From liquidity management to the growing concern over digital security, CFOs discuss the roadmap to crisis management and the new priorities that have emerged.
Looking back at the initial reaction to the biggest humanitarian crisis in recent times is a perspective building exercise. And discussing the initial actions of CFOs adds definitive value to the overall approach at looking at a problem and then dealing with it. It was observed that CFOs had to don the role of a change agent and shift gears into rigorous strategy building and contingency planning while keeping an eye on the level of liquidity. Cost control and micro monitoring only via digital screens, however, was new territory for all.
Securing the Strongbox
The first reaction of CFOs was to avoid and limit the paralysing spread of uncertainty on daily operations. Taking stock of liquidity and adopting a zero-based budgeting approach allowed strict control over finances. The keen eye on liquidity also helped keep net debt low. Research by the SBI research wing notes that Corporate India reduced debt amount to ₹ 1.7 lakh crore of debt reduction in FY 2020-21.
Participating in a CFO Roundtable, Ashish Kumar, VP Corporate Finance and Treasury of InterGlobe Enterprises explains how quickly the tables turned and CFOs had to embrace them in the hospitality sector.
“We adopted a lot of new operating practices. More in phase 1 (of lockdown) than in phase 2. In phase 1, from an industry that used to do 70-90 per cent occupancy, we suddenly dipped to 20-25 per cent. We still had a fixed cost and variable cost as well as have a variety of obligations in terms of the statutory authorities (property taxes, rents etc.), statutory filings and several financial obligations.” Kumar explained. From changing the operating procedures, deferring possible expenses, to reaching out for funding and collaborating with the government to present their case, he explains how the hospitality industry has been all-hands ever since to maintain the liquidity levels.
Sudhir Menon, CFO, Torrent Pharma explains that such liquidity management is here to stay and will be ingrained in the DNA of financial operations. The crisis mode in his opinion inspired a discipline towards liquidity management with expenses categorised and analysed based on their immediacy.
“Most of the revenue expenses I would say got moderated in an automatic mode because of restrictions and lockdowns which were present across all states, and more particularly for us because of the business model inherent to the Pharma Industry. Additionally, with the new way of working through digital or in virtual mode, we saw a host of general and administrative expenses reduced as well.
Zero-based budgeting led to sharper decisions on whether a particular expense was required, be postponed or dropped altogether. He further adds that no compromises were made when it came to expenses which were critical for business continuity. These included employee needs, business needs such as compliances, insurance, technology needs including cybersecurity measures. Talking of new security measures for work-from-home he added, “…these (necessary expenses) included getting in place additional security applications like two-factor authentication or secured VPN lines for working from home.”
Nitin Parekh, CFO of Cadila Healthcare notes that there was an order of importance in terms of management of liquidity. “Employees come first and remain the most important priority. And therefore, meeting employee payments will be the first part, including employee loans, medical loans, etc. Second, was paying for critical input materials, single supply materials, MSME parties, etc. Third, were the essential services such as insurance, freight, clearing & forwarding etc. The fourth was payments for GST, income taxes. Fifth was the payments of interest and repayment of loans,” Parekh elucidated. Payments were categorized in these five payment buckets on a daily basis across entities around the globe to ensure that everybody maintained a uniform discipline. He further explained how this facilitated future payments, “We made a commitment of payment for the second week based on the actual receipts of the first week. This way, we had complete control to ensure liquidity. This was the way of conserving cash and ensuring the continuity of business.”
Next Steps
As liquidity management fell into place, the larger realities of Work-From-Home also had effects on how CFOs managed their time. IT expenses to ensure seamless communication between employees and better bandwidth became necessary to bridge the gap between internal and external stakeholders.
Praveen Maheshwari, Director and CFO at Hindalco Industries observes some advantages in the online way of working like the pace of work. He says, “Work is happening on digital channels and there is greater communication. More people can be involved for social events, the level of integration is much deeper.” He observes how organisational culture and communication can reach more people faster and in a centralized manner. He also notes an observation from pre-pandemic times that has now come in handy. “The simpler way to put it is that you should think like private equity, act like a start-up and work as an NGO. Private equity looks at the benefit and costs in a very surgical manner. And they take hard decisions. Start-ups unlike many of the larger organizations are very quick in terms of decision-making and in terms of implementing those decisions, unlike large organizations that have legacies. The last part which is working as an NGO is important, not just because an NGO cares for its employees. It cares for the customers and for the community at large.”
Cybersecurity- a growing concern
As greater connectivity breeds, new operating procedures too fall in place, opines Ashish Kumar who indicated that there was significant adoption to technological change in terms of communication. With Board meetings happening on virtual platforms he senses that the awareness and responsibility of ensuring cybersecurity rises.
Phishing emails, ransomware, breaches have become more common and have notified the importance of having strong cyberinfrastructure. A dearth of cybersecurity professionals is also observed globally. According to the reports of the State of Cybersecurity 2021 Survey (Part 1) that was conducted by ISACA in partnership with HCL Technologies, it was observed that 49 per cent of the organisations surveyed had unfilled positions in their cybersecurity divisions.
Ramit Gupta, Partner, Managed Services, IBM, India & South Asia notes that an attitudinal shift was necessary to understand the magnitude of the change.
He states how the work from home situation requires agile cross-functional squads that have various skillsets to effectively solve problems and coordinate better. “We have moved from a few offices in India to eighty thousand offices in India because they’re all working from home. Intelligent workflows ensure coordination and collaboration in virtual enterprises.” Intelligent workflows as he posits creates a synergy between multiple departments through a common cloud infrastructure with the help of AI and ML tools. He explains, “What we are now beginning to talk about in a lot of companies and clients is what we call as moving from a cognitive enterprise into a virtual enterprise. A lot of us talked about zero-base budgeting. Looking at a costing review of where the cost structures are is exactly what a virtual enterprise does. It will question whether you need and analyse different company-specific parameters.”
Ankush Jain, CFO of Dabur explains that the pandemic was also a unique opportunity to re-engineer the process and relook at the details.
Such change can also foster a priority mismatch between teams, where it becomes important for leaders to appreciate the multiple points of view but prioritise the best for the company.
Explaining a recent re-engineering project that was accelerated by the pandemic he observes, “Suddenly when the pandemic came, teams became sensitive and apprehensive. This was a difficult situation but we decided to reinvent almost all processes…We did some benchmarking with our peers on various parameters; whether it is input cost, supply chain cost, employee cost, and other overheads and tried showing them (teams) the gaps or the opportunities. Once you show opportunities and the larger benefits, people become more enthusiastic.” He explains that to allay fears of changing operations during a pandemic, it is crucial to have employee buy-in. He further adds that bringing in an external consultant helps cement benefits and gets buy-in to implement the project.
The consensus on the crisis management efforts and the evolving realities have become clear. Newer dimensions to financial monitoring and building a more participative culture have been the unexpected advantages that have surfaced. While the uncertainty of the duration of the pandemic might persist, effective strategies to deal with black swan events are now in place as we trudge towards recovery with CFOs consciously paving the way as agents of change and first-respondents to crises.