CFO Perspectives India | CFO Newsletter | January 2019 For private circulation only

1. What is your outlook on the auto industry in India and how is your company placed to take on the opportunities and challenges of the changing environment in the industry?

Indianautoindustrycanbebroadly/mainlyclassifiedinto three segments, i.e. passenger cars, trucks & buses, and two wheelers. The opportunities and challenges are differentforeachofthesesegments,especiallyforusinthe tyre industry.

Intermsofpassengercarstyres,weareoneofthemarketleadersandhaveasignificantshareofbusiness.Now,weareseeingtheeffectsofagradualshiftinconsumerpreferencesforpassengercars.Passengercarshaveevolvedfrombeingaluxuryitemtoautilityitemtoday,whereinbuyerslookatnotjustfeaturesbut also the associated aspects, like road conditions, parkingavailability,fuel&maintenancecosts,trafficconditions,etc.Moreover,theadvancementoftechnology in other industries also has an impact on ours.Forexample,serviceslikeUberandOlahaveaddedtotheconvenienceandcosteffectivenessofcommuters. All this impacts the demand in the auto industry and consequently ours. Considering these factors,weexpectagrowthalignedtothatoftheOEMsin the coming years.

Trucks and buses is another important segment particularly in India with Government’s thrust on overall infrastructureandemphasistowardsenhancingthequalityofhighways.Theseinfrastructuredevelopmentswilladdtopassengercomfortandbringingdownthecostandtimeoftransportandtravel.Fororganisations,

the warehousing cost is typically 8% and above and anyreductioninthiscostduetoimprovedqualityofinfrastructurewillhelpinreducingtheoverallproductcost,whichwillbenefitthecompaniesandconsumers.In addition, automation and GST implementation is changing the logistics and warehousing industry. We are seeingconsolidationoffleet/transportoperators.Thissegment has been predominantly into Bias technology. However,Radialsaresettobethenextbigthinginthe segment. Also, with the government supporting tofurtherRadialsinTBR,itmakesforanimportantstrategicmoveforus,andweextensivelyworkingtowards raising awareness and a smoother transition towards radial tyres.

Intermsofeconomy,therisingoilpricesanddiminishingvalueoftheIndianrupeehascontributedtothevolatilityofourmarket.Itsimpactisvisibleonourinputmaterialcost,sinceweimportfromJapanorMalaysia.Italsoaffectsourbusinesscycle,butistakencareintheproductpricing.Further,wehedgemostofourFOREXfundstominimisetherisk.Nottomention,thecalamitiesoftheKerelafloodshavehadasignificantimpactonourbusinesswhenitcomestosourcingoftheraw materials.

2. How do you leverage technology and harness the power of analytics in your business to project trends and analyze customer behaviour?

Analyticsprovideabroadscopeofapplicationsandusage.Itsscopegoesbeyondthefunctionsofanysingledepartment.Inordertofullyharnessthe

CFO Speaks

Ms. Jyotsna SharmaCFOBridgestoneIndiaPvt.Ltd.

power, Analytics needs to be introduced as a business function,muchlikefinance.Thisfunctioncouldbelooking into data analysis to add Intel at the global as well as local levels. Organizations should also be setting upstructuretoenablemicroandmacroanalysis,forbetterimpact.Thisintelcouldbeefficientlyappliedintovariousfunctions,analysethroughthedifferentdatapointsandthenconnectthemfromanoverallbusinessperspective.Thescopeofanalyticscouldverywellbeextendedtostudytheexternalenvironment.Alongwithstudying our customers, we also need to leverage this to better understand our competitors and their customers.

Currently we have outsourcing agencies doing the analyticsworkforus,whereinwegettrendsinmarketing,choiceofcustomersandOEMs,apartfromanalysis on the competitors. However, due to a large populationofourcountry,samplesizeanditsrelevanceplay a very vital role in projections. Further, we need to emphasise more on ancillary changes wherein our current understanding is limited and projections are quite restricted.

3. As a CFO, how do you drive value through innovation?

Innovation is a critical aspect which not only enhances theefficiencyofthesystembutalsothecompetencyofthe individual. Applying innovation and deriving value becomes even more laborious when the subject matter isasmundaneasfinance.Thekeyistoconsistentlyfindtherightbalancebetweeninnovatingpracticestomatchtheneedsofyourorganisationalsystem,while continuing with practices and processes which work well. Having said that, being innovative is a very individualcharacteristic.Personally,Iliketodriveinnovation with a proper balance within the system while I take up new responsibilities/projects/challenges. CFOsneedtobemoreawareoftheirsurroundingsandgetanexposureofhowotherdepartmentsfunctioninorder to streamline various activities.

ThecoreofinnovationliesinChangeManagementanditneedstobeabletobreakbarriers,forwhichCFOneeds to be more appraised about the technological changes around them. CFOs also need to be more engaginginordertoenableseamlessexchangeofinformation.

In the current era, it is important to give an open thought to innovation and automation, with available technological support. At the same time, we should also beawareofthedrawbacksofaparticulartechnologyandevaluatethembeforeimplementation.Apartfromsupporting innovation, a CFO needs to optimise spend ontechnologybyevaluatingtheoverallbenefitinlongrun.Inordertoderivevaluefrominnovation,itis

equally important to have skilled people at right places withpositivemindsettoharnessthepowerofdigitaland technology.

Tofosteranenvironmentofinnovation,aCFOcannotbe always looking at cutting costs, rather needs to be open-minded and encourage the right budgets. At Bridgestone India, we have put this thought into action andbeforeourbudgetingexercise,weaskedtheteamstothinkwhattheywanttodonextyearbeyondtheircurrentjobsandgetideasfromthem.Accordingly,wewill plan the budgets on innovative technology in sync with the business requirements.

4. With an increasing trend towards use of Robotics and Artificial Intelligence, do you believe that existing talent will need to be reskilled to stay relevant in the future?

Theapplicationsofroboticsandartificialintelligenceshould not be viewed as a threat, rather as an opportunityforpeopletoevolvetheirskillsandunderstanding. Robotics processes work better when wehavedisciplineinourworkandthus,successofRPArevolves around discipline and getting the basics right, i.e.havingtherightcontrols,providingrightinformationto the machine, etc. Doing this right enhances the

efficiencyofthesystemandhelpsfurtherindataminingandanalytics.Wehavetoadmitthat,RPAhasbroughtinfearofjoblossesforwhitecollaredworkers,whichwehaveseenearlierattheshopfloorlevels.HRandorganisation should give people an opportunity to catch up with changes by providing necessary training and job rotations to the employees. Organisation needs to planandinvestforthischange.Thepeoplealsoneedto be ready to unlearn and relearn continuously and thisneedstobethecharacterrequiredinfutureanditwillbethesuccessmantrafororganisationsandtheirpeople.Futurerecruitmentwillbeofthinkersandchange drivers.

5. As a CFO, what are your three top priorities and challenges in the current scenario?

• Talent: Inthefastchangingenvironment,weneed to have the Right people at the Right place, whichisimportantforgettingqualityoutputsfromthe respective teams and ensure the individual’s intellectual well-being and growth at workplace. The key here is to onboard the right talent and then keepgroomingtheexistingtalentandaddingnewtalents.ForMNCslikeus,thereishugeexpectationwhere our global standards are concerned whereas thelocalgroundrealityisdifferent,andthisoften

createsaconfusion.Thus,itbecomesimportanttohire the right talent today, and build them in the right directiontowardsfutureandkeepthemreadytoaccept changes.

• Business partnering: For a CFO it is important to see the trends and changes across the business, and tobeinvolvedwithotherfunctionsinunderstandingwhat they are doing. It gives a holistic approach to businessandishelpfulineffectivedecisionmakingandforeseeingthefuturemoreaccurately.

• Managing change: We are witnessing technological changes every day, whether it be in automation, artificialintelligence,robotics,etc.Thesechangesmight not be an immediate requirement in organisations; however, it is always better to startnowthanbeinglate.Itisalsobecauseofthefactthatyouneverknowwhenthecustomerwilldemandforit,asyourcompetitorswouldalreadybe implementing these changes. Thus, one needs to stayaheadinthegameofmanagingchangeswhilehandling the challenges related to cost, budget, and social implications.

Apartfromthesepriorities,thefocusalwaysremainson meeting budgets, compliance and governance, which arethecoreresponsibilitiesofaCFOandwillcontinueto be a priority.

Expert ViewsCorporate India appears confident of addressing fraud and is making appropriate investments: Deloitte India Corporate Fraud Perception Survey, Edition III, 2018

Closetoadecadeafterthelargestfinancialcollapsein Indian corporate history, organisations appear to bebetterpreparedtotacklecorporatefraud,evenastheycontinueexperiencingthesefrauds.Almost58%ofrespondentstotheDeloitteIndiaCorporateFraudPerceptionSurvey,editionIII,2018,believethatcorporatefraudwillincreaseinthefuture.Thisisasharpdeclinefromthepreviouseditionsofthesurvey(conductedin2014and2016)wherearound70%of

respondentsfeltcorporatefraudwaslikelytoprevailoverthecomingyears.Further,50%ofrespondentsindicated that their organisations had made adequate investmentstotacklefraud.

1. There is recognition that fraud is an internal issue that can be addressed through better enforcement of controls

The top three reasons for fraud include (in that order): Lack of an efficient internal control/ compliance system, diminishing ethical values, and senior management override of controls

Lack of an

internal control/compliance

system

Unrealistic targets/

goals linked to monetary

compensations

Diminishing ethical values

Technological advancements and

shift of business to a virtual

environment resulting in limited preventive controls

Senior management

override of controls

Inadequate due diligence on

employees/third party associates

#1

#2

#3

#4

#5

#6

Poorly enforced code of conduct

within the company

#7

Twooutofthetopthreereasonsforfraudhavebeenidentifiedasinternalissues,namely,lackofaninternalcontrolsystemandseniormanagementoverrideofcontrols.Further,thetopfraudexperiencedbyrespondentshasbeenindicatedasvendor/businesspartnerfavouritism,whichisalsoaninternalissuearisingfromalimitedabilitytomanageconflictingrelationships.About67%ofrespondentshavesaidthatfraudiscommittedbyemployees,whichagainpointstocontrolgapswithinthefraudriskmanagementframework.

Which of the following types of fraud/misconduct/malpractice has your organisation experienced in the last two years?

My organisation

has not experienced

any fraud

Inventory pilferage

Bribery and corruption

Regulatory non-

compliance

Data theft or breach

Leakage of sensitive

information, including corporate espionage

Intellectual property

fraud

Vendor/customer/business partner

favouritism

Diversion/theft of funds

Supply chain fraud

Internet and/or

Cyber fraud

Financial misreporting

Counterfeiting

eCommerce related frauds

38%

33%

19%18% 17%

14%13%

10% 9%

8% 8%

5%

3% 3% 2%

Fraud due to use of bots,

intelligence and related

technologies

However,64%ofrespondentsbelievedthatsuspiciousbehavioursinemployeescouldbeidentifiedearlyonanddealtwithappropriatelytopreventfraud.In line with that organisations are relying on a host ofmeasurestomitigatefraud,includinginstitutingperiodic internal audit, taking serious action and using thattosetanexamplewithintheorganisation,andasking independent auditors to conduct audit regularly.

There is also an emphasis on building an ethical culture amongemployeesandsomeofthemeasurestakeninthisdirectioninclude:institutingstrongpenaltiesforunethicalbehaviours,creatingaplatformtoopenlydiscussambiguousissuesandidentifyunethicalbehaviours, and developing training courses and reading material, including case studies, on how ethical behaviours apply in the corporate ecosystem.

2. How do you leverage technology and harness the power of analytics in your business to project trends and analyze customer behaviour?

There is increasing awareness of advanced technologies in fraud detection with around a fourth of all respondents saying they had implemented or were implementing tools/ techniques such as voice search and analysis, link analysis, social network analysis, sentiment analysis, data visualisation,

68%76%

70%

57%

81%

60%

84% 83%

13%4%

11%

23%

66%72%

77%

20%

8% 9%15%13%

7% 4%

21%

12%18%19%

11% 15%

28%26%

17%

6% 8%

Implemented Implementation in progress Not considering

Implemented Implementation in progress Not considering

Traditional statistical analysis and data mining tools

Identifying applicable fraud scheme(s) and then monitoring them using custom analytics tool

Use of case management system to

by monitoring tool

In house development with consultation from third parties/ experts

Identifying incremental areas to

fraud schemes that are being monitored

Risk based approach for analytics

Reliance on control based reports generated by the ERP system

Corporate fraud analytics software

43%

29%

17%

18%

29%

44%

12%

33%

30%43%

35%

40%

78%

41%

40%

27%

54%

29%39%

25% 28%

31%

28%

11%

intelligenceRobotic process

automation

Machine learning

Interactive dashboards

Data cloud/Tag

cloud

Data visualization

Sentiment analysis

Concept clustering

Social network analysis

Link analysis

Voice search and analysis

tools

Thereissignificantadoptionoftechnologytomitigatefraudwithover60%ofrespondentsusingfirstgenerationtools.ThemostcommonlyusedtechniquesandtoolstopreventfraudwereidentifiedasrelianceoncontrolbasedreportsgeneratedbytheERPsystem(54%),ariskbasedapproachforanalytics(44%),andtraditionalstatistical

analysisanddataminingtools(41%).Possiblybolstered by the outcomes they have seen due to past investmentsinfirstgenerationtools,organisationsarenowinvestinginfutureanti-fraudtechnologieswithatleast25%ofrespondentsindicatingthattheywere either implementing or had already implemented futuretools/technologiessuchasmachinelearning,artificialintelligence,roboticprocessautomationandinteractive dashboards.

Technologyhasalsoperhapsmadeiteasytoidentifyandpreserveevidenceasweseearisingnumberoforganisationsseekinglegalrecoursetofraud(Aboutathirdofrespondentsindicatedthattheysoughtlegalrecoursetofraud).

3. Response to fraud is swift

Respondentsalsoindicatedthatfraudwasdetectedprimarily through whistle-blower hotlines. About 59%ofrespondentsindicatedthatfraudrelatedobservationswereaddressedimmediately,bywayofcommencing investigations – internally or assisted by thirdparties.About49%ofrespondentssaidthatoncethefraudwasascertained,thefraudsterwasallowedtoresigninlieuoffilingalegalcaseinthemajorityofcases.

Further,78%ofrespondentssaidthatexistingcontrols were reviewed and updated/new policies wereimplementedpostthefraud.Thefraudwas communicated to the Board and regulatory authorities(whereapplicable)asindicatedby35%ofrespondents.

Toencourageemployeestoreportfraud,webelievethatitisimportantforlinemanagerstocreateanenvironmentthatisconducivefortheirteamstoraiseconcernswithoutfearingretaliationorbias.Inourexperience,opendiscussionswithinteamsonmisconduct and malpractice, alongside managers living and demonstrating ethical behaviours can accelerate

thecreationofanethicalenterpriseandhelpdetectfraudinitsnascency.

4. Regulatory interventions are making a significant impact on the fraud landscape

Around47%ofrespondentsbelievethatanti-fraudlegislationshavebeensuccessfulincurbingincidentsoffraud,misconduct,andnoncompliance.Asaresultthereisoptimismforsomeoftheupcominglegislations such as the personal data protection bill andthefugitiveeconomicoffendersbill,2018.

While organisations may need to invest additionally towards putting in place processes and ensure compliancewithanti-fraudregulations,webelievetheseeffortswillhelpbettermanagefraudrisksinthelongtermandbuildacultureofcompliance.

About the survey

The survey report was developed on the responses received to a Deloitte India questionnaire that was circulatedtoleadingCXOsandworkingprofessionalsacross all major sectors and organisations working in the areaoffraudriskmanagementduringAugust-October2018.

Thesurveysaw439responses,ofwhichtwo–thirdsofrespondentsidentifiedthemselvesasdecisionmakersinthefinance,operation,informationtechnology,compliance,legal,internalauditandfraudriskmanagementareas.Closeto70%ofsurveyrespondentsidentifiedthemselvesasbelongingtoorganisationswithover Rs 250 crore turnover.

Thesurveyalsoprovidesinsightsonthefutureoffraud,includingwhothefuturefraudsterwouldbe,whatisnewincybercrime,impactofIoTdevicesonfraudinvestigations, using bots to conduct due diligence, implicationsofregulatoryactiononfraud,andbuildingananti-fraudsentimentinentrepreneurship.

Please click here to read the complete report.

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manage the complexities of their roles, tackle their company’s most compelling challenges, and adapt to strategic shifts in the market. For more information feedback or suggestions, please write to us at: incfo@deloitte.com

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