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Smart Performance,

Communication Skills

Yield Better Results for

CFOs

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In recent years, CFOs have assumed increasingly

complex, strategic roles focused on driving value creation

across the business. Growing shareholder expectations

and activism, more intense M&A, mounting regulatory

scrutiny over corporate conduct and evolving expectations

from the finance function have put CFOs in the middle of

corporate decisions.

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While financial performance is what it is, the CFO’s

role in helping stakeholders interpret the numbers in the

context of the business environment is critical. This article

explains the significance of the role that CFOs have to

play in managing investors, communicating with

customers, suppliers and internal teams, bridging cultures

in M&A situations, without dropping the ball on day-to-day

finance functions.

In a changing business environment, the CFO is

tasked with creating economic value through smart

performance. It is also his responsibility to ensure that the

value thus created is visible and an easy to understand

parameter for investors and other stakeholders to gain

their confidence and trust.

Businesses today are rapidly undergoing a

metamorphosis in India. From the traditionally managed

family-run businesses with traditional/informal

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performance measurement mechanism, traditional modes

of raising capital and a certain lack of permeance of

transparency through the organisation about the future, we

are beginning to see an increasing number of existing, as

well as new-age, companies with a professional outlook

living in an environment which is increasingly inter-

connected and inter-dependent. The one key element that

has changed in the way of doing business in this modern

landscape is the flow of information.

The new age CFO , therefore, must now realise that

he is no longer expected to linger in the background and

surface every time the results are to be announced. As the

one person in the organisation that has intimate

knowledge of both the past performance and the expected

future growth it becomes his responsibility, not only to

steer the company towards a better future through smart

performance but also be able to provide a transparent, big

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picture view of the future, to internal stakeholders,

customers and investors.

What is Smart Performance?

A CFO today understands that the word ‘performance’

has a broader meaning than just the underlying numbers.

There has been a shift in focus in measuring performance

from profits to profitability, earnings to economic value and

so on. The focus is on creating ‘value’ which comes from

both increased sales, driving better margins, increase

efficiencies in operations amongst others which improves

stakeholder confidence and builds company valuations.

Smart performance would, therefore, mean looking

constantly for opportunities to improve economic profits for

the company both inside (operational productivity) and

outside (sales). Smart performing companies and their

CFOs are serially identifying, recording, measuring,

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comparing and finding ways to improve scores on the

short and long term value and growth metrics. by working

on:

Processes and Systems

One of the challenges that companies face is for them

to constantly look at improving each of their key

processes, be it the sales, operations, HR etc. The CFO

plays an extremely important role in defining the key

metrics and more importantly tracking them on a

consistent bias which not just helps in measuring business

performance but also bring out possible areas where

process improvements are possible. The need to evaluate

and implement systems particularly IT systems that cut

across functions and integrate them is a role that most

CFOs are involved with. The CFO’s input in the selection,

design and implementation of an integrated system (ERP)

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which involves massive amount of change management

cannot be emphasized more. In that sense, the CFO is

only next to the CEO in terms of importance within the

organisation.

Vision Alignment and Relentless Execution

Being a leadership role, it is essential for the CFO to

have alignment with the CEO/Company’s vision. Let me

illustrate this with an example – We recently had an

opportunity to work with this company, which was on a

high growth trajectory and was looking to grow its

revenues to 2x in the next 3 years. The CFO and the

Finance leadership team needed to be ready to support

this aggressive growth path by providing the CEO decision

making support and putting in place performance

management systems. The company struggled with

multiple “versions of the truth” and a lack of standard

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performance measures, resulting in management

discussions that were all too often spent on reconciling

differences in assumptions. Sponsored by the CFO, a

project was created to focus on transforming the finance

function into a highly valued partner in the business. The

CFO set out to lead a strategic change in the business by

establishing and modeling a high-performance culture in

finance and then transferring it to the rest of the

organization with the help of HR. Alignment of thought

process and being able to articulate the company’s vision

is paramount for a good CFO. The CFO also needs to

have a strong buy in to the CEO/Company’s strategy and

should also play the role as an implementer of the thought

process/ strategy to the hilt. Increasingly, CFOs are

playing a key role in developing and implementing strategy

within their company, partnering with CEOs to creatively

design growth opportunities for the future. Successful CFO

leadership requires a deeper understanding of strategy,

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increased leadership skills, and an ability to effectively

communicate financial acumen and knowledge to non-

financial colleagues. A CFO cannot wait for things to

happen, having an entrepreneurial bent of mind to get

things done is the key.

Communication

A number of CFOs that we meet today spend a

considerable part of their time in communicating with

investors and analysts. The CFO needs to communicate

on an ongoing basis and also provide an assurance on the

direction and pace of growth. It is important for the CFO

to be seen as ‘independent’, to be able to provide insights

on all aspects of business and be transparent. A CFO has

got to do the communication himself/herself as far as

possible so that the intent of what is being communicated

is not lost or misinterpreted. Any kind of misinterpretation

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can have significant implications on the company

concerned. Larger organizations build investor relations

teams who work closely with the CFO and who feed

information or analysis relating to the company or the

industry which could be of importance to analysts who

track the company’s shares closely. Regular engagement

with the market/investors and with the analysts is crucial in

building investor confidence.

A CFO needs to work closely with multiple

stakeholders. A CFO probably needs to work hard on

influencing others, improving his/her diplomatic and

people management skills. It helps a great deal if the CFO

is seen as someone who participates and contributes to

strategic discussions, which helps in building influence

particularly with the board of directors and investors. A

CFO needs to be a leader, understand the business

dynamics and be familiar with all the elements of the

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business as well as the operating model in order to be

able to be the ‘Quasi CEO’ or the ‘next in command’. In

today’s economic scenario, CFO’s are increasingly seen

as natural contenders to the CEO position. And then the

magic happens.

CFO’s find themselves assuming greater leadership

and responsibility while also asserting more influence on

strategy. Outstanding CFOs with all of these skills and the

right personal chemistry with the CEO have the ability to

become his/her right-hand person. Ultimately, such CFOs

become agents of change, creating smarter work patterns

throughout their organization with insights that drive

performance and help achieve better results. Improvement

in company valuations is a result of doing the right things

consistently over a period of time. As they say, Rome was

not built in a day.

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Case Study -1

The Company

RealBuild is a Promoter owned and managed, and

privately funded mid-sized real estate company

headquartered in Mumbai. RealBuild had developed

approximately 10L sqft of residential and commercial

space in and around Mumbai immediately before

MyCFO’s involvement with the Company and developed

around 5Lsqft of commercial real estate during the time of

our involvement. Senior Management was and conitnues

to be exclusively run by close friends and relatives of

Promoter. Initial work has been done to induct a

professional CEO at RealBuild.

The problem MyCFO had to solve

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MyCFO was involved with RealBuild in two phases.

In t he first phase, the mandate was to study the business

processes of the company, make recommendations for

improvement and to recommend a suitable ERP package

for implementation. This phase also required us to study

the financing structure of RealBuild and recommend

strategies to move away from a personal relationship drive

approach to fund raising to a more professional basis to

raise funds from formal, institutional sources. In Phase II,

MyCFO was required to establish financial and operational

controls, streamline MIS delivery, help develop models for

pricing decisions and study fund raising alternatives,

including private equity and lease rent discounting.

MyCFO Approach

In Phase I, MyCFO’s role was one of change

management, working closely with department heads, who

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had never before been exposed to working with

professionals. Our deliverables included a comprehensive

SOP document that covered land acquisition, broker

appointment, project evaluation, contracting and sub-

contracting, financing and accounting and reporting

controls and processes. MyCFO’s approach was to ‘first

seek to understand’, evaluate the technical and execution

capability of HODs and come up with a set of practical

solutions that provided some easy wins, but yet were a

step up from what the company was already doing. The

SOPs formed the basis for the ERP implementation

partner to configure Microsoft Dynamix at RealBuild. On

the fund raising side, MyCFO introduced banking partners

to RealBuild and was actively involved in the negotiations

for fund and non-fund based limits, which helped

RealBuild reduce dependence on private and expensive

sources of lending.

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In Phase II, MyCFO’s work was focused on helping

RealBuild take decisions on hold/ sell decisions relating to

ready stock and timing and pricing decisions of the sale.

Rent discounting options were evaluated and implemented

with banking partners, helping RealBuild reduce the

overall cost of funding. Timely generation of MIS relating

to size and quality of sales inquiry pipeline, competitor

pricing and inquiry to sales conversion, helped

management take timely decisions on the sales side.

Financial MIS was focused on Budgetary controls to

ensure that costs were within approved limits at all times

and that time and cost overruns were flagged in advance.

How the client benefited?

In Phase I, MyCFO’s involvement helped RealBuild

reduce dependence on private funding from 100% to 63%,

on a larger funded base. We estimated reduction in ERP

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implementation time, by a minimum of 8 weeks on a

conservative basis, with a smooth M+8 days first month

closing on ERP, apart from ‘Go live’ at about 65% of

features available in the system. MyCFO’s involvement

helped improve margins by about 2% through better

controls over procurement processes. Our involvement

also helped reducing time taken to finalise commercial

evaluation of new land bank acquisition process from

about 42 days to 23 days.

In Phase II, MyCFO’s lease rent discounting solution

reduced weighted cost of funding from about 17.5% to

about 13.8%. Sales Pipeline reports were moved from

Week end + 5 days to daily basis. MyCFO estimates

improvement of sales realisation by about 1.5% on

account of improved quality and benchmarking of sales

pipeline reports. Flagging of cost and time over runs

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enabled project completion within 104% of Budget; of the

4% overrun, 85% was passed on to end customers.

Case Study -2

Our client

Pharmax is a family owned and managed company

with turnover close to INR 700Crores. Pharmax is a

leading name in the Active Pharmaceutical Ingredient

(API) and Finished Drug Formulation (FDF) segments

which is sold in both the regulated and the generic

markets in India and over 50 countries worldwide. The

company has state of the art manufacturing facilities

approved by US FDA and has 17 Abbreviated New Drug

Application (ANDA) filed and 12 in the pipeline.

Challenges for MyCFO

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Budgeting at Pharmax was a simple ‘spread sheeting’

exercise restricted only to collation of data inputs received

from various departments. The variance between budgets

and actuals for instance in financial year 13-14 was more

than 80%. The variances were reported every month to

the HOD’s and the management on a month on month

basis for their review and comments.

MyCFO Approach

MyCFO’s mandate here was to play the role of an

ongoing CFO for Pharmax. MyCFO’s approach was to

identify the principal reason behind the budgeting

exercise, which in this case was to help the management

get a clear idea on the cash flow requirement and in

helping them stabilize the FDF business. This was

followed by a communication from the management team

on the need for the departments to participate in the

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budgeting exercise. A 6 member budgets team was

constituted which was lead by MyCFO. This was followed

by one on one meetings with the department heads where

targets were discussed and agreed. Some of the meetings

which involved key decision making were attended by the

promoters. The targets were discussed and debated

amongst teams on parameters such as stock (max order

quantity, credit period, lead time, logistics, distribution),

debtors, creditors, zero based budgeting for PDF

business, competency of personnel involved in the

process, inter departmental dependencies, product

strategy, capacity utilization, investment in fixed assets

and ANDA, making each SBU within the company

profitable, EBITDA improvement, misses and issues

based on last year’s achievements amongst others. The

budget exercise was finally completed in 8 weeks with 3

revisions. The exercise also served to set individual KPI’s

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for department heads and were eventually linked to

incentives.

How the client benefitted

The budget exercise allowed standardization of MIS

reports across the company, helped the company to

institute and track performance for the Senior Managers,

formation of the budget committee helped the departments

to resolve potential issues which may come in the way of

achievement of targets. The process also allowed a formal

mechanism to review actual progress and it also set the

ball rolling in terms of weekly monitoring reports on sales,

cash flow, stock movement to the management.

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