STRATEGY WHAT WOULD PETER DRUCKER DO? p. 26
NISHANT FADIA CFO PROFILE p. 22
AUDI A6 ULTIMATE IN LUXURY p. 50
VOLUME 02 ISSUE 08 Rs.50 AUGUST 2011
CFO INDIA STRATEGY WHAT WOULD PETER DRUCKER DO? 26 | CFO PROFILE: NISHANT FADIA 22 | AUDI A6 ULTIMATE IN LUXURY 50 VOLUME
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Copingwith Compliance CFOs are increasingly facing an avalanche of added responsibilities thanks to strict
corporate governance, tougher compliance laws and increased stakeholder demand. How are they tackling these challenges? Pg 12 A 9.9 MEDIA PUBLICATION
CFO AUGUST | 2011
InsIde
12 cover story governance 18 LESSONS FROM EAST AND WEST A CIMA report argues in favour of a corporate governance model that takes into account the best practices from Asia and the West
insight 42 ORGANISATIONAL HEALTH: THE ULTIMATE COMPETITIVE ADVANTAGE To sustain high performance, organisations must build their capacity to learn and keep changing over time To sustain high performance, organisations must build their capacity to learn and keep changing over time
cfo profile
Focussed: 3D Vision in Finance
22
Nishant Fadia, the CFO of Prime Focus, one of the world’s leading visual entertainment firms talks of the joys and pains of his job
COPING WITH COMPLIANCE! CFOs today face an avalanche of new responsibilities, thanks to stricter corporate governance and compliance laws. How are they tackling these challenges?
case stUDy 32 COMMUNICATING FOR PROFIT Sushil Agarwal, CFO of Aditya Birla Nuvo, recalls how a debt burden was reduced and a business unit made profitable
cfo loUnge 50 ON WHEELS | AUDI A6 52 TRAVEL | LEEDS CASTLE
in practice
54 GIZMOS | DENON HOME THEATRE
26 WHAT WOULD DRUCKER DO? Two US-based chief financial officers discuss how they apply Peter Drucker’s techniques to their current business challenges
i thinK 10 S MAHALINGAM
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The CFO and ED of TCS says currency volatility, uncertainty in the global economy and issues like retaining talent, keep him awake at night STRATEGY WHAT WOULD PETER DRUCKER DO? p. 26
NISHANT CFO PROFILEFADIA p. 22
AUDI A6 ULTIMATE p. 50
IN LUXURY
CFO I NDIA
VOLUME 02 ISSUE 08 Rs.50 AUGUST
2011
STRATEGY WHAT WOULD
ILLUSTRATION & COVER DESIGN SHIGIL N
PETER DRUCKER DO? 26 | CFO PROFILE: NISHANT FADIA 22 | AUDI A6 ULTIMATE IN LUXURY 50
COPInG WITH COMP LIAnCe CFOs are increasing added responsib ly facing an corporate ilities thanksavalanche of governanc
VOLUME
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Financial Executive 02 | Airtel 35,36 | Sodexo Back Cover
e, tougher to strict laws and complianc increased e demand. How are stakeholder they tackling these challenges ? Pg 12
A 9. 9 MEDIA
PUBLICATION
regUlars 4 LETTERS TO THE EDITOR 06 O-ZONE 56 NOT JUST THE LAST WORD
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from the
managing editor
dhiman chattopadhyay dhiman.c@9dot9.in
MANAGING DIRECTOR: Dr. Pramath Raj Sinha
Complying with Compliance
LATE LAST YEAR when I met S Durgashankar, the CFO of Mahindra-Satyam (he has since moved back to Mahindra & Mahindra as Head of M&A), for a cover feature on the remarkable turnaround story of the beleaguered software giant, he spent half-a-day explaining why every CFO in India must ensure that their companies followed all compliance norms. Or else, he said, sooner or later, many of them would meet the fate that befell Satyam. As we went about writing this issue’s cover package, my colleague Bennett Voyles, spoke to a number of C-suite executives as well as experts on governance, about the level of compliance in India Inc and the challenges CFOs faced. Some of what we learnt was indeed worrying. For instance, how do CFOs manage to cope with the over 200 filings companies are supposed to make every year? Apparently, many fail the test. One of the experts we spoke to, Nitin Deshmukh, Chief Executive Officer of Kotak Private Equity Group, said his team seldom completes a due diligence exercise on a company without finding compliance related problems. “Without exception, there are almost always issues in all mid-sized companies,” he said. The good news is that a majority of companies and their CFOs have understood the correlation between compliance and success in the market and are gearing up to meet this challenge. Read our cover story (Coping with Compliance, Pg12) to find out how CFOs across India are facing up to this challenge. Of course, there is a lot more in this issue. Read about the exciting journey of Nishant Fadia, the 34-year-old CFO of Prime Focus, the company that started in 1997 from a garage in Mumbai. Today it is the world’s largest special effects and post-production firm with its wings spread across three continents. The festive season is upon us and in the Lounge section, we have featured some of the best things you can bring home this month – the new Audi A6, a new Denon home theatre or tickets to a holiday in UK. Enjoy the issue.
EDITORIAL EDITOR: Anuradha Das Mathur MANAGING EDITOR: Dhiman Chattopadhyay CONTRIBUTING EDITOR: Bennett Voyles DESIGN SENIOR CREATIVE DIRECTOR: Jayan K Narayanan ART DIRECTORS: Binesh Sreedharan & Anil VK ASSOCIATE ART DIRECTOR: PC Anoop VISUALISERS: Prasanth TR, Anil T SENIOR DESIGNERS: Joffy Jose, NV Baiju, Chander Dange & Sristi Maurya DESIGNER: 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 Nutech Photolithographers,B-240, Okhla Industrial Area Phase-1,New Delhi-110020 All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.
SUBSCRIBER SERVICES: Call +91-120-4010999 VISIT CFO INDIA’S WEBSITE www.cfo-india.in
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Letters
CFO INDIA
August 2011
Informative and enjoyable Most articles in CFO India are informative and cover a wide variety of subjects. I quite enjoyed reading the last issue. — Vardhan Dharkar, CFO, KEC International, Mumbai
08.11
Your voice can make a change: Share your viewpoint on what’s happening in the community and your feedback on the magazine at editor@cfo-india.in
AT PAR WITH THE BEST I am regular reader of CFO India magazine. The content of the magazine is amazing and can any day match that of cfo.com, the American magazine. My work as a consultant is around CFO services. The insights you provide are really helpful in increasing my understanding and knowledge about the ‘CFO’ subject. Can you put up some webcasts of key interviews on your website? — Rahul Palwe, Consultant, Deloitte, Mumbai
IRREGULAR DELIVERY I have been receiving my copy of CFO India late for the past few months. Will you kindly look into the matter? — Sunil Nayak, CFO ACC Ltd, Mumbai
EXCITING COVER FEATURE I really liked the July issue (The Dream Merchants). It was interesting to find out about the nature of challenges faced by CFOs of football clubs or of companies that sell yachts, holidays and ice creams. — Alpesh Gandhi, CA, Gurgaon
THANK YOU! I enjoyed reading the July issue. On a personal
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note, thank you for covering Marine Solutions and writing about the challenges before CFOs like us. — Indranil Deb, CFO, Marine Solutions, Mumbai
FACTUAL ERRORS: MARRIOTT HOTELS The article “The Dream Merchants” (July 2011) has some factual errors regarding our Area Director of Finance, Ms Ulrike Stark and about the hotel. The following points need immediate correction: Ms Ulrike Stark is Area Director of Finance (India, Malaysia, Maldives, Australia) and not Director of Finance, South Asia as mentioned. The article also mentions that in the hotel business CFOs have to be prepared to foot the bills of some politicians or stars who may dine at the hotel but do not pay the tab. We deny this. Since we are the only hotel mentioned, this has a negative connotation to our company. Finally, a statement made by another CFO about their company’s IPO has been wrongly attributed to her, since the statement ends with the words “she says” instead of “he says”. A corrigendum would be appreciated. — Khushnooma Kapadia Managing Editor’s note: We sincerely regret the errors.
08.11 BUZZ
Indian CIOs Better Prepared than Global Peers
SHIGIL N
CEOS AND CFOS will be relieved to hear this piece of news. A recent global study by IBM has confirmed that technology officers (CIOs) in India and South Asia (ISA region) are more confident of addressing changes and complexity in business environment than their counterparts in mature markets. 6
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According to IBM 2011 Global CIO study, about 58 per cent chief information officers in the ISA region said they were prepared to address changes in environment on the back of learnings from past experience and support from other functions of the organisation. Only 49 per cent respondents from mature markets agreed with them. “CIOs are now moving from being the leaders of a support function to one that is more closely aligned with the CEO’s agenda and the larger organisational business objectives,” IBM India/South Asia Partner and Strategy and Transformation Leader ( Global Business Services) Clifford Patrao said. IBM conducted the study with 3,018 CIOs globally across 71 countries and 18 industries, including 178 CIOs in five sectors across India and South Asia. The study was conducted to understand how technology officers are helping their firms adapt to the accelerating change and complexity in today’s competitive and economic landscape, he said. About 83 per cent of the respondents in ISA region said they were focusing on business intelligence and analytics solutions, while 57 per cent said they are focusing on risk management and compliance. About 74 per cent said they were looking at mobility solutions to help increase competitiveness of their organisation.
WHAT’S AROUND ZONE Cloud on Smartphones ....................................... Pg 08 Jargon Decoded: Ducks in a row......................... Pg 08 Cyberstalking & Stress........................................Pg 09 Good Fat Found....................................................Pg 09
THE CFO POLL RESULT
Is succession planning an accepted practice in your workplace?
17% No 13% N.A
70% Yes
CURRENT POLL QUESTION
Will the US debt crisis have a cascading effect on India Inc? Vote now at www.cfoinstitute.com/poll
EDUCATION
A Facebook-like Education Website AUTO
PHOTOS.COM
No Buyers for Cars? DOMESTIC PASSENGER CAR sales have fallen for the first time after 30 months of continuous growth, registering a 15.8 per cent decline in July this year, mainly due to hikes in lending rates and lower production by market leader Maruti Suzuki during the month. Car sales in the country stood at 1,33,747 units in July, 2011, as against 1,58,767 units in the same month last year, according to figures released by the Society of Indian Automobile Manufacturers (SIAM) recently. “This is the first time since January 2009, that car sales have fallen. Interest rates and fuel prices were going up in recent months and that led to an overall negative sentiment in the market,” SIAM Director General Vishnu Mathur told reporters here. The car market last witnessed a fall in January 2009, when sales shrunk by 3.2 per cent year-on-year. Last month’s decline is the steepest since November 2008, when car segment sales fell 19.3 per cent.
IF FACEBOOK IS RAKING in the dollars, it is also inspiring others in far away lands to come up with business plans using the social networking website’s popularity. The Rajasthan Government has come up with a plan that will help all the young Facebook addicts study harder! It is launching a social networking site that will also help brush up a youngster’s academic knowledge. “The idea is to utilise the popularity of social networking sites among students. Most of them spend a lot of time on such websites every day,” a senior official of the state’s Information Technology Department, which is developing the portal, told the media. The government portal will give tips to students on subjects like physics, chemistry and mathematics. Experts will be roped in to answer the academic queries students post on it. “We thought why not make it a bit educational so that students can not only enjoy the fun that these sites offer but also get to learn something,” the official said. Students will be able to open up their individual accounts, add friends and and interact among themselves just like they do on Facebook. “We will store e-books, objective questions and coaching material related to each subject,” the officer added. The development of the portal is in the final phase, he said. AU G U S T 2 0 1 1
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O-ZONE cfobook
JARGON DECODED
The phrase: Ducks in a row
hemedra paliwal Wall
Info
Boxes
+
What’s on your mind? Attach
Share Hemendra Paliwal believes Anna Hazare’s fight against corrpution is a worthy cause August 19 at 10.30 pm · Comment · Like
March 2010 to Present – CFO, PERsONAL Netambit. Dec 2008 – Feb 2010 – CFO Zodiac: Capricorn Bothli PoliticalChemicals Views: Liberal & Mining 2006-2008 – National WORK Commercial Manager, Spencer's Retail November 1997 to Present – COO– & 2006 CFO, Zicom Electronic 1999 – Sr Manager, Security Systems Seagram 1993-1997 – Damania Group of Industries as Manager Accounts
Hemendra Paliwal supports the nationwide campaign to save the girl child August 17 at 9.05 pm· 2 people Commented · 1 person likes this
Hemendra Paliwal loves solving complex mathematical puzzles August 12 at 11.00 pm · 5 people commented · Like
I Read...
August 16 at 6.26pm · Comment · 4 people Like this
EDUCATION Institute of Chartered Accountants of India BSc – Mohanlal Sukhadia University, Udaipur, 1991 Kanwar Pada Senior Secondary School, 1987
All sorts of good fiction writing
I Listen... To light classical music and old Hindi film songs August 14 at 7:14pm · Comment · 1 person likes this RECENT ACTIVITY Hemendra Paliwal likes Zicom, CFO India and 2 others
Zicom, CFO India, Moneycontrol.com August 17, 8.55 pm · 2 Comments · 7 people Like this
THE MEANING: The phrase refers to a situation when someone has to organise things properly or have business plans in order. THE USAGE Don’t peek into your colleague’s cubicle to see if he is hiding his pet ducks there, if you hear someone saying: “Ravi always has his ducks in a row.” It simply means Ravi is well organised.
CLOUD
IMAGINE LIFE FOR the CFO if he could download and store unlimited data on his smartphones, simply because the phone was ‘cloud-friendly’! The world’s second largest network equipment maker, Huawei Technologies of China, will soon unveil its cloud computing smartphones. Huawei is plunging its cloud computing smartphones as a medium to seize market shares from the likes of Apple and Samsung. Cloud computing smartphones will allow its customers to download applications without demanding inadequate storage space on their handsets as cloud computing relates to data and software stored on computer servers rather than individual PCs and can be accessed over the internet. 8
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ANIL T
Cloud Computing Smartphones
O-ZONE OVERsEAs
snippeTs
WESTWARD HO! AFTER A FEW YEARS of lull when Indian students showed a sudden change in their preferences as far as destinations for education went, the US is back on top again. More Indian students have applied for visas to study in US in 2011 than in the previous five years. According to a data released by US embassy, the applications exceeded over 20 per cent over last year. Last year 24,500 students were granted visas to join American universities. Most of them applied for Masters and 14.5 per cent joined a grad school. Pratibha Jain, a Mumbaibased counsellor, who helps such
Good Fat Found! students told agencies, “This year has seen a phenomenal rise in number of undergraduate student applications.” That applications were significantly higher than last year, were confirmed by officials at the American embassy in New Delhi. An official said, “The US has greatly expanded its counsellor staffing and educational outreach initiatives to ensure that prospective students can get visa appointments and information they need.” He also added, “This effort includes significantly increased funding for the Education USA advising centres.”
HEALTH
PHOTOS.COM
Cyberstalking Causes Intense Stress CYBERSTALKING HAS been proved to cause more intense stress than being harassed or stalked in person, according to a new study in the US. “It’s a new method for an old problem,” says Dr Elizabeth Carll, a clinical psychologist in Long Island, NY. “Obviously the ones that everyone is aware of is putting false and humiliating information on the internet, such as discussion boards, blogs, message boards, Facebook, as well as sending harassing emails and text messages,” she said. But the psychological fallout from such electronic bully tactics can be even more devastating for those targetted than face-to-face exchanges, said Carll, who presented a talk on the issue on Saturday at the annual meeting of the American Psychological Association in Washington. Twenty per cent of online stalkers use social networking to keep tabs on their victims. A number of American states are looking at legislation to counter cyberstalking, while some already have laws in place.
Researchers at Joslin Diabetes Centre and Children’s Hospital Boston have shown that a type of ‘good’ fat known as brown fat occurs in varying amounts in children — increasing until puberty and then declining — and is most active in leaner children. The study used PET imaging data to document children’s amounts and activity of brown fat, which, unlike white fat, burns energy instead of storing it. Results were published in The Journal of Pediatrics. “Increasing the amount of brown fat in children may be an effective approach at combating the ever-increasing rate of obesity and diabetes in children,” said Aaron Cypess, MD, PhD, an assistant investigator and staff physician at Joslin and senior author of the paper.
Bigger Brains? The farther that human populations live from the equator, the bigger their brains, according to a new study by Oxford University. But it turns out that this is not because they are smarter, but because they need bigger vision areas in the brain to cope with the low light levels experienced at high latitudes. Scientists have found that people living in countries with dull, grey, cloudy skies and long winters have evolved bigger eyes and brains so they can visually process what they see, reports the journal Biology Letters. The study takes into account a number of potentially confounding effects, including the effect of phylogeny (the evolutionary links between different lineages of modern humans).
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cfo
i think
Facts & Trivia QUALIFICATION: CA from the Institute of Chartered Accountants of India FIRST JOB: IT consultant at TCS PREVIOUS JOB: Has worked in marketing, operations and HR at TCS. CFO since 2003, ED since 2007
OVER THE LAST FOUR decades with Tata Consultancy Services (TCS), I have managed just about every business function – project management, sales, human resources and now, finance. Therefore, my worries tend to be very business-oriented, with finance, my current area of responsibility, getting greater focus. The worsening global economic situation is the latest source of worry, particularly because of our high exposure to the US and Europe. When economic uncertainty becomes the new normal, we have to be very agile and ever-more responsive to clients’ needs. The client-centric, verticalised organisation structure we unveiled in 2008 is helping us achieve this. We have built a cadre of business finance managers, equipped with superior MIS, who provide business unit heads with the insights and analyses needed to quickly respond to events on the 10
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S MAHALINGAM The CFO and ED of Tata Consultancy Services says currency volatility, uncertainty in the global markets, operational challenges and internal issues such as retaining key talent are matters that keep him awake at night
ground and engage more effectively with clients. The other worry is the heightened currency volatility. Until recently, it was sufficient to track movement of the INR against the USD alone, since other currencies moved with the USD.
“Hedging is a short-term fix that helps buy time. On a long term basis, we need to align our costs to an appreciating rupee”
That is no longer so and therefore, I also have to track the GBP, the euro and the Australian dollar. We watch various economic parameters and hedge for the next two to three quarters. But hedging is only a short-term fix that helps buy time. On a long term basis, we need to structurally align our costs to an appreciating rupee. Then, there are organisational challenges. We operate in 42 countries. Coordinating the compilation, consolidation and audit of accounts within days of the quarter-end, across various subsidiaries at all these locations is immensely complex. For it to run smoothly, processes have to be standardised and importantly, we have to foster collaboration and openness within the team. Our scale and complexity calls for a broad range of expertise within the finance team, not just at the corporate level but also at each key location.
Finding the right individuals with the necessary competencies is never easy, but to do that in large numbers, across the globe, makes it a true challenge. Equally important is the need to instil our values in individuals from varying backgrounds and cultures. Lastly, there is the challenge of retention and motivation. Building
a team takes time, but you can lose key members in an instant. We pride ourselves on our industry-leading retention rates but still, when someone does leave, all that business knowledge is lost forever. So it’s critical to keep employees engaged and to give them opportunities to grow. A lot of my time and effort goes into
interacting with employees at all levels, across the globe, to understand ground-level issues. I don’t begrudge that time. It’s really an investment. After all, when I put in place a selfsustaining institution composed of competent, ethical and highly motivated individuals, I’ve earned my right to a good night’s sleep. AU G U S T 2 0 1 1
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cover story
As regulations and compliance pressures grow with stricter corporate governance laws, CFOs across India Inc are gearing up for the challenge so that they don’t get buried under a pile of paper BENNETT VOYLES SHIGIL N
very year, there’s more paperwork. Every year, there are greater chances that one missed signature or one missed disclosure could earn your company a fine or even hurt its chances of an important investment down the line. How can CFOs keep up with the 200+ filings that companies must make in any given year? In many cases, they simply don’t. Nitin Deshmukh, Chief Executive Officer of Kotak Private Equity Group, a major private equity investor, says that his team seldom conducts due diligence on a company with-
out finding compliance problems. “Without exception, there are almost always issues in mid-sized companies,” says the Mumbai-based investment manager. Most violations are not serious, he says, but a few end up being deal-breakers. But, as regulations are expected to keep on growing, regulatory experts say it’s important not just to dig out of your current drift, but also to look up and see where the next batch of rules may come crashing down. CFOs and compliance experts agree that an organised approach to filing and a more strategic view of rule-making can go a long way toward better protecting your company – and yourself. AU G U S T 2 0 1 1
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cover story
Not the worst, but close When it comes to regulation, Indian companies don’t have it easy. One global regulatory benchmark, the World Bank’s Ease of Doing Business in India report, ranks India only 134th in the list of best places in the world to do business. This was based on a composite score that included a ranking of 177th for dealing with construction permits; 164th for ease of paying taxes, payment frequency, and tax rate; and 94th for registering property. China, by comparison, ranks 79th, a bit worse in dealing with construction permits (181), a lot better at registering property (38), and much better on taxes (114). It’s also worse than most of the big developing markets – Mexico, Indonesia, the Russian Federation and Brazil. Worryingly, things are not always moving in the right direction. Although India keeps creeping up in the rankings, the simplification of the general regulations seems to be more than offset by complications in the rules governing specific industries. One sign that there is more paper in the future of most finance departments: the demand for legal and accounting services is forecast to rise faster than the GDP. RSG Consult-
ing, a UK legal strategy firm, forecast in 2010 that demand for legal services in India will continue to rise by 11 per cent a year over the next five years. Demand for accountants is growing too: in 2010, Ritwik Mukherjee, president of the Institute of Chartered Accountants of India, forecast that the need for fresh graduates would continue to exceed supply any time GDP exceeded six per cent. It might be tempting to ascribe this growth in red tape to the reputed Indian genius for bureaucracy. After all, wasn’t the reform of Licence Raj supposed to be about less regulation? But Vikramaditya Khanna, a professor of law at the University of Michigan Law School, argues that de-regulation has led to economic growth, and that economic growth itself tends to lead to more rules. “As you go from the particular kind of economic system that India had prior to 1991 and you go toward a more de-regulated system, that doesn’t mean you have no regulation, it means you regulate for the new environment,” Mr Khanna says. This new environment often brings on more complexity. For example, the rules on foreign direct investment used to be simple, Khanna says. The rule was that no foreigner could buy more than 40 per cent of an Indian business. Now the regulators have changed that – somewhat. Today, the percentage of investment allowed depends on the sector. “Every six months they update the regulations to reflect either new sectors that they’re opening up or additional restrictions or rules that they’re putting into place,” Mr Khanna says. In addition, the fact that so many Indian companies are going global multiplies the possibility of compliance headaches as well. For instance, the tough new 2010 British Bribery Act applies not just to British companies but to any company with UK links. Penalties are serious, including a stint of
“Without exception, there are almost always issues in mid-sized companies” —NITIN DESHMUKH, CEO, KOTAK PRIVATE EQUITY GROUP
up to 10 years in one of Her Majesty’s Prison Service facilities, an unlimited fine and confiscation of property. Compliance pressures aren’t only being applied by government agencies. Company directors are also much more focussed on the issue than they once were. “They’re actually pushing through a lot of these processes and making sure this mechanism can give them comfort,” says Kaushik Dutta, director of New Delhi’s Thought Arbitrage Research Institute and corporate governance expert. Why the sudden interest? Recent scandals have made directors more aware of the executive and director’s potential liability if things inside the company turn out to be seriously amiss. “The chance that a director will get convicted may not actually be all that high, but they could get arrested, they could have to wait awhile for the trial,” Mr Khanna says. And he means a while: two-and-a-half years after their arrest, for example, the Satyam defendants are still in jail, waiting for their day in court. Even if their problems go that far, just a little something amiss could be unpleasant. “If you wake up one morning and one of the 6000 cheques your company issued last week bounced and there’s a cop at your door, that could be stressful,” he says.
“sectors such as infrastructure, mining, power generation and oil are particularly high risk for investors because they require both land and licences” —RICHARD DAILLY MD, MUMBAI OFFICE, KROLL PRIVATE INVESTIGATORS
Facing the challenge How should CFOs respond to the paper avalanche? Sandeep Batra, CFO of adhesives and chemicals company, Pidilite Industries, says his office maintains a list of everything that requires some certification; finds the executive who should be responsible for that process; and then follows up to make sure that all filings are made. Mindtree, the Bangalore-based software firm has actually automated its to-do list, with a database that tracks compliance issues across the 14 countries in which it does business. The tool took around two years to build and still requires constant updating, according to Rostow Ravanan, the company’s long-time CFO. A dashboard attached to the tool signals the status of particular filing issues as red, amber or green, making it easier for them to track issues across the entire organisation. Mr Batra also encourages communication. Finding out about potential issues as early as possible is one of his priorities. “The objective is to capture everything at inception and therefore prevent non-compliance or contravention,” Batra says. “There is no point in trying to be smarter after the event. The thing is to prevent it through whatever ways you can, and do it in an efficient manner.” In particular, it pays to look at your company’s transactions closely. The biggest issues tend to arise most frequently in land deals and licences, according to Richard Dailly, Managing Director of the Mumbai office of Kroll, the global private investigation service. “Sectors such as infrastructure, mining, power generation and oil are particularly high risk for investors because they require both land and licences,” he says.
CFOs of family-owned companies should be especially careful. “In smaller, family-owned companies, there is very often the view that ‘this is the way business is done’,” Mr Dailly says. At first, these shortcuts may not be an issue, but later on, they can turn serious. “The problems become apparent when the small companies start to expand and are expected to behave in a more compliant manner, or when a serious investor takes an interest,” he explains. Once a company reaches a certain AU G U S T 2 0 1 1
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“Internal control is nothing but the efficiency of the people – honesty, integrity, and the cultural aspects that are well-ingrained in the organisation”
JITEN GANDHI
—SK JOSHI, CFO, BHARAT PETROLEUM
size, not complying is no longer an option: “The penalties for non-compliance are so severe it pays to be preventive,” Mr Batra adds. There have been claims that Indian companies are investing abroad simply to get away from the paper, but regulatory experts say they haven’t really seen it. In any case, he doesn’t 16
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think there’s really any escape. “Most countries have their own specific area of complication. For example, in Brazil, the tax laws are very complicated,” he says.
Getting it right Besides watching what’s going on inside the company, it’s also a good idea to keep an eye on what the regulators are doing. Most agencies propose regulations first, before issuing final guidelines, and it can be a good opportunity to advise the government about how to make the regulation more bearable for the company, according to Mr Khanna. Sometimes, a successful lobbying effort can be even more valuable than that. As License Raj veterans know, regulation can be a source of competitive advantage: companies are sometimes able to steer law-makers in ways that favour their company over potential competitors. Early last century in the US, for instance, AT&T president Theodore Vail actually courted government regulation of the fast-growing telephone industry, guessing – correctly as it turned out – that regulation could make them the de facto telephone monopoly for decades. It pays to keep an eye on what’s going on abroad as well, Khanna says. Even if a company doesn’t have overseas business, the approach the laws take toward an issue may be a preview of how the rules will eventually evolve. A chemical company, for instance, might want to follow what’s going on in the European Union or the US for an idea of what the requirements and the approach may be down the line. “If, for example, you’re a biofuels company in India, it may not be a bad idea to see how the markets for that kind of thing developed in Europe or in the US,” Mr Khanna says. “That may not reflect what the rules will be in India – because that’ll be the result of the political process and the regulatory process – but it may give you some indication of what the likely areas are that … people would want to think about regulating.” But, however it’s done, it will probably be done. Mr Khanna believes that, sooner or later, regulators are likely to keep on piling on the forms. “I think it’s safe to assume that the amount of internal compliance work and risk management is likely to increase,” he says. He anticipates growth in a number of areas, all of which are large legal sectors in the US: mass tort claims (suits alleging harm by large groups of people), financial regulation, securities regulation and environmental regulation. The Companies Bill too, when and if it’s passed, will also lead to some huge changes. Sometimes timely operational adjustments are also an important part of a compliance programme. For example, MindTree decided a few years ago that compliance issues, particularly around visas, would become tougher in the US because of high unemployment. To better position itself, the company began hiring more locals - a move that raised labour costs in the short term but sidestepped some expensive wrangling later - and Mr Ravanan says it is now paying off.
“the objective is to capture everything at inception and therefore prevent non-compliance or contravention. there is no point in trying to be smarter after the event” —SANDEEP BATRA,
JITEN GANDHI
CFO, PIDILITE INDUSTRIES
How do you know if you are getting compliance right? One sign is that it is not causing too much angst. “If there is too much process there will be a feeling of bureaucracy, there will be a feeling of inefficiency, which creates tension,” says Hiren Israni, CFO of Microsoft India. “If there are not enough processes and controls however, then you are spending a lot more time with one-offs and non-compliances and things that have fallen off the table. If you have got the right balance and the right culture of doing it the right way...it is more efficient.” Of course, keeping track of changes in the rules is only one part of compliance. Character matters too. SK Joshi, CFO of Bharat Petroleum, the largely state-owned up-stream oil company, takes a broad view of control issues. “Internal control is nothing but the efficiency of the people – honesty, integrity, and the cultural aspects that are well-ingrained in the organisation,” says Mr Joshi. It’s important to have a good team in place, echoes Israni. Seriousness about compliance is a value that tends to filter down from the top, he says, adding that it is essential for the senior management to walk the talk.
Just do it Ultimately, even in instances where it seems possible to skirt around a compliance issue, it may pay to go ahead and file. And not just for the government’s sake: investors tend to pay
more for companies where they can see what’s going on. “In general, opaque and complex firms trade at a discount to their break-up value, in part because of the inability of investors to see through their operations,” says Vikas Mehrotra, chair of the department of finance and statistical analysis at the University of Alberta School of Business in Edmonton, Canada. It can reduce some awkward explanations later too. Mr Deshmukh often runs into companies that say they understated their profits to avoid taxes and now face the difficult issue of trying to prove to their teams that they are actually more profitable than they look on paper. Mr Israni sees a positive attitude towards compliance as a factor that builds credibility and eventually adds value to the company’s reputation. “I think it is part and parcel of the fabric that ultimately builds the brand of the organisation,” he says. More importantly – at least from the CFO’s point of view – is the fact that the CFO is likely to be among the first called on the carpet in the event of a serious compliance problem. Just ask Vadlamani Srinivas, former CFO of Satyam, who spends his days now awaiting trial in Chanchalguda Central Prison along with his fellow accused Satyam executives. If you really, really like to play badminton – Srinivas and the other former Satyam executives reportedly get two hours’ court time a day – it might be an attractive option. Otherwise, you are probably better off filing early and often. AU G U S T 2 0 1 1
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cover story
While the core principles of governance are the same across the world, the Asian model places emphasis on trust and relationships. A Chartered Institute of Management Accountants study discusses the differences between the western and Asian approaches.
orporate governance can be defined as the way in which organisations are directed and controlled. Although practices may vary, the core underlying principles of governance are the same throughout the world. They strive to protect the rights of shareholders, to create an environment of transparency and appropriate disclosure, and to define the roles and responsi18
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bilities of stakeholders in running a company. These principles are necessary to establish a stable and competitive business and, in the case of publicly quoted companies, an attractive destination for investment. National economies also benefit from good governance as a critical component for safeguarding wealth, employment and GDP growth. Broadly speaking, transparency and agreed rules of engagement are paramount in the west. The focus is on rules (including principles based accounting standards and codes of practice as well as legislation) and transparency,
cover story creating a level playing field for competitors. This western model has led globalisation, produced most of the strongest multinationals and is the bedrock of the world’s developed economies. Understandably, it is widely viewed as best practice. But, in light of the disproportionate impact of the global financial crisis on western institutions, there is now widespread recognition that there are limits to what such measures can achieve. There is now much more emphasis on behavioural issues. In Asia, Africa and most emerging markets the approach to business is somewhat different: relationships sometimes take precedence over transparency. This has its roots in systems in which regulations are not always strongly enforced and legal redress can take years or even decades. In this environment business is based on trust and loyalty. Business leaders in the east and west who understand the differences and can extract the best from both styles may stand to benefit. On the other hand, underestimating the challenge can cause problems. Some western companies stumbled as they expanded into Asia when their rules-based processes clashed with the local culture, for example. At the same time, eastern companies aspiring to become powerful multinationals found that their personal networks became strained and ineffective when stretched across vast distances and different cultures.
the significance of individual relationships in Asia Individual relationships have been an integral part of business for centuries throughout Asia. Entertaining and getting the measure of your prospective business partner were often the first steps in making a deal, well before benefits and money were even mentioned. Relationships in companies could trump performance and leaders were greatly respected – their word was law and their decisions indisputable. John Hooker, Professor of Business Ethics and Social Responsibility at the Tepper School of Business, discussing various shades of nepotism and cronyism, recently wrote: many such cultural differences arise from the fact that western cultures are built on rules and transparency, while most of the world’s other cultures are relationship-based. Westerners trust rule-based institutions; others trust their friends and family far more and are therefore especially keen to cultivate strong relationships. When doing business with Asian partners, western companies are often hindered as they grope through an unfamil-
ne of Asia’s most prevalent problems is a reluctance to question decisions made by a superior. obedience to father figures is easily transferred to obedience to anyone in authority iar landscape. Companies and business units in Asia are often run by the founders and their relatives. Knowing the right person in the right place could mean a difference of months, if not longer, in securing a licence or a key meeting. The reasons that relationships can still mean more than legal contracts are rooted in cultures that value family ties and, by extension, the bonds of friendship highly. Also, until recently in some Asian countries, a political and legal climate in which governments and bureaucracies were seen as unfair reinforced these bonds by making trust a valuable commodity. By placing so much emphasis on individual relationships, Asian firms find it harder to implement procedures that are considered best practice in the West, particularly those that increase transparency – e.g., performance-based evaluations. Their employees can view even basic control tools as a lack of trust in them. One of Asia’s most prevalent problems is a reluctance to question decisions made by a superior. Obedience to father figures is easily transferred to obedience to anyone in authority. This is exacerbated in some companies where the chairman is the founding patriarch. In his 2008 book Outliers, Malcolm Gladwell cited an example in which such deference to authority had fatal consequences. In the 1980s and 1990s, national flag carrier Korean Air had one of the world’s worst safety records and its aircraft suffered a series of fatal crashes. Gladwell attributes the problem, in part, to the inability of junior flight officers to challenge a captain’s actions, even when disaster was imminent. Asian society’s lack of transparency creates a fertile ground for corruption, too.
The shortfall Satyam chairman Ramalinga Raju admitted to having hidden
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cover story Without open tenders or other checks and balances, for example, the temptation to offer incentives such as kickbacks to seal a deal can be overwhelming. The same is true for employees whose success rests on their relationship with their and Behavio superiors. Satyam Computer Services, once one of ople ur e P India’s most respected outsourcing firms, went out of business after a scandal that may have Supportive Professional behaviour been prevented had there been more transValues/ethics challenge Mutual respect culture parency or questioning within the compaTone at the top ny. In early 2009, its founder and chairman, B Ramalinga Raju, resigned, saying Talent development Board Compositior Experience and reward he had hidden a $1 bn cash shortfall for Diversity Succession planning Independence Risk and remuneration years. The scandal exposed “a patriarch Boardroom Time willing to go to any length to keep conLeadership trol, a web of cosy relationships among Roles and Risk awareness responsibilities, members of a seemingly untouchable committees elite and a governance system that failed to keep either in check”, according to a Information Agendas and toots report in the New York Times. The artiand reporting cle quoted Ajay Gandhi, an accountant in Satyam’s home base of Hyderabad, as saying Fra that even outside accountants were unwillres me ctu wor u r t ing to question the company’s chairman, whom ks, P rocesses and S they considered to be their client. “Raju would have been the owner, so what he wanted here would have been done,” Gandhi said. Repo 105 accounting procedures to shift $50 bn off the balance sheet. Instead, China’s biggest banks – Industrial and Commercial Bank of China, China Construction Bank and Bank of China – are now the world’s first, second and thirdCriticism of the eastern corporate governance model has been largest banks respectively by market capitalisation. blunted by the simple fact that Asian companies, even those The reasons that Asia remained relatively isolated from the in the financial services industry, have generally weathered the shocks of the financial crisis go well beyond corporate goverglobal financial crisis better than those in the west. The most nance: governments such as those of China and Singapore significant impact they have felt came not from risky lending, were able to respond quickly; immature capital markets had but from declining demand from consumers in North Ameriyet to move into riskier and less understood debt vehicles; ca and Europe. There was no Asian Lehman Brothers splashed and strong domestic credit demand limited exposure to subacross the headlines, with revelations about the exploitation of prime loans and their variants in the US and elsewhere. And there was another contributory factor: the proprietary and even patriarchal link between Asian corporate leaders and their businesses instils a longer-term view than that held by
s Of Asiasn G phasi ove r Em n anc oad e Br
sis Of Western Gove pha rna m E nce ad o r B
Balancing the two models
Benefits of trust
riticism of the eastern corporate governance model has been blunted by the simple fact that Asian companies … have generally weathered the global financial crisis better than those in the West 20
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cover story many western executives of a company’s success. Asian business leaders tend to see themselves as custodians of valuable property that will be passed on to future generations. This view inspires a more cautious approach to risk, a deeper understanding of the business itself and a willingness to sacrifice short-term gains for long-term health. “There’s no doubt in my mind that this approach creates a focus on the long-term,” says Charles Tilley, Chief Executive of Chartered Institute of Management Accountants (CIMA).
Balancing the two models
Western-style rules and transparency have been shown to aid corporate governance, although corporate governance by itself cannot ensure success, of course. In Asia, where so many businesses are controlled by majority shareholders, companies’ fortunes are more directly intertwined with the interests of their ‘ownershareholders’. Minority shareholders, on the other hand, can be classed as ‘investorshareholders’, who have shorter attention spans and may simply be looking for quick returns. These two groups have divergent interests. Investor-shareholders have only one stakeholder role – that of shareholder – and they are generally seeking only personal benefits. Owner-shareholders are possibly more accepting of multiple stakeholder roles, as they may feel a more direct responsibility towards business associates, employees and the community, at which level personal relationships play an important role. But beyond the relationship level there may be a diminished acceptance of stakeholder responsibility, such as towards the environment, which is where the western governance model may be more effective through stricter regulation and enforcement. Yet, while the relationship-based model promotes longerterm thinking, rules and transparency are essential in helping to prevent the excesses of individuals, especially those at the top of the corporate ladder. ‘Old-boy networks’, as they are known in the west, can often hide dealings that are illegally detrimental to competition, customers and community alike. Many western standards and laws have been set in place specifically to break these opaque networks. In practice, many multinationals from the east and west have approached finding a balance by mixing employees from the home office with local staff, particularly in senior roles. Managed badly, this structure can create damaging conflicts between expatriate and local views. Managed well, it can create a healthy tension that brings out the best of both views. Sophisticated recruitment policies are crucial to crafting a functional team, as are performance metrics that are customised for local contexts. In helping companies in both the east and the west find this balance, management accountants must be careful not to impose haphazardly western models that have their own intrinsic faults. Instead, they would be wise to understand the benefits that relationship-based models offer and help to create a system that mitigates the disadvantages and keeps the advantages through appropriate financial plans, incentive structures and information systems. Those who are successful will build tremendous shareholder value.
There were no banks collapsing in Asia, like Lehman Brothers. Instead the world’s top 3 banks by market cap are now Asian banks
Giving relationships pre-eminence can expose fault-lines in governance: failures and fraud can go undetected, systems that lack transparency become more susceptible to corruption and the rights of minority shareholders are jeopardised, for instance. But, as the global crisis has shown, the western model also carries its share of risk, including an intense focus on short-term shareholder value that can overshadow the prospects of long-term sustainability. The weaknesses of both models must be addressed as the global economy enters a new era, and their advantages preserved. Shareholder value and trusted relationships are not exclusive. They can (and possibly should) co-exist in a governance model that balances the two approaches. CIMA’s boardroom leadership framework provides a useful basis for understanding the relative merits of the two models.
the cIMA boardroom leadership framework This was designed to illustrate how a number of critical factors are necessary to achieve board effectiveness – and, by implication, good governance. It can be applied to understand the Asian and western corporate governance models. The diagram is divided into two halves: people and behaviour frameworks, processes and structures Broadly speaking, the Asian model has placed relatively more weight on the people and behavioural aspects of governance, while the western model has tended to address structural and process issues. But, as we have seen, the financial crisis is leading to a reappraisal of western approach: more attention is being paid to behavioural issues. And, while the Asian model emphasises relationships, it is important to recognise the need for supporting tools and frameworks to ensure that decisions are made for sound reasons – i.e., whether work will be done properly – and not purely to maintain a relationship.
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CFO
Profile NiSHANT fADiA GLOBAL CFO, PRIME FOCUS
3DVision Focussed:
Finance
In the 11 years he has spent as CFO of Prime Focus, one of the world’s leading visual entertainment firms, Nishant Fadia has led M&A deals in three continents, raised funds, launched an IPO and seen the company grow from a `3 crore baby to a `500 crore MNC DHIMAN CHATTOPADHYAY
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ONE OF HIS EARLY dreams died young: Nishant Fadia was never quite good enough to make it to the Indian cricket team. Of course, the 34-year-old sometimes dreams of receiving an SOS from MS Dhoni to turn his arm over for the men in blue. But Fadia is not complaining. Why would anyone, if he happens to be heading the global finance team of a company that is responsible for those stunning special effects in Harry Potter & the Deathly Hallows, Star Wars and the soon-to-be-released Ra-One? As CFO of Prime Focus, one of the world’s largest visual entertainment services companies, Fadia is in the hot seat. Over the last 11 years he has seen the company rise, as it achieved a `1000 crore market cap and generated over `500 crore revenue. In that time, he closed M&A deals across three continents, raised capital and played a key role in making Prime Focus a world leader in its field. What makes this self-confessed cricket fanatic’s story different is that till late into his college days, being a chartered accountant didn’t fig-
JITEN GANDHI
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CFO PROFILE
MileSToNeS FIRST JOB Deloitte Haskins
A HA! MOMENT When we did the IPO in 2006
TOUGHEST CHALLENGE: Managing the finances during the economic crisis
LESSER KNOWN SIDE: I am miserly when it comes to spending on myself
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CFO Profile
ure in his list of priorities. “If not a cricketer, I wanted to be a lawyer. My uncle is a lawyer and seeing the way he dressed and the aura around the profession, I wanted to study law,” says Fadia as we sit in his plush office on top of a hill, just a stone’s throw from Mumbai’s Film City. Born into a business family (his father and uncles own and run a textile business), enterprise, he says, was in his blood from an early age. Only, he didn’t want to run the family business. “My grandfather convinced me to sit for my CA exams, since he believed that even if I didn’t join the business, I needed a good grounding to understand how businesses work,” recalls Fadia. He became a CA in 1999 and soon after, completed a CPA from USA and joined Deloitte the following year. Perhaps he would have stayed on at the famous auditing firm. But at this point (in 2000), his childhood friend Namit Malhotra made him an offer that he couldn’t refuse. “Namit (the founder and CEO of Prime Focus) and I have been friends since we were children. From the day he started Prime Focus in his garage-cumoffice, I would have informal discussions with him about the finances of the company. So I knew a lot about the firm even before I joined,” says Fadia. At the time, the company was tiny, with annual revenues of less than `3 crore. “We had just moved out of the garage to a small office and the total staff strength was 25,” he smiles. Today the multinational firm has operations in India, UK and USA and employs over 4,000 people. It is interesting to note that Fadia never really worked his way to the top like most other CFOs. The reason is simple: he began his career in Prime Focus as the head of finance. “To be fair, operations were very small, so there wasn’t much of a team. I was the man handling finance, so obviously I was heading it,” he laughs. But as operations grew with acquisitions across continents, the company became a global player. At 34, Fadia’s experience is rich and varied. Over the years he has led M&A deals in India, UK and USA, successfully bringing on board private equity (from Adlabs), strategic investors (Reliance Capital) and financial investors (Rakesh Jhunjhunwala). His biggest moment however, was the IPO in 2006. “We had been planning it since 2001, but we were too small back then and 24
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fAvouriTe
PickS NEWSPAPERS
TOI/ET MAGAZINES
FILM TRADE MAGAZINES
BOOK
ALL JOHN GRISHAM BOOKS DESTINATION
LAKE DISTRICT & SCOTLAND MOVIE
AGNEEPATH & ANDAAZ APNA APNA
FADIA IS A WORKAHOLIC WHO IS IN OFFICE SIX DAYS A WEEK BUT AT HOME HE LOVES TEAMING UP WITH HIS TWINS TO PLAY CRICKET. HE ALSO ENJOYS READING
experts advised us against an IPO. By 2006, however, we were aiming big and needed to take the next step,” says Fadia. The experience was nerve wracking but one that he cherishes. “It was a terrible time for an IPO in hindsight. In June 2006, the day our roadshows began, the stock markets shut down. Bankers and investors were worried and people didn’t give us a chance. Nonetheless, we launched the IPO and got a mere 2X
CFO Profile
“The toughest challenge was dealing with negative perceptions. Our scrip fell from 1,300 to 52 between October 2008 and September 2009”
subscription. In retrospect we know we could have done things differently, but it was a great experience,” he says. The year 2006, was a landmark one for the company in other ways too. In April, it acquired British postproduction firm VTR plc for GBP 4.7 mn. Three more companies were also acquired and consolidated in the UK. A year later, PF crossed the Atlantic to North America with the purchase of Post Logic Studios and Frantic Films for $43 mn. These acquisitions allowed Prime Focus to offer cutting-edge services and technology in Los Angeles, New York, Vancouver and Winnipeg. His big sleepless moment, though, came in 2009 during the economic cri-
sis. “The toughest challenge was dealing with negative perceptions. Our scrip fell from 1,300 to 52 between October 2008 and September 2009. Banks were losing confidence and investors were getting jittery. It was a character defining moment for all of us,” he says. The last 12 months in contrast have been brilliant for PF. “We have been one of the first to hitch a ride on the 3D bandwagon. In March, we worked on Clash of the Titans, the world’s first 3D conversion of a film,” Fadia says. The financial results also bear testimony to this success. Profits after tax in 2010-11 is a healthy `76 crore, up from `33 crore in the previous year, a 120 per cent jump.
Looking ahead, Fadia sees the company double its size in the next few years. “We will have to retain our leadership position in the 3D market. Our VFX is also set to grow manifold,” he reveals. As we head for the photo shoot, I ask him if he gets any time to spend with his twins and his wife, given his hectic schedule. “At home my seven-year-old sons and I make up a team of naughty boys. Sundays are spent playing cricket,” he says with a smile. He still has one other dream: that one day he will spend Monday and Tuesday mornings playing cricket with his sons. And, maybe even bowl a few at MS Dhoni. Who knows! AU G U S T 2 0 1 1
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in practice
BEST PRACTICES
WHAT WOULD PETER DRUCKER DO? Peter Drucker, arguably the most influential management thinker of the last century — was known for teaching that the best leaders ask the right questions. Two chief financial officers discuss how they apply Drucker’s techniques to their current business issues PATRICK SWEENEY
P
eter Drucker, the management consultant and author widely credited with inventing the discipline of management, had an insatiable curiosity and an uncanny ability to ask questions that got to the heart of the matter. His messages focussed on selfdiscovery, which he viewed as an introspective and creative journey required of every leader. As Drucker frequently noted in his books, articles and lectures, the best leaders ask the right questions. And the right questions don’t change as often as the answers do. Leaders — from author Jim Collins to legendary General Electric Corp. Chief Executive Jack Welch — have each said that a day they spent with Drucker was the most memorable day they’d ever had. Welch recalled Drucker questioning him: “If you weren’t in this business today, would you invest the resources to enter it?” Delving into that with Drucker, led Welch to issue his famous
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edict that each of GE’s businesses had to be No. 1 or No. 2 in its market or the manager would have to sell it or close it. Winston Churchill described Drucker as a guiding light who makes us think. When asked at the right time, a question as deceptively simple as, “Who is your customer?” can cause an executive to re-evaluate his or her strategy. Born at the beginning of the last century, Drucker trained as a journalist and received his doctorate in public and international law. From 1971 to his death in 2005, he was the Clarke Professor of Social Science and Management
92
The age till which Peter Drucker continued to take classes
at Claremont Graduate University. In 1987, in his honour, the university’s management school was named the Peter F. Drucker Graduate School of Management (later known as the Peter F. Drucker and Masatoshi I to Graduate School of Management). He taught his last class at the school in 2002 at age 92. Drucker became a highly sought-after consultant when his book Concept of the Corporation became an international bestseller. He subsequently authored 39 books. Drucker emphasised two things: asking and listening. And his lessons and questions still resonate with corporate executives. Michael McLamb, Executive Vice President and Chief Financial Officer of boating and yachting retailer MarineMax Inc., in Clearwater, Fla., says that in his experience chief financial officers tend to lead by asking questions. He emphasises, however, that while questioning is important, “You want to make sure
in practice
Drucker became a highly sought-after consultant when his book Concept of the Corporation became an international bestseller. He subsequently authored 39 books your questions are asked in a way that is open, curious and provokes exploration and keeps the ideas flowing.” He says that questioning “should foster creativity, not shoot it down.” McLamb says he often finds that “what may sound like a crazy idea can be tweaked so that a slight derivation of it can be a really good thing for the company. When people say ‘no’ to an idea too quickly, the entire room gets shut down. And the next time you are in a meeting, ideas are less likely to be offered and considered.” McLamb also believes that CFOs, in general, ask more questions “to make
sure that we understand something completely and to make sure that the individual making the suggestion understands the ramifications and has thoroughly thought through what they are proposing.” McLamb says he is a fan of Drucker and his teachings. “We all still benefit today from his approaches and lessons,” he adds. Bill Anderson, CFO of Boston-based diamond company, Hearts On Fire, says that, “to be an effective CFO, you’ve got to listen at least 50 per cent of the time. It is important to understand everyone’s point of view.”
The rest of the time, he says, the CFO should be asking questions. “To thrive in the business world requires the perspective of every key voice. Any business run strictly by finance would be stifled.” So, he adds, CFOs need to understand the different alternative lenses that others peer through, and try to help everyone arrive at the best solution — not the compromise solution, because the compromise is rarely the best solution. Questions that should be asked, says Anderson, include: “Which solution best meets the needs of the business opportunity?” “Are we still maintaining the integrity of the brand?” “Are we AU G U S T 2 0 1 1
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In PRACTICE being financially responsible?” “Have we minimised the risks, and maximised the opportunity?”
CFOS AS DECISION-MAKERS How do CFOs help other decision-makers at the executive table to consider the right questions? How can they promote debate about an idea, or an idea that might be derived from that idea? How can they question a half-baked idea while still encouraging innovation? McLamb says his questioning “usually stems from an in-depth understanding of our company, as well as of our brand, our culture, our capabilities, our competition, the marketplace and our clients’ needs.” Then, he says, in weighing the pros and cons of an idea, his questions will focus on “understanding the implications of the idea for myself, as well as clarifying for others whether this is an idea that we want to put on the fast track or one that needs further refinement.” Through questions, CFOs try to provide a solid understanding for themselves and everyone else of the core issues that need to be considered. McLamb, who has been with MarineMax for 13 years, attributes his questioning approach to his background in public accounting, having been with Arthur Anderson nearly 10 years. “It
90%
Asking questions leads to better results, 9 out of 10 times was a great education to be involved with so many different types of clients and experiences. I learnt an enormous amount from senior executives with differing philosophies, styles and cultures, who were making decisions that sometimes helped their companies grow and sometimes made mistakes that had to be quickly corrected.” Beyond his education and experience, McLamb believes his questions are also keenly influenced by his predominantly thorough nature. The trajectory of his questions is the result of a need to understand the nuances, hidden concerns and possible potential of a new idea. Through his questions, McLamb says, he is also seeking to understand how a new idea could integrate with the company’s current offerings. “Sometimes literally just walking through a procedure can shed some light on how to improve or enhance an idea,” he adds. “In our business, we carry premium brands of boats, and we have to be very disciplined about any new brands we bring on. One of our core philosophies is not to take on directly competitive products,” he says. So, he adds, “there is always questioning around making sure that a new brand would not, in any way, eat away at our
market share for the other premium brands we carry.” Especially during the economic downturn, he says, his company has had many manufacturers knocking on its doors. The process for a potential new brand is to “run the decision through our brand funnel to make sure it reflects the quality for which we’ve become known. Is it well supported by the manufacturer? Does it compete with one of our current brands? If it is in a gray area, how do we weigh our decision?” McLamb asks. He adds, “At such junctures, it is important that the right questions are asked.” Hearts on Fire’s Anderson says the last thing he wants to do is throw water on an idea that may have some merit. At the same time, “I have to ask some important questions to make sure that if we are going to run with a new idea and seize the moment that we have a clear understanding of what is needed to incorporate the idea into our game plan,” he adds. “Have we thoroughly considered and weighed the risks? Are we set up to deliver?” While he encourages input from others and is open to new ideas, Anderson also has a structured side, so he needs to know that all bases have been covered and all the details have been thought through before he agrees to move forward on new ideas. One of the most important decisions Hearts On Fire has been weighing is entering the China market. As a fastgrowing luxury market company, it has been preparing for the past seven years and is poised to start doing business in
to thrive in business requires the perspective of every key voice. any business run strictly by finance would be stifled” – BILL
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ANDERSON, CFO, Hearts On Fire
In PRACTICE
When people say ‘no’ to an idea too quickly, the entire room gets shut down. and the next time you are in a meeting, ideas are less likely to be offered” – MICHAEL MCLAMB,
MarineMax Inc
China this year, Anderson says. Seizing that opportunity took getting the right answers to many questions. It was clear, he says, “that we needed to be in China. It was just a matter of how and when.” In its nearly seven years in existence, the company opened six Hearts On Fire stores in Taiwan, during which time, Anderson says, “we learnt as much as we could about how to succeed in that region of the world.” The firm also opened a regional headquarters in Hong Kong. By doing so, Anderson says senior management “has been able to answer many of the questions that were holding us back, so there are fewer unknowns.” Diamonds are becoming even more precious than gold in China as a display and celebration of wealth,” he says. “Now is the right time for us to seize this opportunity.” He concedes going forward there will still be many questions, but “we are ready for them — because we have carefully prepared for and answered the fundamental questions.”
ASKING THE RIGHT QUESTIONS Anderson also encouraged Hearts On Fire’s Founder and CEO, Glenn Rothman, and President, Mark Israel, to consider other questions before the firm enters China.
Executive Vice President and CFO,
Among those: “What will the business structure be?” “Do we have the resources to support that business structure?” “Will this focus take away from our other ventures?” “What are the border issues?” “Where will significant financial transactions take place?” “Do we sell into China or invest in our Chinese operations?” “How do we protect the integrity of our brand?” Generally, CFOs question ideas to probe further, to make sure that everything comes together so that they, and others in senior management roles, are assured of when is the right time to seize a new opportunity. McLamb underscores that in addition to being thorough and curious, one of the most important characteristics a CFO needs is the ability and desire to collaborate — something, he says, that he’s learnt over the years. “The initial response of someone with a financial background is to be conservative and to respond with a dozen reasons not to pursue an opportunity. But as I grew into the position, I began to understand that there are many ideas that come along — and you’ve got to work those ideas and understand what’s being proposed and look for a solution rather than looking for a way to stop something.” In addition, he ponders: “When there is a proposition on the table that can have a significant impact on the company, or certainly has a significant price tag, it is the CFO’s role to really
get comfortable with that idea. Should the idea be pursued or dropped?” Nearly 90 per cent of the time, he says, by asking questions, a group comes to a better conclusion. Drucker encouraged his followers to ask questions, though to not look for answers the way you were taught in school. “Schools are organised on the assumption that there is only one right way to learn and that it is the same for everybody,” he wrote in Managing Oneself. But, there is not one right answer. Life is not a multiple-choice test. It’s more about filling in the blanks. And, Drucker writes, what is really most important is to ask the right questions at the right time. The right answers will follow. The best CFOs have come to know this intuitively. A final thought from Drucker: “Don’t believe assumptions. Keep asking questions. And don’t settle for anything less than the best possible answers.” Any questions now? PATRICK SWEENEY (PATRICK@CALIPERCORP .COM) IS PRESIDENT OF CALIPER, A TALENT MANAGEMENT CONSULTING FIRM ENTERING ITS 50TH YEAR OF HELPING COMPANIES HIRE AND DEVELOP TOP PERFORMERS FINANCIAL EXECUTIVE | JULY 2011 | (C) 2011 FINANCIAL EXECUTIVES INTERNATIONAL | WWW.FINANCIALEXECUTIVES.ORG
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Case
Study
Using Communication
weave financial to
magic
The financial position of Aditya Birla Nuvo has gone from strength to strength since Sushil Agarwal’s appointment as CFO in 2009. The debt burden has been reduced, cash-strapped subsidiaries given a lifeline and the lifestyle division made profitable DHIMAN CHATTOPADHYAY
W
hen Sushil Agarwal became CFO of Aditya Birla Nuvo (AVNL) two years ago, the diversified conglomerate was grappling with serious challenges, each threatening the growth prospects of the $4 bn firm. Having spent the past two decades in various business units of the AV Birla Group, Agarwal knew if the challenges were to be dealt with successfully, he had to convince his colleagues to rally around
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quickly. “The biggest headache at this stage was the high debt and the resultant stress on the balance sheet. Conservation of cash was another challenge and we also had to turn around a loss making unit,” he recalls as we sit in his office at Nuvo’s Mumbai headquarters.
TACKLING THE CHALLENGES Agarwal, who has recently been elevated to the Board at ABNL, remembers that back in 2008-09, the company had
a gross debt of ` 4500 crore, and a further ` 5300 crore of strategic investments in subsidiaries. “We had to raise additional borrowings in 2009 to fund part of the investment requirement and maintain liquidity. Unfortunately, this coincided with the global financial crisis,” he recalls. While the amount was sufficient to meet the funds requirement for investments and loan repayments in the 2009-10 financial year, it weakened ABNL’s leveraging position. “I faced a Catch-22 situation that
Case stUdy
Project MaP THE CHALLENGE: Reducing debt, raising capital and turning around loss-making units TIME PERIOD: May 2009-March 2011
TEAM: Finance team and top management KEY TAKEAWAYS: No substitute for effective communication. Teamwork within and between business units mandatory
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Case stUdy
“the biggest headache for the organisation at this stage was its high debt and the resultant stress on the balance sheet. Conservation of cash was another big challenge” required urgent action,” Agarwal explains. Convinced that they needed to focus on growth at this stage, Agarwal and his team evaluated all possible fundraising options based on the longterm need of funds, timelines and volatility in the stock markets. “Finally, fund infusion through preferential allotment to the promoters, emerged as the quickest and most appropriate option. Meeting deadlines was essential. I was lucky to have a a great team,” he admits. The entire team played their defined roles to complete this equity infusion of `1,000 crore in ABNL. Agarwal is sure that the conviction and persistence that the finance team showed in the face of adversity and the excellent relationships they maintained with all stakeholders, helped the company. “This initiative helped us grow at a critical juncture, adding long-term 34
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strategic value and reducing stress from the balance sheet,” he says. Post the infusion, the finance team worked towards reducing debt and managing financial risks. One of ABNL’s subsidiaries in the IT and ITeS space urgently needed funds to make its balance sheet stronger. So an innovative structure was created under which ABNL successfully raised `250 crore. This was the Compulsorily Convertible Debentures through private placement. The fundraising strengthened the balance sheet of the IT-ITeS business without impacting ABNL’s overall balance sheet. By March 2011, ABNL had reduced its debt to `2,040 crore from `2,743 crore in March 2009, in spite of growing its businesses. “Our net debt to EBITDA is now 3.2 times vis-à-vis 5.8 times back then, while net debt to equity is down to
0.58 from 0.87 in 2009. Financial ratios at such levels only reflect the strength of ABNL’s balance sheet,” Agarwal says. Two other problems that the CFO and his team dealt with quickly, included a cash flow issue and channelling a business unit’s focus towards profitability. “We focussed on innovative ways to release and conserve cash by working towards optimising inventory terms, rationalising credit periods and negotiating better terms with creditors,” Agarwal explains. “This strategy helped us achieve our targets.” The other challenge was to make the lifestyle unit profitable by making operations efficient. “Our fashion and lifestyle business was scattered in various entities, leading to cost and tax inefficiencies. So we initiated a restructuring exercise that resulted not only in substantial cost and tax efficiency but also in focussed business operations, and optimisation of various resources. This composite scheme, which involved getting clearances from different authorities including our own board and the Mumbai high court, was completed in just 75 days. It helped add a substantial amount to ABNL’s bottom line.”
LASTING LESSONS “I think one of the biggest lessons I have learnt in these two years is the value of effective communication,” he says. “The way the CFO views a challenge needs to be communicated to the stakeholders. And solutions must also be presented to them. Because we communicated solutions, it raised the confidence and the faith that the stakeholders had placed in us.” What is his message for aspiring CFOs? “It’s very important to empower your team and encourage them to look at things collectively. When we are engrossed in our daily routine we unconsciously start working in silos and leave decision-making for the seniors. It is important to break that practice and look at things holistically,” he concludes.
in practice
technology
ERM MAPS ENHANCE COMPLIANCE An ERM Map assists the compliance practitioner by laying out best practices in a visual format THOMAS FOX
PHOTOS.COM
F
or some time I have wanted to write about an Enterprise Risk Management (ERM) Map that I came across. It is put out by a company called MetricStream. This ERM Map is designed to assist the compliance practitioner in either designing or reviewing a company’s Governance, Risk and Management practices (GRM) by providing a visual representation of the best practices in compliance business processes. It allows a company to either develop a gap analysis or classify gaps in its GRM programme by better understanding overall system requirements. The ERM Map lays out these best practices in a visual format; identifying sub-processes within the specific disciplines involved in ERM; and finally separating such practices in leadership, organisation, process and technology. AU G U S T 2 0 1 1
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in practice This article will focus on leadership and process and I will discuss these in only some of the areas which are identified by discipline on the ERM Map.
1. CHIEF COMPLIANCE OFFICER LEADERSHIP — the chief compliance officer (CCO) is responsible in this model, for ethical behaviour and should link ethics to business success. The CCO should be a part of the executive leadership team and work to create a formal compliance programme including a code of conduct, compliance policy and compliance procedures to detail how the programme should be conducted throughout the company. PROCESS — the CCO should develop processes for monitoring of compliance so that if there is a violation, it can be detected and then remedied. There should be some type of ethics certification and creation of an anonymous reporting or helpline.
2. CHIEF RISK OFFICER LEADERSHIP — this role should lead through visibility on the full spectrum of enterprise and operational risk. As risk management is a value generating business process; the role should be a part of the Executive Management Team. PROCESS — this role is responsible for creating the formal process for analysing and managing enterprise risk across the company. It assists to ensure that the internal audit process is risk driven and that financial processes are risk-based.
3. CHIEF FINANCIAL OFFICER LEADERSHIP — the chief financial officer (CFO) should focus the department’s efforts on business risk when conducting internal audits. This is broader than simply general audit, Sarbanes-Oxley (SOX) or Foreign Corrupt Practices (FCPA) audits; it should include all business risks. There should 38
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the chief financial officer should focus the department’s efforts on business risk when conducting internal audits ... it should include all business risks be accountability to the company’s Board of Directors. PROCESS — initially it should be noted that ERM should drive audit priorities and the overall audit process should be repeatable and systematic. There should be consistent processes in place between operational and internal audit. In the area of findings, a summary of findings should be reported to the Board of Directors, and there should a collaboration of findings with, and recommendations to the persons or departments which are audited.
4. CHIEF OPERATING OFFICER LEADERSHIP — the chief operating officer (COO) should be responsible for operational risk and should lead the effort to impart that quality and safety are at the core values of the company. This office should be accountable to regulators, industry and legal standards. PROCESS — the COO should lead in the collaboration between quality and regulatory affairs. If there is decentralised accountability, the COO
erM
ERM should drive audit priorities and the overall process
must consolidate the reporting through centralised record keeping. This role should enhance collaboration between quality and regulatory affairs.
5. CHIEF INFORMATION OFFICER LEADERSHIP — the role should begin with expertise on the integration of technological controls into business applications. The CIO should be charged with the centralised management of IT governance and should ensure that the IT environment is secure. PROCESS — here the CIO should work to have an overall IT framework to assist driving business processes. There should be a centralised document management and approval system and enduser identity management. —THIS PUBLICATION CONTAINS GENERAL INFORMATION ONLY AND IS BASED ON THE EXPERIENCES AND RESEARCH OF THE AUTHOR THE AUTHOR CAN BE REACHED A T T F O X @ T F O X L AW. C O M . — THIS ARTICLE IS PRINTED WITH PRIOR PERMISSION FROM WWW. INFOSECISLAND.COM. FOR MORE F E AT U R E S A N D O P I N I O N S O N INFORMATION SECURITY AND RISK MANAGEMENT PLEASE REFER TO INFOSEC ISLAND REPRINTED WITH PERMISSION FROM CTOF, JULY 2011. A 9.9 MEDIA PUBLICATION EXCERRUM NON EATET
in practice
InformatIon management
A TOOL TO TRANSFORM BUSINESS CFOs who wish to become true business partners to the CEO must use information management solutions in the most effective manner possible B KALPANA
T
alk to Chief Financial Officers around India and you will notice that segregating transactions processing, creating shared services and centralising costs is no longer considered just an option but a must-have to optimise the cost of delivering services. Markets are now used to results being declared two to three days from closure and hence that is no longer a cuttingedge achievement but a basic expectation from a CFO. So what is the next step for the CFO once he has implemented ERP and segregated transaction processing?
PHOTOS.COM
THE REAL PARTNER Becoming a business partner is in vogue and indeed, the logical next step. But how does a CFO achieve it? Rewind the clock to 2001. There were power centres in the finance and consulting world and you could have a premium in the market, since knowledge was restricted to a few. Today information AU G U S T 2 0 1 1
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in practice is available in plenty, both from internal and external mediums, and the challenge is really to wade through the available information to peg its relevance and put it to good use with reference to a time scale. Quality and timely information drastically improves an organisation’s ability to decipher and make changes to its key goals to remain relevant and profitable. Finance enabled by IT can play a key role in the conversion from data to information for decision-making. Base financial data can be juxtaposed using technology converting critical data into decision-making support. Data management and governance are becoming key words in any business intelligence (BI), information management or business analytics context. Let us take an illustration and walk down this thought process further. In procurement, finance obtains certain basic information on the vendor including the entity, price, tax-specific information, etc. There are different facets of information that one gets from the same set of data. The information owners and users or decision-makers are also many. A facet such as price can be used for the contracting control mechanism; the product innovation group uses the same data to review if that’s the highest cost input and evaluate if it should get replaced. The compliance group may use the standard deviations from market price to price in agreements if they are worthy to get investigated. Commercial groups could assess vendor performance to commitments on share of business and discounts, while treasury reviews possibilities to hedge original commodity or determine future price runs for the company’s product. It is therefore critical that this data is reliable and is governed well. In ERP systems most of these facets are covered through configuration of a master data. This set of data requires appropriate governance and integrity to be a trustworthy input to information for a CXO decision. The finance department, more often than not, owns many such data. If designed well, they can 40
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if you are the cFO of a company which has a business strategy to expand across many cities, what is the speed of decision-making expected from you? Would you measure up to the challenge? become irreplaceable for business. The trick, therefore, is to design a master data that would outlive the next three years in business. Was your ERP designed 10 years ago and do you have many resources who are burning midnight oil to provide information that keeps changing according to the whims of a CXO? If you answered ‘yes’ then you could attain nirvana by opening up your mind to information management. That is what is NEXT on the agenda.
UNDERSTANDING INFORMATION MANAGEMENT (IM) You may view this suggestion with scorn and skepticism and conclude that the costs of managing information may outrun the benefits. But with cloud and hosted platforms available, information would get more affordable for the average Indian entrepreneur and consumer who looks for value in their spend. If you look around you may find examples of entrepreneurial behaviours in CFOs ranging from engaging third tier resources in basic accounting, to outsourcing or capitalising on an inhouse business analytics team which would pay for their own investments. Cloud-based applications across large,
Skill
Quality manpower is a common worry for most CEOs/CFOs
medium and small organisations would become an eventuality. The providers would be constantly challenged to improve the cost of delivery and the content or functionality by these groups of entrepreneurs. Have you evaluated whether you can get better vendor or customer information by collaborating with a cloud provider? The power of affordable information with a valuable business partner such as the CFO would no longer then be an item in the wish list on the CEOs desk.
TALENT & TECH I discussed one example of an ERPenabled organisation and how information management plays a key role in the quality of support the finance function provides. Ask any CFO/CEO what worries them the most and you would surely find “availability of quality personnel” on top of their list. Technology can play a great role in boosting employees’ performance from good to great. It can also mitigate the pains from employee turnover and potentially reduce the per person cost. If anyone compares gender diversity in India ten years ago and now across even hi-tech companies, there has been a remarkable improvement. Technology enablement with remote working facilities was one of the game changers in this area. We can use the same game changer and accelerate economic growth. This will improve the talent pool available by providing them tools such as hosted (cloudbased) ERP platforms.
in practice IM & EXPANSION Many have talked about how India has a great consumer base in the third tier cities and in villages. If you are the CFO of a company which has a business strategy to expand across many cities and rural areas, (across any sector such as retail, healthcare or telecom) what is the speed of decision-making expected from you? Would you measure up to the challenge? Let us zero in on a particular conglomerate, say in the healthcare space, looking to expand into Tier III cities by opening a chain of hospitals or patient diagnostic centres. If the hospital is able to understand the typical issues in specific regions (based on cultural habits and genetics), they would be able to pre-empt streams of diagnosis and information becomes life saving. A
database can work miracles if the information design is appropriately planned. While this is on a humanitarian cause, your customer centricity and ability to serve him can improve by leaps and bounds if you are able to use the information collected at a hospital counter in an appropriate manner. On the other hand if the organisation is able to source materials in bulk across such towns, it would be able to provide health services at affordable costs and find that the positives of having real-time information is helping the company grow in leaps and bounds. In conclusion, while information management is key, it’s imperative to review the design and delivery including costs. There are options available from pushing standard reports to a handheld, cloud-based application. Here is a set of
recommended actions for attaining nirvana as a business partner: Assess the current state of information design and delivery – evaluate standard reporting and ad hoc requests. Perform a detailed review of possibilities in reports simplification, tweaks in master data, etc Design the information delivery in a manner to enable the routine requests to be handled by lower cost delivery mechanisms and ad hoc information streamlined to higher cost resources Implement the information design across locations in the organisation Happy Transforming !
1 2 3
B KAPLANA IS DIRECTOR, KMPG. THE VIEWS EXPRESSED HERE ARE PERSONAL
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insight
strategy
ORGANISATIONAL HEALTH: THE ULTIMATE COMPETITIVE
ADVANTAGE
To sustain high performance, organisations must build the capacity to learn and keep changing over time SCOTT KELLER AND COLIN PRICE
I
f you are like most senior executives, you want your organisation to be exemplary. But if you’re honest with yourself, you also know that it’s not, and that, in fact, you’re not even sure what exemplary means or how you’ll ever get there. Most management writing won’t help; despite the multitude of volumes written on organisational excellence, nothing we’re aware of combines a view on the ‘steady state’ of high, sustainable organisational performance with a dynamic perspective on how companies can transform themselves to achieve it. We’ve tried to fill that gap with our forthcoming book, Beyond Performance: How Great Organisations Build Ultimate Competitive Advantage (Wiley, June 2011), from which this article is adapted. Our central message is that focusing on organisational health — the ability of your organisation to align, execute, and renew itself faster than your 42
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6,000 CXOs were trained by ANZ bank in resilience
competitors can — is just as important as focusing on the traditional drivers of business performance. Organisational health is about adapting to the present and shaping the future faster and better than the competition. Healthy organisations don’t merely learn to adjust themselves to their current context or to challenges that lie just ahead; they create a capacity to learn and keep changing over time. This, we believe, is where ultimate competitive advantage lies. Getting and staying healthy involves tending to the people-oriented aspects of leading an organisation, so it may sound ‘fluffy’ to hard-nosed executives
raised on managing by the numbers. But make no mistake: cultivating health is hard work. And it shouldn’t be confused with other people-related management concepts, such as employee satisfaction or employee engagement. Nor should you study what other companies do and then apply their approach. While you can always learn helpful things from others, we have found that the recipe for excellence in a particular organisation is specific to its history, external environment, and aspirations, as well as the passions and capabilities of its people.
WHY HEALTH? The case for health starts with an understanding of how it relates to performance. Performance is what an enterprise delivers to stakeholders in financial and operational terms. It is evaluated through such measures
insight as net operating profit, return on capital employed, total returns to shareholders, net operating costs, and stock turns. Health is the ability of an organisation to align, execute, and renew itself faster than the competition to sustain exceptional performance over time. It comprises core organisational skills and capabilities, such as leadership, coordination, or external orientation, one that traditional metrics don’t capture. More than a decade of research and even more of experience have led us to believe strongly that health propels performance — and that, in fact, at least 50 per cent of any organisation’s long-term success is driven by its health.
STATISTICAL EVIDENCE We have developed a survey to measure organisational health and administered it to over 600,000 employees at more than 500 organisations across the globe. The survey’s immediate purpose has been helping organisations to measure their health and then to improve in areas of weakness. But the data we’ve collected over the years has also enabled us to study the relationship between organisational health and performance. And there’s a strong positive correlation. Companies in the top quartile of organisational health are 2.2 times more likely than lower-quartile companies to have an above-median EBITDA margin, 2.0 times more likely to have abovemedian growth in enterprise value to book value, and 1.5 times more likely to have above-median growth in net income to sales (Exhibit 1). The results within individual organisations mirror the results from our large sample of companies. At a multinational oil corporation, for example, we analysed correlations between performance and organisational health across 16 refineries. We found that health accounted for 54 per cent of the variation in performance (Exhibit 2).
Exhibit 1
Healthy companies perform more successfully Likelihood that companies with strong organisational-health profiles have above-median financial performance % Company performance by quartile Bottom
Middle1
Top 68
48
52 Growth in ratio of enterprise value to book value
31
Growth in ratio of net income to sales
38
1 2
×2.2
31
EBITDA 2 margin
62 ×2.0
53
58 ×1.5
Comprising 2nd and 3rd quartiles Earnings before interest, taxes, depreciation and amortisation
Exhibit 2
At one oil company, organisational health accounted for 54 per cent of the variation in the performance of a group of refineries Correlation between organisational health and performance at business unit level; example: 16 refineries at an oil company r 2 = 0.54 High
Performance1
Low
Weak
Strong Health 2
r2 is the proportion of variance explained by a regression 1 Dollar cost of units produced against industry benchmark 2 Relative to the average of the organisational-health database index
‘EXPERIMENTAL’ EVIDENCE We’d be the first to admit that correlations should be treated with caution. But the case for health doesn’t rely solely on them. We’ve also tested our hypotheses at real organisations trying to improve the way they work. At a large financial-services institution,
for example, we selected an experimental and a control group that were comparable and representative of the wider organisation by criteria such as net profit before taxes, customer economics, and branch staff characteristics. The two groups then implemented a sales stimulation programme over an 18-month period — one using fairAU G U S T 2 0 1 1
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insight ly traditional performance-focussed methods, the other following a more balanced approach emphasising performance and health. The results were striking. In business banking, the traditional approach yielded improvements in value of 8 per cent, the more balanced approach 19 per cent. In retail banking, the traditional approach delivered a 7 per cent improvement, compared with 12 per cent for one emphasising performance and health. Similar studies in other industries yielded similar results (Exhibit 3).
EVIDENCE FROM TRANSFORMATION EFFORTS Fi n a l l y, w e’ v e s u r v e y e d t h o u sands of executives who have been through organisational-change programmes. Data from one survey, on why change programmes fail, showed that what we might see as ‘the usual suspects’ — inadequate resources, poor planning, bad ideas, unforeseen external events — account for less than a third of the failures. More than 70 per cent resulted from poor organisational health, manifested in symptoms such as negative employee attitudes and unproductive management behaviour. Furthermore, our 2010 survey of executives at companies undergoing transformations revealed that organisations focusing on both performance and health rated themselves as nearly twice as successful as those focusing on health alone and nearly three times as successful as those focusing on performance alone.
WORKING TOWARD ‘AND’ The link between health and performance is good news. Unlike many of the key factors that influence performance — changes in customer behavior, competitors’ moves, government actions — your health is something you can control. It’s a bit like our personal lives. We may not be able to avoid being hit by a car speeding around a bend, 44
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Change programmes with well-defined aspirations for both, we found, were 4.4 times more likely to be rated very successful than those with clear aspirations for performance alone but by eating properly and exercising regularly we are far more likely to live a longer, fuller life. Of course, that doesn’t make the pursuit of performance and health any easier. Most companies know how to keep a close eye on performance, but health often suffers from neglect. We asked more than 2,000 executives to name the areas where they wished they had better information to help them design and lead transformation programmes, for example. Only 16 per cent chose nearterm performance. More than 65 per cent chose the company’s health for the longer term. What’s more, even when companies do understand both performance and health, many pursue them separately. The result can be HR-led ‘people programmes’ that bear little relationship to a company’s strategic and operational imperatives, performance-improvement initiatives that cut more muscle than fat, or both. In our experience, building health and achieving its accompanying performance benefits generally require transformational change. The approach we’ve found most effective for pursuing it consists of five stages, which we refer to as the five frames of performance and health. For each stage, you must answer a basic question that applies to both performance and health and then address a related performance- or health-specific imperative (Exhibit 4). While no two change programmes are alike, we believe that the five frames contain the key ingredients for an organisation-wide transformation that delivers performance and health in
almost all circumstances. In what follows, we offer examples from companies that have excelled in one stage or another to highlight what’s required to tackle both aspects of a transformation — with an emphasis on health, since pursuing it as an explicit goal is less familiar to most organisations. Although we firmly believe that each organisation must find its own way through the five frames, these examples of companies that have made significant and lasting improvements in both performance and health offer some inspiration, as well as guidance on tactics we’ve seen work well.
ASPIRE The importance of setting aspirations that emphasise health as well as performance came through loud and clear in one of our surveys: change programmes with well-defined aspirations for both, we found, were 4.4 times more likely to be rated extremely successful than those with clear aspirations for performance alone. Wells Fargo offers an example of how to pursue both: setting strategic objectives and then defining related health essentials. When current CEO John Stumpf became president, in August 2005, he brought his top team together in a two-day offsite session to debate Wells Fargo’s aspirations for its next era. The performance goal that emerged was to maintain the company’s track record of double-digit compound annual growth in earnings per share and revenue. To that end, the team doubled down on the bank’s long-
insight in the phrase “One Wells Fargo”. This idea grew out of the realisation that a huge amount of the value the team sought to create lay in what it called “mining the seams” of the organisation: working together more effectively across the company’s lines of business to break down ‘silo thinking’ and give customers a better experience that fulfilled more of their financial needs.
term cross-sell aspiration of ‘going for gr-eight’ (eight products per customer), with the medium-term goal of adding at least one product on average to its already industry-leading cross-sell rates. The bank’s leaders also set performance targets related to customer loyalty and customer attrition in all key businesses. But a broader aspiration also emerged, which the team summed up
Thinking about the bank as One Wells Fargo helped the senior team focus on changes that would be needed to make the organisation healthier: management practices related to customer focus, strategic clarity, and collaborating to share ideas and information were all strong within the lines of business but had to be distinctive across them as well. If One Wells Fargo was the strategy, organisational changes would be needed to support and enable it.
Exhibit 3
A focus on both performance and health produced
higher returns for a variety of initiatives
Comparison between traditional and experimental change efforts over an 18 to 24-month period 8
Business bank
19
Control group using traditional performancefocussed approaches
15
Coal mine Increase in tonnage, %
25
Experimental group using performance and health-focussed approach
7
Retail bank
12 Retailer Sales-to-labour ratio, %
34
Telecom call center Customer churn reduction, %
35
51 65
Exhibit 4
Performance and health can be viewed through five frames Aspire: Where to go? Assess: How ready are we to go there?
Performance imperative
Health imperative
Develop a change vision and targets that are deeply meaningful to employees
Determine what ‘healthy’ looks like for the organisation in view of your change vision
Identify and diagnose your organisation’s ability to achieve its vision and targets
Uncover the root causes of mindsets that support or undermine organisational health
Architect: Develop a concrete, balWhat must anced set of performancewe do to get improvement initiatives there? Act: How do we manage? Advance: How do we keep moving forward?
Reshape the work environment to create healthy mindsets
Determine and execute the right scaling-up approach for each initiative in the portfolio
Ensure that energy for change is continually infused and unleashed
Put in place a continuous improvement infrastructure to take the company forward beyond one-time change
Equip leaders to lead from a core of self-mastery
ASSESS Before you move from goals to actions, it pays to take a hard look in the mirror to understand your company’s readiness to achieve its aspirations. What capabilities matter most to meeting your performance goals, and how strong are they in your company today? What mindsets about “the way things get done around here” could undermine your quest for health, and what are their root causes? The value of such assessments of a company’s readiness to change can’t be overstated: in our 2010 survey, respondents at companies that diagnosed problematic mindsets were four times more likely than those that didn’t to rate their transformations as successful. When Pierre Beaudoin took over the aerospace division at Bombardier, in 2001, for example, he knew that it needed a performance boost to ride out the industry’s post-9/11 downturn. He also wanted the company to become a healthy, self-improving organisation. The aspirations he set — Can $500 mn in bottom-line savings, along with a continuous improvement in service and products for customers — required lean capabilities that Bombardier lacked at the time, as well as a significant change in mindsets. Probing cultural issues wasn’t something that came naturally to a company that prided itself on technical expertise. In Beaudoin’s words, “It was a challenge for me and for my leadership team to explain why we were spending so much time on the ‘soft stuff’ when we could AU G U S T 2 0 1 1
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insight be fixing factories, hardware, airplanes. We had lots of conversations explaining that if we did the soft stuff right, our employees, with our help, would be more able to do what they’re supposed to do, like make our factories efficient and work on engineering problems.” These conversations and a more formal organisational self-assessment yielded a shortlist of beliefs that limited the value placed on individuals, the role of teamwork, efforts for continuous improvement, and the drive for results. One area where the company urgently needed to change was attitudes toward handling problems. As Beaudoin explains, “Suppose I come to a meeting and hear about four problems, and I slam my fists on the table and say, ‘I don’t want to hear about problems any more; you guys are there to fix them.’ Well, guess what — I’m not going to hear about problems. And that’s how you get yourself in deep trouble.”
ARCHITECT Once a company knows where it wants to go and how ready it is to go there, it must work out the way from here to there. Countless leaders have told us that this is the hardest part of changing their organisations. But it’s also the stage in a company’s journey when efforts to improve performance and health start to fuse: they interlock and reinforce one another as a focussed portfolio of performance-improvement priorities becomes a vehicle for shifting mindsets toward health. To understand what this symbiotic relationship looks like in practice, consider the turnaround AG Lafley famously engineered at Procter & Gamble after taking the helm in June 2000. Lafley established some explicit priorities for P&G: focusing on 10 out of 100 countries, for example, and on four core businesses. Emphasising these priorities was critical to P&G’s performance improvement. It also built a platform for one of Lafley’s deeper goals: to make P&G a more consumer46
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driven and externally focussed company — a healthier one, in short. As Lafley was setting priorities, he decided to draw up a not-to-do list. One item on it was P&G’s ‘skunk works’: experimental technology projects outside the company’s mainstream businesses. These endeavours — which had an annual budget as high as $200 mn — reflected technological goals rather than customer needs and culminated in products and services that had to be ‘pushed’ to the market in the hope they would be taken up. All this worked against Lafley’s customer-focused aspiration. And so the not-to-do list was rigorously enforced: “If we caught people doing stuff that we said we were not going to do, we would pull the budget and the people, and we’d get them refocussed on what we said we were going to do.” Often, shifting mindsets means changing formal systems, structures, processes, and incentives. At P&G, Lafley made sure that planning processes started with an understanding of consumer trends and reframed the organisational structure to give it a stronger consumer orientation. Finally, role modelling, storytelling, and skill development can also play a vital role in shifting mindsets. Lafley, for instance, set up an in-house college for managers and dedicated a substantial part of his own time to coaching. Although this soft stuff is often overlooked, it’s vital. Senior executives who told us, in one of our surveys, that they’d implemented initiatives to change their employees’ mindsets and behaviour during a transformation were twice as likely as others to report that it had succeeded.
ACT When it’s time to get moving, pilot programmes are almost always the right way to start working on performance. If things go well, successes can be replicated elsewhere; if they go awry, you can confine mistakes to a small area. Early results also help to build your employees’ motivation and appetite for change. One key to successful pilots, we’ve found, is conducting them in two stages: first, a standard proof of concept and, second, a proof of feasibility, which will ensure that you have a replicable means of capturing the value you’ve identified across your organisation. Too many companies don’t take the second step and find that they can’t build on their initial success. But even the most carefully constructed pilots aren’t enough. Lasting healthy change also requires an organisation motivated to go the extra mile over and over again as employees carry out their routine, day-to-day tasks while fundamentally rethinking many of them. The whole process can feel like trying to change the wheels of a bike while you’re riding it. Not surprising, most companies find this difficult: one of our surveys found that only some 30 per cent of all executives who had been through a transformation thought their companies had been completely or mostly successful at mobilising energy in it. CEO Julio Linares took the reins of Spain’s incumbent telecom operator, Telefónica de España, in January 2000, as earnings and cash flow were sliding. He used three methods to
Once a firm knows where it wants to go and how ready it is to go, it must work out the way from here to there. Leaders have told us this is the hardest part of changing their organisations
insight create a powerful engine for change as he transformed the company. The first was to help people “understand how the project they were working on would contribute to that year’s targets and, therefore, to the overall transformation programme.” With that goal in mind, Linares and his team emphasised growth, competitiveness, and commitment as critical themes. Developing new distribution models and improving customer segmentation came under the heading of growth; adopting lean work processes and enabling online transactions, of competitiveness; and embedding a new set of company values and reorganising business units, of commitment. Second, Linares ensured that the whole company felt ownership of the changes. He and his senior team brought the telco’s top 500 executives together every January, for example, to help design the programme for the year to come. Beyond this core group, Linares sought to “give relevant people at different levels of the organisation an opportunity to participate” in the redesign of the transformation program me “and then to complement that with a strong communication programme.” Sometimes, companies need to reach out even further to create a shared sense of ownership. When structuring the transformation of India’s Larsen & Toubro, CEO AM Naik explained, “We involved one in four employees, about 7,000 people. I visited 38 locations of the company.” He added, “When the vision was finalised” in a document, “everyone could say, ‘That word was mine,’ you know? Maybe that word was in the minds of a thousand people. But the process created a shared vision everyone could believe in.” Finally, Linares used progress evaluations, which are always important, as a third tactic for maintaining energy. Linares explained the need for them in this way: “The market is going to change constantly, and because of that you need to make a constant effort to adapt your
65%
people in a poll said organisational health mattered most
2.2
Healthy firms are 2.2 times more likely to have an above-median EBITDA margin than others company. Some parts of the programme will end, but new ones will come up.”
ADVANCE The final stage is to make the transition from the intensive work and constant upheaval of a transformation to a period of continuous improvement. According to one survey, companies that build a capacity for it into their organisations are 2.6 times more likely to consider their transformation programmes a success over the long term. Continuous improvement can be cultivated during a major transformation effort by building an infrastructure, as you go, that includes knowledge sharing, learning methods, and expertise to help the company continue to improve. For these to be embraced after the initial transformation effort is complete, the right leadership skills and mindsets must be in place. After the formal end of a transformation programme at ANZ Bank, for example, the company trained more than 6,000 leaders in areas such as self-awareness, resilience, and the ability to energise oneself and others. The response was tremendous: participants spoke of the programme’s “profound impact” and described the experience as “life changing”. ANZ also held other personal-leadership workshops to develop its employees’ ability
to improve continuously, cascading the workshops right through the organisation in a process that eventually touched more than 26,000 employees. These efforts helped ANZ usher in an era of nonstop progress, which included grassroots business initiatives, organisational delayering, bureaucracy busting, internal job markets, and greater diversity. Supporting these endeavours were some 180 ‘champions’ who worked, on top of their regular jobs, to foster continuous improvement in the businesses. ANZ’s strong financial performance, in the years after its transformation, was accompanied by striking evidence of organisational health: it had the highest level of staff engagement of all peer organisations in Australia and New Zealand, and the share of employees who agreed that “we live our values” and “are earning the trust of the community” was 85 and 81 per cent, respectively. If you want to change your organisation for the better and to make the changes stick, you must focus on its long-term health even as you push for higher performance now. We hope our research has convinced you that this sensible-sounding but often-ignored maxim is true. And we hope you see, from the examples earlier in this article, that practical insights and triedand-true tools will let you tackle performance and health simultaneously. We fervently believe that business, and even society as a whole, will improve when organisations begin to report — and be judged — on their health just as frequently and rigorously as they are on their performance.” SCOTT KELLER IS A DIRECTOR IN MCKINSEY’S SOUTHERN CALIFORNIA OFFICE, AND COLIN PRICE IS A DIRECTOR IN THE LONDON OFFICE. THIS ARTICLE WAS ORIGINALLY PUBLISHED IN JUNE 2011 ON THE M C K I N S E Y Q U A R T E R LY, W W W. M C K I N S E Y Q U A R T E R L Y. C O M . COPYRIGHT (C) 2011 MCKINSEY & COMPANY. ALL RIGHTS RESERVED. REPRINTED BY PERMISSION. AU G U S T 2 0 1 1
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leader’s
world
The
Magic of Goals All of us like setting new goals, both personal and professional. Why do we fail to achieve these goals? How does one make sure of a higher success rate? Here are a few ideas 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
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WE ARE ALMOST THROUGH this year, and some of you are already glad it’s coming to an end. Some of you may already be setting your sights on some new goals and objectives for next year. Others are just cruising and the very thought of setting any goals hasn’t taken root – yet. Instead of New Year resolutions, which are often such a waste of time, try some of these tips to create the right goals for yourself. Forget about waiting until the New Year. When was the last time you made a New Year resolution, or know of someone who made one and carried it through? The Self-help Magazine states that only 30 per cent are successful. Ditch New Year resolutions. What you want are goals instead. Goals transcend seasonality, and rushed thinking. Here are my tips on achieveing most of your goals.
1
Create crystal clear goals that you can own. Formulate goals that are exciting and framed positively. Have fun setting yourself a goal that you can imagine in very, very real terms, such as what you will feel, hear and see when you have achieved it. For some rather intangible goals, imagine instead the scene when the achievement of that goal is announced. Who will you be with? What will people around you
leader’s world be saying? These are some ways to futureforward your goal. Imagine a specific timeframe in which to achieve it. Then take responsibility (as much as possible) to get it done. Weak goals are those that rely too much on you persuading other people to do this or that. Revisit your goal regularly – whether you are in the shower, working out, or on your daily commute. Live breathe and think it. In leadership coaching terms we refer to this as ‘internalising an intangible’ so that a manifestation of it can happen
2
Forget those fantasy goals. Any goal, which you have dreamed of achieving for ages, but never got around to realising or attempting to make it a reality, is a fantasy goal. It obviously isn’t important enough for you to want to take appropriate action.
3
“As you get closer to achieving
easier goals, the feeling of achievement will help you move towards more challenging goals” your perceptions and self-limiting beliefs. Asking yourself great questions can also lead you closer to your goal. Such questions are: “What else do I need to get closer to my goal?” “What stops me from doing what I need to succeed?” “What would I get from achieving this goal that I couldn’t get from anything else?”
4
6
Decide you will do it. Many of you will NOT succeed because you didn’t decide to do it. You hummed and hawed, and mentally said you would “try” to do it. Putting “try” into this equation amounts to a sneaky and unproductive backdoor to excuse yourself from getting the goal achieved. Deciding you will do it, and anchoring that with a daily ritual, thought or reminder is a powerful tool in getting things moving. For several years a stone taken from near the summit of Mt Everest was a symbol that helped me mount a comeback climb on that peak. Each day, do at least ONE thing that brings you closer to your goal, no matter how small.
5
Make a commitment to someone you respect that you will achieve the goal. Whoa! This one will really make you feel accountable. Talk to this person often. Meet, and bring up your goal from time to time. Hold yourself responsible to a living person and I guarantee improved results. It can also help if this person is a trained coach who can challenge
SHIGIL N
Plan ahead. A goal that is worth pursuing is one where you have begun by making some real plans to achieve it. This may include intermediate stages and goals to get you where you ultimately want to go. The best goal-getting strategies include finding all the resources needed to achieve the goal. If there are several uncertainties ahead, you can be flexible in terms of timelines and the exact shape and form of that goal without necessarily giving it up. So part of goal-getting is managing your expectations and resources, without giving up the dream completely when faced with setbacks and obstacles.
Create more than one goal in your plan. As you get closer to achieving the easier goals, the feeling of achievement will help you move more effectively towards your more challenging goals. A useful combination is to plan on achieving a compelling personal goal, as well as one professional goal. Having two related goals with differing timelines can also be a powerful momentum builder. Preparing to climb an 8000m peak prior to a Mt Everest climb, may prove to be exhilarating, as well as great preparation for the ultimate goal. Instead of wishing you good luck in reaching your goal, let me wish you success in making your own luck. DAVID LIM IS ASIA’S LEADERSHIP COACH, AND BEST KNOWN FOR LEADING THE 1ST SINGAPORE MT EVEREST EXPEDITION. SINCE 1999, HE HAS HELPED ORGANISATIONS BUILD TEAMS AND GROW LEADERS. SEND HIM A NOTE TODAY AT DAVID@EVERESTMOTIVATION.COM TO SUBSCRIBE TO A NO-COST LEADERSHIP E-NEWSLETTER. AU G U S T 2 0 1 1
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Lounge
08.11
CFO
It is raining goodies this August. The new edition of Audi A6 has been driven by our experts and now it’s your turn. Want a new home theatre? Check out the Denon DHT-1311XP. And those of you planning a holiday, do include Leeds Castle in your itinerary, if UK is your destination
AUDI A6
Ultimate Luxury
The new seventh generation Audi A6 with its futuristic styling and cutting-edge technology will challenge all competition Amit Chhangani EVER SINCE IT STEPPED into the luxury car market, Audi has made its presence felt. In a segment traditionally dominated by fellow German brands Mercedes-Benz and BMW, the Ingolstadt based carmaker has held its own. While the Quattro AWD system showed the world how well the tyres of a car can grip, the aluminium space-frame tech created new benchmarks on how much a luxury sedan should weigh. The company’s
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top-of-the-line A8 is envied by even the S-class, considered by many as the world’s best car for its technological wonders.
STYLE In its latest avatar, the A6 carries much of the
DID yOU
know?
Audi's midsize car was previously named the Audi 100 (or Audi 5000 in the US), and was released in three successive generations. In 1994, the latest generation (C4) of the Audi 100 was rebadged as the Audi A6
e
CFO LOUnge
on wHeeLs styling essence of its predecessor. Subtle aggression and sophistication is the hallmark of Audi’s design philosophy. The revered central Audi goatee grille lends that unmistakable presence to the front. The 4.92 metre long and 1.87 metre wide A6 will announce its arrival in the most emphatic manner, no matter what the occasion. The imposing appearance of the car is matched judiciously with the choice of the four engines offered – two petrols and two diesels. Gas burner units include a 2.8 litre and a 3.0 litre power plant. While the former dishes out 204 PS of power, the latter releases all of 300 horses to your service. Diesel power plants include 2.0 and 3.0 litre TDI units producing 176 PS and 245 PS respectively. The latter’s 500 Nm of train-like torque needs a special mention here.
BLUETOOTH INTERFACE, AN AUTOMATIC PARKING SYSTEM, BOSE AUDIO AND A SPECIAL DRIVE SELECT PROGRAMME MAKES THE AUDI A6 A DELIGHT TO DRIVE
AUDI A6
INTERIORS From the inside, the Audi engineers have tried to lend the cabin what they like calling ‘sporty elegance’. The cockpit follows a wrap-around design theme with an inlay encircling the driver and the front-seat passenger. Audi calls its interface to control the functions of the car as MMI. The cockpit area comprises equipment such as MMI touch, Bluetooth interface and a high-tech instrument cluster. Dividing the functions into four main zones — Telephone, Radio, Media and Vehicle, the MMI with its intuitive navigation makes controlling the functions of the car a breeze for both driver and passenger. With features such as Cruise Control, Audi Parking System, Bose Audio, Four Zone Auto Air Conditioning and Electric Glass Roof thrown in, the cabin feels luxurious in the truest sense of the word. The new A6 also boasts of cuttingedge suspension and damping technology. A standard feature for the new Audi A6 is the air suspension with electronically controlled damping. The latest generation of the system is used
Price: 2.0 TDI:
` 37.7 lakh
2.8 FSI:
` 38.9 lakh
3.0 TFSI:
` 47 lakh
3.0 TDI Quattro: ` 46.95 lakh Power and Torque: 2.0TDI: 176 PS / 360 Nm 2.8 FSI: 204 PS / 280 Nm 3.0 TFSI: 300 PS/ 440 Nm 3.0 TDI Quattro: 245 PS / 500 Nm POSITIVES Ultra lightweight aluminium body, a wide range of assistance and multimedia systems and intuitive user interface NEGATIVES None, unless you consider the prohibitive price tag VERDICT If you have the money and want the ultimate in luxury, go for it
in the Audi A6. The air suspension sets the ride height of the body to various levels as a function of driving speed. In auto mode, the body is lowered by 20 mm once the A6 has driven for at least 30 seconds at a speed greater than 120 km/h.
THE DRIVE Then there is the Audi Drive Select programme for those who love speed and variety. The Audi Drive Select system modifies various parameters of the car such as shift points of the automatic transmission and the power steering to the driver’s liking. The driver can vary the function of these components between three pre-defined modes — ‘comfort’, ‘auto’ and ‘dynamic’. An additional mode, ‘individual’, allows the driver to create a preferred profile within certain limits. The new A6 prices begin at `37.7 lakh ex-Delhi, and go up to `47 lakh for the 3.0 TFSI variant. They are at par with the BMW 5-series and the Merc E-class. And while those cars may be great machines, the new A6 still holds its own. AU G U S T 2 0 1 1
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cfo lounge
travel
leeds castle, uk
A Journey Back in Time
THE LEEDS CASTLE HAS enjoyed a long line of distinguished owners and guests, including royalty, political heads and celebrities, and is now gearing up to welcome yet another prominent visitor. The castle in Kent, just a few miles from London has been selected to host the Olympic torch for a night in July 2012. This castle, often described as one of the loveliest in the world, makes for an exciting day excursion from London. On a recent visit to the British capital, we were told by our hosts to make sure we visited the Leeds Castle for a day. We arrived early at Victoria station (in London) and opted for the coach ticket rather than a train journey, feeling that the former would be a better way to see the British countryside. The bus took us past pretty hills and meadows before arriving at Bearsted where a shuttle bus was waiting to take passengers to the castle. While Elsie, the castle’s special train, takes visitors from the main entrance up to the castle, we opted to walk through the grounds and were rewarded by the sightings of black swans near a water body and moorhen on an island. What makes this historic castle stand out is the influence of various architectural trends from different periods that have been incorporated while building and rebuilding it over the centuries. The Leeds Castle was built in the 12th century by Robert de Crèvecœur to replace the earlier Saxon manor of Esledes, and became a royal palace in 1278 for King Edward I of England and his queen, 52
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Eleanor of Castile. Henry VIII transformed the castle in 1512 for his first wife, Catherine of Aragon. The last private owner, Lady Baillie, the daughter of Baron Almeric Paget and Pauline Payne Whitney, an American heiress, bought the castle in 1926. Upon her death in 1974, Lady Baillie left the castle to the Leeds Castle Foundation, dedicated to the
PHOTOS.COM
The Leeds Castle, a former royal manor, is steeped in history Anil Mulchandani
cfo lounge
travel
BELOW: THE MAJESTIC LEEDS CASTLE PLAYS HOST TO ENGLAND’S ONLY DOG COLLAR MUSEUM. THE MUSEUM HAS SEVERAL HUNDRED DOG COLLARS ON DISPLAY, COLLECTED OVER SEVEN CENTURIES
BLACK SWANS, THE FAMOUS ‘MAZE’, BIRD SHOWS AND SOME GREAT FOOD: THE LEEDS CASTLE IN KENT IS A MUST-VISIT IF YOU ARE IN LONDON
preservation of its historic buildings and grounds. The castle was opened to the public in 1976. The castle interiors reflect various periods and boast of canopied four-poster beds, an ebony floored banqueting room and Lady Baillie’s rooms with her photographs. The castle also has a collection of several hundred dog collars and related exhibits, preserved for over five centuries. After lunch at castle restaurant, we walked to the aviary, which has about 100 species of birds. We were in time as well for the afternoon tour and the World of Wings, a free-
flying bird show. Apart from British falconry with spectacular flights of raptors coming to glove, we also saw the flights of storks and performing parrots. From the aviary, we tried wandering around the castle and were helped by a guide who took us to an underground grotto, complete with mythical beasts created from shells, minerals and wood. The 5 pm Black Swan Ferry Boat takes passengers across the Great Water to the castle driveway. From the driveway, we walked past gardens to the entrance where we picked up ham and chicken sandwiches, nuts and soft drinks from a food stand, and bought gifts and souvenirs at the castle’s shop, before taking the shuttle to the station for our return journey to London. GETTING THERE: You can take the train or bus from London to Bearsted or Maidstone to visit the castle WHERE TO STAY: You can stay in the courtyard rooms at the Leeds Castle which is run as a bed and breakfast with the English breakfast served in the 17th century oak panelled Fairfax restaurant. There are also holiday cottages nearby WHERE TO EAT: There are restaurants, cafes and food stands in
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cfo lounge
Gizmos new launches
Hot Spot
Fujitsu F-07C
Fallen Photo Frames and Shattered Paint!
A mobile phone featuring a full PC version of Windows 7 makes us take notice. It’s being dubbed as the world’s smallest PC. It runs on an Intel Atom Z600 processor and can dual boot into symbian. The phone is unveiled with a price of $860 and is a Japan only release
OS X Lion
Denon DHT-1311XP Home Theatre Vishal Mathur THIS ‘HOME THEATRE out-of-thebox’ package consists of an AVR-1311 receiver and the SYS-391HT 5.1 channel speaker system. The AVR-1311 has a completely black-coloured finish. The volume control is a retro-styled dial. The SYS-391HT speaker system is a 5.1 channel configuration. The five speakers are all housed in black-coloured wooden cabinets. The front and centre channel speakers have dual 8cm drivers, while the rear ones have a single 8cm driver each. Denon is quite big and packs quite a powerful punch. The AVR-1311 is 3D pass through capable. Configuring the sound takes a bit of hard work, since it is a multilayered menu. However, after a couple of trips, you’ll be able to work out which setting is where, and configure accordingly. The AVR remembers all settings like sound volume, surround setting and speaker configuration for each input source, that you set the last time that input was used. The single 54
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optical input is a bit of a limitation. The clarity on offer with these speakers is absolutely delightful. The centre channel speaker, which is essentially for dialogue delivery, does its job extremely well, both in terms of clarity and audibility. If you like a lot of bass, set the subwoofer to +2dB, and there’s enough punch to throw things off shelves. The bass adjustment dial is on the subwoofer itself. The AVR-1311 is ‘one level above the basic’ receiver, and only falls behind only with the no HD upscale and just one optical audio input. The SYS391HT speakers pack in a very powerful punch. Combined, the DHT-1311XP is a very good option, if this falls in your budget. SPECIFICATIONS: Denon AVR-1311 receiver,4 HDMI 1.4a inputs; 1 HDMI out; 3D pass-through 1 optical and 1 coaxial audio input; 5.1 channel speaker system PRICE: `42,000
Auto save, version control, application resume, air drop and other features come with the latest operating system released by Apple. Mac OS X Lion is available as an upgrade to Mac OS X version from the Mac App Store for $29.99
Panasonic Lumix FZ47
This little superzoom lets you manually select aperture and shutter speed. The 12.1 megapixel compact comes with a 3-inch LCD, 24x Leica zoom lens with a 25mm wide-angle focal length. Price: $400 POWERED BY
ad Re Y st OG Mo L E ’s NO ZIN dia CH GA In TE MA
not just
the last word
“Comfort with contradictions”: the only way to look at India?
D
r Manmohan Singh was the celebrated architect of dramatic economic reforms 20 years ago. On this landmark anniversary, however, the mood is ambivalent. The media is obsessing about the reforms being a job half done. Should we be celebrating, or are the reforms indeed slowing down, suggesting a reduced performance in the economy? The concerns are aggravated as much by a number of unflattering economic indicators as they are by what is considered India’s worst period in governance given the indecisiveness and corruption in the UPA government. Let’s see for a moment what the numbers say: GDP growth may fall short of 8 percent this year compared to an easy 9 percent in recent years. Foreign investment is the lowest it has been in the last 5 years, inflation is of critical concern at 8-9 percent and interest rates have been raised eleven times in the last year or so. On the other hand, India’s exports are booming; health and education spends, while still low, are rising exponentially; and the sales of high-end luxury products continue unabated. At our recent conference of a 100 CXOs, peoples’ estimates of their company’s growth ranged from 8% to over 300%! It is truly a case of where you choose to look. We say this, because in a large and robust democracy it is as important to see where we came from and how, as it is to predict where we may eventually land up. And that journey for India
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is nothing short of inspirational, and a primary reason for continued optimism and higher expectations. The 8 percent growth that is lamented today comes after decades of growth at 2-3 percent (widely known as the ‘Hindu’ rate of growth). Inflation and interest rates were always in double digits and, finally, it was next to impossible to attract foreign investments into India. But what’s noteworthy is that industry managed to grow even then, and has obviously exploded ever since. India’s famed entrepreneurial spirit has never seen more success and is creating new benchmarks for innovation, global forays and employment. Despite these strides, there is a sense of despondency in corporate India – and for most business leaders this is a familiar feeling. In fact, every other government suffers drift for one reason or another, and industry is left disappointed. Currently, the apprehension is aggravated by looming recessionary trends worldwide. And it would be wishful to think
that India will come out unscathed. But our research shows that India takes these shocks better and recovers from them faster. The fact of the matter also is that India continues to grow. Businesses find new solutions to new as well as old problems! And that is the only reality that business leaders should focus on. Can India do better? Most certainly it can and it should. But will it? Of course – in the long term. However, the operating timelines (anything less than the longterm!) of businesses will continue to see the duality that India is now well-known for: high-growth and slow-down; abject poverty together with the world’s top billionaires; several women leaders and female foeticide; some big victories along with drift; improved governance and increasing corruption; power shortages and businesses that thrive on uninterrupted power supply – the list is endless. The recipe for success lies in developing ‘comfort with contradictions’... So, while there is reason for worry, there is greater reason for hope. We believe that the silver lining is on balance stronger than the clouds surrounding us currently. What do you think?
Anuradha Das Mathur, Publisher CFO India
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