CFO India - March 2012 by Bhupinder Sharma

ThE ChIRAg sToRy case study: rp group p. 50

IN PRACTICE changing role of fin management p. 34

dI bEllA CoffEE a welcome aussie invasion p. 65

volume 03 issue 03 50 march 2012

CFO IndIa CFO PrOFIle: jatIn kaPOOr 30

WATCH OUT

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WHAT TO EXPECT IN 2012-13

I thInk: anuP vIkal 12

Tough times lie ahead and companies should tread cautiously in 2012-13. Yet there is hope say CFOs, adding that the India growth story will continue unabated

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a 9.9 media publication

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CFO marCh | 2012

InsIde

16 COVER STORy

i THiNK 12 ANUP VIKAL The CFO of InterGlobe Enterprises talks about surviving tough times and how devising strategies for all of InterGlobe’s diversified businesses keeps him awake at night

COVER: gROwTH imbalaNCE 22 IS INDIA PERFORMING BELOW POTENTIAL? The India story currently is one of sub-potential growth and sticky inflation. What do the Government and India Inc need to do to get the growth curve back on track?

iNSigHT 53 ARE YOU READY FOR THE ERA OF BIG DATA? Radical customisation, constant experimentation and novel business models will be new hallmarks of competition as companies capture and analyse huge volumes of data

CFO pROFilE

TAKING CARBON BLACK TO THE WORLD

Jatin Kapoor, CFO of Phillips Carbon Black, talks about his journey from Kolkata to Nigeria and Hong Kong before returning home to take PCBL to greater heights

lEaDER’S wORlD 59 THINK BEFORE

YOU SPEAK

The 11 biggest mistakes speakers make and how to avoid them

WATCH OUT Turbulent times lie ahead in 2012-13 and a government tied down by coalition politics won’t help matters. Tread cautiously and weigh every decision, say CFOs but add that there are many silver linings on the horizon too

CaSE STUDy 50 CHIRAG’S SUCCESS STORY Debnath Pal, CFO of RP Group, talks about how they took on the big daddies, IBM, Dell, Lenovo and others, by launching Chirag computers and making it a huge success across India

CFO lOUNgE 62 ON WHEELS | SKODA RAPID 65 M&E | di bella coffee Mumbai 66 TRAVEL | VINEYARDS OF NASHIK

REgUlaRS 04 LETTERS TO THE EDITOR 68 NOT JUST THE LAST WORD

ThE ChIRAg case study: sToRy rp group p. 50

IN PRACTICE changing role of managemen fin t p. 34

dI bEllA

CoffEE a welcome invasion aussie

CFO I ndIa

p. 65

volume 03 issue 03 50

march

2012

CFO PrOFIle: jatIn kaPOOr 30 lOunge:

WATCH OUT WHAT

skOda raPId 62 I thInk: anuP vIkal 12

Cover design atul deshmukh

lie ahead and compan ies should tread cautiously in Yet there 2012-13. is hope say CFOs, adding India growth that the story will continue unabated

vOlume

AD inDex

TO EXP ECT IN 2012 -13 Tough times

Issue

a 9. 9 media

publication

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from the

managing editor

dhiman chattopadhyay dhiman.c@9dot9.in

Eyes wide open, ears to the ground

One Of the toughest questions anyone can face is “what do you expect in the next 12 months?” If only we could predict that with perfect accuracy. So when most pundits and economists predicted stormy, sometimes downright depressing days ahead in FY 2012-13, we at CFO India thought they were being too pessimistic. And we figured the best way to take the debate forward was to ask the country’s financial leaders for their opinion. For our cover package this time, we quizzed a few CFOs across sectors who, along with their peers, would determine, to a large extent, India’s growth story and the direction it would take over the next few years. Happily, while almost all CFOs did speak about the possibility of the government going slow on any new policy or regulation thanks to the current political scenario in India, they also spoke about hope, silver linings and positive actions they expect in 2012-13. Indeed as our cover story (Watch out: what to expect in 2012-13, Page 12) shows, there is a buzz of excitement as CFOs expect a new telecom policy, greater clarity on IFRS, GST and DTC and increasing transparency to become the norm as far as the government’s social spends are concerned. Most of those we spoke to, said caution would be the watchword in the next 18 months and CFOs would do well to delay those investments they can afford to. “Wait and watch. If you rush you may slip...” seemed to be a common refrain. Yet, without exception, they talked about the resilient nature of India Inc and felt the growth story would continue unabated. In fact, as a couple of them pointed out, the Indian economy is actually growing in double digits already, if one takes the large black economy into account. We also give you a detailed view on whether India Inc is truly living up to its full potential in the second part of the cover package where Barclays Capital’s Chief Economist for India Siddhartha Sanyal takes us through what ails India and what we are doing right. By the time you read this, the Union Budget would have been placed and all of you would have a better idea of possible changes in tax structures, income tax, fund allocations for various sectors and whether much of 2012-13 will be about populist measures. Yet, most of the questions we raise in this issue, will continue to be debated over the next few months as we hopefully move towards greater financial and economic stability around the world. Please write in with your thoughts on the subjects we have raised. Enjoy the 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

march 2012

CFO india

Letters

CFO INDIA

march 2012

Good work

cover story

ReiNveNt, iNNovate

I am an avid reader of CFO India and look forward to receiving each issue. Most of the articles and profiles are good reads and well researched. I wish CFO India a bright future. Keep up the good work. — Milind Sarwate, Group CFO & CHRO, Marico Ltd, Mumbai

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?

Tap onlIne & socIal neTworKInG opporTunITIes I have always enjoyed reading CFO India and it is easily one of the most readable magazines in its space. The time now is ripe for you to tap the vast potential that the online and social networking space provides. on the online magazine, is it possible to do what Economist does—where readers can comment on articles or recommend articles? also, if people can get an option to ‘share’ or ‘like’ on Facebook or Google+ at the end of the article itself, we could all, as a community, create a much larger readership for the articles. It would be good if you can reactivate the Facebook page for CFO India for instance. I wonder if CFO India can be on Twitter as well, so that updates on key policies, regulations and events can be sent out. The other bit is that by getting people to comment, you can engage well with the readers—you could insist on either readers to be registered online before they comment or at least leave their email addresses. The final thought is to actually have a linkedIn page, where we have discussion boards on key subjects. — Giri Giridhar, Global CFO, Wockhardt, Mumbai 4

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march 2012

CFO india

FEBRUARY 2012

I photos.com

Now! 12

02.12

Dhiman chattopaDhyay

Recalibrate.

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

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

Form IV Statement of ownership and other particulars about the publication, CFO INDIA as per Rule 8 1 Place of publication

2 Periodicity of its publication 3 Printer’s name Nationality (a) Whether citizen of India (b) If a foreigner, the country of origin Address

Nine Dot Nine Interactive (P) Ltd. Bunlow No. 725 Sector 1, Shirvane, Nerul, Navi Mumbai 400706, District Thane Monthly Kanak Ghosh Indian Yes N/A Bunlow No. 725 Sector 1, Shirvane, Nerul, Navi Mumbai 400706, District Thane

4 Publisher’s name Nationality (a) Whether citizen of India (b) If a foreigner, the country of origin Address

Kanak Ghosh Indian Yes N/A Bunlow No. 725 Sector 1, Shirvane, Nerul, Navi Mumbai 400706, District Thane

5 Editor’s name Nationality (a) Whether citizen of India (b) If a foreigner, the country of origin Address

Anuradha Das Mathur Indian Yes N/A Bunlow No. 725 Sector 1, Shirvane, Nerul, Navi Mumbai 400706, District Thane

Nine Dot Nine Interactive (P) Ltd. Directors: 1) Dr. Pramath Raj Sinha, 2) Mr. Asheesh Kumar, 3) Mr. Vikas Gupta, 4) Mr. Anuradha Das Mathur, 5) Mr. Kanak Ghosh, Bunlow No. 725 Sector 1, Shirvane, Nerul, Navi Mumbai 400706, District Thane I, Kanak Ghosh , here by declare that the particulars given above are true to best of my knowledge. Sd/Dated: March 1, 2012 (Signature of publisher)

6 Name & Addresses of individuals who own the news paper and partners or shareholders holding more than one percent of the total capital

CFO India - Bleed - 20.6 x 27.3

03.12 BUZZ

Postal woes for Aadhaar

AfTeR SPARRING WITh the home ministry over biometric data collection and national security concerns, the Unique Identification Authority of India (UIDAI) has found itself in a new row, this time with the state-owned postal network. The authority says India Post is delaying the delivery of letters informing residents of the unique identity numbers allotted to them under the government’s Aadhaar project. 6

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The upshot is that the authority, led by Infosys Ltd Co-founder Nandan Nilekani, is considering handing the job of delivering the letters to private sector firms. While UIDAI has allotted Aadhaar identities to 130 million residents, only around 50 million have received letters sent by the authority through India Post informing them about their 12-digit unique identification numbers. The letters have been mailed since the the first set of Aadhaar numbers were issued in September 2010. Some 450,000 letters have been returned to UIDAI. “The backlog is of eight crore letters as of now,” Kumar Alok, Deputy Director General of UIDAI, was quoted as saying recently. “We have been receiving a lot of complaints about the letters not reaching the right people or not reaching at all,” he said. “So we are trying to gauge the interest from private players for this job.” India Post, which comes under the Ministry of Communications and Information Technology, was engaged by UIDAI in 2010 to print and deliver letters containing Aadhaar numbers. The postal agency was guaranteed revenue of at least Rs 400 crore for the delivery of the initial 200 million Aadhaar letters, so its loss will be considerable if the job is taken away from it.

What’s aROUND ZONE CFO Book: Devraj Doss....................................... Pg 08 Jargon Decoded: Idea Shower...... ....................... Pg 08 CFO Movements ................................................... Pg 10 Oxygen in Saturn? ................................................ Pg 10

THE CFO POLL REsUlt

Will Obama’s speech on outsourcing adversely affect the Indian IT industry?

09% Maybe 41% No

50% Yes

cURRENt POll qUEstiON

Have UP election results dealt a blow to chances of FDI in retail? Vote now at www.cfoinstitute.com/poll

@WORK

Are your people stressed?

LEGISLATION

Monitoring Migration INDIA WILL SooN have an authority to monitor and facilitate migration of its citizens to other countries, with a comprehensive database of Indians working abroad, Minister for oversees Indian Affairs, Valayar Ravi recently said. Speaking to reporters in Qatar’s capital Doha, he said the government plans to bring a legislation in the next parliamentary session. he said the emigration Authority would facilitate regular, and legal migration of its citizens to other countries, and once it comes into force, the government will have all details of its citizens migrating to other countries for a variety of reasons including work.

TheRe IS NoThING startling in this piece of research. But it nonetheless reinforces the need for organisations to create a systematic plan to look after employees and their mental health, especially in tough times. A study conducted in UK has found that incidents of workrelated stress swelled by 40 per cent as the economy worsened, affecting one in four workers. AS A ReSULT the number of people taking time off work increased by 25 per cent from 2005 to 2009. Scientists who conducted the study are now urging businesses to consider employee well-being to lower absentee levels and boost productivity. During the study, conducted by the University of Nottingham and Ulster University, 17,000 civil servants were questioned in 2005 then again in 2009 when the recession hit, on their perceived stress levels and how much time they had taken off work as a result. Researchers suggest that the findings, published in the journal occupational Medicine, show the importance of focussing on workers’ mental health and well-being during turbulent economic times. Indian companies, most of whom do not have a counselling cell in their organisations or a systematic plan to deal with work related stress, need to wake up to this reality soon. march 2012

CFO india

O-ZONE cfobook

JARGON DECODED

THE PHRASE: IDEA SHOWER

Devraj Doss Wall

Info

Boxes

What’s on your mind? Attach

Share Devraj Doss supports the cause of eradication of poverty from the country March 12 at 19.35 · 4 people commented · 2 persons like this

PERSONAL

Devraj Doss hopes to take Diageo to an even better financial position this year

Zodiac: NA Views: Liberal

March 07 at 19.22 · Comment · 3 people like this

WORK April 2011 to present–Finance Director, Diageo India Securities 2009-April 2011–Director, Corporate Finance, Middle East, Siemens AG 2008-2009–CFO Procter & Gamble India

EDUCATION MBA in Finance, from IIM Lucknow BCom (Hons), St Xavier’s Kolkata

Devraj Doss had a blast with his old IIM Lucknow gang after 15 years December, 26 at 22.45 · Comment · 14 people like this

I Read...

Tintin 3 people commented · Like

I Listen... Jazz and Rock Comment · 2 person likes this RECENT ACTIvITy Devraj Doss follows Tintin, CFO India and two others

CFO India, Tintin, ‘poverty eradication’, March 18 at 11.55 · Comments · 2 people Like this

HEALTH

Breakthrough in liver treatment cells SCIeNTISTS hAVe TAKeN an important step towards understanding how the diseased liver can repair itself in a breakthrough that could eventually lead to the development of new treatments for chronic liver illnesses, which at present can only be cured by organ transplants. Researchers in UK have worked out how to stimulate the production of vital liver cells which are lost when the liver is attacked by potentially fatal conditions such as cirrhosis or chronic hepatitis, reports The Independent. The research, published in the journal Nature Medicine, has unravelled the network of biochemical signals that trigger the regeneration of cells within the liver, the body’s main organ for filtering harmful toxins from the bloodstream. 8

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WHAT IT MEANS: This is just another jargon that means Brainstorming— a group activity where efforts are made to find solutions to a specific problem by gathering ideas spontaneously. THE USAGE: Your colleague is not suggesting anything scandalous if he says it would be “worth taking an idea shower.” The only body part involved here is your brain.

O-ZONE

PEOPLE mOvEmEnT TECH

vODAFONE REJIGS MANAGEMENT

TALk, STOP, TALk... INCeSSANT TALKeRS, BeWARe! Japanese scientists claim to have created a device which can instantly shut down a person’s ability to speak. Dubbed the SpeechJammer, the portable device can force obnoxious talkers to come to a stuttering halt whether it’s during meetings, movies or while yammering away on the phone at public libraries, say the scientists. The device takes advantage of psychologists’ discovery that it is virtually impossible to speak when your own words are being played back to you with a delay of a

fraction of a second, The Daily Telegraph reported. The new gadget has, in fact, been devised by Kazutaka Kurihara, a researcher at the National Institute of Advanced Industrial Science and Technology, and Koji Tsukada at ochanomizu University in Tokyo, and is remarkably simple. The handheld device consists of a microphone that is pointed at the speaker and records that person’s voice. It then transfers the sounds to a speaker and replays them back in the same direction with a delay of about 0.2 seconds, say the scientists.

In a revamp exercise of its top management, Vodafone India has appointed Sunil Sood as its new Chief operating officer (Coo) and and Sanjoy Mukherjee as the Chief Commercial officer (CCo). The changes are effective from March 1. The company has also roped in Rajiv Kohli as Director of North Zone, Sanjay Warke for east Zone, Rohit Adya for West Zone and BP Singh for South Zone.

NEW CFO @ REDIFF SKY WATCHING

Oxygen in Saturn? LoS ALAMoS NATIoNAL Laboratory scientists and an international research team announced on March 3, the discovery of molecular oxygen ions (o2+) in the upper-most atmosphere of Dione, one of the 62 known moons orbiting the Saturn. The research appeared recently in Geophysical Research Letters and was made possible via instruments aboard NASA’s Cassini spacecraft, which was launched in 1997. A sensor aboard the Cassini spacecraft called the Cassini Plasma Spectrometer (CAPS) detected the oxygen ions in Dione’s wake during a flyby of the moon in 2010. Los Alamos researchers Robert Tokar and Michelle Thomsen noted the presence of the oxygen ions. “The concentration of oxygen in Dione’s atmosphere is roughly similar to what you would find in earth’s atmosphere at an altitude of about 300 miles,” Tokar said. “It’s not enough to sustain life, but—together with similar observations of other moons around Saturn and Jupiter—these are definitive examples of a process by which a lot of oxygen can be produced in icy celestial bodies that are bombarded by charged particles or photons from the Sun or whatever light source happens to be nearby.” 10

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Rediff.com India Ltd has announced the appointment of Swasti Bhowmick as their Chief financial officer. As Cfo of Rediff.com, Bhowmick will oversee all global finance functions and have direct responsibility for leading all corporate accounting, tax, investor relations and treasury activities and will report to Ceo Ajit Balakrishnan. he replaces Jayesh Sanghrajka. Bhowmick joins Rediff.com from Tata TeleServices Ltd.

TATA ELXSI CFO CHANGES Tata elxsi Ltd has informed BSe that the company has appointed Ms Sudha Madhavan as its new Chief financial officer (Cfo) with effect from March 1, 2012. Madhavan succeeds KM Ramasubramanian who stepped down as Cfo recently.

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cfo

i think

Facts & Trivia EDUCATION: St Xavier’s, Surat; BE, (Mechanical) NIT Surat PREVIOUS JOB: Director Finance & Billing, Colt Technology Services, India CAREER: Worked in several leadership roles in a seven-year stint with Bharti Airtel, including VP-Finance, regional CFO and Head, Management Reporting

The role of a Cfo is continuously evolving but the one constant challenge that Cfos face is to ‘grow businesses profitably’. This is particularly important in these challenging times. Today this is the single biggest issue that keeps me on my toes as a Cfo, just as it did always. While we have been more fortunate than some others, largely due to the foresight of our leaders and good execution by our leadership teams, we also face the same headwinds that all our other friends in business face. I will try and touch upon this in more detail specific to some of the businesses we are in.

TeChnOlOgy While we wanted to grow the business inorganically last year, we 12

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ANUP VIKAL The group CFO and head of Strategy & iT at interglobe enterprises talks about emerging challenges in the fields of technology, aviation and hospitality—where InterGlobe has a significant and growing presence—and how they keep him on his toes even in good times

“We have tried to build a strong strategy and business planning cell to help us keep track of what is happening outside and correlate the impact to our internal game plan”

realised that the valuations were not justified given the economic uncertainty and growth projections. In that scenario we took a conscious decision to grow the business organically by investing in delivery centres and sales and marketing efforts till we found an attractive target. We also realised that we had to focus on non-linear revenue growth to sustain margins in times where cost arbitrage was rapidly shrinking. This led to a paradigm shift within the business from productivity to innovation and new products and services at marginal costs. We also continue to face challenges in terms of getting the right mix of onshore: offshore, near shore, and a mix of all these. As we all know, each of these has its own flavour to add to the bottom line and margins.

hOSpiTaliTy We are building one of the largest inventory of rooms across market segments with a special focus on midmarket brand but returns are under pressure for the entire industry due

to increasing real estate costs, lots of new planned inventory coming in and rising cost of capital. The same implies much higher payback periods and fundsâ&#x20AC;&#x2122; requirements from what we envisaged originally. While a couple

of years back we would obtain project financing and the process was closed, in todayâ&#x20AC;&#x2122;s scenario one has to engage with banks on an ongoing basis to negotiate and re-negotiate interest rates. While we were working on the march 2012

CFO india

i think progress on the policy front. The travel distribution space we operate in is impacted by not only these, but also by major technological changes whereby consolidators and oTAs are garnering a larger pie of the value chain. Given the nature of this business, the big dilemma we face is how big should our war chest be for turbulent times and ensure that we are not keeping funds idle at the same time.

neW buSineSS develOpmenT

“While a couple of years back we would obtain project financing and the process was closed, in today’s scenario one has to engage with banks on an ongoing basis to negotiate and re-negotiate interest rates” debt strategy, we realised that though eCB’s offered cheaper interest rates, the shorter tenure meant higher liquidity risks and we chose a strategy to strike an optimum balance between the two. These approaches to funding have helped us significantly in the wake of pressures on returns on the properties. The problems of building infrastructure in India is further compounded by the large number of approvals from multiple government bodies that are required for setting up a hotel and the imminent delays we face therein, due to reasons that are now widely known and discussed in the media as 14

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challenges that our country faces. As a country we also face a huge issue in non-availability of a formalised and turnkey construction delivery system.

Travel The aviation sector worldwide is under pressure because of the sheer external variables its performance depends on. oil prices, forex rates, unanticipated events like 9/11 and ash clouds are all pretty much beyond the control of the industry, but its fortunes hinges, on their movements. The Indian scenario is even more challenging with little

While India continues to be a great story in terms of fresh investments and so any business by itself will look promising in the long term, it is challenging to keep the attention focussed on our core competencies and look at evaluating new business opportunity in the context of our own costs especially the opportunity cost of resources including time and management bandwidth. We have realised that incubating new businesses requires a lot of attention to detail and very strong execution and project management skills which we are now developing in our people, as we launch new businesses. What this implies is that we closely monitor trends of key performance indicators and anticipate the changes expected in future well in advance before they start impacting business performance and results. Thus, we work closely to monitor the early warning signals not only in the economy and the space that we are playing in, but also in our own execution and focus. We have tried to build a strong strategy and business planning cell at the centre to help us keep track of what is happening outside and correlate the impact to our internal game plan. This team makes it a point to highlight to the leadership team the implication of their analysis, helps build new strategies and fine tune the reporting and review process to address the operational and strategic challenges that businesses are facing on an ongoing basis.

cover story

BE PREPARED

WATCH OUT: WHAT TO EXPECT IN 2012-13

Turbulent times lie ahead in the next fiscal with a real risk of slipping up, unless one is well prepared. Yet there is a lot to look forward to and expect too over the next 12 to 18 months, both in the sphere of policies and regulations, as well as in the area of sectoral growth, say CFOs Dhiman ChattopaDhyay

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cover story

he economy has slowed down with growth numbers at its lowest in three years. Inflation remains high and even though the RBI has given indication of further rate cuts, banks are playing a wait and watch game before reducing interest rates on loans. Crucial sectors such as manufacturing, power, retail, oil and gas, and telecom are preparing for uncertain days ahead. Not quite the ‘India story’ we are used to hearing for close to a decade now. And indeed the next 12 to 18 months could well be slippery territory for India Inc, unless companies tread cautiously and prepare in advance for possible pitfalls. But then a growth rate of seven per cent can’t be all that bad in the global context. And even the hardcore pessimist will admit that both Foreign Direct Investments and growth fuelled by domestic capital is likely to go be on the upswing in 2012-13 and beyond. Still, not since the mid-1990s has corporate India and its financial leaders (read CFOs) been more concerned about ‘being prepared for what could lie ahead’ or looked so closely at what the government is thinking or doing in terms of policy decisions and regulations. What are the issues then that are top of the mind for CFOs and indeed the top management of corporations? What are the financial red flags that CFOs should be wary of, what are the policy decisions and proactive steps that they want, even demand from the government and in the end...what are

the silver linings that they see even in the stormy days ahead? CFOs in the telecom, oil and gas, financial services, manufacturing and travel sectors—all significantly affected by the volatility in global markets as well as the prevailing economic and political conditions in India—discussed their concerns, fears, hopes and realistic wishes for the 201213 financial year and beyond.

TELECOM

“My gut feeling is that every step will have to be taken with extreme caution, so that we do not slip. cFos will probably recommend a delay in investments as they wait for regulatory transparency” — SUNIL SAYAL, VP Finance, Ericsson India

Few sectors have been in the eye of the storm since 2010, like telecom. It started when the Government of India raised internal security issues, suggesting that telecom networks could be used by international agencies to breach our security cordon. “The government came out with rules and regulations which we had to adhere to in terms of security,” recalls CFO of Ericsson India, Sunil Sayal. In reality, though, operators passed some of the responsibility on to vendors and they in turn passed it on to sub-vendors. “There were a lot of ambiguities in the draft regulations and it left scope for serious complications,” Sayal admits. The irony was that even after the security regulations went through several amendments and alterations, the very people or a particular nation who the government was wary of of and wanted to keep out, found their way in through cheap mobile handsets, while the operators and businesses the government wanted to attract, found themselves trapped in regulations and stayed march 2012

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cover story out.“We grappled with understanding what the GOI requirements were regrading security. And we continue to grapple with it,” says Sayal. The big tornado though came in 2011 with the 2G scam unfolding. “It has added a lot of uncertainty. For the entire 2011-12 financial year, we were cautious in making investments. Most operators were waiting to see what happens to the licences issued by former telecom minister A Raja,” says Sayal. So does he foresee better days ahead or continued turbulence? “The proposed new telecom policy is the biggest thing to look forward to in 2012-13. The draft policy talks about major changes. For instance, it proposes to delink licences from spectrum and also talks about clear cut exit policies in order to encourage consolidation and mergers. The entire telecom industry is hoping that the new policy comes into force in the coming financial year,” says Sayal. He also hopes that this “regulatory uncertainty” coupled with the ongoing “government-judiciary tussle” that has led to increased pressure on operators, vendors and support sectors, will ease off in the next 18 months once a “new and progressive” telecom policy is in force. “There is a lack of political will. Having said that though, I am hopeful that the next 12 to 18 months will see a new telecom policy that offers clarity and is progressive in outlook. Another ‘result’ we expect in the next few months is a decision on what the government plans to do about the 122 licences that Supreme Court has cancelled. If this stalemate is cleared soon, it will send out a positive signal to investors. Of course, if clearing the stalemate takes time, older and larger players can use the time as an opportunity to increase their subscriber base. “My gut feeling is that every step will have to be taken with extreme caution, so that we do not slip. CFOs will probably recom18

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mend a delay in investments as they wait for regulatory transparency.” Another warning that Sayal issues is about raising capital. “In the context of financing, things will be tough. Telecom sector used to be the darling of banks. But after the huge overexposure that happened during the licence auctions, banks would now shy away from lending any more,” says Sayal, adding that all

this happened because of the lack of a clear telecom policy. Yet, he sees a lot of silver linings ahead too. “For instance apart from the expected policy changes, I see mobile broadband as a major driver for growth over the next year or two. It has to happen sooner than later. Even on the voice side, the user figures are grossly inflated thanks to duplications. This, however, means there is a far larger share of the pie still up for grabs than we thought. I foresee significant growth in user numbers over the next 12 months,” he concludes.

FinanCiaL inCLUSiOn

“cFos would do well to keep in mind that while global market conditions will impact us to an extent, the biggest impact may well come from within—lack of governance and lack of bold decisions” — RISHI GUPTA, President Sales & CFO, Fino

Lack of political will and regulations also seem to be the problem area for the financial sector, though there are many reasons to look forward to 201213 with happy anticipation here. Says Rishi Gupta, President Sales and CFO of FINO, “The broad guidelines from RBI have been helpful till now. In fact, the regulator has been quite receptive and adaptive to market conditions and has been changing policies according to ground realities.” Gupta highlights a peculiar problem though, even as he jokes about the possible reasons behind the complication. “A happy baby has many well-wishers. Our problem is that too many ministries and departments have got interested in our businesses and are issuing directives and guidelines. While it is a welcome thing in the long run, as of now it presents a problem. We hope that the government comes up with a clear directive about which ministry or department will run the show, whether it is the PMO or the Finance Ministry or someone else,” says Gupta. Secondly, says Gupta, he hopes the government will have a relook at the State Level Bankers Committee (SLBC) model and allow private sector banks to come in and play a large role in inclusive banking projects. “Right now only PSU banks can partner us in taking

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“I foresee this growth story continuing over the next few years... What will happen over the next 18 months though is a lot of infrastructure building for gas” — BHASWAR MUKHERJEE, Director-Finance, HPCL

banking to the unbanked, based on a policy that is 20 years old. Private sector banks have come a long way in those two decades and it is time we encouraged the ‘most willing’ banks to join us as partners in nation building projects such as taking banking to the bottom of the pyramid,” says Gupta. Gupta is hopeful that the political will that the government is showing on becoming more and more transparent, will continue in the next few years. “We have been hearing for a long time that social spending by the government is responsible for the fiscal deficits, but till now many of these social benefits were not reaching their intended beneficiaries. There were a lot of leakages. So, while we surely need to have social spend that is reasonable, it has to be more transparent and a properly digitised process. The UID system, as also the way we have started digitising the NREGA programme, is a step in that direction,” he says. Gupta however, cautions his peers about much of these coming to naught over the next 12 months due to a possible policy paralysis that would worsen as the 2014 elections come nearer. “CFOs would do well to keep in mind that while global market conditions will impact us to an extent, the biggest impact may well come from within—lack of governance and lack of bold decisions,” he says.

Yet, he too sees a silver lining in the cloud. “While everyone agrees that there are problems, it good to see that the government is taking a stance towards greater administrative transparency. The UID is a great step as is the decision to go in for fresh disinvestment. If such disinvestment happens in real terms instead of one PSU bailing out another, then it can help reduce the fiscal deficit and send a clear message that the government is more willing to look at governance instead of trying to run corporations,” he says.

“I would expect inflation to be in control going forward and a drop in interest rates. I also expect further opening up of the travel industry” — ALOKE GHOSH, CFO, MAHINDRA HOLIDAYS

He also foresees interest rates coming down, helping corporations acquire that much more working capital. “On the regulations-front the DTC and GST are both progressive steps and we are looking forward to these two. They will help simplify the tax structure.”

OiL & GaS Hit by foreign exchange volatility and the spiralling price of petroleum, the oil and gas sector is treading that much carefully as it steps into the 2012-13 financial year. Yet, there is more hope than worries ahead, insists Bhaswar Mukherjee, Director-Finance of Hindustan Petroleum Corporation (HPCL). “A seven per cent growth rate is not bad at all, given the global situation. True we are not at the double digit levels we had hoped for, but things are not that bad at all. I foresee this growth story continuing over the next few years. I also see the oil and gas sector growing at a steady pace,” he says. While gas is the future of the 21st century, Mukherjee says the availability of gas is still an issue and so, oil will continue to grow over the next couple of years. “What will happen over the next 18 months though is a lot of infrastructure building for gas,” he says. Caution areas? “The problem of pricing will definitely remain and I do not march 2012

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cover story see petrol prices coming down below the $110 mark. Also, if the government continues to provide subsidy on diesel, the subsidy bill will shoot up. So the sustainability of the compensation mechanism is something that needs to be worked out,” he adds. CFOs and managements in this sector, where private players are also coming into their own, should however watch out on the cost management sphere, he says. “All downstream oil companies will need large investments that will require internal resources. This is where CFOs will have to be cautious,” he says. His vision for 2012-13? “Petrol has already been freed of subsidy and there is talk of diesel also being freed of subsidy. Of course, such a decision may impact large sections of the economy, but I hope subsidy is somewhat reduced. With the economy hopefully further stabilising in the next 18 months, the price of fuel could well rise,” he says. Good news for the oil and gas sector, bad news for others?

ManUFaCTURinG There is a lot of hope and wishful thinking when it comes to the manufacturing and infrastructure sectors. “I hope for resumption of government spending on infrastructure. In fact, I hope for major initiatives for creating infrastructure in India. However, in reality I am doubtful about how much of this will really happen, given the paralysis that seems to have gripped the government,” says Sunjoy Podaar, Joint Executive President, Finance & Commercial, Ultra Tech Cement. What he genuinely expects is the implementation of GST and DTC in the next 12 to 16 months. “The government should also offer some clarity on IFRS,” he adds. One area that bothers him and indeed most sector CFOs is the constant pressure of IT department officers. “There should be something in taxation laws that deters departmental 20

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“If you count the underground economy we have been growing in double digits for a long time. once we manage to make even a part of this sector accountable, you will see the growth figures shoot up” — SUNJOY PODAAR, Jt President, Finance & Commercial, Ultra Tech Cement

officers from filing frivolous demands and charge sheets against companies,” he says. His worries, however, are far more genuine. “I foresee stagnation and a major increase in inflation as well as in fuel prices. Forex rates will also continue to swing like a yo-yo. The RBI will have to step in,” he says.

But while he warns his peers about tough times ahead, he is hopeful of the overall growth story remaining good. “India Inc has shown its resilience in the past and will continue to grow even in the turbulent times we expect ahead,” he says. In fact, he argues that the seven per cent figure given for growth is not quite true. “If you count the underground economy we have been growing in double digits for a long time. Once we manage to make even a part of this large underground economy accountable, you will see the figures shoot up,” he signs off. Agrees Aloke Ghosh, CFO of Mahindra Holidays and former CFO at Systime. “The political situation at present indicated that reforms including FDI in retail and other issues may remain on the backburner for some time. Populist measures such as subsidies on food and petrol will also continue.” Ghosh hopes (much like the others we spoke to) that a clear roadmap for DTC and GST is also finalised in the coming year. As for hope, he sees plenty of it though he advices caution before investing in a new project. “Seven per cent is a good growth number and with interest rate cuts on the anvil soon, I would expect inflation to be in control going forward and a drop in interest rates. I also expect further opening up of the travel industry with low cost airlines flying out to neighbouring nations now. Even within India, I expect the travel industry to see brighter days ahead with more people from Tier II and III cities travelling on holiday,” he adds. The message from the CFOs therefore seems to be loud and clear: The next 12 to 18 months could witness turbulent times in global markets with forex rates swinging like a yo-yo and crude prices spiralling upwards while there is a serious chance of the government putting most policy decisions on the backburner. However, if CFOs do step forward with caution, plan well and invest wisely, India Inc will have every reason to cheer in 2012-13 and beyond. We are putting our money on that!

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GROWTH IMBALANCE

IS INDIA REAPING THE

POTENTIAL? Rising imbalances are hampering growth and the India story currently is one of sub-potential growth and sticky inflation. Siddhartha Sanyal, Director and Chief Economist India, Barclays Capital, believes both India Inc and the government need to take immediate proactive steps to ensure the growth story gets back on track. He spoke on the subject at the recent IDFC CFO conference. Excerpts from his presentation...

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e (Barclays Capital economic outlook) expect India to register a growth of seven to eight per cent per annum over the next three to five years, depending on the global growth cycle and in the absence of any large-scale weather aberrations. While this appears to be a decent growth rate, it is lower than India’s growth potential. India’s growth pattern remains skewed towards the services sector and is heavily dependent on domestic consumption. As such, we see the risk that these imbalances will widen further. The good news though, is that over the next three to five years, we expect infrastructure-related bottlenecks, which are normally blamed for holding the country’s growth back, to be eased in a few pockets. We expect this to occur in the areas of financial, urban and human capital infrastructure, which are likely to be of greatest benefit to the services industry. The absence of large-scale improvements in basic and rural infrastructure means the agriculture and manufacturing sectors are likely to continue to be hampered by weak productivity growth and capacity constraints. Nominal incomes are likely to continue rising. But the income disparity between rural and urban areas is likely to widen further, reflecting the widening gap in productivity. The government’s expansionary fiscal policy attempts to combat this trend by trying to support rural income. But there is little focus on productivity growth, which could be more effective.

We expect aggregate demand in the economy to remain strong given India’s favourable demographics, rising income and increasing consumerism. But in the face of constrained supply and sticky demand, high capacity utilisation and low productivity growth, the manufacturing and agriculture sectors are likely to experience sustained inflationary pressures. In particular, we expect the manufacturing sector to remain vulnerable to commodity price shocks, with little scope for relief outside of declines in global commodity prices. While India’s engagement with the global economy has increased, its leverage to global growth remains relatively low. Even in an environment of generally subdued global economic activity, we think India should broadly be able to remain on its own growth path if it can manage its domestic economy well. Rises in commodity prices could dent India’s relative competitiveness versus commodity exporting economies, but they should not materially affect the economy’s growth differential vis-a-vis the global economy. Ensuring strong domestic activity, therefore, remains the key to underpin India’s growth momentum for now. Public policy has a clear role to play in resolving current bottlenecks in the economy, some of which can be viewed as self-inflicted. But the main approach in recent years has been to stoke demand through wage-generating programmes, rather than implement policies that could improve productivity and longer-term supply

“the good news though, is that over the next three to five years, we expect infrastructurerelated bottlenecks, which are normally blamed for holding the country’s growth back, to be eased in a few pockets” — Siddhartha Sanyal Director and Chief Economist India, Barclays Capital march 2012

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cover story Basic, Non-Discretionary, Non-Leverage Items Driving Consumption Demand Miscellaneous

14%

Recreation, education Transport, communication

17%

Food related

36%

Healthcare

Clothing, footwear

Furniture, appliances

Rent, fuel, power

in the mid-1990s when the economy decisively broke the so-called ‘Hindu’ rate of low single-digit growth. This success was achieved primarily on the back of a series of supply-side reforms. The industrial policy was revamped. The licensing regime was liberalised. Several sectors, which had hitherto been reserved for the government, were opened up to private participants (eg, heavy industries, infrastructure). In essence, these measures eased supply bottlenecks in the economy such as red-tape, boosted economies of scale, increased competition and enhanced efficiency, creating a virtuous growth cycle.

15%

… helpinG india emerGe as a serviCes pOwerhOuse

Source: GoI, CMIE, Barclays Capital

dynamics. The situation has been aggravated by a lack of political consensus and at times, short-term policy measures designed to satisfy current needs over the future. While the policy direction can be reversed, we think such a change is unlikely in the next one to two years.

GrOwth remains strOnG, but have aspiratiOns run ahead OF reality? For most of the period since the economic liberalisation of the 1990s, India has enjoyed high growth and moderate inflation. However, such ‘reliable’ growth can lead to the risk

that expectations surpass reality. Indeed, it is a commonly held view today that India’s GDP growth will average eight to nine per cent over the medium term. Even the government’s projections typically factor in growth at the upper end of this range, which has prompted criticisms that its outlook is based more on aspiration and desirability than bottom-up reality (its downward forecast revisions lend credence to this view).

supply-side ChanGes made the CritiCal diFFerenCe… The ‘India growth story’ as a term entered the popular consciousness

The effects of these sweeping economic reforms were soon visible in both industry and services. The average annual growth rate for industry, which had been below five per cent during the 1970-80s, rose to more than seven per cent from the early 1990s. The services sector performance was even better, with its growth rising to an average of 8.5 per cent pa from less than 5.5 per cent during the preceding two decades. The contribution from services in particular began to climb significantly on the back of a surge in several sectors including banking and financial services, information technology (IT) and related services, trading, transportation and communication. Poor physical infrastructure remained a headwind against continued rapid growth in India’s manufacturing sector.

GDP Growth – Aspiration and Reality Government’s initial target

Period

Revised target/ actual outcome

10th Five Year Plan (FY 03-07)

7.80%

11th Five Year Plan (FY 08-12)

8.2%*

12th Five Year Plan (FY 13-17)

FY 11-12

8%-8.2%* 7.6%* (RBI)

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inFrastruCture GrOwth: nO Cheer FOr FarminG Or manuFaCturinG Demand in India, largely driven by consumption, has a natural growth bias on the back of favourable demographics, steady rise in purchasing power and pent-up consumption demand. As a result, operating with sticky demand and

cover story high inflation has become the natural tendency of the Indian economy. Given this entrenched upward bias in demand, the growth potential of the economy is more influenced by developments on the supply side. In periods of better supply expansion, for instance FY 95-08, India experienced high growth with relatively low inflation. Global macro trends were also favourable during this phase. However, in periods of weak supply response, not only does GDP growth slow, but the excess demand gap also widens. If such a situation were to be sustained over the medium term, we think this would be negative for growth and counter-intuitively, without any commensurate softening in inflation. In this context, the inherent structure of an economy plays a critical role. Today, infrastructure growth remains critical for the supply dynamics. Blaming poor infrastructure for holding back India’s growth is common. We recognise several key gaps in India’s economic infrastructure. But rather than take a generalised view, to get a better understanding of the issues, we carry out a deeper analysis that splits infrastructure into five different categories: (a) heavy and basic; (b) rural; (c) urban; (d) financial; and (e) human capital. The dynamics and progress in these categories are often markedly different, as is the dependence structure of different sectors of the economy (eg, agriculture, industry, services) on different infrastructure categories.

rural inFrastruCture: sOme prOGress, but miles tO GO If developments in heavy infrastructure are far from satisfactory, the overall picture for rural infrastructure is not much different. There has been some progress in specific areas, especially in the last decade under the Bharat Nirman (Create India) programme, which focusses on the provision of safe drinking water, housing for the poor, increasing rural teledensity, providing

Vision 2015: What to Expect • We

expect India’s growth to average seven to eight per cent pa over the next three to five years. While seemingly high, this represents a sub-potential growth rate, together with rising structural imbalances.

• Demand

growth is typically strong in India. Reaping India’s growth potential depends on resolving supply-side concerns, which seems unlikely near term.

• Consumption growth will remain strong. But investment is set to stay weak, in our view, affecting productivity growth.

• Current growth in infrastructure remains skewed towards supporting the urban-based services sector without much cheer for farming or manufacturing.

• In the face of constrained supply and sticky demand, the manufacturing and agriculture sectors are likely to experience sustained inflationary pressures.

• Urban domination distorts the income structure. Fiscal policy is expansionary to combat this trend, but there is little focus on productivity growth.

• Wealth effects are strong. Combined, these factors entrench inflationary pressures.

• We believe a remedy for such ills could come from changes in public policy. However, this seems unlikely to happen in the coming years due to the weak fiscal position, political populism and short-term policy priorities.

all-weather roads and improving irrigation facilities. Interestingly, the achievements of various rural infrastructure projects had been markedly different. While more sophisticated, modern areas like telecoms have made striking progress in rural India in recent years, the traditionally weak areas of basic necessities such as irrigation, rural electrification and storage facilities remain significantly below par. According to the government, large sections of India’s poor are concentrated in states that do not receive adequate rainfall and would benefit significantly from better irrigation facilities. Despite a steady rise in irrigation coverage, over half of India’s cultivated area does not benefit from irrigation. The percentage of agricultural area covered by irrigation projects increased from 24 per cent in 1971 to only 46 per cent by 2007. During this same period, the amount of land under cultivation declined. Indeed, over the past four decades, the average growth in yield per hectare has been 2.25 per cent pa, barely above the average growth in population (2%). In the past decade, the situation has worsened as growth in yield per hectare (0.77%) had fallen below population growth (1.5% pa). This clearly indicates that unless there is a determined effort to boost basic and core rural infrastructure that supports the agricultural sector, then productivity is likely to remain low. This is also likely to keep the pressure on food prices, especially given the increasing mismatch between supply and demand. Some areas however, have seen progress. For example, the availability of clean drinking water has improved in recent years, especially under the Bharat Nirman programme. However, even for these projects the implementation rate had been only around 70 per cent of the target in recent years. Similar trends can be seen in some other related projects. While sanitamarch 2012

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cover story tion facilities have been upgraded, more than 54 million households still need access to better sanitation facilities, according to the government’s own estimates. On the bright side, most schools and community centres are now equipped with modern sanitation, which has likely been a big boost to overall quality of life, especially among the poorest sections of society.

Banking Sector Penetration on the Rise 90

39 30

40 FY00 FY01 FY02 FY03 FY04

urban serviCe tO beneFit mOre FrOm inFrastruCture GrOwth

Commercial bank branches ('000)

FY11

Credit to GDP (%, RHS)

Source: RBI, CMIE, Barclays Capital

Urban infrastructure needs are being addressed gradually. Compared with the disappointing progress in heavy and rural infrastructure, recent developments in urban infrastructure have been somewhat more positive, at least in pockets. The growing population and persistent migration to cities have put strong pressure on existing urban infrastructure. Although clearly it is not possible to address all of urban India’s infrastructure needs overnight, we believe some moves are taking place that could help to ease those pressures in the coming years. Our bottom-up analysis suggests that over a span of the next three to five years

(by 2017), a number of major cities in India will experience certain improvements in their infrastructure, particularly transportation. Aviation, for instance, still lags behind rising demand, but supply has started improving. Runway congestion remains an issue and is a drag on productivity. However, India has revamped its airports in some of its larger cities, including New Delhi and Mumbai, and has built world-class greenfield airports in Bangalore and Hyderabad. This has partly been a result of getting the private sector involved, which ensures projects

FDI Largely in Favour of Services 30

FY05 FY06 FY07 FY08 FY09 FY10

(USD bn)

25 20 15

are fast-tracked and generally means quicker monetisation. New capacity is also under construction in Kolkata and Chennai. Also, new, smaller airports have sprung up in such cities as Thiruvananthapuram, and projects are under consideration for Ahmedabad and Pune. Intra-city railway networks are also being constructed, particularly in large cities. Projects are underway in New Delhi, Mumbai, Hyderabad, Bangalore, Chennai and Kolkata to revamp existing rail networks and build new facilities. Operations are likely to begin in most cities between 2012 and 2014. This could help to address many of the issues related to traffic congestion and take some pressure off existing transportation infrastructure. Similar efforts are being made in road transport, as well. The private sector has provided the financing for the bulk of transport infrastructure projects through public-private partnerships. Successful examples can be seen across India in the form of highways and ports.

10 5 0 FY07

FY08

FY09

Service sector Housing & construction Power & Energy Source: CEIC, Barclays Capital

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FY10

FY11

IT & Telecom Automobiles Others

FY12 (YTD)

FinanCial inFrastruCture: strOnG, GettinG strOnGer India’s financial sector has remained strong. Staying largely unscathed during times of larger regional or global turmoil, such as the Asian crisis of the late-1990s and the recent global crisis,

cover story has bolstered confidence in the sector. A broad-based drive towards greater reach through inclusive banking has succeeded in bringing a larger share of the population under the coverage of financial services in recent years. Statutory preemptions in Indian banking have fallen significantly over the past two decades—the minimum statutory liquidity ratio (SLR) requirement has been lowered from 38.5 per cent in 1990 to 24 per cent today. Similarly, the cash reserve ratio (CRR), which was 15 per cent in the early1990s, has settled at mid-single digit levels. Over the past two decades, the rise in the participation of private and foreign financial institutions has helped to increase competition in financial services and resulted in greater efficiency. These developments, along with increased foreign capital flows into the economy, have helped foster a general downtrend in interest rates in India and act as clear catalysts of efficiency.

Infrastructure: Supporting or Hindering Growth? • Weak investment in manufacturing has caused continuing capacity constraints, •

which are high, no matter what point of business cycle the economy is experiencing.

The lack of investment and lopsided nature of resource allocation has been evident in foreign direct investment as well, which has tended to favour services over manufacturing.

• IT & Telecom, services and other sub sectors have been the key beneficiaries of FDI.

• Rural infrastructure: ‘Core’ developments still weak. • No significant improvement in agricultural infrastructure in last four decades. • In sum, infrastructure growth supporting services sector, urban-based industries bring little cheer for farm and manufacturing sectors.

trends in infrastructure for various sectors are not conducive to the real economy, most of the services sector (generally with an urban bias) can manage well. The debate about balanced versus unbalanced growth continues. However, the current situation in India has a number of interesting and crucial implications for the economy

wOrseninG struCtural imbalanCes The varied pace of infrastructure development has led to uneven support for different sectors of the economy. The relatively weak development of heavy and basic, and rural infrastructure often gets in the way of the functioning of the real economy (agriculture, industry). The service sector, however, does not depend as much on heavy and rural infrastructure. On the other hand, trends in urban, financial and human capital infrastructure have significantly more direct and immediate implications for services sector growth. As we have discussed, the country’s financial infrastructure has improved significantly. Urban infrastructure faces several issues, but there have been noticeable efforts to remedy those. Human capital infrastructure is a mixed bag—there has been some improvement, but still not enough across the board, as it faces a large rural-urban divide, considerable disparities across regions and along the value chain. Taken together, while the

nO quiCk struCtural Overhaul likely The fiscal policy is a part of the problem, not the solution. India suffers from a structurally weak fiscal position. Public finances have reverted to a model of high deficits and large borrowings, after the pro-cyclical improvement seen between 2004 and 2007. Since then, government expenses have kept rising, reflecting increased revenue expenditure, often reflecting the government’s attempt to offset slowing growth. Perhaps a more worrying trend has been the sharp divergence in the type of spending in recent years. As a ratio of the government’s overall expenses, capital spending is typically small in India. Capital spending, which was generally climbing in mid-2000s, has now fallen to its lowest levels of the past decade. In fact, in FY 2008-09, only 10 per cent of total outlays were for capital expenditures, with the remainder spent to meet

revenue expenditures. The lower capital spending is due to the persistent overshooting of revenue expenses, relative to the government budget. Since FY 2003, the government has consistently overshot its estimated spending on non-plan items, which typically amount to at least 70 per cent of total expenditures. This, in turn, becomes a drag on planned spending, which has on average been undershooting its target, perhaps due to lack of funds. This overshooting perhaps underlines the quality of government spending, which is turning increasingly populist, in our view. For instance, the central government’s overall subsidy bill reached Rs 1,641 billion (2.2% of GDP) in FY 10-11, up from Rs 475 billion (1.3% of GDP) in FY 05-06. The deterioration in public debt as a percentage of GDP is not as visible for now, given that nominal GDP growth (whether through real growth or through inflation) has been outpacing the rise in debt. However, that does not erase the fact that amount of public debt has increased. We believe a remedy for such ills could come from changes in public policy. However, this seems unlikely to happen in the next two to three years due to the weak fiscal position, political populism and short-term policy priorities. Perhaps embracing supply-side economics was the catalyst for the ‘India growth story’, which currently remains absent. march 2012

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TECH WATCH

GREEN SERVERS, ERP ON CLOUD AND MORE... 2012-13 will be a watershed year for technological innovations that aid business operations as cost optimisation becomes the key. Here are some tips CFOs would do well to keep in mind Anuj MedirAttA

echnology is the key behind every business today. Nothing can survive in our tech-geared world with technology backing it. Every few days we have new technological innovations that ease our daily life. All this, though, comes at a cost and organisations have dedicated IT infrastructure and allocated budgets accordingly. There are many such new technologies coming up this year to help automate the business processes. These are not heavy on pockets if measured properly with the returns expected out of them.

TABLETS @ WORK Media tablets and iPads, for example, are presenting a new promising and cost-effective way of computing. Media tablets present a variety of new opportunities for business, while supplementing traditional uses of notebooks and smartphones. They present a new design point for applications, and require a new set of policies, technologies and skills. Once the framework for media tablets has been set up, it offers considerable cost savings. 28

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GO MOBiLE

GREEn SERVERS

Mobile centric applications and mobile interfaces for applications is another new opportunity coming up. Users can access applications like banking, ERP, etc, on their mobiles itself. This increases their go to market and helps them make better decisions. Mobile applications are not replacements for laptop, so not much cost can be saved. It just brings in greater efficiency in the working of executives and helps in the overall business growth. The foundation for in-memory computing is emerging from the converging evolution of memory technology, system architectures and enabling infrastructure software. Relentless price drop, technology maturation and integration are driving mainstream adoption despite notable technical challenges. In-memory computing enables dramatic business innovation, and has the potential to be a disruptive industry force. CFOs must brainstorm with business leaders about how IMC can deliver competitive advantage, but they focus on short-term RoI projects to mitigate the risk of adopting such a leadingedge paradigm.

To add to this, new low-energy servers are coming up. Extreme lowenergy servers are greener than traditional ones. Additionally, they can solve shortages of energy and space in the data centre and slash operating costs. But deploying them in the wrong roles or without proper planning can waste energy, space, money and natural resources.

ViRTUAL dESKTOPS Consolidating servers and server virtualisation has been in for a long time now. It is a time-tested technology which is now enhanced and coupled with virtual desktops as well. Virtual desktops help you ensure smooth operations for the users in terms of software patches and upgradations from the IT management prospective. The virtual server and desktop infrastructure has also reduced the number of physical servers required thereby reducing the otherwise nonIT aspects which are the backbone of the IT infrastructure.

CLOUd... Cloud computing is a broad technology trend that continues to evolve and change rapidly. Over the next three years, enterprise cloud strategies will be impacted by hybrid cloud computing, cloud brokerage, expanded delivery models, cloud-centric design and formalised cloud decision models. As cloud computing matures and its adoption begins, businesses continue to explore its potential. In many instances, local regulations and data privacy restrictions will delay adoption. Cloud computing opens a lot of options for an enterprise. You can pick and choose what you want and

today, even the best of erPs are available on cloud. you decide what functionalities you need and the number of users who want to use these functionalities

how much to use. It gives a good commercial angle to the fact that in public cloud you pay only for what you use. Let us consider the example of a typical ERP implementation. In the traditional approach, you need a data centre with racks, servers, power and cooling. Then you need to purchase software ie operating systems, applications and finally you need to make it secure from all sides. Skilled manpower to manage the set-up is another requirement. Today, even the best of ERPs are available on cloud. You decide what functionalities you need and the number of users who want to use these functionalities. No data centre or software is required. You just need the ERP client on any desktop/laptop, access you application and your data and you are set to work.

...And BEYOnd Even a small business can become more efficient by using the enterprise class products in a cloud-based model instead of having to set up everything for itself that requires huge investment in IT infrastructure. Apart from ERP, mailing, virtual desktops, backup services, many more applications are available on cloud. A good service provider will take care to keep your applications and data up and running 24x7. While the above are different ways that we look at to make our business systems more efficient and help smooth operations, RoI statement should be developed for an organisationâ&#x20AC;&#x2122;s environment to find out how cost-effective these technologies are for their specific needs.

ANUj MEdIRATTA IS FOUNdER & dIRECTOR TEChNOLOgY, ACE dATA dEVICES. ThE VIEWS ExPRESSEd ARE PERSONAL. march 2012

CFO indiA

cfo

Profile JATiN KAPoor cfo, PHILLIPS cARBoN BLAcK

Taking

Carbon Black

World

After spending a decade travelling and heading finance in MNCs across two continents, Jatin Kapoor is now leading Kolkata-based Phillips Carbon Black’s aggressive growth plans and its foray into new global markets as its CFO Dhiman ChattopaDhyay

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They sAy iT’s tough to take Kolkata out of a Calcuttan. That is why one is not surprised to hear the story of Jatin Kapoor’s career and his return to Kolkata after having lived and worked across the world at a time when, in more ways than one, the city that was once the nation’s premier metro, faces a bleak future. Today as CFO of Phillips Carbon Black, the `2,000-crore arm of the newly carved out RPsanjeev Goenka Group, Kapoor is driving the aggressive growth plans of the company. his career graph so far, is almost as interesting as his plans and visions for PCB, india’s largest producer of carbon black. Born into a family of garment traders in Delhi, Kapoor moved to Kolkata (then Calcutta) as a toddler along with his family, in the mid1960s. “Calcutta was clearly the city to be in then. it was a city on the move,” recalls Kapoor. he went to school (south Point) and college (st Xavier’s) there and became a chartered accountant at the young age of 22. “i cleared my CA

ABhishek ChAndA

to the

MilesToNes FIRST JOB pwC Kolkata BIG BREAK the move to nigeria as finance controller of pepsi AHA! MOMENT Raising Rs 400-crore pE for himadri Chemicals in 2009 LESSER KNOWN FACT i am highly ambitious DREAM to become CEo of a large company one day

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CFO india

cfo Profile final exams at the same time as my graduation,” he recalls. A keen cricketer in school (he skippered the south Point cricket team and played alongside many future Ranji Trophy stars including a certain snehasish Ganguly, a man who almost played for india but is better known today as sourav Ganguly’s elder brother). “But the only serious career focus for me, even as a 19-year old, was to become a CA,” he smiles. After completing his CA in 1987, Kapoor joined PwC for a year-and-half before moving to the corporate world as the executive assistant to the chairman of ispat Group in 1988. he got his first big break when he was just six years into his career. in 1994, he was appointed the CFO of Gontermann Pipers, one of the companies in the ispat Group fold. “i was one of the youngest CFOs in the city at that point, barely in my 30s,” he says. Along with the increased exposure to various areas of business at a relatively young age, Kapoor gained one more invaluable experience during the six years he spent as CFO here— regular interactions with the ispat Group scion, a young gentleman who answered to the name of Lakshmi Mittal. “even then, he was so focussed, so full of ideas and amazing in the way he went about business. he wasn’t the tycoon he is today, but we all knew this man was destined for greatness. i learnt so many things by interacting with him and observing him,” says Kapoor. in 2000, Kapoor finally took the plunge and temporarily left indian shores. The reason: an offer from Pespico to move to Nigeria as the financial controller of its operations in the African nation. here too, he proved his worth by significantly improving financial systems at Pepsi’s Nigerian operations. “One of my biggest challenges at Pepsi was implementing the eRP system across eight plants in Nigeria. What made it tougher was that we had to execute this complex operation with only local resources. it was a huge ‘aha’ moment for us when we managed to roll out a state-of-the-art eRP system across all plants simultaneously,” he says. having spent four years with the beverage giant, Kapoor briefly moved back to ispat as the CFO of its Nigerian operations before moving continents once again—this time to hong Kong as finance director of the textile biggie Must. his job here took him across the world, since the group had operations in egypt, Vietnam, Bangladesh and other nations. it was at this time 32

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fAvouRIte

PicKs

NEWSPAPERS Et/telegraph MAGAZINES Forbes/CFo india/time FILM Guide/3 idiots

MUSIC SD Burman/Kishore Kumar DESTINATION London, Singapore BOOK Bottom of the pyramid by CK prahlad ROLE MODEL Lakshmi mittal QUOTE nothing is impossible for a willing heart

JATIN KAPOOR HAS WORKED AS A CFO IN NIGERIA AND HONG KONG BEFORE MOVING BACK TO KOLKATA AS CFO OF PCBL

that he moved his family back to india (his wife is a teacher and his three children are in school or college). “We were trying for either Mumbai or Delhi or Kolkata but it seemed that school education is by far still the best in the latter (a recent national survey by a leading publication seems to justify Kapoor’s belief ) and gaining admission was also less cumbersome. so my family moved back to Kolkata,” he smiles. The homecoming finally happened in April 2009 when he joined as CFO of himadri Chemicals, the flagship company of the Kolkata-based himadri Group. “My biggest high at himadri was when we raised a Pe of close to `400 crore

cfo Profile

“i am happy that we have managed our working capital as well as risks fairly well and protected our margins. exports too have improved”

through Bain Capital—not an easy task considering the time (October 2009) and the fact that it involved real-time negotiations with representatives of Bain sitting in the Us. That we concluded the deal with a structure that left value for both the Pe and the promoter, is something i am proud of,” he says. Around september 2010, Kapoor got the break he was looking for, when he received an offer from the then RPG Group (now part of the RP-sanjeev Goenka Group) to become CFO of Phillips Carbon Black—a clear leader in the space. “The last 18 months have been very exciting for me. The biggest challenges before me were the volatile forex rates,

rising interest rates and the resultant sharp spike in the raw material rates. 2010-11 was a lot about cost optimisation and cost management. i am happy that we have managed our working capital, as well as risks, fairly well and protected our margins. And while the domestic market was subdued, we increased our volumes in exports and made inroads into new markets,” he says. One key achievement was that cash flows were managed well with a very low debt-equity ratio of less than one. so where does he see PCB headed in the next three years? While he doesn’t want to spell out specific details, Kapoor reveals that the company would prob-

ably diversify into newer areas while maintaining a steady organic growth. “We also have our targets set on a few specific acquisitions,” he says. Given the relatively brisk pace at which india inc in general is growing, compared to most nations, Kapoor’s routine is by no means as laid-back as the city he lives in. so how does he destress? “i do yoga every morning. i also watch cricket when i get time and listen to music,” he explains. his word of advice for aspiring CFOs and younger colleagues: “Focus, determination and attitude, when supported by sincere actions and self-belief will help you achieve your goals all the time.” march 2012

CFO india

in practice

THE EVOLVING CFO

the Changing rOle OF FinanCial ManageMent The dramatic evolution in financial management is traced over the years from three perspectives: chronological change, the drivers of advancement in business and the evolving roles of financial executives ROBERT A HOWELL

ver the last 80 years, financial management has changed dramatically, driven, in great part, by events and changes external to the association. This author has been involved with finance for more than 50 of those yearsâ&#x20AC;&#x201D;during which time many of the most dramatic changes have occurred. The changes might be described from three perspectives: chronological, drivers and changing roles.

a ChrOnOlOgiCal PersPeCtive First, the changes can be measured chronologically, starting with the Securities Acts of 1933 and 1934 on the requirements for accounting practices and audited financial statements, the arrival of World War II and the pent-up demand it created throughout the 1950s and into the 60s; the establishment of 34

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in practice the Accounting Principles Board in the 50s and the Financial Accounting Standards Board in 1973, as well as the growth in size, product and market complexity and international expansion of the 60s and 70s. In subsequent years, key events included the Japanese production model and its implications for global competition as well as the heightened emphasis on quality, response times, low inventories and low costs and investments (beginning in the United States in the 80s); the emphasis on business process redesign and finance function outsourcing in the 1990s and the dotcom bubble of the late 90s, accompanied by stock-based compensation driving aggressive earnings management practices including the creation of alternative pro forma earnings. The early 2000s were marked by implosions of companies such as Enron Corp, WorldCom Inc, Adelphia Communications Corp and Tyco International Ltd, the Sarbanes-Oxley Act of 2002 and its emphasis on compliance and internal controls followed, while the ‘easy money’ policies of the Federal Reserve Bank, the encouragement of home ownership, the near absence of sound lending practices and the explosion of housing-related derivatives creating the housing bubble contributed to the financial crisis of the past several years.

pHOTOs.cOm

the driver PersPeCtive The changes might also be defined in terms of major drivers’ impact on the needs and role of finance. The sheer size of most companies has grown significantly over the past 80 years. During the 1930s through the 50s, the corporate giants were AT&T Inc, Sears Roebuck & Co, General Motors Co, and US Steel Corp. Earlier, most companies were relatively small and local—the local grocer or mom and pop drugstores, the small manufacturing plant, the private trucking company. WalMart Stores Inc, McDonald’s Corp and FedEx Corp didn’t exist. General Electric Co

Broader competition has resulted... in an increased product rate of change. the original coke stayed the same for decades... today, in some industries, product life cycles are measured in months, not years was run centrally until the late 50s, when then-chairman and CEO Ralph J Cordiner led the company through a process of decentralisation. CONGLOMERATES CREATED: The 1960s gave rise to the conglomerate— Litton Corp, Tex-tron Inc, Gulf and Western Industries Inc, ITT Corp—that resulted in large and very diverse collections of operating businesses, again raising issues of planning and performance measurement. Most of these companies used pooling of interest accounting—which was to come under attack and was later prohibited—for its implications on reported earnings. Size clearly introduced challenges for the financial executive. It is one thing to just grow larger, but in many cases, size resulted in increased complexity in terms of businesses, products offered and markets served. AT&T was large, but its business was relatively the same across the markets it served at the time. GM had multiple lines of automobiles, but each was run very similarly. Because GM was the clear market leader of the ‘Big Three’ US automakers at the time, it was able to absorb inefficiencies into its pricing. The conglomerates, by definition, were diverse and certainly could not be run either centrally or in the same way. In the 50s, for example, a pair of sneakers was available in black or white, high

top or low top. Fast forward: here in 2011-12, how many styles of sneakers can one buy? It’s incalculable. In the 50s, Coca-Cola came in an eight-ounce bottle or could be produced by combining syrup with carbonated water at a drugstore counter. How many varieties of soft drinks can one currently buy? (Not to forget other beverages—bottled juices and even water, too.) In the 80s, activity-based costing was promoted as a breakthrough in managerial accounting practices. In fact, it was necessitated by the increased complexity of product offerings and markets served. In earlier times of limited product lines and market channels, there was little need to fine-tune costing practices. When product offerings and markets served became more diverse, it was obvious simple cost assignment methodologies were inadequate. Complexity led naturally to sharper costing and pricing practices. GLOBALISATION, COMPETITION AND FINANCE: As companies got larger, they expanded market reach, first nationally and then globally. Globalisation has had a significant impact on accounting and finance. Large global companies have to assure that accounting practices in distant operations comply with company practices, which puts a tremendous challenge on finance leaders. Results have to be consolidated, which necessitates consistency MARCH 2012

CFO india

in practice across operations and the ability to roll up results seamlessly. Today, there are more financial executives gaining global experience and more foreign financial executives leading US finance organisations. FASB and the International Accounting Standards Board are working toward the standardisation of accounting policies around the world. In the early 1970s, the US went off the gold standard and currencies were allowed to float, relative to one another. That introduced the notion of foreign exchange risk. As organisations have

become more and more global, the implications of FX risk has become more pronounced and the need to manage it more critical. Also, in the 70s, inflation reached double-digits and interest rates were similarly high and volatile. As a result, interest rate risk became significant. With national and global expansion comes increased competition and challenges. The local grocer knows what the local competition is doing. The same can be said for national competitors, as long as they remain relatively constant. But as companies enter new markets,

Globalisation has had a significant impact on accounting and finance. Large global companies have to assure that accounting practices in distant operations comply with company practices, which puts a tremendous challenge on finance leaders 36

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they invariably face new and more formidable competition. A WalMart store, for example, ultimately squeezes the larger local supermarkets. Foreign automobile manufacturers— and especially the Japanese—entered the US market, first with exports and subsequently with transplants, and upset the Big Three oligopoly. In such an environment, the importance of truly understanding the strategies, tactics and performance of competitors has become critically important for all executives, including financial executives. ACCELERATED RATE OF CHANGE: Broader competition has resulted, among other things, in an increased product rate of change. The original Coke stayed the same for decades. The product life cycle for automobiles when the Big Three reigned was measured in years. The IBM 1401 had a life cycle of close to two decades before the 360 was introduced. Then came mini-computers, micro-computers and personal computers. Today, in some industries, product life cycles are measured in months, not years. The implications of this accelerated product life cycle for finance are significant. It places heightened emphasis on research and development expenditures, understanding of market needs and competitive responses, including pricing limitations, and strict management of investment expenditures and product costs. The idea of ‘target costing’ comes into play, as contrasted with cost-based pricing, when the rate of product change is fast and competitive pressures and response are high. No longer can financial executives wait years to get the company’s investment returned. The degree of size, complexity, global reach and rapid change would be virtually impossible without technology. The first mainframe computers, developed in the 1940s, were big and slow. One normally had to wait overnight to get output. Only large companies could afford them. IBM Corp introduced its 360 model in the early 60s to replace its predecessor, the 1401. Mini-computer

in practice development in the late 60s made computers more available to smaller firms. The first micros came along in the late 70s, PCs in the early 80s. Consider, too, the hand-held calculator and, of course, fast-forward to the 21st century, and consider the ubiquitous hand-helds of all strips—cell phones, smartphones, iPhones, iPads and more. In the late 70s, the first spreadsheet modelling package, Visicalc, was introduced. It, of course, is the predecessor of the Excel software still used so frequently by financial executives. Without the hand-held calculator, computers and software available today, it would be impossible to do the kinds of analysis that is so central to planning, financial analysis, performance measurement and control across diverse products and markets around the globe and as quickly as needed to respond to changing needs. Technology goes well beyond analytic tools. The automation of factories has resulted in a dramatic shift from labour to equipment and between variable and fixed-cost structures, while at the same time aimed at reducing total costs. The availability of rapid communications between customers and suppliers has resulted in faster response times and lower inventories in the pipeline. Without technology, large, diverse, widely scattered companies would not be able to operate with the level of efficiency and effectiveness with which they can operate today. REGULATIONS: The Securities Acts of 1933 and 1934 placed requirements on companies in terms of having audited financial statements with their filings with the SEC. The auditing profession has grown greatly and expanded widely into tax and consulting services since that time. The Accounting Principles Board, formed in the late 50s was succeeded by FASB in the early 70s. The promulgation of accounting policies by both organisations, and especially FASB, has greatly impacted firm accounting and finance activities. The acts also separated the roles of commercial banks and investment banks,

such that firms dealt with commercial banks for borrowing and other purposes and with investment banks for the raising of capital. It was not until the late 1990s that this division of banking roles was eliminated. More recently, Sarbanes-Oxley, particularly Section 404, has had a significant impact on accounting and finance, primarily causing the CEO and chief financial officer to attest to the veracity of the reported financial results and to assure that there were no material weaknesses with the company’s internal controls. The amount of time and money spent due to Sarbanes-Oxley was and still is considerable.

the Changing FinanCial exeCutive rOle When the Controller’s Institute of America was founded in 1931, it is fair to say the role of the key financial executive was primarily that of an accountant. Businesses were generally small, local and not terribly complex. Closing the books manually, providing some reports to management and filing tax and other regulatory requirements was the job. These activities do not contribute much of anything to value creation. To some extent, the idea of ‘controlling’ was beginning to creep into the job. Larger companies such as GM had already begun to utilise what has become known as the “DuPont System of Controls.” This came about because of former DuPont Treasurer F Donaldson Brown, who became GM’s treasurer and worked closely with its CEO Alfred P Sloan Jr to implement a system of internal controls to run what was then one of the largest corporations in the world. But many companies lacked the size or sophistication of GM. As companies grew in size, complexity and reach into the 1970s, the role changed to controller in a big way. Most companies had begun to prepare annual operating budgets by the late 50s against which actual results could be measured. But this was often

a very laborious task given the absence of business models and computing resources. A single iteration, with minor adjustments, was almost all that was possible. By the 1950s, too, there was increased interest in financial analysis, managerial accounting and management controls. Joel Dean, at Cornell University, wrote the first definitive book on Capital Budgeting, which emphasised the concept of net present value; Charles J Christenson, a research associate and later a faculty member of the Harvard Business School, developed, by hand, the first set of present value tables. And Robert N Anthony, also an HBS faculty member, wrote his first edition of Management Accounting, while Ross F Walker, Anthony’s mentor, was breaking research ground in the area of Management Control Systems (which Anthony, John Dearden, and others developed further over the next several decades). When, in 1962 the Controllers Institute of America changed its name to Financial Executives Institute, it was consistent with the change in emphasis from accounting and control to more financial analysis and planning as companies were becoming more strategic. In 1968, Vancil, Francis J Aguilar and this author, all at HBS, developed the first MBA course in Long-Range Planning Systems. Until that time, few companies were preparing anything more than a one-year operating budget. Through the 70s, longer range planning at companies did become more “strategic.” Consulting firms such as McKinsey, Boston Consulting Group, and Bain & Co had sprung up. Strategy gurus, such as Michael E Porter, of Harvard, wrote books such as Competitive Strategy, and companies formed strategic planning organisations. During the 70s and 80s, executives continued to focus on planning, both long-range and operating and control. In essence, finance was focussing on the controller role. In 1986, Alfred Rappaport, then at Northwestern University, wrote Creating Shareholder Value, MARCH 2012

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in practice the first definitive book to develop the cash-based approach to value creation. In 1990, Patrick J Keating and Stephen F Jablonsky undertook a research project for Financial Executives Research Foundation (FERF)—the research arm of FEI—which led to the publication of The Changing Roles of Financial Management, which made a sharp distinction between the role of the finance executive as controller, or ‘cop’ and ‘business partner’. It was the idea of finance getting out of its centralised role of orchestrating the planning, budgeting and measurement cycle and actually working closely with line managers. For some companies, this meant actually physically relocating finance personnel closer to the line managers and operations. The skills required for these assignments were frequently different from those in the central office, requiring teamwork, analytical skills and the ability to make and implement decisions rather than giving directions and expecting responses from the field. Some companies, such as GM, had difficulty breaking from the old model of centralised control. Others, such as Toyota Motor Corp, had their finance per-

sonnel sitting right on the factory floor so that they could be close, to understand and contribute to value-creating actions. Several other trends were occurring in the 1990s. Companies were reengineering their processes (also called business process redesign or BPR) to become more efficient and effective, based on the Japanese lean production model. In a number of companies, especially those where the concept of business partnering had taken root, finance personnel partnering with line manager colleagues were actively involved in the BPR efforts. In the case of the finance function, a number of organisations created shared service centres, consolidating certain finance activities in a low-cost location. A second trend was outsourcing finance and other functional activities not considered core activities. Some finance organisations outsourced payroll and other personnel-related tasks; others outsourced computer services. In those companies where finance partnered with the line managers, the CFO and other senior financial executives began to take on more “strategic partner” roles, working with CEOs and other C-suite executives. Issues such as the

When the cFO and senior financial executives become true strategic partners with the rest of the c-suite, they are best positioned to significantly contribute to long-term intrinsic value creation, which should be a company’s ultimate financial objective 38

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best ways to grow the business (whether internally or by acquisition); major investment and divestiture decisions; and such key financing issues as leverage, stock repurchases and dividends became areas where finance, had much to add to the discussions and decisions. In those organisations where finance is still bogged down in the old ways, financial leadership has little time or requisite skills to fulfil this strategic partnership. When the CFO and senior financial executives become true strategic partners with the rest of the C-suite, they are best positioned to significantly contribute to long-term intrinsic value creation, which should be a company’s ultimate financial objective. The final evolutionary role for the financial leader is coach, making sure that those within the entire enterprise are financially proficient. This doesn’t mean that everyone must be a financial expert, but that virtually every key manager throughout the organisation thinks in terms of the financial implications of decisions they are confronted with. In 2000, FEI again changed its name, to Financial Executives International to reflect the growing global nature of business and commerce. Whether one examines the past 80 years by chronology, financial complexity, globalisation or some other salient measure, it’s clear that the needs and roles of financial executives are very different in 2012 than they were in 1931. Going forward—even if not for another 80 years—it is very likely that the financial executive of tomorrow will continue to be challenged by the external drivers described above. The key to making the next 80 years work is to become a truly strategic financial leader.

DR ROBERT A HOWELL IS THE DAVID T MCLAUGHLIN, DISTINGUISHED VISITING PROFESSOR AT TUCK SCHOOL OF BUSINESS AT DARTMOUTH UNIVERSITy. HE ALSO SERVES ON THE EDITORIAL ADVISORy BOARD OF FINANCIAL EXECUTIVE.

in practice

BUSINESS REPORTING

Time TO seT new

benChmarks

Should business reporting, including financial reporting, environmental accounting and CSR reporting be globally standardised? If so, how? AnindyA SenguptA*

ompanies venturing beyond their home country for business and fundraising opportunities, cross border mergers and takeovers, capital market integration, enhanced multinational presence and a global workforce are some of the issues today which many countries, sectors and companies face. The motivation behind standardisation of business reporting is that it acts as a business enabler in bringing forth new opportunities and market access for companies, investors, professionals and the economy as a whole. â&#x20AC;&#x2DC;Business reportingâ&#x20AC;&#x2122; standardisation is also expected to improve benchmarking of organisations on a set of effects and indicators to form reliable insights on the future directions. However this is not without its share of woes, be it in terms of differing national situations with respect to rules and regulations,

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photoS.com

in practice level of preparedness and the various national priorities. Historically across the world, financial reporting has received a strong emphasis with high-quality standards being developed by national accounting standard bodies and enforced by means of strong governance and firm regulatory frameworks. A substantial body of work has also been carried out in terms of developing and updating a set of International Financial Reporting Standards (IFRS). Standardisation should reduce the inconsistent treatment and presentation of the same underlying transaction. The rate of adoption of IFRS by many countries (more than 100) is increasing. The thrust to align to IFRS is coming from a section of industry and professionals who find merit in terms of reduced risk, lower cost of capital as well as expanding the scope of accounting expertise and services offered. However even after such considerable research and consultations at national, regional and international levels, differences remain and these need to be appreciated as being responsive to the perspectives of users using the standards. The term ‘convergence’ is thus used to signify achieving harmony with the global standards, by designing national accounting and reporting standards, taking into account local contextual issues such as existing regulations and taking cognisance of various levels of maturity. The space of environment reporting has had much less share of research, and development of standards. The maturity level in environmental management accounting is less standards oriented and more guidance driven. The thought process emerging from acclaimed bodies in this field, eg Global Reporting Initiative (GRI) or International Federation of Accountants (IFAC) are primarily guidance documents, at a generic and sector specific level for environment and social accounting/ reporting. These documents function

to provide, at minimum, information and some extent of standard setting. However the guidance puts the onus on national governments as well as international authorities to do more detailed applicability studies and include local contextual issues. Unlike financial reporting, where ratios and information from statements can to a large extent be used as an important indicator of financial performance and benchmarking, the environmental context of a country, its resources and national priorities play

tion of a company’s operations is still uneven across companies and sectors which still see this issue as compliance to regulatory norms. The natural step forward would be to take guidance from the internationally accepted thought process as well as the ground situation to build national standards and take governance and regulatory steps simultaneously. While developing standards, one must keep in mind the objectives of meeting the informational needs of the external stakeholders such as investors, all of whom have a

the natural step forward would be to take guidance from the internationally accepted thought process as well as the ground situation to build national standards and take governance and regulatory steps simultaneously an important role in formulating standards for accounting and reporting. For example, in developing countries the waste disposal costs or for that matter other environmental externalities (“polluter pays principle”) may not be properly accounted for when compared to other developed countries. The maturity levels towards environmental governance at national and firm level is also diverse and thus an impediment to standardisation of environmental accounting. Environmental accounting is also more complex as it involves physical as well as financial information and raises issues on proper recognition and valuation of assets and liabilities. Moreover life cycle thinking towards impact quantifica-

strong interest in receiving accurate and standardised information. Corporate social responsibility (CSR) reporting, which is the reporting of a company’s voluntary activities in the local community and the initiatives taken to address wider issues in the communities, is the most challenging of all three for standardisation. While the expenditure for CSR is religiously accounted, be it for the reasons of tax deductions or for the purpose of determining total spend efficiency, the quantification of social benefits and indirect business benefits can be hard to standardise. This is because of the local and national context; the existing rules on social performance (such as the regulations on resettlement and MARCH 2012

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in practice

Points to Ponder • Business reporting standardisation is expected to improve benchmarking of organisations on a set of effects and indicators to form reliable insights on future directions • Standardisation should reduce the inconsistent treatment and presentation of underlying transactions. • While the expenditure for CSR is accounted for, the quantification of social and indirect business benefits can be hard to standardise.

rehabilitation, social rights) may vary and produce different impacts on a company’s performance. However the inputs in the form of resources (time and cost) and in-kind contribution (atcost) can be quantified to an extent and standards can be developed. The focus of standardisation should be to achieve some meaning into the diverse actions and focus areas of CSR and help in decision-making, both internally and externally. The London Benchmarking Group (LBG) has put in place certain policy guidance and a generic framework for accounting of corporate community investments (CCI) and many organisations (more than 100 member companies) have strived to follow this model of accounting for their CCI. Now for some update on the regulatory developments in the country.

• The focus of standardisation should be to achieve meaning into the diverse focus areas of CSR • The accounting for CSR delves more into the intangibles and may be a source of debate when standardised • CFOs should take cognisance of these developments and steer their reporting agenda not only to be compliant but also have a competitive edge through business reporting

The Ministry of Corporate Affairs, in 2011 has released a comprehensive set of guidelines that encompass social, environmental and economical responsibilities of business in the form of National Voluntary Guidelines. SEBI has vide its circular on November 24, 2011, stated that top 100 companies in terms of market capitalisation would be mandated to submit Business Responsibility Reports as a part of annual disclosure in their annual reports, describing measures taken by them along the key principles of National Voluntary Guidelines. These moves point to fostering an integrated reporting environment with some degree of standardisation. CFOs should take cognisance of these developments and steer their reporting agenda not only to be compliant but also to have a competitive edge through business reporting. Responding to these developments, joining the debate, influencing the future would also need new skills and better linkage to corporate strategy and key performance indicators. While standardisation of business reporting is welcome, we need to

the thrust to align to iFrS is coming from the industry and professionals who find merit in terms of reduced risk...lower cost of capital and services offered 42

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understand the objectives met by standardisation. In case of financial reporting it is clearly in favour of the same because of a host of business enablers and removal of inconsistencies. For environmental accounting and reporting, issues arise in terms of providing better ways of accounting and benchmarking or the risk of it becoming another onerous task. Moreover, the field of environment accounting is not yet mature and national governments, standard setting bodies need to do more contextual studies and adherence to basic practices on mitigation and remediation and formulate a sound governance and regulatory framework. Lastly, the accounting for corporate social responsibility delves more into the intangibles and may be a source of debate when standardised. Moreover, one needs to question the relevance from standardisation of CSR reporting when the understanding and governance on this subject is still in a growth phase. We end by citing the global strategy framework on integration and responsiveness (originally proposed by CK Prahalad, 1975 and later applied by others) in visualising the cost advantages of global integration of certain tasks vis-a-vis the differentiation benefits of responding to national differences. The present body of knowledge, actions taken, governance and regulatory framework augur well to have integration as well as a distinct differentiation in all the aspects of business reporting.

A N I N d yA S E N G U P TA W O R K S WITH PRICEWATERHOUSECOOPERS’ S U S TA I N A B I L I T y PRACTICE. HIS INTERESTS ARE IN TRIPLE BOTTOM LINE (SUSTAINABILITy) REPORTING ANd SUSTAINABILITy PERFORMANCE MANAGEMENT. THE VIEWS ExPRESSEd ARE PERSONAL. ANINdyA CAN BE REACHEd AT ANINdyA3.SENGUPTA@IN.PWC.COM

in practice

REGULATIONS

demystiFying

Basel-iii

Will new capital norms aid banks to review their business models? What are banks and corporates expected to do in order to reduce risk and ensure smoother operations? Kuntal Sur

ollowing the meltdown in global financial system and the subsequent collapse of many financial institutions in western economies â&#x20AC;&#x201C; authorities and regulators of G-20 nations debated, evolved and published a revised version of Bank capital requirement guidelines, known as Basel III norms. Basel III norms are considered to be filling some of the gaps left by Basel II norms. The Basel II norms emphasised more on bank specific capital requirements based on internal data. The Basel III norms are targeted to capture more systemic risks along with some non-risk like leverage and liquidity ratios. Reserve Bank of India flagged off the implementation of the new norms, by publishing the draft guidelines in parts. Basel III norms can be broadly divided into three broad categories:

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in practice 1)Strengthening the capital framework 2)Supplementing the risk-based capital requirement with a leverage ratio 3)Introducing liquidity standards In India, RBI has set more demanding and tougher schedules for Basel III implementation compared to the original guidelines as per the current RBI draft. The original guidelines have set full implementation target as 2019; the RBI would like Indian banks to comply by 2017. The total regulatory requirement of capital (Tier I and Tier II) in India is 9 per cent, higher than the original norm of 8 per cent. Indian banks are expected to achieve a minimum Tier I leverage ratio of five per cent, higher than the three per cent proposed at the trial run by Basel Committee, between 2013 and 2017. When implemented in full on March 31, 2017, Indian banks will have minimum capital requirements of 11.5 per cent. Apart from the changes in the composition of capital, where more emphasis is on common equity capital (ie paid-up equity, free reserves etc), the Committee has introduced newer forms of capital buffers in the form of capital conservation buffer (CCB) and counter-cyclical capital, these are meant to reduce the systematic risks. CCB is designed to ensure that banks build up capital buffers during normal times (ie outside periods of stress) which can be drawn down as losses are incurred during a stressed period. If any bankâ&#x20AC;&#x2122;s common Tier I equity is less than eight per cent, then the bank will have constraint on distribution of capital by the way of dividends, sharebuy backs and discretionary bonuses. Further, a counter-cyclical capital buffer within a range of 0â&#x20AC;&#x201C;2.5 per cent of common equity capital will be implemented according to national circumstances. The purpose of counter-cyclical capital buffer is to achieve the broader macro-prudential goal of protecting the banking sector from periods of excess aggregate credit growth. RBI will be publishing the guidelines for countercyclical capital. The challenge lies in

defining the boom and bust periods keeping in mind the Indian conditions. New norms also prescribe an additional capital charge for Credit Value Adjustment (CVA), which captures risk of mark-to-market losses due to deterioration in the credit worthiness of a counter party. The CVA computation method prescribed by the RBI is same as that prescribed by the Basel committee. Banks are required to keep CVA only for over-the-counter derivatives and not for (a) transactions with a central counter party (CCP); and (b) securities financing transactions (eg Repo and Reverse-repo transactions, collateralised borrowing and lending and margin lending transactions).

sal in market conditions showed how quickly liquidity can evaporate and that illiquidity can last for an extended period of time. To overcome the same, Basel committee has prescribed two minimum global regulatory standards viz, Liquidity Coverage Ratio (over shorter termsâ&#x20AC;&#x201C;30 days) and Net Stable Funding Ratio (over one year horizon) as set out in the Basel III rules text will become binding from January 1, 2015 and January 1, 2018 respectively. To address the systemic risk interconnectedness, the Basel III norms provide capital incentives for banks to use central counter parties for over-the-counter derivatives; and higher capital requirements for complex securitisations and off-bal-

indian banks are expected to achieve a minimum tier i leverage ratio of five per cent, higher than the three per cent proposed at the trial run by Basel committee, between 2013 and 2017 Basel III has introduced a new nonrisk-based ratio as a supplement to the capital adequacy ratio, which acts as an additional safeguard against model risk, measurement error and excess leverage being created in the banking system. Leverage ratio has been defined as the ratio of Tier I capital to total assets. Basel committee has published a minimum ratio of three per cent in the trial period; however, RBI in its draft guidelines has prescribed a ratio of five per cent as the minimum standard in India. Final level will, however, be fixed after the parallel run period from January 1, 2013 to January 1, 2017 is observed. The recent global financial crisis reemphasised the importance of sound liquidity risk management. The rever-

ance sheet exposures; and higher capital requirements, using a 1.25 multiplier for all regulated financial institutions whose total assets are more than US$100 billion.

dOes Basel iii take Care OF all the lOOphOles? It is not clear how the new accord will address the fundamental problems with the risk-weighting approach. The weighting system continues to suffer from the assumption of portfolio invariance, or linear weighting that facilitates additivity in the model. The Liquidity Coverage Ratio has a bias towards government bonds, this process may work against lending to the private sector. While the norms favour central counMARCH 2012

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in practice

to address the systemic risk interconnectedness, the Basel iii norms provide capital incentives for banks to use central counter parties for over-the-counter derivatives ter parties, these central counterparties may themselves contribute towards systemic risk. Moreover defining ‘cyclicity’ in Indian conditions would be challenging, where the traditional measures like Credit Growth/GDP ratio may not provide a clear picture.

Challenges FOr indian Banks Basel III rules may not have the same impact on Indian banks, like their counterpart in Western economies. However, there will be areas where the banks may have to review their operational guidelines. For instance, reforms regarding the amount of core capital, leverage ratio and new liquidity standards may carry implications for some of the banks. The average capital level for Indian banks as on March 31, 2011 was adequate to meet minimum capital requirements. However, when projected over the next few years, continuous compliance with 46

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the new norms would require infusion of fresh additional capital. Public sector banks, who largely have to depend on the government to recapitalise the incremental capital requirements, would be more significantly impacted. The increased capital requirements and tightening of the eligible capital will add the costs of doing business. Unless the increased costs can be passed on to customers, banks could come under pressure to meet levels of profitability that equity investors currently expect. Rating agencies have also expressed concerns. Standard & Poor’s maintains that Basel III proposals could have unintended consequences such as constraining banks’ lending activities and their ability to trade on derivatives markets, thereby hampering the inter-bank market and encouraging banks to shift to short-term lending. The new capital requirements may open up new instruments for raising capital. All the perpetual debt instruments to be considered for Tier I capital

would require a compulsory convertible clause in case of a credit event. This is a new class of capital market instrument in India and a market for the same would need to be developed. There has been a debate on the computation of leverage ratio in India. Indian banks are mandated to hold 24 per cent of Net demand and time liabilities (NDTL) as SLR securities which are excluded from risk weighted assets computation since they carry zero risk weight. However, computation of leverage ratio will include SLR portfolio of banks in the on-balance sheet exposure, thereby pushing down the leverage ratio. Inclusion of off-balance sheets items in measuring total exposure will further put downward pressure on the leverage ratio. Looking at the benefits, introduction of leverage ratio could limit excessive credit growth and prevent downward pressure on asset prices in times of crisis when all the players in the market try to reduce leverage simultaneously. The other major challenge for Indian banks in implementing the liquidity standards will be to develop the capability to collect the relevant data accurately and granularly. Since Indian Banks already maintain mandatory SLR of 24 per cent and CRR of 5.5 per cent, it remains to be seen how RBI allows these liquid assets to be part of the liquidity estimations. If all these regulatory requirements add on to the cost of capital then the business could simply be switched into unregulated or more lightly regulated institutions such as hedge funds and finance companies. Given the above, banks need to review the product portfolio and delivery channels and focus on product and services with best return on regulatory capital with efficient delivery systems.

T H e AU T H o R I S DIReCToR WITH FINANCIAL RISk MANAGeMeNT ADVISoRy PRACTICe oF kPMG. THe VIeWS AND oPINIoNS ARe PeRSoNAL.

in practice

technology

ClOud TO

SuCCeSS Cloud has become inevitable for most organisations. In conversation with Yashvendra Singh, Suhas Kelkar, CTO of BMC Software shares his strategies about cloud planning for a successful implementation

Do you think most enterprises will end up adopting cloud in the next two to three years? There’s no doubt about it. If they haven’t already moved to the cloud, it’s time to consider doing so. The global cloud computing market is predicted to grow to $121 billion by 2015, up from $37.8 billion in 2010. Yet, while the pressure is on to join the massive rush to the cloud, doing so without thoughtful planning can create problems down the road. Cloud initiatives can be complex for almost any organisation, whether the initiative is to build a private, public, or hybrid cloud. While your initial goal may be to create a cloud architecture that meets immediate needs, the cloud you build today must also meet the business requirements of tomorrow. Careful planning is an absolute prerequisite for successful cloud operations. The adoption of cloud computing in India is driven by three major groups. The first is the government with its renewed focus on e-governance projects. An example is the Unique Identification Authority of India’s (UIDAI) UID project which aims to provide a biometric validated identity to every Indian. march 2012

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in practice The UID system will maintain upward of 1.2 billion biometric records and process each query in less than two seconds. Once implemented this will be the largest cloud-based service in the world and provide Identity as a Service. UID registrations require massive computing capabilities for deduplication and the demand is irregular in nature. This, along with the fact that identity needs to be authenticated as a service, makes this project an ideal candidate for cloud. The UID project is not the only cloud government project and there are many other examples where central and state governments are working to create cloud infrastructure that is highly utilised and optimised. The second group is the large SMB market. The SMBs do not need private clouds or even Infrastructure as a Service, but can reduce costs and manage growth better with the use of public clouds. The focus for this group will be the Software as a Service (SaaS) offerings. The large number of SMBs in fast-moving markets like India can make SaaS offerings economical for both the provider and the consumer.

now, SaaS adoption has also increased and now the next frontier is the cloud!

Where does one begin the cloud journey? The place to begin is with planning and design, which should focus on creating a cloud that meets the needs of your business. Cloud planning can be divided into three steps: • Cloud services design Designing internal and/or external cloud services, defining the service tiers and service levels, and creating a service ‘bill of materials’ • Cloud operations definition Defining the cloud reference architecture, designing performance and capacity planning, and defining operational compliance and security • Cloud process business planning Planning for demand and how you will manage cloud service providers, defining service costing and pricing, and ensuring regulatory compliance For a cloud initiative to be successful, it needs direction and purpose, or the scope of the project is likely to expand exponentially.

“if you try to do everything at once, you could find yourself ‘boiling the ocean’—taking on an initiative so broad scoped that it is impossible to complete” The third group is Enterprises. Enterprises worldwide are embracing cloud because they are well positioned to reap multiple benefits from it. India is one of the fastest-growing telecom markets and the agility offered by cloud environments is a major enabler for businesses. Many enterprises are in process of setting up private-hybrid clouds. For enterprises, virtualisation has been around for more than 10 years 48

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Let your business objectives provide that focus. Along the way, do not forget to interact with your line-ofbusiness customers, since they may have some specific requirements for a Software-as-a-Service (SaaS) focus in order to support their business that will drive a part of your strategy. Organisations begin cloud initiatives for many reasons. Perhaps you want to gain flexibility in the way you

service your virtualised infrastructure for quality and time-to-market. Perhaps you think that a cloud initiative can save your organisation money by reducing the number of people in the data centre, automating more functions, or reducing time for deployment. Or perhaps your CEO has simply mandated that the CTO showcase a variety of initiatives that leverage the cloud. If you try to do everything at once, you could find yourself ‘boiling the ocean’—taking on an initiative that is so broad in scope that it is impossible to complete. The result can be a project that will be massively expensive, take many years to deliver, and be almost impossible to support. Instead, prioritise what you need in terms of an iterative approach, and allocate adequate time for each stage of the project.

What is the best approach to successful cloud planning and design? Understanding, identifying and defining all the requirements for an optimal cloud environment are the fundamental cornerstones of a successful cloud strategy. As CIOs you need to focus on: • Identifying the cloud services you want to offer • Defining the integration between your cloud and the rest of IT • And make the tough, but necessary, business and financial choices to ensure a cloud that best serves business needs With cloud planning and design you should: • Ensure each service is designed and configured to meet the needs of your business • Effectively design your cloud’s ongoing management policies and capacity needs to increase administrative efficiency • Integrate key IT processes to support the cloud environment • Identify opportunities and vendors for public cloud resources

in practice

“the services you provide must be aligned with business expectations. cSi is how you recognise those gaps between what the end-user expects and what you deliver and enables you to adjust to meet those requirements”

What all problems can cloud solve for the enterprise? Cloud promises following major benefits: 1. Increasing business and IT agility 2. Moving to flexible cost structures 3. Gaining new efficiencies 4. Accelerating innovation 5. Transforming IT India Inc is growing really fast and many businesses are looking to respond a lot quicker to market needs. One shining example of this is the mobile industry which keeps adding millions of new users every month. How do you plan infrastructure for such explosive growth? Cloud can provide the answer that lets you scale easily. Cloud, if implemented correctly, can provide optimised use of your resources, thus gaining new efficiencies and also giving you flexible cost structures. In today’s tough economic conditions, it is vital that businesses keep innovating. Cloud gives them the ability to accelerate innovation. For start-ups it means focussing on your core idea without having to worry about elastic infrastructure needs of the future. For enterprises, it means reducing friction and gaining new efficiencies. Last but the most important benefit of all, cloud allows enterprises to transform the way they run IT. As I explained above, the cloud journey begins with

identifying and designing cloud services. This by itself is a step in the right direction. It forces enterprises to take a service catalogue-based approach to IT, just the way ITIL preaches it. This has huge implications in the long run and many times is often overlooked as a benefit of the cloud adoption.

What should CIOs include in their cloud planning checklist? As a CIO, you need to look at a couple of important considerations while looking at your overall cloud journey: Business Strategy: Why do you really need to build a cloud in the first place? The business should be driving the cloud strategy rather than the other way around. It is very important at this stage to work with the key business leaders whose business is going to be impacted directly with the implementation of your cloud strategy. Are you ready for the transition? This will include all the budgetary considerations including resources, budgets, technology partners, etc. What also needs to be looked at during this stage is whether you will be taking care of the operations for the cloud or will you be looking at a consulting or technology partner to help you manage your cloud from a long-term perspective.

Do you want to take the plunge right away? You should, at this stage look at whether you want to take the transition to cloud directly or would you rather evaluate it in a test-bed environment. There are a couple of businesses that first transition the non-critical business units to the cloud and then gradually go the full circle. Success criteria: Have a clear vision to achieve defined metrics to judge the success of your cloud initiative. This could mean looking at RoI from a real-time basis including financial and non-financial but business impacting goals. Continual Improvement: The last and one of the most important checklist parameters is looking at how to continually improve service levels to your customers (whether internal or external), and those who would be impacted directly by implementing your cloud strategy.This will ensure that your cloud strategy is mature and robust and has clear goals right from implementing to monitoring to improving the quality of service and eventually achieving RoI goals.

THIS ARTICLE WAS FIRST PUBLISHED In CTO FORUM. WWW.THECTOFORUM.COM march 2012

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Case

Study

Project MaP The challenge: To launch and market Chirag computers nationally and become financially successful TIMelIne: 2005-2010

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PeoPle Involved: Finance, marketing and allied team and the top management KeY cFo TaKeWaYS: Remain honest in your efforts; trust your team and they will deliver

Case study

Desi Boys: How

Chirag

Took on MNCs

When the Kolkata-based start-up RP Group launched Chirag computers in 2005, eyebrows were raised. It was a market dominated by global biggies after all. Convincing banks to lend, getting the big contracts and becoming a national player—all within five years—was no mean achievement. Debnath Pal, CFO-Group Finance & Accounts, recounts the exciting journey Dhiman ChaTTopaDhyay

SaTyam Roy ChowDhuRy

“I

n 2005, when we thought of launching our own computer brand, it was a bold decision. Many people thought it was a suicidal step, since the PC and the laptop market was dominated by global names like Dell, IBM, HP, Sony and others and even within India there were large domestic players like HCL and Zenith. Our first and biggest challenge was to prove to ourselves and to the rest of the world that we could create a space for ourselves in this crowded market,” recalls Debnath Pal, the affable CFO of Kolkata-based RP Group, as we sip

coffee at his office in the city’s central business district. Indeed, the challenge before Pal and the company’s top management was a mammoth one.

THE CHALLENGE “Whenever we approached a bank or an institutional lender, we faced questions about who we were and our track record. We were a relatively unknown entity. ‘Chirag’ or RP Group did not always ring a bell. It took a lot of preparation and acumen to convince the banks that we could achieve our ambitious goal of launching a mass market computer and market it across the country,” recalls Pal.

The company’s promoters Kaustuv Ray and Shivaji Panja took a bold decision at this stage—to focus on marketing and selling Chirag computers in Tier II and Tier III cities to begin with and that too, in West Bengal. The challenge was made difficult when, within months of Chirag’s launch in April 2006, the Central Government imposed an excise duty on branded PCs. “We did not have Cenvat credit available with us. So the entire excise duty was to be paid by us without any input benefit. We needed to find a way out of this rising cost scenario and fast,” recalls Panja. The third challenge at this stage was to take Chirag to the rest of India and march 2012

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Case study

today Chirag is the largest supplier of PCs to the Government of Kerala and has a bulk order from the Government of tamil Nadu to supply 75,000 laptops... they also supply PCs to most Psu banks in India to land large contracts. “We knew that unless we got a few early breakthroughs and contracts, it would be difficult to market the brand in a sector where MNCs rule,” says Pal.

HOW IT WAS TACKLED It was a combination of shrewd marketing and financial strategies and some luck that saw RP Group take Chirag to dizzying heights at a fast clip. “The initial funding was crucial and we were lucky that both our promoters enjoyed a good rapport with UCO bank (which is Kolkata-headquartered) since their days as computer traders. UCO bank gave us the initial Rs 30-crore loan. The trust they put in us convinced a few others and so we had the Rs 150-crore needed for the take-off,” says Pal. 52

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Smart strategy in fact helped them at every stage. For instance, to avoid the huge tax that the government imposed on branded PCs in 2006, the group opened a second plant (the first one is in Howrah, near Kolkata) in Himachal Pradesh—where they were exempt from paying taxes. “Initially we had to operate from rented premises in HP but in 2010, we opened our own plant in Parwanoo in HP which is now fully operational,” says Pal. Similarly, when Chirag was searching for large contracts, particularity from the PSUs and various government departments, they realised they did not have the bandwidth, the expertise or the network to reach the right offices. Instead of spending years building new connections and relationships, they got the recently retired ONGC Chairman

Subir Raha as a director on their board in 2009. His goodwill and the fact that he was backing the brand, convinced many government departments about the quality and standards that Chirag was claiming. “Soon we got a foothold in the PSUs and government departments,” says Pal. Still, the brand needed to go truly national to make an impact. Getting star cricketer Saurav Ganguly as brand ambassador gave them a huge fillip. But the big break came when the Director General of Supplies and Disposals signed a contract to buy Chirag computers for their entire office. “Once we got that, we knew we were in. Soon we were supplying computers and laptops to half a dozen government departments and our top line jumped threefold to Rs 1,800 crore. Today, we are present in over 20 states and have our own offices in each of them,” says Pal. Chirag is the largest supplier of PCs to the Government of Kerala and they now have a bulk order from the government of Tamil Nadu, to supply 75,000 laptops as part of the state government’s laptop distribution scheme, reveals Pal, adding “we also supply computers to almost all PSU banks in India.” Some of the steps, in hindsight, were bold ones but as Pal says, it is precisely because the promoters and the management showed this risk appetite, that today Chirag is the third largest PC brand in India and the group records a turnover of well over Rs 2,000 crore.

LESSONS Chirag’s rise from birth to adulthood has taken close to five years, and Pal says the years he has been associated with this amazing success story and the challenges that they overcame on the way, have taught him a lot. “My biggest lesson has been the realisation that if you are true and honest in your efforts, success will come,” he says. The other lesson that stands out? “You must rely on your people. If you trust them and show that trust, they will go that extra mile to deliver,” he says. Wise words indeed.

insight

MANAGING CHANGE

Are you reAdy for the erA of

‘big data’? Radical customisation, constant experimentation, and novel business models will be new hallmarks of competition as companies capture and analyse huge volumes of data. Here’s what you should know Brad Brown, michael chui, and James manyik

photos.com

he top marketing executive at a sizable US retailer recently found herself perplexed by the sales reports she was getting. A major competitor was steadily gaining market share across a range of profitable segments. Despite a counterpunch that combined online promotions with merchandising improvements, her company kept losing ground. When the executive convened a group of senior leaders to dig into the competitor’s practices, they found that the challenge ran deeper than they had imagined. The competitor had made massive investments in its ability to collect, integrate, and analyse data from each store and every sales unit and had used this ability to run myriad realworld experiments. At the same time, it had linked this information to supMARCH 2012

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insight

pliers’ databases, making it possible to adjust prices in real time, to reorder hot-selling items automatically, and to shift items from store to store easily. By constantly testing, bundling, synthesising, and making information instantly available across the organisation—from the store floor to the CFO’s office—the rival company had become a different, far nimbler type of business. What this executive team had witnessed first hand was the game changing effects of big data. Of course, data characterised the information age from the start. It underpins processes that manage employees; it helps to track purchases and sales; and it offers clues about how customers will behave. But over the last few years, the volume of data has exploded. In 15 of

the US economy’s 17 sectors, companies with more than 1,000 employees store, on average, over 235 TB of data—more data than is contained in the US Library of Congress. Reams of data still flow from financial transactions and customer interactions but also cascade in at unparalleled rates from new devices and multiple points along the value chain. Just think about what could be happening at your own company right now: sensors embedded in process machinery may be collecting operations data, while marketers scan social media or use location data from smartphones to understand teens’ buying quirks. Data exchanges may be networking your supply chain partners, and employees could be swapping best practices on corporate wikis. All of this

POINTS TO PONDER • In 15 of the US economy’s 17 sectors, companies with more than 1,000 employees store, on average, over 235 TB of data—more data than is contained in the US Library of Congress • As information becomes more readily accessible, it can threaten companies that rely on proprietary data as a competitive asset • Big data ushers in the possibility of a fundamentally different type of decision-making • Big data may ultimately be a key factor in how nations, not just companies, compete and prosper

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new information is laden with implications for leaders and their enterprises. Emerging academic research suggests that companies that use data and business analytics to guide decisionmaking are more productive and experience higher returns on equity than competitors that don’t. That’s consistent with research we’ve conducted showing that “networked organisations” can gain an edge by opening information conduits internally and by engaging customers and suppliers strategically through web-based exchanges of information. Over time, we believe big data may well become a new type of corporate asset that will cut across business units and function much as a powerful brand does, representing a key basis for competition. If that’s right, companies need to start thinking in earnest about whether they are organised to exploit big data’s potential and to manage the threats it can pose. Success will demand not only new skills but also new perspectives on how the era of big data could evolve— the widening circle of management practices it may affect and the foundation it represents for new, potentially disruptive business models.

Five big questiOns abOut big data In the remainder of this article, we outline important ways big data could change competition: by transforming processes, altering corporate ecosystems, and facilitating innovation. We’ve organised the discussion around five questions we think all senior executives should be asking themselves today. At the outset, we’ll acknowledge that these are still early days for big data, which is evolving as a business concept in tandem with the underlying technologies. Nonetheless, we can identify big data’s key elements. First, companies can now collect data across business units and, increasingly, even from partners and customers (some of this is truly big, some more

insight granular and complex). Second, a flexible infrastructure can integrate information and scale up effectively to meet the surge. Finally, experiments, algorithms, and analytics can make sense of all this information. We also can identify organisations that are making data a core element of strategy. In the discussion that follows and elsewhere in this issue, we have assembled case studies of early movers in the big data realm (see “Seizing the potential of ‘big data’” and the accompanying sidebar, “AstraZeneca’s ‘big data’ partnership,” on mckinseyquarterly.com). In addition, we’d suggest that executives look to history for clues about what’s coming next. Earlier waves of technology adoption, for example, show that productivity surges not only because companies adopt new technologies but also, more critically, because they can adapt their management practices and change their organisations to maximise the potential. We examined the possible impact of big data across a number of industries and found that while it will be important in every sector and function, some industries will realise benefits sooner because they are more ready to capitalise on data or have strong market incentives to do so (see box, “Parsing the benefits: Not all industries are created equal”). The era of big data also could yield new management principles. In the early days of professionalised corporate management, leaders discovered that minimum efficient scale was a key determinant of competitive success. Likewise, future competitive benefits may accrue to companies that can not only capture more and better data but also use that data effectively at scale. We hope that by reflecting on such issues and the five questions that follow, executives will be better able to recognise how big data could upend assumptions behind their strategies, as well as the speed and scope of the change that’s now under way.

A next-generation retailer will be able to track the behaviour of individual customers from internet click streams, update their preferences, and model their likely behaviour in real time

What happens in a world of radical transparency, with data widely available? As information becomes more readily accessible across sectors, it can threaten companies that have relied on proprietary data as a competitive asset. The real-estate industry, for example, trades on information asymmetries such as privileged access to transaction data and tightly held knowledge of the bid and ask behaviour of buyers. Both require significant expense and effort to acquire. In recent years, however, online specialists in real-estate data and analytics have started to bypass agents, permitting buyers and sellers to exchange perspectives on the value of properties and creating parallel sources for real estate data. Beyond real estate, cost and pricing data are becoming more accessible across a spectrum of industries. Another swipe at proprietary information is the assembly by some companies of readily available satellite imagery that, when processed and analysed, contains clues about competitors’ physical facilities. These satellite sleuths glean insights into expansion plans or business constraints as revealed by facility capacity, shipping movements, and the like. One big challenge is the fact that the mountains of data many companies are amassing often lurk in departmental “silos,” such as R&D, engineering, manufacturing, or service operations— impeding timely exploitation. Information hoarding within business units

also can be a problem: many financial institutions, for example, suffer from their own failure to share data among diverse lines of business, such as financial markets, money management, and lending. Often, that prevents these companies from forming a coherent view of individual customers or understanding links among financial markets. Some manufacturers are attempting to pry open these departmental enclaves: they are integrating data from multiple systems, inviting collaboration among formerly walled-off functional units, and even seeking information from external suppliers and customers to co-create products. In advanced-manufacturing sectors such as automotive, for example, suppliers from around the world make thousands of components. More integrated data platforms now allow companies and their supply chain partners to collaborate during the design phase—a crucial determinant of final manufacturing costs.

If you could test all of your decisions, how would that change the way you compete? Big data ushers in the possibility of a fundamentally different type of decision-making. Using controlled experiments, companies can test hypotheses and analyse results to guide investment decisions and operational changes. In effect, experimentation can help managers distinguish causation from mere correlation, thus reducing the variability of outcomes while improving finanMARCH 2012

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insight cial and product performance. Robust experimentation can take many forms. Leading online companies, for example, are continuous testers. In some cases, they allocate a set portion of their web page views to conduct experiments that reveal what factors drive higher user engagement or promote sales. Companies selling physical goods also use experiments to aid decisions, but big data can push this approach to a new level. McDonald’s, for example, has equipped some stores with devices that gather operational data as they track customer interactions, traffic in stores, and ordering patterns.

Researchers can model the impact of variations in menus, restaurant designs, and training, among other things, on productivity and sales. Where such controlled experiments aren’t feasible, companies can use “natural” experiments to identify the sources of variability in performance. One government organisation, for instance, collected data on multiple groups of employees doing similar work at different sites. Simply making the data available spurred lagging workers to improve their performance. Leading retailers, meanwhile, are monitoring the in-store movements of customers, as well as how they

interact with products. These retailers combine such rich data feeds with transaction records and conduct experiments to guide choices about which products to carry, where to place them, and how and when to adjust prices. Methods such as these helped one leading retailer to reduce the number of items it stocked by 17 per cent, while raising the mix of higher-margin private-label goods—with no loss of market share.

How would your business change if you used big data for widespread, real-time customisation? Customer-facing companies have long

Parsing the benefits: Not all industries are created equal virtually every sector, it also tilts the playing field, favouring some companies and industries,particularly in the early stages of adoption. To understand those dynamics, we examined 20 sectors in the US economy, sized their contributions to gDP, and developed two indexes that estimate each sector’s potential for value creation using big data, as well as the ease of capturing that value. As the accompanying sector map shows (exhibit), financial players get the highest marks for value creation opportunities. Many of these companies have invested deeply in IT and have large data pools to exploit. Information industries, not surprisingly, are also in this league. They are data intensive by nature, and they use that data innovatively to compete by adopting sophisticated analytic techniques. The public sector is the most fertile terrain for change. governments collect huge amounts of data, transact business with millions of citizens, and, more often than not, suffer from highly variable performance. While potential benefits are large, governments face steep barriers to making use of this trove: few managers are pushed to exploit the data they have, and govern56

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Q4 2011

ment departments often keep data in silos. as healthcare, manufacturing, and retailing. Big data sidebar on sector productivity Fragmented industry structures complicate The average company in them is relatively Exhibit 1 of 1 the value creation potential of sectors such small and can access only limited amounts

The ease of capturing big data’s value, and the magnitude of its potential, vary across sectors. Size of bubble indicates relative contribution to GDP

Example: US economy

High

Utilities Natural resources

Health care Computers and other electronic products providers Information

Manufacturing

Big data: ease-of-capture index1

EvEn AS BIg data changes the game for

Finance and insurance Transportation and warehousing Real estate Management of companies

Professional services Accommodation and food Construction

Administrative services Other services

Low

Wholesale trade

Retail trade Educational services

Government

Arts and entertainment Big data: value potential

High index1

1 For detailed explication of metrics, see appendix in McKinsey Global Institute full report Big data: The next frontier for

innovation, competition, and productivity, available free of charge online at mckinsey.com/mgi. Source: US Bureau of Labor Statistics; McKinsey Global Institute analysis

insight used data to segment and target customers. Big data permits a major step beyond what until recently was considered state of the art, by making real-time personalisation possible. A next-generation retailer will be able to track the behaviour of individual customers from internet click streams, update their preferences, and model their likely behaviour in real time. They will then be able to recognise when customers are nearing a purchase decision and nudge the transaction to completion by bundling preferred products, offered with reward programme savings. This real-time targeting, which would also leverage data

of data. Larger players, however, usually swim in bigger pools of data, which they can more readily use to create value. The US healthcare sector, for example, is dotted by many small companies and individual physicians’ practices. Large hospital chains, national insurers, and drug manufacturers, by contrast, stand to gain substantially through the pooling and more effective analysis of data. We expect this trend to intensify with changing regulatory and market conditions. In manufacturing, too, larger companies with access to much internal and market data will be able to mine new reservoirs of value. Smaller players are likely to benefit only if they discover innovative ways to share data or grow through industry consolidation. The same goes for retailing, where—despite a healthy strata of data-rich chains and big-box stores on the cutting edge of big data—most players are smaller, local businesses with a limited ability to gather and analyse information. A final note: this analysis is a snapshot in time for one large country. As companies and organisations sharpen their data skills, even low-ranking sectors (by our gauges of value potential and data capture),such as construction and education, could see their fortunes change.

from the retailer’s multitier membership rewards programme, will increase purchases of higher-margin products by its most valuable customers. Retailing is an obvious place for datadriven customisation because the volume and quality of data available from internet purchases, social-network conversations, and, more recently, locationspecific smartphone interactions have mushroomed. But other sectors, too, can benefit from new applications of data, along with the growing sophistication of analytical tools for dividing customers into more revealing microsegments. One personal-line insurer, for example, tailors insurance policies for each customer, using fine-grained, constantly updated profiles of customer risk, changes in wealth, home asset value, and other data inputs. Utilities that harvest and analyse data on customer segments can markedly change patterns of power usage. Finally, HR departments that more finely segment employees by task and performance are beginning to change work conditions and implement incentives that improve both satisfaction and productivity.

How can big data augment or even replace management? Big data expands the operational space for algorithms and machine mediated analysis. At some manufacturers, for example, algorithms analyse sensor data from production lines, creating self-regulating processes that cut waste, avoid costly (and sometimes dangerous) human interventions, and ultimately lift output. In advanced, “digital” oil fields, instruments constantly read data on wellhead conditions, pipelines, and mechanical systems. That information is analysed by clusters of computers, which feed their results to real-time operations centres that adjust oil flows to optimise production and minimise downtimes. One major oil company has cut operating and staffing costs by 10 to 25 per cent while increasing production by five per cent.

Products ranging from copiers to jet engines can now generate data streams that track their usage. Manufacturers can analyse the incoming data and, in some cases, automatically remedy software glitches or dispatch service representatives for repairs. Some enterprise computer hardware vendors are gathering and analysing such data to schedule preemptive repairs before failures disrupt customers’ operations. The data can also be used to implement product changes that prevent future problems or to provide customer use inputs that inform next generation offerings. Some retailers are also at the forefront of using automated big data analysis: they use “sentiment analysis” techniques to mine the huge streams of data now generated by consumers using various types of social media, gauge responses to new marketing campaigns in real time, and adjust strategies accordingly. Sometimes these methods cut weeks from the normal feedback and modification cycle. But retailers aren’t alone. One global beverage company integrates daily weather forecast data from an outside partner into its demand and inventoryplanning processes. By analysing three data points—temperatures, rainfall levels, and the number of hours of sunshine on a given day—the company cut its inventory levels while improving its forecasting accuracy by about five per cent in a key European market. The bottom line is improved performance, better risk management, and the ability to unearth insights that would otherwise remain hidden. As the price of sensors, communications devices, and analytic software continues to fall, more and more companies will be joining this managerial revolution.

Could you create a new business model based on data? Big data is spawning new categories of companies that embrace information-driven business models. Many of these businesses play interMARCH 2012

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insight mediary roles in value chains where they find themselves generating valuable “exhaust data” produced by business transactions. One transport company, for example, recognised that in the course of doing business, it was collecting vast amounts of information on global product shipments. Sensing opportunity, it created a unit that sells the data to supplement business and economic forecasts. Another global company learned so much from analysing its own data as part of a manufacturing turnaround that it decided to create a business to do similar work for other firms. Now the company aggregates shop floor and supply chain data for a number of manufacturing customers and sells software tools to improve their performance. This service business now outperforms the company’s manufacturing one. Big data also is turbocharging the ranks of data aggregators, which combine and analyse information from multiple sources to generate insights for clients. In healthcare, for example, a number of new entrants are integrating clinical, payment, public-health, and behavioural data to develop more robust illness profiles that help clients manage costs and improve treatments. And with pricing data proliferating on the web and elsewhere, entrepreneurs are offering price comparison services that automatically compile information across millions of products. Such comparisons can be a disruptive force from a retailer’s perspective but have created substantial value for consumers. Studies show that those who use the services save an average of 10 per cent—a sizable shift in value.

COnFrOnting COmpliCatiOns Up to this point, we have emphasised the strategic opportunities big data presents, but leaders must also consider a set of complications. Talent is one of them. In the United States alone, our research shows, the demand for people 58

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with the deep analytical skills in big data (including machine learning and advanced statistical analysis) could outstrip current projections of supply by 50 to 60 per cent. By 2018, as many as 140,000 to 190,000 additional specialists may be required. Also needed: an additional 1.5 million managers and analysts with a sharp understanding of how big data can be applied. Companies must step up their recruitment and retention programmes, while making substantial investments in the education and training of key data personnel. The greater access to personal information that big data often demands will place a spotlight on another tension, between privacy and convenience. Our research, for example,

Although corporate leaders will focus most of their attention on big data’s implications for their own organisations, the mosaic of company level opportunities we have surveyed also has broader economic implications. In healthcare, government services, retailing, and manufacturing, our research suggests, big data could improve productivity by 0.5 to 1 per cent annually. In these sectors globally, it could produce hundreds of billions of dollars and euros in new value. In fact, big data may ultimately be a key factor in how nations, not just companies, compete and prosper. Certainly, these techniques offer glimmers of hope to a global economy struggling to find a path toward more rapid growth.

One big challenge is that the mountains of data many companies amass, often lurk in departmental “silos”, such as R&D, engineering & manufacturing — impeding timely exploitation shows that consumers capture a large part of the economic surplus that big data generates: lower prices, a better alignment of products with consumer needs, and lifestyle improvements that range from better health to more fluid social interactions. As a larger amount of data on the buying preferences, health, and finances of individuals is collected, however, privacy concerns will grow. That’s true for data security as well. The trends we’ve described often go hand in hand with more open access to information, new devices for gathering it, and cloud computing to support big data’s weighty storage and analytical needs. The implication is that IT architectures will become more integrated and outward facing and will pose greater risks to data security and intellectual property.

Through investments and forwardlooking policies, company leaders and their counterparts in government can capitalise on big data instead of being blindsided by it. BRAD BROWN IS A DIRECTOR IN MCKINSEy’S NEW yORK OFFICE; MICHAEL CHUI IS A SENIOR FELLOW WITH THE MCKINSEy GLOBAL INSTITUTE (MGI) AND IS BASED IN THE SAN FRANCISCO OFFICE; JAMES MANyIKA IS A DIRECTOR OF MGI AND A DIRECTOR IN THE SAN FRANCISCO OFFICE. THIS ARTICLE WAS ORIGINALLy PUBLISHED IN MCKINSEy QUARTERLy, WWW.MCKINSEyQUARTERLy. COM. COPyRIGHT (C) 2011 MCKINSEy & COMPANy. ALL RIGHTS RESERvED. REPRINTED By PERMISSION.

leader’s

world

Think before you speak! Here are 11 of the biggest mistakes speakers make—and how to avoid them DaviD Lim As A move away from my past topics on leadership and negotiation skills, this feature will focus on an often-feared and poorly managed skill—presentation skills. Do you want to be motivated to give a great presentation when asked to deliver one? Read on, and avoid these common mistakes that even experienced speakers make, and make your presentation dynamite.

1) LaCK OF FOCUS 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

In the rush of things, too many speakers feel they need to cram in as much information as possible in a presentation. The consequences? Lack of focus, or an information overload. For a typical 30-minute presentation, you should be focussed on making at the most three to four points. The rest of the time is spent reinforcing the points with relevant stories, pictures, videos and examples. Remember, that not everyone absorbs information the same way. Do you prefer your audience to be squinting at a text-dense PowerPoint slide, or listening to your message/point?

2) diSTribUTinG a HandOUT aLOnGwiTH YOUr PrESEnTaTiOn shoot yourself the next time you present more than a few lines of text on PowerPoint. If you mUsT include bags of information, dense graphs et al—create a totally separate handout that supports your presentation. I see this mistake many times each year as speakers struggle to help an audience make sense of a dense spreadmarch 2012

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leader’s world sheet slide when they should be zooming in on only the most relevant information.

3) bEinG a TaLKinG HEad, Or a ZOO TiGEr speakers often feel ‘safe’ anchored to a podium, when in fact, they could be enhancing their presentation by putting their whole body into the presentation, using their body language, gestures, postures and body ‘shapes’ to drive home their messages. Plan to step away from the podium and present on stage in a relaxed collegial manner. Depending on the height of the platform and podium, some speakers become ‘talking heads’ with only their heads or upper shoulders visible to an audience. The other extreme is that when they move away from the podium, they pace up and down the stage; or move aimlessly on the stage, fretting away nervous energy, very much like a caged tiger in a zoo. stand still when making a key point, and move only if you need to—purposefully. strong positions of influence are right-front or centre-front of the stage.

“Stand still when making a key point, and move only if you need to—purposefully. Strong positions of influence are right-front or centre-front of the stage”

4) TELLinG irrELEVanT JOKES I once listened to a speaker sprinkle his message liberally with jokes and one-liners for 20 minutes. It only served to confuse me about the point of his message, as none of the humour was linked to the message. Learning point: Choose humour wisely, and ensure it enforces or supports a point you are making.

5) wEaK OPEnErS and CLOSErS When I was much younger, I loved to learn and demonstrate magic tricks. one of the key things about pulling off

Points to Ponder • Shoot yourself the next time you present more than a few lines of text on PowerPoint. • Open with a powerful story, quote or define what you hope to achieve in the presentation. • When preparing for a speech of 30 minutes, always prepare for 25 minutes of content.

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a great magic show applies to you as well if you are doing a spot of public speaking, and that is: 1) first, grab the audience’s attention, 2) add super-attention, 3) leave them wanting more. If your opening is weak, you will fail to sustain the audience’s interest. open with a powerful story, quote or define what you hope to achieve in the presentation. These are less of a cliche than a tired joke. Finish or close with a story, metaphor that honours the content of your presentation, or call for action. This message will be ‘sticky’ with the audience.

6) TOO ManY POinTS It’s tempting to pack the presentation with lots of content to deliver ‘value’. The real test of value is what the audience remembers and wants to copy/do to help their condition in the next month or so. As such, focussing on just three to four points, supported by evidence, stories, case studies—is a much better option than covering too much ground and overwhelming your audience. It also allows you to shorten stories, drop supporting anecdotes if you are running out of time without sacrificing your key points ( see point below on RUsHING).

leader’s world 7) rUSHinG

10) wHEn in dOUbT, LESS iS MOrE

If you have rehearsed your presentation, you will realise that some parts of your presentation need to be dropped in order to have quality ( vs quantity ). You choose which bits need to be left out. The key is pacing and rehearsing before the big event.

When preparing for a speech of 30 minutes, always prepare for 25 minutes of content. You will invariably find you may want to repeat a statement or field a question from someone who can’t wait until the Q&A session. You will feel relaxed and professional in your delivery.

8) FaiLinG TO STaY in THE rEaL wOrLd Acknowledge noises, eg a beeper that goes off, a crash of breaking plates—in your auditorium. To rattle on without doing so makes the audience feel uncomfortable, as well as wondering why the speaker didn’t react to that awful noise from the back. With practice you can also learn how to use such external interference to your advantage and boost your presentation quality.

9) nOT bEinG a MEMbEr OF THE aUdiEnCE At every stage of your presentation, consider what the audience is going through—are they engaged? Bored? Are they leaning forward slightly to hear your points, nodding every now and then? A great speaker learns how to tune into the audience and adjust his/her speaking pace, volume, even content, segues and body language.

11) iT’S a Pain Refrain your thoughts from telling you that your presentation is a chore or a pain. Take time to enjoy sharing your information and interacting with the audience. If you think of it as a pain, your emotions will show, and the audience won’t like it. Giving yourself permission to have a bit of fun and enjoyment makes you a better presenter. I guarantee it.

DAvID LIm Is A LeADeRsHIP AND NeGoTIATIoN CoACH. THIs FeATURe Is AN exTRACT FRom HIs LATesT Book HoW LeADeRs LeAD: 71 LessoNs IN LeAsING YoURseLF AND oTHeRs. emAIL: DAvID@ eveResTmoTIvATIoN.Com

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Lounge

03.12

CFO

Experience the new Skoda Rapid this March as we test drive it for you on the MumbaiPune Expressway. Need a break? Spend a relaxed weekend at a luxury resort in the midst of wine city of Nashik. Also this month: Cafe Di Bella, the Australian cafe chain arrives in Mumbai in style!

SKODA RAPID

Refined and Rapid

The Skoda Rapid is an exponent of good engineering, tasteful design and practical power train technology Amit Chhangani Small iSn’t the only buzzword for the Indian car industry anymore. Rising aspirations of car buyers have kicked up the volumes reasonably in Rs 10 lakh category as well. This segment, once dominated by the Honda City, now has many players, including the

VW Vento and Hyundai Verna. Skoda, which is a VW Group company, recently entered the segment with Rapid. We drove the car around Mumbai and Maharashtra for a good 500 km, and here’s what we thought about it.

DID YOU

KNOW?

in December 1895, mechanic Václav laurin and bookseller Václav Klement, started making bicycles. in 1899, they launched motorcycles, and soon came up with cars. in 1907 they renamed their company SKODa!

CFO LOUNgE

ON WheelS design Rapid looks like a study in good proportions, especially when you look at it in profile. The length, the height, the overhangs, the sculpted wheel arches and the tight shoulder line—Rapid has a sophisticated design. It’s most definitely one of the more tastefully crafted automobiles in its segment.

A 1.6 litre powerful engine, Ample spAce in the reAr seAts And A lArge boot spAce mAke rApid An ideAl fAmily cAr to own

Engine and Performance The 1.6 litre TDI mill powering the Rapid produces a healthy 106 PS at 4400 rpm, and 250 Nm of peak torque at a wide, and lowly rev band of 1500-2500 rpm. All that torque at such low revolutions with short ratios in the lower gears makes Rapid roll by itself without any accelerator inputs at low speeds. That 1.6 litre unit is a capable motor and lends the Rapid enough shove to be termed a capable performer.

SKODA RAPID Price:

`8.04 lakhs

(ex showroom Delhi)

On the Move The height adjustable driver’s seat, and the tilt + telescopically adjustable steering allow you to find a good riving position rather quickly. As you grab that premium looking four spoke Skoda steering wheel, you do, for once feel that it’s lighter to operate than on some other Skoda cars. I drove the Rapid on a Mumbai-Pune round trip and the car pleased me throughout the journey. An impressive aspect of the car was its cabin insulation. There was hardly any wind or road noise within the cabin, even as I made a dash back home in the evening.

Features & Equipment Rapid presented itself as a neat, elegant car as I opened its door and climbed in. Its cabin isn’t as flashy and instantly appealing as that of, say Verna, but it does have a whiff of understated confidence about it. Features within the cabin are ample, if not class leading. You have a tilt-tele-

Mileage:

14 kmpl (average)

Torque:

250 Nm

Engine:

1.6 Litre

Speed:

160+ km/h

positives • Elegant, classy looks • Frugal, yet potent engine • Priced well negAtives • Clutch is heavy for bumper to bumper driving • Spares and service is relatively expensive verdict One of the best cars in the segment in terms of value for money

scopic steering adjustment, Auto A/C, Anti-glare RVM, and a trip computer with a sea of information including average consumption and distance to dry. Another nifty feature is the passenger side seat adjustment from the backbench. You can just operate the lever behind the front passenger’s seat from the backbench, push the seat ahead and extend your knee-room. Add to it the low NVH, an absorbent suspension and a capacious 460 litre boot space and you have a comfortable sedan at hand.

Fuel Efficiency The 1.6 TDi Elegance that I drove over a period of two days returned me an average fuel efficiency of about 14 kmpl.

Bottomline At Rs 8.04 lakh, the rapid is one of the cheapest diesel cars in its segment, more expensive than Nissan Sunny by about Rs 2,000. All in all, Rapid is an impressive product. It may not be overly flamboyant, but it has an air of confidence about it. march 2012

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Gizmos new launches

Lg Optimus 3D Max

Hot Spot

Sony BRaVia KdL 55HX925 one of the best 55-inch smart TVs in the market Nimish Sawant In the Sony BRAVIA KDL 55HX925 we get to see a much improved smart TV system. It’s a 55-inch 3D LED backlit LCD TV having a native resolution of 1080p. The stand that it comes with has to be screwed in to the base of the TV, so you will need some help in setting up the TV. Once screwed in, the sheer size of the TV commands respect. The glossy glass surface is quite reflective and when the TV is turned-off, it seems like a mirror. There are a range of modes to play around with. By default in most of the modes, MotionFlow is activated. MotionFlow gives a sort of smoothness to the video by generating frames in between the actual frames, to give a more fluid video. We liked it in sports clips, as it succeeds in reducing judder due to fast movements. But while watching movies, we disabled MotionFlow as it tends to add an unreal element to the feel of the movie. The TV sports the Sony XMB user interface, which is commonly seen in 64

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most Sony products such as the PS3 or Blu-ray players. Video quality was top-notch. Colours were rendered very well and skin tones looked natural. In a dark room, you will notice that the blacks are quite deep, in fact, if the dark black part is on the edges, it tends to merge with the bezel. This is one of the few TVs that supports local LED dimming feature, which tends to dim backlit LEDs according to the scene when activated. Bravia Internet Video connects you to a host of streaming video services including Dailymotion, Hungama, Star Player, among others. Recommended for those looking at a lifestyle product with the performance chops. SpecificatiOnS: Screen size: 55-inch; Video processor: Xreality pro engine; 3d Support: yes; Audio output power: 30w (10wx3); HdMI port: 4; USb port: 2; brAVIA Sync: yes; wiFi: Integrated; backlight: Led backlit LCd; Native resolution: 1080p price: `2,59,900

LG announced optimus 3d’s successor—the optimus 3d Max. It features a TI oMAp 4430 dual-core processor clocked at 1.2 GHz with a modest 4.3-inch wVGA 3d IpS display. It features a 3d converter, which converts 2d applications to 3d. The pricing is still under wraps

playstation Vita pS Vita doesn’t warrant any introduction. It is perhaps the most powerful handheld gaming device available in the market right now. powered by an ArM Cortex A9 quad-core chip and SGX543Mp4+ GpU, and allowing nearly every form of input. playStation Vita sells for s `19,990 on Flipkart

Samsung galaxy tab 680

This 7.7inch tab was announced last September at at IFA in berlin. It has a Super AMoLed plus display, is powered by 1.4 GHz dual core processor plus 1 Gb of rAM and runs on Android Honeycomb. The Samsung Galaxy Tab 680 is now available on Flipkart for `33,571 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 & eATIng PlAce

a welcome aussie invasion

Di Bella Coffee, Australia’s award-winning coffee shop has opened four outlets in Mumbai. We hope it goes pan-India soon! DI BELLA Dhiman Chattopadhyay COFFEE, MUMBAI

Looking for a place to meet a client? Need an ideal spot to set up a quick business meeting? Or simply want to check out how many varieties of tea, coffee or chocolate shakes exist in the world? Whatever be the reason, Di Bella could be your next

Location: Near Hinduja Hospital, Cadel Road, Mahim. Other locations: Bandra, BKC. More soon SEatinG: 60 covers FooD: Over 100 beverages and snacks to choose from USP: Free WiFi upon confirming an order on the tablet; special mugs for each drink unique interiors

de bella serves the most amazing coffee and desserts, like the fondue (above). their breads are great as well

stop. And no we are not plugging for these guys. It’s just that we walked in to one of the newest outlets of this award winning coffee shop of Australian origin, and came out feeling rather happy and content, not to mention quite blown away by the number of ‘cool’ things the place offered. Well OK, ‘clicking and choosing’ your entire order on a Samsung tablet isn’t that unique any more. But 20 minutes of free WiFi on the tablet once you submit your order? Yes! Now we have your attention don’t we? That’s just the beginning though. Di Bella boasts of a menu that includes over a dozen different kinds of tea and coffee from various nations. The chocolate shakes are yummy too and each beverage comes in a different kind of cup/mug. So while the cafe latte comes with a burning candle in the holder below it, to keep it warm, the shakes come in cute cuddly cups that you have to, well ‘cuddle’ to drink. The fondue arrived in multiple layers and was a sight to behold. We also ordered Bar-b-Que chicken croissants and a Mediterranean salad where the portion served was good enough for two. The desserts—Belgian waffle and black forest (there’s plenty more variety) were sinful to say the least. In between the bites and gulps, we managed to squeeze in not one but two meetings and thanks to the well spread out tables (the cafe can take in 60 covers) there was no risk of anyone overhearing the subject of our conversations. Great food and desserts as well as beverages and a place that lets you surf the internet while you wait for your order to arrive... What more could you possibly want? We hope Di Bella spreads its wings beyond Mumbai soon. Go check it out now. march 2012

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travel

nASHIK, MAHARASHTRA

Mix Heritage with pleasure Nashik is a heady concoction of spirituality, ancient architecture and vast expanses of vineyards—all at a stone’s throw from a bustling 21st century city Anil Mulchandani Nashik is a city with many avatars—its location near the source of the Godavari, its mythical association with Lord Rama who is believed to have spent years in exile here and the presence of the Jyotirlingam in the Trimbakeshwar Temple, make it one of India’s most traditional pilgrimage centres. Yet this is also a modern and affluent city surrounded by some of India’s most productive agricultural areas, auto, pharmaceutical and engineering companies, an increasing number of malls, colleges, international schools, and wholesale markets and warehouses for vegetables and fruits. It is as closely associated with the Buddhist caves hewn out of rocks between the first century BC and third century AD, as it is with parks, gardens and modern memorials. Today, however, one of Nashik’s prime draws is its vineyards and wineries that produce most of India’s best known wine brands. Wine tourism has arrived in Nashik, and like France, California or South Australia, here too you can visit vineyards, watch the processes of wine-making, taste various wines and buy the bottles you like, and maybe even stay a night or two in the vineyard. On a fairly warm evening in March we arrived at Nashik and drove to the Gateway Ambad, which is set on an elevation with a sprawling garden and a view of Nashik hemmed in by the Western Ghats. For dinner, we requested a seat on a balcony looking out at the views and started out with a glass of Nashik wine with grilled prawns, and then went on to try the more spicy specialties of the Khandesh region—a spicy Khandeshi mutton, Shevanchi bhaji, Vangyache bharit 66

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and Khandeshi dal, with bhakri, and chutneys strong on garlic or red chillies. Next morning, we left early for Niphad with its natural attractions, vineyards and lush agricultural fields. We started out with the Nandur Madhmeshwar Sanctuary. This wetland sanctuary was created by dams and barrages

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travel Left and beLow: nashik, a city of tempLes and ancient monuments, is best known as india’s Largest wine producing region. a waLk in the vineyards is a must when in nashik

DINeSh ShuklA

beLow Left: apart from the vineyards, be sure to visit the nandur sanctuary, one of the best bird sancuatries in india. the city is aLso big on reLigious tourism

that is an ideal bird habitat. We enjoyed good views of spoonbills, ibises, pratincoles, wading birds and kingfishers. Wandering along the grassy shores, we saw mongoose trying to catch freshwater crabs or fish for their morning meal. There was even a jackal though we did not get to see the elusive fishing cat. From here, we drove to the vineyards to watch the harvest activities. Here, we were shown various grape growing area—one field specialising in exports, another producing grapes for the domestic market, and a third devoted to wine grapes. We watched the harvest of table grapes for the export market and then visited Vintage

Wines where we had fixed an appointment with Yatin Patil, the owner. The smart winery building rises up near the vineyards where they grow Chardonnay, Sauvignon Blanc, Chenin Blanc and other wine-making grapes. His team at Rivielo showed us the laboratory, pressing room, bottling plant and temperature controlled storage areas. They also showed us the European oak barrels where they mature their best wines. We tasted their wines, including the special Dessert Wine, and selected a bottle of Reveilo Reserve Shiraz to take back with us. Nashik is about three hours drive from Mumbai or Pune, and on the way from either you can visit the vineyards. Sula’s cottage, Beyond, is an excellent place to stay and experience life in the vineyards. Chateau Indage’s Tiger Hill Vineyards Resort is another place to stay. Zampa, Indus and Chateau D’Ori are among the other vineyards worth visiting. A number of wine manufacturers have sales depots in and around the city. The Gangapur Dam area is specially popular among tourists who visit the natural and religious attractions here and want to buy wines to take back with them.

getting there: Nashik has an airport but flights are infrequent. The best bet is to drive down from Mumbai (172 km). A smooth three hour drive takes you to the vineyard countryside pLaces to stay: A great way to spend your time in Nashik is to book a room at one of the vineyard resorts. Sula has the magnificient Beyond and Chateau Indage has an equally lovely Tiger Hill Resort. There are several other luxury hotels in Nashik March 20121

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not just

the last word

Can we learn from the recent elections? A ll gains and losses in politics are temporary. And therefore, how much time and emotion should one invest in the outcome of the recently concluded elections? I don’t know the answer, but feel grateful that the ‘curse of the status quo’ has lifted, even if for a short while. But more importantly, some of the lessons that can be learnt are more long-lasting than the results, and are applicable beyond politics. The elections in five states had been planned meticulously and were being watched closely for several reasons. Of course, because they had implications for the Government at the Centre and for several important political parties, but also because they were critical as a first report card on Rahul Gandhi’s performance and his impact on the revival of the Congress. In a sense, they were being viewed as a bellwether for the impending General Elections in 2014. On counting day, many expectations remained unmet. Of political parties, analysts, pollsters and the electorate! And without going into the details of the overall results, which we are all familiar with by now, here are some broad observations in no particular order of importance: • Maturing target audience. Voters (read consumers) are no longer impulsive in their decisions. There is a certain maturity in the electorate and

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hollow promises don’t seem to work anymore. These elections were won by parties that didn’t promise free TV sets and ration, and those that promised the moon (yet again) are watching from the ringside. • Delivery bias. There is a growth and development bias in the minds of people and therefore delivery is more important than ever before. Actions have truly begun to speak far louder than words. • The era of megalomania is losing ground. Perhaps it is time for Level 5 leadership even in politics. Jim Collins in his book ‘Good to Great’ describes it as a ‘paradoxical combination of personal humility plus professional will’. Examples from the recent elections abound. • Legacy is ‘undependable’. It is a new and unpredictable world and you can be reasonably sure that what worked in the

past will most likely not work for you in the future. It is important to constantly understand the context, realign and reinvent yourself to win. • Tough to live off what your dad (or mom) created. Even if it works in the short term, it most definitely won’t in the medium or long-term. You have to demonstrate what ‘brand you’ brings to the table. • Patterns are becoming difficult to predict. Whether around antiincumbency or community-led voting, unpredictability is the new normal and therefore you have to do your best each time, every time. • And finally, women are beginning to matter much more. So wake up and pay attention! (Women voters—for the first time in India’s election history— outnumbered the men.) It is now widely recognised that women impact a far greater number of purchase decisions too and therefore the world of salesmen can’t ignore their needs any longer. I was struck by how true some of this is for the enterprises and business we run. What do you think? My very best as always. Anuradha Das Mathur, Publisher CFO India

GE Capital

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