Schrage, Research Fellow, MIT Sloan
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Don’t know enough about it
Quality of support
We don’t need that service/power
No need for it
Time required to implement
It’s new untested technology
Availability/ Reliability/ Speed
Loss of control/ Compatibility
Change to organizational culture required
Impediments to adopting cloud computing
“There’s a saying in America that goes ‘where you stand’ depends on ‘where you sit’.
The CFO may be happy with how things are going, but the
business unit heads may think otherwise. ”
Who should take the lead in implementing a functional and cost effective cloud computing solution?
—MICHAEL SCHRAGE, RESEARCH FELLOW, MIT SLOAN SCHOOL’S CENTER FOR DIGITAL BUSINESS
School’s Center for Digital Business explains that the cloud can accelerate and compress both the development and the test times for innovation and change. “You can do this with suppliers and customers. It is a big deal!,” he says. The survey showed that over ten per cent of the respondents had already implemented a cloud computing solution, while another twenty per cent are planning to implement in the near future. A large portion of the respondents however, had no plans to install cloud computing solutions, a thought echoed by Robin Banerjee, CFO, Suzlon. “Having already invested heavily in infrastructure, we would consider it as an option when the time comes to update hardware infrastructure. Our concerns about cloud computing not being a proven technology would hopefully get addressed by then,” Banerjee adds. At IL&FS, the internal security policy does not allow the use of wi-fi networks, thus making it difficult to even consider
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cloud computing as an option, says SN Mukherjee, Chief Operating Officer of the company. INSIGHT: Michael Schrage emphasises the question that needs to be addressed explicitly is — Are the business unit heads satisfied with the flexibility offered by their existing IT infrastructure, as they are the ones who need to be responsive and adaptive to the market changes? Just because you’ve spent a lot of money on something doesn’t mean you’re getting value. “There’s a saying in America that goes ‘where you stand depends on where you sit’. The CFO may be happy with how things are going, but the business unit heads may think otherwise.” Currently, a concern regarding security and compliance is the number one impediment to large Indian corporations in adopting a cloud computing solution, followed by loss of control and compatibility.
“Although the time to implement a cloud computing solution may be fast, time will be required to prove that it works.” —ROBIN BANERJEE, CFO, SUZLON
Are you aware that cloud computing is potentially one of the most effective green technologies?
SN Mukherjee explains, “When we send an email, we don’t know where it goes… it goes into a cloud. We are moving from data abstraction to infrastructure abstraction, which can be unsettling.” The majority of CFOs surveyed were fairly neutral when it came to their impression of reduced time to impact compared to regular investment in IT hardware/infrastructure. “Although the time to implement a cloud computing solution may be fast, additional time will be required to prove that it works”, says Robin Banerjee. INSIGHT: “Time to Impact – If a business unit has a new and interesting idea, it can be easily tested on the cloud. It can give a customer the ability to customise an order, which would otherwise take forever on traditional ERP systems…You use the cloud to prototype the template with a few customers... learn from that, and that becomes your gateway. You then use middleware to integrate the innovation with your existing ERP system”, Michael says. The majority of companies have placed a high priority on reducing their capital expenditure to operating expenditure ratio, which is all the more reason to consider cloud computing as an effective means to reduce capital expenditure and increase IT infrastructure flexibility. “Cloud computing and traditional computing (ERP etc) are not necessarily rivals. If you collaborate with the CIO and business unit heads, you can have the best of both worlds. You can have the cloud give agility, nimbleness and responsiveness to business process and business units, and also have the existing infrastructure provide centralised support”, Michael says. One third of CFOs consider themselves responsible for taking the lead in implementing a functional and cost effective cloud computing solution. Most others, however, feel it is the CIO who should be held responsible for taking the lead, and changing IT’s internal charging model to a pay-as-you-go type framework. Over ten per cent feel that the CEO should take the lead. A high per centage of CFOs were not aware that cloud computing is a green technology. Cloud computing can save energy and money. When an organisation requires additional computing power, a cloud computing set up can draw on its additional computing power and resources, just when it’s needed. Energy and other associated costs for running servers the rest of the time can be avoided. Cloud resources provide a reserve that
Given existing budgets, cloud computing has enabled your organisation to experiment with new business initiatives and process improvements owing to reduced capital outlays and shortened timelines 1 = Strongly disagree and 7= Strongly agree 7
3 2 1 0.0
0.0 1.3 2.0
can be allocated without the need to pay for the resource sitting idle at one fixed location. Therefore, cloud computing enables an organisation’s IT infrastructure to be far greener than it currently is. Given the CFO’s belief that cloud computing can offer substantial savings, process flexibility and competitive advantage, they would be keen to explore its implementation, provided issues related to security and compliance and loss of control are managed effectively. CFOs also need to be convinced that cloud computing is a proven and tested technology, which they expect will happen in due course of time. To know more about cloud computing please visit:http://www.microsoft.com/ india/cloud/
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study THE DNA OF THE CFO
A study of what makes a chief financial officer
t’s become fashionable to say that any ambitious CFO wants to be a CEO. But, in The DNA of the CFO a quite different picture emerges: one of a group of people whose unique optic on the business has rightly earned them promotion to the forefront; a group who are embracing their increasing strategic remit; and who see their career choice as one to be celebrated – not a staging post to the role of CEO. These are the key findings of research into the role, aspirations and makeup of the CFO.
UNPRECEDENTED DEMAND FOR THE CFO’S UNIQUE PERSPECTIVE AND DISCIPLINE
Though the traditional finance skills of analysis, reporting and control are still crucial, the job of the CFO is broadening far beyond its technical heartland into a role that is much more “strategic” – in the broadest sense of the word. Leading CFOs are overturning outmoded perceptions of finance as “business prevention units” and repositioning the function as an enabling partner to the business. For many CFOs, the acid test is the extent to which business managers consult them for advice on key aspects of strategy. Over 60% Global as well as Indian CFOs believe that finance’s standing has improved in last 3 years.
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WHAT DOES STRATEGIC CONTRIBUTION REALLY MEAN? Tim Tookey, CFO, Lloyds says “The CFO has played an increasingly contributory role to the design of the strategy rather than just designing the process out of which the strategy comes.” There is a wide variation among different finance leaders on the exact nature of their contribution to strategy. Almost half (46%) of Indian CFOs say they play an active role in developing and defining the overall strategy for their company; as against a global response of 35%. But a greater proportion of Indian CFOs say that their contribution focuses on
Shifting perceptions to enable partnership with business Percentage of respondents who either strongly agree or agree with these statements Global India Finance’s standing in the organisation has improved in the last 3 years
Business managers turn to finance for advice on strategy
Financial crisis has forced us to refocus on control and reporting
CFOs are often unsung heroes in companies
providing insight and analysis to support the CEO (68%) and ensuring that business decisions are grounded in sound financial criteria (58%). For leading CFOs, this goes beyond being an “information provider” or “aggregator presenter.” Their commercial understanding and analytical skills mean that this proactive, yet supporting, role is a vital part of understanding how different decisions will lead to certain outcomes.
THE BALANCE BETWEEN OBJECTIVITY AND OPERATIONAL LEADERSHIP There is a delicate balance to strike between being the “objective, independent voice” of the business and assuming a broader responsibility for operations. A growing number of CFOs are adding operational responsibilities for functions such as IT or Property to their portfo-
CFOs have a duty to be the independent, objective voice of the management suite, and this can be tested by having an additional role that requires winning resource allocation
lios. Given their firm grasp of finance fundamentals and their management strengths, it is easy to see why their roles are expanding. But it also has the potential to increase the possibility of a conflict of interest. CFOs have a duty to be the independent, objective voice of the executive management suite, and this can be tested by having an additional operational role that requires winning resource allocation to be successful.
A CONTINUED FOCUS ON THE FUNDAMENTALS The CFO role is now more embedded in the development and enablement of corporate strategy and yet the financial crisis has forced CFOs to increase their focus
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Leading role in corporate strategy Indian CFOs report a bigger role in strategy than their global counterparts 57
Providing insight and analysis to support CEO/ other senior managers’ strategy planning
Leading key initiatives in finance that support overall strategic goals
Ensuring business decisions are grounded in sound financial criteria
Developing and defining the overall strategy for your company
58 35 46 39
Funding, enabling and executing strategy set by CEO
on the fundamentals of finance as well. Compared with three years ago, it’s the core tasks of risk management, controls and cost management that dominate the CFO’s priority list. This sometimes prevents CFOs from playing as big a role in broader corporate strategy as they would like. This is despite the fact that 64% of Indian CFOs spend 60% or more of their time on strategic aspects of the role. As Srikanth Balachander, CFO, Bharti Airtel has told us “I would say that 75% of my time is spent in meetings with business folk and 25% with finance folk.”
THE PUBLIC FACE OF COMPANY PERFORMANCE Mastering sophisticated communication skills in order to build trust among an expanding universe of stakeholders is considered a critical aspect of leader-
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ship. 78% Indian and 65 % global CFOs say that, increasingly, the CFO has to act as the face of the company on all issues related to overall financial performance. A larger proportion, 82% Indian CFOs agree that, following the crisis, the CFO’s key priority is to increase trust in the financial health of their business. But, relationships with external stakeholders, such as the media, the government and analysts are a challenge for many. Indeed, these “softer skills” seem to be an issue for many CFOs. Asked where they need to enhance their skills and knowledge, respondents point to presentational skills as the most important area for improvement.
THE CFO ROLE IS A CAREER DESTINATION IN ITSELF The broadening scope of the CFO role, and
the potential to influence corporate strategy and drive business change, means that most finance leaders enjoy a high level of career satisfaction. Yet, most believe that the challenges of the role mean that the ideal length of tenure within a particular company is only five years. 60% of Indian CFOs and 73% global CFOs view their role as a destination in its own right. Only 8% Indian CFOs harbour an ambition to be the CEO. Interestingly, they report few “heroes” or role models within their own community from which to learn, which may reflect on the degree to which CFOs have historically invested in their external profile. The CFO is playing an increasingly broad and vital role within today’s organisations. The DNA of the CFO sheds an interesting light on what that role is and how CFOs can excel within it. REPORT BY ERNST & YOUNG
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1+1=1? | COVER STORY
AN M&A DEAL MAY GIVE THE CFO A HIGH BUT STUDIES SUGGEST MANY SUCH DEALS END IN FAILURES. WHAT CAN A CFO DO TO AVOID POST MERGER BLUES? BENNETT VOYLES
SECRET MEETINGS, BILLION-dollar snap decisions, midnight counteroffers – when it comes to financial drama, nothing tops a merger. In fact, for most CFOs, a big merger is often the high point of a career, and many count the number of mergers they’ve done the way athletes count championships. Unfortunately, the deal tends to be the summit in more ways than one: more often than not, it’s all downhill from there. A variety of studies have found that 60-80% of mergers actually destroy value in the long run. How do you ensure your legacy isn’t a deep hole of debt? It’s not easy. Statistically, the best way is to make sure a merger doesn’t destroy value is by stopping it before the
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COVER STORY | 1+1=1? final handshake (see sidebar), but failing that, M&A veterans say the next-best thing is to make sure the post-merger integration stays on course.
LOOK FOR HELP “During the acquisition process, while the deal is happening, everyone is all excited. You’re running here and running there, you’re doing the due diligence” says Salil Agrawal, a director for PriceWaterhouseCoopers in Delhi. “Then once the deal is signed, it’s like, we have arrived," he says. But that’s a dangerous feeling, he adds, because it’s when the deal is done that the real work starts. The first thing to understand, he says, is that the company is going to need some additional help to get through the integration. “The mind set is that we can do it ourselves. That has to change, because when you acquire a new company you have a whole lot of additional work, which needs to be managed, along with business as usual,” warns Agrawal. Making sure that the parent company and the acquired company continue to grow while also ensuring that you’re taking advantage of the synergies for which you bought the company, takes a lot of work, he says. This is true at the individual level as well. “How much time does the CFO have? If he was spending 100 percent
IN TERMS OF INTEGRATION WE NEED TO HAVE THE RIGHT PERSON AND HOLD THAT PERSON ACCOUNTABLE — RAJENDRA PRASAD, PRESIDENT AND CFO, SRF
of his time running one organisation, now he has to manage a second organisation, and he has to manage the whole integration. So even if I assume he is going to spend one-third of the time in each of the activities, he needs to find able people below him to take care of many key functions,” Agrawal says.
PLAN, PLAN, PLAN Rajendra Prasad, president and CFO of
WITH A NEW COMPANY COMES A WHOLE LOT OF ADDITIONAL WORK, WHICH NEEDS TO BE MANAGED ALONG WITH BUSINESS AS USUAL
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SRF, the world’s largest manufacturer of nylon tyre cord, has learned through past integrations that the more deeply a company plans the integration, and the earlier it starts, the better the integration tends to be. “We’ve become wiser with experience,” he says. One way to smooth the process is to give ownership of the deal to the same person who will eventually run the unit. “One of the things that we have realised in terms of integration is that we need to have the right person and hold that person accountable,” Prasad says. Even before the closing, Prasad says he tries to bring in a new finance director for the unit to work in the head office first, in order to learn the company’s systems and then “parachute” that person in right after the acquisition. That stint in the head office is essential, he says. Otherwise, the newcomer will tend to identify more with the company being acquired than your company– a circumstance that can make it more difficult for him to make the necessary changes down the line.
WHAT SYNERGIES? Other kinds of detailed planning should begin early too. One key, says Harish NV, a national management partner for Grant Thornton India, is making sure that the value-drivers are clearly understood. “The understanding of the value creation drivers and expectations from those tend to get exaggerated during pre-deal and that is typically what goes wrong,” he says. Seturaman Mahalingam, CFO and executive director of Tata Consulting Services, sees his role as “keeping everybody honest.” When base case projections are delivered, he says, he tries to make sure that the assumptions that underlay them are based on reality. Dealmakers also tend to overlook how those synergies will actually be created. Many times, says A.V. Vedpuriswar, dean of the ICFAI Knowledge Centre in Hyderabad, no one thinks through how projected synergies will actually be real-
1+1=1? | COVER STORY ized. “What is often overlooked is how things actually happen on the ground,” he says. To measure how well these plans will work out, CFOs and other experts emphasize the importance of getting the right metrics early, not just of the target company but of tracking the synergies. The more detailed these can be too, the better, they say. So plan, then plan some more. But at the same time, be prepared to make adjustments to the plan as soon as your company starts to execute it. Just as military strategists joke that no battle plan survives contact with the enemy, priorities often need to be reconfigured as new crises emerge “It’s rarely realistic to stick to schedule,” Prasad says. How quickly should everything happen? Most authorities recommend a 100-day plan, and certain elements, such as financial metrics and payroll, need to be moved as soon as possible. But Vedpuriswar says that with a smaller acquisition, there may be managerial reasons not to move some elements too quickly. This can be particularly true in companies with wildly different wage scales, such as a domestic IT company and an organisation that was formerly a Western captive. Too fast, he says, and you’ll risk losing the people who were an important reason you made the acquisition in the first place. “When you’re dealing with small numbers of people, you can afford to give them more time,” he says.
GETTING TO NO WAY TURNING DOWN A deal may not be the best
way to get your picture in the paper, but the odds are as much 8 to 2 that it’s the right thing to do. With such a miserable track record, discretion is definitely the better part of M&A. If you’re getting pressured to hurry due diligence along and don’t have a good gut feeling for the project, don’t hesitate to slow down, experts say, even if it’s near the closing. “My view is that when everything is ready and the documents are being readied for signature the key decision makers should step back for a day or two,” says Harish HV, a national management partner for Grant Thornton India. If you take that pause, it can’t hurt to ask yourself a few questions:
1. Is the price too high? As with most investments, a lot of how well a merger succeeds depends on the price paid upfront. Merger veterans say you shouldn’t buy a company just because you’ve got money burning a hole in your pocket, anymore than you’d buy a stock. “We do not have a mindset which says ‘have money, will buy,’” says Rajandra Prasad, CFO of SRF. “In our company, it is cold logic that works... Don’t fall into the ego-buying trap,” warns Prasad.
2. What do the investors say? If the market has heard about the deal and hates it, pay attention. Two Boston Consulting Group consultants (Sirower and Sahni, 2006) have found that if the market hated a deal at the announcement they usually hated it a year later as well. A persistently negative response after the announcement can cost the bidder an average of 10.3% of their stock value initially, and drive a 24.9% stock price loss in the first year.
3. Would the deal still work if our synergy estimates are wrong? Projected synergies are often overly optimistic. If they weren’t, more mergers would create value. As Aswath Damodoran, a professor of finance at New York University’s Stern School of Business, noted wryly in a 2005 paper on the value of synergy, the evidence suggests that “synergy does exist but it is far more difficult to generate it in practice than it is on paper.”
4. Are we starting a wave – or catching one? It doesn’t pay to follow a trend. A 2005 study, “Do envious CEOs cause merger waves?” by Anand Goel, a professor at DePaul University in Chicago, and Anun J. Thakor at the Olin School of Business at Washington University in St.Louis, Missouri, looked at every major merger between 1978 and 2006 and found evidence to suggest that earlier acquisitions in an M&A wave tend to have higher returns than later acquisitions.
5. Has your CEO had a raise lately? If not, watch out. Goel and Thakor found that CEO envy seems to be a key driver of later acquisitions in a merger wave. If the CEOs of those new, larger companies are now earning much more than your CEO, his perspective of shareholder value may be a little skewed.
CAN ONE AND ONE MAKE ONE? One important concern now, especially among India’s emerging giants,
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COVER STORY | 1+1=1? is how to meld two cultures together. One recent major study found that the more disparate the cultures, the less likely the companies are to succeed. Günter Stahl, an associate professor of organizational behavior at INSEAD and co-author of the study, says that cultural differences tend to translate into greater mistrust between the organizations, which affects the ability of the companies to realise the synergies they need to make the deal work. Here, pushing for some sensitivity to local customs can pay off. Simple things like an Indian steel company’s decision to allow beer to continue to be served in the cafeterias of its European operations or an IT consultancy’s decision to permit workers in an acquired Portuguese operation to continue to moonlight can make a big difference in how well the employees respond to new ownership, Vedpuriswar advises. However, even if you convince the locals, you still have to convince investors. By and large, Stahl says, the greater the difference in cultures, the more skeptical the stock market is about the two companies working together as a team.
YOU ARE INTENTIONALLY BUYING IT FOR THE FUTURE. YOU CANNOT BE CONSERVATIVE IN THIS GAME ALL THE TIME — S MAHALINGAM, CFO, TCS
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THE GREATER THE DIFFERENCE IN CULTURES, THE MORE SKEPTICAL THE STOCK MARKET IS ABOUT THE TWO COMPANIES WORKING TOGETHER.
But even if you’re company is not a Tata or a Mittal straddling the globe, don’t think you’ve dodged the cultural issues. Guenter’s study has found that the nan-or-baguette sorts of cultural differences matter less in most companies than differences in corporate culture. In fact, he says, companies often manage human cross-cultural issues better than corporate cultural differences, such as differences in the degree of hierarchies between the companies. That’s not to say that cultural differences are always a bad thing. If a company is acquired appropriately, cultural differences can be an asset, says Stahl. If you’re part of an Indian company joining a global organisation, the biggest cultural issue may be in adapting to being one small cog in a larger machine. Executives, for instance, must learn to operate on a shorter leash as well. For instance, a CFO who might have had unlimited check-writing authority must now learn to call in to headquarters. ‘How do we give a comfort to the CFO that his authority has not been reduced?” says Praveen Gandhi, CEO of Carlson Wagonlits. His answer: one key element for an Indian company that is becoming part of a global organization is to make clear that the new rules are not really a loss of power. “It does not mean that their authorities have reduced. It only means now they are part of a bigger group,” Gandhi says.
There is no right answer to how much autonomy the new company should be given, according to Stahl. Some companies leave things alone for awhile, while others move right in. One answer that is always right, however, is to communicate with employees clearly about any plans. The old joke of the employee who says they were given the mushroom treatment after the merger – kept in the dark, fed manure, then canned - is not the best way to operate. Some mergers, such as the Daimler-Chrysler one, have gone wrong in part because the companies were not straight with their new employees about the goals, Stahl says. Here, experts say the CFO may have a special role to play, in communicating information about what will happen next, even if not all that is happening will be good from the acquired employees’ perspective.
CAUTIOUS ABOUT CAUTION Of course, like any major strategic move, there is an inherent degree of risk involved in any merger, and TCS’s Mahalingam warns that there is a risk in being overly cautious. “The thing is, you’re not buying it for the inherent value on a particular date. You’re intentionally buying it for the future. You can’t be conservative in this game all the time,” he says.
ANIL SAXENA, GROUP CFO, RELIGARE ENTERPRISE LIMITED
More than a
bookkeeper Group CFO at Religare Enterprises, Anil Saxena says his aim is to fly higher. He believes today’s CFO is much more than just a deal-maker and a superviser of internal controls. He’s the new leader who others look up to. ANOOP CHUGH
Religare Enterprises Limited, now a global financial service provider with operations across four continents, sees himself more than a mere ‘figure-head’. Currently, as the group CFO he juggles multiple roles of the preserver of assets, maintainer of cost competitiveness, growth value adder, manager of prosperity, strategist of the group’s aggressive growth plans and faith-garnerer of the stakeholders. Is that too much on the plate? “As the company grows, so do the responsibilities,” says Saxena who has completed nine years with the finance conglomerate. “It’s been ten years actually,” Saxena laughs, explaining: “This is my second stint with the company. I had joined Religare in 1996 for a year as assistant manager (investments), but quit within a year as most of the finance companies were doing badly.” Little did he know that he would come back to Religare again, but this time for a more fruitful association.
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ANIL SAXENA HATES BEING REFERRED TO AS A NUMBER-CRUNCHER. THE GROUP CFO OF
Facts & Trivia ZODIAC SIGN: Cancer PAST EMPLOYER: Kotak Securities LAST BOOK READ: Too big to fill FAVOURITE HOLIDAY DESTINATION: Australia FAVOURITE BUSINESS LEADER: NR Narayana Murthy NEWSPAPERS HE READS REGULARLY: The Economic Times, Business Standard FAVOURITE CUISINE: Indian FAVOURITE MOVIES: Many. Recently he loved 3 Idiots FAVOURITE BANDS: Kishore Kumar
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Fruitful would be an understatement if one had to define the company’s growth chart in the past nine years. Since 2001, after Saxena rejoined Religare, the company’s net worth has grown rapidly. “We currently have the largest book of equity lending portfolio in the country,” claims Saxena, who has seen the net worth of Religare grow from Rs 5-crore to Rs 2500-crore in nine years. Like all great minds, even Saxena is a humble man when it comes to taking credit. He shares the credit for the growth to the boom in the finance sector and ‘efficient team play’. “I can’t take credit for the success, nor can any individual from Religare. It’s a result of teamwork and the credit goes to the entire team,” he says. The fact that his colleagues enjoy working as a team can be gauged by the fact that despite Religare not being one of the better paymasters in the finance sector, almost the entire team has remained the same in the last decade. “When we started off we weren’t even the industry average (as paymasters), now we are industry average, I guess we were lucky we never saw attrition in the management,” he reveals. Saxena as the group CFO has made sure Religare has left no stone unturned in the finance portfolio offering products and services ranging from insurance, asset management, broking and lending solutions to investment banking and wealth management. “Expansion is the only way to survive. We had realised the need to go global and offer a variety of products under one brand name early,” he adds. Since 2001 Religare has grown in every way - opening 12 around the world (from just 2 in 2001) employing more than 12,000 people. Probably, his biggest test and success came during the company’s IPO in November 2007. Religare was able to raise over Rs140-crore from the IPO, which was oversubscribed by 160 times. In a way it’s a perfect CFO story for Anil Saxena. He had joined the company that was still finding its feet at a time when finance companies hadn’t had the greenest of books, and from there on leading it to the initial public offer in the next six years. “As a CFO my job was clear. I was to maintain the balance between business and risk. But we took enough risks to grow faster than the market,” remembers Saxena. The IPO isn’t the only feather in Saxena’s cap. Any CFO is known by his success rate at dealing with high-profile merger and acquisition deals. “M&As are important decisions. It’s almost like deciding – what college to join or whom to marry,” he smiles. The Judgement day in Saxena’s life came a year after the company went public, when Religare ventured into the mutual fund business by acquiring Lotus MF over a weekend. “It was a regular weekend, till the talks started early on Saturday morning. We discussed options through the night and by late Sunday evening the deal was finalised. It was one of the most exciting weekends for me,” he shares. 32
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Expansion is the only way to survive. We had realised the need to go global and offer a variety of products under one brand name early Though cynics never favoured the acquisition of Lotus MF as it was not a well performing mutual fund in India with almost 90 per cent of its assets in debt products making it a relatively passive AMC, Saxena proved the cynics wrong as the Religare-Aegon MF (as it was renamed after the takeover) AUM (Assets Under Management) multiplied by four times in the next few years. “We grew from a Rs 4000-crore AUM to Rs 16,000-crore AUM in a short period,” the man in the hot seat recalls proudly. Unlike a few decades back when CFOs were considered glorified bookkeepers Anil Saxena believes today’s CFOs in fact act as the glue that binds a company together. And he feels in this respect his job is still half done. “I aspire to be a complete leader. One has to lead by example. In today’s times a CFO must supervise internal controls,
handle synergies with major financial impact, and cultivate relationships with outside financial resources. He also drives major strategic issues, and plays a role as key advisor to the company management.” Multiple roles in a multi-product company is easier said than done, one would believe. But Saxena argues it is not rocket science either. “It’s not as complicated as it seems. We have teams for each line of business. We have decentralised most of the work except operations, risk, HR and legal.” Saxena says he has monthly or weekly meetings with different heads of departments, taking stock of every business. “For instance, we recently bought Citi’s home loan business. In this regards I met the concerned person leading the deal talks, gave my input and discussed possible bottlenecks and
solutions. Thereafter I left it to the person and his team who made sure it was a seamless transition.” So does such a diverse role leave any time for him to think beyond work? Despite managing the multiple responsibilities as group CFO of a finance behemoth, Saxena still makes it a point to spend time with his family and children. “Spending quality time with my family is the best relaxation I know. I make it a point to go for a long holiday with my family at least once a year, apart from spending time with them over the weekends. I love shopping and dining out with them as well, especially on weekends.” A travel buff, his favourite destination in the world is Australia. Discipline however, is ingrained in him. Saxena believes in the ‘early to bed and early to rise’ principle. He loves working out in the morning – be it Yoga or brisk walking. A Kishore Kumar fan, Saxena loves listening to old Hindi movies. He uses old songs not just to relive the golden days, but it helps him breakaway from monotony. He spends his evenings cooling off in the pool or playing table-tennis. He believes in people who are straightforward, fair, and trustworthy. “I am a man of my word, and prefer to work with similar people,” he concludes.
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Multi-tasking isn’t painful. We have teams for each line of business. We have decentralised most of the work except operations, risk, HR, and legal. I hold monthly or weekly meetings with the respective heads taking stock of every business.
innovation HOW GREEN ARE YOUR TRANSACTIONS?
Jayant Dwivedy discusses a ‘less paper office’, if not a paper less office and the resultant cost benefits
espite newer technologies knocking at our doors, we still feel comfortable using paper. The scale may be different but many organisations thrive on using paper, writing voluminous matter on paper, filling paper formats and printing / photocopying on paper. This is followed by sending paper documents across through couriers; and filing, storing and retrieving these paper documents! It is a habit. We have been brought up using paper. However, in the interest of the environment, this habit is best broken. This article does not advocate a paperless world or paper less office but discusses a greener office environment and the resultant cost benefits. So if not a paper less office can we discuss a “LESS PAPER OFFICE”? That by itself will be a green achievement for the current business leaders. World consumption of paper has grown four hundred per cent in the last 40 years. Nearly 4 billion trees or 35% of the total trees cut around the world are used in paper industries. We cannot negate paper from our lives but as technology advances and people get more aware about the environment, things will start changing provided we use less paper and go digital whenever possible. A carefully selected combination of different simple technologies can deliver the desired results viz. online transactions using simple applications, high speed scanners and OCR (Optical Character Recognition devices) etc.
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There are simple calculations available today that can enable an organisation to determine how “green” they are in terms of transactions? The use of paper (read cutting of trees) to do transactions, followed by the physical distribution of the printed copies or manually filled formats using different modes of transportation, severely impacts the environment. Cutting trees down or burning fuel, has a disastrous impact on the atmosphere. To take a simpler example from our daily lives, a single standard newspaper adds 71g of carbon equivalent. The carbon impact of online delivery of a newspaper is 9.4g and can allow 10 hours of online reading to have the
Bottom of the Pyramid!!
Middle Management Team
Simple bridging technologies can extend and connect the “TOTAL” organisation. Most transactions become on-line, highly productive and compliant.
WAY FORWARD TO A GREENER OFFICE
Design Criteria For Total Solution
Bottom of the Pyramid!!
Simple Bridging Technology
Middle Management Team
Business Framework in ERP
Company Financial Policies on Procure to Pay; Contracts, Reimbursements etc.
Current scenario Inadequate system coverage of the “bottom of the pyramid” leads to manual operations which necessarily have to be done on paper and moved around.
same carbon impact. This establishes the clear advantage of online transactions vis-à-vis manual transactions. As the size of the computational devices and processors become smaller and processing speed significantly increase, each table is serviced by speeds that were not available to a spacecraft launching centre a few decades back! The data transmission services and their reliability, advancement of the web and the availability of IT skilled manpower are beginning to make the life of the average business leader a lot simpler. Availability of information at the right time at the right place is vital for decision making. The same is equally important for meeting regulatory requirements and corporate governance requirements. Online transactions that capture data continuously, online checks and control and also collation under appropriate heads become absolutely necessary. As an example not being able to categorise spend at the requisition stage and also not validating the same with respect to limits, business requirements, policies etc. can leave an organisation with voluminous data on spend that cannot be processed into information. This becomes a liability as neither the top management, finance or procurement can accurately map out budgets or forecast spends. Non availability of data leads to practices wherein “the experienced few” take the business calls and the entire process remains as an extension of historical “episodes”.
This may well work fine in a steady business but in a dynamic environment and with ever changing business strategies it does not take long to find out that manual means of moving and compiling data can be detrimental to the business. Can a business leader aspire to put in place a system that makes the organisation transparent, productive and green? Is there a straightforward way to achieve this? In simple, how does a company plan to make the business green, transparent and productive? What follows are simple steps to get things right:
1. The project requires the sponsorship and backing of the top management. The process should start with fact collection meetings. Asking difficult questions and using a bit of external facilitation (to force the organisation to think outside the box) accelerates the process. “What is not automated?” should be the focus in these meetings. Also, ‘partial automation’ creates delays. These spikes make the operation complex, people dependant and take the organisation away from being green. Check for: Bottom of the pyramid not integrated; movement of papers and documents; late hours and week-end working; month-end peak loads etc. 2. The next step is the identification of areas that have big transactional load e.g. bill processing; ordering, employee reimbursements etc.
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A quick check reveals where and how these transactions enter the financial system. How many operations are manual before the financial system gets the first entry? Who are the people who do these operations? Where are they located? How many people are involved in the whole process? What is the turn around time? Check for: Availability of data on average turnaround time of the transactions; where are the documents stored and how are they moved around.
3. Follow this with, the identification of SIMPLE and COST EFFECTIVE technology solutions to overcome the situation. Determine the cost and timelines (budget 3-4 months of effort). The pay back for these solutions is as quick as 6-9 months. The overall efficiency of the organisation improves; the bottom of the pyramid gets integrated for transactions and also become accountable. The operation transitions from what was seem-
Availability of information at the right time, at the right place is vital for decision making. The same is equally important for meeting regulatory requirements and corporate governance requirements. ingly complex to a GREENER AND COMPLIANT environment. Check for: Available data on the last large computerisation effort in the organisation (if any) and the timelines;
4. Share information on the GREENER approach.It is appreciated by one and all and is a good strategy to effect change. 5. GREENER transactions necessarily lead to lower overall costs, higher productivity and greater compliance. Automation of transactions should not be mistaken as â€˜another ERP exerciseâ€?. Low cost automation of
transactions is nothing short of innovation. It should be an ongoing exercise from time to time (the technology experts need to ensure a TOTAL integration is achieved and the overall roadmap is well understood). However, in all such cases the technology bit takes a back seat by week 3 and the real essence (viz. smarter processes, lesser paper work, less tedious operations) remains.
JAYANT DWIVEDY is CEO, Empronc Solutions at jayant.dwivedy@ empronc.com
RAVI SUD CFO, Hero Honda Motors: replies to his CIO: IT is a very important business enabler!
VIJAY SETHI CIO, Hero Honda Motors asks his CFO: is IT a support function or a business enabler?
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ALOK NAGPAL Sr VP Finance Delhi Integrated Multi Modal Transit System Limited says that where IT plays a strategic role, the CIO should report to the CEO
MUKESH KUMAR Sr VP IT, Oberoi Group says that more and more CIOs are reporting to CEOs
While the classic debates on reporting structures and budget cuts haven’t ended, smart CIO-CFO pairs have brought about big changes. All starting with a good relationship.
ROBIN BANERJEE CFO, Suzlon says that it is easier for the CFO to add value to the CIO’s function
S K JOSHI CFO, BPCL feels that even in difficult times pruning IT budget is not the only option
V BALAKRISHNAN Partner & CIO, Polaris Software Lab: IT operations can create large unexpected risks
UMESH KHANDELWAL CIO, BMW feels the CIO should report to the CEO and not the CFO
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YIN & YANG FEATURE
Irrespective of the reporting structure, the CIO-CFO team needs to work together tirelessly in order to meet organisational goals BY GEETAJ CHANNANA
WHILE SPEAKING TO A CFO, I asked him if the CIO makes his job easier? “I do not know about that, but I certainly make his job easier” was his reply. When I asked the same question to yet another CFO, he had an altogether different take. He thought that IT was driving the finance and growth in his company. Just like the relationship between two different sets of friends cannot be the same, similarly, the relationship between a CIO and CFO and the reporting structure cannot be generalised. It depends on various factors. Some of these factors are:
ORGANISATION SIZE The first factor is the size of the organisation and its growth path. If it is a smaller organisation and does not have technology as its priority, the IT head may report to the CFO. This is mainly due to the fact that technology is not a core business enabler and is just a support function for the organisation. On the other hand, if the organisation has a progressive outlook and is growing pretty fast, IT becomes one of the biggest business enablers and is responsible for the growth of the organisation. In such a case, the CIO should report to the CEO as s/he needs to be aligned with the business goals and should know what is the direction that business is taking to enable the business to grow faster.
MARKET CONDITIONS If the market environment is not good and the company is looking at saving costs then the structure of CIO
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ROBIN BANERJEE. CFO, SUZLON
The CFO has the bird’s eye view of the organisation.
Who does the CIO report to? Others
Chief Admin 2% Officer
16% COO 33% CEO
UMESH KHANDELWAL. CIO, BMW IT is not part of finance, but it is its equal.
Part of One Management Team CIO-CFO follow ‘onebusiness-one-goal’ approach Always talk of IT-Business alignment Relationship is transactional, when required, we speak
50 40 30 20
the CFO, as IT is not part of finance, but it is its equal,” he said. However, some feel that the CIO should report to the CFO. Robin Banerjee, CFO, Suzlon holds such a view. “The CFO has the bird’s eye view of the organisation,” Banerjee says. “Hence, it’s easier for him to add value to the CIO’s functions.”
TOP MANAGEMENT OUTLOOK If the top management is from the brick and mortar generation, it is sometimes difficult for them to fathom the benefits that IT can bring to the table and, thus, they do not give it much importance. New age entrepreneurs are more comfortable around computers and understand its potential in enabling better business. In these companies you would see a separate IT portfolio that is working closely with the CEO in enabling better business processes for the company.
REPORTING TO THE CFO Communicating correctly becomes even more important when you are reporting to the CFO. Not just that, you need to understand other aspects of the business too. It is extremely important to understand what is more important – the technology or the information it car-
Key recommending \sponsoring executive
Main decision maker
Do not participate
LEGACY Technology implementation in organisations started off as computerisation of accounts. Some companies are stuck with the CIO reporting to the CFO structure of the bygone days. In reality IT has evolved into something much larger – providing services to each employee in the organisation. Umesh Khandelwal, CIO, BMW India, agrees with this view. “It is important that the CIO should report to the CEO and not
Participation of CFOs in IT decision making
What relationship do you share with your CFO?
reporting to the CFO makes a lot of sense, as both can work together to find ways to save costs for the organisation. While being interviewed by his CIO for this story, Mr Ravi Sud, CFO, Hero Honda Motors mentioned the merits of making intelligent purchase decisions. “During the downturn we invested heavily in an IT application to help us save costs,” he said.
SOURCE: FERF AND GARTNER
ries. With increasing operations it is easy for a CIO to be consumed by the technology and forget the information that flows through the wires. The CFO, conversely, does not understand technology and thus is focused only on the information. “The CIO should focus on both things equally – without one the other cannot be enabled or monitored”, says Mr Ajay Khanna, Head IT, Volvo Eicher Commercial Vehicles. As a CIO, you must have visibility and communication channels with the end users of your technology. Think of the users, how you could increase their productivity. It is about aspiring to be a senior business leader in your organisation. Finally, whatever the case may be and to whomever the CIO may report, it is important that both CIO and CFO work as a team in the organisation. “In most organisations, the CFO and CIO work together daily to finance IT and provide information that supports financial processes, but there is also an opportunity for them to form a powerful alliance that generates more value for the enterprise,” says Bill Sinnett, director of research at Financial Executives Research Foundation. The results of their study on CIO-CFO relations, carried out in partnership with Gartner, are depicted in graphs across this article.
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In a one-of-its-kind feature, the CIO of Hero Honda Motors India, Vijay Sethi interviews Ravi Sud, the company’s CFO on the critical role of IT in the organisation, and how he uses IT to solve other problems CIO What according to you is the key role of IT in the industry and the economy? CFO If you see the last decade and a half, the global economy has integrated. The concept of decoupling of one country from others in the world does not exist anymore. If somebody sneezes in the US, we get a cold in India. That is why I am a very strong advocate of coupling. The world is becoming one, as far as business is concerned. It is boundry-less. This is where IT is the biggest enabler – it reduces the boundaries and makes the systems seamless. For instance, in our case, starting from the time we supply the goods to the time the money reflects in dealer accounts, the whole process is seamless and fully automated. There is hardly any human intervention, irrespective of the location of the dealer. IT has simplified to an extent that we do not have to bother about the nitty-gritties. But, it is important that you have good processes and controls to ensure that you can get the most out of IT. CIO Once every year we discuss the annual IT budget requirements in details and then follow up with monthly reviews. In my
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VIJAY SETHI CIO, HERO HONDA MOTORS
In tough times, do you cut IT budgets? three years experience in this organisation, I have noted that you have not cut even a single rupee. What are the criteria that you keep for sanctioning IT budgets while consolidating the budget requirement across the company? CFO I do not think of IT as an expense, I think of it as an investment. If you invest correctly, it will definitely pay back. It may not be in the next three to six months, but definitely in the next couple of years. Whenever there is a crunch, CFOs cut costs. When they have to do this, they look at their biggest expenses. When you look across the board, what are the expenses that appear non-core – advertisement, brand building and IT. In reality, IT is actually the function that can help you save costs across the board. During the 2008-2009 time period, when we were going through the downturn, we made one of our largest investments worth more than 70 crores in a DMS.
CFO, HERO HONDA MOTORS
I would rather use IT to enable my processes.
We could also use IT to cut travel costs by using solutions like video conferencing. CIO Letâ€™s talk about things in Hero Honda: how does IT enable in achieving top and bottom line targets and how does it help in CSR? CFO As far as top line is concerned, it is basically concerned with growing your business on a sustainable basis. To achieve this you must understand customer requirements so that you are able to direct your internal processes and R&D, you are able to cut short the time to market and launch your product. You also need quick and accurate feedback. If something is going wrong you should be able to rectify it soon. This is where IT has helped Hero Honda cut short the gap between its customers and suppliers and brought them closer to the company. CIO How has IT helped the environment or community? CFO Needless to say, we all must take care of the society and the environment. As a small initiative, we analysed the number of cheques that we issued as an organisation. We issued 34,500 cheques in the financial year 2008-9. We aimed to reduce them to zero and were able to bring the number down to 9,600 a year in the last fiscal. This has been largely due to the efforts of the IT department. CIO There is a debate that goes on in IT circles: is IT a support function or is it a business enabler? What are your views? CFO According to me, IT is a very important business enabler rather than just a support function. It is often IT that helps discover new strategic options, though it is up to the management to use these options. For a manufacturing company, we have grown pretty fast in the past decade. Timely IT investments has contributed a lot to make this happen. CIO Managing risk for the company is one of your important portfolios. How does IT help you there? CFO We are developing a software that
would help us in setting controls that meet all these statutory requirements. For instance, if an employee has to deposit the EPF by a certain date of every month, he would need to submit the scanned copy of the proof of submission when he is asked for it by the software. Otherwise, his senior would be immediately alerted of the failure.
CIO How important is it for the IT head to be finance- and legal-savvy? CFO According to me, all of these are specialised areas. If you ask me, whether I have expert income tax knowledge, I would reply in the negative; I only have working knowledge. Similarly, all senior people in the organisation should have working knowledge of parallel specialised areas. Basic knowledge is very important. Similarly, I must know a few fundamental things about IT.
Should a CIO report to a CEO or CFO? The assumption is that IT should report to the CFO because it started as the computerisation of accounts. But, IT is not only computerisation. It is an integral part of the system that needs the undestading of business needs and strategy. According to me, reporting to the CEO is a much better option. It is also better because many CFOs do not go out of their domain. Many CFOs are just accountants (CIO says: just like many CIOs are IT managers), there are very few people in the industry who look beyond their function. According to me, it will restrict the CIOs role if he reports to the CFO in the current environment. CIO
CIO Finally, what should the CIOs do to ensure a great relationship with the CFO? CFO Unfortunately, the CIO from my company does not drink (laughs). We must have a good time together, meet more often and have a smooth relationship. On a more serious note, they should communicate openly and transparently with each other. That is the biggest driver for any good relationship in an organisation.
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ALOK NAGPAL SVP - FINANCE DELHI INTEGRATED MULTI MODAL TRANSIT SYSTEM LIMITED
CFOs understand the business best
CIOs NEED TO STAY CLOSE TO CFOs THE CFO ANGLE
Clarity on the business’s financial plans is essential if the CIO must improve processes. 46
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THE RELATIONSHIP BETWEEN CIOS AND CFOS has the potential to impede or accelerate overall business performance. CFOs have gained significant influence over IT, particularly in technology deployment. The evolving role of the CFO is to multitask between business strategy, finance, risk management and IT. His job has always centred on information, and the role today has evolved from being a top-ranked accountant to a top-ranked strategist. In an ideal world, the CIO and CFO must work as partners. However, since technology decisions have a huge impact on the organisation, CFOs must take charge of the key decisions, as they can see a wider horizon of the enterprise. Information Technology is about information, and CFOs are the key users of information, be it financial analysis or MIS, CRM or ERP. CFOs understand the business best, and should be versed in technology to work as a decision maker for IT investments. Wherever required, CFOs must upgrade themselves in technology to take informed decisions. One advantage of CIO-CFO reporting structure is that it helps bring cost discipline to IT spending, and focuses IT initiatives to
business needs. Nevertheless, CFOs should not overstate their own technological importance, but give enough freedom to CIOs to take pure technology related decisions. On the other side, CIOs should not perceive CFOs as an obstacle. CFOs sometimes regard IT as a support function only, underpinning the true importance of being a business enabler. There have been conflicts on leadership issues and disagreements on how to collaborate. A genuine collaboration turns differences to everyone’s advantage by eliciting fresh ideas. CIO not working closely with CFO may not have a clear view of the firm’s overall operations, financial controls and resource utilisation. Therefore, cost leaders with a CIO-CEO reporting structure are likely to underperform relative to cost leaders with a CIO-CFO reporting structure. Some believe that CIOs are better off reporting to CEOs because they have more power, can be more creative, experiment with new IT initiatives, and have a role in strategic planning. Whether the CIO reports to the CEO or CFO is a measure of the relative power and importance of the CIO in the company. The CIO reporting structure depends on how critical IT is to the company’s strategy. Companies with a strategic IT orientation can have their CIO report to the CEO, whereas companies where IT has primarily operational role, CIO may report to the CFO.
SVP - IT, OBEROI GROUP
CIO reporting to CFO is a thing of the past
HEADS IN! THE CFO ANGLE
Whoever the CIO may report to, it's important that he engages with a steering committee
IT IS NO LONGER A SUPPORT function in an organisation. Gone are the days when technology was used for accounting purposes only. Over a period of time the role of Information Technology has changed. Today IT is an enabler of all functions. It is also strategic to business growth, though its impact depends on the industry vertical it is servicing. For those industries where revenue streams are enabled through technology, IT/CIO plays a direct role in business growth. In other verticals it promotes business growth by creating opportunities for re-modelling. Also, IT is not just a reactive and book keeping function. It is more directly related to day-to-day business functions and decision making. Functions like marketing and materials expect IT to provide actionable data for better management of their functions. For these functions, IT provides definitive insights into the supply chain, stock management and demand forecasting, enabling decision makers to take more informed decisions based on intelligent analysis of data and trends. The materials head can drill down to every component level to derive cost
benefits from technology. The marketing head can get better insights into the customer data for planning his activities to help the business gain a competitive edge over others. In either case, the CIO is not restricted to finance and hence CIO reporting to CFO is a thing of the past. The number of CIOs reporting directly to CEOs is growing and this change is indicative of the growing importance of CIOs. As for finance, it has a role to play to ensure a decision is financially sound. CFOs also have to understand that not all future directions are ROI driven. Some of these decisions are based on a leap of faith. A classic example is ERP implementations. Hence finance is not fully aligned to the business impact IT can deliver. Should CIOs report to CEO? This actually depends on the individual leaders. Does the CEO find that the Information Technology head has a good amount of potential to achieve the enterpriseâ€™s business goals? If yes, then the CIO should directly report to him. If no, then CIO should actually be responsible to a management team consisting of all function heads. In this way, the CIO will be able to better understand overall business objectives and at the same time identify those areas where IT can enable business objectives. To me, a CIO can report to anybody purely for administrative reasons but for functional reasons he should be aligned to CEO and/or steering committee.
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CFOs PRUNING IT
S K JOSHI CFO, BPCL
IT spending should have ownership from business
OWNERSHIP, WE TRUST THE CFO ANGLE
An IT steering committee alone can properly assess IT projects TILL AROUND THE LATE SEVENTIES AND EARLY eighties, Information Technology in businesses referred to systems engaged in process controls and transaction processing. The use of personal computers was in the nascent stage. Over the last two decades, there has been a quantum leap in the use of IT in businesses. Today it represents an essential part of every business irrespective of the size of the businesses. Investment in IT has become an important component of corporate budgets. Many a time, the IT budget becomes 48
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the first casualty whenever the business is passing through a difficult period.
INFORMATION TECHNOLOGY â€“ A COST CENTRE OR A VALUE CENTRE In managing IT budgets a key question that needs consideration is whether the technology function is a cost centre or whether it is in the nature of a value centre. If IT is perceived as a cost centre, decisions on IT budgets end up being taken in isolation and, in difficult times, the IT budget undergoes downward revisions. It is essential to have a holistic approach to spending on IT. While the costs involved are more or less clear, it is critical to estimate the benefits. Further as technology exists to support business, it is essential for the IT spending to have the ownership and commitment of the business. It is therefore a good idea to have an IT steering committee with representation of all key stakeholders who can be involved in the process of drawing up the IT budgets. The top management can also look at funding of IT projects as corporate initiatives. The funding can be recommended by the IT function (with strong justification from the business) to the CFO. This has two advantages: IT departments takes the responsibility of overall enterprise IT architecture. Individual businesses need not worry about detailed aspects of funding (handled by CIO and CFO). As long as the IT budget making process involves all the stakeholders viz IT function, businesses and corporate finance, the scope for pruning of budgets is almost non existent. This will also encourage IT function to go in for cutting edge technology which can bring value to the organisation. While the risk factor associated with a new technology would still be there, it would also give the organisation a strong first mover advantage. Pruning of IT budgets is therefore not the only approach even in the most difficult of times. If the CFO is satisfied that there is significant value for business, he should not seek to reduce IT spending but instead use it as an effective business tool for driving value for the customer.
V BALAKRISHNAN PARTNER & CIO, POLARIS SOFTWARE LAB
IT operations can create large unexpected risks.
COCKED THE CFO ANGLE
Why keeping a tab on the CIO’s activities is very critical to the CFO CFOS HAVE A BIG RESPONSIBILITY WITHIN AN enterprise – they are responsible for the tracking of enterprise assets and liabilities, income and expenses, profits and losses, not to mention risks. IT assets and operations impact all these elements – often disproportionately, and in unplanned ways. Hence CFOs have a special ‘attachment’ to IT budgets and spend a lot of time tracking them! IT assets possibly have the fastest ‘real’ depreciation compared to most other assets. They get obsolete very fast, and replacements come with better performance at lower costs,
s LOOK at BUDGETS? at a rapid pace, resulting in erosion of ‘value’ of any IT asset. CFO’s have to worry about ensuring that the enterprise does not collect assets to fill a future museum. When an enterprise acquires an IT asset, the asset comes with a long tail – the future maintenance and operations expenses. Unless we spend on maintenance in the form of AMC or upgrade contracts, the value of the IT assets drops rapidly. So the CFO is concerned about the TCO during the lifetime of the asset and not just the capital cost. IT operations have the potential to create large unexpected risks and liabilities to the company – You could run into a huge unexpected telephone or data bills due to genuine use, or otherwise. Your IT staff could be installing expensive software or they may be installing pirated versions of some software, the latter creating potentially large compliance risks that could wipe out most of the profits of the company. Every device or connection added to the network could act as a potential compliance timebomb, if not handled appropriately, and it makes sense to ensure we buy exactly what we need to buy. In most enterprises, a hard pressed CFO who is given the mandate to improve the bottom line first looks at the IT department. First item on the list is telecom – every CFO knows the telecom rates have been dropping over years and would like to prune the telecom budgets to take advantage of this dropping tariff. The next item is AMC. AMC keeps going up for obsolete hardware and it makes economical sense to get replacement hardware at much lower cost with 3 to 5 years warranty. As a rule, several capex investments have the potential to save a large opex, and every opex item needs to be scrutinised to see if replacement by an up to date capex item would lead to significant reduction in maintenance and operations costs. IT has played a big role in cost reduction and performance enhancement; but, at the same time, every CFO wants to ensure that every new technology investment fits within the the company’s budget plans and that the company’s profits are not eroded. Thus the need for every IT expense to pass the CFO’s close scrutiny.
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STRIKING A BALANCE ANALYST OPINION
Active engagement between the CFO and the CIO in the decision making process can help overcome many hurdles
THE CIO'S ROLE, WHICH HAS EVOLVED OVER THE YEARS, has been the subject of discussion and debate in the corporate corridors. The role and function of technology within the enterprise has changed, and, accordingly, the scope of the job at the helm has also changed. Traditionally, technology was deployed for producing MIS. The IT function was considered as the custodian of the company’s information resources. MIS itself was seen as an output of financial reports and general ledger. Thus, the reporting of a CIO into the CFO was seen as a natural extension. However, today, the role of CIO is not limited to managing information resources. Information is now much more free50
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ly available, and the tools to create and edit them so widespread that the custodian model has become outmoded. Technology is now seen as a tool for automation, primarily enabling effective decision making. It now provides an enterprise with the tools to collate, harness and leverage knowledge rather than just data. The CIO is therefore a critical contributor to the development of the organisation’s strategy, a valued member of the “C” suite, a leader who is able to lead and support major change in organisational processes, manage teams of high-performance technology staff, and is an astute judge of the potential of new technologies.
THE CIO-CFO DEBATE
NEED FOR A BALANCE As roles and responsibilities converge, the key to mastering this challenge lies in achieving greater alignment and transparency between IT innovation and business strategy. This balance should achieve the following three results for an enterprise: Balance between short and long term objective of enterprise: Short term technology investments should not be held back in the quest for ROIs and payback periods. Similarly, it is important not to forget about return on investment, payback and total cost of ownership ratios for long term technology investments. The aim is to enable CFOs to make
V RAMKUMAR GLOBAL HEAD- BUSINESS TECHNOLOGY PRACTICE, CEDAR MANAGEMENT CONSULTING.
The role of the CIO is not limited to managing information resources. Technology is now seen as a tool for automation, enabling effective decision making. It now provides an enterprise with the tools to collate, harness and leverage knowledge rather than just data.
The divide in the roles between the CFO and the CIO is sharper now than before. CFOs typically have the task to look at business plans and the operational goals of the organisation, and accordingly build budgets with capital allocation plans. The CFO is driven by metrics and measures investments by their returns; technology is seen as a cost centre and in the process the element of subjectivity has a likelihood of being lost. On the contrary, CIOs are inundated with information on trends related to the latest technology and contemporary tools. Quite naturally, on many occasions, in the quest to latch on to the latest technology, the ‘return on the investment’ viewpoint does tend to take a backseat. Both these, however, are quite natural and logical from their respective standpoints. The key question, therefore, is how to strike a balance, and, more importantly, what is it that the balance should ultimately result in.
faster and more informed decisions through improved visibility of metrics. Determining the ROI of technology investment: Finance managers are now increasingly seeing business returns on all assets of the enterprise – be it tangible or intangible, while IT managers talk of moving technology from a cost centre to becoming a strategic asset and value creator. The essence of the solution therefore is to come up with a useful ROI calculation that identifies all the sources of cost (hardware, software, training, downtime, etc.) as well as all of the sources of benefit (direct savings, enhancements to productivity and improvements to quality – i.e., customer satisfaction). Fortunately, experienced CFOs do understand the challenge of getting a real ROI estimate. A good strategy is to engage the CFO and the finance function in coming up with the appropriate matrix. Balance between the roles of CFO & CIO: It is important to understand that the purpose of the existence of these roles has different origins. Each role depends on the other for effective execution of the responsibilities, even while one is not a subset of the other. It is true that in the current economic scenario where the focus is on cost cutting and improving efficiency, the role of a CFO has a much larger connotation – CFOs must take ownership of the financial health of the organisation. The CIO’s role, on the contrary, has a more technical orientation; nonetheless, it too focuses around the same objectives – improving efficiencies and quality of decisions through effective automation, quality of MIS and timeliness and accuracy of information. In many ways, therefore, even while both of these roles are support functions, they reflect the two sides of the same coin. Both roles are complimentary, and both are in existence to support the larger objective of the enterprise. More importantly, the ‘end-objective’ of both the endeavours – be it the technology investment itself or be it the measurement of its return – are in the larger interests of the enterprise.
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innovation WHAT WILL BOARDS NEED FROM CFOs OVER THE NEXT FIVE YEARS?
Here are some questions and answers that should be on the minds of the finance executive related to boards and their needs BY ELEANOR BLOXHAM
s directors and chief financial officers work together in this new decade, they face a very different world than the one of a decade ago. Then, boards of directors were quite hidden from public view and they didn’t participate in oversight of the finance function the way they do today. Nor were they as involved in compensation matters or in nominating their own members. At that time, many CFOs chose the external auditor — and many more had internal audit reporting to them. Global sourcing was less prevalent and accounting changes less rapid. “Earnings management” was commonplace and did not have the general disapprobation it does now. And the Internet was in its infancy. Looking ahead, boards and CFOs face a landscape of even greater challenges. The workforce is different and the expectation of companies’ behavior is greater. Corporations are expected to behave in a way that supports environmental and social, as well as economic, goals. To wit, a year ago a report issued by the Committee for Economic Development stated: “The report concludes that corporate boards and the leaders they select must integrate relevant societal concerns, such as environmental and human rights considerations, into corporate strategy, to strengthen long-term competitiveness and the sustainability of both the corporation and the society in which it exists.”
Today, stakeholders are more vocal and more likely to band together. The speed of change continues to accelerate. And with all these changes comes a world in which boards and CFOs have less and less strict control. In this environment, here are questions and answers that should be on the minds of the finance executive related to boards and their needs over the next several years.
What have the last few years revealed about what boards need from CFOs? It depends on the board. The stock exchange rules mandated some financial competency on boards earlier
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Is board education an area that you believe will be important in the years ahead? Yes, definitely. Strategic-thinking CFOs can be helpful by guiding the board to choose independent sources of education (outside the public auditor community) to help boards navigate and oversee the financial health of the corporation appropriately. Many directors are former executives but not necessarily strong analytical thinkers. Boards need to work with facilitators that can help them explore decisions and behavioral science at a deeper level — and since that is what drives the numbers, these are areas CFOs need to be focused on, as well.
404 could have been lessened with a greater emphasis on broad-based thinking skills and aptitudes, and the challenges ahead with respect to fair value and IFRS (in addition to the fast-paced change in the world economy and organizations themselves) will require a renewed effort to reinforce these core aptitudes, particularly vital for the leaders and educators of the profession.” Because many educational institutions in the United States, through their degree programs, no longer promote the broader skills, CFOs will need to be creative in finding solutions to step into the breach. The issues of training go beyond the finance staff and IFRS. Boards need the CFO, rather than the human resources department, to take up the cause for financial acumen throughout the organization — and not just in the narrow sense many people think about, but in terms of the level of acumen required for good day-today decision-making.
in the last decade. The last few years have shown, however, that some boards still don’t have the financial acumen to do the heavy lifting required. Even if a board has a member with an accounting background, the board may still lack strong diversified financial and economic skills. Another issue, separate from the formal background of directors, has to do with personality. Many boards lack enough members with an analytical and/or a curious predisposition. Over the last few years, this has meant the board has needed a lot of education and, in some instances — as the financial crisis showed — board members didn’t receive the education they needed. Many boards have been overreliant on the CFO because of the board’s composition. For CFOs, this has meant questions that should not need to be asked were and ones that were deeper and could have helped (such as, “What’s our liquidity risk on auction-rate securities?”) were never broached.
Another issue, separate from the formal background of directors, has to do with personality. Many boards lack enough members with an analytical and/or a curious predisposition.
What other areas related to education should CFOs be looking to to support the board’s efforts? With the continuing changes in accounting and the move to International Financial Reporting Standards looming, audit committees need to be asking the right questions to assess external audit’s competency. CFOs need to be thinking deeply about education for the audit committee and their own finance staffs in the advent of these changes. To do this well, CFOs will need to be mindful that many on their staff may have backgrounds that have been narrowly focused in terms of their training, either in business, accounting or finance, and may not have developed the broad, abstract, conceptual and analytical thinking skills required to navigate the new environments. As I wrote in a commentary to the Advisory Committee on the Auditing Profession in 2008: “Some of the difficulties in implementation of [Sarbanes-Oxley] Section
Have the requirements for financial acumen changed postcrisis? The requirements haven’t changed, but the awareness of the need for a broader kind of financial acumen is seeing light. With the fallout from the most recent crisis still ever-present, there is a renewed focus on risk. In my book, Economic Value Management: Applications and Techniques, which was written nearly a decade ago, I devoted significant space to the incorporation of risk into performance metrics, strategy, decision-making and compensation. I also developed a model for the corporation that included all stakeholders and their relationships to the corporation. Since the financial crisis, the CFO’s guidance is more sought-after than ever. Here’s a look five years out at what skill sets CFOs will need to maintain and enhance relationships with their boards of directors. The events of the last decade have reinforced this shift in thinking toward a
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broader stakeholder view, away from a narrow shareholder perspective. This model of the corporation is now dominating the conversation, including examination of a corporation’s contributions to society and its impact on employees, customers and communities. The new views shaping expectations of what corporations can and should be are impacting the economics of corporations today and are also reshaping public views and public policies. The financial acumen I called for is what CFOs will need to begin to seriously explore in earnest in the decade ahead. It covers two major areas. First, CFOs need to look beyond risk analyses and mitigation efforts to the development of riskbased metrics as the cornerstone for analysis and decision-making. Secondly, CFOs need to articulate value from a stakeholder perspective. The value the corporation derives from each of its stakeholders, and the value the corporation contributes to each of them. What other areas around decisionmaking should CFOs be focused on? Today, despite all the analyses that boards and executives have at their disposal, many corporations are still making decisions by “shooting from the hip” — or from “the lip,” whichever phraseology you prefer. The data is there, but decisions are not made that way. CFOs need to champion better analytical decisionmaking. Better metrics, new risk tools and stakeholder analyses can help re-invigorate these processes. This will only be successful, however, if CFOs make sure they are woven into the fabric of budgets, resource allocations, strategic decisions and incentives. Making the basis for decisionmaking clear, and using that same basis from the boardroom and the C-suite down to the production line, is a powerful way of reengaging a work-
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force demoralized by long hours and threatened layoffs. It provides a platform for greater employee participation in decisions. That engagement is really a contribution only finance can make. HR can’t really engage employees in this powerful way, so boards need CFOs to take this on. CFOs need to outline a strategic plan for decision-making that incorporates these key principles and then sell it to the board. CFOs also need to raise the level of corporate and board decision making by reexamining their reporting. Early warning signals lurk in the data, but sometimes (as the financial crisis showed) they don’t make it to the reports. In Economic Value Management: Applications and Techniques,
need to look for better ways to report a true reflection, a material representation of the financial condition, rather than simply reporting numbers in a way that meets the narrow definition of acceptable using the accounting standards du jour. Finally, CFOs can instill better decision-making by helping the organisation determine why formal processes are often disregarded and by identifying the pitfalls of bad decision-making. Often, the issues are related to human nature. Boards need CFOs to raise corporate and board awareness to common decision traps and, based on prior issues, corporation-specific ones. For example, individuals may be persuaded by the presentations of others simply
CFOs can instill better decisionmaking by helping the organisation determine why formal processes are often disregarded and by identifying the pitfalls of bad decision-making. I offered suggestions on the use of volatility analyses for early warning on key operational line items and directly addressing ambiguity in numbers, ambiguity that clouds their meaning. More CFOs need to embrace statistics and apply volatility analyses and other related techniques in reporting to achieve better advance signaling. They also need to re-examine their reporting to highlight and eliminate, where possible, ambiguity about the numbers presented. For example, accounting standards call for more valuation of line items that used to be cost-based. CFOs need to examine ways of reporting some numbers as solid and others reflecting the ranges of possibility based on the assumptions used. They
because those individuals are similar to them in looks or in background. According to research in the March/ April 2010 edition of Scientific American Mind, individuals may be persuaded because the materials presented are easy to understand, even if a more complex analysis is a more valid assessment of the problem or situation. THE AUTHOR IS AN INTERNATIONALLY RECOGNIZED VALUATION AND GOVERNANCE AUTHORITY AND CEO OF THE VALUE ALLIANCE AND CORPORATE GOVERNANCE ALLIANCE. (email@example.com) Copyright © 2010 Financial Executives International.
LEADER’S WORLD WINNING MINDSE T S
Teamwork Lifted the Soccer World Cup
Team and leadership insights from the 2010 World Cup
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.
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AS A LEADERSHIP COACH, I OFTEN GET ASKED FOR MY OPINION about topical events. One such event that has captivated the world, is of course, the World Cup football tournament held recently in Africa. A fascinating aspect of this game is that often size does not matter, and a beautiful turn by a single individual can create history, the ‘beautiful game’ as it has been once described is full of such examples. Think of Germany’s Gerd Muller who was often on the peripheries of a game, only to slip in, like a phantom to poach goals, and helped Germany win the 1974 championships.
Or perhaps an aging Roger Milla of Cameroon, who would be brought in only as a substitute player. And yet, he would score consistently each time, and helped outsiders Cameroon to the quarter-finals of the 1990 World Cup, the best placing by an African team at the time. Beneath all the action, drama, controversies lie some interesting fundamentals of leadership and teamwork and self-belief. Perhaps the three most interesting aspects of these arise from selfbelief, leadership on and off the pitch, and team cohesion. In many teams, the level of which self-belief is exerted helps determine a specific level of performance and confidence. However, self-belief can be overdone, and here are some examples of how these may have impacted the teams at the World Cup. Belief and self-belief helped such minnows such as New Zealand and Serbia who came to the Cup with little expectations. Though bundled out early in the Cup, the —David Lim “All Whites” played games as a complete team – with no ‘stars’ or prima donna baggage, as did Serbia, the latter scalping giants and 3-time World Cup winners Germany 1-0 on their journey. A strong sense of working together against a common adversary, coupled with a sense of “we’re-in-this-together” always helps teams that lack ‘star’ individuals. An overdone sense of self-belief can work in unproductive ways. Consider England, that has often taken a self-aggrandized view of their own prowess. When beliefs about one’s prowess is exaggerated by a partisan media, fat paychecks paid by clubs, the fall can be spectacular. Witness Algeria, USA, Slovenia and England’s group stage matches. England was supposed to shine in a group comprising of much weaker teams, and yet barely scraped through to the knock-out stage. And yet some people were tipping the vastly experienced English to edge out a youthful German side. But on that fateful day, England looked pedestrian against a young, lightning fast German side that eventually tore England apart at the backend of their half through counterattacks, thrashing them 4-1, the biggest defeat in a World Cup ever by England. Germany went on to wallop fancied Argentina 4-0, a spectacular result considering the pedigree of the latter.
Though beaten later by a more tactically superior Spain, Germany beat Uruguay 3-2 for the 3rd place – and when asked about their outcome, the question of self-belief quickly arose. Germany simply had solid grounds to believe they were really good as a team. This raises a common issue affecting many professionals of any industry. Self-esteem and self-belief are best linked to learning a skill, applying said skill and then doing better over the course of multiple cycles of exercising the skills. Standing in front of a mirror and saying how great you are is almost as worthless as getting other people to say how good you are – when there is no substantiation of the worthiness of a person’s skill. Let’s look at leadership for a moment. One of several reasons for the leadership success of a club-level coach like Jose Mourinho was his ‘people management’ skill. When coaching UK club Chelsea to top honours in Europe, he would, at the beginning of each match, line up his players, and hug each one of them. Mercurial football star and 2010 Argentine coach Diego Maradona would also do exactly that, with a selfavowed stance of creating a ‘harmonious’ team. He would pick players purely by gut instinct, and shocked the establishment when he was picked to coach the national team. He had no serious academic or coaching qualifications. And yet Argentina dazzled in South Africa. A happy, harmonious team, obviously has advantages in releasing the innate talents of each member. However, the happy journey ended at the quarter-finals where the Argentines lost - not because of any lack of flair but, they lost largely owing to the leadership ineptitude of their leader/coach that could not out-think the tactics of a sophisticated German team that was led by an experienced coach. Argentina brought one ‘game’ to the event, and when Germany shut down that game, they were finished. The leadership journey is never an easy one. I recall my own challenges in my Everest expedition teams when you have to adapt to not only fast changing circumstances, but also to the demands of your team members.
“The most interesting aspects of the game are self-belief, leadership, and team cohesion.”
DAVID LIM IS A LEADERSHIP AND NEGOTIATION COACH AND CAN BE FOUND ON HIS BLOG http://theasiannegotiator.
wordpress.com, OR firstname.lastname@example.org
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insight A LIGHTER TOUCH FOR POSTMERGER INTEGRATION
Some Asian companies take a different approach to M&A outside their borders.
hen it comes to acquisitions, some Asian companies are forging a novel path through the thicket of postmerger integration: they aren’t doing it. Among Western companies, the process can vary considerably from deal to deal, yet it’s an article of faith that acquirers must integrate quickly. Otherwise, the logic goes, they may lose the momentum of a deal before they can capture the synergies that justified it. But in Asia, a sizable proportion of acquiring companies aren’t rushing to become hands-on managers. With over 1,900 deals, valued at $145 billion, in 2009 alone, the trend is worth noting. In a recent review, we estimated that roughly half of all Asian deals deviated significantly from the traditional postmerger-management model, which aims for rapid integration and the maximum capture of synergies. Over a third of the Asian deals involved only limited functional integration and focused instead on the capture of synergies in areas such as procurement, with an overwhelming emphasis on business stability. An additional 10 percent attempted no functional integration whatsoever. By the standards of developed markets, at least, this approach is counterintuitive. When potential synergies aren’t captured in an initial postmerger shake-up, they become all the more elusive the longer an acquirer waits. Replacing an existing management team person by person through natural attrition, for example, could take years. Delaying integration could risk losing prominent
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BY DAVID COGMAN AND JACQUELINE TAN
customers to competitors or undermine confidence in a merger. So why buy a business and then leave it substantially alone? The answer is that some Asian acquirers often have priorities that are quite different from those of their Western counterparts. More accustomed to organic growth than to M&A growth, executives at Asian companies are understandably keen to minimize the short-term risk of failure. Their calculus trades the benefits of imme-
DIFFERENT MOTIVATIONS Companies in Europe and the United States share a common approach to integration, growing out of their need to meet the requirements for adequate internal controls as publicly listed companies and for quarterly reports. Investors typically expect rapid evidence that managers are actively coordinating the integration effort so that it will produce synergies. Slow and cautious are words rarely heard in integration-planning sessions, though a rising debate among Western analysts weighs the risks created by the pressure to demonstrate short-term earnings. By contrast, Asian acquirers often feel much less pressure to show short-term results to the capital markets. The reason is less frequent reporting require-
ments or different ownership structures, such as family or state control. Contrary to common perceptions, these deals are seldom purely financial portfolio investments: all but 5 percent of those we examined had a clearly articulated commercial rationale, similar to what might be expected in a Western acquisition, for how they would generate synergies. For half of the deals, the disclosed rationale was expansion into a new market (including a new geography), an adjacent business line, or a related business area. For a further 20 percent, it was the acquisition of a new organizational capability, and for an additional 18 percent, access to scarce resources, vertical integration to ensure security of supply, or both. The more handsoff approach allows an acquirer to step into geographies or businesses where it has limited experience and where its managers perceive a high likelihood of difficulties in a full integration. The acquirer therefore faces a difficult tradeoff between maximizing returns and minimizing the risk of failure. In all these cases, a prudent acquirer
sary to assign a Chinese team to manage the newly acquired company in Europe, observing that many Chinese acquirers that did so had failed in their overseas ventures.
A LIGHT TOUCH
diate synergies for the advantages of expanding into new and unfamiliar geographies, product lines, and capabilities. These inexperienced acquirers also gain some breathing room as they learn how to operate effectively in new and unfamiliar situations. In many cases, they are acquiring a complete business in a new geography, so value creation depends on the stability and growth of the business—not, for instance, on broad cost reduction efforts. Yet this Asian approach also leads to the accumulation of some difficult choices around integration. It is probably too early to judge the implications for value creation. Traditional M&A wisdom dictates that a hands-off approach to postmerger management is seldom the best long-term choice. Later on, Asian acquirers that have taken this approach will probably need to pursue more comprehensive integration programs, which will be all the more challenging as a result of the delay. However, if acquirers do eventually integrate successfully, they will have lowered the short-term postacquisition risks without seriously compromising longer-term benefits.
Many of the acquisitions we examined follow a similar model: the acquirer attempts to minimize integration activity and disruption to the target, leaving most of its operations and organization intact. As unobtrusively as possible, the acquirer focuses on the few synergies that its managers feel will capture most of the available short-term value. We have observed several core elements of this approach.
A ‘MINIMALIST’ GOVERNANCE STRUCTURE The acquirer generally aims to achieve effective oversight of its acquisition rather than to substitute its own judgment for that of the existing line management by micromanaging. Successful examples of this approach have involved
When potential synergies aren’t captured in an initial postmerger shake-up, they become all the more elusive the longer an acquirer waits. with little or no experience in the target’s geography or industry may well decide that the benefits of rapid integration are outweighed by the risks of damaging the sources of value that inspired the deal. Consider, for example, a Chinese industrial company’s acquisition of a European business in 2006. Although the track record of active restructuring in past acquisitions in the sector suggested that this one could produce significant synergies, the Chinese acquirer was equally aware of the downside. Its president believed that it was unneces-
the creation of a board or supervisory committee that combines the incumbent’s and acquirer’s management, as well as select external appointees— much as a private-equity firm might restructure an acquisition’s board. This approach can be implemented in different ways. Consider the following three examples, each an Asian cross-border deal in the telecom sector. ~CWTPR`dXaTaaT_[PRTScWTPR`dXaTS company’s board with a newly created advisory subcommittee in its own board. This subcommittee, focusing solely on the acquired company’s per-
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formance, consisted mostly of independent directors and the acquired company’s CEO. ~ CWT PR`dXaTa P__^X]cTS Xcb ^f] country CEO as chairman of the acquired company’s board and otherwise let the acquisition’s top team run the business—none of the acquirer’s other managers were transferred. Many of the acquisitions we examined follow a similar model: the acquirer attempts to minimize integration activity and disruption to the target, leaving most of its operations and
The acquired company’s CEO continues to bear responsibility for developing and delivering its business strategy, though he meets periodically with top executives of the parent company to get input and approval. A similar approach is evident in the way a major Asian bank acquires smaller ones in other countries around the region. Rather than impose management teams and operating models early on, executives at the bank make a priority of keeping intact the acquired companies’ management teams and planning and management processes. When the
Slow and cautious are words rarely heard in integration-planning sessions, though a rising debate among Western analysts weighs the risks created by the pressure to demonstrate short-term earnings. organization intact. A lighter touch for postmerger integration. ~CWTPR`dXaTaX]bXbcTScWPccWT25> of the acquired company report daily on progress in strategic planning. The CFO criticized this approach, feeling that it gave the acquisition no “time to perform.”
KEEPING THE CORE TOP TEAM INTACT Asian acquirers usually build the leadership team of an acquired company from its incumbent management, along with select local hires. They avoid inserting their own staff—especially people who lack language skills or local experience— into key roles. In the case of the Chinese industrial company mentioned earlier, the acquired company’s management team remained in place with only very minor changes: indeed, the acquirer asked the team to develop its own business plan independently and to provide input to the overall business unit strategy at the group level. 60
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major bank replaces top-team members who are not aligned with a deal’s strategic objectives, it searches for local executives rather than parachuting in its own people. As is common in such deals, the bank’s executives manage acquisitions primarily through collaborative discussions with existing management teams. The discussions focus on the performance potential and priorities of the business and avoid intrusive scrutiny or pressure for fast results.
A FEW KEY PERFORMANCE INDICATORS
broad portfolio of projects. The executives managed the business through only five KPIs, as well as through a broader dialogue over the acquisition’s objectives and strategic direction during the quarterly and annual planning processes. The amount of data the acquirer monitors depends a lot on the sector: in some industrial deals we examined, a scorecard with as few as five to ten metrics was the basis for performance discussions. By contrast, in some consumerfacing businesses, acquirers used a very detailed and rich scorecard. The extent of the data tracked is perhaps less important than getting clarity early on about what should be tracked. In a 1997 acquisition by one Japanese high-tech company, for example, no clear process was established up front for tracking the business plan. Consequently, when the acquired company’s progress faltered, the parent company’s executives were slow to pick up the warning signs and intervened too late.
LIMITED BACK-OFFICE INTEGRATION Asian acquirers do conduct an initial review of an acquired company’s backoffice functions to coordinate KPIs and catch data reliability issues. But the full-scale migration of the acquirer’s enterprise-resource-planning platforms is not the default option. Instead, if a much more limited data extraction system can generate the required management information, Asian acquirers find this approach faster, cheaper, and more likely to succeed. Light touch does not mean no touch. In most cases, acquirers created teams—made up of both their own and the acquired company’s staff—to examine specific, limited synergy capture opportunities, such as technology transfer or cross-selling.
Asian acquirers that take a hands-off approach to deals typically manage them by tracking a very limited set of key performance indicators (KPIs). The integration approach of the Chinese industrial compaABOUT THE AUTHORS ny shows an extreme form of this model. David Cogman (David_Cogman@McKinsey.com) is a Executives of Asian acquirers focused on partner in McKinsey’s Shanghai office, and Jacqueline Tan (Jacqueline_Tan@McKinsey.com) is a consultant in the a few top sources of synergy, delivering Hong Kong office. Copyright © 2010 McKinsey & Company. All rights reserved. impressive results in a small number of This article is first published in The McKinsey Quarterly on initiatives (such as joint sourcing) rather Finance, Winter 2010 and is available on www.mckinseythan dissipating their attention across a quarterly.com. Reprinted by permission.
Trunk call Anoop Chugh discovers the joy of pampering a mammal 100 times his size
ONE CAN EITHER TAKE THE MOTOR BOAT TO REACH THE DUBARE ELEPHANT CAMP OR SIMPLY WALK DOWN THE CREEK
ACCOMMODATION: Luxurious Mahindra Resort, Coorg RECOMMENDED: Homestay at coffee farms CLOSEST AIRPORT: Mangalore (130 kms) CLOSEST METRO CITY: Bangaluru (256kms) IDEAL DAYS TO SPEND: 2-days (to rejuvenate) to a week (to
achieve salvation) MADIKERE IS ONE place you should visit if you are completely mad at being driven around office-work-airportclient-client’s office-company guest house-and-home, if your Blackberry beeps faster than your heartbeat, if you answer ‘boardroom’ and ‘cubicle’ (instantly), whenever asked ‘last two places visited?’, and if your body temperature stays static at 24 deg centigrade in all seasons, same as that of your car, office and house. Or, if all of the above. We (I and a few equally exhausted friends) had planned to take up abode in western ghats. A homestay along river Cauvery (with no network), tree house (with no escalators), mud-water bathe (with no Jacuzzi) and a coracle ride (with no chauffeur) were on the agenda. The way God meant us to live. Unfortunately, nobody warned us to shape up before heading south, as the best of Madikere is felt on the feet. Yeah! one should leave Bavarian, assiduous powerful machines behind to indulge in an enduring rendezvous with nature. Trekking is something any Madikere loyalist would
suggest, and we couldn’t keep it off our minds too. The only hurdle was getting the pronunciations right. Once you get the hang of proper nouns like Thadiyandamole, Pushpagiri, Kote Betta, Igguthappa Kundu even a 30km uphill trek sounds like a walk-in-the-park. We tried the first trek, Thadiyandamole, only after our guide made us pronounce it right 50 times. In other known languages, say English, it translates,“I am the tallest”. No prize for guessing, Thadiyandamole (51st time) is the tallest peak in the Kondagu Range and after 15kms (oneway) of treacherous sprinting, walking, panting, huffing and dragging we reached a place where the word ‘panoramic’ had been coined. You stand at the peak and feel like a binocular looking down 5729ft at the Arabian Sea and some coast with a lot of Shashi Tharoor placards, must be Kerela. Most of the resorts, homestay, hotels in and around the area offer pick and drop cabs that would kickstart you on the most scenic, breathtaking, and dramatic wandering you would ever do. Once that’s done (30kms of walking, precisely), we had the option of going for a night safari, a bonfire, elephant ride, or hitting the sack. Unfortunately, post that there’s a momentary lapse of memory for the next eight hours. At five in the morning the plan was ready – to bathe and feed the elephants. Well, there’s this concept of adopting an elephant for a few hours, waking him up from slumber, convincing him for a dip, rubbing the stains away, grooming him with a sponge and feeding him. All this to get a friendly ride on his back. We were at the Dubare Elephant Camp. It surely was an ego massage to control a mammal 100 times your weight, and treating him like a toddler. Quite courteous they are despite the size. After the gigantic task one can do things well-accepted in society say, traversing through a coffee plantation, take a ferry to river island called Cauvery Nisargadhama, checking out the picturesque birthplace of river Cauvery known as Talacauvery, trek-up to Abby falls for a SRK-inspired portrait, or shop for some Tibetian handicrafts at Bylakuppe market.
There are a few simple rules while attending an elephant - a) try not to get stamped, b) don’t try stamping back, that’s humanly impossible.
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World’s first 3D camera
iPhone 4 For anyone not affected by the antenna issue, iPhone4 is an almost perfect phone WHILE, INDIA IS EXPECTED TO GET THE iPhone 4 coming September, we couldn’t let that stop us from getting our hands on Apple’s latest right away. The iPhone 4 retails for $199 16GB, $299 32GB, both requiring a two year contract with AT&T. The iPhone 4 is expected to retail in India for Rs 35,500 for the 16GB and Rs. 41,500 for the 32GB version. Our correspondent in the US got his hands on the 32GB model. The box contains bare minimum - a charger, sync cable, and a pair of Apple earphones. That’s it. This is a truly gorgeous phone. All steel and glass, with no plastic in sight. The back panel is now made of the same hardened glass as the screen, and both are sandwiched with stainless steel, only broken by a few (now infamous) seams. After holding a 4, the 3GS seems cheap. The much hyped, ‘Retina Display’ will blow your mind. Apple has upped the resolution to 960x640, while maintainin g the same 3.5-inch screen size. The resulting pixels-per-inch approach print in quality. The Retina Display is a big winner, and forms the best, of a series of hardware upgrades, in the iPhone 4. This is the finest mobile display you can currently buy. What powers that amazing display? You get the same A4 chip powering the iPad. Resultantly, opening and loading apps is noticeably faster. No doubt this speed boost is also thanks to increased RAM. The RAM has been doubled from the 3GS and iPad to 512 MB. All this extra memory opens up categories of apps not thought possible (or at least enjoyable) on a mobile device, like editing video in iMovie. One of the most impressive upgrades is in the rear camera. Over the years, the iPhone camera could be described as anemic at best. Always behind the curve compared to the competition. Apple has turned its attention to this deficit at last. A five megapixel camera might not sound impressive on its own, but a large lens and backside illumination mean better pictures, especially in lowlight, than comparable phones with more megapixels.
Fujifilm owns the leadership in building the world’s first 3D digital camera ‘Finepix Real 3D W1’ with two stereoscopic lenses (left and right) and two 10MP image sensors. Price: Rs 39,900
LG’s 3G enabled business phone A full QWERTY LG GW550 looks similar to the Nokia E72, with near identical keypad layouts. Like them, it is meant to be a business/ messaging phone, and is a 3G enabled device, loaded with Windows Mobile 6.5 Standard. Price: Rs 12,500
HP LaserJet P1606dn
HP LaserJet Professional P1606dn is a compact duplex-printing networkenabled printer, mainly targeted at the SOHO segment. This printer is between the low-end printers and high-end network printers. Price: Rs 17,415 POWERED BY
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ad Re Y st OG Mo L NE ’s NO ZI dia CH GA In TE MA
art review ARTIST OF THE MONTH
United colours of Vallery! Vallery Puri, has trespassed mother earth with her flower-ecstatic compositions titled, ‘Where have all the forests gone.’ By Anoop Chugh
VALLERY IS ABSORBED IN THE VISIBLE ATTRIBUTES OF COLOUR, LINE, MASS AND TEXTURE IN THE PAINTING, ‘FOREST FLOOR’
THE FIRST TIME you hear it, Vallery almost sounds like a typo. Especially, if you are talking about art, you’d think it’s gallery spelt wrong. It’s no surprise therefore when Vallery introduces herself as “Gallery with a V”. It’s apt for somebody whose first brush with the canvas came much before she picked up her first toothbrush. Remembers Vallery Puri, “I was three when I started painting.” But, her passion turned into profession only after she turned 32. “I started thinking of goal-oriented painting with exhibitions from the morning of 8th January 1996 and that has pretty much continued since. It was a dream on the previous night that guided me and literally told me what to do. Fortunately, I followed those instructions. My styles have evolved and matured over the years and continue to do so. It has been an interesting and colourful journey so far,” recalls Puri.
ABOUT THE ARTIST Vallery Puri always had an inclination for brushes and colours. She graduated from Lady Shriram College in Delhi and followed it up with a foundation course from the JJ College of Arts in Mumbai, before she worked as a flight attendant in an airline. She travelled far and wide in search of art galleries, and eventually decided to take up painting professionally at the age of 32. And, there was no looking back. She had her paintings exhibited in many solo and group shows not just in India but abroad as well. Her popular work includes - ‘The unveiling’, ‘The Viewing’, ‘Expressions of Ganesha’, and ‘Point of view’.
What took her so long to turn pro and what was she doing before taking to art? She comes up with an unexpected answer, “I was a flight attendant for 10 years. I got the opportunity to travel the world and explore art and culture from different countries,” declares Vallery. The 46-year-old painter, married to Dilip Puri, CEO of Duet Hotel India, believes her paintings are strongly influenced by the powers of nature. “The way we think depends on the way we are and feel. These emotions spill out on my canvases in a way that is figurative, descriptive and busy at times and otherwise simple and straight. It communicates the state of mind one is in – the business or the bland blankness. These colours, compositions, and combinations are simply a form of communicating the varied emotions one feels as life unfolds with all its twists and turns. Sometimes I use opposing colours to the way I feel – bright ones when I actually am in a dark space and so on,” she says. The biggest success of her career, probably, came in February this year when she hosted a solo exhibition of her new paintings titled, ‘Where have all the forests gone.’ “I grew up amidst nature during my formative years and that is reflected in most of my paintings. For insnatnce, the painting, ‘below the banyan’ is inspired from an old banyan tree we had outside our school (Rishi Valley school, AP).” She claims it has been an experimental ‘learn along the way as you play’ kind of journey for her. “Six months ago I began indulging in some smooth oils. I cannot express how much fun this has been!” She uses most mediums to explore her thoughts including acrylic, oils, inks or pastels. What’s the soul of her paintings? She replies at once, “colours”. We couldn’t agree more. In fact, it’s beautiful to the extent of being distracting.
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Stories of adventurers AN exhilarating and highly personal
PICK OF THE MONTH
Confessions of a TV guy Except for a few beeps here and there, the book is worth reading during commercial breaks, says Anoop Chugh SOMEBODY HAD SAID, the second worst thing to watching an idiot box is to work for one and the third worst is to write about it. Omkar Sane seems to have done the three mistakes of his life- watching TV, working for a TV channel and writing a book on TV at a young age of 27. Omkar Sane is the somebody here. He had spent most of his formative years swapping DD Metro and Doordarshan, most of his college years shuttling Zee and Star and most of his working years juggling a television job and many advertising jobs and most of his last year writing his second book - ‘Coming Soon. The End’. The book reflects all the three stages of his life (so far) and the influence of the television on his sleep-cycle and backbone (his funny bone seems to be still in place, though). After a well-accepted debut with ‘Welcome to advertising, now get lost’ (his first book), Sane has written a tell-all, blunt and tart tale of television and its major stakeholders - Grass, Crass, Bass, Farce and Mass. The book is like a Milan derby, slow to start with (an essay on the invention of TV sets, dawn of cable TV and the regular DD satire) but picks up on pace (and humor) once you start understanding grudges of a man who hadn’t slept for close to 277 days, the time he had spent working for a television channel. Publisher: Tranquebar Price: Rs 295
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story of flight by the world-famous adventurer and businessman – Sir Richard Branson. As far back as stories go, pioneers have reached for the skies. In the last two hundred years, they have mastered the air and made the modern world possible. Today they are bringing outer space within our reach. They’re inventors and toymakers, amateurs and adventurers, visionaries, dreamers and, yes, crackpots. Some have called them irresponsible, even dangerous. But RB has met many of them. He has worked with them, funded them and flown with them. He admires them, trusts them and he thinks they and their kind are our future. In this book he looks at the history of flight through the stories and people. Publisher: Virgin Books Price: Rs 599
Employees first, customer second
ONE SMALL IDEA can ignite a revolution just as a single matchstick can start a fire. One such idea putting employees first and customers second sparked a revolution at HCL Technologies, the IT services giant. In this candid and personal account, Vineet Nayar HCL’s celebrated CEO recounts how he defied the conventional wisdom that companies must put customers first. Publication: Harvard Business School Press Price: Rs 595
How to change things when change is hard SWITCH IS THE latest book by Chip and Dan Heath, authors of Made to Stick, the critically acclaimed bestseller. Switch asks the following question: Why is it so hard to make lasting changes in our companies, in our communities, and in our own lives? The primary obstacle, say the Heaths, is a conflict that’s built into our brains. Price: Available at www.heathbrothers.com