CFO Perspectives Season 1 – Episode 1
Transcripts from our inaugural CFO Perspectives event where we gain insights on leveraging digital to build a resilient and profitable organization from finance stalwarts Mr Ganesh K – CFO, Hetero Drugs Ltd, Mr Devi Dayal Garg – CFO, Future Generali Insurance Ltd. and Mr. Sameer Agarwal – CFO, Manipal Health Enterprises.
The pandemic has forced the world into a new reality and while the crisis is still unfolding, what are the clear lessons businesses should be taking note of already?
Sameer: The current pandemic which nobody thought would come has come like a black swan event. We all used to talk in terms of jargons like VUCA which means volatility, uncertainty, complexity and ambiguity when there were situations such as GST (goods & service tax), demonetization, when there was high level of digitization but nobody expected this COVID to be a black swan event.
Different businesses with different maturity, different balance sheets and P&L have reacted differently to this event but some of the common theme which is clearly stood out. Firstly, there has to be a culture of driving continuous improvement with or without events like this. Secondly, keeping on challenging status quo will help organizations to adapt to the new normal very fast. Businesses must have a culture to adapt to agile and different situations like WFH and should look to solve associated challenges, in this case, cyber security and data security among others.
Thirdly, having a lot of empathy towards employee, customers, patients, busines associates is key in such situations. One needs to continue to have open end frequent communications in this kind of scenario so that they bind to have a common agenda. Finally, enterprises need to provide clean and unambiguous leadership. Organizations really look to CFOs to provide directions, whether in terms of information on working capital, capex requirement, how much cost can be taken out to keep the company afloat and so on. As health care we provide services across the country, and we had to be in complete readiness in order to provide service to the patients. This has helped us to have a razor eye focus on what to do and wat not to do. And process agility helped us get there.
Ganesh: I would say Expecting the unexpected is one clear lesson from the pandemic. I had the opportunity the represent the pharmaceutical industry to the ministry of finance in February this year and the major discussion was on impact on imports from China. Nobody thought that in the month of may we would have a completely different situation. So, I think the first lesson for the corporates is to understand a primary concept in risk management called “Unknown Unknown.” We always thought that we knew about the future risks but this has been an eye opener for all of us.
Enterprises in the manufacturing industry should first understand the robustness of their supply chain. Key question such as are you sure about your customer order needs to be asked because today there is dynamic change in the customer profile, country, changes in import-export structure. Three months down the lane and we don’t know if the same customer will be available.
On the other hand, we don’t know what the status of the suppliers will be in the near future as key issues like border crisis, especially with china emerge. Today my complete approach to risk has changed and in such situations, we have to go beyond the contingency plan and predict the worst possible scenario and see how you can safeguard your position.
Devi: The key lesson is to be ready for the unknown. We tell our employees that this is the new normal and this is a longer process and people should adjust to the new normal. That is how we started early and by the time the lock down started we were equipped and ready for the lockdown and without loss of any productivity. We are doing business as usual from day one. We were receiving over 35% payments over cheques. We looked for solutions to digitally process these payments overnight. We also got into doing online claim service, online sourcing among other things.
How do you believe that this pandemic is fast-tracking digital with respect to accelerating business as usual, improving cycle time to process and reaching out to customers?
Ganesh: I will start the digitization topic with some perspective on Indian companies. I have worked with many multinational organizations which were well advanced in employing digital technologies, setting up shared services way back in the 90s. For an Indian company this was not the priority because their cost structure was different, and many large companies did not get into a true shared service model.
But the need for digital was not very apparent because of the cost structure factor. When organizations do it within the country, they need to do it only for compliance, governance and control. For example, in Hetero Drugs, we don’t look at this as an opportunity because our costs are low. Today we are unable to work from home, bulk of the staffs has to go to the office. Because in the past the need to do so was never there. This pandemic is an eye opener for such companies because basically to actually move on to greater agility, enterprises need to start digitizing the processes.
For a pharmaceutical company, it is imperative to automate processes such as demand generation and order fulfilment. There are lot of risk factors and uncertainties involved in the aforementioned processes and being equipped with tools to control these uncertainties and take efficient decisions at the right time is the key.
Transaction processing automation is also critical for a pharmaceutical company like us. One of the things we should look at is how fast we can adopt to a centralised transaction processing and how to take it digital.
Devi: In our case we don’t have a product as such, so we can actually do whatever we want to do digitally.
Basically, we have 2 insurance core systems. We were trying to think to how to get in to one unified transactions system reaching the customer, managing the customer, through CRM and internal data processing and so on and in our case we just accelerated the process for transformation, we actually committed about more than Rs 100 crore in this IT investments. This has taken care of our complete transformation of core insurance system and should be providing complete data analytics and data lake so that we have singular view of the customer from sourcing until the complete fulfilment.
The pandemic has accelerated digital transformation for us.
Sameer: I will talk about this in two levels. The first is fast tracking of digital on the business side and also the finance side. Healthcare has had a major change because there was a pending legislation on video and tele consultation of patients, which passed during the pandemic and so we really fast tracked our investment during the pandemic to get it running and in the month of April itself we did more than 5000 tele and video consultations with our patients which not only helped us to get in touch with our patient base but it also provided a lot of relief and convenience to the patient.
On the finance side, we ran the shared service and we started doing a lot of digitization under the umbrella of project “Drishti”, that we launched in Manipal groups. The benefit of this is clearly seen during this lockdown. We automated accounts payable of all 11 hospitals in Bangalore. We processed more than 50,000 invoices sitting at home. We also used RPA in Manipal in bank reconciliations, during lockdown this gave us a lot of control on the working capital. I feel that the digitization as a process is an ongoing one. The adoption during this time was really high, and people are really falling in love with the automation and digitization.
The role of the CFO is so much more expansive now, than say 5 years ago. Could you share your views on how CFO’s are increasingly becoming change agents and building a digitally mature organization?
Sameer: Actually the CFO s roles have been changing from the last few years since the country was going on a large scale digitization, initially CFO roles was accounting, reporting but now CFO are expected to play the business partner role. CFOs are now expected to look at the future, give insights, work with the businesses and functions like supply chain, HR, CEO, to provide them information and insights. Because, CFOs have one of the unique positions in the company, it has access to systems and has access to the data and we cannot sustain in this position without upskilling ourselves. So, this is the time where a CFO given the role of a business partner, a change agent understand understanding what the business wants understanding what the business is heading,
For example, automating the transactions is fundamentally taking the time from the traditional finance so that we can spend time on the analytics that comes out of the data and provide the operating and the sales teams so that they can run business going ahead.
We had outsourced accounts payable for example. We were paying 18% GST, and a clear understanding to everyone in the industry is that you do not outsource anything if you don’t get 30% benefit. Because we pay 18% GST. We further used the OCR technology to get in the efficiency, so it’s just your ability to understand what the business wants and be able to provide insights. If you are able to do that, very clearly have a seat at the table, you will be asked what has to be done. Otherwise the business will go ahead. So, I feel being close to the business and being a business partner will help in this.
Devi: I see more myself as a business enabler than a controller or a regulator. I I think here the key in terms of digitization is that organization wise you need to have one version of truth. You cannot get into a management meeting and say that sales guy has his own data operations, marketing etc .So you have to have just one version and you need to establish in your organization that the data released by the finance is the final data. Once you have one version of data then the discussions in the business will become so much easier and also it will be easier for you to contribute to the business and growth and efficiencies and drive the accountability across the organization.
Ganesh: Hetero Drugs is active in at least 20 to 25 countries and has close to 60 subsidiaries and 5 to 6 joint ventures. Each has their own accounting system. Getting monthly financials is a huge task. We tried to build in many interfaces so that we could collate financial information for arriving at meaningful decision. I would actually go beyond transaction processing. In pharma sector, pricing is a key challenge, pricing a product. And it is also cumbersome to develop a product and sell it which takes a significant amount of time which is in between 18 to 30 months. During this 30 month anything can go wrong.
To do a course correction a CFO has to move away from that conventional controller, corporate finance kind of a guy to a person who partners with the business and try and actually evaluate the risk of getting into R&D and also getting into a particular geography etc.
CFOs are leading digital transformation initiatives by serving as first movers of digital solutions and working with functional leads to quantify the benefits and demonstrate potential cost savings or efficiency gains. What are some of the digital initiatives that you have seen or taken to build sustainable profitable growth and preparing for the future?
Devi: I think we went completely digital in marketing. So, we ran 2-3 campaigns. One was the tax discount, and then during the COVID times it was “cover the distance,” rather than covering the distance physically, we did it digitally. So, I think these two campaigns went very well and we got lot of queries and leads for policies. Lot of customers were added, this was additional. Other than this, of course in every single area we are implementing the HR- success factor, in terms of insurance core systems and everything else, which will take some time for implementation. But we will be digitally ready in a year’s time now.
Ganesh: We are still yet to adopt to digital transformation journey but I can share couple of my past experience. In my past experience working for an MNC, an inhouse payment solution was developed and one of the challenge which was given to me was to do a host to host payment transfer with the bank. This would have been India’s first installation of payment mechanisms. This was done even before NEFT and RTGS was there. So, we used to take a flat file from ERP to the bank. Bank in those days since we dint have an RTGS they used to issue a pay order and courier it to them. This was actually a break through solution in 2001. so, this MNC was miles ahead.
Sameer: I want to say that sometimes one has to take a leap of faith and take care of change management once we have done it. It has huge benefits. With efficiency, in a period of time you will be able to justify the ROI. For example, we have reduced our transaction processing by more than half over the past 4 years due to digital transformation.
Organizations across the globe are facing enormous changes to their business plans. What do you believe are some of the good practises for change management to accelerate growth and profitability?
Ganesh: I think in these times we should first preserve cash, this is my first fundamental principle, when I say preserve cash, I think you have to be very careful on capex, any capacity addition at this point of time, any investment, any innovation at this point of time, these things somebody has to look at it very carefully.
The second thing for which I am not very fond of rolling forecast but at this point of time, rolling forecast is very critical, I would give you two extremes, we actually do some of the COVID products and we actually meet this huge demand in a very short time of 30-60 days, every month.
However, the negative side is maybe, we might also be losing some of the business or some other market is actually not going to come and place the order. So, while overall the numbers may look decent, but the question is, are you actually discussing something to be a onetime opportunity or are you really looking at a sustainable growth. So, these things become very complicated. Especially, when you are marketing in 40-50 geographies. So the question is a rolling forecast maybe or should be one of the biggest answers, people should adopt to, or whatever is the current scenario people should be giving their forecast and your system should be so agile to change or make change.
Devi: I would go with Ganesh, basically the cash is the king. So, wherever you can preserve, wherever you can raise cash, maybe out of monetization of your known core assets or wherever limiting your investments, the other thing is, I think, in such kind of times it’s better to be over-capitalized and over-leveraged. So, when I have an opportunity to raise additional capital, I would raise capital rather than loans, it’s very easy, in terms of growing times, you get over- capitalized, over-leveraged. But here I would go with more equity. Regarding business plans fortunately we are not seeing real disruption. While we see some demand going down but over-all in insurance sector, we are still better of the lot when compared to the other industries I would say.
Sameer: I totally agree with my panellists on conserving cash and reducing open. But, this is about how do you make the organization ready and to re-allocate your capital. For example, we took out capital from maybe getting up properties done, but we started allocating a lot more capital on digital. Because we know, we need to keep the company future ready, so when the organization comes up to speed, when the economy comes up to speed we are ready and we are already there, we are not left behind the curve. I think driving digital transformation is no longer a luxury, it is a necessity for survival and the companies that don’t re-invent themselves during this time are looking at the processes, looking at the way they engage their customers or stakeholders will be less behind.