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How can CFOs lead and

change through the

challenging times

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Mr. Jagdish Agarwal is the CFO at Owens Corning India

Today’s business world operates in VUCA (Volatility,

Uncertainty, Complexity and ambiguity) scenario and that

demands a CFOs role beyond the traditional boundaries.

Now the expectation from CFOs is not limited to financial

matters alone but they have to partner and support CEO

to drive the business and maximize the shareholders

value. CFOs are custodian of the shareholders wealth and

considered next to CEO with lots of expectations. I think

there are five critical areas that need CFOs focus and

attention to drive planning, performance and maximize the

shareholders value.

Talent Development and Growth: I believe the first

and foremost thing to have great results is having a robust

talent strategy in place and in order to formulate the same,

the CFO has to play a critical role along with the HR.

Talent is not about number of people but it is all about

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quality of the people. There has to be a policy on the hiring

process, nurturing the talent by identifying and working on

the development needs, reward and retaining them and

performance management system. Leaders should strive

to utilize the full potential of each of their team members

for which they have to position them for the best fit roles

keeping their strength in mind. It will help a leader to

connect well with his people and also at the same time to

challenge enough to get the desired result. At beginning of

the year goals should be finalized for each individual and

held them accountable against those goals during

performance review. I am sure this process (should be

well documented) will help to build a great place to work

that will help to attract and retain the people.

Business Partnership: CFO should not only report the

numbers but should partner with cross functional leader to

maximize the value. In general finance, CFOs meet mostly

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with Auditors, consultants, Bankers and Govt. officers and

it is important to have relationship and interaction with all

such people. However meeting with customers and

suppliers will provide insights to the business as well as

help to maximize the value of the relationship. I have seen

finance teams partnering with sourcing and commercial

teams on negotiations with suppliers and customers

adding a lot of value. CFO should play from the front on

strategy formulation and execution and support CEO and

others to realize the true potential of the business.

Driving Business Performance: Driving business

performance should be an integral part of the CFOs

routine activities and this includes in-depth review of the

operations, cost, market, suppliers and customers.

Creating awareness and educating people on the financial

impact of their action and also provide tools to enhance

the margins. Detailed study/discussion should be done for

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the risk and opportunity over plan on periodic basis and

monitoring the same till the conclusion. Ensure that risks

are mitigated and are encashed. This is only possible

when the CFO has good knowledge on operations and

market.

Process, Systems and Controls: Controls and

compliance are bread and butter, so it is expected to be

within the CFOs grasp. There has to be a balance

between compliance and supporting the business. Simply

acting as a police officer on the pretext of control does not

help the business and in today’s world none of the

organizations prefer to have a CFO who just talks about

controls/compliance. CFO should be good enough to

come out with solutions that will help in mitigating control

risk and at the same time support business. SOP’s should

be well drafted, circulated and training has to be imparted

to cross functional teams and making sure that the team

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understands the objective behind all such things. It is

human tendency that if we force something the impact will

be short term, instead if we educate on the

objective/importance; the impact will be longer term and

people will partner to drive this. In many organizations

today, the CFO manages the IT department, even if they

do not, the focus should be to make the best use of

available technology. I feel that data processing / routine

reports should be automated and the quality time should

be devoted on the analytics and decision making process.

Cash and Capital Efficiency: This part is really critical

and should be one of the core items in the CFOs agenda.

As we all know that Cash is very precious and it has cost

embedded in itself, so managing the same is really vital for

the organization’s success. There are three main parts

that comes under Cash and Capital efficiency are a)

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Operational cash generation b) Capital efficiency and c)

Treasury management.

In operational cash the critical piece is optimization of

working capital (WC). First thing is benchmarking the WC

cycle against the industry peers and then improving further

to have an edge over the competitors. Forecast accuracy,

credit terms to customers, payment terms with suppliers

and production planning are main aspects to control the

working capital. CFOs who partner with operations,

sourcing and commercial leader on business front have

better control to improve the working capital. It involves

educating the functional leaders that how DSO, DIO and

DPO can impact WC and in turn ROC (Return on Capital

Employed). CFOs should talk about correlation between

working capital Vs Profit on ROC calculation as it will give

nice perspective to understand the importance of WC. In

addition to ROC the optimum Working capital helps the

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organization to maintain the healthy current ratios and in

turn better bargaining powers with banks on borrowings.

This is primarily related to capital expenditure or new

investment (Capex) . So before any decision on the

Capex, there has to be a robust review mechanism and

making sure the investment should able to provide the

investment grade returns defined by the organization.

Initially all projections looks lucrative but having robust due

diligence system in place throws the reality and help on

the decision making. Another point to remember is to have

many options and selecting the best available options

before committing anything, it might be buy or lease,

investment vs. strategic tie-up with other player etc. There

are many examples wherein the companies went

overboard either on Capex or acquisition have lost big

time in the market.

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Maximizing the value of money either through

investment or borrowing. CFO should be updated with

latest financial instruments available in the market either in

the borrowing side or investment but risk mitigation plan

should be in place.

There are many more points to discuss inside each of

the above, but too much of nitty-gritty sometimes dilute the

message. I am sure all of us are aware, what has been

discussed above but the key for successful planning and

delivering the performance is focused approach and

execution.

More about the writer:

Jagdish is a senior business and corporate finance

professional with more than 18 years of experience in

achieving revenue, profit and business growth objectives

within turnaround and rapid change environments. He is

presently working with Owens Corning India as CFO.

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Owens Corning is a US based manufacturing Company of

Building Material and Composite products (Revenue of

$5.4bn, NYSE listed). He has previously worked with

Reliance Group, ICICI Bank and Kanoria Group in the

areas of accounting and controls, taxation, auditing,

company law, treasury, risk management, commercial and

credit appraisal of loans.

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