CFO India - February 2012 by Bhupinder Sharma

DoubLINg gRowTh CFO pROFILE: RISHI GUpTA p. 28

IN PRACTICE mANAGING THE RISKS OF SHADOW IT p. 40

APPLE MAC MINI STYLE FINALLY mEETS pERFORmANCE p. 56

VOLUmE 03 ISSUE 02 `50 FEbRUARY 2012

CFO IndIa CFO PrOFIle: rIshI guPta 28 lOunge: aPPle maC mInI 56 I thInk: shaIlendra tandOn 10 vOlume

RECALIBRATE.

NOW!

CFOs will have to work on their mental make-up and pick up new knowledge to adapt to a dynamic new world. what does this ‘change’ mean though and how do CFos plan to achieve it?

Issue

A 9.9 mEDIA pUbLICATION

CFO FeBruary | 2012

InsIde

12 COVER sTORy

i THiNK 10 SHAILENDRA TANDON The former CFO of Dabur Pharma, currently Director, Asia Pacific Healthcare, talks about how a Private Equity CFO should tackle key issues and some other challenges that are keeping him awake at night

COVER: TimE fOR TRaNsiTiON 20 PREPARING FOR CONTINUAL CHANGE With IFRS and GST on the horizon, a recent survey identifies areas of change that have significant implications for the professional education of financial executives

iNsiGHT

RECALIBRATE NOW!

43 TAKING A LONGER-TERM LOOK AT M&A

Do CFOs have to change their mindset and focus on newer areas to adapt to a dynamic new corporate world? What will this ‘change’ mean and how practical are some of the ideas?

VALUE CREATION Companies that do many small deals can outperform their peers — if they have the right skills. But they need more than skill to succeed in mega deals

CfO pROfilE

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MAKING WAVES AT FINO

Rishi Gupta, CFO and President, Sales & Marketing at FINO talks about valuable lessons learnt in his two-decade career, the exciting life at FINO and his own dreams and passions

Preet Dhupar, Director, Finance & Operations, BBC World India, talks about how she and her team successfully set up an online payment portal across the organisation after overcoming multiple internal challenges

CfO lOUNGE 54 ON WHEELS | THE NEW DZIRE

lEaDER’s wORlD 52 LESSONS FROM

LOKPAL

Corporate leaders can learn a lot from the ongoing Jan Lokpal negotiations

56 GIZMOS | APPLE MAC MINI 57 M&E | Le Pain Quotidien, Mumbai 58 TRAVEL | JODHPUR

REGUlaRs 04 LETTERS TO THE EDITOR 60 NOT JUST THE LAST WORD

DoubLINg CFO pROFILE:gRowTh RISHI GUpTA p. 28

IN PRACTICE mANAGING OF SHADOWTHE RISKS IT p. 40

CFO I ndIa

APPLE MAC MINI STYLE FINALLY pERFORmAN mEETS CE p. 56

VOLUmE 03 ISSUE 02 Rs.50 FEbRUARY

2012

Cover design atul deshmukh RECALIB RATE.

NOW!

CFOs will and pick uphave to work on their new knowled mental new world. ge to adapt make-up and how what does this ‘change’ to a dynamic do CFos plan to achieve mean though it?

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from the

managing editor

dhiman chattopadhyay dhiman.c@9dot9.in

Change: the ‘if ’ and ‘how’...

Change is Constant, but the pace of change in the world of business has been so rapid and mind-boggling in the last few years, that even the best of leaders have struggled to keep pace with it. In the world of finance too, entire concepts and ways of looking at the profession have changed. Recalibration, in that sense has been a constant in the CFO’s life for some years now. Now however, it has reached a crucial stage when the recalibration of not just certain skills, but entire mindsets may have to happen. In this issue, therefore, we threw some rather radical ideas at the CFO community; suggested some almostblasphemous changes in the way finance leaders go about their work; and went to the extent of actually suggesting that they move away from their obsession with quarterly results and focus more on value creation, stop worrying over percentage point changes and create a rating agency which would start grading Indian companies on their ‘worthiness’ much like educational institutes that now grade student performance instead of differentiating between someone who scored 99 and another who scored 98.5. Of course it created disagreements. We expected that. But what we have achieved as a result of throwing these questions at all of you, is sparking off a debate where some of India’s leading CFOs have shared their views on how and in which areas CFOs should recalibrate — mental make-up, skills or knowledge. So while some CFOs have spoken about the need to move away from numbers and look at worthiness, others have argued that serious investors already judge organisations based on longer-term value. Still others have felt that rather than move away from the focus on quarterly results and numbers, CFOs should focus more on these, since it keeps them on their toes and also because investors have a right to know what the company is doing with their money. Fair arguments all? Maybe? We would be more than happy to know what you feel about the issue. So do read our cover package this time (Recalibrate Now! Page 12) and write in to let us know your thoughts. The rest of the magazine has its usual share of ‘unputdownable’ articles too (as a very senior CFO puts it in our Letters section in this issue) — profiles, interviews and features that should make you think hard. We hope you enjoy reading the February issue.

MaNagINg DIReCTOR: Dr. Pramath Raj Sinha eDITORIal eDITOR: anuradha Das Mathur MaNagINg eDITOR: Dhiman Chattopadhyay MaNagINg eDITOR (Copy Desk): Sangita Thakur Varma SUB eDITORS: Radhika Haswani, Mitia Nath DeSIgN SeNIOR CReaTIVe DIReCTOR: Jayan K Narayanan aRT DIReCTOR: anil VK aSSOCIaTe aRT DIReCTORS: PC anoop & atul Deshmukh VISUalISeRS: Prasanth TR, anil T & Shokeen Saifi SeNIOR DeSIgNeRS: Sristi Maurya & NV Baiju DeSIgNeRS: Suneesh K, Shigil N, Charu Dwivedi Raj Verma, Prince antony, Binu MP & Peterson CHIeF PHOTOgRaPHeR: Subhojit Paul SeNIOR PHOTOgRaPHeR: Jiten gandhi THe CFO INSTITUTe exeCUTIVe DIReCTOR: Deepak garg aSSISTaN BRaND MaNageR: Nisha anand aSSISTaNT MaNageR: Dr leena Narain aSSISTaNT MaNageR - CORPORaTe INITIaTIVeS: Deepika Sharma SaleS & MaRKeTINg VP SaleS & MaRKeTINg: Krishna Kumar Kg (09810206034) aSSISTaNT RegIONal MaNageR (SaleS): Rajesh Kandari (+91-9811140424) NaTIONal MaNageR (eVeNTS & SPeCIal PROJeCTS): Mahantesh godi (+91-9680436623) aSSISTaNT BRaND MaNageR: arpita ganguli SOUTH: Vinodh Kaliappan (+91-9740714817) WeST: Sachin N Mhashilkar (+91-9920348755) For any customer queries and assistance please contact help@9dot9.in PRODUCTION & lOgISTICS SeNIOR geNeRal MaNageR (OPeRaTIONS): Shivshankar Hiremath MaNageR OPeRaTIONS: Rakesh Upadhyay aSST. MaNageR - lOgISTICS: Vijay Menon exeCUTIVe lOgISTICS: Nilesh Shiravadekar aSSISTaNT PRODUCTION MaNageR: Vilas Mhatre lOgISTICS: MP Singh, Mohamed ansari OFFICe aDDReSS Nine Dot Nine Interactive Pvt ltd Kakson House, a & B Wing, 2nd Floor 80 Sion Trombay Road, Chembur, Mumbai- 400071 INDIa. Published, Printed and Owned by Nine Dot Nine Interactive Pvt ltd. Published and printed on their behalf by Kanak ghosh. Published at Bungalow No. 725, Sector - 1, Shirvane, Nerul, Navi Mumbai - 400706 Printed at Tara art Printers Pvt ltd., a-46-47, Sector-5 NOIDa (U.P.) 201301 All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.

subscriber services: Call +91-120-4010999 visit cFO india’s Website www.cfo-india.in

february 2012

CFO india

Letters

CFO INDIA

february 2012

Unputdownable CFO India always makes for unputdownable reading. The articles are pertinent and very relevant. I enjoyed the January issue and am looking forward to the next one. I was happy to contribute to your second anniversary issue. I would love to have a soft copy of the article as well, if that is possible. —Gopal Mahadevan, EVP & CFO, Thermax India, Pune

02.12 ThoUghT Provoking Cover i am getting quite hooked to CFO India for its crisp reading experience. i cannot agree more with the views expressed in the piece on fraud prevention. This is an area of significant focus, especially because ways of fraud are increasing. While we carry out fraud risk assessments in our business and run a whistleblower campaign on an ongoing basis, i would like to share something i realised after going through training on fraud investigation in the Uk. We, finance folk tend to approach fraud prevention and investigation with an assurance audit like approach, looking for process controls and its breaches. While this is important for creating the base, detection of fraud requires that you go beyond process deviations and pick up leads from behaviour, background, suspects’ circumstances etc., which eventually throw light on the fraud. So managers entrusted with prevention, detection and investigation of fraud, must be trained appropriately to be effective. i found the issue on Tech-Tonic Revolution interesting. While i am learning about cloud computing and the opportunities it offers, like erP on demand and storage, i am also keen to understand the risks around using these solutions and the ways of mitigating those risks. Many thanks for the

CFO india

february 2012

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

calendar — the photographs are a treat ! And thanks for printing mine ! The magazine carries some interesting and relevant articles. i suggest that it cover some areas of current relevance like the impact of the current economic condition on specific industries. — Sugata Sircar, Director-Finance, Gujarat Gas, Ahmedabad

ThAnk YoU! i always look forward to the next issue of CFO India since it inevitably carries some very well written and crisp interviews and articles. i have become a bigger follower of your magazine since you carried the article on some of the financial challenges we faced at Accutest soon after i took over as its CFo, and how we tackled them. i hope you keep doing the good work and go from strength to strength. — Pramod Dubey, CFO, Accutest Research Laboratories, Mumbai

irregUlAr CoPieS i have not been receiving issues of CFO India on time. Some months it just doesn’t reach me at all. Could you kindly update your records and ensure that you send me the magazine every month from now on? — Hiren Israni, CFO, Microsoft India, Gurgaon

02.12 BUZZ

Indian brains power Us patents

MORe ThAN 50 per cent of total patents filed for industrial innovations in the US have Indian brains behind them, reveals a study by Indian Institute of Management, Ahmedabad. Many of the international corporations, including research and development centres rely largely on Indian brains. A look into the number of Indian inventors in patent applications filed by overseas firms in India and 6

CFO india

february 2012

outside in the latest years makes the new trend more clear. The study, ‘Foreign R&D Centres in India: An Analysis of their Size, Structure and Implications’ comes up with the assessment that local researchers play an important role providing business notions in R&D projects for foreign firms in India. The research also estimates the involvement of multinational companies in the creation of innovations from India. The authors of the study, Rakesh Basant, faculty member of IIM-A and Sunil Mani from the Centre for Development Studies, Trivandrum carried out the study taking 120 samples of MNC R&D firms, which were established after 1990. “Over time, 50-66 per cent of the total US patenting of industrial innovations are recorded in India, conducted through these centres,” says the study. As per the recent calculations, the number of overseas R&Ds functioning in India was about 900, until December 2011. The study also suggests that R&D policy has to be improved in India so as to get benefits of MNC R&D activities. ”India does not have any explicit policies to promote FDI in R&D although there exists in the country a number of policy instruments, fiscal and otherwise, for promoting FDI and incentivising the conduct of R&D,” the study says.

What’s aROUND ZONE CFO Book: Charanjit Attra ................................... Pg 10 Jargon Decoded: GAG...... .................................... Pg 10 Apple beats HP! ..................................................... Pg 11 CXO Movement ..................................................... Pg 11

THE CFO POLL REsUlt

Will India grow at 8 per cent by the second quarter of 2012?

15% Yes 04% maybe

81% No

cURRENt POll qUEstiON

Will Obama’s speech on outsourcing adversely affect the Indian IT industry? Vote now at www.cfoinstitute.com/poll

THINK ON YOUR FEET

Creative block? Walk

DRIVINg

photos.com

Parking wows! NOw IF ThIS were to happen in India, there would be no road left to drive on. But Germans, it seems, are a better behaved lot. Authorities in Potsdam, one of Germany’s most visited cities, are giving parking violators an unexpected break by issuing tickets without fines! The tickets, put on carelessly parked cars include a fine of ‘0 euros’ and the cheerful message “Glueck gehabt!” (Lucky you!). The new approach is designed to admonish motorists without hitting them in the wallet. “The tickets serve as a warning to parking offenders,” said Regina Thielemann, a city of Potsdam spokeswoman. “They are issued when the driver isn’t around. So they are given a written notice when they would ordinarily only get a verbal warning.”

The NexT TIMe you’re in need of creative inspiration, try thinking outside-the-box or cubicle. New research by Jeffrey SanchezBurks and Suntae Kim of the University of Michigan shows that engaging in physical acts and experiences enhances creative problem-solving, reports Mumbai Mirror. “Metaphors of creative thinking abound in everyday use,” said SanchezBurks, Associate Professor of Management and Organisations. “By thinking ‘outsidethe-box,’ by considering a problem ‘on the one hand, then on the other hand’ or by ‘putting two and two together,’ creativity presumably follows. Such prescriptive advice is no stranger within research labs, advertising teams, higher education or other contexts where pioneering novel approaches to pressing problems are valued. These metaphors suggest a connection between concrete bodily experiences and creative cognition.” The findings revealed that physically and psychologically embodying creative metaphors promote fluency, flexibility and originality in problem solving, Sanchez-Burks said. “The acts of alternately gesturing with each hand and of putting objects together may boost creative performance,” he said. “Literally thinking outside or without physical constraints, such as walking outdoors or pacing around, may help eliminate unconscious mental barriers that restrict cognition.” february 2012

CFO india

O-ZONE cfobook

JARgON DECODED

THE PHRASE: gAg

Charanjit Attra Wall

Info

Boxes

What’s on your mind? Attach

Share Charanjit Attra likes original melodies.in February 12, at 22.30 pm · comment · Like

PERsONAL

Charanjit Attra is playing badminton with the kiddos and guess who is winning?

Zodiac: NA Views: Liberal

February 07 at 1 8.05 pm· 6 people commented · 1 person likes this

WORK 2008 to present - cFo, IcIcI securities 2003-2007 IcIcI KpmG

EDUCATION

Charanjit Attra is wondering how a team with captain cool can’t win any test matches December 17 at 11.00 pm · 5 people commented · Like

I Read...

Jeffrey Archer comment · 4 people Like this

University of mumbai Nm college chartered Accountant

I Listen... Kishore Kumar comment · 1 person likes this RECENT ACTIvITy charanjit Attra follows cFo India, cricket and one other

cFo India, cricket and Guitar 2012 January 17, 8.55 pm · 2 comments · 7 people Like this

HEALTH

A grapeseed cure A STUDy PUBLISheD in the journal Carcinogenesis shows that in both cell lines and mouse models, grapeseed extract kills head and neck carcinoma cells, while leaving healthy cells unharmed, reports The Times of India. “It’s a rather dramatic effect,” Rajesh Agarwal, investigator at the University of Colorado told the paper. It depends in large part, says Agarwal, on a healthy cell’s ability to wait out damage. “Cancer cells are fast-growing cells,” Agarwal says. “when conditions exist in which they can’t grow, they die.” Grape seed extract creates these conditions that are unfavourable to growth. Grape seed extract both damages cancer cells’ DNA and stops the pathways that allow repair. “Cancer cells have a lot of defective pathways and they are very vulnerable if you target those pathways. The same is not true of healthy cells,” Agarwal says. 8

CFO india

february 2012

WHAT IT MEANS: GAG refers to the ‘Great And Good’ of the organisation. they are great for threats too. Just say it’s not for the GAG of the organisation! THE USAGE: Next time your colleague says he is out playing golf on a Friday morning for ‘the GAG’, you know he is probably ‘networking to help the company’. But beware, some GAGs could be real gags and unproductive!

O-ZONE

Cxo movEmEnT TECH

APPLE BEATS HP AS TOP PC MAKER The TABLeT BOOM along with iPad sales has helped Apple to become the world’s No.1 PC vendor, beating hP, Lenovo and Dell, according to a research from Canalys. Canalys is one of the first firms to include tablets in PC sales, reflecting the ongoing trend. According to the research, tablets helped the global PC market to grow 16 per cent higher in the fourth quarter compared to the previous year. excluding tablets, the market fell 0.4 per cent from a year ago. Apple sold 15.4 million iPads alone in the last quarter of the

previous year, whereas a research from IDC estimated the worldwide shipping of PC’s by hP to be just 15.1 million in Q4. Lenovo was in third position with shipping of 13 million followed by Dell with 11.9 million units. even though the sales were high, the tablet did not generate more revenue, as the Average Sales Price (ASP) of an iPad was $593 compared to the Global desktop ASP of $600 and Laptop ASP of $758. with the sales figures like this, more analyst firms are expected to include tablets in their future PC market forecasts.

AUTO

photos.com

2012 Begins well for car makers AUTO COMPANIeS hAve begun the new year on a positive note, logging steady and stable growth in sales for the month of January, reports PTI. The industry had struggled to grow sales last year as high interest rates and fuel cost dampened sentiments, keeping sales sluggish. Mahindra and Mahindra (M&M) January sales zoomed by 22 per cent at 44,717 units from 36,718 units sold during the corresponding month of 2011. Tata Motors too reported good sales numbers for last month growing 16 per cent. This included exports at 87,465 units over 75,423 sold in the like period of 2011. The company said its domestic sales for the month under review grew by 14 per cent at 80,382 units from 70,475 units sold in the corresponding month of last year. Sales of the entrylevel hatchback Tata Nano reported an upward swing of 15 per cent at 7,723 units from 6,703 in January last year. Chennai-based hyundai Motor India closed last month with a sales growth of 15.2 per cent at 49,901 units from 43,316 units in the like period of 2011. Market leader Maruti Suzuki registered a 5.2 per cent increase in its sales for last month at 115,433 vehicles from 109,743 units sold in January 2011. exports zoomed by 54.3 per cent jump at 14,386 vehicles during the month under review against 9,321 units sold in January 2011.

New CFO for Indo Rama Synthetics

Indo Rama Synthetics (India) Ltd has informed BSe that the Company has appointed Deepak Singhal as Chief Financial Officer of the Company, with effect from January 9, 2012.

Dentsu appoints Group CFO

Continuing with the series of senior-level appointments, Dentsu India Group announced two key appointments: Suprotim Day as Chief Films Officer, and CP Arora as Group Chief Financial Officer. CP Arora (popularly known as CP) takes on the mantle of Group CFO, from Nobuki Sakai who was seconded to Dentsu India early last year. CP joins Dentsu from JwT, Delhi, where he was vP and executive commercial director. As strategic business partner with JwT he tracked financial efficiency and profitability, risk management, legal and compliance and overall financial operations for JwT Delhi Office.

Glenmark’s new COO Pharma major Glenmark Pharmaceuticals said it has appointed Sandeep Gupta as Chief Operating Officer. Gupta will be based at Glenmark’s headquarters in Mumbai and will be responsible for the company’s branded generics business and operational aspects including quality, projects, distribution and supply chain.

february 2012

CFO india

cfo

i think

Facts & Trivia Education: BSc in Zoology with Chemistry from University of Lucknow Qualification: Chartered Accountant carEEr: CFO & Global Finance Head, Dabur Pharma

COMPANIES TAKE FUNDS from a PE investor to grow the business and create value both for the shareholders and investors in a finite time frame. Generally PE investors take a minority position in an unlisted company and negotiate some rights with the promoters. In many cases, promoters, because of their background, may not be aware of what the full market opportunity could be. However, what is important is the real execution of the business strategy by ensuring that there is: • An increase in operating value of the business through Operational Performance Improvement • An increase in overall value of the company through financial leverage What keeps the PE investor anxious is: How will this happen? 10

CFO india

february 2012

shailendra Tandon The former CFO & global finance head of dabur Pharma Limited, currently Director, Asia Pacific Healthcare Advisors, Mr Shailendra Tandon talks about issues such as exit strategies, realisation of created wealth and other challenges that worry CFOs of PE funds

a CFO’s PersPeCtive In most cases a representative of the PE investor and many times the CFO of the fund is charged with the responsibility of monitoring the performance of the company during this period to ensure exponential value creation. The starting point always is the fundamental question: Does the company have a leader-

“in many cases promoters... may not be aware of what the full market opportunity could be”

ship team with the appropriate skill set to execute the business strategy? The real task of the PE representative thereafter is to ensure that the leadership team is fully aligned with the business strategy, working as a cohesive team, focussed on what they should do and what they should not waste time on, aware in-depth about what is happening in the businesses and sufficiently incentivised. Monthly monitoring meetings are focussed on the task of evaluating whether the leadership team is taking right actions; whether the results are in line with expectation; and if not, take immediate course correction as required. The key difference here is that the PE representative is not a part of the leadership team but still has to influence it to deliver the objectives in a finite time frame.

SUBHOjit PAUL

How to ensure realisation of created wealth: • The only way the arrangement works is by aligning interests of all concerned — the promoter, the PE investor and the leadership team. • All of the above participants have to realise that the created wealth will be realised by everyone only when

there is proper exit. Everyone has to understand that a potential investor will look for some specific attributes in the business to really get interested. These attributes may vary depending upon the line of business but all investors look for the following at the bare minimum: Systems and process orientation in

the business; strong leadership teams; good HR processes and demonstrated delivery of performance. The management of an exit requires skills and is a long-drawn process. It is only after the exit that everyone can afford to smile because it is only then that the value created after arduous effort is actually realised. february 2012

CFO india

Recalibrate.

Now! 12

CFO india

FEBRUARY 2012

cover story

ReiNveNt, iNNovate

CFOs are being forced to recalibrate their skills and the way they look at the business, to adapt to a dynamic new world. What does this ‘change’ mean though? Is it the mental makeup of the CFO that needs change or does the subject need a more in-depth study? Dhiman chattopaDhyay

photos.com

n a nation obsessed with quarterly results where anxiety attacks grip thousands of investors every time American presidents talk of curbs on outsourcing, or a listed organisation fails to predict its Q1 or Q2 results accurately, it is almost sacrilege to talk about ‘grading companies’ and looking at long-term valuation instead of panicking over decimal point changes. But even if we are not quite looking yet, the world around us is changing. Issues such as sustainable growth, compliance and communicating with stakeholders about long-term value, are increasingly becoming roles that new-age CFOs are taking up more seriously, almost with missionary zeal in some cases. So is it time, India Inc and its financial leaders looked at their roles afresh? Five of the country’s leading CFOs from both listed and unlisted, large and medium sized organisations discussed and debated this issue with us — some agreeing that CFOs needed to look beyond quarterly results and numbers while others arguing that this was wishful thinking and organisations needed to keep a check on reality.

FEBRUARY 2012

CFO india

cover story

PRaBaL BaNeRJi cFo, aDani power

FOs do need to recalibrate. There is no two ways about it. Earlier there were three major pillars of a CFO’s job: a) Controller’s role b) Strategic role c) Compliance, corporate governance and ethics Today, due to the changes in the global environment, a CFO needs to look at a much bigger issue, which is sustainability. When the CFO is a part of the top leadership team to ensure long term sustainability of an organisation, he or she has to look at all aspects of business, way beyond quarterly results. Quarterly results are a mere derivative of all these issues, giving an indication of how things are running in numeric terms.

CFO india

FEBRUARY 2012

In fact, I strongly believe that quarterly results very often distract the management from their long-term perspective, and hence one should be

“Quarterly results often distract the management from their long-term perspective”

extra careful about it, particularly the CFO. While there is no denying the fact that EBITDA, costs and margins are very important, at the same time, a CFO needs to look at other issues much more closely today. Some of these are: 1.Regulatory environment and future adaptability of one’s organisation. 2.Global environment and proactive action. 3.Newer opportunities emerging due to the global economic environment. 4.Make or buy decision — insourced or outsourced capacities. 5.Industry practice — Next Practice rather than Best Practice. But does it mean that CFOs are no longer expected to deliver the financial numbers on a quarterly basis? Not really. It is to be addressed by them but s/he needs to ensure that the true and fair position is reflected in these numbers, rather than trying to meet the forecasts and expectations. A very sensible way out could be to avoid giving any future guidance on numbers. Making forecasts does not help either the company or stakeholders and surely not the CFO. It is fraught with risks. The CFO would be well advised not to give out any futuristic financial numbers. This recalibration is a gradual process. Earlier he was expected to look at numbers, explain them to stakeholders and be the custodian of the consequences of other people’s decisions. Today he is more involved and accountable for those decisions. A truly evolved CFO should also be able to explain the consequences of major business decisions to all stakeholders and not just quarterly numbers. Personally, I have no doubt that serious stakeholders already expect this recalibration from us.

cover story

GiRi GiRiDHaR cFo, wocKharDt

Subhojit Paul

hese are indeed dynamic and uncertain times. However, I honestly feel there is really no going away from numbers. We will remain, in the foreseeable future, a nation obsessed with quarterly results. So what can the CFO do in these circumstances? Investors will look at quarterly numbers no doubt. And so these are important. However, my own experience suggests that what at least most serious investors are looking for, are patterns and predictors of future performance rather than a particular quarter number. In other words, the focus of the company and the CFO should shift to (if it already hasn’t) the health of the organisation as opposed to simply performance.

A simple example will illustrate the difference between health and performance: You can buy sales by discounting. You will achieve your top line performance, but by dropping NSPs you have potentially changed

“While we look at quarterly performance, we should also look at key health parameters”

the shape of the profit and loss (P&L) accounts and therefore, the health of the organisation. Businesses will go through cycles — peaks and troughs. The role of management is to protect long-term health. As CFOs, while we look at monthly or quarterly performance, we should also look at the key health parameters — how is our market share — is it steady? Are we growing in line with the market or faster? Am I discounting to get top line? Are my cost structures in line? What is my working capital position? The big advantage in focussing on the above is two-fold — some of these can be leading indicators of future performance. For instance, in an FMCG company, data from a retailer on offtakes can be a fantastic lead indicator. And some will be lag indicators. Identifying these lead and lag indicators can help improve predictability, and more importantly, help define responses. As part of good performance management, it is possible for the CFOs to work out alternative scenarios of performance well in advance, and plan for responses early on. As far as the human element is concerned, the CFO can help play a great role in ensuring that budget setting is at the right level of stretch while looking at alternate incentive systems for performance. Implementation of the Balanced Score Card is a great way of ensuring that the employees understand how their own roles and actions have a direct impact on the top line, profitability and cash. And from an investor perspective, the CFO’s big role is in the guidance. Good CFOs get respected for great guidance. Such guidance is not about the next quarter’s numbers, but about how the environment is shaping up and how the company is responding. FEBRUARY 2012

CFO india

cover story

SUNiL KaKaR

lobally as well as within India the dynamics of business have changed. I have seen the IT revolution unfold before my eyes. The time-cycle has changed forever, though (unfortunately for us CFOs) the earth still rotates at the same speed. There exists today a clear disequilibrium in the system between speed of information and the speed of action. We have to differentiate between information and noise. It is noise that creates uncertainty and panic and leads to instant reactions, some of which are often taken in haste and are therefore, potentially harmful to an organisation. So without doubt there are a lot of areas where we have to recalibrate now. For

CFO india

FEBRUARY 2012

instance, CFOs have to consider how they will balance longer-term planning and execution over a shorter time frame. Forecasts are changing increas-

“the cFo will have to communicate... that numbers are mere indicators of the health of a company”

ingly to realign with the time scale. The longer the time scale the higher the chances of deviation. So organisations have moved to rolling budgets and weekly meetings, doing things in smaller slices in shorter periods while keeping long-term plans and vision under constant monitoring. The external world however, will remain interested in seeing actual results every quarter. So while numbers cannot be wished away, we as CFOs have to understand and communicate to others what the budget is for. It is to be used as a business performance management tool. Deviation from that on a large scale will always pose a problem. So for performance evaluation, we have to look at three sets of numbers — a base case, a best case and a worst case scenario. Within this ‘range’ we have to be cautious not to have wide margins of error. If the margin between your best and worst case scenario is significant, then obviously over time, the organisation’s credibility will take a hit. There are two things CFOs would do well to keep in mind here. There is a direction and there is a journey. The direction is the long-term goal and that will involve a journey which is a series of short-term steps. Effective and timely communication with internal and external stakeholders at every step is a key role that the CFO will have to perfect, so that slight variations in the shorter term do not affect investor goodwill over a longer term. Today’s CFO will have to communicate to stakeholders that numbers are mere indicators of the health of a company, certainly not an end in itself. The real valuation of an organisation is based on three parametres: actuals vs actuals, budget vs actuals and comparison with peer rival firms.

Subhojit Paul

Group cFo, iDFc

cover story

RaJ DUtta

executive Director anD co-FounDer, Quatrro

Subhojit Paul

he core of a CFO’s job or skills hasn’t change. He is and will remain the person who sets the targets and then keeps the organisation focussed on getting those numbers. But indeed, we need to move away from this excessive focus on quarterly numbers. In most listed companies the common joke is that their existence has become QSQT. The acronym borrowed from the famous film ‘Qayamat se Qayamat Tak’ by India Inc CFOs refers to QSQT as a ‘quarter se quarter tak’ (from one quarter to the next) existence. Even today, say what you will, but the quarter results continue to carry a huge weight on long-term issues.

“In my view a cFo should not lose sight of the two or three-year deliverables and within this longer-term vision look at life from the QsQt prism”

Today, working in an unlisted company, I know it’s a huge relief not being in a ‘quarter bound’ life. It is easier for my CFO today to explain to private investors why we slowed down in Q3 and why things will look up in Q4. However, I am not a great supporter of the rolling budget or the rolling plan. True, the concept of fiveyear plans are unrealistic, but it can’t be a rolling plan because we have to take 18-month decisions and the CFO will have to provide longer-term plans for that. When I am putting $10 mn of my investors’ money in a new facility, I have to also commit that I will make 2x or 3x in the next three years. Investors have a right to hold the CFO and the organisation accountable for what is being done with their money. The one area where the CFO will have to recalibrate fast is adapting to the increased number of variables in his life. Time-lags, for instance, no longer exist! CFOs will have to find new ways to deal with the unrealistic demand of people who expect the CFO to be on top of the situation at all times. The time to think and react is much shorter for the CFO today. Perhaps it is time to look at organisations in terms of a gradation system much like the way the higher education system in India has gone. But come to think of it, long-term investors do that anyway by investing in organisations based on their credibility, blue-chip rating or longterm performance. CFOs would do well to realise that a company’s share price is not the only focus — growth and consistent growth, too is. Therefore, in my view a CFO should not lose sight of the two or three-year deliverables and only within this longer-term vision look at life from the QSQT prism. FEBRUARY 2012

CFO india

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vaRDHaN DHaRKaR cFo, Kec international

do not believe that we should move away from our focus on numbers. Why? Simply because the world is becoming so dynamic and increasingly concerned about numbers. Honestly, the CFO has to focus more on numbers and quarterly results today. In fact, money, resources and time will have to be invested by the CFO and his organisation in building robust systems which will help him or her manage the organisation better. I am not talking only about numbers here but also about issues such as risk management and compliance.

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â&#x20AC;&#x153;there is no need to look at a grade system or a rating policy. serious investors anyway look at organisations as long-term value propositionsâ&#x20AC;?

So to me the idea is not to move away from the trend of quarterly results but to strengthen the organisation and be in sync with the system so that greater accuracy can be achieved (in terms or targets and predicted numbers) in every quarter. I do believe though that there is a need to move away from just focusing on annual budgets or longer-term plans to finetune operating plans on a regular basis. In that sense a rolling budget may be the need of the hour. Are we a nation obsessed with quarterly numbers? I do not think so. And if you call it an obsession, it is a healthy one. There is no need to really look at a grade system or a rating policy for companies. Serious investors anyway look at organisations as long-term value propositions and evaluate companies on the basis of performance, not just in one quarter but over years. So you are slotted, so to speak, based on your past performance, into a category or grade in any case. What the CFO of the future needs to do increasingly though, is improve his or her dialogue with stakeholders while at the same time, improve his risk management and regulatory knowledge. Personally, I do not look at quarter to quarter results as a problem or an irritation. Rather, I enjoy that process. We, the CFOâ&#x20AC;&#x2122;s, owe it to the stakeholders to provide relevant, reliable and accurate information on a regular basis. I think it is necessary (for a listed company especially), because there is a sharper focus on your performance and this leads to continuous improvement, if your actions are reviewed every quarter.

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Changing horizon

Preparing for

Continual Change A recent FERF-SmartPros survey identified areas of change that have significant implications for the professional education decisions of financial executives, with convergence of US GAAP and IFRS topping the list of concerns

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Bruce pounder

CFO india

FEBRUARY 2012

cover story

s 2012 begins, financial executives find themselves facing significant, ongoing changes in nearly every aspect of their work. This ‘new normal’ of continual change is expected to persist through the foreseeable future. With continual change comes a need for continual preparation, which in turn requires relevant and timely education. As always, Financial Executives International is committed to identifying and meeting the learning needs of its members. FEI, through its research affiliate Financial Executives Research Foundation and its strategic partner SmartPros Ltd, recently conducted its first Financial Executive Learning Survey. The purpose of the survey was to identify the professional education topics that financial executives perceive as most important to themselves and their staff members in the immediate future. In August, FERF published “Preparing for Change: A Report on the 2011 Financial Executive Learning Survey,” which explains how the survey was conducted and the key findings. The report also includes commentary on why the findings are significant and provides specific recommendations to guide financial executives in making sound professional educational decisions. This article summarises the report.

Survey adminiStratiOn and Key FindingS The survey was conducted in April and May 2011. Respondents includ-

ed FEI members and other users of SmartPros’educational services. A total of 768 responses were obtained: 725 using an internet-based version of the survey, plus 43 participating with a paper-and-pencil version. The survey’s first item presented respondents with a list of 48 specific professional education topics grouped into 10 named categories. The categorised topic list was developed on the basis of FERF’s and SmartPros’ consensus expectations of significant, imminent developments. Referencing the list, the survey item directed respondents to identify one or more “topics that are of most importance to you and your staff members.” For this item, respondents were not asked to rank or otherwise make distinctions among their topic choices. Most respondents chose the suggested limit of five topics. The topics that respondents most frequently chose as important were: • US GAAP/IFRS convergence (chosen by 49% of all respondents); • Internal controls (41%); • Accounting practices/policies (34%); • Financial reporting regulations (30%). Of the four topics most frequently chosen for their importance, three are associated with the category “Financial Reporting” (US GAAP/ IFRS Convergence, Accounting Practices/Policies and Financial Reporting Regulations). The second survey item directed respondents to identify, among those topics they identified in the first survey item, “the one that is the most important.”

The topics respondents most frequently chose as most important were: • US GAAP/IFRS convergence (chosen by 15% of the respondents who made a choice for this survey item); • Financial reporting regulations (8%); • Accounting practices/policies (7%); • Internal controls (6%). Of the topics most frequently chosen as most important, the top three are all associated with the category ‘Financial Reporting.’ As the results of these two survey items indicate, the topics most frequently chosen as important are the same, on the whole, as the topics most frequently chosen as most important. Taken together, these results are significant because each survey item measures a different dimension of the importance of topics to survey respondents. In particular, the first survey item essentially measures the percentage of respondents who consider each topic to be important at all, whereas the second survey item measures the percentage of respondents who consider each topic to be more important than any other topic. Consequently, the survey results could have been very different; a particular topic might have been considered important by many respondents without being considered most important by any respondents. In the case of the actual survey results, a key takeaway is that the same four topics are both broadly important as well as highly important to respondents.

regulators in the Us and elsewhere are contemplating more — and more substantial — financial reporting requirements in areas such as executive compensation FEBRUARY 2012

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cover story tOp Learning priOrity: uS gaap/ iFrS COnvergenCe Based on the survey results, the topic “US GAAP/IFRS Convergence” is clearly the top learning priority for financial executives. This topic encompasses the ongoing efforts of the Financial Accounting Standards Board and the International Accounting Standards Board to converge US Generally accepted accounting principles and International Financial Reporting Standards at the standard level. It also encompasses the potential incorporation of IFRS into the financial reporting system for public US companies. Several significant developments related to this topic are expected to occur in late 2011 and early 2012. FASB and IASB are expected to issue final converged standards on leases, revenue and financial instruments (including changes to accounting for derivatives and hedging). The new standards will likely change both US GAAP and IFRS to a profound degree, as well as eliminate differences between the two sets of standards in these areas. In addition, the US Securities and Exchange Commission is expected to make a decision regarding whether to require, allow or continue to prohibit the use of IFRS by domestic SEC registrants for statutory financial reporting purposes. Such a decision will certainly be shaped by the outcomes of the joint FASB-IASB convergence projects on

The topics that responders most frequently chose as important were:

leases, revenue and financial instruments, as well as by other factors beyond the SEC’s influence. Independently of the foregoing developments, US companies that participate in the global economy must increasingly implement IFRS in addition to, not instead of, US GAAP, as a result of foreign statutory financial reporting obligations. This is especially true for: • Multinational companies that are based in the United States; • US companies that acquire or seek to acquire foreign subsidiaries; • US subsidiaries of multinational companies that are based outside the United States;

Us companies that participate in the global economy must increasingly implement IFrs in addition to, not instead of, Us GAAP, as a result of foreign statutory financial reporting obligations 22

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• US companies that are acquired by or seek to be acquired by foreign parents. For such companies, further convergence between US GAAP and IFRS at the standard level would potentially reduce the burden of keeping two sets of books. For public companies in particular, any option or mandate from the SEC to use IFRS would help as well. A voluntary or mandatory conversion from US GAAP to IFRS, however, would be accompanied by many technical and managerial challenges.

Other high-priOrity tOpiCS Internal Controls: The numerous profound changes in US GAAP and IFRS that are expected to occur in the near future carry significant potential to introduce new material weaknesses in internal control over financial reporting (ICFR), primarily as a result of making current competencies of financial reporting personnel obsolete. In addition, next year the Committee of Sponsoring Organisations of the Treadway Commission (COSO) expects to modernise its Internal Control — Integrated Framework and related evaluation tools, which were developed in 1992.

cover story The framework is now widely used as an internal control standard for organisations implementing and evaluating ICFR as well as internal control related to operations, compliance, and financial reporting objectives. (FEI is one of COSO’s five sponsoring organisations.) Accounting Practices/Policies: A significant and widely anticipated development in 2012 is a decision from the Financial Accounting Foundation (FAF, the parent organisation of the Financial Accounting Standards Board) with regard to standard setting for private companies. In early October, FAF issued a request for public comment on its tentative plan to establish a Private Company Standards Improvement Council, which would identify and propose specific improvements to US accounting standards for private companies, subject to ratification by FASB. The outcome of FAF’s ultimate decision is uncertain, but many of the possible outcomes carry profound implications for private company financial executives. Financial Reporting Regulations: Companies in many industries — and all public companies regardless of industry — are subject to financial reporting regulations. Regulators in the US and elsewhere are contemplating more — and more substantial — financial reporting requirements in areas such as executive compensation and various provisions of the DoddFrank Wall Street Reform and Consumer Protection Act of 2010. Many regulators are also expressing interest in improving reporting transparency in extractive industries (‘publish what you pay’).

pubLiC COmpany, private COmpany priOritieS and diFFerenCeS The internet-based version of the 2011 Financial Executive Learning Survey included an optional item that asked whether the respondent’s

The second survey item identified those topics in the first survey item as the one that is most important:

recognise that many diverse professional competencies are necessary for success in accounting and finance careers company type was public or private. For this item, there was a 97 per cent response rate. Among respondents, 73 per cent fell into the public subgroup and 27 per cent comprised the private subgroup. One significant finding is that with regard to the first survey item (i.e., important topics), there was little difference in the responses of the public company and private company subgroups. For example, each subgroup chose the same three topics (US GAAP/ IFRS convergence, internal controls and accounting practices/policies)

more frequently than all other topics, with the same relative frequency. Recommendations as highlighted in the survey report, there are three significant recommendations rooted in the results. Specifically, executives and their staff members should: 1. Recognise that many diverse professional competencies are necessary for success in accounting and finance careers. 2. Prepare to make ongoing investments in training and development due to significant, continual change in many areas of professional competency. 3. Expect to invest the most learning time and effort in financial-reporting topics in general and US GAAP/IFRS convergence in particular.

BRUCE POUndER (BRUCEPOUndER@SMART PROS.COM), CMA, CFM, dIPIFR (ACCA), IS vICE PRESIdEnT, ACCOUnTInG PROGRAMMES, F OR S MA RT P ROS LT D . , A P R O vIdER OF PROFESSIOnAl EdUCATIOn FOR FInAnCIAl ExECUTIvES. HE PROdUCES And PRESEnTS SMART PROS’ wEBInAR SERIES ACCOUnTInG. ©FInAnCIAl ExECUTIvES InTERnATIOnAl FEBRUARY 2012

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LEADERSHIP MANTRAS

The Art and Science of

Survival & Success for the CFO Currently honorary professor at IIM-A, Mr Hari Mundra, Adviser, Wockhardt, former director of HUL and former Dy MD of Essar, recently spoke at a seminar organised by Oracle and CFO India in Mumbai on leadership challenges before the CFO*

he real question today is how CFOs can survive in these turbulent times, in a country where corruption is â&#x20AC;&#x2DC;normalâ&#x20AC;&#x2122;. Not just survive but succeed in fact. I will share some recipes which are not so traditional but come out of our experiences. I remember a listed NBFC, a company

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which was headed by a very conservative South Indian CEO who had been a successful CFO in his own time. During his reign, the RBI had changed some laws, making life difficult for NBFCs including limiting its deposits. The company showed modest profits, year after year. We initially thought because of its conservative nature it had made

some money, though it had not gone for any Further Public Offers (FPOs). One day, the company ran out of money and sought a `50-crore bailout package from the parent company. This prompted us to do a special audit. Imagine our shock when we discovered that the CEO was maintaining four different sets of accounts for the NBFC.

cover story be a ‘partner’. The CFO has to be a team player, network internally, learn to handle operational responsibilities and have experience in supply chain, logistics and procurement to be successful and effective CFO. Some key value additions a CFO can bring to the table are cost management, raising funds and managing forex. Without these he cannot be on his seat for very long. In the US, the highest risk job is that of a CFO. He cannot deny the numbers. A CIO can, even a CEO can go back on certain commitments but a CFO can hardly afford that luxury.

the cFo has to be a team player, network internally and learn to handle operational responsibilities One account was maintained for the top management, wherein the CEO would decide what profit will be declared and fed in the MIS. The second account was maintained for the regulators, since NBFC is a rather strictly regulated sector. The third account was maintained for the auditors, since listed companies had to announce their earnings to the public. Finally, the fourth account was the real account to which very few people were privy. He was able to do this without being found out because in the finance industry, it is easy to generate entries creating profits. It is easy to create entries because there is no VAT, no sales tax and no excise, and therefore, there is no counter to what you create. Also, at that point in time the practice of regular communication or interaction between auditors, top management and the regulators was not prevalent.

It was this particular CEO’s way of dealing with the dilemma. Once we did the audit we recovered `300 crore from him. Ultimately, he had to sell three of his businesses to compensate the fixed deposit holders. Needless to say, this kind of solution cannot be used by anyone of us. Satyam under Raju did the same but got caught in the end. Obviously a legal and smart way has to be found to deal with such problems. In a football team there is a good goal keeper (the custodian of compliance), defenders (who look at corporate governance) and strikers (who keep aggressively pushing growth). The CFO is this ‘team’! He has to play all the roles simultaneously. He should also contribute towards sales growth and profitability of the company. Today’s CFO cannot just be an extension of the CEO office. He cannot just

Recently, when a leading Indian real estate player was fined `6,000 crore for taking CCI investors for a ride, heads rolled and they were mostly from the finance function, for not warning the management and the board of the danger lurking around the corner. Another leadership challenge the CFO faces is in dealing with corruption. It has gone up exponentially and so has the greed of people. As Gandhiji once said, “There is enough to go around for everybody’s need, but not for everyone’s greed.” How does a CFO contend with such hunger that leads to greed and pressure on the CFO to walk the thin line between black and white. Some Indian companies have promoters who are always seeking to grow beyond their limit, play with more money than they can afford. Each organisation should have strategic intent — an ability to also FEBRUARY 2012

CFO india

cover story Survival Guide For THe CFo • Choose a promoter whose source of wealth is the market capital and who has long-term goals • Stay with a promoter who listens to the voice of reason and caution • Walk away from any involvement in the cash economy • Be jack of many trades and also master of some: Both innovation and devil are in the detail • Strengthen and use the safety net of outsourced internal audit, external audit and tax advisory

look at growth areas which cannot be planned. This is where the CFO needs to help the CEO. Look at some of the biggest corporate frauds in the world and you will notice that they happened because the CEO and the CFO wanted to ‘perform’ in the eyes of the stock market, when

the company was actually not doing well. Is window dressing good enough till the crisis blows over? Or should you be really transparent in such a situation? I feel transparency always works. In conclusion, there are a few key lessons the CFO has to imbibe to succeed in today’s world. The first lesson is choose a promoter, whose source of wealth is market capital. The reason for choosing mar market capital is that the promoters will not take money from the top line, from cost and from foreign operations and also have long-term goals in their minds. Secondly, stay with a promoter only if he listens to you. If he is going to be authoritarian and sit on your head, then it’s important not to stay with him, because sooner or later, he will stop listening to you. As for the promoter who listens to your warnings on money related issues, don’t come to him with a problem without a solution. Thirdly, walk away from any involvement in cash. It begins with you and

taking a part of your salary in cash. When you get used to it, how can you deny the promoter, the right to generate more cash? So walk away from cash itself. The promoter will protect himself but not you in case of trouble. Remember that creativity lies in understanding the law and operations. We consider CFOs as the auditors — the pain points, which is not the case and they are the safety nets in reality. Very few of us realise that whatever we do with any public organisation is subject to public knowledge and information. Finally, anticipation is a skill a CFO must perfect. If you can anticipate and your foresight is strong, then you can provide a solution which is more sustainable and long term.

Walking the

Tightrope A former CFO and CEO in many Indian firms and MNCs during his 35-year-long career, Mr Ram Ramasundar now runs the financial advisory service firm Blue Rivers Capital as a director. He spoke at a recent Oracle & CFO India hosted session in Delhi on leadership mantras for today’s CFOs* 26

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n today’s turbulent world, CFOs are supposed to be wealth creators and business drivers. In conference calls and board meetings, CFOs are the first ones to be fired at if numbers are not met. Even in issues such as governance, the CFO is answerable. In most of the companies, CFOs are generally looked as Chief Risk Offi-

cover story

cers as well, and we are not only talking about the financial domain but also the operational risk associated with the business, which you cannot get away from, as you are responsible for the overall performance. This is the kind of role a CFO is expected to perform today. The business environment is changing rapidly as information travels at the speed of light and CFOs are expected to juggle many more hats than before. The globalised and competitive environment requires a different GTM (Go-to Market) strategy. The increasing complexity of business transactions and practices with higher risk/reward trade-offs are a reality today as is the

increased speed of business operations resulting in no margin for error or delay in decision-making. There is also

the business world is no longer in calm waters. the cFo needs to be a master mariner to navigate the ship

an increased emphasis on corporate governance and stricter compliance standards and regulatory requirements are needed. Look at it this way: the business world is no longer in calm waters — it has become a turbulent sea since September 2008 — and the CFO needs to be a master mariner to navigate the ship. This new role requires a Balanced Score Card Approach. This means the CFO needs to have an equal focus on cash, risk assessment and contingency planning, continuous planning, forecasting and measurement, while he also needs to understand business levers and seize opportunities. In summary, to borrow from Bollywood, “Cash is King”. CFOs of today need to understand how business creates value or is supposed to create value, by focussing on micro economic variables of the business and focussing strictly on cash flows — not accounting profits. I also believe they will have to recalibrate to have more frequent planning and performance review cycles, to address the issues quickly without delay, and at the same time, install and continuously monitor compliance — through a robust and integrated system of risk assessment and management. They would be well advised to also do continuous scenario planning — best case, base case and worst case. In conclusion: • Learn to roll with the unexpected — you cannot anticipate all events • Rein-in risky operations — from a compliance standpoint • Be a mentor and guide to your boss — the CEO Just like India is a multicultural society, the CFO today needs to become strategic, tactical and multi-functional and wear many hats and truly understand business. * BOTH ARTICLES ARE SUMMARIES OF THEIR SPEECHES BASED ON RECORDED NOTES. FEBRUARY 2012

CFO india

cfo

Profile riSHi GUPTA

cfo & PRESIDENT, SalES & MaRKETING, fINo

doubling Growth, Eyeing new Since its birth in 2006, FINO has grown phenomenally to become India’s leading business & banking technology platform and delivery channel. The future looks equally promising, says its CFO Rishi Gupta, who left his family business and a secure MNC job to take up this entrepreneurial challenge Dhiman ChattopaDhyay 28

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WheN RIShI GupTa, the son of a tea merchant, was growing up in Delhi after having left his birthplace Kolkata at a very early age, he had little inkling that he would, one day, come full circle and become an entrepreneur of sorts — bringing happiness and financial gain to millions of Indians in far flung villages. Today, FINO, Financial Inclusion Network and Operations reaches out to nearly 44 million unbanked customers with 22,037 transaction points in 399 districts across 25 states. as the head of its finance, sales and marketing teams, Mr Gupta is involved in almost every bit of work that makes FINO such a powerhouse. Yet, he remains a simple man of simple tastes, cherishing his morning cup of tea with glucose ‘Tiger’ biscuits and the long walks he takes with his family on Sundays near his home, overlooking the powai Lake in Mumbai. So, how did it all start for this 43-year-old Kolkata-born, Delhiite-at-heart Mumbaikar? “I was an average student till Class X. Once I

JitEn Gandhi

Markets

MileSToneS FIRST JOB maruti Suzuki BIG BREAK iFC to Fino A HA! MOMENT When Fino got its first client LITTLE KNOWN FACT i sing so badly that my children refuse to listen to me sing even if i pay them DREAM to teach poor kids and work with an nGo one day

february 2012

CFO india

cfo Profile moved to the commerce stream, I started doing well and topped my class at St Xavier’s. It was then that I discovered this drive in me, a force that kept telling me I could do the impossible. It is a drive I retain till date,” says Mr Gupta as we chat over coffee at his plush sixth floor office in Mumbai. “I got admission in Shri Ram College of Commerce, arguably one of Delhi’s, and the country’s, best colleges for commerce students. So the Ca had to happen,” he smiles. Mr Gupta obtained his B.Com, cost accounting and finally Ca degrees, and by 1992, was ready to face the real world. “I always had a fascination for numbers. So my father too encouraged me to go for my Ca,” he recalls. he got his first break with one of India’s most respected companies — Maruti Suzuki and spent the next two-and-a-half years there, learning some of the biggest lessons of his life in business management. “I went on to become the head of budgeting, spent time at the factory and was lucky enough to be exposed to the top management on a regular basis — picking up invaluable tips and lessons in the bargain,” he admits. Deep down, however, Mr Gupta pined to get into the operations and strategy side of things, really understand the business. The entrepreneur in him refused to die. “It is in my blood, I guess,” he laughs. So, a year later he moved to ICICI Ltd in the finance and accounts division. here too, he was interested more in the projects side of things and so, was deputed to the newly formed ICICI Bank for a year to work on projects. after an eight year stint, he finally left ICICI to join IFC Washington, learning more about the needs of companies of varied nature. Then, three years later, something happened that changed his life forever. “In 2006 when RBI allowed banks to outsource business correspondence through third parties, it was just the right time to launch a non-banking financial sector (NBFC) company. FINO was launched in July 2006. I joined a month before that when Manish (Mr Manish Khera, CeO, FINO) asked me to join the team. We had worked at ICICI together, so the friendship was a bonus,” he says. Since then, as he says, “life has been one happy challenge after another here. We have doubled our growth in each of the past five years which is a remarkable achievement. Today, we are the channel to reach out to the unbanked and help them lead a better life.” 30

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favouRITE

PickS

NEWSPAPERS toi/Et MAGAZINES Bt FILM Sholay

MUSIC RD Burman/Bryan adams BOOK the Kite Runner HOLIDAY UK ICON Sachin tendulkar

DRIvEN By ENTREpRENEuRIAL pASSION, RISHI GupTA TAKES GREAT pRIDE IN FINO’S SuCCESS. WHEN AT HOME, HE ENJOyS HIS SquASH, yOGA AND FAMILy TIME

FINO is also a partner with the government and the NReGa projects. “FINO is the largest agency in the country distributing NReGa/SSp benefits in more than 12 states for more than 11.5 million customers,” Mr Gupta says. To stop leakages and money not reaching the real needy, FINO has started using biometric cards and digital technology — giving smart cards to millions of the poor in villages. The usage of biometric technology has reduced possibilities of misuse and malpractices. The next challenge, says Mr Gupta, is to manage this growth. “Our capital requirements have grown but so has the rate of interest.

cfo Profile

“FINO is the largest agency in the country distributing NReGa/SSp benefits in more than 12 states for more than 11.5 million customers”

Collections have slowed down because of the economic conditions. Yet we have raised three rounds of capital till now, in 2007, 2009 and 2011 — the last one a Rs 150-crore investment from Blackstone,” he says. Mr Gupta’s vision for FINO: To make the company an international player in the next two years and also expand from the B2B business model to B2C in areas like remittances and the insurance sector. “We are present in 300 districts of India. So we want to increase that as well,” he says. how has FINO managed to de-risk such a high risk business where the flow of money and liquidity are so crucial?

“One trick we have always followed is never to let any investor own more than 20 per cent. This way, one person pulling out will never get us in trouble. We do not put all our eggs in one basket,” he laughs. The coffee is long over, but Mr Gupta’s enthusiasm is not. So I ask him what he does (when not number crunching) to keep the adrenaline pumping? “I watch movies a lot and love the serial ‘24’. I also enjoy my squash and yoga sessions as much as my daily evening walks with my wife,” he says. he has two sons, one 16 the other nine — simply managing them keeps him fit too, he jokes.

“I cherish my morning tea with my wife after the children have gone to school. Those 30 minutes keep me fresh for the rest of the day,” he says. a driven entrepreneur, a loving father and husband, at 43 he has achieved a lot. So what next? “My dream is to retire at 50 and then do something to help in nation building — maybe teach the poor, work with an NGO...” he trails off. That dream is still a work-in-progress. Till then, Mr Gupta and his team will be bringing smiles to the lives of millions of unbanked Indians. We raise our empty coffee mugs to toast that! february 2012

CFO india

in practice

Financial RepoRting

The Revised sChedule vi is mORe Than a COsmeTiC exeRCise There are several challenges ahead for the finance community as reporting standards become more exacting. Hereâ&#x20AC;&#x2122;s how to deal with some of them Pankaj Chadha

he global economic crisis has led many observers to question the adequacy of financial reporting. There is a consensus that the adoption of one set of high-quality financial reporting standards globally is essential to ensure transparency and consistency in financial reporting across the world. India has been at the forefront of the major economies in converging with International Financial Reporting Standards (IFRS), and 35 new standards that were converged with IFRS (now known as Ind-AS) were notified in February 2011. The convergence project, however, doesnâ&#x20AC;&#x2122;t stop there, as Indian GAAP itself is starting to converge with international norms in financial reporting. From March this year, Indian companies will have to present their financial statements as per the revised Schedule VI announced by the Ministry of Com32

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in practice pany Affairs, which has made some significant revisions to the format for the presentation and disclosure of financial statements. While this revised format is new for reporters under Indian GAAP, it also brings Indian financial statements a lot closer to IFRS, which in many ways is being applied as a truly global set of standards by the users.

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The ChallenGes ahead Re-drawing the financial statements based on new presentation and disclosure requirements is not without its challenges and is more than a cosmetic exercise. It’s likely that the information required to do this will not sit within the finance function and in some cases will require companies to reach out to third parties. Stakeholder management will be vital in order to ensure that they understand impacts on the resulting changes in key ratios. In most cases, significant changes will be required to be made to the company’s process for compiling the financial statements and significant judgment will also need to be exercised, requiring the active involvement of senior management. One of the key changes requires the assets and liabilities to be segregated in the balance sheet between those regarded as current and those which are noncurrent. Essentially, current assets and liabilities are those which are due to be settled within one year of the balance sheet date or within the normal operating cycle; the normal operating cycle being the time it takes from acquisition of assets for processing to realisation of cash through a sale. This may appear superficially straightforward, as the operating cycle for many businesses will be a few months. However, determining the current/non-current classification will be more difficult in some industries where the operating cycle is greater than one year — For e.g., real estate. For companies with diverse businesses, the operating cycle may need to be determined separately for different operations.

For companies with businesses having significantly different operating cycles, separate balance sheets may need to be prepared for each business This new presentation of the balance sheet is going to change key performance indicators used by the management and the investors and the current ratio is one performance indicator which is going to be particularly sensitive to these changes. For companies with external debt agreements, careful consideration will need to be given to the presentation of loans where there has been a breach of loan covenant as the balance sheet date could lead to the outstanding loan balance being shown as a current liability. The ICAI has published guidance that, where the breach is considered to be minor and past history of the lender shows that they will not call in the loan, then the amount due after one year will continue to be shown as non-current; only in the case of a major breach will the whole

amount collapse to current. However, judgment will need to be exercised in determining what constitutes a major or minor breach of a loan agreement. There is currently no clear guidance on this and practice will evolve over time. Therefore, it makes sense for companies with significant external debt to proactively review compliance with loan agreements in advance of the year-end and obtain waivers where necessary prior to the balance sheet date. This will ensure that there are no nasty surprises at the year-end. Where loans and other facilities are “ondemand”, in future they will always be shown as current. This will not only apply to many working capital facilities and overdrafts, but will also apply to term loan agreements where the bank has the right to call the loan at any february 2012

CFO india

in practice time, regardless of defaults. Banks and lenders can often include such clauses in term loan agreements out of abundant caution, and management may not even be aware that they are there, particularly where these rights have never been exercised by a lender. Companies should proactively identify such covenants in their loan agreements and assess the impact on their financial statements. There may be an opportunity to appropriately negotiate such clauses with the lenders. Where this is not feasible, discussion will be required with stakeholders to sensitise them to the impact on the current ratio.

RevisiTinG inTeRnal PROCesses The major challenge for most companies in transferring to the new presentation and disclosure requirements

will be in obtaining all the necessary data. In many cases, the required data will not have been collated or maintained, till the present. For example, for companies with businesses having significantly different operating cycles, separate balance sheets may need to be prepared for each business. Furthermore, new and additional disclosures will be required; for instance, sundry debtors greater than six months old, are now required to be disclosed based on the due date of the sales invoice as opposed to the billing date. Additionally, all material commitments (e.g. commitments to fund subsidiaries and research projects, buy back arrangements and going concern support letters) have to be disclosed as opposed to only capital commitments. The company’s internal processes will need to be revisited or devised from scratch in order to capture the

Points to Ponder • Indian GAAP itself is starting to converge with international norms in financial reporting • Re-drawing the financial statements based on new presentation and disclosure requirements is not without its challenges and is more than a cosmetic exercise • Large organisations and groups will find that the chart of accounts, and subsidiary reporting packages will need to be revised to accommodate current and non-current assets and liabilities as well as the other changes brought about by the new Schedule VI 34

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february 2012

necessary data and prepare the financial statements in this new format. In some cases, this may be something that can be performed outside the general ledger using spreadsheet templates. However, large organisations and groups will find that the chart of accounts, consolidation systems and subsidiary reporting packages will need to be revised to accommodate current and non-current assets and liabilities as well as the other changes brought about by the new Schedule VI. Finally, as comparatives are required, formats and processes may be needed for this one-time exercise to reconstruct the necessary historical data for preparing the comparatives. The look and feel of financial statements going forward will be significantly different from what we have all been used to under Indian GAAP. Communication with investors and stakeholders will be the key to manage their expectations and ensure that they appreciate the changes and understand how the new ratios reflect the underlying performance of the business. With only a few weeks to go before March 31, all companies need to carefully plan their strategy to implement the revised Schedule VI. This is a significant change in the presentation of financial statements for Indian companies and the efforts required should not be underestimated. Developing robust processes, gathering all the required data and engaging with stakeholders in a timely fashion, will ensure that the transition is a success and there are no unexpected surprises. It might also be useful to proactively assess the impact of IFRS (or IND-AS) considering the similarities arising out of these disclosures.

PANkAj CHADHA IS A PARTNER IN A MEMBER FIRM OF ERNST & YOuNG GlOBAl. THE VIEWS ExPRESSED HERE ARE PERSONAl.

in practice

technology

FrOm UC tO SOCial COllabOratiOn We’re social animals, after all. The future success of businesses may depend on the degree to which they recognise, accept, and enable this, so people can be, well people. That’s the way UC is headed and there seems to be no stopping it Minu SirSalewala agarwal

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and it is important that a successful conversion is made possible. As given in any implementation, understanding of the requirement, doing right sizing, and proper project planning and migration plan to ensure a zero downtime is the way to go.

UC is a journey and cannot be deployed 100 per cent on day one, it is a stepwise process. Every IT organisation faces the need for more hi-tech deployments each year. Ideally, the first step would be to cut down the cost by unifying all the offices, bring-

PC anOOP

s organisations become more diverse in business applications, acquisitions and mergers become more common and multinational workforces become the norm, decision-makers are looking for ways to make communication as easy as possible for everyone. An important focus area for many organisations is how to mobilise their employees in a way that allows them to work efficiently wherever they are. Unified Communications (UC) has become the most important ‘must have’ in any organisation and users expect to get one solution that collaborates everything on the same platform, email, slide presentations, file sharing and so on, along with the video conferencing facilities. Most companies’ communications framework is synonymous with UC

in practice Status of Current Collaboration Infrastructure 7% 28%

Usage of Telepresence 1%

18%

21%

Videoconferencing – using phone lines and television monitors Voice, video and data via telepresence

appraisals

25%

recruitments

17%

web-based tools including iP telephony

22%

25%

ing everyone onto the same platform — centralised management, centralised conferencing, and centralised video conferencing. Enterprise decision-makers should be wary of a UC plan that does not provide specific and actionable strategies for end-user adoption. Enterprises and UC vendors need to treat the end user like a consumer rather than attempting to control their collaboration tools and devices. For some enterprises, the idea of userowned devices may seem impractical and even daunting. That doesn’t mean end users and their preferences can be ignored. The way would be to start with small training and follow-up sessions coupled with marketing the new tools through internal communications and evangelising within the organisation. IT groups of most enterprises today have implemented UC to some extent in the form of integration of PBX systems (especially voice mail) with email and calendar. Enterprises in advanced stages of UC have integrated other channels of communication such as instant messaging, combined with support for audio and video and desktopsharing for collaboration to enhance the UC experience. Though still in nascent stages, Communications-Enabled Business Process (CEBP) is getting introduced into enterprises. It involves traditional enterprise work-flows getting integrated with enterprise communication systems to simplify the progress of such work-flows.

10%

Training Products rollouts executive management meetings

Voice – using wire lines Video – via the internet

internal collaboration

17%

Others

enterprise decision-makers should be wary of a Uc plan that does not provide specific and actionable strategies for end user adoption mOre VideO With the emergence of the Internet and the evolution of network-centric business practices, many companies had turned to multimedia conferencing; others embraced applications that allowed groups to share documents and collaborate on projects in real time. Now, some companies, including a growing number of small and medium-sized businesses (SMBs), are combining these capabilities to create virtual meetings. About 50 per cent of the traffic on the Internet comprises videos, reflecting the importance of video to UC. The next slew of enterprise gadgets will use videos as a form of communication as it allows the transfer of information in real time and in a way that is cost effective. Reaching out to a subject matter expert or even a panel of experts based across the country will become easier with the use of video-enabled endpoints and will allow teams and companies separated by geographical borders to communicate with the push of a single button.

Additionally, the availability of 3G definitely opens up new roads for technologies and applications owing to the greater bandwidth available, as well as faster data transfer.

mOre Smart deViCeS If you see the evolution of the whole piece then the disruption first happened because of the Internet. The next high-end disruption that markets are seeing is the proliferation of smart devices in the enterprise network. There is significant rise in the usage of mid and low-range devices in the enterprise space. Indian enterprises being price sensitive will see faster adoption at the mid-level range and the penetration of the high-end smart devices will be limited to a select circle of employees. The new generation of employees is already fast adopting these tools and devices. With the end users opting for do-not-call options, the other channel that is attractive is social networking. february 2012

CFO india

in practice The increased use of SOCial animalS, mobile phones in the enteraFter all prise can be attributed to the Collaboration technologies affordability and availability (UC, videoconferencing, of smartphones, reasonable Web 2.0 applications) and Smart ‘enterprise collaboration’ vendors will provide following tariffs, convenience and ease mobility solutions (solucapabilities off their platforms: of use, ubiquitous data covertions that enable users to age and the personal flavour access the network irreability to extend and consume functionality across differadded to communication. spective of his/her locaent media, publishing and user interfaces Mobile UC focusses on tion, solutions for mobile tighter integration of mobile workforces) will be the ability to seamlessly integrate with enterprise infrastrucphones with enterprise appliareas of focus. ture to enable organisations manage enterprise security, cations such as email, address In addition, UC and its applications and administration books and calendar, as well component technologies as bringing in additional are speeding-up businessreporting and analytics capabilities, which will enhance messaging channels such es on their path to green the value of the social actions, conversations, transacas SMS/MMS to improve while reducing carbontions, content and networks that is generated by usage of colemployee productivity. heavy overheads.Enterprise laboration platform As a result of the proliferaSocial Software is another tion of smartphones people area generating great interin the true sense of collaboration, many enterprise business are more active on social netest amongst corporate IT software vendors are likely to partner with, and acquire other working sites. Increasingly planners/decision-makers. relevant technologies to leverage the complementing collabocompanies are integrating According to Cisco’s Colration features and provide richer solution and business value social networking into their laboration Nations 2010 to businesses and end-users. CRM network, so that the report, 60 per cent of the system filters all the relevant users surveyed, admitted tweets, for instance, and to ignoring the companies’ comments on the social networking social media policies at least once a ability of a critical raw material, prosite, into their CRM network. Research day while close to 20 per cent claimed duction could stop. Today most of the shows that on five to seven per cent of that they ignore these policies multiple companies have ERP and SCM but the the tweets are relevant to the company. times a day. action on a particular situation is taken This helps the companies to even take ESS is not a replacement for pubby people. All the delays that generally immediate action on the tweets from licly available social networking tools. happen are because of human latency. customers and create a ‘wow’ factor, It attempts to use the concept of social If an alert is not addressed on time, the because they can take instant action media to improve productivity at work. entire cycle gets delayed. on complaints and give information Some reasons why this software is in There are now solutions that trigto their customers immediately. This demand is because the need for socialger a communication exigency. Once also helps in reaching out proactively to ly-driven collaboration has increased. the trigger comes in from the backend the customers who have otherwise not Virtual teams and communities can ERP, it can start new alerts bringing in approached the company directly. quickly share ideas through blogs and all the right stakeholders and the peoToday, with these social networking wikis, schedule meetings and enable ple responsible to take the decision in sites the challenge is that one negaIM, voice, and video communication. a conference call across devices. This tive tweet about the product/service of Collaboration has evolved from its 1.0 will enable them to discuss the situathe company invites millions of other ways of being a point of one-way contion and take immediate action. tweets which result in forming an opinversation and communication to 2.0, People can even follow up and reply ion about the company. which is a more comprehensive, inteto the case by either pressing ‘yes’ or grated and multi-way approach to com‘no’ on their devices. This reduces munity collaboration and providing hours of decision-making process to real business benefits to organisations minutes. Every company has an emerFaSter deCiSiOnS and communities. gency group that takes action at the Take the example of supply chain: most The difficulty with 1.0 is that it has time of crisis. It is important to get this of the companies follow just-in-time limited visibility or empowerment for group activated at the time of exigency approach so as to reduce their invengeneral users, is hardly discoverable, and take necessary steps. tory cost. However, if there is non-avail-

The Take-offs

1 2 3

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in practice and provides no means to extend the functionality. On the other hand, 2.0 tools and techniques have emerged as platforms of the people, for the people and by the people.

UC aS a SerViCe

As companies put the impact of the recent financial crises behind them, UC adoption is expected to increase significantly. More companies may consider the purchase of UC as a service or as a hosted solution as a future option

doption of UC is dependent on companies training their users on the use of this technology and for decision-makers to quantify its benefits. While market growth is improving, newer cloud service offerings may be a significant factor in its longer-term success. UCaaS has also radically altered some equations. As a hosted, managed, and utility or usage-based offering, UCaaS can remove the barrier of upfront expenses and greatly improve the bias for action within the CIO’s office. Offered on a per-seat basis, UCaaS can include a standard suite of UC feature sets as part of the monthly seat cost. Typically, these capabilities can include presence management, soft phones, single number reach, unified messaging, conferencing, and the necessary communications and messaging hardware to support the offer. Since these capabilities are provided in the cloud, consistent service experience and business continuity are intrinsic. In short, UCaaS provides UC capability via a cloud-based, standardised, and predictable model of cost and delivery.

UC FOr SmbS Not just large global enterprises, organisations of every size are turning to UC — inside and outside their companies. Currently, adoption in the mid-market segment is seen to have increased and is growing rapidly. The SMB-potential for UC is tremendous as UC offerings span across budgets and requirements. The bouquet of UC offerings, currently available in the market, is so versatile that any organisation, large, medium or small, can find technology that best suits both its needs and budget. “Not just for large global enterprises, organisations of every size are turning to unified communications — inside and outside their companies.” articulates Neeraj Gill, MD, India & SAARC, Polycom. According to a NASSCOM report, approximately 50-60 per cent of IT expenditure in the country is expected to come from the flourishing SMB segment. There is also a huge potential in small towns for UC as it is currently an untapped market. As companies become more globalised

Interoperability is yet another issue that needs to be resolved. Not all phones, soft phones, gateways or call managers are interoperable as they support some proprietary variant of a standard protocol. This limits enterprises from a free mix and match of components. The usage of open standards can tackle this issue. Many suppliers have developed products that support open standards such as the Session Initiation Protocol (SIP). SIP not only allows for VoIP communication but also supports video, fax, presence and instant messaging. Open standards are important because they provide a foundation that can be built upon. One common problem faced in the deployment of enterprise UC applications is often the kind of bandwidth available for use within the office space. While we have definitely seen the digital divide reduce, we still have a long way to go. A 2 mbps connection, for a year, continues to be quite expensive, prompting many organisations to opt for connectivity of poor quality. This, sometimes, affects the performance of enterprise technologies and tools and

according to a naSScOM report, nearly 50-60 per cent of it expenditure in the country is expected to come from the SMB segment UC will be more in demand. More and more SMBs are now adopting UC because of the many benefits that it can offer.

nOt QUite there Yet One of the major limitations in the Indian market is the government regulation on PSTN and VoIP interconnection, which limits the full potential of an IP telephony system.

does not leverage the true capabilities of the application in question. Often when an organisation considers change that impacts every employee, such as an enterprise-wide IP telephony implementation, the process tends to focus on hardware, software, and getting the technology up to speed as quickly as possible. However, a company’s infrastructure is also composed of people. Resistance to change is normal and should always be anticipated. february 2012

CFO india

in practice

TECH WISE SamIron GHoSHaL

Managing the risks of shadow it in a cloud and Mobility enabled environMent The cloud is here to stay but it is equally important for CFOs to know to manage the risks it brings along

A ABOUT The AUThOR: SAMIROn GhOShAl, PARTnER And lEAdER, IT AdvISORY SERvICES, ERnST & YOunG. ThE vIEwS ExPRESSEd hEREIn ARE ThE PERSOnAl vIEwS Of ThE AuThOR And dO nOT nECESSARIlY REPRESEnT ThE vIEwS Of ERnST & YOunG GlObAl OR AnY Of ITS MEMbER fIRMS. 40

CFO india

n organisation’s IT risk profile is constantly impacted by a number of significant trends of which few can be called ‘megatrends’. Each of these megatrends brings with it great opportunities as well as new and complex challenges. Cloud computing and mobile computing — both of which enable anytime-anywhere access to corporate workplaces — are two megatrends that are impacting the IT risk profiles of businesses significantly. Ernst & Young’s studies over the last two years have revealed that about 60 per cent of businesses perceive an increase in the level of risk they face due to the use of social networking, cloud computing and personal devices in the enterprise; and 57 per cent have modified their IT security policies to address risks posed by mobile computing (Source: EY’s Global Information Security Survey, 2010 and 2011). In this new IT environment, ‘shadow IT’ is one of the key risks that needs to be addressed In simple terms, ‘shadow IT’ can be expressed as an IT environment (software, data, infrastructure and support) used by a business function or a segment of employees without explicit management approval. As a consequence, the corporate IT function is not aware of the existence of

february 2012

such environment(s) and, therefore, they operate outside all established corporate standards and security controls. Shadow IT environments have been in existence for a fairly long period of time. Traditionally, one of the major reasons for such environments coming into being has been the IT function’s inability to respond fast enough to the needs of business units. Surveys have routinely revealed that a majority of employees have felt the need to work around a company’s security policies and procedures to get their job done. The importance of shadow IT is increasing of late due to the ease with which cloud and mobile platforms are enabling procurement and creation of such environments and the risks it poses to a business. Cloud-based solutions are now available for collaboration, social networking, project management, CRM, online back up and many other business process related services. On the positive side, such experiments can promote innovation and these solutions may turn out to be prototypes for future business applications. Easily downloadable mobile applications create a parallel software ecosystem for businesses that permit enterprise mobility options. The time from procurement to deploy-

tecH WiSe Figure : Megatrends that have impacted IT risk profiles since 1995 Figure : Megatrends that have iMpacted it risk proFiles since 1995

the importance of shadow it is increasing of late due to the ease with which cloud and mobile platforms are enabling procurement and creation of such environments and the risks it poses to a business

ment can often be measured in minutes and all are available through the ubiquitous web browser or mobile devices. Activities of employees on blog spaces, social networking sites and free cloud-based collaboration tools without appropriate corporate level approvals also open up possibilities of business information existing in external environments without associated information security controls. It has, therefore, become imperative for CIOs to acknowledge the existence of such environments and find methods to integrate them into the mainstream IT environment of a business. It is also putting undue pressure on IT functions to respond faster to business needs, while their budgets are being regularly trimmed. The necessity to bring shadow IT environments into business mainstream stems from a variety of reasons. following top the list of reasons: â&#x20AC;˘ Regulatory compliance, data privacy and information security: In recent years, government regulations in India have been focussing strongly on data privacy. The challenge with data privacy is the need to manage data across the data lifecycle that includes collection, use, retention and disclosure stages. The domains of data that are subject to these regulations include data relating to current and former employees, business partners, investors and customers. In an organisa-

tion where shadow IT systems proliferate, the risks of breach of these regulatory requirements is very high. In addition, service organisations that need to comply with regulations such as SSAE 16 also need to look at this as a serious business and reputation risk in the event that any sensitive information is compromised as a consequence of these systems. â&#x20AC;˘ Inconsistencies in business processes and data: Since shadow systems are created without proper consultation, these systems proliferate workflows and data that may not be consistent with standard operating procedures and data standards that a business may have established. â&#x20AC;˘ hidden costs of IT: by spending on shadow IT systems, business functions create a parallel stream of IT spending which becomes difficult to account for. This also means february 2012

CFO india

tecH WiSe Figure : a sWot analysis oF Mobile devices in the Workplace

Strengths

• Connectivity for a mobile workforce • BYO hardware cost savings and IT RoI • Gen Y are ready-equipped with skills to operate

Weaknesses

• iPad effect — pressure on CIO to keep up with employee expectations • System integration challenges • Mobile apps produce a different (greater)level of security requirement • Concerns over user habits

Mobile Devices in the Workplace (Smartphones & Tablets)

Opportunities

• Once just email, now more application opportunities being leveraged • New markets opening in security and protection • Wider use of (social media) enterprise collaboration tools • Teleworking can enable more work/life balance

having a separate team provided by an external vendor supporting corporate IT environments bypassing in-house support teams. CIOs can adopt various steps to align shadow IT with business mainstream. They are: a. Tailor IT architecture, policies and procedures to enable adoption of cloud, social networks and mobile computing: Cloud, social networks and mobile-enabled computing are here to stay due to the benefits they deliver. The faster the architecture and policy changes are made, the easier it would be to achieve integration. b. Adopt after conducting a quick scan, followed by business case evaluation: while the solution options are many, most business users use a limited set of these offerings due to the strong benefits they deliver. A dipstick survey followed by a business case evaluation can easily help in identifying those solutions that have strong employee need/adoption and create a policy framework to integrate them into the corporate mainstream. Those that do not meet the evaluation criteria would need to be weeded out. c. establish clear processes for identifying business needs and delivering IT solutions: This step will address the root cause of shadow IT’s coming into existence. Employees need to be aware of how to communicate business needs to the IT function. having a definite process to listen to employees’ suggestions and committing to definite service levels for turnaround of new business-IT needs will help avoid creation of shadow IT environments. Setting up a dedicated programme 42

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Threats

• Security issues • Brand insecurity within social media environment • Blurring of work-life boundaries and employee burnout

management office to evaluate business needs and roll out new solutions can help in this regard. In addition to the above, CIOs may also need to look at their IT investment strategy and the adequacy levels of their IT budgets to support such rapidly changing IT ecosystem. In a recent CxO survey conducted by Ernst & Young, while ‘investing in IT’ was ranked second in terms of the overall portfolio of opportunities for 2012, the following five challenges to IT investments were also reported: • Insufficiency of current levels of investment to achieve business results • Failure of the organisation to prioritise IT • Lack of alignment between IT department and organisation needs/strategy • Focus on technical challenges rather than business challenges • Insufficient investment in skilled personnel In conclusion, cloud-based solutions, social networks and mobility are challenging traditional IT operating models. The timeline expectations for deployment of IT solutions have changed with the availability of cloud-based models. Across organisations, the number and variety of mobile devices being used by employees is adding to the complexity of IT support. Social networks are opening up new information security challenges. Together, these technologies are adding a new dimension to shadow IT and the associated business risks. There is a strong case for re-evaluating IT operating models to strengthen the integration of these new technologies into the mainstream corporate IT ecosystem.

insight

CORPORATE FINANCE

Taking a longerTerm look aT m&a value creaTion Companies that do many small deals can outperform their peers â&#x20AC;&#x201D; if they have the right skills. But they need more than skill to succeed in large deals Werner rehm, robert Uhlaner, and andy West

photos.com

easuring the value that mergers and acquisitions create is an inexact science. Typical analyses compare share prices before and after a deal is announced, using shortterm investor reactions to indicate how much value it would be likely to create. One benefit of this approach is that it provides a measure of expected value unaffected by other variables, such as subsequent acquisitions or changes in leadership. Yet relying on market reactions to gauge value creation has drawbacks. It skews the results to larger deals, which have the heft to affect share prices, and under represents smaller ones â&#x20AC;&#x201D; even though they account for a majority of M&A. It can also underestimate the amount of value created by multideal strategies whose real worth develops over the longer term. Researchers also frequently collapse their data into a february 2012

CFO india

insight Exhibit 1 The excess shareholder returns of the world’s top 1,000 nonbanking companies reveal distinct patterns of deal making. Global 1,000 nonbanking companies, 1999–2010 (ie, 639 institutions for which data are available through 2010) High

Market cap acquired

Large deals Transformed company through at least 1 individual deal priced at above 30% of market cap

112

Selective Small number of deals but possibly significant market cap acquired

Programmatic Many deals and high percentage of market cap acquired

142

Tactical Many deals but low percentage of market cap acquired

139

Organic Almost no M&A 66

Low

Number of companies in given category

180

Many

0 Number of deals per year Source: Dealogic; McKinsey analysis

single average for the purpose of generalisation. That obscures important differences between industries and M&A strategies. To address those shortcomings, we analysed the excess shareholder returns 1 of the world’s top 1,000 non-banking companies, which completed more than 15,000 deals over the past decade. While it’s clear that factors other than the deals themselves influenced excess returns over that time, the data are strong enough to show and compare distinct patterns of deal making. When we segmented companies by the scope of their M&A programmes (Exhibit 1), we found that long-term returns vary significantly by deal pattern and by industry. The implication is that across most industries, companies with the right capabilities can succeed with a pattern of smaller deals, but in large 44

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deals industry structure plays as much of a role in success as the capabilities of a company and its leadership.

LOng-term returns tO m&a Because we look at excess returns over a full decade, we’re better able to correlate longer-term strategies with shareholder returns and company survival rates. The data confirm that the larger companies get, the more they rely on M&A to grow: 75 per cent of those that remained in the top 500 used active M&A programmes, including 91 per cent of those that stayed in the top 100 (Exhibit 2). A majority of these companies complete many smaller deals, with no large ones.2 This finding makes sense, since large deals tend to be hit or miss. A correlation of the identified patterns of M&A

with long-term excess returns shows that the only companies that had, on average, negative excess returns were those that did large deals (Exhibit 3). The odds of positive excess returns were slightly better for shorter time frames after specific deals, with about half generating positive excess returns within two to five years of the deal. Companies using any of the other approaches to M&A showed positive excess TRS relative to global industry indices. Those with a more programmatic pattern of M&A (defined as many small deals that over time represented 19 per cent or more of the acquirer’s market capitalisation) on average performed better than companies relying on organic growth. They also had a higher probability of positive excess returns.4 Finally, the data suggest that a growth strategy built around a series of small

insight deals can actually be less risky than avoiding M&A altogether. Organic strategies showed the greatest variability in excess TRS between top performers and companies in the lowest quartile, while programmatic and tactical M&A had the smallest range.

Exhibit 2 The larger companies get, the more they use M&A to grow. Distribution of survivors (companies that were in the global 1,000; top 500; top 250; or top 100 in both 1999 and 2010), % 100% = 507

the impOrtanCe OF industry speCiFiCs As compelling as these global averages might be, they do not answer the question of whether an individual company in a specific industry at a given time should engage in M&A. Indeed, the averages conceal what are frequently the most relevant details, such as industry structure, the match of an asset with a well-articulated strategy, and the execution capabilities required to realise value. As our previous analysis showed, returns by M&A approach are widely distributed and can obscure individual results.5 Consider the data on an industry-byindustry basis (Exhibit 4). The results vary widely but patterns do emerge.

Large deaLs Companies are more successful with large acquisitions — those worth more than 30 per cent of the acquirer’s market capitalisation — in slower-growing, mature industries. Here, there is great value in reducing excess industry capacity and improving performance, and a lengthy integration effort is less disruptive. In contrast, large deals in faster-growing sectors have been less successful, with –12 per cent excess TRS in the five years after such deals, significantly lower than the four percent excess TRS for companies in slower-growing industries over a similar period. Why did companies in faster-growing sectors under-perform? Many focussed inwardly during the lengthy integration required for large deals, missing critical product or upgrade cycles. Others attempted to expand

305

149

26 15 24 25 10

Global 1,000 Top 5001

Survivors Minimum market cap as of Dec 31, 1999, $ billion 1 Percentages

5.0

6.9

34 4

55 7

Selective

Large deals

Programmatic

Tactical

Top 250 13.9

Organic Top 100 40.2

do not sum to 100%, because of rounding.

Source: Dealogic; McKinsey analysis

into complementary businesses, where targets had limited overlap in products and technology. In addition, over the period we reviewed, we found that these companies tended to do large deals in years when market valuations were generally high. Tech companies, for example, have fallen into all three of these traps. Of course, the success of large deals also depends on a company’s strengths and its leadership’s ability to guide it through a year or more of integrating a large acquisition, as well as other factors idiosyncratic to specific deals.

prOgrammatiC deaLs Companies across a variety of industries do well using the programmatic approach. In most sectors for which we had sufficient data, it tended to score in the top two strategies (based on excess returns over the last decade). Companies using the strategy completed many acquisitions that together represented

a material level of investment as a percentage of market cap.8 In addition, we found a volume effect — the more deals a company did, the higher the probability it would earn excess returns.9 Evidence shows that executing a highvolume deal programme requires certain corporate capabilities but not necessarily a specific industry structure. Most programmatic acquirers prioritise one or two markets or product areas where they can build businesses with leadership positions. For example, IBM’s programme of acquiring smaller software firms succeeded because the company could offer acquired businesses access to global markets, which they had lacked. The programme was so successful that IBM now publishes both metrics for success (in the form of improved growth and margins for targets after an acquisition) and its goals for additional profit from future acquisitions. In much the same way, most big pharmaceutical companies embark on february 2012

CFO india

insight taCtiCaL deaLs

a series of smaller deals and licensing arrangements with companies that do not have a global commercial footprint. In some cases, big companies are also looking to find new growth opportunities. In the late 1990s, German industrial conglomerate BASF, for example, determined that it could grow more quickly and profitably if it shifted its focus to specialty chemicals — an area in which managers believed they could create value through their technical skills and understanding of customer needs. The company then shed its commodity chemical operations and acquired specialty companies and businesses, which it quickly integrated. In another series of deals, The Walt Disney Company acquired brands such as Baby Einstein and the Muppets, lending the power of Disney’s global profile to expand their market and reach. Acquisitions of Club Penguin and Marvel Entertainment were similar: the former gave Disney a product in a new distribution channel; the latter allowed it to pick up content that’s popular with teenage males — a relatively tough demographic for the company.

Companies using a tactical approach to M&A also do numerous small deals, but those deals do not, combined, make up a large portion of the acquirer’s market capitalisation. Nonetheless, M&A still is an important part of the strategy. Tech companies were significantly more successful with this approach than with the others: they used M&A as part of an innovation and capabilitybuilding strategy, buying options and adding functions. Microsoft, for example, has a history of adding features to its core products through M&A to give users incentives to upgrade. Many smaller products acquired by the company found their way to the next release of Excel, and the upgrade cycle provides continued revenue for the franchise. Manufacturer Foxconn Electronics executed more than 20 small strategic and equity outsourcing deals over the decade. Some were intended to expand its capabilities from PC assembly into digital cameras, handsets, and networking equipment, to name a few things. Others eased the company’s vertical

integration into components, with the goal of serving end customers better and thus helping the acquired businesses to grow. Industrial companies in this segment seem to use tactical M&A to fill gaps in products or channels. This approach is quite similar to programmatic M&A, but not on the same order of magnitude. Caterpillar, for instance, used M&A to round up its product portfolio by purchasing companies that made diesel engines, railroad and mining equipment, and specialised repair gear. In all likelihood, industrial companies in this category are somewhat limited by the number of small targets available in their industries.

seLeCtive deaL making. Many companies do deals occasionally but don’t appear to have an M&A capability or a proactive M&A strategy. Most of the companies in this segment spend less than two per cent of their market cap a year on M&A. Their total shareholder returns are in all likelihood driven more by an organicgrowth tailwind than by M&A strategy.

Exhibit 3 Companies using a programmatic strategy are the most successful. Global 1,000 nonbanking companies, %

Average 95% confidence interval

Median excess total returns to shareholders (TRS),1 Dec 1999–Dec 2010 Programmatic

Probability of excess return greater than 0

2.8

Selective

2.0

Organic

2.0

Tactical

1.3

Large deal 1 Outperformance

–1.7 against global industry index for each company.

Source: Dealogic; McKinsey analysis

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february 2012

Excess TRS, difference between 25th and 75th percentile in precentage points

61 44

9 10 14 8 12

insight Exhibit 4

Returns by M&A approach are widely distributed and can obscure individual results, but they roughly indicate the top strategies by industry. Global 1,000 nonbanking companies, median excess TRS, Dec 1999 – Dec 2010, %

Top strategies in industry

Industries Consumer discretionary

Telecom

PMP1

High tech

CPG1 and retail

Materials

Programmatic

4.2

4.5

3.1

–1.2

3.2

4.5

0.7

0.1

Selective

2.0

1.3

6.4

–2.6

2.5

–1.5

4.8

1.7

Tactical

0.4

0.7

N/A2

1.2

2.6

–3.0

1.8

2.6

Large deals

–2.8

–0.9

2.0

–6.7

3.8

–0.3

3.5

4.0

Organic

–4.2

N/A2

–2.0

1.4

N/A2

–5.2

9.8

Top strategies

1PMP

2Data

Insurance Manufacturing, other and related industrials

= pharmaceutical and medical products; CPG = consumer packaged goods. not shown where category contained <5 companies.

Source: Dealogic; McKinsey analysis

The rest of the companies in the segment are individual cases, many stemming from unlucky one-off deals at the end of the 2001 tech bubble. It is therefore hard to conclude that the performance of this group is based on a clear M&A strategy. More likely, these were solid companies that engaged in occasional pragmatic deals to support the growth of the underlying business. It’s possible to understand M&A performance better by taking a finergrained look at patterns of deal activity. The success of large deals tends to depend more on the industry where they take place, the success of small ones more on the capabilities of the acquiring companies.

Defined as a target acquired for at least 30 per

cent of the acquiring company’s market value in

We measure excess TRS by assigning com-

panies to subsectors and tracking the difference between a company’s TRS and an index that follows the sector. In this analysis, we used 11-year

deals in the wake of their success.

the year the deal closed. 3

Among companies completing only small

deals, we used the aggregated median acquired market capitalisation, or 19 per cent, as the cutoff between those with significant M&A programmes (programmatic acquirers) and those that acquire

THE AUTHORS WOUlD lIkE TO THANk THERESA lORRIMAN FOR HER SIGNIFICANT CONTRIBUTION TO THE RESEARCH.

small deals opportunistically (tactical acquirers). 4

However, the confidence intervals for average

returns are overlapping. 5

Andres Cottin, Werner Rehm, and Rob-

WERNER REHM (WERNER_REHM@ MCkINSEY.COM) IS A SENIOR ExPERT IN MCkINSEY’S NEW YORk OFFICE,

ert Uhlaner, “Growing through deals: A reality check,” mckinseyquarterly.com, April 2011. 6

Defined as average annual growth above 7 per

cent. This data set included 82 deals worth more than 30 per cent of the acquirers’ market cap. 7

See, for example, Ankur Agrawal, Cristina

Ferrer, and Andy West, “When big acquisitions 1

that better-performing companies executed more

ROBERT UHlANER (ROBERT_UHlANER@MCkINSEY.COM) IS A PARTNER IN THE SAN FRANCISCO OFFICE, AND ANDY WEST (ANDY_WEST@MCkINSEY.COM) IS A PARTNER IN THE BOSTON OFFICE.

pay off,” mckinseyquarterly.com, May 2011. 8

A median of 36 per cent of market cap

acquired with 33 deals over the time frame. 9

As with the other analyses, this is a correla-

excess TRS to avoid some of the issues resulting

tion, not necessarily a causative relationship.

from the collapse of the high-tech bubble in the

Although we feel confident that the deal strategy

early 2000s.

contributed to the out performance, it is possible

CFO india

Case

Study

Project MaP The challenge: Setting up an online payment portal across the organisation and convincing all stakeholders that it would be beneficial to them TIMelIne: 2005-06

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February 2012

PeoPle Involved: Finance team, HR & marketing heads Key TaKeaways: Collaboration is the key when working with multiple stakeholders. Win the trust of people. Communicate, instead of bulldozing your way to a decision

Case study

Technologically Challenged:

The Online Payroll Saga When Preet Dhupar took over as Director, Finance & Operations, BBC World, India, 12 years ago, she faced her usual share of challenges. While some of these were easily tackled, the implementation of an online payroll portal across the organisation was a tough one. Here she talks about how the challenge was met DHiman CHattopaDHyay

SubHojit paul

etting up BBC World’s India operations as its finance and operations head, way back in 2000, was no easy task. Several processes had to be put in place, teams hired and systems implemented across India and Singapore. But Preet Dhupar tackled most of these head on, ensuring the smooth entry of one of the world’s largest media houses into India. Soon, operations expanded as did the scope of financial planning. And of course, the number of employees doubled. While overall, running the finance and operations side of the business has

been a fun-filled and exciting 12-year stint so far for this chartered accountant from Delhi, Ms Dhupar admits that the innings has not been without its fair share of ups and downs and frustrating times. One of the main challenges she and her team faced, and successfully overcame, involved the implementation of an online payroll system.

THE CHALLENGE In the initial months itself she had faced challenges of a different kind — mostly with taxation matters. “For instance, I learnt quickly that just because you think you have taken the

right decision, taking business considerations and the law into account, do not expect the tax authorities to agree with you. They will eventually, but to come to a common meeting point may cost time, money and efforts spent on litigation,” she recalls. But such external challenges paled in comparison with a largely internal challenge she faced a few years later. With a growing number of employees across multiple locations, it had become necessary to look at a method that worked faster than the current manual system of payment. Changing over to an online payroll portal February 2012

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Case study but in this case, the vendor complimented the BBC team on how thorough they had been. Once the finance teams were convinced, the HR teams were happy to go along with the process. But there was still another issue, a rather large one to tackle — staff who felt insecure and unsure. “The staff felt that we were moving away from very personalised service delivery to people managing their own compensation and reimbursements themselves,” Ms Dhupar says. So the finance and HR teams involved marketing in the communication strategy and prepared a detailed note for the staff on what the change would mean and how this would benefit them. “We then practically did a hand-holding exercise for an entire year till we slowly reduced our involvement,” she recalls.

LESSONS

“When you are involved in a decision that affects people, what is important is that people realise that you care. It is then that they will trust you to take the right decision on their behalf” across the organisation was thought to be the best possible option. New technology always creates doubts, confusions and fear among most people, specially those who have been used to a particular system for some time. In BBC India’s case, this was no different. “The challenges were in the form of the fact that there were different terms and conditions, different entities to deal with and we wanted to put them all up on the same portal. Still, these were easier challenges to deal with from a technology and process perspective,” Ms Dhupar recalls. “Once we got that right, the bigger challenge was the resistance to change that we knew we would face from stakeholders across the group — both 50

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February 2012

management and staff. The resistance we knew would come not just locally but from our principals based overseas, as there is an inherent fear of the unknown — what is ‘not tried and tested’,” says Ms Dhupar.

HOW IT WAS TACKLED The first challenge was convincing the finance teams based overseas that this was the right step. “This we were able to do by demonstrating how the portal would work. We ensured that issues of process, confidentiality, data security and business continuity were taken care of. We did a formal risk assessment,“ says Ms Dhupar. Very often, this kind of contract may not get too much senior level attention

That the entire exercise took a year to complete is clear proof that this was no easy challenge. So what were the lessons she took away from this experience? “When you are working for multiple stakeholders, collaboration is the only way to operate. Of course we were frustrated, as the time spent on the exercise was far more than we had initially anticipated,” says Ms Dhupar. Within the finance team too the challenge proved to be one that brought them closer. “Initially, my team in particular did not see why I was not taking a tough stand and was willing to take time to convince people. But in the long run that is what paid off in terms of winning the trust of people across the board. When you are involved in a decision that affects people, what is important is that people realise that you care. It is then that they will trust you to take the right decision on their behalf,” she says. Bulldozing your way, she adds, may get you through faster but the victory may not last long. A lesson at least some of her peers would do well to keep in mind.

leader’s

world

negotiation Lessons from the

Jan Lokpal There is a lot that corporate leaders can learn and imbibe from the way in which the Jan Lokpal Bill and the negotiations around it are going DaviD Lim

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

You can’T have visited India in mid -2011 without learning something about the agitation and political give-and-take related to the Jan Lokpal Bill and the attendant sound and fury. So what can we, as leaders, learn from the negotiation approaches taken by the various camps involved? While not an expert, or a scholar in these matters (unless a degree in Law that included constitutional law counts); here’s my view as a negotiation expert on what transpired and what the two sides could have done to get more traction. The context seems straightforward: The Hindu reported that nearly uS$1.5 tn in ‘black money’ or illegally transacted funds from India lie in Swiss banks. Since 1968, an ombudsman bill has been unsuccessful in clearing India’s Parliament on a dozen occasions at the cost of many crores. The establishment of such a Bill, and the organs thereof, is viewed by many in India as one more weapon in the fight by ordinary citizens against corruption. When the 2010 Lokpal Bill was offered, many social activists, including the Gandhian anna hazare thought it was insufficient, and mooted their own “citizen’s bill” — the Jan Lokpal. february 2012

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leader’s world Right from the onset, there were issues which affected the negotiation ability of the leaders from both camps.

I covered the importance of having a Best alternative to negotiated agreement (BaTna) before entering a negotiation. apart from anna hazare’s fast and agitation, the challenge for the India against corruption movement (Iac) was coming up with a BaTna if their Jan Lokpal proposal was rejected. here, a lack of typical party machinery in politics, or even some leadership structure, hampered the movement’s ability to come up with a concrete BaTna. By sticking with the Jan Lokpal and drumming up support for it, the Iac participated in brinkmanship. This does not aid the principle of building partnerships in a two-sided negotiation. Some BaTna elements must have arisen in Round Two when a the Joint Drafting committee was formed with government representatives and social activists. however, an impasse was created as no agreement could be reached. as a result Parliament is now debating the Lokpal as written by the government — for all its strengths and weaknesses This brings me to my second point and that is, by this stage, parties were locked into a situation where:

“By locking out integrative solutions i.e., solutions which combined the most workable proposals from either side; india might well get a much lower quality Lokpal bill when it emerges”

2) Parties were negOtiating On ‘POsitiOns’ and nOt ‘interests’ So if the interests of the Iac groups were to reduce corrup-

Points to Ponder • By sticking with the Jan Lokpal and drumming up support for it, the IAC participated in brinkmanship • Both the government and the IAC were often confused, and delivered uncoordinated public messages • Not only does this affect the quality of team negotiations, it also confuses your team and sometimes endangers hard won positions

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february 2012

tion and increase transparency, they hobbled these interests by probably adopting very unyielding positions so as to not lose face, lose internal support from their constituency. The government also lost social and political capital by sticking to various positions such as the ‘extra-constitutional’ demands of the social activists. By locking out integrative solutions i.e., solutions which combined the most workable proposals from either side; India might well get a much lower quality Lokpal Bill when it emerges.

3) at an imPasse adOPt sOme OF these measures at an impasse, a number of things could have been done that could have improved the working relationship of the Joint Draft committee. These could have included • taking a break • changing some of the team members • offering a concession • bringing in a mediator To what extent some of these were done, I am unsure, but

pHoTos.com

1) LaCk OF CLarity OF a Batna

leader’s world

we do know that at some stage Sri Sri Ravi Shankar exerted his influence to get things moving again. When you can’t agree on a particular issue, get agreement in principle; that is, get agreement on anything you can, even if it is only an agreement in principle.

eXamPLes: • You might agree that in the past both parties have always been able to come to a mutually acceptable solution • You might agree on a deadline for completing certain issues, returning to them later if unresolved • You might even agree on an objective procedure to resolve major differences, if and when they occur

4) in team negOtiatiOns, gain CLarity regarding memBer rOLes In this instance, both the government and the Iac were often confused, and delivered many uncoordinated pub-

lic messages. not only does this affect the quality of team negotiations, it also confuses your team and sometimes endangers hard won positions. Fewer spokespersons, clearer messages that stay ‘on message’ would have been the way to go. The future of the ultimate Lokpal Bill will definitely depend on what is negotiated between civil society and the Parliament; balancing citizens’ rights against the constitutional right of an elected government to run the country. The better the negotiators, the higher quality the outcome will be. But as long as an us-versus-them approach is taken stridently, it is difficult for parties to offer concessions, create integrative solutions or reach a solution which benefits India.

DavID LIM IS a LeaDeRShIP anD neGoTIaTIon coach. he IS DeLIveRInG hIS neGoTIaTInG To WIn™ WoRkShoP on MaRch 30Th In SInGaPoRe. eMaIL: DavID@ eveReSTMoTIvaTIon.coM FoR DeTaILS

february 2012

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Lounge

02.12

CFO

Itâ&#x20AC;&#x2122;s Apple season once more. So if you are not falling for the new Swift Dzire that we test drove for you this month, the Apple Mac Mini will bowl you over for sure. Need a stress buster? Head to the beautiful desert town of Jodhpur, or when in Mumbai try out the new French eatery Le Pain Quotidien

The new Dzire

A Dzire rekindled

The Maruti Swift Dzire in its newest avatar comes across as a more refined, upmarket and pocket friendly car than ever Amit Chhangani With the neW Dzire, MSIL wanted to make a statement. So instead of just adding a boot to the Swift hatchback, Maruti has gone for a shorter boot to squeeze out that little excise duty cut benefit and pass on the benefits to customers.

MeasureMents The new Swift DZire weighs the same as its hatchback sibling, which means you get extra cabin space and a boot for no loss in power to weight ratio. At 316 litres, the 2012 Dzireâ&#x20AC;&#x2122;s boot space is 86 litres less than that of its predecessor.

DID YOU

KNOW?

the Maruti Suzuki Swift Dzire now has an automatic version for the first time. the VXi Petrol model of the car therefore becomes more expensive than the ZXi manual model. next up: a diesel automatic?

CFO LOUNge

ON WheelS Exterior Styling

The new dzire has more space for backseaT passengers. The inTeriors are classier Too and The VXi peTrol comes in an auTomaTic Version

As expected, the new Dzire is almost identical with its hatchback sibling from the front end. There are a few giveaways though, the most prominent of which being the different design for the front grille mesh. Unlike the hatchback’s honeycomb mesh, this one has it slatted grille separated horizontally in two parts.

interiors The new Dzire boasts of more headroom and more shoulder/leg room for the back seat passenger. Apart from the volume and dimensions, the quality of the interior has been significantly improved. It’s a complete revamp exercise that MSIL has executed and just like the Swift hatch, the Dzire now boasts several new features and a dashboard that doesn’t appear to belong to the bygone era. The air vents are new, so are the wood finish inserts, silver accents, leather trims, chrome inserts and the slightly better grade seat fabric. The steering wheel now has the audio controls for the six-speaker Integrated Music System that has aux-in and USB ports along with a 12V power output socket in the central console. Bluetooth connectivity though is sadly missed.

Engines & Transmission As on the previous version, there is a petrol and a diesel engine to choose from. The petrol variant comes with the K12M engine with variable valve timing, while the diesel variant has the D13A DDiS engine, both similar to the new Swift. The K12 petrol engine redlines at approx 6,250 rpm and has a peak power of 87 PS at 6,000 rpm and a peak torque of 114 Nm at 4,000 rpm, while the diesel variant has a 1,248 cc, intercooled, turbocharged diesel engine delivering peak power of 75 PS at 4,000 rpm. Both engines come mated with a five speed manual transmission. For the

SWIFT DZIRe Price: Dzire Petrol LXi

4.79 lakh

VXi

5.32 lakh

VXi AT

6.54 lakh

ZXi

6.19 lakh

Dzire Diesel LDi

5.80 lakh

VDi

6.31 lakh

ZDi

7.09 lakh

posiTiVes • Great value • More features • More fuel efficiency • Better quality interiors negaTiVes • Still not very beautiful to look at • Lesser boot space • Engines feel slightly sobered down for fuel efficiency VerdicT Great engine, good cabin space, reliable and easy on the pocket to own, run and maintain. There isn’t a better-rounded product in the market than this in the segment at the moment

petrol engine, however, there is a four-speed auto option as well. The automatic option is available with the VXi variant. Why not with ZXi? Well, the company thought that adding an auto option to an already expensive ZXi variant will take the prices way too high.

Driving Dynamics, Ride & Handling Maruti Suzuki focussed more on comfort than keeping the boy racers happy with the new Dzire. The result is a slightly softer suspension when compared with the Swift hatchback. The softer set-up does make the car feel just that wee bit mushier when hurtled hard around bends, but helps absorb undulations at lower speeds much better. From behind the wheel, we gleefully declare that the fun hasn’t gone anywhere. The famously expressive steering wheel of the Dzire manages to stay as charming as ever.

Fuel Efficiency The petrol variant offers fuel efficiency of 19.1 km per litre (6.7% higher than the previous Swift DZire 17.9 kmpl). Similarly, the diesel variant returns a 7.8 per cent improved fuel efficiency of 23.4 kmpl. february 2012

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cfo lounge

Gizmos new launches

Nikon D4

Hot Spot

apple Mac mini Style finally meets performance Jayesh Shinde While the Cupertino-based company dazzles the tech world with iPhones, iPads and MacBook Airs, the Mac mini seems to be the forgotten child in Apple’s product portfolio. Still with the latest revision of the most inexpensive Mac ever, the mini boasts of improved performance thanks to Intel’s second-gen Sandy Bridge Core i5 processor and a Thunderbolt I/O port at the back. Its unibody singleblock aluminium design is much the same as its predecessor, the Mac mini looks so simple yet so elegant on the desk — not to forget its tiny, solid, and compact form factor. In terms of bundled features, there are two main talking points. First, there’s no optical drive on or bundled with the Mac mini — with Apple allowing Lion re-install through recovery partition and USB sticks. But yes, you’ll need an external DVD writer to install an older program, which adds to the cost. Also the entry-level Mac mini comes with the Mac mini’s hood to access its RAM and WiFi modules — it is quite easy — anything more requires a screwdriver and a lot of patience. 56

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february 2012

The Core i5 processor and AMD Radeon HD 6630M graphics ensures high performance on the new Mac mini, with multithreaded apps and casual 3D games running just fine, it does tend to get heated up though. It’s a great HTPC box as well, given the number of connectivity ports on the back. As far as mini PCs go, the Mac mini deserves consideration. SpecificatioNS: CpU: Intel Core i5-2520M 2.3 GHz; rAM: 2 Gb ddr3; Hdd: 500 Gb; GpU: AMd radeon d 6630M; dimension: 7.7-inch-by-1.4-inch; USb: 4; HdMI, Thunderbolt, Card reader, Firewire 800, Headphone, Microphone; optical drive: No; oS: Mac oS X 10.7 Lion price: `33,990 Contact Apple India phone: 18004254646 website: www.apple.com/in Features 6.5 performance 7.0 build Quality 8.0 Value for Money 6.5

The d4 is the new flagship camera from Nikon. It sports a 16.2 Mp CMoS sensor, a 51-point AF system and ISo going up to 204,800 at Hi 4 level. It also has support for a new format of card called the XQd card. All this and more at a jaw-dropping $6000 (`3,10,000 approx).

acer aspire S5 Touted to be the world’s slimmest ultrabook, the Acer Aspire S5 is the successor to the S3, and it measures only 15 mm at its thickest end. It houses Intel Sandy bridge processors, has a 13-inch screen and a Thunderbolt port on the spine which is retractable. pricing is still under wraps.

Samsung Galaxy Nexus Samsung launched the Galaxy Nexus, the first phone to sport Android’s latest operating system — Ice Cream Sandwich. It features a face unlock mechanism, is based on TI oMAp 4460 SoC and is 4G capable, with 1 Gb of rAM. It’s available on ebay for a whopping `44,500 at the moment. powered by

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

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M&E

BeST neW MeeTIng PlAce

Courtyard Beckons

The Courtyard by Marriott in Gurgaon is a great place to host conferences COURTYARD BY MARRIOTT Location: Gurgaon, Haryana teLephone: +91 124 4888444 airport: Delhi USp: Ideal for conferences. Close to the airport reServationS: www. marriott.com/hotels/ courtyard-gurgaon/

UsUally yoU expect the best when you step into a Marriott property. And the Courtyard by Marriott in Gurgaon is no exception, especially if you are there for a meeting or a weekend-long conference. The conference rooms provide stateof-the-art audio-visual equipment, high speed wireless internet access and multimedia conferencing facilities, along with 24-hour assistance. It even has a conference call butler! Laser pointers are available on request. The banquets halls include a total meeting space of 2,745 sq ft. The largest hall can seat 150 people. The meeting rooms have a seating capacity varying from eight to 10 persons. Many business guests use the coffee shop for meetings as well. The guest rooms also have wireless connectivity. The charges for hiring the business centre for the day is Rs 8,000 plus taxes.

HoT neW eATeRY

Loaf of luxury No, it does not inflict any pain on you, unless you consider mouth-watering food injurious to your health! ‘Le Pain Quotidien’ means ‘the daily bread’ in French and it is fast becoming a meeting ground for south Mumbai’s C-suite executives. Apart from the wide choice of breads here, the café also serves soups, salads, tartines, entrés, desserts, home-made drinks, beer and wines. The menu includes many vegetarian items. It is open

through the day on all days. The food is cooked or wok tossed to perfection and served with a flair. This is the place to be if you want to have a meeting over French loaves, slow cooked pizzas and soft, yummy pastas.

LE PAIN QUOTIDIEN Location: Gateway of India, Colaba, Mumbai | teLephone: +91 22 66150202 | Seating capacity: 150 | Food: French, Continental | Bar: Open 8 am to 11.30 pm

The bakery aT le pain has an exquisiTe range of breads, jams, and cakes. (inseT) The prawn salad is a signaTure dish. veggies Too are spoilT for choice

february 2012

CFO india

cfo lounge

travel

Jodhpur

a desert jaunt in Jodhpur A camel ride through perhaps the world’s most picturesque desert landscape and around one of Rajasthan’s most majestic ‘royal’ towns, is an enthralling experience Anil Mulchandani WE SELECTED JODHPUR for a weekend break because this city packs a variety of attractions — magnificent monuments, delightful heritage hotels, superb opportunities to shop for hand-carpentered furniture, antique reproductions and handicrafts, excellent places to eat and proximity to the sand dunes, bird-rich wetlands and picturesque villages. After arriving in Jodhpur from Ahmedabad, we started our morning by visiting the Mehrangarh Fort, which was founded in 1459 AD. This fort provided an impressive spectacle of high walls with bastions rising up on a hilltop over the cityscape of Jodhpur. In stark contrast to the forbidding and imposing walls, canon-guarded ramparts and spiked gateways that we passed on the way to the main courtyard, the palaces in the fort are flamboyantly decorated. We were awe-struck by the goldleaf embellished ceiling and mirror mosaics of the Moti Mahal, the lavishly painted Takht Mahal, and the opulent Phool Mahal. The guide showed us the museum collections of miniatures, musical instruments, mechanical cradles for new-born princes and a variety of weapons. Later, we descended to a courtyard where a number of artisans showcase their skills to the fort’s visitors, weaving durries, rolling out bangles, block printing fabrics, embroi58

CFO india

February 2012

dering leather footwear like mojdis and jootis, or turning out pottery. After a mid-morning beer and snacks at the fort’s courtyard café, we drove to the Umaid Bhavan Palace. This enormous palace, founded in 1929 and completed in 1943, epitomises the flamboyance of the era of Maharajas. In-

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travel Below: cranes flock to a lake in khichan, a small town near jodhpur famous for its crafsmanship. left: the majestic mehranGarh fort in jodhpur

DinesH sHUkLA

far left: the Beautiful interiors of the mehranGarh fort. left: luxurY tents on the edGe of sand dunes in the desert

side, we saw a fabulous collection of timepieces including watches and clocks in various shapes, plenty of porcelain, portraits and European furniture. From the palace we drove along the Palace Road to the Rai-kaBagh area. This road is dotted with furniture shops. The Nitisha boutique of Bhandari Exports at Rai-ka-Bagh is an attractive place to buy or order traditional and contemporary wooden furniture, replicas of antique furniture, elegant wrought iron furniture, painted furniture, handmade accessories, home linen and decorative pieces. The Abani Art Emporium nearby is excellent for a whole gamut of handicrafts.

For textiles, the driver took us to Sojati Gate from where we walked into the market to find beautifully embroidered and mirror-worked bedspreads, bandhani saris, block prints, dress materials, Jodhpur (riding britches) and traditional Marwari outfits. We found a hidden gem — the MV Spice Shop in the vegetable market — where daughters of the late spice merchant, Mohanlal Verhomal have come up with an extraordinarily innovative range of spice blends that they make at home from hand-ground spices. Not only is this an amazing place to buy anything from chai masala to a mutton curry mix, the 20-something daughters can pass on enormous knowledge about subjects ranging from how to select mustard to testing the genuineness of saffron. From Jodhpur, we drove north to Osiyan, a town known for its exquisitely carved Jain and Hindu Temples. After a quick visit to the historic temples, we headed for the base of a huge sand dune where camels were waiting to take us up to Camel Camp. Once we were seated, the camels rose up and began the climb to the crest of the dunes. At the top, we enjoyed a sundowner with a view of the last glow of the setting sun turning the sands around us a beautiful golden yellow. GettinG there: Jodhpur has an airport and a railway station. places to staY: Umaid Bhawan Palace Hotel and Vivanta by Taj Hari Mahal are the luxurious places to stay in Jodhpur. For heritage hotel buffs, the Welcomheritage Balsamand Lake Palace offers accommodations in palatial rooms surrounded by orchards and gardens. For those who want to stay in the desert, Manvar Resort and Desert Camp and Reggie’s Camel Camp Osian are excellent options. February 20121

CFO india

not just

the last word

Backing up: into the past? S

ometime early last year, a leading Bombay-based industrialist, said to me rather proudly – I barely ever come to Delhi, I have no reason to. It was a pleasant reminder of how much life had changed in India ever since the reforms began. But I worry, that life is changing back again – and for the worse. Here’s why. In the mid-1980s and through the 1990s, managing government was a job in itself. The top echelons of every corporate house had to busy themselves with second-guessing what the bureaucracy had in store. And then spend inordinate amounts of time in influencing that intent since the stakes were so high. There was no choice because government policy and decisions did, indeed, ‘make or break’ businesses. The 2000s, therefore, came like a breath of fresh air. Suddenly, the government seemed to have discovered that corporate India had an important role to play in the country’s growth. For the first time, they were given the freedom to grow wings. And did they fly! Much of this was enabled by a strong, growing and increasingly secure economy. Government paranoia about everything – from capital flight and tax evasion to misuse of the ‘customs green channel’ at the airport – had begun to abate. A rapid reduction in corporate taxation and relaxation of several other

CFO india

february 2012

norms altered mindsets and companies could focus on their core business. I recall several surveys with senior business executives in those days where the transformation in priorities was stark. From being absolutely ‘top-of-mind’ in the mid-1990s, government policy and related red-tapism dropped off the radar of concerns. It was also a time when businessowners stopped feeling ‘penalised by honesty’. In fact, this unprecedented possibility of honest business was partly responsible for the boom in middle-class entrepreneurship. Many were encouraged by the abolishment of the ‘licence raj’ and the easier availability of essential business resources. A few years down, the resilience and continued growth of the economy would often be attributed to this rapidly ‘professionalising’ entrepreneurial spirit.

Even as I write this column, much of the description rings untrue. Probably the entire second term of the UPA Government seems like a throw-back to the 1980s and early 1990s. Whether it is about the government’s and the Central Bank’s responses to the unabated inflation or a volatile exchange rate, or their approach to managing the slowdown – suddenly the government’s actions have become central again to how we run our businesses. Not just around broad economic policy, but also around specific sectors – what will the Cabinet decide about foreign direct investment in retail or the financial services sector, what will it do about reimbursing the foreign investors for the cancelled 2G licences, what about participation in defence production, etc., to name a few. After several years, once again, Budget Day will be watched keenly by corporate India since they are anxious about the new rules of the game. This, too, is a recalibration for the way CFOs think. We seem to be back with ‘too much government say in everything, and too little government action’… do you agree? Please write in with your thoughts. Anuradha Das Mathur, Publisher CFO India