CFO India - June 2011 by Bhupinder Sharma

SURVEY: TECH THAT CFOS LOVE & HATE

INSIGHT: WHEN BIG M&As PAY OFF

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CAR: RENAULT FLUENCE THE FRENCH REVOLUTION p. 50

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SURVEY: TECH THAT CFOS LOVE & HATE 18 | INSIGHT: WHEN BIG M&AS PAY OFF 30 | CAR: RENAULT FLUENCE THE FRENCH REVOLUTION P. 50

GET TECH, GO TECHNOLOGIES CFOs MUST KNOW Experts talk about the relavance of technology for CFOs and applications they must learn even as CFOs confess to tech tools they love, hate and fear. Pg 12

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INSIDE

12 COVER STORY TECHNOLOGY SPECIAL 18 THE GOOD, THE BAD AND THE DESIRABLE A CFO India survey asks CFOs about tech tools they love, hate or want, from a finance perspective.

22 KNOW IT! CFOs must take the tech bull by the horn and keep abreast of IT advancements, says AMIT KUMAR, the CEO of Kasper Consulting.

INSIGHT

GET TECH, GO!

28 WHEN BIG ACQUISITIONS PAY OFF

Today’s CFOs need to understand technology if they are to have the last laugh. And they need to ask the right questions.

Some companies are quietly creating value without making the headlines. Here is how they do it.

CFO PROFILE Steering a billion dollar dream

Vardhan Dharkar, the CFO of KEC International talks about how the infrastructure arm of the RPG Group became a ` 4500 crore company.

36 PLAN, DO, CHECK, ACT The past few years have caused havoc in the US market and the automobile industry has suffered considerably. Toyota Financial Services CFO Chris Ballinger talks about what Toyota is doing differently.

I THINK 10 AJAY SETH The CFO of Maruti Suzuki India says new regulations and risk management strategies need his attention now SURVEY: CFOS LOVETECH THAT & HATE

INSIGHT: BIG M&As WHEN PAY OFF

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CAR: RENAULT FLUENCE THE FRENCH REVOLUTION

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47 CREATING A WINNING CULTURE There are many qualities and skills that a leader needs, to become a great leader, says David Lim

CFO LOUNGE 50 ON WHEELS | RENAULT FLUENCE 54 TRAVEL | KURSEONG

IN PRACTICE

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LEADER’S WORLD

52 BOOKS | THE BUCK STOPS HERE

REGULARS 04 LETTERS TO THE EDITOR 06 O-ZONE 56 NOT JUST THE LAST WORLD

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cfo-india.in SURVEY: TECH THAT CFOS LOVE

ILLUSTRATION & COVER DESIGN BINESH SREEDHARAN

& HATE 18 | INSIGHT: WHEN BIG M&AS PAY OFF 30 | CAR: RENAULT FLUENCE THE FRENCH REVOLUTION P. 50

GET TECH , GO TECHNOLO Experts talk about the GIES CFOs they must

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relavance learn even of technology for CFOs as love, hateCFOs confess to tech and applications and fear. tools they Pg 12

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FROM THE

MANAGING EDITOR

DHIMAN CHATTOPADHYAY dhiman.c@9dot9.in

MANAGING DIRECTOR: Dr. Pramath Raj Sinha

A Tech Check IT IS ALWAYS tough to get people to admit their shortcomings, more so if they are people in positions of power. So when we decided to bring out a special issue on technology for CFOs, we were not very sure if we could get the Chief Financial Officers to talk openly about their fear of technology, about gadgets or tech tools that confused them as well as ones that made their job easier. But when we played the old ‘truth or dare’ game with about 50 CFOs, asking them to name five technologies that had them confused, almost everyone answered candidly. Most admitted that the concept of cloud computing was still unclear to them, while others spoke of mobile phone applications and online payment systems that they looked at with suspicion and uncertainty. Some of them also came up with interesting ideas when we asked them about their technology wish-list. The CFO of an infrastructure firm for instance wished he could do video conferencing on his desktop, while another hoped for a mobile phone application that would store many gigabytes of data. Many said they were willing to learn more about the cloud from their CIOs or through workshops, because they believed the technology would ultimately help run their business more efficiently. We also met CIOs and other IT experts to find out what CFOs need to know about technology and the questions they should ask their CIOs. I hope the cover package (Get Tech, Go! Page 12) will answer some questions you have about technology and inspire you to ask a few more. In other sections, we have Vardhan Dharkar, the jovial CFO of KEC International, the ` 4500 crore infrastructure arm of the RPG Group, talking about the recent success of the company and important business lessons he picked in his two-decade-long career. For CFOs of Indian companies planning an M&A deal, the McKinsey Quarterly article on how to broker a successful M&A deal should prove to be useful. And don’t forget to check out the Lounge section if you are planning a holiday, thinking of buying a new phone or another car.

EDITORIAL EDITOR: Anuradha Das Mathur MANAGING EDITOR: Dhiman Chattopadhyay CONTRIBUTING EDITOR: Bennett Voyles DESIGN SENIOR CREATIVE DIRECTOR: Jayan K Narayanan ART DIRECTOR: Binesh Sreedharan ASSOCIATE ART DIRECTOR: Anil VK SENIOR VISUALISER: PC Anoop SENIOR DESIGNERS: Prasanth TR, Anil T, Joffy Jose, Anoop Verma, NV Baiju, Vinod Shinde & Chander Dange DESIGNER: Sristi Maurya, Suneesh K, Shigil N & Charu Dwivedi CHIEF PHOTOGRAPHER: Subhojit Paul PHOTOGRAPHER: Jiten Gandhi THE CFO INSTITUTE EXECUTIVE DIRECTOR: Deepak Garg NATIONAL HEAD: Bindu Krishna ASSISTANT BRAND MANAGER: Nisha Anand SENIOR MANAGER: Shreya Pilani ASSOCIATE: Deepika Sharma SALES & MARKETING ASSISTANT REGIONAL MANAGER (SALES): Rajesh Kandari (+919811140424) NATIONAL MANAGER (EVENTS & SPECIAL PROJECTS): Mahantesh Godi (+91-9680436623) ASSISTANT BRAND MANAGER: Arpita Ganguli CO-ORDINATOR (AD SALES, MIS, SCHEDULING): Aatish Mohite 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 M Hiremath ASSISTANT PRODUCTION MANAGER: Vilas Mhatre LOGISTICS: MP Singh, Mohamed Ansari, Shashi Shekhar Singh 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 Silver Point Press Pvt Ltd., A-403, TTC Ind. Area, Near Anthony Motors, Mahape, Navi Mumbai-400701, District Thane,

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JUNE 2011

CFO INDIA

LETTERS

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JUNE 2011

A Suggestion I found the CFO India May issue (Game Changers) quite useful. I also enjoyed reading the column by Anuradha Das Mathur. I think your magazine’s strong point is the broad coverage and the balance that you maintain between profiles and interviews on the one hand and insightful features on the other. Can we look at a sort of “mentorship” column in CFO India? It could be a section where CFOs write about a problem they face and you take that question to a leading CFO in that sector or one who has proven expertise in that area. As time goes, you can cover a broad range of issues: specific ones such as ‘How to handle VAT in Germany for a

06.11 TOO METRO FOCUSED I enjoy reading the CFO Profiles and the Case Study articles because they provide an insight into a person's life while also discussing challenges faced by them, the best practices they follow and the advice they have for younger executives. However, I think you focus too much on Mumbai and Delhi-based CFOs. It would be nice to read about CFOs based in other cities, especially non-metro centres, sometime. — Manjira Ramani, Microtec Infosystem, Pune

NOT RECEIVING THE MAGAZINE I have not received my copy of CFO India for the past two months. I enjoy reading the magazine and look forward to the variety of articles that you bring to the table every month. Will you please look into the matter on an urgent basis? — Hiren Israni CFO, Microsoft India, Mumbai

WELL DONE! Congratulations for bringing out two great issues

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manufacturing company’ or common issues such as ‘how to identify top performers and do succession planning’. I feel this would help a lot of us. — Rostow Ravanan, CFO, MindTree Ltd, Bangalore

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

one after the other. Both the infrastructure special (Boom Time for Infrastructure, CFO India, April 2011) and the May issue where you wrote about four inspirational turnaround stories (Game Changers), made for good reading. I think you should continue on the same path and come out with a special issue on technology and another one on how to best tackle some of the new financial regulations that are expected in 2012. — R Subramaniam,CFO, Sigma Financial Services, Kolkata

MORE ABOUT BEST PRACTICES While you continue to come out with exceptional articles and profiles that make CFO India a good magazine to read, I would like to see more articles where we profile best in class companies and talk to their CFO or CEOs to find out how they achieved benchmark standards. CFO India is read not just by senior professionals including a lareg number of CFOs, but also by a growing tribe of younger finance executives who aspire to go up the corporate ladder. Such articles will serve as inspiration to them. — Amitava G Sen, Ambawadi, Ahmedabad

06.11 AVIATION

Jet Set to Grow Bigger

JET AIRWAYS, INDIA’S largest private carrier, is set to place orders for more Airbus A330s and Boeing 737s as it works to transform New Delhi and Mumbai airports into hubs that will connect European destinations with those in South and South-east Asia. The airline is looking at new destinations in Continental Europe, 6

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including Paris, Rome, Amsterdam and cities in Germany, and has already applied to government authorities for traffic rights. “We are seeing where the Gulf carriers are carrying the traffic from Europe to India and we want to use India, Delhi and Mumbai (airports), as our hubs to carry traffic to Bangladesh, Sri Lanka, Nepal and (destinations in) South-east Asia such as Bangkok, Malaysia and Philippines. We are looking at introducing (services) again to Shanghai and we are also studying Beijing,” Jet Airways chairman Naresh Goyal told the media during a visit to Singapore. While the carrier, which currently operates a total fleet of 116 aircraft, will look to add capacity, Goyal did not give any specifics other than that a clutch of A330s and 737s would be delivered in the next two-three years. Jet Airways already flies to 24 international destinations, including London, Milan and Brussels in Europe. The Belgian capital is also the airlines’ hub for flights in and out of the continent. “We are looking at increasing our operations in Europe and we have applied for necessary traffic rights to our civil aviation ministry. I hope the clearances will come soon, so that we can play a bigger role in the European market, help customers and take India’s market share in international traffic to higher levels,” Goyal said.

WHAT’S AROUND ZONE CFObook .............................................................. Pg 08 Herding Cats ........................................................ Pg 08 Facebook in Face Row ..........................................Pg 09 Long Live Broccoli ...............................................Pg 09

THE CFO POLL RESULT

Do you think IFRS will enhance financial efficiency in your organisation?

23% No

77% Yes

CURRENT POLL QUESTION

Will cloud computing solve data storage and other tech issues at work? Vote now at www.cfoinstitute.com/poll

CRIME

India 7th in Unsolved Murder of Scribes BUSINESS OF POLITICS

PHOTOS.COM

Bengal Says Bye Bye to Tata? THE WEST BENGAL government has issued an ordinance to regain control of at least 400 acres of the 997 acre Singur plot allotted to Tata Motors Ltd and its component suppliers in 2007. Chief minister Mamata Banerjee said the state government would compensate the company as per legal provisions. “We can engage arbitrators to determine the compensation,” she said during an interaction with the media in Kolkata. Citing a letter she said Tata Motors had written to the erstwhile Left Front government that it was not willing to build a factory and it would release the land if compensated. “We are not aware of such a development and we do not want to make any comment unless we have studied the ordinance,” Tata Motors said in a statement. Banerjee however, said that Tata Motors was welcome to build its factory in the remaining 600 acres but if it backed out, the land would be used for some other industrial project.

INDIA HAS EARNED the dubious distinction of being listed in the 2011 ‘Impunity Index’ prepared by an international media watchdog on the basis of unsolved murders of scribes — an issue that has again come to the fore after the daylight killing of senior journalist Jyotirmoy Dey in Mumbai, reports PTI. Only 13 countries with five or more unsolved cases of murder of journalists from January 1, 2001 to December 31, 2010 have been included on the index. India is at the 7th spot with seven such instances, or 0.006 unsolved journalist murders per one million inhabitants, according to the report of Committee to Protect Journalists (CPJ). Murders make up more than 70 per cent of workrelated deaths among journalists across the world, according to CPJ. The index calculated the number of unsolved journalist murders as a percentage of each country’s population. In India, assault on journalists is not uncommon. In fact it is rampant in some states where political leaders and the police force often take recourse to threatening, assaulting or even arresting journalists if they write about corruption in political or bureaucratic circles. The murder of Dey, especially the manner in which it was carried out, however, has brought the issue to the fore once more. JUNE 2011

CFO INDIA

O-ZONE cfobook

JARGON DECODED

THE PHRASE: HERDING CATS

Ganapathy Subramaniam Wall

Info

Boxes

What’s on your mind? Attach

Share Ganapathy Subramaniam Uploaded Zoo Zoo Mallu version on You Tube June 19 at 11.36 · Comment · 2 people like this

PERSONAL Zodiac: Libra Political Views: Liberal

WORK December 2010 – Present -- CFO, Hathway Cable & Datacom 2009-2010– Director Finance, Mumbai International Airport 2007-2009– Director Finance, Bennett Coleman & Co

EDUCATION Management Accounting - Chartered Institute of Management Accountants ACA Finance & Accounts Accountants of England and Wales Cost Accounting - Institute of Cost & Works Accountants of India

Ganapathy Subramaniam has a keen understanding of technology, especially broadband and mobile telephony June 17 at 9.05 · 2 people commented . 1 person likes this

Ganapathy Subramaniam supports Anna Hazare’s fight against corruption June 5 at 11.00 pm · 5 people commented . Like

Sports

Golf June 16 at 6.26pm . Comment . 4 people like this

Arts & Entertainment Jazz, classic rock, Carnatic music. Friends (TV Show) RECENT ACTIVITY Ganapathy Subramaniam likes CFO India and 2 others ...

Aircel Chennai Open, Hello Intern.com June 23, 8.55 pm . 2 Comments . 7 people like this

PERSONAL TECH

3D TV at 22K SONY HAS COME up with a new 24 inch flat screen 3D display TV, aimed specifically at Playstation gamers. The 3D display is comfortable for gamers as most of them prefer playing in smaller spaces like their rooms. The interesting part of the HD TV is its glasses, which allows two players to see the entire game on different screens without the spilt screen gameplay. The 3D glasses are rechargeable and have a resolution of 720p. The TV comes with a 6 inch HDMI cable and a copy of Resistance 3, one of the PS3’s flagship 3D titles that is to be launched this year. The TV will be released to the public this September and will be priced at Rs 22,500 ($499.99). To buy an extra pair of glasses it will cost about Rs 3,150 ($70). Looks like Sony is trying to leverage the 3D adoption rates through this new launch. 8

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THE MEANING Sounds like a difficult task? That's exactly what it means. Imagine guiding dozens of cats in the same direction. THE USAGE Did the boss mention you may have to 'herd some cats' before a meeting with investors? He means getting them all to agree on a point will be tough. Don't go looking under the table for kittens.

O-ZONE SOCIAL NETWORKING

FACEBOOK IN FACE ROW FACEBOOK INC HAS STARTED A fresh debate among privacy advocates and lawmakers in the US and Europe by rolling out technology that uses facial recognition to identify people in photos on its website. The technology was designed to help facebook users mark friends in photos as they upload them to the social networking site. Facebook first introduced the tool to US users in December and added it to most of the world in June prompting privacy officials in

Europe to open investigations. Face-recognition technology is just the latest Facebook product that privacy advocates say goes over the line. It reprises a long-standing divide with privacy advocates over whether new Facebook services should be automatically turned on for users who might not be aware of them. In a statement, Facebook said it “should have been more clear with people during the roll-out process when this became available to them.”

HEALTH

PHOTOS.COM

Long Live Broccoli HERE IS A HEALTH tip that we probably know anyway but do not follow. A new study shows that people who eat more fruit and veggies tend to live longer. Plants from the mustard family including broccoli, cabbage and cauliflower seem particularly beneficial, although the study is yet to prove conclusively that eating more vegetables automatically increases longevity. “The findings provide strong support for the current recommendation to increase vegetable consumption to promote cardiovascular health and overall longevity,” study researcher Dr. Xianglan Zhang, of Vanderbilt University School of Medicine in Nashville, Tennessee, told Reuters Health. Mustard-family vegetables are high in vitamin C and fibre and also contain other nutrients that may have health benefits. The study, published in the American Journal of Clinical Nutrition, is based on a survey of nearly 135,000 adults from Shanghai. Over five years, four percent of the people died. Those who downed the most vegetables or fruits, however, were 15 percent less likely to die over that period than those who ate the fewest. The study also notes that those who consumed more green vegetables showed greater power of concentration at work, something that all the CXOs who put in long hours at work, should take note of.

SNIPPETS Cops to Go 3D India’s long-standing ambition of modernising its police force with sophisticated weaponry and hi-tech systems has received a major boost after a US pledge to transfer 3D technology and other devices to India. Home ministry sources say India is looking to acquire the latest 3D imagery technology from the US and make it available for young officers at the Indian Police Service (IPS) training institute, Sardar Vallabhbhai Patel National Police Academy (SVPNPA) in Hyderabad. Don’t be surprised if you see cops patrolling the strees sporting colourful 3D glasses in the near future.

Playbook in India Soon

The BlackBerry tablet PlayBook will hit markets in India and 15 other countries within the next month, Research In Motion (RIM) has announced. The Waterloo-based Canadian company said it plans to roll out the Playbook in an additional 16 markets around the world over the next 30 days. Launched in the U.S. and Canada last April, the tablet will reach India, Britain, France, Australia, the UAE and 10 other countries in the next 30 days. India has over a million BlackBerry users and RIM will target them as the Wi-Fi tablet can link with the BlackBerry smart phone through BlackBerry Bridge without the need to subscribe to a wireless carrier.

JUNE 2011

CFO INDIA

CFO

I THINK

Facts & Trivia EDUCATION: DPS R.K Puram, Bhartiya Vidya Bhavan and Delhi University PROFESSIONAL QUALIFICATION: CA – Institute of Chartered Accountants of India FIRST JOB: Asst Manager, Finance at Eicher PREVIOUS JOB: CFO at Escorts PASSIONS: Cars, Traveling

THE ROLE OF THE CFO has changed far beyond traditional tasks of cost management, risk management, cash flow, reporting and controls that dominated the priority list earlier. Our role now is broadening far beyond its technical heartland into one that is much more “strategic”. The financial crisis has accelerated this shift, as CFOs seek a greater understanding of the business to help them make informed judgments on a variety of issues. For me personally, the following have emerged as the major challenges: Competition – Global players in the automobile sector are coming in with aggressive plans to capture a greater market share here. The challenge lies in formulation and execution of a business strategy that involves the right products, pricing and technology. This will require employee engagement, optimal capital structure and staying ahead of the game. 10

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AJAY SETH

The CFO of Maruti Suzuki India is no stranger to union strikes. But other challenges such as new regulations and risk management strategies need his attention

Scalability – Given the growth opportunities, business will grow manifold and much faster, therefore there is a need to review the existing processes and arrangements with business partners. Regulations – The regulatory environment is witnessing a sea change.

“My challenge lies in assessing the implications of regulatory changes and adopting a proactive approach...”

These include IFRS, Goods and Service Tax, Direct Tax Code and the New Company Law Bill. Emission norms have been changing too, as the government veers towards a clean environment. My challenge here is to assess the implications of regulatory changes and adopt a proactive approach to prepare for them. Risk management – Businesses are exposed to multiple risks including political events like strikes by trade unions, financial risks and risks arising from changing regulations. A management-driven risk mitigation mechanism would ensure that key risks are identified and mitigated, protecting the organisation from sudden shocks. We have taken several initiatives to address the challenges we are facing at Maruti today. We recently undertook cost reduction, quality improvement and pro-

DIPANKAR GHOSAL

ductivity enhancement drives within the company to ensure good financial health. Challenge 50:30 was a programme where we focussed on and achieved the target of increasing productivity by 50 per cent while reducing costs by 30 per cent. Another initiative, the Employee Suggestion Scheme, has generated savings of around ` 155 crore during 2010-11.

As prior preparation towards the changing regulatory scenario, we have made a thorough assessment of the impact of IFRS, GST and DTC on our business operations. We are further assessing the likely impact of these on our business partners and want a collaborative approach towards compliance to the new regulations.

We have a well-defined process of risk identification and mitigation which is monitored at the Board level. Broadly, these are the challenges that occupy most of my time these days, apart from unforeseen events that may suddenly crop up and need my immediate attention.

JUNE 2011

CFO INDIA

JUNE 2011

COVER STORY

TECH FOR THE CFO

GET TECH,

The days of number crunching, tech-opposed CFOs are over. Today’s CFOs need to understand technology – if they are to have the last laugh BENNETT VOYLES BINESH SREEDHARAN

NOT TOO LONG AGO, the average Chief Financial Officer (CFO) believed Information Technology (IT) was just another cost centre. The CIO always wanted to spend money; the CFO wanted to save it. And most of the time, the CFO won – the boss usually does. Now all that is changing – rapidly. In almost every industry, Information Technology has become a huge source of value. For automobiles and films to logistics and banking, technology, in general is now a core part of the JUNE 2011

CFO INDIA

COVER STORY

“The CFO definitely needs to be technology-savvy and change-friendly. But having said that, I don’t think the CFO needs to be deep into IT”

business. In high-end cars, you don’t provide the for example, electronics best tools, you save on may now represent nearly capex, but it results in 45 per cent of the cost of higher cost of rework, a vehicle, according to the errors and capex over US-headquartered Instiopex,” he says. tute of Electrical and ElecHe believes since tronics Engineers. information is being The geeks aren’t just supstored, processed and porting the business anymore: transmitted in huge quan—AMIT KUMAR increasingly they are the busitities and at faster speed, CEO KASPER CONSULTING ness. And while roughly half of the security of data becomes critiCIOs in India now report to the CEO cal and key to an organisation’s instead of the CFO, there is also a rise in survival. CFOs must pay greater heed the number of CFOs who are not just to this aspect of their IT system, he adds. knowledgeable about technology, but Prasad is so convinced about this approach that in fact, head the IT function as well. his debates with IT tend to be opposite to the typical CFO“The reason for this transition is CIO debate: with him often encouraging his IT department to clearly the changing positioning and spend more money than they requested. He sees such expenfunction of IT – from a cost-centre or diture as money-makers in the long run. a back-office productivity enhancer to Of course, just giving IT more than they ask for is not always a a front-office business driver – where winning strategy. If the only code you know is the tax code, what the CIO is expected to be a business leader first and a techshould you do? After all, IT is not a risk-free proposition. nology leader only after that,” explains According to Amit Kumar, CEO and founder, Kasper ConsultPartha Iyengar, VP and Regional ing, an IT consultancy, approximately 60 per cent of IT projects Research Director, India, for Gartfail because the CFO lacks adequate knowledge about technology. ner, the technology analysis firm. Part of the solution may be to learn more about IT. As Bob Lewis, technology consultant and author, Eden Prairie, Minnesota, says, the CFO must be savvy in terms of capabilities, understanding how hard things are, and about enterprise TECH KNOWLEDGE: A architecture and enterprise technical architecture. MUST FOR THE CFO “What makes this so hard is that everything about the disFor the CFO, this shift is likely to cussion will make a non technical person’s eyes glaze over in have some important consequenc5.75 seconds,” Lewis jokes. es. If a CFO’s basic reflex on IT has However, C.N. Ram, President and CIO, Essar Group, simply been to try to beat its budget thinks most younger CFOs already know a lot of what they down, he is probably not doing himshould about technology. Kasper’s Kumar further adds that self any favours. Nor is he necessarily an in-depth understanding of every tech tool one buys isn’t helping the company. really necessary. Rajendra Prasad, President “Definitely the CFO needs to be technology-savvy and and CFO, SRF says, the change-friendly. But having said that, I don’t think the CFO decision over whether needs to be deep into IT,” he says. or not to spend money on IT often comes down to ‘overt capex vs covert opex’, that THE BIG QUESTIONS is, a choice between You should, however, be good at asking questions about a capital investment technology, say experts. Writer Anton Chekhov once said and a hidden operthat an artist doesn’t necessarily need to answer questions; ating expense. “If he just needs to ask them. The same thing may be true of the CFO when it comes to IT. Asking the right questions can go a long way towards helping the CIO come up with the right answers. So what are the questions a CFO needs to ask about technology?

COVER STORY

IS THERE A BETTER WAY TO MANAGE OUR IT?

ARE WE BEING STRATEGIC HERE? CEOs, former CIOs and other IT experts also believe it is important to quiz the CIO about his rationale for a purchase. For instance a CFO needs to ask if a new tool has the support of the business unit it is being bought for and ask the CIO to establish that it has clear business usage, rather than buying it because the competitors also have one. “The Value for money on internal investment needs to be demonstrated at all times,” says Vardhan Dharkar, CFO and IT head, KEC International, an infrastructure engineering unit of the RPG Group. So the message is clear: Do not be afraid to drill down for details – but focus less on the technical side and more on the outcomes. Ask, what is this widget going to do for the business or what kind of return can one expect. “A CFO should always ask for some indication of the longevity of a product and why the CIO thinks it is going to last at least the depreciation period,” Ram says. Another piece of advice comes from Lewis, who says CFOs should not let IT gloss over the true costs of an installation. “Some companies mired in legacy systems spend as much as 80 paise out of every development rupee just trying to make sure that a new application does not break something,” he says.

IT capabilities have been advancing so fast that organisations often have a hard time keeping up with it. “In a lot of ways, IT is a very disruptive force, and therefore, as purveyors of technology, we are also disruptive in our influence,” says Essar’s Ram. Many companies have tried to contain the madness by having the CIO report to the CFO, figuring the CFO will be able to keep a check on costs. But if that is the motivation, Lewis is sceptical of the approach. If the company has decided to have the CIO report to you because the company doesn’t trust the CIO, Lewis feels one doesn’t need a new reporting structure, but a new CIO. Others try to build a sort of financial containment dome around IT expenses by creating a shared services unit. Although many people have favoured creating a captive service provider, Lewis argues that often it neither leads to cost efficiency nor to technical leadership. “If your goal is full employment for accountants,” Lewis says, “then maybe it is a terrific practice. Otherwise it is not.” He b e l i e v e s t h a t business unit heads are at least as prone to the ‘shiny-ball syndrome’ (when one wants — C.N. RAM a technology only because PRESIDENT & CIO, ESSAR GROUP. the competitor also has it) as CIOs. It might make more sense, he says, to encourage CIOs to make sure business requests have clear business benefit and are not the result of this shiny-ball syndrome. However, others say the value of a shared service set-up depends on the IT maturity of the organisation. “If the level of Information Technology in the organisation is ‘mature’, then it makes sense to set it up as an internal vendor,” says Satish Pendse, President, Highbar Technologies Ltd., Mumbai and a former CIO with the HCC Group. However, he adds, if the organisation is relatively young in terms of IT experience and has plans to take it to higher levels of maturity, then setting up IT as a captive unit may make more sense.

JITEN GANDHI

“A CFO should ask for some indication of the longevity of a product and why the CIO thinks it’s going to last the depreciation period”

COVER STORY

For the CFO, one of the most important questions to ask about a BI application should be: Who wants it?

another service if performance is not as good as promised. If it does not work for you, you can exit.” The cloud also converts a lot of IT management into vendor IS IT TIME TO SEND IN THE CLOUDS? management – great news for CFOs. Some finance executives Another area, one which seems to confuse most Indian might not know their bits from their bytes, but they do know CFOs, is cloud computing. It has been talked about as the vendor management. next big thing for such a long time now that it hardly seems “What it means is you are trading off economic scalability like the new thing. for economic flexibility,” Lewis says. For small companies, But, it finally seems to have taken roots in India Inc. A this can be an advantage because it will free up the CIO for recent survey by CFO India found that CFOs of most organiother work and reduce fixed costs in a hurry if business slows sations ranked it as the technology that confused them the down. For the bigger companies, however, it may make more most. Of course, a high number also added that they were sense to build their own private cloud, so one can still gain keen to learn more about the technology because they some economies of scale. believed it could benefit them if used properly. But Ram is not sure that smaller companies will be betThis trend may actually be good news ter off chasing the clouds. Lacking leverage and for CFOs, according to Highbar’s negotiating expertise, a mid-size company Pendse. “The cloud allows you may not get a good deal whether they build to de-risk,” he explains, addit or buy it, he says. “At some level, they ing, “If you build someare getting short-changed anyway,” he thing, you are stuck feels. with it even if it does However, Ram is still enthusiastic not work. With the about cloud computing as a way to rent-a-cloud service make it easier for his team to focus on the other hand, on more important work. Sending you can always small applications offsite means his move the data to team no longer has to worry about supporting them or maintaining the right load factors, and can focus instead on core applications. — BOB LEWIS It is also an affordable way to test TECHNOLOGY CONSULTANT AND out new software. “I can do proof of AUTHOR, EDEN PRAIRIE, MINNESOTA concepts, try it out, that too without much investment in technology infrastructure,” he says, adding, “Once proven it works, we can roll it out either on the cloud or absorb it on our data centres.”

“IT should be producing just as much change as the business can absorb. Any more and its shelf ware; any less and you are missing opportunities”

4 WHEN CAN WE GET SOME MORE BI AROUND HERE? What many CFOs also wish for fervently are Business Intelligence (BI) tools. No wonder then that sales of BI tools are rising by double digits in recent years. It is perhaps the bestnamed business product since the ‘emerging markets’. What

COVER STORY business, after all, can be against acquiring more intelligence? Most executives like the idea of getting hold of better analytics. For the CFO, one of the most important questions to ask about a BI application should be: Who wants it? Unless a business unit is pushing for the application, it is likely to just gather dust on the shelf, Lewis says. The character of a company may also influence how valuable the tool turns out to be. If a company makes fact-based decisions, then a data warehouse makes sense. However, if it is the kind of company that trusts its gut instincts and makes fast decisions, it will be of less use. “In order for the BI investments to succeed, you need to make a proper business case, especially evaluating the benefits of these investments. Also, the intended beneficiaries of the investment should be involved in preparing the proposal,” Pendse says.

5 HOW MUCH IS ENOUGH? Perhaps the biggest worry for the CFO, as far as technology is concerned, is to maintain the balance between being the naysayer and agreeing to every proposal. Most experts suggest benchmarking through Forester, Gartner and other services. “It always helps to know what others are doing to make sure you are not ultra profligate or too conservative,” Ram says. But simply keeping up with the Joneses may not work. Often, CIOs have the tendency to adopt technology for technology’s sake, experts say. To preempt such extravagance from happening, the CFO must ask the CIO to demonstrate how a purchase fits into IT department’s three or five-year plan. Finally, the pace should also be sustainable. “IT should be producing just as much change as the business can absorb. Any more and it is shelf ware; any less and you are missing opportunities,” Lewis warns.

“In order for the BI investments to succeed you need to make a proper business case, especially evaluating the benefits of these investments” —SATISH PENDSE PRESIDENT HIGHBAR TECHNOLOGIES

JITEN GANDHI

BOTTOMLINE However, even with more and better communication and the CFO taking much more active interest in technology, many expect the CFO-CIO relationship to stay tense. “In general, I would say that the CFO and CIO have kind of the proverbial daughter-in-law-mother-in-law relationship,” says Pendse. “The CFO will want to talk mostly numbers and the CIO will want to talk technology.” But it is not entirely a hopeless situation. “The gap can be bridged if there is a clear IT strategic blueprint, a road map and an understanding of what gets done when – now or later – and, of course, the execution capability,” says Kumar.

In the end though, the CFO may have the last laugh. As more Information Technology work gets sent out to ‘the cloud’ and analytics are sent to software as a service provider, the need for specialised IT talent may shrink and the value of general strategic and process expertise – the kind the CFO has in abundance – seems likely to increase. After all, you do not need to be able to build a car in order to drive one. Perhaps that is why in the US and Europe, the CIOCFO reporting trend is now running in the opposite direction with more CIOs reporting straight to the CFO, not fewer. JUNE 2011

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COVER STORY

THE GOOD, THE BAD

AND THE DESIRABLE

A CFO India survey asks finance heads about tech tools they love, hate or want from a finance perspective. DHIMAN CHATTOPADHYAY

SURE, THEY deal with numbers, speak jargon and love black more than red. But when it comes to their preference for tech tools and their comfort level with various financial software systems, Chief Financial Officers (CFOs) come in many different shades. A CFO Institute-CFO India poll of over 50 respondents, conducted recently to unravel their technology loves and bugbears, threw up some expected and some quite surprising results. The poll findings are sure to go a long way in helping us understand how the community looks at technology and what software and tools they thrive on, get confused by or wish for. The poll results also challenge the traditional view that CFOs and finance professionals, in general, are averse to technology and look at the IT function as a cost centre, rather than a costsaving and enabling enterprise that helps you work efficiently and faster. While some CFOs did say that they found online activities such as filing IT returns, or making transactions with banks and clients rather confusing, a majority of them not only gave a big 18

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USER-足FRIENDLY TECHNOLOGIES

BI tools

Break-even analysis

SAP-ERP

Online payments

MS EXCEL

J D Edwards ERM

Data warehousing

Mobile phone applications

BlackBerry

ORACLE Database/Hyperion

COVER STORY thumbs up to most such utilities, but were also knowledgeable and up-todate when it came to naming the latest technologies they would like to install at their workplace.

THE SURVEY POSED FOUR BASIC QUESTIONS:

1 2 3 4

What are the technologies CFOs are most comfortable with? Which operating systems and applications do they find beneficial? Which applications confuse or worry them most? Which tech toys would they love to have at work?

Asked about the top 10 user-friendly technologies at work, over 65 per cent of the CFOs voted for SAP-Enterprise Resource Planning (ERP), followed by Oracle’s financial management tools Hyperion and Oracle Database. CFOs across sectors and age groups felt, mobile phone applications like BlackBerry and tech tools that allow them to make payments, do their banking and file tax returns online, are most welcome. “That we can save precious time and money by doing online transactions and banking makes these services a must have in my book. Fi l i n g r e t u r n s o n l i n e , f o r instance, is a great innovation,” said the CFO of a top automobile manufacturing company. Other tech toys that received their stamp of approval include the much talkedabout JD Edwards ERM, Business Intelligence (BI) tools and the breakeven analysis software. Not surprisingly, most respondents voted the same technologies as most beneficial. While SAP-ERP once again topped the list, different mobile phone applications formed the second most user-friendly technology apparatus, followed closely by BI (Business Intelligence) tools. Many CFOs also voted WiFi technology as a boon, admitting that being able to access the

MOST BENEFECIAL TECHNOLOGIES

Oracle Hyperion

Payroll apps

J D Edwards ERM

SAP-ERP

Excel data validation

Analytical & reporting tools

Mobile phone applications

WiFi

Business Intelligence

Web-based applications (banking, IT returns)

internet or view data, mails and reports on the go, anywhere, anytime, makes their job easy. Oracle’s relatively new Hyperion Planning system also

“I would like to learn more about cloud computing,either from my CIO or at workshops.” —CFO OF A LEADING INFRASTRUCTURE FIRM

received a fair share of votes. To quote the CFO of a Bangalore-based IT firm, “The centralised Excel and web-based planning, budgeting and forecasting solution has helped integrate financial and operational planning processes and improve business prediction.” The real surprise package was the answers to the third question: “What are the technological innovations that confuse or worry you and you would want to know more about?” It began on an expected note with a third of the respondents naming cloud computing as an area that confuses them and the one they want to know more about, especially since it sounds like an exciting but highrisk technology. “I would really like to learn more about JUNE 2011

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TECHNOLOGIES THAT WORRY CFOs

CFO WISH-LIST (Technologies they wish they could have access to right now)

Breakeven analysis

Mobile computing and reporting

SAP R/4

Reporting & Analysis

Tools (XBRL, Hyperion, Cognos, BI etc)

Mobile access for Enterprise Applications

Cloud computing

Online payments and tax returns

Desktop video conferencing

Data warehousing & mining

cloud computing – be it from my CIO or at workshops where experts simplify things to explain how a technology works,” said the CFO of one of India’s leading infrastructure companies. He would also love to learn how to use tablets, he added, as it seems to be helping his younger colleagues manage their work better.

CFOs across sectors welcomed mobile phone applications that helped with payments and tax returns. 20

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However, a significant number of CFOs admitted to being ill at ease with online banking and payments and even with software such as mobile computing and reporting. “Some things are better done face-to-face and manually. Online payments in India are still a high-risk area, with hacking being common. I would rather meet my bankers and clients personally and do physical transactions,” said the finance director of a company in the manufacturing sector. Data warehousing and mining is another technology that worries CFOs, with at least seven of them mentioning it among the top five worrisome technologies. The last question covered the CFOs’ wish-list. We asked those polled to name the three technologies that they do not possess but would love to bring to work. While most CFOs said they had all that they needed at this stage, others candidly admitted that efficiency could still be improved in certain areas with some new tech tools.

Latest ERP solutions

A third of the respondents who submitted a wish-list, want to buy the latest reporting and analysis tools such as XBRL, Oracle’s Hyperion or BI. While XBRL or eXtensible Business Reporting Language is a language for electronic communication of business and financial data and offers major benefits to those who have to create, transmit, use or analyse such information, BI refers to computer-based techniques used in identifying, and analysing business data, such as sales revenue by products and/or departments or by associated costs and incomes. Surprisingly, 20 per cent of the CFOs wished to have a desktop video conferencing facility to enable one-toone video conferencing as and when needed, rather than them having to trudge to the conference room each time. Webcams and Skype clearly have not made it to the tech tool armoury of CFOs as yet.

COVER STORY

OPINION

Know

IT!

Todayâ&#x20AC;&#x2122;s CFOs must take the tech bull by the horn and keep abreast of IT advancements for the robust health of the organisation AMIT KUMAR 22

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SHOULD THE CIO report to the CFO, or should he report to the CEO – that is the question, the dilemma that the industry is grappling with for some time now. This is also a debate that is destined to go on for some more time to come. Whatever the outcome of this debate, it is undeniable that the CFO today has become the top technology decisionmaker in about half the business concerns around the world. According to a study by Gartner, in 45 per cent organisations across the globe, the CFO leads the technology investment strategy. Therefore, irrespective of whether the IT function reports to the CFO or not, he must be abreast of IT evolutions in order to take informed technology decisions. The CFOs can be classified broadly into the following two types:

1 2

Transactional CFO: He is the hands-on CFO who manages day-to-day transactions and operations – collections, payments, reporting, etc. Strategic CFO: This CFO keeps an eye out to see how his finance function can proactively help other functions/businesses and the organisation as a whole.

Now, let us look at a sample of the questions that both types of CFOs – transactional and strategic, with or without the IT function reporting to them – could be ruminating. (see the chart above and on the following page) How can technology help the CFOs juggling with the above questions? Let us consider the following examples: Utilise the ERP system better: There could be an opportunity to implement this unused function. The organisation could move away from spreadsheets to an ERP system, enhance its functionality, ensure access of the ERP system to business units and consolidate multiple ERP systems. All this would help in processing transactions more efficiently – faster, error-free and with better controls. There could be opportunities to free up human resources, thus reducing costs. A large number of questions of the transactional CFO would thus get answered. Use Analytical and Business Intelligence (BI) tools: BI tools can bring in meaningful analytics to assist the organisation in planning, strategising and decision-making. These tools can also help in forecasting business and market trends, thus giving the organisation a competitive edge. Several of the concerns of the strategic CFO would get addressed by using BI tools. Similarly, there may be other technology solutions that are useful for CFOs. If the CFO is responsible for the IT function, he has the

CIO DOES NOT REPORT TO THE

CFO

Transactional CFO Can I make my collections and payment processing more efficient, deliver faster and without error? Can I ensure my reporting is timely and error free? Can I reduce the cost of my function? Can I improve controls? Can I get timely (maybe real time) accurate information from other business units of the organisation? Can I comply with regulations cost-effectively?

Strategic CFO With the business data I have, can I provide insightful analytics and reporting to the other business units of the organisation? Can I forecast business trends and market trends? If I have analytics and I can forecast business/market trends, can I help the other business units in their planning and strategy? Can I anticipate sudden market disruptions and/or changes in the external environment? Can I leverage the information that I have, to find new ways to do business? Can I respond faster to potential M&A opportunities? Can I identify cost saving opportunities across the organisation?

“Instead of measuring IT on the scale of timely delivery within budget, it should be made accountable for business results.” added responsibility of assessing and prioritising the technology needs of the organisation. An IT strategy blueprint, mapping the technology needs of the firm, will have to be prepared. The blueprint must be based on the business goals and challenges of the organisation and of each individual business unit. Industry as well as cross-industry trends and comJUNE 2011

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COVER STORY

“The CFO today has become the top technology decision-maker in about half the business concerns around the world” petition must be researched for best practices. The blueprint must be reviewed and updated periodically, say, annually, keeping the changing market and business goals in mind. Once the blueprint has been prepared, the implementation roadmap has to be chalked out. The roadmap would be primarily driven by business priorities and among others, the available IT budget and the organisational capacity to tackle change. The challenges inherent in the successful execution of IT projects must not be underestimated. Research has shown that over 60 per cent of IT projects fail. Hence, strong project and change-management techniques become imperative. An IT governance board, instituted for this purpose, helps to bring in management focus as well as

CIO REPORTS TO

Strategic CFO

CFO

Transactional CFO All points mentioned in previous chart May face challenges with the IT function, as he is deep into his own finance function Questions on the right technology would remain relevant

All points mentioned in the previous chart How do I assess the IT requirements of the organisation? How do I prioritise the IT initiatives, considering there are limited resources? How do I choose from among the ocean of IT systems – all claiming to be the best? How do I keep track of new technologies and their relevance to my organisation? How do I keep the information secure? How do I reduce my IT expenses?

keep IT and business units aligned, thereby increasing the success rates of IT projects. Selecting an IT solution from the plethora of options available is another challenge. A CFO must not go for an IT solution just because it claims to be the best-of-breed. Rather, he must select a solution that is right for the organisation – the ‘bestof-need’. The CFO must also form a project team comprising stakeholder representatives, formulate evaluation criteria and conduct an objective evaluation. You may be surprised by the outcome of what gets selected – both in terms of the IT solution and the costs incurred. The success rate of the IT solution thus selected is sure to be high. Technology is changing rapidly. Cloud computing, social media, mobile technology, web 2.0, virtualisation, personal computing – the list is exhaustive. Do not reject a new technology just because someone told you it is just a fad. At the same time, as a CFO, do not try to profess knowledge of a technology, nor try to become an expert or a master of it. It is difficult to keep pace with rapidly changing technology. Ask experts to tell you how a technology can benefit your organisation, and not about the complexity of how it works. Then assess if the business benefits of that technology are relevant to your organisation. The pace of technology change is another reason why the IT strategy blueprint should be reviewed and updated periodically. The CFO is the best person to change the prevailing mindset on how IT is measured. Instead of measuring IT on the scale of timely delivery within budget and scope, it should be made accountable for business results. CFOs are well-known for their aversion to mistakes and their no-risk attitude. This image needs to be shed. There is calculated risk involved in any project. Some projects will fail and the learnings from such failures would benefit other projects. Only then will the success rate improve for an organisation. Not doing anything is in itself a big risk.

THE AUTHOR IS FOUNDER & CEO, KASPER CONSULTING PRIVATE LIMITED AND CAN BE CONTACTED AT: AMIT. KUMAR@KASPERCONSULTING.COM 24

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MOBILE TECHNOLOGY

CONNECTED:

WHEREVER, WHENEVER New applications in the managed services platform and in mobile phone applications have improved work efficiency across firms. A few leading CIOs take us through some such technologies that CFOs should know about. NISHA ANAND

“BY THE YEAR 2000 ...small pocket phones will be as common as Walkmans. People would have to develop a whole new social code. You would not, for example, take calls in the middle of a crowded restaurant. Indeed, the potential effect of pocket phones (which, of course, exist at the moment, but are clumsy and extremely expensive) is enormous... Besides, the social value of being able to make a phone call at any time will also be extremely large.” – The Guardian, London. May 1, 1986

In a recent article on how applications and functions available on the mobile phone have changed the way we communicate, work and live, James Meek, a journalist with The Guardian dug deep into his newspaper’s archives to come up with this gem. But even the most creative of science fiction writers could not have possibly imagined the kind of change that mobile and telecom technology would bring to the way we work, by 2011. Indeed everything from paying bills, filing tax returns, using JUNE 2011

CFO INDIA

24 A

COVER STORY ing, suite of network and security services and transformaBusiness Intelligence tools and work flow charts are now postional services. sible through mobile phones or thanks to telecom technology. Dhingra talks about another mobile technology that helps “Telecom technology and more specifically mobile applicahim in his role as CFO – the handheld device that records data tions has revolutionised the way we work. It is a boon for about each customer. “When you accept a Blue Dart courier all industries. Value Added Services and other applications on the mobile are things not just every CFO but every CXO you are asked by the delivery guy to sign on a mobile phone screen instead of on a piece of paper. This technology should be aware of,” says Vivek Khanna, VP-IT, helps us store all data about a customer, ensurHavells India. ing efficient and faster operations and also Agrees Vijay Sethi, CIO of Hero protecting us against misuse, fraudulent Honda when he says, “A CFO claims and cheating,” he says. has to be technology savvy as For the CFO, who has to deal IT today is an integral part of with huge files and data, accuracy the organisation. In addition, while meeting timelines, applifrom the mobile and Telecations and tools supported by com technology perspective, Telecom technology (such as he has to be conversant with data workshow, future planning the usage of applications analysis, BI tools and online payon mobile handsets such ments) are a boon. as analytical tools and appli“For instance, at Havells we use cations like Bloomberg and Airtel as our telecom partner in two workflows.” Sethi says with the —VIJAY SETHI locations, since Airtel provided comCFO also working as the Chief CIO, HERO HONDA mendable services when they launched Risk Officer in many companies, a many of their broadband-supported tools four good understanding of technology is years ago, and changed the scenario completely,” needed. “While major risks, internal or extersays Khanna. nal, come from technology, they can also be conHero Honda’s Sethi adds: “Whether it is BlackBerry, a trolled using technology,” he adds. GPRS service from Airtel, a datacard or an internet connecThe major area where new developments have tion – mobile telecom technology plays a major role in our taken place of course is Managed Services, where finance function. The CFO is able to access applications, workcomopanies such as Airtel have recently increased flows, analytics, share price details, e-mails and so many other their portfolio by entering into a strategic relationthings thanks to mobile technology. It has increased efficiency ship with VMware. Bharti Airtel’s Managed Virtual Compute at work many times over.” Sethi says Hero Honda has been services now help reduce total cost of ownership (TCO) for using Airtel as a key partner that caters to major connectivity customers looking to transition to next-generation data center needs of the organisation for quite a few years now. architectures. The initiative provides a fillip to the Hosted IT Dhingra also recommends using Airtel’s shared services services market in India. and their GPS. “Our vehicles which plying on trunk routes The Bharti Airtel-VMware collaboration has targetted the are monitored on GPS positions and the information feed enormous market potential for cloud-based managed comget sinto the Network Control Centre through GPRS. Speedpute services in India by offering external IT infrastructure ing, Idling for long and deviation from planned routes for customers, allowing them to increase or reduce compute are traced immediately and corrective actions taken. This capacity based on ever changing business demands. ensures the shipments reach the desired place intact and in Both Sethi and Yogesh Dhingra, COO and Finance Directime,” he says. tor at Blue Dart (he also heads the IT function) talk glowingly Having worked closely with Airtel for some years, he says, about Airte’s managed as well as shared services. “The array “we have worked together to fix many issues. They do have of services they are now offering, post their partnering with good infrastructure and companies can make use of their Savvis, is amazing,” says Dhingra. The collaboration now strength for smoother operations. Dhingra hopes companies offers innovative managed services to enterprises operating such as Airtel or others look at bringing in new technology in or expanding into India. that makes it possible to make all kinds of payments through Recognised as a leader in Gartner’s Magic Quadrant, Savvis the mobile phone. “Till now RBI regulations do not allow is a pioneer in cloud infrastructure and hosted IT solutions. people to make payments and monetary transactions through Under this exclusive agreement, Airtel now offers world mobile applications, beyond a point. I hope this changes class managed services including intelligent hosting, disaster soon, he concludes.”. recovery, managed application, migration planning, consult-

“Whether it is GPRS service from Airtel or shared services – telecom technology plays a major role in our finance function.”

24 B

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CASE STUDY

IN YOUR

HAND

DO FINANCIAL inclusion and profitability come in the way of each other in India? Not necessarily, if you ask Umesh Jain at Yes Bank Ltd. That Jain is the bankâ&#x20AC;&#x2122;s Chief Information Officer encourages one JUNE 2011

CFO INDIA

JITEN GANDHI

FINANCIAL INCLUSION

Yes Bank is bringing its customers unique benefits through technology. It also plans to deliver more value-added financial services on the mobile platform in the future

COVER STORY to ask the next obvious question: How can technology help? Jain is already answering the question by tackling a vital component of this sum-of-many-things: a delivery mechanism that is even more convenient than the Internet and one that has even more reach than a nationwide network of ATMs of all the banks put together: the mobile phone. While the idea of bringing financial services to the ‘unbanked’ and ‘under-banked’ masses in the country is a clear mandate handed down from the government, CIOs like Jain are tasked with finding the technological means of getting there, and helping their banks make money in the process. In a three-way partnership with Obopay Inc., a mobile payments technology platform provider, and Nokia Oyj, one of the largest makers of mobile phones in the world, Yes Bank is rolling out a mobile payment service that allows people to use their cellphones to make purchases, pay bills and send money to one another.

MONEY MOBILE SERVICE

Yes Bank and Obopay India introduced their mobile-phonebased service last year, initially with a pre-paid instrument. This service established a platform that enabled the transfer of money using the mobile phone in a secure manner. The bank had received the regulatory approvals from the Reserve Bank of India to act as the issuing bank and the custodian of funds under these services. The pre-paid mobile payments service was initiated as a pilot in Pune, and then extended to Chandigarh, Mohali, Panchkula and Nashik. The service is widely distributed, taking advantage of Nokia’s extensive retail distribution network in the country. To offer this service — from researching the market, figuring out the features that the technology platform needed to have, finalising the technology vendor, getting regulatory approvals, to launching the service — the bank took about eight months. “Everyone is very gung ho about the mobile phone THE MANDATE, THE today,” says Doraiswamy PP, CHALLENGES Executive Vice President at Yes Taking banking services to an increasBank, who oversaw the actual ing number of villages was reiterimplementation of the project by ated as a priority in the 2011 budthe bank’s mobile banking platget speech of Finance Minister Yes Bank and Obopay India introduced form vendor Obopay. “The kind Pranab Mukherjee. their mobile-phone-based service last year, of reach that the mobile channel “First and foremost, the maninitially with a pre-paid instrument has cannot be matched by even date is that banking needs to The service enables consumers to transthe internet or ATMs or any become inclusive. This is both fer money to other individuals, pay utility other channel today,” Doraiswaa challenge and an opportunity,” bills as well as recharge prepaid SIM cards my says. Jain says. “The challenge that we using mobile phones The attraction of the mobile are talking about covering is 500,000 phone is that it is easy to use and is villages, millions of people who are not much more personal. Its presence is very covered by banking or are under-banked.” conspicuous even if a person isn’t carrying it What this means on the ground is that the on a particular day. industry has to scale up to about three times the curWhen the bank finalised its partnership with Obopay in rent size, he says. This requires a different mindset. 2008-2009, it also decided that it will initially start with a “To deliver financial inclusion in such a diverse kind of a pre-paid instrument. How this works is as follows: With the country, for example to a village of only 2,000 people, dealing bank according Nokia the status of ‘Banking Correspondent,’ with not-so-high rates of interest and meeting the governNokia’s individual retail shops are enrolled as ‘agents’ that ment’s caps on these, is the challenge,” Jain says. the people looking to use the mobile banking service with Yes Second, on the technology front, while the mobile phone is Bank can approach. emerging as the most promising delivery mechanism, due to its reach and affordability, how exactly it will be used is still a work-in-progress model, Jain says. “Various new cases are emerging and there are a lot of experiments out there today, 10,000 TRANSACTIONS A MONTH but few success stories yet,” he says. With the pre-paid service, which is not dissimilar to using a The third challenge is the role of social media in banking. “We pre-paid coupon to top-up the cellphone, customers would all recognise that there is huge potential, but again there aren’t download Obopay’s application on their cell phones, which enough success stories yet that demonstrate how banks can tap would be activated once their registration with the bank was into them,” he says. This also has the dimension of a dissatisfied successful. They would basically make a deposit with the customer being able to complain on social media, while on the Nokia ‘agents’ and then get to use the mobile application to other hand, it is a great opportunity to connect with the customer. make payments. When they have exhausted a deposit, they

FINANCE ON THE

MOBILE APPS

CFO INDIA

JUNE 2011

Mobile

COVER STORY can go back to an agent and make a fresh deposit and start again. On customer request, they are also being issued ATM Cards with which they can withdraw the money as well. Since the pilot launch in mid February 2010, the bank is hosting about 48,000 customers in Pune, Chandigarh, Panchkula, Mohali and Nashik and ramping up services in these cities gradually, according to its statement. Yes Bank today is seeing customers make some 20,000 transactions a month worth a total of about ` 17 lakh, giving an average ‘ticket size’ of ` 85 per transaction. Therein lies another unique advantage of the cellphones: Just as people in India are used to topping up their mobile-phone credits with coupons valued at as little as ` 25, Yes Bank’s successful experiment is allowing them to transact in amounts as small as ` 100.

TOP UP AND GO The initial usage is mainly in the form of top up of pre-paid mobile connections and since the technology is new, the users are still testing it out with low ticket values to derive comfort, according to the bank’s statement. Ensuring security, convenience and ease of use on the one hand had to be matched against the capabilities and the compatibility of the available handsets on the other hand. The bank also had to consider the profile of the end consumers and consider the target segment both in higher and lower strata of society – the technology selected had to work flawlessly across the board. The service enables consumers to transfer money to other individuals, pay utility bills as well as recharge prepaid SIM cards (top-ups) of telcos, by using their mobile phones. Consumers also pay to merchants for goods and services through their mobile phones. According to Doraiswamy, this is a first-of-its-kind service providing customers the ability to initiate mobile payments through multiple channels i.e. SMS, IVR, WAP, JAVA and FIRE applications. The customers are also provided with the convenience of cash withdrawal at any ATM across India. The pilot in Pune demonstrated an encouraging customer behaviour and helped the bank create delivery benchmarks and a flawless service framework; prior to the roll-out in another four cities and the national roll out in the coming months. This cutting-edge technology facilitates convenience and ease of usage in making mobile payments through mobile phones, across the country. These services are available to telecom service providers apart from being able to be accessed from mobile phones of different handset manufacturers “Today, we are working on integrating our bank account transaction processes with the mobile platform,” Doraiswamy said.

“Today, we’re working on integrating our bank account transaction processes with the mobile platform”

BUILDING THE ECOSYSTEM There are two aspects to technology in banking, Doraiswamy says. One is in running the business. Today, 30 percent of the cost is technology related. “We need to bring this cost down,” he says. The second is to find some transformational ways of using technology to reduce the other 80 percent of the costs. The RBI has already de-regulated various aspects of the banking industry, such as the use of Business Correspondents. It’s a combination of technology, business, partners, and the ecosystem that will work to bring about financial inclusion, he said. Most of the technology pieces are there today. The challenge is about viewing them together and finding the best operating model. “For example we’ve already partnered with Nokia. They have a huge retail distribution network, and we’ve done some experiments with them. Still, there is always the risk another bank partnering with a different company and creating a replica of the same delivery network.” There might be some synergies that can be exploited in the delivery of the service while the actual products themselves would differentiate one bank from the other, or for that matter, one business from the other. Eventually, this is the direction that most businesses will go. “If telecom companies can share towers, why can’t banks share the delivery infrastructure?” How that will happen will take time to figure out and banks have some way to go in building that ecosystem, Doraiswamy says. * With permission from CTOFORUM JUNE 2011

CFO INDIA

INSIGHT

M&A

WHEN BIG ACQUISITIONS PAY OFF Some companies are quietly creating value without making the headlines. Here is how they do it. ANKUR AGRAWAL, CRISTINA FERRER, & ANDY WEST

ig mergers and acquisitions make for splashy headlines, but do they make financial and strategic sense? Executives, board members, and investors are wise to be sceptical. Such deals, worth 30 percent or more of the acquirer’s market capitalisation, are extremely complex. And as high-profile failures have demonstrated, big deals can destroy significant value for shareholders. Big deals can create significant value for the acquirer, however, even if success takes time to unfold. Indeed, in our analysis of such deals over the past decade, half had created excess returns for shareholders when measured two years after the deal’s completion. In one-third, returns were significantly higher relative to the industry average. The difference between success and failure often comes down to strategy. Only a few situations give companies a clear, compelling reason to take on a big deal’s risks and integration complexity. Companies with few options for organic growth, for example, can use a large deal to enter a new sector or

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market quickly. Those in consolidated industries, such as oil and gas or mining, can find success in big deals when other options are limited and major economies of scale exist. And on the rare occasion when a large target company is a very clear strategic fit with the prospective buyer, a big deal can improve an acquirer’s growth and performance rapidly. But a successful deal also results from strong execution. In case studies of nine of the best-performing deals and six of the worst in our dataset, we found that successful acquirers employ several approaches to execution and integration that are different from those used by unsuccessful ones—and differ-

ent from those typically used by acquirers in smaller deals. Successful acquirers set performance targets higher than due-diligence estimates of a merger’s value. They reject the common idea that an acquisition represents an opportunity to adopt the best of two companies’ cultures. Finally, their CEOs focus their involvement on the most critical areas.

AIMING HIGHER THAN DUE DILIGENCE In the hectic pace of integration after a deal closes, many integration managers adopt the synergy estimates calculated by the pre-deal due-diligence team as

In our case studies, the leaders of successful big deals typically focused in a meaningful way on only one or two areas where their involvement mattered most

INSIGHT

MANJITH.P.B

18.9

performance targets. Yet how much a company pays for a deal isn’t necessarily the same as its worth. Even the best due-diligence efforts can be only so good. They are often constrained by time and access to data. They typically focus on whether expected cost synergies alone can justify a deal, placing more emphasis on how much could be saved by eliminating redundant functions, facilities, people, or products and much less on how much can be gained through growth. To compound the error, as individual managers weigh the uncertainty of duediligence estimates against their own performance risk, they often translate synergy estimates into even more conservative—and easily achievable—cost and revenue targets. Yet, as our case studies suggest, companies that reassess their synergy targets after a deal closes seem to achieve higher synergies than those that don’t. These

more ambitious companies use pre-deal estimates of synergies not as performance targets but as a performance baseline—the minimum they expect. In fact, in a survey on corporate transformations that included mergers and acquisitions, executives managing deals in which baseline aspirations were reset by a number of robust facts after a deal was reached were four times more likely to characterise those deals as very or extremely successful than executives whose baseline aspirations were not reset. The successful acquirers in our case studies reset their aspirations by identifying opportunities to transform the business and then building a fact base to support those opportunities. Sometimes they came from fundamental changes to operations or from providing customers with new products or services that hadn’t come up in due diligence—or weren’t investigated, as a result of limited time or information access.

After a merger between two global mining companies, for example, the acquirer had more access to details on the overlap between its own and the target’s customer base and suppliers. Previously confidential information on the terms and conditions of sales agreements—and the needs and expectations of customers—led to unexpectedly high levels of cross-selling and bundling between the target’s and acquirer’s products, as well as unexpectedly lower input costs, thanks to improved supply chain management. While these considerations were not a large part of the original investment thesis, they were a major part of the deal’s success, improving the combined company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) by more than 20 percent. Similarly, when a North American packaged-goods company reviewed its synergy targets after a deal’s closure, JUNE 2011

CFO INDIA

INSIGHT managers learned that the target company’s marketing strategy was better than its own. Importing those and other best practices helped the company realise synergies 75 percent above due-diligence estimates. Setting such aggressive target estimates requires individual leaders to leave their comfort zones and share aspirations. Workshops encouraging the joint exploration of opportunities can help. Senior managers of one large deal in the pharma industry, for example, summoned teams from different backgrounds to a three-day off-site event. It started with an idea generation session where each team compiled a list of growth-related opportunities. The group then assessed each of the opportunities, ranking them by size and priority, and eventually developed a high-level implementation plan. In three days, the group did not discuss the due-diligence model or its synergy estimates. In the end, the acquirer uncovered more than 40 percent more synergies and rebalanced its synergy expectations significantly across teams. In addition, the teams were motivated by their targets and believed they were achievable—a much better outcome than being allocated a target based on a brief due-diligence period. Higher performance targets have their challenges, of course, and to meet those targets companies must have the right kind of managers. In a broadbased survey on organisational health, managers at the most successful acquirers reported having a higher-than-average sense of accountability, as well as inspirational and authoritative leadership. Developing these traits requires companies to create an environment that encourages managers to take calculated risks and gives them confidence to aim beyond the original size and scope of the synergy targets. Such an environment includes clearly defined managerial roles, strong links between individual performance and consequences (positive and negative), and attractive incentives for high performers. 30

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In one case study, for example, a global bank in a large acquisition actively encouraged managers to develop ambitious business plans and provided the resources to pursue them. Managers were generously rewarded for meeting their goals but also faced consequences if they failed: those who missed agreedupon targets for a third time were let go. All of these attributes can—and, if possible, should—be developed long before a large deal is under way. In fact, in our transformations survey, respondents in companies that focused on building capabilities before an acquisition were twice as likely to describe it as successful.

ASSERTING CULTURAL CONTROL It is not uncommon for an acquiring company to assert control over the culture of the acquired one—if it is small. But many executives have been reluctant to do so with really large deals, taking instead a merger-of-equals posture or one purporting to adopt the best of each company’s culture. That approach, we find, typically leads to confusion and reduces accountability, hindering integration and lengthening the time needed to get past integration and on with running the business. In fact, in our case studies’ examination of culture, the biggest difference between successful and unsuccessful large deals was the recognition in the former that one culture inevitably tends to dominate. Unsuccessful acquirers typically discovered that the emerging dominant

culture wasn’t always the best fit for the deal’s strategic intent. In successful deals, companies acted more purposefully. They started by building a fact base to identify cultural differences, focusing on extremely targeted improvements to the acquiring company’s culture, if needed. Then they spent the majority of their time explaining the differences and helping acquired employees understand what they needed to do to migrate to the culture of the new organisation. Finally, they aggressively managed that migration. This sounds intuitive but is quite different than what happened in many of our unsuccessful case studies, where promises of “best of both cultures” resulted in high aspirations supported with little transitional support and, ultimately, an unfair playing field for acquired employees. Managers of a large international media deal, for instance, started with a survey of cultural performance, management practices, and outcomes. The survey identified nine dimensions of culture, and the data it generated gave managers a benchmark of each company’s position on performance. These managers then used that data to inform discussions with the integration leaders, so that everyone understood the differences between the cultures, and then to identify very targeted improvements and shape the language and messaging to the merged company. Finally, they created an “onboarding” programme that helped acquired employees understand what

In one global oil-and-gas merger, for instance, the CEO met with his acquired top team for several hours every few weeks, with explicit instructions that they bring only the most challenging issues to the table

INSIGHT to expect and how to succeed. The topics included how the acquiring company conducted performance reviews and financial planning, set and communicated goals, and enforced accountability. At some levels, the programme even included getting people comfortable with little things that would “feel” very different, such as the reimbursement of expenses, laptop policies, and time and expense reports. There are exceptions when an acquirer wants to leave cultural gaps in specific areas or to protect a specific capability by creating a distinct culture in parts of the business. An acquirer that relies on topdown innovation, for example, may want to retain the entrepreneurial culture of a target’s R&D department. But this approach should be restricted to cases when the uniqueness of the target’s culture creates value—and the acquirer makes the needed investment to keep a culture separate by forming clear organisational and operational boundaries. When one North American hightech company acquired a target with a potentially disruptive new technology, for instance, it found that the investment required to protect the target’s culture was at least equal to the cost of integrating it. The effort, which lasted five years, required a senior executive to manage all interactions full time, changes to the parent company’s HR policies and systems to meet the target’s needs, flexible financial reporting and budgeting that fit the target’s operating model, and forgoing almost all cost synergies from redundant operations. Yet the investment proved to be very worthwhile; the asset flourished under new ownership and significantly exceeded expectations.

BALANCING CEO INVOLVEMENT Demands on the CEO’s time can be overwhelming after a large deal because of the magnitude, complexity, and risk of integrating a large company, typically of comparable size. The CEO’s

Making it work Big deals can create significant value for the acquirer even if success takes time. The difference between success and failure often comes down to strategy and execution. How much a company pays for a deal isn’t necessarily the same as its worth. Companies that reassess their synergy targets after a deal achieve higher synergies than those that don’t. Setting aggressive targets requires leaders to leave their comfort zones and share aspirations. The CEO and the CFO’s involvement are critical for the deal team to maintain focus and energy.

involvement is critical for the deal team to maintain focus and energy; transformation survey respondents were six times more likely to describe deals as successful when the CEO was significantly involved. Yet not every decision or risk demands the CEO’s attention, and in a large deal the CEO cannot spend adequate time on every issue that might merit his or her attention in a smaller deal. The degree of focus may be surprising: in our case studies, the leaders of successful big deals typically focused in a meaningful way on only one or two areas where their involvement mattered most. Everything else, they delegated to an empowered group of senior leaders. The CEOs could therefore focus on protecting the base business even as they pushed the organisation to realise the deal’s full potential. In one

global oil-and-gas merger, for instance, the CEO met with his acquired top team—the target company’s CFO and the CEO—for several hours every few weeks, with explicit instructions that they bring only the most challenging issues to the table. All other integration updates and process-related issues fell to the integration leader, who escalated them only if necessary. Delegating this much authority and responsibility requires CEOs to encourage others to think and act imaginatively without explicit CEO input. This approach is critical to uncovering transformational synergies. CEOs should thus create riskfree environments for generating and evaluating ideas and bring in outside experts (including academics, privateequity partners, and consultants) who can foster creativity. In the organisationalhealth survey, successful acquirers scored 1.5 times higher than average ones in the frequency with which they used external ideas or outsourced expertise. The CEO’s intervention is critical to overcome biases in performance evaluation systems, often structured toward short-term, organic goals. To help organisations pursue higher aspirations, CEOs should review their top-management incentive systems to make sure they reward people who aim to realize long-term transformational synergies that frequently require otherwise-avoidable short-term investments. ANKUR AGRAWAL AND CRISTINA FERRER ARE CONSULTANTS IN MCKINSEY’S NEW YORK OFFICE, AND ANDY WEST IS A PARTNER IN THE BOSTON OFFICE.THE AUTHORS WISH TO ACKNOWLEDGE THE CONTRIBUTION OF THERESA LORRIMAN TO THE DEVELOPMENT OF THIS ARTICLE.THIS ARTICLE WAS ORIGINALLY PUBLISHED IN MCKINSEY ON FINANCE SPRING 2011, AND IS ALSO AVAILABLE ON THE THE MCKINSEY QUARTERLY WEB SITE,WWW.MCKINSEYQUARTERLY. COM. COPYRIGHT (C) 2011 MCKINSEY & COMPANY. ALL RIGHTS RESERVED. REPRINTED BY PERMISSION. JUNE 2011

CFO INDIA

CFO

PROFILE VARDHAN DHARKAR KEC INTERNATIONAL

Steering Dream Vardhan Dharkar has been the CFO at KEC International for the past four years, a period that saw the infrastructure giant double its revenues to become a $1 billion company and make key strategic acquisitions. DHIMAN CHATTOPADHYAY

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JUNE 2011

HE HAS BROKERED HIGH-profile M&A deals, steered KEC International, the flagship brand of the ` 17,000 crore RPG Group through the slowdown of 2009 and helped KEC double its turnover since 2008 to become a billion dollar company in 2011 – achievements which led the Institute of Chartered Accountants of India to declare Vardhan Dharkar ‘CFO of the Year’ in the infrastructure sector last year. Funny as it sounds, though, finance was furthest from his mind when Dharkar, CFO of KEC International, went to college to study physics. A boy from a middle class background whose father worked with National Insurance, Dharkar studied in a Marathi medium school in Dombivali where the family lived, and grew up aspiring to be an engineer or a scientist.

JITEN GANDHI

A BILLION DOLLAR

FAST FACTS FIRST JOB Wockhardt as a finance executive BIG BREAK Being appointed CFO of Dabur Pharma in 2007 A HA! MOMENT The successful acquisition of SAE Towers in 2010 LITTLE KNOWN SIDE Harbours a desire to be a writer DREAM Wants to start an NGO one day. Before that, wants to make KEC a $2 billion company JUNE 2011

CFO INDIA

CFO PROFILE “Then something happened, something which I cannot really pinpoint,” says Dharkar as we sit in one of the many conference rooms of the group’s headquarters in south Mumbai, sipping coffee. “Initially I wanted to do an M.Sc but my elder brother had just become a CA and encouraged me to follow suit,” he says. After completing his education and learning the ropes of auditing and accounts at Lovelock & Lewis for a year, Dharkar joined what was then a small pharma company, called Wockhardt, in 1988. It was a marriage that lasted 18 years and a job that Dharkar says he owes a lot to, one which taught him many valuable lessons. “It was a small firm with a turnover of less than ` 100 crore. I literally grew up here, learning almost everything I know about finance. It was an exciting two decades,” he says. Indeed, it was during those years that Wockhardt grew to become a giant in the fast-growing Indian pharma sector, making strategic acquisitions, listing on the Bombay Stock Exchange and becoming a ` 1000 crore organisation. “Pharma was the sector to be in then. In many ways it is still one of the really exciting sectors in India,” he says. Then, in 2006 Dharkar did the unthinkable. He quit Wockhardt and joined Dabur Pharma as CFO. It was a short seven-month stint, but one which Dharkar lists as high in importance. “It was the first time I was a CFO,” he explains. “At Wockhardt I had become Vice President Finance, but being a CFO was a different ball game,” he adds with a smile. It was a high that gave him confidence to do more daring stuff in the months to come, none more so than quitting a sector he had grown to love, to move into one of the most difficult arenas for a CFO – the infrastructure industry. KEC, now one of India’s largest companies in the power sector was a ` 2000 crore entity four years ago, going through a period of stagnation. “I soon realised that infrastructure sector companies were a lot more dependent on the finance function than firms in most other sectors. In fact, the very fortune of an infrastructure firm depends on how ably and efficiently the finance team functions,” says Dharkar. Soon after he joined, three smaller entities of the RPG group, RPG Transmission, RPG Cables and another SBU, merged with KEC. Then, in the last fiscal, KEC achieved a first for the entire group in more than a decade – a large acquisition. “In 2010, we acquired SAE Towers, one of the world’s largest producers of steel lattice tow34

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FAVOURITE

PICKS

NEWSPAPERS

Business Line MAGAZINES

The Economist MUSIC

Manna De, Pt Bhimsen Joshi BOOK

The Difficulty of Being Good by Gurcharan Das FILM

The Good, the Bad and the Ugly

DESTINATION

Bali ROLE MODEL

Sunil Gavaskar

A KEEN STUDENT OF TECHNOLOGY, DHARKAR ALSO HEADS KEC’S IT FUNCTION

ers for high-voltage power transmission – a leader in the US, Mexican and Brazilian markets. It was a huge moment for us,” he says. Dharkar’s other big test at KEC came barely a year after he joined, when the global economic crisis hit. “We were affected but I think we managed the situation quite well. ‘Cash is king’ became our mantra and because we had good liquidity, all our bankers stayed with us through the crisis,” he says. The current high, though, comes from a brilliant last fiscal. The 2010-11 financial year saw KEC reach a new milestone, with revenues

CFO PROFILE

“A CFO in the infrastructure sector has to maintain relationships with more banks than CFOs in other sectors because, at any point, I may have 10 projects across many countries.”

crossing the ` 4500 crore or $1 billion mark. “We hope to double our revenues once more by 2014-15,” says an ebullient Dharkar. The confidence he shows is based on recent performance. KEC was until 2009 almost solely in the business of power transmission, though it had started diversifying into new areas. Today, these new initiatives form 25 per cent of KEC’s business in terms of revenues and include telecommunications infrastructure, railway infrastructure, cables manufacturing and water management. It is no surprise then that Dharkar has a consortium of 22 banks with whom he deals every month. “A CFO in the infrastructure sector has to maintain relationships more banks than CFOs in other sectors because, at any point in time, I may have 10 ongoing projects spread across various countries or geographical locations,” explains Dharkar.

Dharkar’s career graph seems to have gone only one way – up. But that has not changed this affable man. Most colleagues readily tell you he is one of the friendliest co-workers they have. “He is always willing to share a laugh, even with his juniors. Also, he is a good man to have when the chips are down because he has a never-saydie attitude,” says a senior colleague. Throughout my interview, I also get a taste of his sense of humour as he cracks jokes, smiles when telling stories and breaks out laughing while spelling out one or two of his future plans — which shall go unmentioned here, on request. In fact, in some ways he still remains the ‘middle-class-boyfrom-Dombivali’ at heart. “I am the only one among the C-suite executives in the entire group who drives to work. I know CFOs should sit back, read the

day’s news on Kindle or send mails on their Blackberry while the chauffeur does the driving. But I like driving my own car,” he explains as we walk to the elevator to go down to the courtyard for a photo shoot. A great job, recognition and awards from peers and a happy family – one would think Dharkar has everything he wants in life. But he still strives for new achievements. “I want to develop my writing skills and publish my work. Maybe you can help me there,” he tells me, seriously. Dharkar also wants to start an NGO one day. “We only take from society and hardly give back. I want to give back a little to a world that has given me a lot,” he says. One hopes Dharkar achieves this ambition too, just as he has achieved pretty much most of what he set out to do all through his career. JUNE 2011

CFO INDIA

IN PRACTICE

STRATEGY

>PLAN >DO >CHECK >ACT The past few years have caused economic havoc in the US and the automobile industry, among many others, has suffered considerably, since autos are mostly a discretionary purchase. ELLEN M. HEFFES

n 2009, auto sales in the United States dropped from their peak sales of 16-17 million units a year to about 10 million. Credit played a big part in that, as a large number of cars are financed. In the same year, Toyota sales dropped from 2.6 million in 2007 to 1.8 million, with more than 50 percent of its U.S. sales financed by Toyota Financial Services Corp., or TFS, U.S., the captive financing subsidiary of the global automaker. Yet, with all of the difficulties, TFS recently completed its best year ever and is on track for another banner year. In the following interview, Chris Ballinger, Group Vice President, Chief Financial Officer and Global Treasurer of TFS, shares his insights on risk management and how the contributions of his division helped and continues to help its parent weather the storm. 36

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1.8Mn The number of cars Toyota sold in 2009, down from 2.6 million in 2007

Talk generally about the economy and the industry over the past few years. The recession was global, and the most severe recession since the 1930s. It impacted the auto sector particularly, and captives were especially hard hit because they are not banks, generally, and didn’t have the lender-of-last-resort access to the Federal Reserve window. Some of the captives —TFS included — were well prepared, and it turned out to be a source of strength for us. But some captives had to get out of mar-

kets entirely, get out of leasing and stop lending to their dealers or stop making certain types of loans. Not having a viable captive proved to be a huge competitive disadvantage during the crisis. What have the past few years been like for TFS — the economy, the technical issues, as well as the financial risk? A few years ago, for some companies, there were a range of options for support. There were special government funding programmes and guaranteed loans, when most banks — and even some companies that were not banks but deemed critically important to the economy — were able to issue debt that was government guaranteed for a fairly low fee. Some of those companies went into bankruptcy and got bailed out, received discharged liabilities and special-treatment bankruptcies; some got additional

IN PRACTICE

ROMAN CHO / GETTY IMAGES

Ultimately, you have transparent information about where your value is coming from, where it is being created and destroyed and where your risks are or are not

government-guaranteed loans. Some were banks to begin with and got public capital infusions. In light of this, one of the things I am very proud of is that we are one of the largest, or maybe the largest financial services company, that didn’t receive any support and had to do it on our own and actually compete with the U.S. Government indirectly. Describe the business issues related to the multiple crises, which created a public relations nightmare. How did the

company handle these situations? We’ve had one crisis after another: a market crisis, a funding crisis, a sales crisis, a recall crisis. We had two crises back-to-back and each one was extremely serious, making it probably the toughest two-year period in our history. The recalls came just as we were beginning to recover from the other crises. Just as funding was beginning to come more easily again and we re-established our competitive advantage in funding markets,

the recalls hit. We are lucky to be working for Toyota, since the company has such a strong reputation for quality. Our customers who were existing customers loved their Toyotas, knew they were good cars, and they wouldn’t trade them for anything regardless of the headlines. There was no loss of loyalty among existing Toyota customers. It was a little more problematic with prospective customers — those who we wanted to become our customers who hadn’t yet owned a Toyota. They JUNE 2011

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IN PRACTICE didn’t have the direct experience, so it took time for the real story to come out and for those customers to consider Toyota again. Now, about a year into it, we’re very pleased that the recent Kelly Bluebook Report, which publishes a statistic called “the most considered new car purchase,” rated Toyota, once again, at the top of the list (after falling off some last year). This means that consumers who perhaps weren’t Toyota customers are reconsidering and putting us at the top of their new car shopping list. How would you characterise the major risks the company was facing during this period and how did it change the company’s approach to risk management? There have been a number of recalls recently, by Toyota as well as by other auto manufacturers as a result of what is apparently a new standard in the industry — sort of “recall first.” Be extra careful. If there is any question, go ahead and do the recall. And I believe Toyota is at the forefront of this movement. So it’s not so much the numbers, but the brand perception that’s at issue here. The lessons of the past few years for everyone — and not just the auto industry — are that risk distributions are fattertailed and longer, that surprises happen more frequently and are often outside traditional models and expectations. To manage these new risks, there’s been a transformation in risk management thinking that focuses more on how we deal with uncertainty — the things we don’t know — rather than the things we do know and where we have known probabilities. A phrase attributed to former Secretary of Defence Donald Rumsfeld fits: strategies for dealing with a world of higher uncertainty and “unknown unknowns” are different from the kinds of strategies for dealing with known distributions and known probabilities and where you can hedge more effectively. The kinds of strategies I believe are being more broadly applied now are 38

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Toyota Financial Services Corp. Headquartered in Torrance, California. The largest captive automobile financing company in the U.S. More than $85 billion in assets Number one auto lender in the U.S. (including retail loans and leases) TFS includes an insurance subsidiary and a securities broker-dealer subsidiary About 3,500 Employees About 230 in the Finance Department

things like increased risk transparency — meaning you can surface information, try to get large numbers of eyes on it, get discussion going on it, get people who have different perspectives on it — making things a little less balanced on a razor’s edge. The new risk management strategy is a little less leverage, less sensitivity

3500

The total number of employees at Toyota Financial Services in the US

1st

TFS is ranked first amongst all auto lenders in the US

to being wrong, and trying to build in redundancy, robustness options and contingencies. And doing all this with an increased focus on getting your data, getting the risks transparent to the largest number of people possible, to better capture various perspectives and thinking at all levels of the organisation. How different is this approach internally from your previous process? It’s a fairly radical change in the approach to risk — and it’s not just motivated by the last two years. The last two years accelerated a trend, exposed some of the weaknesses in past practices. A few years ago there was debate over risk management within the company that mirrored a debate that was happening industry-wide as well as in risk circles more broadly. This is probably oversimplifying it, but it boiled down to this: what does risk management consist of? Some felt the controllership approach — committee structures reporting to boards, policies and procedures — as proper risk management.

IN PRACTICE Others believed risk management was a broader, more inclusive discipline that really was about surfacing information, getting things out, better decisionmaking and making sure local information was used efficiently. This approach was more about the overall decision-making processes than about lines of reporting, policies and procedures and committees. In the financing area, what are you and those 230 or so people who report to you doing differently? Consider how the role of finance and the CFO has changed over the past 10, 20, 30 years. In the 1980s, the CFO and the finance department were mostly about accounting and controllership. In the ‘90s the role expanded, becoming more about the stewardship of shareholder value and making sure that financial discipline, particularly regarding expectations, projects, investments, purchases and acquisitions made sense. So, the role went beyond accounting. That was then. In the CFO role, you have to do the accounting before you can move on to the stewardship of shareholder value. Now I think you have to do the accounting and the stewardship of shareholder value before you can move on to the next step, which is robust decision-making and advanced risk management. The role of the CFO is now much more about transforming the company; it’s much more about change and, as such, it needs to be much more about how you create decision-making processes rather than the decision-making itself. The robust decision-making processes that the finance department and the CFO need to create are around transparency and risk. Basically, they are around surfacing issues. Thus, we’ve put a lot of attention on our analytics, on data and on getting that data out to the decision-makers in the organisation, and it is a little different. We have put a lot of thought into where decisions in the organisation are

“It’s been a tough two years. But on the financial services side, we have managed to turn a lot of disadvantages into opportunities” really made and found they’re made everywhere — at every level. It’s not just a matter of getting good summary data, but getting the right data to the individuals in the field making the day-today decisions is important, too. Our people on the front lines have very valuable local information that’s specific to their time and place and can’t easily be brought to headquarters or easily aggregated. But it’s nonetheless very important to individual decisions. So, getting the information that we have here at headquarters — costs, transfer pricing, funding, on the margin, loss rates on certain types of categories of loans or visas, etc. — to these decision-makers who are actually originating the loans is much easier than getting their information to us. The bottom line is, it is a process of decentralising and democratising decision-making and information and being able to aggregate it up in sensible ways to preserve the risk transparency and make it coherent when looked at higher levels. That’s all part of the new approach to risk and decision-making. Talk about risk management related to reputation and what it takes for Toyota to recapture its stellar reputation.

We came out of the credit crisis with a competitive advantage because we were stronger; we had the funding capacity to step in and take market share and maintain our strong support for our dealers and customers. When we were hit by the recall crisis we were directly affected while our competitors were not. So, we had to quickly determine where we could add value and drive sales, and where we could step in and make a difference. For example, connected to an early recall was a “stop sale.” Certain models couldn’t be sold until a remedy was issued and the vehicles were updated. At that time, we stepped up with an incentive on other models and on used vehicles. We also instituted a special warranty to rebuild confidence in the brand as well as some extended insurance programmes aimed at increasing confidence and making transactions more attractive. So we stepped up in a number of places that weren’t directly affected by the recall but were peripheral and helped our dealers keep their volumes and profits up at a time when they were being hurt by the recalls. I think our dealers recognised these efforts and we increased our dealer loyalty significantly. During the financial crisis we saw an increase in dealer loyalty from the dealers; from being there, having the money to not pulling out of markets when they saw so many of the other manufacturers and banks doing that. It was a difficult situation for everybody, but we moved quickly to help dealers in the areas where they could still sell, where they could still get customers and where they could still be active. As a result, while still on the heels of the recalls, Toyota Financial Services ranked number one in eight of 10 categories (ranked second in the two others) in a National Automobile Dealers Association Satisfaction Survey last summer that asked: “How satisfied are you with the captive, how satisfied are you with the manufacturer?” JUNE 2011

CFO INDIA

IN PRACTICE With the unsettled politics in many of the countries in which you do business, what are your thoughts about currency risk? I am the CFO of the Americas region — North and South America — and we take virtually no direct currency risk. We do take some risk indirectly when deciding how to fund countries where currencies are not fully convertible. There’s a continuum of countries and, for example, the EU comes to mind where, until recently, nobody would question the convertibility of currency. And nobody questions the ability to frictionlessly move money back and forth across the border between the U.S. and Canada. Then there are countries at the opposite end of the spectrum where it’s virtually impossible to get money in or out — more so out of the country, because you have to go through an official exchange rate regime and be subjected to the whim of the government exchange control board, and some currencies are just completely inconvertible. As a global business, we have to deal in such countries sometimes. So we have a continuum and we have to make a decision somewhere along that continuum: Do I feel safe that I can put money in and get money out, or do I still feel that it’s a risk? And there’s always a cost of trying to fund entirely locally without putting money in cross-border. That cost can range from a few basis points to hundreds, or even thousands of basis points, or even hundreds of thousands of basis points for overnight money that’s subject to crossborder risk in countries on the verge of a devaluation. These are some of the toughest decisions we have to make. It’s using judgement — business judgement, political judgement — and it’s a risk that you can choose to mitigate through cross-border risk insurance, hedging, making currencies deliverable outside the country or in a variety of other ways. But there is a cost to all those riskreduction techniques. 40

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1st

The rank of TFS in 8 out of 10 categories in a 2010 ‘satisfaction survey’ in the US

$85bn Total value of assets that Toyota Financial Services (TFS) declared in 2010.

It seems the U.S. economy has turned a corner. What does it look like from your perspective, and what are some of the challenges of managing potential new risks? It has been a tough two years. But on the financial services side, we have managed to turn a lot of disadvantages into opportunities. We had our best year ever following the crisis and we’re on track to beat it again. We are actually having two very good years in the financial services sector. Our income as a percentage of Toyota’s overall income for the last year and a half to

“Ultimately, you have transparent information about where your value is coming from... and where your risks are”

two years is almost 50 percent coming out of the U.S. Financial services. This is attributable to turning the challenges into opportunities, building on our competitive advantages and our relationships with our customers and our dealers. To sum up my perspectives on the CFO role and risk management: it’s this whole idea of trying to transform the organisation by changing the decision-making process, not focusing on an individual decision but focusing on creating the processes for making good decisions. That is where I see not only the CFO’s role going but where risk management is going. It is all about creating the transparency around risk, using analytics effectively, being able to look into your business at every level right from the individual contract, the individual sale, the individual business segment, the line of business and on up; being able to aggregate in sensible ways all the way to the top, to the full balance sheet. Ultimately, you have transparent information about where your value is coming from, where it’s being created, where it’s being destroyed and where your risks are or are not. And, hopefully, you do all this on a risk-adjusted basis from top to bottom so that every decision-maker in the company has the right information to make the right decision at the right time. It’s creating those robust processes, creating redundancy around them, using the analytics, scientific method, creating what Toyota calls PDCA (plan, do, check, act). This is related to continuous improvement. This creates a flywheel that gets you to progress, which improves the decision-making, improves the production process and improves the origination of financial services. ELLEN M. HEFFES IS EDITOR-IN-CHIEF OF FINANCIAL EXECUTIVE. © 2011 FINANCIAL EXECUTIVES INTERNATIONAL | WWW.FINANCIALEXECUTIVES.ORG

IN PRACTICE

OPINION

THE REAL ECONOMIC FALLOUT OF FINANCIAL REPORTING QUALITY Financial crises often increase moral hazards associated with lower quality reporting and ultimately lead to a decline in overall real economic activity, argues Karthik Balakrishnan. Excerpts

PHOTOS.COM

ccounting research asserts that the quality of financial reporting can affect a firmâ&#x20AC;&#x2122;s real investments and can even have an impact on aggregate economic growth. Recent empirical studies provide evidence which suggest that the quality of financial reporting affects firm-level investments. Yet, the precise mechanisms that underline the relationship between the quality of financial reporting and the level of real investments are not well understood. More importantly, the question whether poor quality financial reporting leads to an aggregate decline in real economic activity remains unanswered. The Credit Channel theory provides one specific mechanism through which the quality of financial reporting can have real economic consequences at the firm-level and, more importantly, at the economy-level during financial crises. JUNE 2011

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TED SPREAD 0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 1/1/2003 3/1/2003 5/1/2003 7/1/2003 9/1/2003 11/1/2003 1/1/2004 3/1/2004 5/1/2004 7/1/2004 9/1/2004 11/1/2004 1/1/2005 3/1/2005 5/1/2005 7/1/2005 9/1/2005 11/1/2005 1/1/2006 3/1/2006 5/1/2006 7/1/2006 9/1/2006 11/1/2006 1/1/2007 3/1/2007 5/1/2007 7/1/2007 9/1/2007 11/1/2007 1/1/2008 3/1/2008 5/1/2008 7/1/2008 9/1/2008

The basic tenet of the credit channel theory is that a negative shock to the financial markets increases the well-known moral hazard and adverse selection problems associated with a given level of information resulting in an increase in the external finance premium associated with information asymmetry. Consequently, the cost of external financing increases for the economy and leads to a decline in overall real economic activity. Thus, the theory suggests that by increasing information asymmetry, poor quality financial reporting impedes the efficient functioning of the financial system and, hence, plays a role in propagating financial crises to the real economy. In my research, I have employed a difference-in-difference identification strategy and used the financial crisis that started late 2007 as a natural experiment to examine the real economic consequences of financial reporting quality. The credit channel literature employs a firm-level contracting framework to argue that information asymmetry between firms and credit markets can explain the real economic consequences of negative shocks to financial systems. Information asymmetry between borrowers and lenders results in the well-known adverse selection and moral hazard problems. Lenders recognise these incentive problems and, consequently, demand a premium to provide the necessary external funds. The cost of monitoring (such as the costs of restrictive covenants, collateral, or the provision of timely financial information) is borne by the borrower, thus, rendering the cost of obtaining funds from outside the firm more expensive than the cost of funds generated inside the firm. The difference between the cost of external and internal funds is referred to as the external finance premium. The greater the external finance premium, the higher the cost of external funds, and this results in firms passing up otherwise positive NPV projects that then leads to a decline in

TABLE 1: The above figure presents the TED spread (as a percentage) between 1/1/2003 and 10/1/2008. The TED spread is the difference between the risky London Interbank Offered Rate (LIBOR) and the risk-free U.S. Treasury bill rate. The TED spread captures the extent of credit available for non-financial firms where the lower values of TED Spread indicate a greater credit availability.

firm-level economic activity. The credit channel theory extends this firm-level argument to the overall economy. A negative shock can arise due to a sudden deterioration in banks’ balance sheets, bank panics, or monetary policy tightening—all having similar consequences to real economic activity and all suggesting a similar role for financial reporting quality. Prior studies suggest that higher quality financial reporting mitigates information asymmetries that cause economic frictions and improves a firm’s investments. So, the credit channel provides a clear motivation for poorer quality financial reporting. This affects firm-level investments and transfer negative credit market shocks to the real economy. Formulating testable hypotheses of this aggregate economy level theory employing firm level financial reporting quality is

not entirely straightforward. Following prior research that examines the credit channel, I have formulated a cross-sectional hypothesis to examine the real economic consequences of financial reporting quality. In the cross-section, I think that at the onset of a credit crunch firms that have lower quality financial reporting will face a sharper decline in the real economic activity than those with higher quality financial reporting. This decline should be incremental to any relation between financial reporting quality and investments that might exist even in periods of normal credit. Evidence in support of this cross-sectional hypothesis will satisfy the necessary conditions for the role of financial reporting quality in the credit channel. Accordingly, I adopted a difference-indifference method wherein I compare the relation between financial reporting

Prior studies suggest that higher quality financial reporting mitigates information asymmetries that cause economic frictions and improves a firm’s investments

IN PRACTICE quality and investments in a period of tight credit with that in a period of normal credit. Finding in support of this cross-sectional prediction is interpreted as evidence of financial reporting quality having real economic consequences through the credit channel. The research design involves the choice of a period of tight credit that is suitable to examine the credit channel theory, measures of real economic activity as well as a measure of financial reporting quality. The main analyses focus on the recent credit crisis of 2007. This episode, one of the worst in terms of credit availability, has been accompanied by a significant decline in real economic activity. This will be the best place to examine the differential impact of financial reporting quality. I have used investments in inventory as well as capital expenditures as measures of real activity. I have defined financial reporting quality as the precision with which it conveys information about a firm’s expected cash flows. Following prior studies that have examined the relation between financial reporting quality and investments, I have used the quality of accruals as calculated in Dechow and Dichev (2002) as the measure of financial reporting quality. I have also employed a modified measure of accruals quality and a market-based measure of information asymmetry, i.e., the adverse selection component of the bid-ask spread as proxies. Consistent with the predictions regarding the role of financial reporting quality in credit channel, I find that firms with lower quality financial reporting invest in inventory and undertake capital expenditures less than those that have higher quality financial reporting and that this difference was larger during the credit crisis in 2007–2009. This finding is robust to the alternative measures of accruals quality as well as the information asymmetry measure. In additional analysis, I have found evidence in support of the credit channel theory that

Variable

Mean

Median

Std Dev

Minimum

Maximum

13,973

0.080

0.051

0.093

0.009

0.603

Alt_AQ

13,973

1.131

1.055

0.500

0.293

3.539

Lambda

9,819

0.059

0.022

0.100

0.002

0.642

Inv_Grwth

13,973

0.044

0.000

0.278

-1.036

1.207

Capex

10,742

0.058

0.033

0.075

0.000

0.538

Sales_Grwth

13,973

0.075

0.076

0.287

-1.123

1.098

Inv_Sales

13,973

0.088

0.066

0.095

0.000

0.527

S_Capex

10,742

0.040

0.019

0.060

0.001

0.439

S_CFO

13,973

0.156

0.076

0.273

0.009

2.582

S_Sale

13,973

0.191

0.126

0.202

0.009

1.294

Cash

13,973

0.214

0.128

0.224

0.000

0.912

Z_Score

13,973

2.439

2.613

5.763

-17.696

17.296

Size

10,742

5.884

5.896

2.383

0.374

11.483

10,742

2.340

1.587

2.805

0.472

28.737

Leverage

10,742

0.176

0.115

0.226

0.000

1.435

Tangibility

10,742

0.266

0.187

0.236

0.004

0.907

CFOSale

10,742

-0.658

0.060

4.359

-54.496

1.036

Age

10,742

20.232

14.000

14.106

5.000

59.000

OpCycle

10,742

0.285

0.252

0.185

0.000

1.239

TABLE 2: Credit crisis and the differential impact of financial reporting quality on investments—inventory This table presents pooled time-series cross-sectional regression coefficients of a model predicting inventory growth, Inv_Grwth, by financial reporting/information quality variables—AQ, Alt_AQ, and Lambda. Crisis_FRQ refers to one of the three financial reporting/information quality variables that is used to predict inventory growth during the crisis period from 2007 through 2009. This variable takes the value of the financial reporting quality/ information quality variable mentioned in the column header in the crisis period and a value of zero in the period when there is no crisis. No_Crisis_FRQ refers to one of the three financial reporting/information quality variables that is used to predict inventory growth during the period with no crisis from 2003 through 2005. This variable takes the value of the financial reporting quality/information quality variable mentioned in the column header in the period with no crisis and a value zero in the period when there is crisis. Lag_Sales_Grwth refers to the sales growth over the preceding year measured as the change in the log of firm sales. All other variables are as defined in Table 1. Industry and time effects are included in all specifications. The t-statistics, reported in parentheses, are calculated based on standard errors obtained by clustering at the firm as well as time level. Statistical significance (two-sided) at the 10%, 5% and 1% level is denoted by *, **, and ***, respectively

the observed relation between financial reporting and investments in periods of credit crisis will be stronger for firms that are financially constrained. One major disadvantage of focusing on a single episode however, is that generalisability of the result is questionable. So I have examined the sensitivity of the main results to alternative episodes of tight credit during the 1981–1982 and the 1974–1975 recessions. The evidence suggests that financial reporting quality is operative through the credit channel in these substitute periods as well. Further, to rule out distress as a possible alternative hypothesis, I performed a subsample analysis on firms that are financially healthy. I also examined

the robustness of the results to different regression specifications including a lengthier time-series specification. Collectively, the evidence indicates that financial reporting quality is operative through the credit channel and plays a role in magnifying and prolonging the negative real economic consequences of a credit shock. There are a few caveats to this study though. First, this study does not aim to offer a complete explanation for a crisis. Second, this paper does not claim that poor financial reporting quality is the cause of a crisis. Rather, this study provides evidence that supports the role of financial reporting quality in the spread of a crisis to the JUNE 2011

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IN PRACTICE real economy and the possible exacerbation of the economic decline.

RESEARCH DESIGN In order to test the hypothesis that, when faced with a credit shock, firms with lower quality financial reporting will experience a greater decline in real economic activity than that experienced by firms that have higher quality financial reporting, I employed a differencein-difference design that compares the investment behaviour of firms with differing levels of financial reporting quality during a credit crunch vis-à-vis a period of freely available credit. Specifically, I examined whether an ex-ante classification of firms by their level of financial reporting quality prior to a credit crisis helps explain the ex -post magnitude of the decline in real economic activity when faced with a sudden exogenous credit shock. However, merely focusing on a period of tight credit may lead to spurious conclusions because the documented relation between financial reporting quality and investments may exist even in periods of normal credit. That is why I employed a difference-in-difference research design to test the predictions. Recent studies attempt to measure the quality of accounting information provided to outside investors by analysing the properties of a firm’s reported earnings. Specifically, research suggests that earnings smoothing using accruals can capture important dimensions of a firm’s information quality. I define financial reporting quality as the precision with which financial reporting conveys information about the firm’s expected cash flows. This construct is appropriate for the setting considered in this study. In principle, the credit channel arises out of information asymmetry about a firm’s short-term future cash flows. Accordingly, a measure that maps financial reporting to cash flows is well suited to examine the role of financial reporting quality in 44

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the credit channel. Further, this class of measures of financial reporting quality has been empirically shown to be related to investments.

RESULTS AND DISCUSSION Table 1 presents the descriptive statistics for the sample that is used to examine the role of financial reporting quality in spreading the shocks in the financial markets to the real economy during the recent crisis. The sample for this analysis spans the period from 2003 to 2009. Table 2 examines the differential impact of financial reporting quality on real economic activity during the crisis period using a difference-in-difference approach. In Table 2, the real economic activity variable of interest is investments in inventory. Results are presented for the two alternative measures of financial reporting quality as well as the information asymmetry measure.

CONCLUSION Lower quality financial reporting increases the information asymmetry between borrowers and lenders and renders the costs of obtaining funds from outside the firm, external funds,

Firms that have lower quality financial reporting will experience sharper declines in real economic activity when credit markets experience a negative shock

more expensive than the costs of funds generated from inside the firm, internal funds. A negative shock to a credit market due to a sudden deterioration in banks’ balance sheets, bank panics or monetary policy tightening, increases this wedge between internal and external funds, reduces lending, and leads to an overall decline in economic activity. Referred to as the credit channel, this theory predicts that lower quality financial reporting impedes the efficient functioning of the financial system and, thus, plays a role in transferring and propagating shocks to the credit markets into the real economy. I therefore believe that firms that have lower quality financial reporting will experience sharper declines in real economic activity when credit markets experience a negative shock. I also believe that during the credit crisis in 2007-08, firms with lower quality financial reporting experienced a disproportionately greater decline in investments in inventory as well as capital expenditures relative to firms with higher quality financial reporting as well as during periods of normal credit availability. This finding is in keeping with alternate measures of financial reporting quality, alternative credit crunch episodes as well as alternative regression specifications. By providing evidence on one mechanism through which financial reporting quality has macroeconomic consequences, this finding opens up the possibility for future research to examine the role of financial reporting quality in business cycles and financial crises. There are several questions that can arise based on the findings of this study. For example, one question that arises is whether firms attempt to improve their information environment in response to a credit market shock. Further, future research could quantify the economic significance of the credit channel effect. KARTHIK BALAKRISHNAN IS AN ASSISTANT PROFESSOR OF ACCOUNTING AT THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA, USA

IN PRACTICE

TECHNOLOGY

FOUR STEPS TO AN INTEGRATED VIEW Along with ERP comes the challenge of standardising reporting. How can corporates arrive at a single, integrated view of essential data? ERIC NOREN

SHIGIL N

ery few corporations have had the luxury of creating an enterprise reporting system from scratch. More typically, such systems develop by aggregation, with one piece bolted onto another as the company grows organically, makes acquisitions, adds new lines of business and enters new geographic markets. Of course, as ERP systems extend to support expanding operations, it becomes more and more difficult to standardise reporting. One of the biggest problem areas is found in addressing discrepancies between internal and external reporting demands. These difficulties are magnified as companies take on increasingly complex external reporting. Demands for comprehensive business unit and geographic segment reporting from organisations such as the International Financial Reporting Standards (IFRS), U.S. GAAP and various tax regimes pull companies toward bolstering their external reporting functions.

At the same time, companies have significant needs in terms of improving internal reporting. Many companies find barriers such as legacy systems, inconsistently configured platforms or a simple lack of integration across the organisation, block the way to better internal management reporting. These problems stand in the way of greater organisational efficiency, which is a key management objective for companies that have

found organic growth hard to come by in recent years. Companies that need the ability to make quick, effective decisions about markets, products, customers and channels find themselves lacking the information to do so. The real difficulty, however, arises when companies attempt to coordinate external and internal reporting. Disparate systems and disjointed data sources, along with the absence of a consistent view from senior management as JUNE 2011

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IN PRACTICE to what really drives enterprise growth and profitability lead to redundant and costly efforts to reconcile internal and external reporting. There are a number of reasons why these problems continue to plague companies, despite extensive investment in enterprise reporting and business intelligence capabilities. These include: 1.Companies using the wrong metrics. Research indicates that 70 percent of companies use metrics that lack statistical validity, and only 23 percent of companies with balanced scorecards can prove a link between the scorecards and growth in shareholder value. The lack of precision in metrics not only creates confusion but makes it hard to execute business strategy. 2.Companies that have too much data to manage. An estimated $40 billion per year is spent on data warehousing applications, with more than 60 percent of that amount spent on cleansing data. Despite this huge investment, data users find themselves overwhelmed by the amount of data they need to manage. More than 40 percent of employees in a recent survey said they believe that the high volume of data delays important decisions and affects their organisation’s overall ability to make decisions. 3.Companies finding that results are hard to quantify. No more than 12 percent of companies can tie quality measures to positive stock returns. 4.Companies ignoring and under-managing important assets. Research indicates that a large part of a company’s valuation is attributable to intangibles. A study of 300 buy-side investors — including institutional investors, portfolio managers and research staff -- showed that some 50 percent of the allocation decisions made were based on non-financial performance. Companies still, however, fail to act on the need to properly analyse and manage 46

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Consistent and complete preventive controls can help ensure the right data is captured in the right account at the time of recording the transaction in the system. their financial business information. Of course, enumerating problems is one thing, but developing effective solutions for such problems is quite another. The argument can be made that improving data quality is not an IT process at all; Rather, it can be seen as an integrated enterprise process led by finance. In any case, the finance function defines the data standards and governance structures to ensure that the right data is in the right accounts and dimensions of the business. From this starting point, corporations can undertake a number of actions to arrive at a single, integrated view of essential data. Here are four steps.

The format of the data architecture needs to be designed so that it is easily understood by business stakeholder and decision makers. Many companies have complex data architecture described in technical terms that is not easily understood by the business. The key here is to focus on the right data structure to deliver the right information to business stakeholders, helping them make the right decisions on business performance. The data architecture should be aligned to the company’s model for accountability but should retain the flexibility to efficiently address changes in the company’s business or go-to-market strategies.

Consistent and complete preventive controls can help ensure the right data is captured in the right account at the time of recording the transaction in the system. This avoids heavy reliance on defective controls and reduces non-value added time spent reconciling or reclassifying data between accounts or dimensions. Companies with have multiple ways of recording data and spend large amounts of time on data aggregation should consider an enterprise data warehouse, a business intelligence approach designed to establish a common source of information. Standardisation of the accounting and finance process will enable a consistent approach to recording transactions and allocations and allow the enterprise to efficiently analyse and consolidate data across the organisation. In our experience, organisations that integrate an enterprise data warehouse with an effective approach to business intelligence and standardised data integration architecture improve their ability to manage and analyse data. A single data warehouse can serve the needs of internal and external stakeholders without compromising data quality or accuracy of reporting. Aligning such an architecture to both external financial reporting requirements and to internal business management requirements can allow companies to obtain two views of the truth -- the external and the internal perspectives -- from a single data source. This, in turn, can provide significant benefits in terms of reducing costs, improving operating efficiency and enhancing the quality of data for analytics to support key business decisions.

3 4

—ERIC NOREN IS AN EXECUTIVE IN THE FINANCE & PERFORMANCE MANAGEMENT SERVICE LINE AT ACCENTURE, A GLOBAL MANAGEMENT CONSULTING, TECHNOLOGY SERVICES AND OUTSOURCING COMPANY.— THIS OPINION WAS FIRST PUBLISHED IN CIO INSIGHT.

LEADERâ&#x20AC;&#x2122;S

WORLD

Creating a

Winning

Culture There are many qualities and skills that that a leader needs to learn to become a great leader. Some of them are rather underrated. DAVID LIM

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

A MONTH AGO, we concluded a global poll of 1000 people of whom 20 per cent were C-suite executives, 20 per cent vice-presidents and 60 per cent mid-level professionals. We polled them on what they believed to be the five most underrated leadership skills. So here were the five skills we identified as being underrated: Negotiating skills Managing expectations and performance Creating a winning culture at work Winning buy-in Strategy implementation Now guess which leadership skill topped the poll easily, winning more than half (53%) the votes? If you guessed creating a winning culture, you were right. It was followed by, at a distant second place with 22 per cent, managing expectations and performance. We talk about culture in the workplace all the time. So, what is it that makes it so powerful and effective? There are essentially three reasons why creating a culture that works for your organisation is critical. And I will share what I believe makes a winning culture in a typical office context. JUNE 2011

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LEADER’S WORLD

CULTURES DRIVE BEHAVIOUR:

Contrary to popular belief, we become influenced by our peers far more than we would like to think. Cialdini’s work at Arizona University shows that far from being the individual we think we are, we are heavily influenced by what others think and do. This boils down to our innate need to be accepted into a ‘tribe’ or, in this instance, workplace. Having a culture that rewards the right behaviour or approves it, is a powerful motivator. No one likes to be the odd one out. Cultures also can motivate us to work harder, especially when everyone else is doing so. A long-standing joke shared by my clients at Accenture is that when a member of the team is seen leaving the office at 7pm, he or she is often met with the comment, “So, having an early day, are we?” The Accenture culture upholds excellence and hard work.

“Once set up right, there is no need for massive guidelines, irksome office rules and constant reminders to let a culture do its work.”

IT IS FREE.

Like it or not, most cultures that are allowed to develop organically cost no direct fee to the company, but can create immensely profitable attitudes that emerge from the culture. This could be a culture of work excellence or a culture of punctuality. No contrived incentives plan can be as powerful as creating the right kind of culture in the workplace. My good friend and fellow professional speaker, Ron Kaufman, was best-known as being an expert in customer service. However, as he elevated his expertise and know-how in this area, his company created its proprietary ‘Up! Your Service’ methodology. It is now creating impact in the area of service culture leadership, a subtle but massively different kind of solution. While customer service training only gets you so far in terms of skills and mindset, creating a culture that makes people want to go the extra mile in servicing their peers, colleagues and customers is a mighty powerful thing.

3 PHOTOS.COM

YOU RARELY HAVE TO POLICE A CULTURE

Once set up right, there is no need for guidelines, irksome office rules and constant reminders to let a culture do its work. You just need to follow certain behaviours and reinforce the key culture messages to keep the culture ticking along. Like a large stone ball, it takes a while to get moving but once it does, the amount of energy to keep it going will be minimal.

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So, how do you get around to creating such a winning culture? A culture is based on a combination of shared values, supportive behaviours and a range of outcomes defined by the group embracing the said culture. A winning culture is one, which aims to beat the competition, champion its product and cause and attract more like-minded people to its ranks. a) Assess: Look around your workplace and ask yourself if there is a definitive workplace culture. If you do not see one, that could actually be good news, as you may be able to start one. But if you do not start one, one may develop anyway, and it may be one you won’t like. Assess your group’s goals, values and specific observable behaviours that support the team reaching its goal with a set of values you can be comfortable with. A highly driven sales team, for example, may be tempted to champion less than ethical practices and turn a blind eye to corrupting influences in order to reach their goals. Certainly, it is a winning team mindset. But do they also embrace values that work for everyone? b) Identify: Many people and teams operate on a heliotropic basis – they gravitate, like sunflowers towards the sun, to actions, behaviours and people that they admire. You can identify people in your workplace who are glittering examples of such behaviours. These are your culture champions. Nurture and encourage them to keep repeating those winning

LEADER’S WORLD habits. These can be as simple as helpfulness, going the extra mile for colleagues, speaking up at meetings and being punctual. Eventually, these habits will spread to others. If you think you can win faster by getting people to set ambitious goals for themselves, then ask yourself if your system supports such champions in terms of recognition and rewards. Often it is not even monetary rewards but a kind word by yourself or your peers, that works wonders. One of my leadership heroes, Sir Chris Bonington, who has led countless mountaineering expeditions, related a striking example of a winning culture. As a guest member of the 1985 Norwegian expedition to Mt Everest, he could observe first hand the attitudes displayed by members of this national team that was attempting the peak for the first time for their country. Each member was interviewed about their respective ambitions and interests. One, in particular, was interesting. When asked if summitting Mt Everest was important to him, he said: “Yes, it is very important for me to be able to get to the top.” Then he paused, and said, “But more importantly, that one of us gets to the top!” So even in the short time frame of a two-month long expedition

that took a year to plan, a culture of encouraging other teammates to be as, if not more successful than themselves, created a superbly harmonious and collegial atmosphere. Many of that team succeeded in reaching the top, and more than 25 years later, they are all still on exceedingly good terms with each other. c) Celebrate: Take time off with your team after an office win to remind them implicitly or explicitly to keep doing those things that bring victory. Many people I know have left good jobs because the management kept forgetting and failing to recognise those attitudes that brought past success. If any of you are interested in getting the rest of the results of the global poll we did, contact me and I hope this will help you develop your own winning culture. DAVID LIM IS A LEADERSHIP AND NEGOTIATION COACH AND CAN BE FOUND ON HIS BLOG HTTP://THEASIANNEGOTIATOR.WORDPRESS.COM, OR SUBSCRIBE TO HIS FREE E-NEWSLETTER AT DAVID@EVERESTMOTIVATION.COM

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Buying a new car this month? Check out the new Renault Fluence. A holiday on the agenda? Head to the cool climes of Kurseong in the Eastern Himalayas. There is a lot in store for gadget freaks too: check out the new Samsung Nexus S and the ‘thinnest PC’ ThinkCentre Edge 91z.

RENAULT FLUENCE

The French In-fluence

DID YOU

KNOW?

Stylish, luxurious and sophisticated — French carmaker Renault is here with a masterpiece. Amit Chhangani RENAULT ENTERED INDIA WITH great ambitions. The company’s tie-up with Mahindra for the Logan seemed to work well initially, but as the sales of the car slowly dwindled, the French carmaker realised that probably the Logan was not the best product to represent its stylish international image in the country. Now as a part of the new gameplan, the company will launch as many as five new products in India over the next 2-3 years while simultaneously strengthening its dealer and

service base. The first of the cars, the Fluence, was launched recently. Far more sophisticated and modern than the Logan, the Fluence projects Renault’s true international image. While the Logan was essentially a Romanian Dacia, meant to be a rugged workhorse, the Fluence

The Renault-Nissan alliance, established in March 1999, is the first industrial and commercial partnership of its kind involving a French and a Japanese company. All Renault cars in India are now sold through Nissan showrooms.

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ON WHEELS is a true Renault product – stylish, feature-packed and sophisticated. It sits a notch below the D segment which comprises the Honda Accord and the Skoda Superb and will compete with the Cruze and the Laura.

FOUR AIRBAGS IN THE FRONT, AUTOTRANSMISSION AND FEATURE-PACKED INTERIORS SHOULD MAKE THE FLUENCE AN OBJECT OF DESIRE FOR MOST CAR BUYERS.

THE SPECS Renault has introduced the Fluence with two engine options in India, a 1.5-litre diesel and a 2.0-litre naturally aspirated petrol. In a surprise announcement, it has positioned the diesel variant lower than the petrol model. While the diesel engine’s lower displacement and power is one of the reasons for the lower pricing, another is the fact that the diesel variant does not get many of the latter’s features, including auto transmission.The diesel offers an advantage in the form of better fuel efficiency, while the petrol motor is smoother, quicker and faster.

RENAULT FLUENCE Engines:

1.5 liter turbo

diesel, 2.0-liter naturally

THE TOYS The Fluence comes loaded to the gills with features. Four airbags for the front passengers, dual-zone climate control, rear A/C vents, ABS, ESP, Cruise Control, rear window blinds, remote entry, push button start, parking sensors – the list seems endless. However, the diesel variant does not get all the features. The interiors are done in fabric, unlike the petrol’s plush leather. Then the dual zone climate control, side airbags at the front and the wondrous ‘rain-andlight-sensing’ wipers and headlamps are also absent. However, even with the omissions, the diesel version makes for a wellequipped car, and going by its price of Rs 12.99 lakh, looks like a terrific VFM proposition over its rivals. On the outside, the Fluence stays true to Renault’s reputation of uniqueness in design. It comes across as a sophisticated exercise in design with flowing lines which exude elegance from all angles. With its long wheel-

aspirated petrol Power:

Petrol : 135 bhp

@ 6000 rpm, Diesel : 105 bhp @ 4000 rpm Torque:

Petrol: 19.4 Kgm@3700 rpm,

Diesel: 24.5kgm @2000 rpm Price:

Petrol : Rs 14.4 lakh

base, wide stance and distinctive front and rear headlamps, the car makes heads turn wherever it goes. Apart (ex-showroom, Delhi) from design, the Fluence also has the ride and handling virtues that French cars are known for. Not only does POSITIVES Available in petrol and die- the Fluence offer an exceptionally pliant and absorbent sel variants, loaded with ride, it also does the job of muting road noise and safety features as well as thuds emanating from harsh impacts quite efficiently. those that enhance drivThe steering, though not entirely sporty, is sufficiently ing pleasure. precise and offers good feedback. Diesel: Rs 12.99 lakh

NEGATIVES Diesel version doesn’t have some of the safety features. Some features in both versions are better suited to LHD cars.

A GOOD BUY

All in all, the Fluence comes across as a refreshing aberration from your usual luxury car. At Rs 12.99 lakh (ex-Delhi) for the diesel variant, and Rs 14.4 for the petrol, the Fluence offers great value too, given the list VERDICT Good competition for of features it offers. If you are planning to shell out rivals in segment. Safety Rs 13-15 lakh on your next car, the Fluence definitely features a big plus. deserves a look. JUNE 2011

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GIZMOS HOT SPOT

NEW LAUNCHES

LifeBook T901

Fujitsu’s latest Tablet/PC hybrid features a 13.3-inch, 1280 x 768 LCD that supports NVIDIA’s Optimus graphics. It even features a swappable bay for adding a battery or additional HDD. All for a price of $1,899.

The Tie That Didn’t Quite Bind Michael Browne checks out the new phone from the Samsung stable, and is not too impressed THE NEXUS S REQUIRES no introduction, and is quite a revered device and now that we’ve tested it, we’re still scratching our heads over what the fuss was about. The Nexus S is typical Samsung – piano black, with a flat front and a contoured battery cover. Although lighter than the Incredible S, it feels heavier and is thicker and longer. The S-LCD is inferior to the display on the Incredible S – it’s not as bright, and neither does it have as good colours. Incidentally, the FB app is quirky - we noticed comments posted weren’t available even on refreshing. We had issues with calls on two occasions, despite at least eight attempts, the capacitive display wouldn’t register a swipe to accept an incoming call. The on-screen keypad is decent – certainly at par with the Sony Ericsson Xperia Arc. 52

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Performance in-call was good, although the weak ringer and weaker vibration leaves a lot to be desired and resulted in 11 missed calls in three days. Music quality on the Nexus S is pretty good with good bass and a pleasing mid-range. At a price of ` 29,590, the Nexus S is a little too expensive. We’re sorry to break it to you, but while patches might be very frequent, this will only satisfy geeks wanting a device to tinker with, and not people wanting a good “phone”. It’s not a bad handset, but there are better ones around for less. SPECIFICATIONS: Display: 4-inch, 480 x

800 pixels, S-LCD; OS: Android 2.3; camera: 5 MP; Storage: 16 GB; battery: 1,500 mAh; Weight: 129 grams PRICE: ` 29,590

Motorola Droid X2

The phone is now officially launched featuring a 4.3-inch Android 2.2, a dual-core 1 GHz processor and a speculated dock. The device has an 8 MP camera. Price for $200 on contract from Verizon.

ThinkCentre Edge 91z

At 2-inches thick, the 91z is being marketed as the thinnest All-in-one PC. It looks good with its glossy 21.5-inch widescreen HD Infinity LED display. The models feature Core i7, Radeon HD6650A 1GB, 8GB of DDR3 RAM. Starts at $699. POWERED BY

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

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BOOKS

NEW RELEASE

A Book on Jugaad PICK OF THE MONTH

Enterprising! Want to know some trade secrets on how to become an entrepreneur? Read on. THE BUCK STOPS here is an engaging account of the entrepreneural journey of the author Ashutish Garg, while building Guardian Pharmacy, India’s fastest growing pharmacy retail chain, as well as the transition he made from being the MD of a top MNC to an entrepreneur. Garg writes about how he became an entrepreneur by implementing the best practices he learnt as a manager. In fact Garg’s life epitomises the phrase ‘The Buck Stops Here’, made famous by former US President Harry Truman. The book blends the rich and varied experience of the author, highlighting tye joys, frustrations, successes and failures. From being chastised by his boss who said: “when I call you, I expect to drop all other calls an speak to me immediately,” to his son asking him: “How can you build a business waiting for people to fall sick?” The book is full of anecdotes and lessons from real life that will guide and prepare the reader to recognise hidden opportunities and identify dead ends on the road to building a new business that can be scaled up into a nationwide business.

Book: The Buck Stops Here Author: Ashutosh Garg Publisher: Penguin-Viking Price: ` 499

IN FROM JUGAAD to Systematic

Innovation: The Challenges for India, Rishikesha T Krishnan, a professor of crporate stategy and policy and the Jamuna Raghavan Chair professor at IIMB draws on social, cultural, political, economic and managerial arguments to explain the paradox of why India is unable to be the source of major innovations on a sustained basis, even though it has highly skilled talent.

Publisher: The Utpreraka Foundation Price: ` 400 OTHER RELEASES

Sealed with a six: The story of the 2011 World Cup WAS 2011 THE best World Cup of all time? You wouldn’t find too many arguing against it. Claims that the tournament served to revive the one-day international format aren’t far off the mark. The favourites weren’t overwhelmingly favoured, and though they did make it to the title, they didn’t coast to it. The tournament also provided the cherry on the career cake of India’s best-loved cricketer, Sachin Tendulkar. This book attempts to recapture the magic.

Publisher: Hachette India, Price: ` 599

The Winning Way: Learnings From Sport For Managers WHAT DO SPORTING champions do differently? Two former IIMA graduates, sports commentator and writer Harsha Bhogle and advertising and communication consultant Anita Bhogle dig into examples from sport to see how they can benefit managers. For the Bhogles, this book marks the completion of 300 successful corporate workshops of comnpany that they run.

Publisher: Westland And Tranquebar Press Price: ` 200 JUNE 2011

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TRAVEL

KURSEONG, WEST BENGAL

A Walk in The Clouds

KURSEONG, ‘THE LAND OF THE white orchid’, is a picturesque hill station close to Darjeeling, known for tea gardens, orange orchards and cardamom plantations. It is also an ideal getaway if you are looking for a few days of peace as you gaze at snow-capped Himalayan peaks. Looking for a quick weekend break during a business visit to Kolkata last July, I was advised by a tour operator to visit Kurseong because of its relatively lower altitude (in comparison to Darjeeling) which makes it easily accessible even during the monsoon months. We flew to Bagdogra from where a taxi took us up a winding, hilly terrain and past several tea estates to reach the Cochrane Place Hotel. It is built on the foundations of a bungalow of a British barrister and has been renovated to keep the 19th century British architectural style alive. At the entrance is the replica of a steam engine, which leads one to Chai Country, the hotel’s popular tea lounge. We were pleasantly surprised with the rooms as well. Appointed in colonial style, the first of our rooms, called Singalila, had a queen-size bed, wood panelled walls and a large balcony. The other room, Sinoilchu, had a huge four-poster bed with painted panels. I selected Singalila because of its panoramic view of the tea plantations. On a clear day, it is possible to see the snow-clad Mount Kanchenjunga and, despite the rains, I was told that on the previous day, some of the peaks were visible through a break in the clouds. 54

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After lunch we got into an SUV to visit a Buddhist village from where a cobbled pathway took us past rhododendrons, pines and flowering bushes to Kunsumna Doling, a little gompa. This gompa is a nunnery. The nuns ushered us to a hall with copper images of the Buddha and told us about the significance of the different images. They gave us tea

DINESH SHUKLA

Lazy walks, toy trains and tea estates – Kurseong offers a perfect holiday. Anil Mulchandani

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TRAVEL BELOW: THE COCHRANE PLACE HOTEL OFFERS GREAT LOCAL AS WELL AS ANGLO-INDIAN CUISINE. KURSEONG IS DOTTED WITH MANY SMALL EATERIES THAT SERVE DELECTABLE NEPALESE, TIBETAN AND ANGLOINDIAN FOOD.

ABOVE: THE UNESCO WORLD HERITAGE TOY TRAIN ON ITS WAY TO DARJEELING. LEFT: IMAGES OF THE BUDDHA ADORN ALL THE HALLS AT THE KUNSUMNA DOLING GUMPA IN KURSEONG. FAR LEFT: WOMEN HARVEST TEA AT THE AMBOOTIA TEA ESTATE.

made the Tibetan way with white homemade butter and salt. From here, our driver took us to the edge of a path called ‘St Mary’s Trail’. The steep trail descended through forests full of birds – thrushes, magpie, finches, warblers. The most rewarding sight was of Khalij Pheasants with their long tails. The next morning we took a stroll and witnessed harvest in full swing at the famous Ambootia tea plantation. Kurseong’s famous tea plantations, such as Makaibari, Castleton and Ambootia, produce some of India’s most

expensive teas. Ambootia’s tea is wholly organic and one of the few that use bio-dynamic techniques to revitalise the compost used for its growth. It is a model farm for Darjeeling Organic Tea under the United Nations FAO Project. From the estate, we drove to the Kurseong Railway Station to take a ride on Darjeeling Himalayan Railway’s famous toy train. The narrow-gauge, built between 1879 and 1881, is listed by UNESCO as a World Heritage Site. It chugs up 88km from New Jalpaiguri (400 feet above sea level), past Ghoom (7700 feet) and Darjeeling (6700 feet). We also saw the ‘Z-crossings’ – five stations where the train reverses and then goes straight up on a track that follows a Z-shape ascent. We took the 9D Up to Sonada where a taxi from the hotel was waiting to take us to a lake. Walking around the lake, surrounded by tea planted hill slopes, we saw Himalayan salamanders and other aquatic wildlife before returning to Kurseong. We did not get to see the snow peaks due to the gloomy weather, but what we saw was more than enough to make it a perfect weekend. GETTING THERE: You can fly from Delhi or Kolkata to Bagdogra from where it is a drive of about 1 ½ hours to Kurseong. WHERE TO STAY: Cochrane Place is a top-end hotel in Kurseong. For a different kind of experience, you could book a homestay at one of the tea estates. JUNE 2011

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NOT JUST

THE LAST WORD

Collaborate, not compete… For a liberal arts person, getting animated about technology is not easy. But two months ago, when planning the CFO India editorial calendar, I was the one most excited about this issue, Get Tech, Go! The reasons are many; most of them go beyond the fact that CFOs have begun to embrace technology – enthusiastically or otherwise. Most importantly, you cannot ignore it. Technology is overtaking everyone’s lives. Worsening some, but in most cases, enriching, facilitating and strengthening lives. Jeff Sampler, a Fellow of Strategy and Technology at Saïd Business School, University of Oxford cites ample evidence that the segment of population adopting technology the fastest is above 55 years of age. Of course, younger people live off technology, but so do many others. Hence, there is no option left but to ask, what can technology do for you. Till not so long ago, much time was spent by CIOs wondering how to position the need for technology spends to their CFOs in order to get their sign-off. CFOs controlled budgets and often CIOs reported to CFOs. But fortunately, all that is changing rapidly with CFOs starting to ask what technology can do for them and their businesses; and creating the need for a collaborative CIO-CFO relationship.

WHAT’S GOING ON? For CFOs, the fact that technology can be transformational has come home to roost. That technology spends will increasingly impact P&Ls going forward is now beyond debate. And that it changes faster than most people can fathom, creates the need for informed opinion on it. Clearly the CIO is best placed to help. Next, is the changing stature of financial flows. Till some years ago, businesses ran on cash and all eyes were focused on how money moved in the company. Familiarity with cash and with the ‘full-picture’ of the enterprise, therefore, gave the CFO a supremacy of sorts. Today, there is widespread recognition that understanding information flows is critical – in fact, 56

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they underpin the efficacy of financial flows as well. After having been uniquely responsible for an enterprise-wide view and knowing what’s going on – CFOs now have to contend with another member of the C-suite. Collaboration and not competition is the answer yet again. Having said that, it is also inspiring many CFOs to go out and get ‘trained’ in areas of information technology, perhaps, to remain the first amongst equals in any event! Fortunately for CFOs the tide remains in their favour. Partly because of what they do, but more because of how the world continues to perceive them. While CIOs are catching up (and yet not), there are others beginning to recognise the power of the CFO and the need to get their buy-in. I say this with some amount of insight and confidence as I return from our quarterly meeting of Chief Information Security Officers – who spend a fair amount of time trying to ‘wear the CFO hat’ to ensure that security expenses get the go-ahead! As organisations and functions become more complex, CFOs have a responsibility that is vast and increasingly difficult to shoulder single-handedly. Wisdom lies in collaborating with as many of their C-suite colleagues as possible, and starting to do so sooner rather than later. Competition is passé. Collaboration it has to be. What do you think? Anuradha Das Mathur, Publisher CFO India

Indian Youth Congress, IndiaMART, India Infoline, Angel Broking, Flipkart, Jaguar Land Rover, and National Geographic

have all gone Google. Going Google means switching your business to Google Apps: online email, calendar, and document applications built with security and reliability in mind. Learn more at www.google.co.in/gonegoogle