TCS transformers - September 2011

Custom Solutions Group An IDG Custom SOLUTIONS initiative CONSULTANCY SERVICES IN ASSOCIATIONTATA WITH

Transforming Business Through Judicious Application of IT

PLUS As global capital markets become increasingly integrated, many countries are moving to International Financial Reporting Standards (IFRS).

Voltas did not want to delay this project and rush for compliance later. Learn how Voltas greatly benefited by proactively transitioning to IFRS on their own time table.

INTERVIEW Mahesh Manchi, CIO, Mahindra Holidays & Resorts India stresses on the need for good integration between technology and processes.

TRANSFORMERS CASE STUDY

Countdown to IFRS transition

Voltas shows the way Company Voltas Industry Manufacturing Offering Engineering solutions for a wide spectrum of industries

As global capital markets become increasingly integrated, many countries are moving to International Financial Reporting Standards (IFRS). Voltas did not want to delay this project and rush for compliance later. Learn how Voltas

greatly benefited by proactively transitioning to IFRS on their own time table.

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W

ith the business world becoming more global, the need for a global financial reporting language, like IFRS (International Financial Reporting Standards) has emerged primarily to meet the information requirements of shareholders, lenders and other investors. India is one of the 100 odd countries that are moving towards IFRS convergence with a view to bring about uniformity in reporting systems globally, enabling businesses, finances and funds to access more opportunities.

Although full and unreserved compliance with IFRS is the main objective, many organizations are still not ready to move to IFRS. However, Voltas did not want to delay this project and rush for compliance later with insufficient resources and too little planning, leading to undesirable consequences.

TCS helped us in detailing out all the dimensions of this project which was crucial for a successful transition to IFRS.” Asmita Junnarkar, CIO, Voltas

Benefits of IFRS Voltas, a Tata Enterprise, is one of the world’s premier engineering solutions providers. It offers solutions for a wide spectrum of industries in areas such as electro-mechanical projects, including heating ventilation and air conditioning, water management, textile machinery mining and construction. As a renowned international electromechanical project specialist, Voltas has executed numerous multi-million dollar turnkey projects in over 30 countries world wide. Some of the iconic projects executed in the recent past are the Burj Khalifa, Dubai, F1 track, Ferrari theme park, in Abu Dhabi, Changi Water Reclamation project in Singapore, Hyderabad International Airport and 9 of the 15 CWG stadiums in India, to name a few. In the international market, especially in the Middle East, it operates through its own branch offices as well as through subsidiaries and JV’s.

For Voltas, transitioning to the IFRS reporting standards meant reporting greater efficiencies in their financial processes, easier access to foreign capital markets, and improved empirical analysis capabilities resulting from consolidating multiple global divisions on one reporting standard. Hence, the management at Voltas was aware since long that transitioning to IFRS offered many benefits, one of them being compliance.

A cco rd i n g to A s m i ta Junnarkar, CIO, Voltas, “IFRS was more than just a technical accounting exercise and had to

be viewed as an important business priority. The IFRS revolution will have a significant impact on our financial position and performance, directly affecting the outcomes of valuation metrics that analysts use to measure and evaluate company performance.”

The IFRS Implementation impacts several areas of the business entity, from the presentation of accounts, the accounting policies and procedures ,the way legal documents are drafted , to the way the entity reviews its assets and their usage ,as well as its communications with the stakeholders and the way it conducts its business. The nature of this fundamental and pervasive impact of IFRS makes it imperative to devote sufficient planning and thought to this aspect with choices being made at the transition stage itself, as they determine the effect on the company and its operations. “Hence, a detailed analysis of all aspects of impact and change as well as all legal documentation and communication becomes necessary,” she adds.

IFRS was more than just a technical accounting exercise

and had to be viewed as an important business priority

Learning from Global Experience In early 2010, the Ministry of Corporate Affairs issued the road map for transition to IFRS. The first phase, included companies in Nifty 50 or BSE Sensex, and those whose securities are listed on stock exchanges outside India along with all the companies with a net worth of Rs 1,000 crore. These companies were to prepare and present financial statements using

TRANSFORMERS CASE STUDY

Indian Accounting Standards converged with IFRS. The above companies had to convert their first balance sheet as on April 1, 2012, applying accounting standards convergent with IFRS if the accounting year ended on March 31. Despite uncertainty about timing, the management at Voltas was of the opinion that the ultimate adoption of IFRS in India was inevitable.

Vo l t a s d e c i d e d t o st a r t maintaining accounting books as per both IGAAP and IFRS with effect from 1st April 2010.

The fact that Voltas was an early adopter and decided to be ready to report under IFRS on their own timetable was a strategic business decision that needed full IT support to implement. In fact, with the objective of analyzing the adoption of IFRS

by European companies, the EU commissioned a survey on the implementation of IFRS in the EU. The results of the survey indicated that IFRS implementation in Europe had been challenging, but successful, and was generally seen as a positive development for EU financial reporting.

There was a widespread agreement that IFRS made financial statements easier to compare (across countries, competitors within the same industry sector and across industry sectors), and improved the overall quality of the consolidated financial statements. The survey also indicated that larger companies had prepared early, and had

Engaging the business units and embedding IFRS at the transaction level helped Voltas to drive

Anil George, EVP-Corporate Affairs & CFO, Voltas

Challenges

If Voltas was to publish IFRS f i n a n c i a l st a t e m e n t s fo r 2011-12, which would require comparatives for 2010-11, standing in mid 2009-10; Asmita had only six months to develop a roadmap to convergence, and ensure that the IT system and accounts were ready. The adoption of IFRS required changes in the recognition, measurement and disclosure of many items in the financial statements. “Both financial and business systems needed to deliver the information required for compliance with IFRS. Accordingly, IT systems had to be modified so that the financial data that is generated conform to IFRS. It is important to note that such changes are not restricted to IT modules relating to general ledger entries or sub-ledger entries, but also affect applications such as asset management systems, financial instruments and payroll systems,” she adds.

“One size fits all” does not apply to IFRS and so began a journey which included assembling cross-functional teams from financial accounting, management accounting, tax and IT consulting partners.” As with any project, early planning and a complete understanding of the requirements were crucial for a successful transition to IFRS. “Voltas had to activate New GL functionality to migrate from classic GL to New GL using a service based migration approach with the SAP predefined scenario that included merging of FI ledgers, profit centre ledgers and document splitting. The key areas of coverage were activation of New GL Functionality, presentation of financial statements as per IFRS, asset accounting, revenue recognition, related party transactions and IFRS Reports,” she adds However, this demanded regular communication with the auditor and close co-ordination with the internal accounts team. It was critical that the data cleaning activities had to be started early.

Providing an example, Asmita says that the historical cost which was used in the previous accounting standard, now, had to be substituted with fair values for several balance sheet items, which enabled Voltas to know its true worth. For

a successful conversion project

As Voltas and other Indian businesses become more global in terms of their operations and investor base, there is little option but to go the IFRS way,”

devoted considerable resources to educating and training their boards, staff and investors.

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example, intangible assets acquired in business combinations had to be recorded separately at fair value, and all financial instruments and investment properties would then be reflected at fair values, thereby providing a better measure of the current value of the net assets of the entity.

Key Learnings “There is no doubt that conversion to IFRS was a huge task and a big challenge - its revolutionary impact required a great deal of decisiveness and commitment.” says Asmita. The crucial lesson that the entire team learnt was that the devil is in the details.

“The team ensured the availability of additional test servers, enhancement of production servers for the final run and innumerable test runs. Another reason for the success of the project was that the same team handled the implementation end-to-end, and planned milestones, based on business user-availability. The team had to ensure that all functionalities were tested so that existing data did not get overwritten, and test migration was to cover all scenarios, including closing activities,” she reflects.

Dual Reporting Perhaps even more demanding than preparing the staff for IFRS is preparing the investors. Much of the hype around the introduction of IFRS has centered on how markets would react to large swings in reported figures. Voltas wanted to provide comparable data for the period 2010-11. Hence the system needed to support dual reporting, i.e., Indian GAAP for statutory reporting and IFRS for keeping comparable data ready.

This is where the foresight the management at Voltas displayed comes through; since they had decided that the implementation is best done at the business unit level rather than at the corporate level.

“By going for a top-down and bottom-up approach, the business units were involved earlier rather than later. Engaging the business units and embedding IFRS at the transaction level helped Voltas to drive a successful conversion project,” says Asmita.

Looking Forward to Certainty The Government may, at any point in time, effect all changes for the implementation by a certain date, and the onus will be on the company to comply with the requirements. The auditors will only have to comment on whether the management has properly complied with the norms or not.

Voltas EVP-Corporate Affairs & CFO, Mr. Anil George says, “The credit for fast forwarding the IFRS initiative in Voltas must go to my

Overview of IFRS International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework adopted by the International Accounting Standards Board (IASB). IFRS implementation affects several areas of a business entity – presentation of accounts, accounting policies and procedures, drafting of legal documents, approach to assets and their usage, and communication with stakeholders.

IFRS has already been adopted by many countries in Asia and Europe and many more including the US will be adopting it from 2011-2016.

Over 100 countries are moving toward IFRS compliance to bring in uniformity in global reporting systems, enabling businesses and financial institutions to access more opportunities.

FDIs and FIIs are more comfortable with compatible accounting standards. Therefore, companies feel the need to recast their accounts in keeping with the globally accepted standards.

predecessor, Mr. Moiz Miyajiwala. From my own perspective, I was extremely pleased to see how the Finance and IT teams worked in perfect synchronization to make the entire exercise happen in a record time. The benefits of IFRS in providing more comparability among sectors, countries and companies are well known. Due to its universal appeal, it can also improve and initiate new relationships with investors, customers and suppliers across the globe financial statements that are in accordance with IFRS cuts across borders and over time, tends to facilitate the growth of business. As Voltas and other Indian businesses become more global in terms of their operations and investor base, there is little option but to go the IFRS way,”he adds.

Importantly, Asmita says that Voltas is looking forward to the Ministry of Corporate Affairs making a final decision about adopting IFRS in India. By transitioning in a proactive, planned manner, Voltas was able to do it at their own pace, and now has a much better system landscape. “In turn, we are able to further optimize our business processes, save costs, and increase IT’s strategic role within finance and business,” she says.

TRANSFORMERS INTERVIEW

Marriages

That Last To seize the moment, companies need to adequately marry technology with their processes, says Mahesh Manchi, CIO, Mahindra Holidays & Resorts India.

Mahesh Manchi, CIO, Mahindra Holidays & Resorts India.

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In your organization, what has been IT’s biggest contribution to enhance profitability?

One of our key operations initiatives has helped beef up our bottomline. For many years, we used an offthe-shelf product for our hotel reservations. However, over the years, the reservation system underwent many changes — not all of which could be accommodated in our application. None of the other available products were a good fit for our system either. We decided to replace our application, the license fees of which were expensive, with an in-house, custom-built reservation engine. It took us almost a year to build the application, but the results were wonderful. Our agents found a great difference in the response time.

The other project that has boosted marketing is a feedback mechanism that ensures that a complaint from customers is instantly acted upon. The General Manager too is immediately notified over a SMS. At the same time, if a guest has had a happy experience, we lose no time in passing on the positive feedback to the Lead Management team, which converts potential members into members.

You have taken formal certifications from the Project Management Institute. Do you think CIOs can play the role of project managers in an internal project spanning many departments?

Though a formal management certification may not be essential for every CIO, I believe that being schooled in project management can greatly help in the thinking process. In the case of a CIO, it’s all the more imperative that while he or she is attentive to keeping the IT lights on, one does not not miss out on key opportunities to manage multidepartment projects. Some training in project management can help ensure that the focus is on attaining the desired outcome of the project. Stakeholder management becomes critical in a project that spans across departments, and while a good relationship manager may effectively deal with the stakeholder in terms of relationship, a good project manager does it while keeping in mind the project success.

What role do you think the IT department can play in an economic downturn?

The cascading effect of the downturn had reached us in late 2008. With work on new projects stalled, our team decided to look at keeping ourselves engaged and improving our functioning. Believing in our own competencies, we migrated operations to the new Operating Systems, Databases and Productivity Suites without engaging any consultants. The projects not only helped the team build their confidence, but also earned us praise from our internal customers, garnering a customer satisfaction index of 95%. I strongly believe that crisis brings out the best and during any downturn, all that is needed is reflection, confidence and team work.

Do you believe that if a CIO fails to understand business well, there’s the danger of his role getting marginalized?

Absolutely. From my organization perspective, if I build on the statement, ‘Customer is King’, then the ‘Consumer is Emperor’ and I mean it. If I don’t know my business well, I run the risk of facing the wrath of the Emperor. Not just getting marginalized, but getting bull-dozed!

World over, outstanding CIOs have moved on to become CEOs. What qualities do such CIOs possess in your opinion?

Because of technology’s linkages with all departments, a CIO is fortunate to have the perch from where he/she gets a complete oversight of all the functions. By acquiring a fair understanding of all the functions, the CIO is in a good position to test his/her wings for bigger roles. Moreover, businesses’ dependence on technology is increasing day by day. If the CIO is not adequately marrying technology with processes, then he/ she is going to lag behind.

Tell us about a project that saw you build cross-functional synergies?

In recent years, our industry has seen exponential growth in business. To ride this wave, we initiated a transformation project, where we examined our internal processes closely. The regular interactions I had with the CFO and CMO helped me appreciate their viewpoints much better — the CMO’s focus on topline growth and, likewise, the CFO’s concerns about the bottomline.

Do you think Social CRM is here to stay? Have you experimented with the same in your company?

Undoubtedly! In this age of instant gratification, being socially-challenged is the biggest risk. And in an industry like ours, it is just plain suicide.

We have dedicated teams that connect with our members on social platforms and reach out to them. One needs to experiment with different social media to find out what works best and therein lies the challenge.

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