CFO CONNECT

September 2019 Edition

This edition of CFO Connect contains 33 pages including cover

REDEFINING EXCELLENCE:

THE ROLE OF FINANCE

CFO CONNECT

FROM THE EDITOR

DWINDLING CONSUMER

CONFIDENCE

03

05 COVER STORY

REDEFINING EXCELLENCE:

THE ROLE OF FINANCE

PEOPLE

FROM BALANCING FINANCIALS

TO STRATEGY AND PURPOSE 19

23 INSIGHT

THE STANDARDS OF EXCELLENCE

INSIGHT 25

27

ELECTIONS AND

BEYOND: THE NEXT

5 YEARS

30 CULTURAL

TRANSFORMATION:

THE KEY TO

BUSINESS GROWTH

32 TECHNOLOGY

AND THE

FUTURE OF THE

FINANCE

FUNCTION

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2 CFO CONNECT SEPTEMBER 2019

LET THE SUN SHINE DOWN

CONTENTS

FROM THE EDITOR


DWINDLING CONSUMER CONFIDENCE

When an economy begins to slacken, it is common for

people to hastily blame their government. This is rather

simplistic. Economies move in cycles and whilst

governments and central banks can nudge things one way

or another, longer-term growth requires structural

adjustments. Governments, though, have the ability to

create a feel good factor that motivates consumer spending,

for instance through lower taxes; and central banks through

lower interest rates. But ultimately growth is a consequence

of new investment and demand.

Thereafter, through to 2017-18, earnings slumped to around 6% pa with a resulting

shock to a range of products, including consumer goods and farm equipment.

Although inflation also fell during this period the drop in wages was far higher.

Second, urban incomes failed to keep pace with their previous growth, largely an

outcome of an absence of sizeable investments in manufacturing – new capacities

create new jobs and consequently a new set of consumers. Whilst urban consumption

has been climbing over the past three years, so has the quantum of consumer imports,

mainly from China. For instance, 60% of India’s electronic imports come from China.

Therefore, the marginal rise in demand has not really helped Indian manufacturers.

The Indian corporate sector, refraining from investments in their own country,

preferred manufacturing commitments in offshore locations. Whilst the growth in

services, such as retail and logistics, created a tangible number of new jobs, most of

these complemented a rise in consumer goods and electronics imports. For instance,

electronic imports have jumped by about 16% pa in the last two years, capital goods

by ~17% pa, toys 15% pa; apparel 35% pa and fertilisers by 27%.

Governments can play a role in both areas

but cannot flap a magic wand. The current

slowdown is due to a combination of a few

factors. First, rural incomes have been

stagnant for the past few years. According to

a report by the Reserve Bank of India, rural

earnings soared by 15-17% pa between 2007

and 2013 and consequently, so did

consumption.

“There is no single solution

to fixing the current state of

affairs. Longer term reforms

must be complemented with

short term feel good

measures”.


Third, the shrinking of retail credit influenced the purchase of products that cost more

than Rs 15,000. Banks and NBFCs that provide such loans are themselves in dire

straits. In the wake of the IL&FS crisis, the balance sheets of NBFCs came under

scrutiny with fewer lines of credit from traditional lenders such as mutual funds and

banks. Dodgy loan exposures amongst NBFCs aggregate to Rs 2 trillion or thereabouts.

Commercial banks, themselves, need to fix their balance sheets and this requires

unaffordable sums for recapitalisation. Finally, urban consumption complements a feel-

good factor. When stock markets are buoyant people feel happy about their notional

wealth. On the other hand when markets deflate, they become cautious. Stock values

have collapsed by more than Rs 10 trillion over the past few weeks, providing a

setbackto retail spending.

FROM THE EDITOR

The sectors most likely to be impacted would be

tourism, automobiles, consumer durables and

really anything that is considered discretionary.

The issue now is how does one fix this?

Regrettably, there is no plain solution. As a start,

the government needs to continue with its

infrastructure spending that in turn would sustain

longer term growth. In the short term though, a

combination of tax incentives would be handy.

These could cover both personal income taxes – to persuade consumption – as well

as corporation tax to inspire new investments. Currently, the effective tax rate on

businesses is around 48% or even higher, when dividend distribution levies and

further taxes on individual shareholders on dividend incomes are included. Equity

markets need to be buoyant, as they are a source of capital for business enterprise.

They also generate private consumption through the ‘wealth effect’, which affects

the bulk of India’s middle-classes. This can’t be all that hard to fix.

Adit Jain

Editorial Chairman, IMA India

“Equity markets need to

be buoyant, as they are a

source of capital for

business enterprise. They

also generate private

consumption through the

‘wealth effect”.

5

CFO CONNECT SEPTEMBER 2019

REDEFINING EXCELLENCE: THE ROLE OF FINANCE

In a time of dramatic change, leading

Finance functions are moving fast to deliver

value to their organisations. To do that,

Finance must balance its key priorities: cost

reduction, capital structuring, strong

controls and efficient operations. Diageo

India – part of the world’s leading premium

spirits firm– aims to grow its business at

double-digit rates on a sustainable basis.

Over the last few years, the Finance

function has played a crucial role in enabling

business performance, achieving efficiencies, managing risk, reducing debt, generating free cash

flows and promoting strong governance. This has been enabled under the guidance of Sanjeev

Churiwala, its CFO and a member of its Executive Committee.

Mr Churiwala plays the multifaceted role of strategic planner, analytics wizard, technology evangelist,

governance specialist and leader par excellence – all at once. He has been the driving force in

improving profitability through a relentless focus on costs, restoring the balance between long-term

and short-term borrowings, bringing down debt levels, driving efficiencies through a shared services

model, building an effective business partnering framework, enabling data-driven business insights,

and raising governance standards.

Under Mr Churiwala’s leadership, Finance has undertaken several initiatives to improve business

performance. The implementation of an aggressive and effective pan-India credit policy resulted in a

favourable working capital scenario, with a significant reduction in DSO (Daily Sales Outstanding)

and a drop of over 1,000 bps in the average working capital for accounts receivables. This is perhaps

the single-biggest such improvement in Diageo India’s history. Also critical were such strategic

decisions as creating a Shared Service Centre (SSC), and ensuring optimisation of human resources

costs without compromising on quality output and service delivery. The Company’s liquidity

situation has also improved significantly, thanks to an aggressive weeding-out of - unprofitable

businesses, non-core assets and products, as well as selectively smart pricing of high-value lines,

thereby improving margins, earnings and cash flow dramatically.

Mr Churiwala’s focus on systems and governance is evident in its recent CGR-2 rating by ICRA, and

a shareholder rating of 3.59/4, who have lauded the quality of Diageo India’s financial reporting and

its high compliance standards.) The Code of Business Conduct and Ethics(CoBCE) is a key policy

that governs the compliance and ethics framework, which applies to employees as well as suppliers,

customers, contractors and third-party manufacturers. The global risk and compliance team

monitors the quality of investigation and remedial actions, while initiatives like ‘Path to Pride’ and

‘Speak Up’ transfer the compliance baton from the top management to the grassroots level.

COVER STORY

6


For its high standards of governance, the company won the LACP’s Gold Award, which is often

referred to as the ‘Oscars of Financial Reporting’. Its annual report has been ranked among the top

100 globally. The cumulative impact of these various governance measures is evident in the

company’s revised credit rating to A1+.

With the aim to create enterprise value, Mr Churiwala has built an effective business partnering

model enabled by three key interventions: outsourcing core transaction processing tasks; having the

right blend of in-house and external talent; and supporting Finance Business Partner’s (BPs) through

centres of excellence. Today, Finance BPs go beyond mere advice, actively participating in co-

creating solutions. This not only leads to higher learning of Finance BPs, but also drives their

acceptance as integral components of the function they support.

In a candid conversation with CFO Connect, Mr Churiwala shared his insights on the role of

Finance in delivering value at Diageo India.

THE BIG PICTURE

1. What major challenges do the markets offer Diageo India for each of its product

lines, and for Diageo as a whole?

Some of the ongoing challenges that are unique to this category in India are:

a) Frequent changes in ‘route to market’ models by the State governments, which lead to

short-term disruption across markets.

b) Year-on-year tax increases/changes skew the share of consumer spending growth benefits

disproportionately in favour of the exchequer.

c) A regulated pricing environment, one not linked to inflation, artificially restricts the ability

of brand owners to pass on the rightful share of inflation to the consumer, which is

contrary to the concept of investing in brands and building pricing ability.

d) Lastly, one-off external interventions in this category keeps us on our toes. The Supreme

Court ban on highway outlets, GST implementation, and keeping alcohol-beverage

category out of its purview are examples of challenges in this space

2. How well structured is the organisation today to respond? What changes specifically

did Finance engineer to enable the right organisational structure and design to

maximise opportunity and minimise complexity/challenge?

The organisation structure needs to be cognisant of the evolving market landscape and

changing customer expectations. Over the last few years, we have worked to make the

organisation agile, less hierarchical, and more interconnected. In the Finance parlance, we

have moved to a vertical structure in various knowledge streams, which are connected

globally at Diageo, and this supports the market-facing teams. We have created centres of

excellence across streams, upgraded our business Finance teams, and moved transactional

work to shared services. Today, Finance works in a way that allows it to partner the business,

and it is well placed to participate in strategy and provide pre-emptive inputs to the business.

COVER STORY

COVER STORY

7


Our structure allows us to merge the dual benefit of optimising growth and flawless

compliance, and puts us in a commanding position to extract the maximum value out of any

opportunity.

3. What are the corporation’s strategic goals for the next 3-5 years?

As a forward-looking, growth-oriented CPG company, we aspire to grow our top-line at

double-digit rates on a sustained basis on the back of continuous innovation. Within this

double-digit growth, we would want the premium end of the business to grow faster than

the overall portfolio.

As one of the world’s leading alcoholic beverage business, we want to be at the forefront of

industry efforts to promote responsible drinking and reduce the harmful use of alcohol. Our

sustainability and responsibility strategy integrates social responsibility into our core business

to create value for society and shareholders, and shape the industry evolution from its

current state to ‘celebrate responsibly.’ We aim to build an in-house ‘productivity muscle’

across the business value chain that enables continuous savings, which in turn provide the

necessary fuel to invest in A&P to grow the category. Lastly, we want to create a ‘winning

and engaged organisation’ by investing in capabilities that provide a competitive advantage

and are critical to delivering results. At the core of our business strategy is our commitment

to enable employees to ‘be the best they can be.’ We also aim to be a digitally-advanced

organisation, and have set high goals of creating the right scale of IT infrastructure.

4. Which risks would you identify as key? Conversely, what are the key opportunity areas, both for the sector of your operation at large, and your organisation specifically?

The industry is exposed to multiple regulatory risks emanating from state taxes, adverse

ruling from courts, and changes in regulations with respect to pricing, licensing, working of

operating facilities, manufacturing processes, marketing, advertising and distribution.

Further, the proliferation of spurious liquor consumption poses a threat to the growth of an

organised business like ours.

In terms of opportunities, acceptance of alcohol consumption by consumers, an expanding

population base of young people, and increasing per-capita income are the major driving

forces that will spur growth for this segment in the coming period. The company’s strong

focus on premiumisation coupled with rising disposable income and evolving consumer

lifestyles also presents a significant opportunity to grow sales and expand margins.

Additionally, increasing conversion from country liquor to branded IMFL, presents a growth

We aim to build an in-house ‘productivity muscle’ across the business value chain

that enables continuous savings, which in turn provide the necessary fuel to invest

in A&P to grow the category.

COVER STORY

8


opportunity, especially for our popular segment brands. For instance, our premiumisation

policies and responsible drinking socially-linked business strategies are well placed to create a

positive impact in a well-informed, educated and strictly regulated market.

BUSINESS PERFORMANCE

1. Over the last few years, one of your biggest focus areas is to build back profitability through a relentless focus on costs. What were the key areas of focus that enabled sustainable cost savings without impacting the business value proposition? What has been the outcome? Building an in-house muscle around productivity is a key strategic priority. We focus on

productivity throughout the business value chain, across all the P&L lines. Some streams are

more mature than others. Our operating performance over the last few years demonstrates

how we have negated inflation with our measures. The focus was around product features

that are consumer-facing, new/innovative procurement models and waste elimination.

Manufacturing/warehouse foot-print correction, net revenue management and marketing

effectiveness have equipped us to better our performance.

2. Capital restructuring was driven by the need to restore the balance between short-term and long-term borrowings. How did you balance the short-term need of deleveraging and the longer-term agenda of organic and inorganic growth?

Diageo India has put in place an optimal capital structure for a balanced financial profile in

both the short- and long-term, with sustainable leverage. This structure has provided

headroom and financial flexibility for organic and inorganic growth. We have diversified the

debt portfolio from 100% bank loans to an optimal mix of commercial paper, short-term

bank loans and NCDs. This diversification has helped us manage liquidity and interest risks.

It has deleveraged our balance sheet and has achieved interest cost reductions. The Treasury

team periodically monitors rolling forecasts of the company’s liquidity position. Centralised

cash management system across the company ensures optimal use of funds. The company

has sufficient borrowing facilities which get utilised to fund deficits, if any.

Over the last few years, the Finance function has played a crucial role in enabling

business performance, achieving efficiencies, managing risk, reducing debt,

generating free cash flows and promoting strong governance.

Diageo has put in place an optimal capital structure for a balanced financial profile

in both the short- and long-term, with sustainable leverage, providing headroom

and financial flexibility for organic and inorganic growth.

COVER STORY

COVER STORY

9


3. Positive cash flow generation was instrumental in bringing down the debt burden. What steps were taken in this regard? What was the impact?

In larger companies Consumer Goods companies such as Diageo India, negative cash flow is

more than an operational problem. It involves winning the support of external lenders in the

initial stages before operational bleeding can be stopped. We delved into debt re-financing,

involving complex negotiations, often with many banks. Actions were taken to raise internal

sources of cash by managing working capital more efficiently and, if necessary, spinning off

operations.

Further, the implementation of an aggressive and effective pan-India credit policy resulted in

the favourable working capital scenario with DSO reducing significantly. Average working

capital for accounts receivable as a percentage of NSV was brought down by more than

1,000 bps a couple of years ago. This is considered to be the best improvement in the

Company’s history. Strategic decisions like creating a Shared Service Centre (SSC) by

centralising operations and ensuring optimisation of human resources costs without

compromising on the quality of output and service delivery were also helpful.

The liquidity situation was improved by aggressively weeding out unprofitable businesses,

non-core assets, products and selectively increasing prices on high-value lines, thereby

improving margins, earnings and cash flow dramatically.

4. Setting up the Finance Shared Services Centre (SSC) was one of your key initiatives to consolidate processes and technologies. How did you make a business case for a shared service centre? What was the goal of your SSC strategy?

Establishing an SSC in a large organisation is not just Finance or an IT project but involves

unbundling and reconfiguring the support services, representing more than merely a rational

response to cost reduction and efficiency savings. Here the SSC has been approached from

an overall business perspective and was part of the solution.

Typically, shared services initiatives focus on cost reduction. However, as Diageo’s Head of

Finance, I found that shared services capabilities enhance compliance and mitigate significant

financial exposure from associated risks. Making a business case for an SSC involved

consideration of qualitative factors in addition to the traditional quantitative ones. The

primary objective of our SSC strategy was to enhance our overall compliance environment

while driving efficiency, by eliminating disparate layers and bringing in standardisation,

simplicity, speed, productivity and cost-efficiency. The other objective was to create clear-

focused finance cohorts that could add value to business by being able to sharply focus on

overall business performance.

The primary objective of our SSC strategy was to enhance our overall compliance

environment while driving efficiency, by eliminating disparate layers and bringing

in standardisation, simplicity, speed, productivity and cost-efficiency

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10


20,502

23,444 25,399 26,069

28,512

Revenue from Operations (Rs in Crore)

-195

122 170

562

659

Profit after tax (Rs in Crore)

COVER STORY

11


486

886 971

1,028

1,287

EBITDA (Rs in Crore)

6.00

10.70 11.40

12.60

14.30

EBITDA Margin (%)

COVER STORY

12


5. How long did it take to implement the SSC? What were the implementation challenges and the key risks that had to be mitigated? What makes a shared service model work?

We would say we are still on the SSC and centralisation journey. We did ‘wave one’ of

centralisation a couple of years ago when we moved all our Finance transaction processing to

our captive global SSC. We then centralised all our employee services and IT application

management.

Any shared service transition would take about two years to stabilise. Our key risks primarily

were around knowledge transfers, managing legacy issues, and driving change, most

(2.40)

1.50 2.00

6.90 7.30

Profit after tax margin (in %)

(26.90)

1.70 2.30

7.70 9.10

Earning per share (Rs per share)

COVER STORY

13


importantly hand-holding our people throughout this transition phase. We have robust

governance programmes, and we closely monitor the journey to be able to make appropriate

interventions.

In my opinion, the critical success factors in shared service implementation processes are the

alignment of targets with corporate strategy, coupled with executive commitment across the

organisation, the right governance and focus, and a winning team.

6. What were the outcomes of the SSC in terms of cost savings, efficiency, quality, etc? What is next in the phase of evolution of the SSC?

SSC adoption has led to several administrative gains across various levels of the organisation,

be it strategic, tactical or operational. It has brought benefits for processes and has delivered

results. Specifically, the SSC has helped in the perpetuation of corporate knowledge

developed over time. It is allowing standardisation of processes and its reuse in other areas

and departments; helping top-level to focus on the core business of the company; allowing a

more holistic and integrated analysis of the results due to the consolidation of KPIs; and

enabling a sharper delineation of responsibilities and monitoring of performances more

effectively.

The first wave of SSC witnessed centralisation and outsourcing of processes/capabilities

whereas the next 2-3 years would be about leveraging technology to leapfrog on each of the

objectives that we have laid out. In terms of technology, we would leverage a combination of

ERP, point applications, advanced analytics, and intelligent automation to enhance the

Finance function’s effectiveness.

BUSINESS PARTNERING

1. You have been instrumental in building an effective finance business partnering

model. How did you do that? What challenges did you overcome?

It required three big interventions:

a. The right structure that involved a fair amount of centralisation. This is contrary to the

decentralised model in the pre-acquisition days that replicated four Finance

organisations across four regions. It also involved outsourcing the core transaction

processing work streams into a shared service environment

b. Injecting the right blend of in-house and external talent with hands-on experience

working with the business, and the ability to keep them focused on deliverables

c. Supplementing the business partnering (BP) team with equally strong ‘Functional

Centres of Excellence’ in whom the BP network can dip into for support and guidance

We were clear in our vision for the Function and what we had to overcome in terms of the

usual change management related issues that are normally associated with such large-scale

COVER STORY

14


transformation. Other functions, however, demonstrated a high degree of resilience as

Finance was undergoing this massive change.

2. How can finance business partners keep their advice relevant to the changing needs

of the business? What qualities distinguish an effective Finance business partner?

We are more demanding from our Finance BPs, expecting them to go beyond mere advice,

and participating in co-creating solutions. That drives significantly higher learning, as they

get to know the business more deeply. It also drives acceptance of the Finance BP as integral

components of the functions they support. A good Finance mind will be able to straddle all

critical finance experiences and we expect them to demonstrate that flexibility.

In our assessment, there are three key qualities of an effective Finance business partner.

First, an inherent curiosity and inquisitiveness to know and understand the business better

that enhances the partnership quotient. Second, the ability to get a dispassionate outside-in

perspective that provides benchmarking with best-in-class industry practices and solutions.

Third, the ability to provide a healthy challenge when needed by speaking the language of the

business.

3. What kind of training and tools did Finance Business Partners (BPs) need?

Considering the attributes that we look for in our Finance BPs, the training requirements are

largely on the softer side of ‘leadership competencies and behaviours’. There are two specific

interventions that we have consciously made to develop our Finance BPs into the leaders of

tomorrow. First, even though they are thrown into the deep end of the business and the

functions they support, the Finance Functional protection is not diluted. They remain closely

anchored in the global/national Finance community that provides them consistent on-the-

job learning interventions as part of the 70:20:10 model as well as appropriate

counsel/mentorship from senior functional leaders. The second area focuses on the

‘leadership behaviour training interventions which includes formal training on softer areas

such as situational and inclusive leadership, relationship building and effective

communication. Such interventions keep the Finance team (especially the Business

partnering team) united and bound together by common glue, giving them a sense of pride

and identity.

4. How is Finance BP effectiveness measured and rewarded, including at the individual

level?

We assess Finance BP effectiveness through a combination of functional, cross-functional,

skip-level feedback and observation in workgroups and meetings. At a more senior level,

BP’s are also assessed on employee engagement and Net Promoter scores.

The Finance business partnering model has been enabled by three key

interventions: outsourcing core transaction processing tasks; having the right blend

of in-house and external talent; and supporting Finance BPs through centres of

excellence

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15


UTILISATION OF TECHNOLOGY

1. How critical is technology in driving business value? How has the Finance

department contributed towards that value?

Technology has had a major impact on our workplace, revolutionising the way business

conducts daily activities. There has been a workplace transformation with solutions that

enable us to connect, chat, meet and collaborate anywhere anytime. This has improved the

productivity of each employee in the organisation. IT is a key enabler for achieving our

growth and productivity agenda through simplification, standardisation and automation. The

data and analytics platform collates data from multiple sources in an automated fashion and

presents a single version of the truth. This allows the Finance teams to spend all their

energies in analysis and deliver business-oriented insights to drive performance. Besides

being a consumer of technology, the Finance function has also strongly partnered with IT

teams to enable the choice of best technology investments to deliver long-term business

impact. For instance, we had embarked on an automation project to enable the sales force in

the field and hence, improved the quality of sales in the market. Finance team’s involvement

ensured a better value delivery of the project and a stronger sponsorship for the business

results.

2. What technology initiatives have you taken to improve finance department efficiency

and effectiveness? What was the tangible impact created?

When I started in 2015, the Finance activities were primarily manual and paper-based. Also,

every unit and cluster used to have their variations to the stipulated process. Knowledge used

to be in the minds of people who had done those activities for ages. In our effort to become

process-centric, we took on the ambitious task of transforming our function end-to-end

across people, processes and technology. We have created a strong team of Finance BPs

who support multiple functions, and created CoEs and SSCs in the Head Office to support

them with specialised knowledge. All the roles were enabled with technology solutions to

support efficient working as well as have systemic controls to ensure compliance. This

journey of simplification, standardisation and automation enabled enhanced partnering for

growth, faster turnaround on all transactions, and 100% compliance.

3. How do you leverage technology to enable data-driven business insights for better decisions? We genuinely believe that technology enables data-driven business insights in areas where

transactional intensity is very high and where it is humanly impossible to decode the data

through the usual means and mechanisms. In line with this philosophy, a few areas where we

are leveraging technology include: net revenue/trade spends management at an outlet level;

in-store sales execution; and route planning for our frontline sales teams.

Technology enables data-driven business insights in areas where transactional

intensity is very high and where it is humanly impossible to decode the data

through the usual means and mechanisms

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16


4. Do you foresee this expanding going forward? How do you take decisions on this

score, and where do you see IT and the role of the CIO change in the future as

technology comes increasingly in the domain of the CFO as an efficiency and

forecasting accelerator?

Technology is embedded in business operations and is a key enabler for business disruption.

I believe that in today’s day and age, technology is not limited to a few roles. Everyone in the

organisation needs to be technology savvy and comfortable with the use of digital tools.

On the other hand, CIO-CFO collaboration is a critical success factor in creating the organisation of the future. The CFO has a bird’s eye view of the organisation performance and hence, is a key sponsor for organisational transformation. The CIO is the key enabler for bringing about this transformation. I believe the synergies between these two roles are going to be the need of the future as well.

CORPORATE GOVERNANCE

1. The quality of Diageo’s Financial reporting is lauded by regulators for adherence to the highest standards of compliance. What forms the core of your corporate governance system?

The corporate governance standards have remained high due to the relentless effort made in

improving the reporting standard and close cycle time, and garnering improved investor

satisfaction scores. Our practices have been recognised and vindicated by external

stakeholders as well, as demonstrated by the recent CGR-2 rating for our corporate

governance practices by ICRA (which is the second-highest rating for any existing company

in India) as well as a shareholder rating of 3.59 out of 4 for our shareholder services.

The company believes that good governance practiced within fosters confidence and trust of all stakeholders. We firmly believe in being fair to our employees and customers. The management is accountable and responsible for its actions and conducts at all times. Our sound risk management and internal control systems define our commitment to governance. We make sure our communication to stakeholders is regular and remains fair, transparent and balanced. We strive to improve our practices and promote social good through our CSR initiatives.

2. How are authority, responsibility and accountability defined to ensure timely decisions and actions across the business?

We have made substantial progress to empower teams in the lower rungs of the

organisation. Last year, we doubled the financial authority limits across the board. Processes

have been simplified and automated to ensure people spend time on what matters for

Good governance practiced within fosters confidence and trust of all stakeholders

COVER STORY

17


customers. Meeting times have been cut and more decision-making authority has been

devolved downwards.

3. How do you ensure compliance and ethics standards remain consistent across the global enterprise, while ensuring local adaptations for better applicability?

Integrity is deeply embedded in the way we do business. Our Code of Business Conduct and Ethics (CoBCE) – the key policy governing the compliance and ethical framework of the company – sets out Diageo India’s commitment of conducting business per our values and with all relevant laws and regulations. We ensure each one of us understands our responsibilities and are fully conversant with the code and policies. We are committed to doing things the right way. Indeed, there is just no other way!

All employees must undergo training in CoBCE and a compliance certification programme anchored by policies and procedures, prescribed as per the global standards, covering many critical areas. CoBCE also applies to our suppliers, customers, contractors and third-party manufacturers.

The company has a system of getting compliance reports periodically from the units to ensure compliance with the provisions of all applicable laws. Diageo India’s whistle-blower system – SpeakUp – got extended in five additional regional languages and training to workers across all manufacturing locations. The global risk and compliance team monitors the quality of investigation and remedial actions. The senior leadership team also periodically reviews the status of various aspects of the compliance programme. We also launched a campaign called #PathToPride, which focusses on middle management, taking ahead of the compliance baton from top management to the grass-root level of the organisation.

4. What has been the impact of various governance measures on cost, efficiency and

risk levels? What metrics do you use in this regard? How would you quantify the gains made?

The entire corporate governance discussion is based on the premise that adopting good governance practices has a positive influence on company performance. Several benefits result from good governance practices such as improved top-level decision-making processes, better control environment and reduction in firms’ cost of capital. For companies listed on the stock exchange, the most commonly discussed benefit of good governance is the effect on share value, liquidity and investor portfolio composition.

In addition to a significant improvement in company’s overall financial flexibility, corporate governance has led to further improvement in our credit rating. ICRA has upgraded the long-term rating from A+ to AA with a positive outlook, while the short-term rating was reaffirmed at A1+ - the highest possible in that category. The company won the Gold award from LACP, often referred to as Oscars of Financials Reporting. The annual report was also ranked amongst the top 100 globally. We are now in the top quartile for publishing quarterly results. Our compliance rate in SOX is the highest in Diageo.

The Code of Business Conduct and Ethics (CoBCE) is the key policy that governs

the compliance and ethical framework, which is not only applicable to employees

but also to suppliers, customers, contractors and third-party manufacturers

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5. Under your watch, audit compliance monitoring was enabled through a mobile application. What is the mechanic behind the systems? How would you differentiate this as best-in-class compared to the systems followed by other peers/firms? We conceptualised, designed and rolled out fully automated audit analytics with monthly dashboards in Power BI for the Audit Committee and the executive management’s review and action. Over 15 such analytics are ready (including 9 SOX and business controls). It was out-of-the-box thinking to gain that extra mile which gives real-time information on data analytics compliance and overall audit risk rating of the company. This is a big leap to move towards a paperless environment. This app is first of its kind, which has transformed reporting around continuous auditing and governance, quarterly audit committee meetings, and executive summary of released reports. Our analytics is 100% centralised – a big step towards improving audit efficiency and helping the IA team build relations with internal and external stakeholders.

6. Broadly, what is the extent of technology-enablement and automation of your detective controls and monitoring processes?

We have launched another project to automate all those controls where data analytics was

being performed repeatedly and manually in MS Excel for each audit. We have moved 10

controls (through ~30 analytics) to continuous auditing. Further, we have designed DDI

(Deep Dive intelligence), a fully automated audit data analytics tool with a detective and

predictive analytics. This allows exceptions and red flags to be proactively highlighted for

corrective actions, and also allows the business to get heads-up on potential control lapses.

We have also introduced ‘Integrated Audits’ (IA), which involves performing an IT audit

followed by sample testing of manual controls. Historically, IA involved only sample

testingof manual controls, disregarding the all-pervasive IT controls. Today, the IA

methodology reviews all significant risk areas, be it IT or manual.

Sanjeev Churiwala

CFO, Diageo India.

_____________________________________________________________________________________

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FROM BALANCING FINANCIALS TO STRATEGY AND PURPOSE

Pankaj Vasani, Executive President and

Group CFO - South Asia, at Publicis Groupe,

shares his role in the organisation, work-life,

and learnings. He also answers a few

questions of a more personal nature.

CFOs stand at the intersection of multiple

functions and thus have a unique vantage point

of the enterprise. Consequently, their roles are

becoming increasingly aligned to business

strategy – and that of the CEO. The overriding demand is for CFOs to contribute to business

growth, manage complexity and control costs – all at once.

Mr. Vasani has developed an end-to-end, holistic and unbiased view of the company’s entire value

chain. Enabling this is two decades of cross-sectoral/industry experience across multiple domains

(Finance, Legal, Tax, Operations) and diverse roles (super-specialist, specialist and generalist).

Further, as the role of the Finance Head shifts from fiduciary to visionary, he believes he is now

better equipped than ever to appreciate the nuances of various facets that impact business decision-

making. Being able to connect the dots and influence outcomes more directly, his job involves

translating both insights and philosophy into specific action items and advantages.

CURRENT MANDATE

Mr Vasani is part of the Groupe’s Leadership Team (GLT) for South Asia, which focuses on

helping brands accelerate transformation, enhance collaboration and achieve cumulative growth for

clients. Among other things, he and his Finance team are responsible not just for performance

management, strategy, transformation, change management, value focus (realisation/optimisation)

and market positioning; but also, for quality stewardship and in-the-time and effective advisory to

agencies and businesses. They achieve this by leveraging their detailed understanding of the

Groupe’s commercial strategy and the business objectives of key stakeholders. Mr Vasani is an active

member of the Publicis Global Finance community, ensuring that the handling of financial matters

in South Asia is aligned with global priorities, and that the Corporate has full transparency on this.

TOP ENDEAVOURS OF THE FINANCE TEAM

Mr Vasani started as a Senior Financial Officer with RGA, a chartered accountancy firm with a

focus on accounting, auditing and tax. Thereafter, he moved to Subros as Legal Advisor

(Commercial and Tax); Coca-Cola as Country Tax Manager; Publicis Groupe (then Sapient) as Head

of Compliance & Tax; and Vodafone as CEO (Cable & Wireless), Head of Finance & Tax- India

HoldCos, and Board Member. In a 20+ year career, he has seen the Finance function’s role in the

organisation deepen and widen. Looking back, he now identifies five key ‘endeavours’ for any

Finance team:

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Ensure sophisticated financial fluency: To monitor and communicate financial performance, coupled with a focus on accentuating the top line, cost containment/vigilance and profit improvement.

Instil a high-performance culture by finding the right things to work on. The key is to define several metrics that track performance and recognise success. These reveal trends, risks/opportunities, and also determine awareness of the outside world. These metrics should not be treated as inert. Instead they should be frequently reviewed and polished in line with changing external conditions.

Champion the cost agenda to enable a structural shift towards much higher PBOI/EBITDA levels. Focus on financial control during the process of efficiency enhancement.

Ensure that the decisions made across the organisation are based on sound judgement, and that they enable the development of a coherent strategic plan aligned to business and functional plans. Further, these must have the support of key stakeholders, including but not limited to strategies and M&As underway.

Establish a comprehensive culture and people agenda to ensure an ongoing focus on sustainable and profitable growth. Also, make changes to the structure of the Finance organisation to enable true business partnership.

LESSONS LEARNED

During his career, Mr Vasani has learned several valuable lessons:

Stay delivery-focused: Define the right arena and build a culture that is more operational than corporate, clearly laying out where to play, how to play and how to win competitively. It should be all about performance and delivery, devoid of politics. Speak operations: He believes that ‘A lot of accountants are experts with debits and credits, but when dealing with business colleagues, your language should not be Hebrew to them. Go beyond the numbers to be a co-partner of the organisation’s agenda. And remember, patience is a virtue.’ Do not let the problem slide, because it will only get worse: ‘Management wants to know when the dog is not well – not when it is dead!’ There is no situation that cannot be resolved by tackling others in a determined and constructive effort. Embrace technology: Leveraging the impact of new technologies and analytics to drive value, and to anticipate threats and opportunities. Having the necessary tools and insights are a must. It takes an iterative, always-on approach to analyse and adjust one’s technology investments. Build a great team: It is an immensely busy role, so CFOs need a fantastic team, one that is entrusted with power and accountability. CFOs need to step in now and then to check.

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DE-STRESS MANTRAS

Mr Vasani believes that stress is a great leveller, which helps us become better versions of ourselves.

‘It is an affirmation of resilience. And that is not an anti-thesis.’ He is of the view that there is no

single pill that can get us to de-stress. Instead, he follows three mantras to keep stress at bay:

Breathe in, breathe out Breathing, according to him, is an exceptionally potent tool. It forces the brain to isolate for a little before coming back to the pandemonium again. It oxygenates the whole system and energises the body-mind, and is probably one of the best ways to stay focused and high-pitched.

Wabi-sabi

This Japanese concept involves embracing things that are imperfect, impermanent, and incomplete –

the converse of our conventional perception of beauty as something flawless, lasting and

monumental. We can rewire our brains to accept imperfections and everything within and without.

This, too, shall pass

This mantra is chastening if one feels smug, and encouraging if one wants to thwart negative

feelings. It reminds us that all conditions are ephemeral and transitory, and we cannot control

everything in life – personal or professional. We can, though, control how we feel and respond to

situations, and not leave things to fate.

ON PHYSICAL AND MENTAL FITNESS A fitness enthusiast with his name in the Guinness Book of World Records for finishing a mountain half marathon, Mr Vasani believes fitness is not about the end result, but the process. His philosophy is to wake up every morning – barring a few odd days – at 4:30 am, and ensure that he always gets at least 6 hours of sleep. His workout regimen includes generally outdoor activities like running/walking, calisthenics/bodyweight training, tennis, badminton, yoga and swimming. In terms of his food regimen, he does not count his calories, rarely eats packaged food, and stays away from white sugar. Mr Vasani practices nothing-ness (not even thinking) for at least five whole minutes daily. He believes everyone deserves this break, and that physical fitness is a by-product of mental fitness.

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Pankaj Vasani

Executive President and Group CFO - South Asia, Publicis Groupe

_____________________________________________________________________________________

Career Highlights

Pankaj Vasani has over 20 years of experience in the automotive, beverage, software, telecom

and services sectors. He received ICAI’s Chief Financial Officer of the Year award in 2018,

and ICAI Professional Achievers award in 2014. In 2019, he was recognised as a ‘Strategy

Visionary Leader’, ‘Finance Personality of the Year’, and ‘CFO Veteran’ among other

recognitions at various events across the country.

Mr Vasani is a Chartered Accountant (India), Associate Certified Public Accountant

(Australia), Lawyer and Commerce graduate (Delhi University, India). He also did his EEP

(IIM Bangalore, India) and EP International Tax (Leiden University, Netherlands).

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0.7%

1.1%

2.0%

25th percentile Median 75th percentile

THE STANDARDS OF EXCELLENCE

Finance can bolster organisational performance by strengthening monitoring and

forecasting, risk management and ensuring transparency and control. The success

of such initiatives, however, depends on the CFO’s ability to create an efficient,

high performing Finance organisation. Understanding best in class standards and

knowing where one stands relative to peers is a crucial first step. While global

benchmarks on Finance department performance exist, the Indian reality is less

well-researched. This paper examines one aspect of Finance excellence: the cost of

running the function. It draws insights from IMA India’s 2019 Finance

Department Performance Benchmarks study as well as interviews with CFOs.

SIZE MATTERS Beyond a certain revenue threshold, there are economies of scale to be realised from running a finance department

IMA’s research shows that the most cost-effective organisations (those that spend at or below the 25th percentile in this performance range) spend 0.7% or less of revenue to run the Finance function. On the other hand, high spenders (75th percentile or above) spend at least 2% of revenue to perform the same work. At the median, companies spend 1.1% of revenue to run Finance. As organisations grow larger, the relative cost of finance as a percentage of revenue should decline. Our data shows that for this measure, size does indeed matter. The smallest (<Rs 100 crores) firms spend as much as 2-10% of revenue running the department, while the largest ones (>Rs 5,000 crores) spend below 0.5%.

COST TREND: UPWARD PRESSURE TO CONTINUE

Upwards pressure on costs to continue

Interestingly, despite 59% of CFOs believing that their current budgets are ‘just right’, upward pressure on costs are likely to continue possibly accelerate, as Finance functions apply new automation technologies such as AI and RPA. Where savings have been made by adopting new technologies, there has been an offsetting drive to invest in people and the skills they need to harness the potential of technology. Resultantly, 43% of CFOs expect their Finance spends to rise by 10% or more in FY20.

Investments in people, skills, and technology and systems are key drivers of finance cost

The gap between the drivers of finance costs for top-quartile companies and those in the median range of performance remains high. For instance, technology and systems and finance staff headcount will individually drive a 10% increase in costs of a top quartile company but only 5% and 7% respectively in the case of a median firm. This is indicative of the fact that the challenges for the bottom quartile spenders i.e. the more efficient companies, are more difficult as they have already drawn upon traditional routes to economise, such as process standardisation, shared services and automation. Hence, further efforts entail higher incremental costs than fora company that is younger in its efficiency journey.

Finance Budget (% of revenue)

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COST VARIATIONS ACROSS INDUSTRIES: WIDE

Wide cost variations exist across industries

As may be expected, the Finance function cost varies by industry. Sectors such as Consumer Goods tend to have lower costs of Finance due to the intense focus on cost control and margins, process efficiency and relatively mature business models. Pharma and BFSI, on the other hand, generally have higher costs, driven in part by heavy regulatory burdens and complex business models.

WHERE DOES THE MONEY GO?

Transaction processing and treasury are the two biggest areas of spends

Typically, the two biggest areas of spend are transactions processing (25% of the total) and treasury (13%). Investor relations, business partnering, employee claims processing and tax make up for another 37% of the total budgetary spends. Smaller organisations (< Rs 100 crores) in the services sector spend almost three times as much on payroll compared to their manufacturing counterparts. Large services organisations (>Rs 5,000 crores) spend a fifth of the total on business partnering. In general, leading organisations seek to free up resources from routine activities for investment in higher-quality business partnering and value-adding activities. Indian-owned companies spend relatively more on transaction processing and employee claims processing, while foreign-owned ones spend more on tax and treasury. This is reflective of MNC systems that centre more on risk management and controls, as well as the complexities around international taxation for such firms.

People costs and professional services fees constitute over 70% of Finance budgets

On a line-item basis, the lion’s share (56% on average) of most Finance budgets goes towards personnel costs, while another 16% is allocated to professional service fees. The percentage spends on travel and entertainment is roughly equal to that on staff training and development. Ownership also influences spend. For instance, companies that are listed overseas allocate more than twice as much to professional services as do companies listed in India.

Leading organisations are harnessing technology and investing in people and skills

In sum, every organisation today wants to ‘transform’ Finance into an capable and lean function, one that enjoys economies of scale. Conventional measures such as process simplification, shared services and outsourcing have yielded improvements but leading companies have made further strides, by harnessing the potential of new-age technology and investing in people and skills. In the short run, this does drive costs up but in the long run, CFOs feel confident of realising lasting efficiencies in the Finance function.

This paper is based on IMA India’s FY19 Finance Department Performance Benchmarks report, which examined the functioning of the Finance department of 250 companies in India through a detailed survey. The ensuing benchmarks are intended to serve as a baseline against which organisations can measure themselves on efficiency and effectiveness. These include

Finance costs, spending patterns, headcount, qualifications, skill levels, organisational structures as well as a number of metrics for activities run by the CFO’s office, from transaction processing and taxation to treasury and finance automation. The report is

available for purchase from IMA’s offices or online at this link.

INSIGHT

https://www.ima-india.com/index.php?option=com_content&view=article&id=650&Itemid=365

25


0 0 0 1 2 3 4 7 12 22

29

0.7 1.0 1.1

3.0

5.5

9.4 7.8

0

2

4

6

8

10

0

10

20

30

40

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

2015-1

6

2016-1

7

2017-1

8

2018-1

9

Cap

acit

y a

dd

itio

n (

GW

)

Cu

mu

lati

ve c

ap

acit

y (

GW

)

Solar capacity installation

Cumulative capacity

Incremental capacityaddition (RHS)

Source: Ministry of Non Renewable Resources

LET THE SUN SHINE DOWN

The evolution of the solar sector in India has been remarkable. From just 161 megawatts (MW) in 2010, the

country’s installed solar capacity now exceeds 29 gigawatts (GW), or 5% of the total. It has grown faster than

any other renewable energy source and India now has the world’s fifth-largest solar installation base. In 2008,

the Centre had set a modest 50 megawatt (MW) target for it, focusing more on other renewable sources, such

as wind. This target was revised dramatically upwards to 20 GW in 2010 and then raised fivefold again, to 100

GW to be achieved by 2022, by the NDA. Although progress has been rapid, project execution has slowed in

the past year owing to regulatory and market uncertainties. Even as the industry has shown impressive growth

over the past decade, the 100 GW target is looking ambitious.

Growth has been topsy-turvy and the sector is riddled with challenges

Of the 100 GW target, 60 GW is allocated to ground mounted projects and 40 GW to rooftop ones. So far, India has achieved 27.4 GW in the first category and 1.9 GW in the latter. An additional 22.8 GW worth of ground-mounted projects have been tendered out by the government but are yet to be awarded. Developers today face concerns over tariffs, which have fallen so low that project viability sometimes comes into question. Moreover, they face hurdles in terms of land acquisition, the ‘evacuation infrastructure’ (i.e., transmission and distribution), water access, road connectivity and clearances, all of which delay construction and drive up costs. To some extent, these issues are being tackled through the creation of dedicated solar parks, but these account for just 15% of new capacity addition so far.

Development of ground mounted projects has slowed over the past year

Development has slowed in the past year, with developers adding just 7.8 GW in FY19, compared to 9.3 GW the previous year. The imposition of safeguard duty (25% in the first year, 20% in the next six months, and 15% in the following six months) on equipment imports from China and Malaysia has been one of the main causes. The industry is of the view that such protectionist measures will not spur domestic manufacturing in any meaningful sense. Simply put, two years of duty protection is not long enough to make it worthwhile to invest in new capacity. Meanwhile, the duties have only raised the cost of projects.

Cancellation of solar auctions also contributed to slower growth

The slowdown is also related to state and central agencies cancelling auctions when the resulting tariff appeared to be high in comparison with other state programmes, leaving projects in the lurch. Of the 35 GW tendered during 2018, 5.3 GW of valid, winning bids were cancelled. It is unclear why tariffs are being capped in the bidding process without accounting for market phenomena such as site location, financing costs and the poor financial health of utilities, which all add to market uncertainty.

Inadequate energy infrastructure

Developers and investors are also hesitant to put down funds on account of an inadequate transmission system, which cannot absorb power from solar projects. Without a capable energy transmission system, power fails to reach the end consumer. Grid failure can also be traced to a weak transmission infrastructure,

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causes problems with evacuation

which remains a serious issue.

Upward revision of solar RPO targets is a good step but enforcement remains to be seen

Further, while the Centre has mandated states to procure a portion of their total energy from solar, many have failed to do so. In fact, just a handful – Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Madhya Pradesh, Mizoram, Nagaland, Rajasthan, Tamil Nadu, Tripura and Uttarakhand – have achieved even 60% of their Renewable Purchase Obligation (RPO) targets. The recent upward revision of solar RPO targets to 7.25%, 8.85% and 10.50% in 2019-20, 2020-21 and 2021-22, respectively, is a step in the right direction. However, enforcement will remain a key factor to watch for.

Floating solar: A new growth area In an effort to help meet the 100 GW target, the Centre recently announced a dedicated target of 10 GW of floating solar capacity by 2020-21. India has a total estimated ‘floating solar’ potential of 300 GW, assuming that just 10-15% of water bodies in states such as Kerala, Assam, Odisha and West Bengal are utilised for this purpose. Such project cost more to build: the EPC cost of a ground-mounted solar plant is USD 600-650/KW, while that of a floating plant is in the range of USD 800-1,200. However, thanks to the cooling effect of water, floating solar can generate more power per square inch, thus making the levellised cost of the two broadly comparable. On the whole, given the challenges around land acquisition, the business case for floating solar is strong in areas where such water bodies exist. Since the equipment is voluminous and expensive to transport, being able to build them indigenously will be critical. In March 2018, the Solar Energy Corporation of India (SECI) tendered the first such project, and the Shapoorji Pallonji Group won a contract for a 50 MW plant.

Rooftop development has been insignificant compared to the target

Meanwhile, rooftop installation, at 1.9 GW, compared to the 40 GW target, continues to lag behind. A key challenge is the lack of uniform policies on net metering that would allow consumers to sell surplus power to utilities. Further, even where rooftop projects are commercially feasible, it can take applicants several months to receive approvals, grant of connectivity or subsidy disbursement. Even fixing these issues in the near-term would make it a far-off dream to achieve the 40 GW target in just three years. Individual project sizes are small, and getting many millions of people to invest in rooftop plants in such a short timeframe would be a tall ask.

All said, while India’s progress on the solar front has been commendable, getting to 100 GW by 2022 looks, on current trends, to be a bridge too far.

27


ELECTIONS AND BEYOND: THE NEXT 5 YEARS

With the BJP securing a huge electoral mandate, it has the opportunity

to push through reforms in a host of policy areas, from agriculture and

taxation to land, labour and capital markets. In this regard, many had

expected the July Budget to mark the new government’s first real

‘statement of intent’. This did not really prove to be the case and

analysts continue to parse through the signals to discern what the next

five years might bring. Plainly, there is a whole gamut of challenges to

contend with. At the widest level, India will need to focus on

becoming not just a prosperous country but one that is socially

equitable. At a more micro level, there are myriad issues, many specific

to cities or districts, that ultimately feed into India’s global

competitiveness. At a recent Forum session in Hyderabad, we asked Sachin Kalbag, Executive Editor at the

Hindustan Times, to spell out the priorities, both immediate and medium-term, for Narendra Modi’s

government.

A consumption slowdown Vehicle and home sales are slowing, as are imports Consumer confidence is down – but government pump-priming may not be the answer

For many months, the sales data for cars, two-wheelers, tractors and real estate have all pointed in one direction: down. Car dealerships are struggling across the country and outside of the ‘premium’ segment (Rs 30 million and above), the inventory of unsold homes in metros has increased. Non-oil, non-gold imports shrank in the first quarter of 2019-20. Clearly, with even moped sales – the bottom rung of the auto sector – slowing, consumers lack the confidence to spend. Some have suggested that the government and/or the RBI can step in by ramping up spending and cutting interest rates but this is a double-edged sword. During the global financial crisis, the Centre more than doubled its fiscal deficit, from 2.6% of GDP in 2007 to 6.6% two years later, and the impact is still being felt. By 2011-12, India was seeing double-digit inflation and banks were burdened with bad loans. More generally, public spending tends to push up retail interest rates, impacting both borrowing and spending. Thus, it is no panacea.

Mass housing Affordable housing has got a big push but states will need to be roped in more closely

In the last few years, the Centre has made a big push on affordable housing, particularly through its PMAY scheme. Many of these developments, however, are in somewhat remote locations, and some lack basic amenities such as reliable water or electricity supplies. There also appears to be a growing disconnect between the Centre’s own efforts and those of the states, which run their own mass-housing programmes. Going forward, the entire project may need to take on a more federal structure for it to succeed.

Land reforms Issues around land ownership are a big impediment, costing India dearly

Issues around land ownership affect millions of people, countless businesses, and exert a cost on the economy. The biggest lacuna is the absence of clear titles: land owners can be challenged on multiple issues, including ownership, boundaries, financial encumbrance, inheritance, sub-divisions and so on. In some states, including Maharashtra, farmers who fail to obtain a specific paper form cannot legally stake a claim on their land. Businesses find it hard to acquire land without fear of being on the wrong side of the law, and economists estimate that

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the confusion over land titles alone has cost India as much as 2.5% of GDP. Outdated laws, including the Registration Act of 1908, the Transfer of Property Act, and the Indian Contract Act, are a big part of the problem. Encouragingly, the Centre appears to be serious about fixing some of the bigger land-related issues in the next 4-5 years.

The financial health of banks and NBFCs More money is needed for recapitalisation but the government – and the economy as a whole – cannot afford it

As of end-2018, PSU banks alone held NPAs worth Rs 6.4 trillion, and in the four years to March 2018, they had to write off upwards of 85% of their bad loans. This suggests that the government’s recapitalisation efforts – Rs 2.7 trillion so far, including the Rs 700 billion committed in the latest Budget – may fall short of what is needed to restore these banks to full health. A comprehensive, one-shot recapitalisation is not fiscally viable and would burden the economy for years, but unless the situation is corrected, banks cannot lend freely. The recent NBFC crisis has added to this problem. However, the crisis itself traces back – at least in part – to the fact that banks, having earned poor returns on their NPAs, tripled their lending to NBFCs in the last 3 years.

Farm distress Stagnant food prices, skill gaps and issues around market access, all add to farmer distress

Farmer suicides are only the most visible sign of India’s agricultural crisis. Food prices have been stagnant or falling for years, causing farmers to sell their produce below cost. Road linkages remain weak, as does access to formal lending institutions – which forces farmers to borrow from moneylenders at exorbitant rates. Further, thanks to the APMC Acts, they cannot market directly to urban consumers and middle-men swallow up the huge difference between the mandi and retail prices. Unfortunately, India has not been able to make a smooth transition from farm jobs into low-end manufacturing, and then into services. Skill gaps remain huge, as does the cost of acquiring new skills. Moreover, low-end urban employment, which has grown steadily for years, is reaching a saturation point.

An urban water crisis Indian cities routinely face floods or drought – and water gets little attention from policymakers

Just before the monsoon arrived in early July this year, Mumbai’s water reserves were down to near-crisis levels. Chennai regularly faces water shortages and in New Delhi, residents must drill borewells hundreds of feet deep before they hit the first drops of water. Cities like Bangalore and Chandigarh have started to experience major water-logging, which was never an issue in the past. Major wetlands, which helped flood-proof the cities, have been handed over to developers. Each year, then, there are either floods or drought in many large cities – a factor that plays into investment decisions. Regrettably, water does not figure prominently, if at all, in most policy decisions. So far, the solutions, whether at the state level or at the Centre, have been piecemeal, and even the recently-created Jal Shakti mission does little to promote local solutions – which is the only way forward.

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Exports – and global trade wars Indian exports are stagnating and little is being done to take advantage of shifting global supply chains

As a share of GDP, exports have barely moved in the last few years. In absolute terms, export growth is slowing or even reversing and the trade deficit is on the rise. Partly, this has to do with delayed tax refunds, which cut into exporters’ working capital, making it harder for them to fulfil orders. Meanwhile, China has steadily replaced Indian manufacturers in a wide range of low-value-add items for domestic consumption, limiting the scope for industrial job creation. On the whole, India – unlike countries like Vietnam, Taiwan or even Bangladesh – is not doing enough to take advantage of the opportunities thrown up by the US-China trade war. Although the recent Budget contained some protectionist measures, far more needs to be done – and urgently – for India to regain lost ground.

The contents of this paper are based on discussions of The India CEO Forum and The India CFO Forum in Hyderabad

with Sachin Kalbag, Executive Editor, Hindustan Times, in July 2019. The views expressed may not be those of IMA

India. Please visit www.ima-india.com to view current papers and our full archive of content in the IMA members’

Knowledge Centre. IMA Forum members have personalised website access codes.

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http://www.ima-india.com/

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CULTURAL TRANSFORMATION: THE KEY TO BUSINESS GROWTH

In 2013, when Anand Kripalu was inducted to head

Diageo India, he faced serious challenges as to how to

transform its corporate culture and improve its image.

What he saw was a culture similar to that in many

Indian companies, where the leadership decides what

everyone does and nobody would question the

leadership. Mr Kripalu intended to revolutionise how

the company functioned and the way it was viewed,

through a gradual cultural ‘evolution’. He turned the

paradigm on its head, transforming Diageo from a

stern, top-down organisation to one with a more de-

layered and democratic approach. From spending nothing on CSR activities, it began investing in social good,

based on a strong value system. He overhauled senior leadership to one that was based on values and not just

performance, thus changing the firm’s overall psyche.

WHY CHANGE…

Culture drives performance…

Underlying this massive shift was the belief that, ultimately, culture not only drives performance but is a firm’s only sustainable source of competitive advantage. Any company can copy your technology, your brands or your organisational structure, but they cannot replicate your culture. When Cadbury faced a crisis – its Dairy Milk bars were reportedly infested with worms – none of its employees left, because they cared for the firm more deeply than any contractual relationship might have permitted. Even when people leave, a favourable culture can help to eventually attract them back.

SMALL STEPS GO A LONG WAY

Small but symbolic victories led the cultural revolution

When Mr Kripalu entered the Diago Boardroom in October 2013, he had to face 25 male directors and a deeply hierarchical structure. Nobody spoke but the top management and there was virtually no ‘dialogue’ at all. He initiated change with small, symbolic steps such as ‘democratising’ the parking spaces and elevator that were previously reserved for upper management. He broke up a closed office culture, turning it into an open space; began having exclusive lunches with his juniors; and started to include women in senior management roles. These steps, though seemingly small, were integral to starting a cultural revolution at Diageo.

THE ORGANISATIONAL OVERHAUL

Delayering the company was one way to transform its culture

The more difficult aspect of this cultural shift involved changing the organisational structure: loosening the hierarchy as well as ways of working. At the time, there were 16 layers of hierarchy within the firm. People who had started as assistants had become Vice Presidents but were still doing the same level jobs, even 25 years later. Nobody moved out of their roles or comfort zones, which resulted in poor employee development. There were instances where two people were asked to make a single PowerPoint presentation for their superior, signalling a lack of efficiency. Hence, an organisational overhaul was essential to bring in a pragmatic new work culture. The rationalisation involved

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two massive rounds of restructuring. A delayering process began, which involved cutting in half not just the white-collar workforce (from 3,000 to 1,600) but also the number of factories (from 94 to under 50 today).

DOING THE BUSINESS RIGHT

Stick to your guns… In order to percolate the new culture down the organisation, the leadership strongly emphasised the need to operate on the basis of values. This was not an easy change to make, since it meant foregoing business in some states where governance standards were not up to the mark. For Diageo, though, ethics is not just about tackling bribery and corruption but also about honest communication. For instance, it began to follow a strategy of ‘ethical marketing’ of its alcohol. It discontinued a brand that was doing huge business – McDowell’s Diet Mate sold 2 million cases a year – to avoid positioning an alcoholic brand as a diet product.

INCULCATING VALUE BASED LEADERSHIP

Transforming the senior management is a heavy task but achievable

There are always questions around how to encourage value-based leadership within senior management. One litmus test is to ask managers to make their commitments public. Once the world is watching, they are more likely to deliver on their promises. The second element is to change performance assessments to reflect not so much ‘what’ has been done as ‘how’ it was done. The premise here is that the ‘how’ becomes aspirational and drives a value-based culture.

THE BOTTOM-UP WAY

Involve workers at the bottom of the pyramid in the process of change

All of these changes can help drive leadership from the top down but a true cultural shift also requires a more democratic, bottom-up approach. It is now said that, ‘If you don’t have a mentor who is 10 years younger than you, then you are reaching the end of your road.’ During a factory visit to Baramati, the CHRO noticed that the blue-collar employees had set up a board tracking their daily performance matrix in Marathi. Not only was this a great initiative to boost motivation and productivity, it also demonstrated the value of involving the firm’s lower rungs in the process of ideation. Often, this is what brings change to an otherwise hide-bound company.

The contents of this paper are based on discussions of The India CHRO Forum in Bangalore with Anand Kripalu,

Managing Director and Chief Executive Officer, Diageo India and Arif Aziz, Chief Human Resource Officer, Diageo

India; in June 2019. The views expressed may not be those of IMA India. Please visit www.ima-india.com to view

current papers and our full archive of content in the IMA members’ Knowledge Centre. IMA Forum members have

personalised website access codes.

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TECHNOLOGY AND THE FUTURE OF THE FINANCE FUNCTION

Looking back to how businesses have adopted technology

over the last 20 years, it is often Finance that has taken a

lead. Technology can transform the Finance function

through improved planning and decision making, more

streamlined processes and reduced resource utilisation. As

CFOs increasingly move from controllership to business

partnering, a mix of digitisation, automation and robotics

can improve processes and create new efficiencies.

Whether it is artificial intelligence (AI), machine learning

(ML), the cloud or blockchain, advances in technology

present huge opportunities. For their part, CFOs will need to better understand the potential of

technology and start to incorporate it if they are to give their organisations a leading edge.

THE POTENTIAL – AND LIMITS – OF DIGITISATION

Technology can automate the more transactional processes within Finance but certain strategic areas will continue to rely on manual controls

The concept of a ‘digital Finance organisation’ raises questions about just how far the function can be automated and to what extent it can depend on technology. Clearly, it is easier to automate the more transactional areas such as accounts, cash, revenue, finance control planning and tax. Technology has simplified transactions management, including accounts receivable (AR) and accounts payable (AP). Thanks to digitisation, firms do not need devote as much time to activities such as quarterly closing, monthly closing or voucher-processing. However, in the more strategic areas – including treasury, risk management and audit – it is vital to have manual controls in place. On the whole, even as nothing can replace human acumen and experience, technology does create operational efficiencies.

WHAT LIES AHEAD – FOR FINANCE…

Going forward, predictive analytics will play an important role

Eventually, all processes that apply/depend on a fixed set of rules should be automated, freeing Finance professionals from such tasks. Further, advanced analytics, which may today seem of limited value – or may even sound like jargon to some – deserves consideration. In the world of tomorrow, one of the primary functions of Finance will be to ensure that the organisation can fully exploit internal/external cloud data, using it for predictive purposes. AI, ML and blockchain will help drive this transformation and move Finance away from its traditional controllership role.

…AND FOR THE BROADER ENVIRONMENT

Finance needs to create a ‘data environment’ where each business unit can ‘pull’ out data based on its individual needs

Technology has an equally transformational role to play at the company level and Finance must help guide this change. However, it is important to bear in mind what ‘digitisation’ implies. No company can claim to have ‘digitised’ simply because it has automated transaction-processing or adopted data-visualisation techniques. To create a true ‘data environment,’ where Finance can feed every business unit with the right data at the right time, it must go a step further. For decades, Finance was a ‘provider’ of data, which it tended to ‘push’ onto the business. Going forward, what it needs to create is a ‘pull mechanism’ that allows individual business units to define their data needs, based on specific KPIs/KRAs. More broadly, what is required is a mindset/cultural shift that enables Finance to truly partner with each business unit on its data needs. Some companies go even further, building an ecosystem where each user defines how they would like to view

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information, but without any interference from Finance.

THE QUESTION OF PAYBACK

Tech investments must not be viewed purely from an ROI/payback criterion

Organisations typically expect a large ‘payback’ on their technology investments. One global tech major, for instance, expects that its investments in AI and robotics will help cut its current headcount of 150,000 to just 5,000 in 5 years. Yet, even as advances in technology often bring quantifiable benefits, it is important to not focus excessively on ROIs or payback. Having a technological edge actually enables something greater: business sustainability and more efficient operations. To that end, top management sponsorship and endorsement are key. Ultimately, this is what enables forward-looking investments that help the company keep pace or even lead global trends.

CIPLA’S JOURNEY TOWARDS DIGITISATION

Cipla is a good example of gradual but fundamental digitisation

When Cipla embarked on its digital journey around 5 years ago, the focus was on setting up the core IT infrastructure in terms of transaction processing systems for each function. It went on to transform the underlying systems after giving careful thought to parameters such as efficiency, productivity, resource optimisation and the multiple decisions that get made at each location for each function. Cipla’s transformation involved taking its entire infrastructure to the cloud and ensuring that the hardware kept pace. The company is now on a journey to pivot to the new aspects of digitisation, including advanced analytics, AI, ML and blockchain, while retaining focus on its core digitised transaction processing systems.

The contents of this paper are based on discussions of The India CFO Forum in Mumbai and Pune in July 2019 with

Kedar Upadhye, Global CFO, Cipla; Manas Datta, CFO Wockhardt; Manoj Tulsian, CFO JMC Projects; Manoj

Bhat, CFO at Tech Mahindra; and Vinod Kumar, CFO & CHRO at Kirloskar Oil Engines. The views expressed

may not be those of IMA India. Please visit www.ima-india.com to view current papers and our full archive of content in

the IMA members’ Knowledge Centre. IMA Forum members have personalised website access codes.

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CFO CONNECT

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