Reinventing the role of the CFO bl-premium-article-image

D Raghuram Updated - September 30, 2020 at 07:46 PM.

Apart from operations, CFOs must keep a watch on the financial health of key business partners and ensure a firm’s success

CFOs most often are branded as people who question and demand a lot of neatly arranged data for making a decision. In today’s business environment — which does not resemble the past in any way — a heavy reliance on past data to support decision making may not be prudent from the perspective of both quality and speed. Therefore, an immediate impact of the pandemic on the chief financial officer is a need to learn decision-making under uncertain and ambiguous business conditions.

This stereotype of being only the custodian is rapidly changing in several organisations that are reinventing themselves in a hurry as they gear themselves to ride out the pandemic. While such transformations may be fundamental and painful to organisations and individuals, the good news is that many of these changes may well be permanent, giving a competitive edge to successful firms over their struggling rivals in the post- pandemic period as well.

Concurrently, there are also some organisations that may be thinking, at their own peril, that the pandemic crisis will be short term. We are yet to understand the extent of impact this crisis will have on our future. With such unprecedented uncertainty about the future, it will only be pragmatic to follow what Andy Grove (former CEO and Chairman of Intel) said: “Only the paranoid survive”

The new context for CFOs

Suffice to say that the entire ecosystem of any business is deeply impacted by the pandemic. An organisation needs to think more about its ecosystem — both upstream and downstream — now than ever before.

As a result, the scope for the CFO has, unforgivingly and rapidly, changed from that of keeping an eye on operations and reporting efficiencies to a more end-to-end vigil on the financial health — especially cash flows — of key business partners to ensure the organisation’s survival and future success. There is a need to first shift the primary focus from the P&L to the balance sheet.

Second, as a changing business context, the bankers are likely to demand greater transparency. This requires the CFO to proactively strengthen the relationships so as to ensure the stability of the organisation’s own financing.

Third, several organisations still have a large proportion of their employees and other stakeholders working online from their homes.

This may require the business processes to be significantly re-engineered and supported via multiple digital channels for ease of access with attendant checks and balances to ensure security of data and transactions.

Remote working may well be a norm that is here to stay in the post-pandemic era for its efficiencies to the organisation and society alike.

Remote working will also demand that more transactions be automated starting with high-traffic processes such as procure-to-pay and order-to-cash and record-to-report management. Also, there may be opportunities to increase the proportion of business transactions and reports (particularly working capital) that are real-time.

Successful CFOs will realise the need to raise their thought process in response to the prevailing ground realities and will be the first to break another stereotype: that of being slow in inventing and adopting new techniques and systems of working.

A good example of speedy and pragmatic adoption of new technologies and systems comes from the Group CFO of a large diverse Indian conglomerate who is quoted to have deployed several enabling technologies on a war footing to support the employees to work effectively from their homes.

In parallel, several webinars were arranged to train the employees on these IT tools and also to address their concerns around performing all their activities effectively from a remote location. Such pragmatic thinking with a sharp bias for action coupled with a leading-from-the-front approach will give all the stakeholders not just hope but the confidence to excel during the pandemic.

Vectors for CFOs to consider

First, is to figure out what are the top priorities to ensure the financial health of the company as well as meeting the needs of any key stakeholders who are financially unstable. Identify these basic necessities and stay with them until corrective actions are firmly implemented. For example, prevent any disruption to the supply chain by accelerating payables for critical suppliers who may be on the brink while agreeing with the others to extend the payables. These actions will help stabilise the business in the near term.

Second, for positioning the organisation for recovery, in addition to rationalising operating expenses, the following may serve as a checklist — the appropriateness of which may be assessed based on the business context:

Estimate the minimum cash requirements across the ecosystem and plan accordingly:

a) Reach out to other departments periodically because key to a good cash-flow forecast is communication between all departments;

b) Centralise all bill-passing activities to bring visibility and control;

c) Increase the periodicity of evaluating the creditworthiness of customers and proactively engage with them to understand their business context and adjust credit-limits accordingly;

d) Expedite receivables with attractive schemes to enhance cash flows;

e) Engage with the lenders to re-negotiate early repayments of debts and/or renegotiate interest rates considering that, in the current situation, deposits now far exceed lending

f) Spend capex only to improve competitive advantage in the present context

Work with operations to explore ways to re-purpose and/or improve utilisation of assets to generate additional revenue streams

Explore innovative solutions to convert fixed costs into variable costs through outsourcing and leasing as applicable

Increase the variable component in employee cost through ESOPs, sabbaticals, and/or driving an organisation wide operational excellence initiative (a CFO-led PMO) with rewards linked to the benefits accrued

Identify and address further opportunities to digitise processes in the organisation

The pandemic offers a great opportunity for the CFOs to reimagine their roles and become dynamic business enablers, in refreshingly new ways that will remain relevant even in the post-pandemic period. Future-focussed CFOs will be quick to leverage such a calamity by making their organisation’s systems and processes more resilient and agile and, thereby, vastly enhancing the competitiveness of their respective firms.

The writer is Managing Partner

at CorEssentials

Published on September 30, 2020 14:16