Anand Agarwal, CFO, V-Mart, Drives Sustainable Growth: Insights On Financial Strategy & Culture

Can you elaborate your process for evaluating capital expenditures or acquisitions through a lens of both financial return and long-term sustainability?

To guarantee both a financial return and long-term sustainability, a thorough study is required when evaluating any capital expenditures (CapEx) or acquisition proposal. However, the variables that determine these kinds of transactions can differ greatly. For validating a Capex decision, one needs to assess if the planned spend is for meeting the current business needs or for long-term capability additions or for additions to an existing asset to improve its productivity or longevity. Apart from concerns arising from a sustainability perspective, the assessments generally include evaluating the investment justification, cost benefit analysis, replacement cost analysis, implications on other business divisions and influence on other operating costs and savings.

On the other hand, acquisition decisions necessitate much more thorough analysis of internal and external factors, including the evaluation of the buy vs. build rationale, cash flows, enterprise risk assessments, impact on credit ratings, borrowings, people-related assessments, due diligence and alignment with the organisation’s strategy and culture in addition to the overall impact on the ESG goals.

An acquisition always poses a higher risk assessment from a strategy and long-term sustainability perspective because of the increased impact of people, culture and strategy alignment issues that always arise in every transaction and thus require extremely careful handling to eventually meet the acquisition’s objectives, even though the initial financial evaluation of the acquisition proposal may still remain prudent at the enterprise level. 

How do you incorporate scenario planning, including potential economic downturns or environmental challenges, into your financial forecasting and risk management strategies?

Scenario planning, potential economic downturns or environmental challenges are important/essential aspects to cover while preparing financial forecasting and risk management strategy. We engage in long-range planning (LRP), spanning the next five years, to establish a strategic roadmap. This comprehensive approach allows us to align our objectives with potential market conditions, potential economic downturns or environmental challenges. By incorporating scenario planning into this process, we anticipate and prepare for various potential futures risks and mitigate them.

At a more detailed level, we create an annual operating plan (AOP) for each fiscal year. This plan discusses the complicities of our operations, resource allocation and performance goals for the future year. It provides a precise roadmap for achieving our strategic goals while keeping in mind the environmental and economic challenges.

In addition to these strategic processes, we prioritise risk management through our Enterprise Risk Management (ERM) framework. ERM helps us to proactively identify, assess and mitigate risks that may impact our business operations and objectives. We conduct ERM assessments on a quarterly basis to continuously monitor and manage risk and share with the board.

Furthermore, for more regular assessments, we update our risk registers on a monthly basis. These registers keep track of recognised risks, their potential impact and mitigation actions. By updating and analysing these registers on a regular basis, we ensure that risk management is proactive at all levels of the business.

Balancing cost efficiency with investment for growth is crucial. Tell us about a time you led a cost optimisation initiative that freed up resources for strategic growth areas. How did you ensure this initiative did not stifle innovation or core operations?

While cost optimisation is not a project or a specific initiative but part of the native DNA of the CFO function. There have been multiple instances where more pertinent measures were required to free up resources to aid the growth of strategically important initiatives.

Case in point will be the Covid period and its aftermath, where not just me, but Im sure every CFO in the world was constrained to look at more corners, identify some more savings, negotiate harder with suppliers, work more efficiently with teams to identify and extract every single rupee possible not to grow, but to sustain the operations.

There have been multiple other instances where similar situations have occurred. In the last three years, I have led two large acquisitions and in both the cases, the success of both the transactions hinged on not only our ability to secure a good deal, but more importantly to turn around the loss making businesses into future growth engines with half the legacy costs, without compromising on efficiency or operations. This is a tall task and it required an extreme level of detailing, diligence, identifying, measuring and improving opportunity areas and painstakingly introducing changes in processes or tech or people to ensure the desired objectives were met. A very large part of any such initiative is dependent on your ability to effectively do projects, people and change management. Once the teams gain trust by seeing the long term objectives, they gain buy-in into the process and then the change management becomes easier.

A CFO plays a key role in shaping a company’s culture. Describe how you would foster a culture of financial responsibility and environmental/social awareness within the finance department and across the organisation?

 As a CFO, I would actively contribute to shaping the company’s culture by fostering financial responsibility and social awareness. As Drucker has very famously said, culture eats strategy for breakfast, it’s extremely important to breathe and live the right values and behaviours that you want the teams to imbibe which can slowly shape the culture. As such I strive to live some of the key principles which I practise and encourage the teams around me, hopefully, to get influenced with. I like to ensure that my behaviour and approachability remains the same not only with the finance team but extends to the entire organisation. 

First and foremost is to work as an entrepreneur and not as a 9-5 team member.  I encourage a mindset that treats the company’s finances as if they were our own. This means making prudent decisions, seeking cost-effective solutions and identifying growth opportunities keeping in mind myself as the owner of the company, irrespective of my position or role. Only when I think like an owner, will I start to believe that no-one can do it better than me. Another important aspect is around giving your team maximum visibility of the long term vision, not only of the company, but also why we are doing what we are doing. I have a firm belief that if the stakeholders understand the why, it becomes easier to solve the problem, together. I also like to keep myself always accessible to even the most junior of the team members and promote an open door policy. I have experienced that this helps a lot in building a culture of trust, inclusiveness, sharing and caring, which eventually leads to taking more ownership and responsibility.

Extending the thought of sharing and caring, I also like to maximise interactions with all team members and look for opportunities to interact with more and more extended team members over trivial or even non-related matters, to be able to understand issues and possibly assist them in thinking of alternate solutions, but always allowing them to take the lead in solving the problems themselves. I also strongly believe in using technology as a force multiplier and like to use automation in all that we do. This has also greatly helped in fostering a culture of innovation and governance. Last but not the least, as a CFO, it is imperative for me to work very closely with the HR teams to ensure the financial responsibility and social awareness agendas are interwoven strongly across the breadth of the organisation.

A sustainable business prioritises its people. Can you elaborate on how you would integrate talent management metrics, such as employee retention or training investment, into your overall financial planning for long-term growth? 

It is very critical for any organisation to emphasise people’s mental and physical well-being; for us employees are valuable assets and investing in their development and evolution is equally vital. We incorporate talent management metrics not only into the company’s goals but also make it a part of financial planning and demonstrate the importance of investing in human capital to make informed decisions about resource allocation and ensure that talent management strategies are aligned with business priorities, resulting in long-term growth, organisational success and high level employee satisfaction.

Employees training and development cost is already a part of our yearly budget. Overall we are more focused on employee engagement, training investment, employee retention, turnover rate and cost, succession planning effectiveness and performance rating. A large part of the HR budget is strategically allocated towards people development, training and talent retention. We run multiple programmes around periodic identification of high potential employees, skill gaps, trust building and multiple employee engagement activities. All of these are planned at financial budgeting level itself as they forma very core part of the overall long term growth strategy of the company.