In an Interview with BW CFO World, Sameer Madan, Director, Finance, Agilent, shares invaluable insights on integrating sustainability, risk management, cost optimisation, cultural fostering and talent management for enduring growth
Can you elaborate your process for evaluating capital expenditures or acquisitions through a lens of both financial return and long-term sustainability?
As the society and eco system evolves, current sustainability related trends are rendering traditional corporate finance techniques used for capex decisions are at risk of being irrelevant. Capex decisions have a strategic role to play in the long-term viability and competitive position of companies, given their generally long lifespan. But the world around those assets is changing. Businesses are increasingly exposed to a variety of political, social, environmental and regulatory factors that can both create risk and opportunity. Traditional corporate finance techniques are increasingly insufficient, and new ways are evolving to capture and analyse the greater information needs of business to make effective capex decisions. An extended cost benefit analysis approach that keeps each of the four capitals: economic, human, natural and social capital separate, and measures each in a distinct non-monetary unit. NPV is then calculated using a consistent discount rate across the capitals. A better approach is Net Present Sustainable Value (NPSV) which links the use of social and environmental resources back to a corporate’s sustainability strategy and targets by extending the opportunity cost principle to both financial and non-financial resources. This method requires a defined minimum rate of return for all relevant resources, based on the company’s targets
How do you incorporate scenario planning, including potential economic downturns or environmental challenges, into your financial forecasting and risk management strategies?
The modern-day CFOs key role is to predict the future and in today’s interlinked world where the old rules of economics are being rewritten. With newer business models emerging faster than ever before, old ones are getting obsolete at an alarming pace. One needs to integrate upstream and downstream impacts and its risk assessment into strategic-planning processes and define actionable strategies to both protect the business and take advantage of emerging opportunities. Develop a pipeline of geopolitical risk management talent by rotating personnel with strong leadership potential through countries, establishing a more permanent team experienced in working through the inevitable disruption. Create a system for collecting, processing, and disseminating risk signals with a variety of time horizons or purposes across the organisation, supplemented by input from external agencies and advisors.
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?
In the fast-paced world of new age businesses, achieving scalability is often a top priority. As companies grow, they need to handle increased demand, expand their user base, and accommodate higher transaction volumes. However, this growth comes with a critical challenge: managing costs effectively. Balancing scalability and cost efficiency is a delicate dance that requires strategic planning, thoughtful execution, and continuous monitoring. Successful companies treat costs as investments. Some costs are good, and some are bad. One necessarily doesn’t need to work to reduce costs; instead, it tries to weed out poor investments while keeping the good ones—day in and day out, during both booms and busts. “You must study the process over and over.” The mantra is “Waste nothing.” Many companies, in contrast, take a one-off approach to cost cutting and do it reactively when it’s the only obvious option for reaching profit targets. Unfortunately, in their hurry to eliminate things that seem discretionary, they often sacrifice some of their most important investments. We should follow a “process shredder approach” and eliminate, simplify or automate every possible step of our day-to-day operations.
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?
The CFO has a large role to play in building a company’s vision and strategy — especially in times of economic uncertainty. That means stepping into roles that may not traditionally call for a “numbers person,” such as promoting a strong company culture. A CFO has a bird’s eye view of whatever is happening within the company as well as outside and is uniquely positioned to drive change and encourage the organisation to take calculated risks. Having a balanced scorecard for every department makes sure that one educates, aligns and empowers your employees, managers, and leaders. A CFO needs to foster a Learning (learn, unlearn and relearn) environment, set clear expectations, recognize and reward financial responsibility and foster collaboration and transparency
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?
Developing talent is business’s most important task-Peter Drucker. The allocation of financial capital has long been recognized as a critical driver of an organisation’s performance. The value of managing and allocating human capital (not human resources), however, is less widely known. But many surveys now confirm the positive effects of talent management on business outcomes and point that organisations with effective talent-management programs have a better chance than other companies of outperforming competitors and are likelier to outpace their peers’ returns to shareholders. While there is no one-size-fits-all approach to the effective management of human capital, Getting the best people into the most important roles does not happen by chance; it requires a disciplined look at where the organisation really creates value and how top talent contributes. Define the value agenda, Identify, and clarify critical roles, deploy “right skilling” and then operationalize and mobilise. To retain good talent is to recognize retention starts with recruiting and identify candidates who’ll stay the course i.e., who share your outlook. One needs to do C&B benchmarking, bake in the costs and be competitive with compensation packages.