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Role of CFOs
in today’s
Environment
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© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
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© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
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Role of CFOs in Today’s Environment

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Recent evolution of the finance function has necessitated CFOs to act as a strategic partner of CEOs and be a torch bearer for sustainable financial growth. The new CFOs of tomorrow need to tackle and master a number of challenging scenarios. These challenges generally emerge out of 5 key influencing forces- environment, organization, process, people and technology. The report throws light on key challenges emerging out of these influencers like new company act, extended finance function, working capital management, CFO succession planning and business analytics.

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Role of CFOs in Today’s Environment

  1. 1. Role of CFOs in today’s Environment kpmg.com/in
  2. 2. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. TableofContents Introduction New Companies Act-Boon or Bane A new entrant to the corporate board room agendas – “working capital and cash management” Journey to an extended finance function People management Data analytics – Right information, Right hands About Indian Chamber of Commerce About KPMG in India 01 04 09 11 17 19 23 24
  3. 3. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Over the past couple of years, the finance function of Indian Companies had to display a high level of resilience in the face of high domestic inflation, rupee depreciation and fiscal uncertainty in the US and Europe. Add to this, global challenges like new technologies, increased globalisation of operations and increased compliance requirements, one would realise that the Indian CFOs haven’t had it easy. The CFOs must constantly re-evaluate and re-balance resources for the optimal mix to meet strategic and tactical objectives. Exactly, what constitutes the ‘right balance’ of strategic services and tactical execution will differ by organisation, industry and internal capability. CFOs and their finance functions are undoubtedly best suited to adopt and live up to the expectations from their role. This report discusses the key challenges that Indian CFOs face in the Industry and suggests ways to mitigate the associated risks. Foreword Ambarish Dasgupta Head – Management Consulting KPMG in India Mr. Shrivardhan Goenka President Indian Chamber of Commerce
  4. 4. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 Introduction Source: KPMG reportTransforming Finance 2011 In recent years, amongst all C-suite members, probably the role of the CFO has faced the utmost brunt of turbulent times, and has undergone a massive change. Mounting internal pressures in terms of competitiveness, cost and operational efficiency as well as external factors such as change in regulatory environment, unpredictable market situations, emerging technologies, and compliance issues have radically redefined the finance function and its position within the organisation. Besides the routine chores of collection, payment and reporting, the finance function is increasingly embracing a host of new and challenging responsibilities to guide the company through difficult times and transform daunting realities into rewarding opportunities. Consequently, leading CFOs in today’s world have a foremost role to play in speeding up the organisational growth through innovation, accountability and strategic transformation. Beyond mere financial decision making, the CFOs should now act as a trusted advisor to the business and participate actively in broadening the corporate vision. Emerging role of finance function Role of CFOs in today’s Environment
  5. 5. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 KPMG recently conducted a survey amongst the set of key finance experts understand their perception on key challenges face by the Indian CFOs. A large majority of those surveyed (90 percent) believe that changing regulatory landscape is the biggest challenge facing the finance function today. Focus on data analytics is the second most important challenge facing the industry. As per the survey - changing regulatory landscape (environment), efficient service delivery (organisation), lack of quality/ reliable data and analytics (technology), working capital management (process) and key people management have emerged as the key challenges CFOs have to tackle in the current business environment. Source: KPMG’s Role of CFOs in today’s Environment, September 2013 Industry Experts’ perception on major challenges facing the CFO today “The contribution made by the CFO is generally based on three attributes: the CFO’s ability to build relationships with key stakeholders based on trust, the ability to simplify information by ‘cutting through complexity’and the ability to provide key insights to key stakeholders for decision making” The new CFOs of tomorrow need to tackle and master a number of challenging scenarios.These challenges generally emerge out of five key influencing forces- environment, organisation, technology, process and people.To assess the impact of these influencers. Role of CFOs in today’s Environment
  6. 6. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. • Environment -With rapid globalization, cross-border relationships and adoption of innovative delivery models with strategic sourcing as a key element, companies must face and manage the complexities arising out of global regulatory and compliance requirements. Adoption of International Financial Reporting Standards (IFRS) and overall enhancement of accounting standards, coupled with country- specific developments in regulatory regime like the New Companies Bill, are affecting regulatory reporting needs. As the financial spearhead of the organisation, CFOs have a direct stake in adhering to such regulatory and compliance needs.They should assess and evaluate any change in the policy regime and provide insight to the other C-Suite members within the organisation, so that appropriate measures to counteract any adverse impact can be taken at the strategic level. As members of trade bodies and associations, they also need to ensure that new regulatory requirements do not prove burdensome to the business. • Organisation - Growth in outsourcing and finance shared services model in the past decade only shows the willingness of the CFOs towards large-scale re-engineering and transformation of the finance function. However, labor arbitrage from low cost locations through outsourcing, offshoring and shared services models have been thoroughly explored and organisations have been successful in cutting cost of operations, and driving the agenda of centralization and standardization within finance function.The new CFOs now need to explore fresh frontiers and seamlessly integrate the distributed operations (e.g., shared services, outsourcing) with the retained organisation to become a true value partner. Driving towards continuous improvement is what characterizes a world-class finance function. Keeping that in mind, tomorrow’s CFOs should focus more on partnerships and co-existent operating structures towards achieving broader business goals. Additionally, as the role of the finance function is no longer restricted to the mere operational chores, developing Centres of Excellence to foster functional skills and enhance in-house capability will prove to be a critical success factor for the finance function.This will help the finance function to participate in decision making activities and thus move up the organisation value chain. • Technology - Emergence of new technologies like cloud computing, advancement in the power of mobile and handheld devices and continuous improvement in the enterprise systems have revolutionized the entire business landscape. Apart from speeding up the operations and providing ease of access, technological advancement has also served to gather, organize and analyze organisation-wide data, thereby providing the single version of truth.This has pushed the horizon of data mining and business intelligence, which will become a key weapon for the CFOs to make sense out of seemingly unrelated data and predicting future business scenarios through regressing, correlating and forecasting. In near future, advanced data analytics will become invaluable in making business decisions ranging from market and opportunity identification, to business performance measurement and evaluating customer insights. Needless to say, tomorrow’s CFOs need not only to cope up with such technological progress, but also to master them and harness their power. • Process - Current liquidity crisis in India has forced CFOs to relook at their working capital management process and have catalyzed their efforts to extract efficiencies and eliminate risk in the process.Thus companies are forced to look at working capital from not only cash management perspective but also operational process optimization perspective also. Excess working capital suggests operational issues that also impact cost and quality of offerings. Companies are working to enhance liquidity by keeping inventory low, utilizing supplier financing and striving to reduce Days Sales Outstanding (DSO) and lengthen the payment terms with suppliers. • People - CFOs in the past have excelled at managing accounting, working capital, inventory, capital expenditure and cost control. However, with recent evolution of the finance function has necessitated CFOs to act as a strategic partner of CEOs and be a torchbearer for sustainable financial growth. Keeping that in mind, tomorrow’s CFOs should focus key skills that enable him to translate the organisation vision into long term strategic objectives. Given the complex and ever evolving role that CFO needs to play, succession planning and training potential CFOs is of utmost importance and cannot be under stated.This can only be ensured by providing exposure to budding CFOs in broader business and commercial aspects of the organisation. Organisations need to also focus on retention of CFOs by assessing the aspirations, potential of the CFO and its own capacity to meet the latter’s growth needs while drawing up a career management plan. These may sound daunting but CFOs have been at the forefront dealing with these challenges and mitigating risks in the most innovative ways. Not only they possess an incisive insight into the financial impact of each and every decision taken, but they also have an enormous amount of organisational data at their disposal to judge and analyze transformational needs. For tomorrow’s CFOs it is just a matter of fusing them together to become the perfect partner to the CEO. 3 Role of CFOs in today’s Environment
  7. 7. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 New Companies Act-Boon or Bane The Companies Act, 2013 (“the Act”) has received the accent of the President on 29 August 2013, after passed by the Rajya Sabha on 8 August 2013. Act.This Act replaces old Companies Act, 1956. The Indian administration has made several attempts to bring out a complete code replacing the existing Companies Act, 1956 since 1993 but without success. The Act reflects the current economic reality, reflects principles of self governance by companies, sometimes referred as corporate democracy and in several areas aligns to international best practices.The principle objective of the new law is to enhance the corporate governance framework in the country. From a broader perspective, one thing is quite discernible and that is to reduce the substantive portion of the Act. Statistically speaking, the Bill contains 470 sections and seven schedules as against nearly 900 sections (including sections numbered as A, B, C and so on) and 16 schedules seemingly a sizable reduction.The Companies Act, 1956 has notified 34 rules and regulations. In the new Bill, the phrase ‘as may be prescribed’ appears as many as 346 times.The bulk of the procedural provisions have, therefore, been relegated to the Rules.This marks a paradigm shift, as after the passing of the Bill, the Central Government will possess more delegated power than it has at present.These rules are yet awaited and are expected to bring more clarity with respect to the provisions of the Act. The Act is expected to have a wide ranging impact in areas such as financial reporting, corporate governance, holding structure of companies, appointment and rotation of auditors, mergers/ acquisitions etc.The propositions in the Act also impose additional responsibility on the directors, Chief Financial Officers (CFO) and auditors. Source: KPMG’s Role of CFOs in today’s Environment, September 2013 Key provisions and new Company’s Act Role of CFOs in today’s Environment
  8. 8. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Accounting and financial reporting changes Consolidation of financial statements made mandatory • The Act mandates preparation of consolidated financial statements for all companies that have one or more subsidiaries.These would be in addition to the separate financial statements and are required to be prepared in the same form and manner as the separate financial statements.The Act does not go as far as to displace the primacy of separate financial statements but acknowledges the relevance of consolidated financial statements in analysing performance of companies. • For the purpose of this requirement, the word subsidiary would include associate companies and joint ventures. Listed companies with associates/ JVs but no subsidiaries that were earlier not required to prepare consolidated financial statements will now have to do so.The companies would continue to follow the principles of AS 23 Accounting for Investments in Associates in Consolidated Financial Statements/ AS 27 Financial Reporting of Interests in JointVentures for the purpose of accounting their investments in associates/ joint ventures respectively in the consolidated financial statements. • The definitions of the terms “subsidiary” and “associates” provided under the Act are inconsistent with the definitions provided under the respective accounting standards. Since the Act ultimately requires consolidated financial statements to be prepared in compliance with accounting standards, it is likely that the definitions under the Act will only be for the purposes of identification of group companies for consolidation, whereas accounting procedures for consolidation will continue to be governed under the respective accounting standards. Further clarity from the MCA on this matter would be useful. Restatement of financial information • Unlike the extant Act, the Act introduces a new provision on re-opening/ restatement of financial statements in the following circumstances: –– Order being passed by a Court orTribunal based on an application from a statutory regulatory authority (e.g., Central Government, Securities and Exchange Board of India (SEBI), income tax authorities, etc.) or any person concerned when (i) accounts were prepared in a fraudulent manner; or (ii) company’s affairs were mismanaged affecting reliability of accounts –– Voluntary revision of financial statements by the Board on application to theTribunal • The voluntary revision to accounts is restricted only to the preceding three years with no such time restriction to revision initiated by a statutory regulatory authority. • Currently under Indian GAAP if any error or misstatements are identified that relate to prior periods, the impact of these adjustments is given in the year in which these are identified. Internationally companies were required to restate the comparative periods to reflect the adjustments.The Act now introduces the concept of restatement of financial information. Preparation of financial statements • The Act requires all companies to adopt a uniform financial year of 1 April to 31 March with limited exception to a holding company or subsidiary of a company incorporated outside which may be required to follow a different financial year for consolidation outside India. • All exceptions would however require the approval of the National Company LawTribunal (theTribunal). • As part of transitionary provisions, Companies would be given a period of 2 years to change their accounting year to 1 April to 31 March. Depreciation requirements • Under the Act, the useful life has been defined and prescribed in Schedule II for class of companies that comply with AS (unless use of different useful lives is justifiable) these are significantly shorter than those envisaged under Schedule XIV of the extant Act in several instances. • Where cost of a part of the asset is significant and it has a useful life different to the remaining asset, useful life for that part is determined separately for depreciation concept of component accounting has been introduced which may be an onerous requirement for capital intensive companies. • The Act states that amortisation of intangible assets to be governed by notified AS. Currently under Schedule XIV of the Act (amended in April 2012) certain types of intangibles arising from service concession projects (e.g., toll roads) are permitted to be amortised in a pattern based on the projected revenue earned from the asset.This may not be allowed under the AS. • On first time application of these provisions the Act requires depreciation of the carrying amount over remaining useful life or recognise in opening retained earnings if remaining useful life is nil. • The impact of change in depreciation should be evaluated carefully.We suggest entities to calculate the potential impact of changes in the rates of depreciation on their future profitability. Use of securities premium • The Act introduces restrictions on the use of securities premium for a ‘prescribed class of companies’ whose financial statements need to comply with the accounting standards prescribed under the Act. However, such ‘prescribed class’ of companies are currently not defined in the Act. • The restriction for the prescribed companies limit the use of securities premium only to issuing fully paid equity bonus shares and writing off expenses pertaining to issuance of ‘equity shares’ and buy back of its own securities. • At present, several companies utilise the securities premium account to adjust redemption premium arising on several securities including debentures, preference shares, foreign currency convertible bonds etc. 5 Role of CFOs in today’s Environment
  9. 9. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. • Prescribed companies will henceforth not be able to utilise the securities premium to adjust premium payable in redemption of preference shares or debentures. Hence, accounting for gains and losses on redemption for such instruments will be required to be routed through the profit or loss account or as an appropriation of profits, as the case may be. • The Act states that companies will be permitted to adjust against securities premium if “specified securities” are bought back by the company.The Central Government will specify the nature of such securities and if these include preference shares, it could result in companies being permitted to utilise the securities premium on voluntary redemption/ buyback of preference shares. • There is some transitional relief for preference shares, whereby the Act permits gains and losses on redemption of preference shares issued prior to the effective date of the Act to be accounted for in accordance with the Act i.e. the redemption premium may continue to be adjusted from securities premium. New guidelines on auditor rotation and eligibility Mandatory auditor rotation • As per the Act, the Auditor will now be appointed for a period of five years as against appointment at each annual general meeting (AGM); however ratification of such appointment would be required at each AGM. • Listed companies and prescribed class of companies will not be able to appoint or reappoint an audit firm for more than two consecutive terms of five years.There is restriction on appointing the same auditor for a period of five years from completion of the said term. The transition guidance provides companies 3 years from the date of commencement of the Companies Act to comply with this requirement. • Within the term of five years, the rotation of audit partner and audit team may be decided by the members of the Company .The members of the Company may also decide that audit may be conducted by joint auditors. • It is to be noted that currently only Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority (IRDA) require auditor rotation for banking and insurance companies. Providing non-audit services • The Act brings in restrictions on the non-audit services that can be provided with services provided by auditors to be approved by the Board or the Audit Committee. • Specific prohibition has been introduced on providing non-audit services like accounting and book keeping services, internal audit, investment banking/ advisory services etc. Such services cannot be rendered by the audit firm either directly or indirectly through itself or any of its partners, its parent or subsidiary or through any other entity whatsoever in which the firm or any partner of the firm has significant influence or control or whose name or trademark or brand is used by the firm or any of its partners. On-going non-audit services need to be completed within 1 year from enactment of the Act (transition period). Enhanced reporting requirements • The reporting responsibility on the statutory auditor have also been enhanced with the auditors now to report on the following additional matters in the auditor’s report: –– observations or comments on financial transactions having any adverse effect on the functioning of the company; –– whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls as against the current requirement in CARO. • The auditor is also required to report to the Central Government if the auditor believes that an offence involving fraud is being/ has been committed against the company by its officers or directors. Changes in corporate governance framework Independent directors • Act introduces the requirement for independent directors for both listed companies (1/3rd of the Board of Directors) and specified class of unlisted public companies (exact number to be prescribed later). • While listed companies already have similar/ more stringent requirements with respect to composition of Board of Directors, additional restrictions imposed on appointment of independent directors with nominee directors of institutions no more considered to be independent. • The Act also prescribes detailed attributes for selection of independent directors, imposes increased responsibilities (e.g. Corporate social responsibility committee (CSR), Nomination and Remuneration Committee) and restricts the maximum number of companies in which a person could be director. • As per the Act, independent directors could be held liable for negligence and will not be permitted to hold Employee Stock Option Plan (ESOPs). Corporate social responsibility • The Act mandates that every company with a net worth of INR 500 crores or having turnover in excess of INR 1,000 crores or having net profit exceeding INR five crores in any financial year will be mandatorily required to spend for CSR purposes. • Companies will be required to spend two percentage of the average net profit of the preceding three years, however there is lack of existing guidance on the accounting treatment of such expenses. For instance, it is currently unclear whether a company will have to create a provision if the amount spent in a particular year is less than the prescribed percentage. Specific guidance would be required to ensure consistent application in this area. • No specific penalty for non compliance except disclosure in directors report along with reasons for not spending the amount. 6Role of CFOs in today’s Environment
  10. 10. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Formation of board committees • Audit Committee with majority of independent directors to be set up, role of audit committee enhanced with specific responsibilities prescribed (1 year timeline for reconstituting the audit committee). For example, the Act requires that majority of audit committee members including its chairperson should have ability to read and understand financial statements. • The Companies Act requires all listed companies and prescribed class of companies to constitute Nomination and Remuneration Committee (NRC). NRC to recommend appointment and removal of directors, remuneration policy and to evaluate performance of directors. • All companies with more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders shall constitute a Stakeholders Relationship Committee. Other matters • Listed companies and prescribed class of companies to establish vigil mechanism (whistle blowing mechanism earlier was non- mandatory) for directors and employees to report concerns. • Maximum number of directors can be 15 (12 at present) with at least one director should be person who has stayed in India for 182 days or more in the previous calendar year. • Prescribed class of companies to have at least one women director. • Statutory status given to Serious Fraud Investigation Office (SFIO) established under Ministry of Corporate Affairs. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences which attract the punishment for fraud. • Internal audit mandated for prescribed class of Companies. Presently under the Companies Act there is no direct requirement in relation to internal audit. However, auditors are required to report under CARO for companies having specified amount of turnover/ paid up capital. • Disqualification of directors on account of non-compliance (Section 274(1)(g)) extended to private companies as well. • Mandatory secretarial audit for listed and certain other prescribed class of companies. Transactions with directors and related parties Transaction with directors • No company (including a private company) is permitted to give a loan or provide any guarantee or security in connection with a loan to a director or “any person in whom he is interested”. Certain exceptions are provided under the Act such as: –– Loans to Managing Director/ Whole-time Director may be made where the loan is given as part of the conditions of service extended by the Company to all its employees; or pursuant to a scheme approved by the members by a special resolution; –– A Company may provide a loan (or a guarantee/ security in connection with a loan) in the ordinary course of its business to a director or any person in whom he is interested provided the rate of interest charged at a rate not less than the bank rate declared by RBI Due to these restrictions, a parent may not be able to give a loan to/ security/ guarantee on behalf of the subsidiary as generally the directors of the parent are also directors in the subsidiary or would be acting as per the directions of the Board of Directors of the parent.This may result in significant hardships as most subsidiaries seek the support of the holding company to raise capital. • The Act explains that the expression “to any other person in whom the director is interested” inter alia includes: –– any private company of which any such director is a director or member; or –– any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company. • Unlike the existing Act, a company is not permitted to provide such prohibited loans even with the approval of the Central Government. • The Act brings in restrictions on non- cash transactions involving directors. It states that without the approval of the Company in a general meeting, no company shall enter into an arrangement by which: –– a director of the company or its holding, subsidiary or associate company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company; or –– the company acquires or is to acquire assets for consideration other than cash, from such director or person so connected. • The Act also prohibits a director of a Company or any of its key managerial personnel from undertaking forward dealings in securities of the Company. • The Act prescribes certain new relationships within the purview of the above clause that would be considered restricted. However, the Act does not prescribe any guidance and transition provision on the applicability of the new requirements to existing loans or existing guarantees/ securities provided in connection with existing loans with new relationships covered within the purview of Act. Loans and investments by a company • The Act continues to restrict companies from providing loans or acquiring investments in another company for an aggregate amount exceeding the higher of 60 percent of its paid up share capital, free reserves and securities premium, or 100 percent of its free reserves and securities premium.This limit specified in the Act for providing loans to or making investments in other companies does not exclude loans/ investments in subsidiaries. This may have a significant impact on several group structures. 7 Role of CFOs in today’s Environment
  11. 11. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. • The specified limit for providing loans or making investments may be exceeded only by prior approval by way of a special resolution of the company in a general meeting. • Unlike the Act that prescribes restrictions on loans and investments to other body corporates, the Act extends the restrictions for loans to persons other than body corporates as well. • The rate of interest on inter corporate loans should not be lower than the prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan. • The Act exempted loans made by a holding company to its wholly owned subsidiary.The Act does not contain such exemptions.Thus, loans, guarantees and investments by a private company or by a holding company to its wholly owned subsidiary would also be covered by these provisions. • The lending company is required to present detailed disclosures in its financial statements relating to such loans and investments, their purpose and intended utilisation by the borrower/ investee company. Mergers and acquisitions simplified Investment in multi-layered structures • As per the Act, investments are not permitted through more than two layers of investment companies (defined as companies who are principally engaged in the business of acquisition of shares, debentures and other securities). • However, there is a carve out in case of an Indian company acquiring overseas company having multi-layered structure or where applicable law requires multiple layer investment.This will have a significant impact on existing structures and impact the ability of certain companies to raise funds. • It is currently uncertain whether existing structures not in compliance with the above requirement will need to be aligned to the requirements of the Act before the effective date of the Act.This may need some group restructuring activities to be undertaken in the immediate future and there might also be tax implications and transaction costs on account of above restructuring. Fast track merger • The Act brings in the concept of fast track merger, wherein approval of National Company Law Tribunal (NCLT) not required for implementing merger schemes, in case of merger of wholly-owned subsidiaries with parent, merger of small companies and other mergers as may be prescribed. However, approval would be required from Registrar of Companies, Official Liquidator, members holding at least 90 percent of the total number of shares and the majority of creditors representing at least 90 percent in value. Cross-border merger • The Act permits now merger of Indian company with foreign companies and vice-versa (in specified jurisdictions to be notified). Under the extant Companies Act, merger of an Indian company with a foreign company was not allowed. • However, prior RBI approval is required for merger between foreign company into Indian company. • The Act also permits consideration for cross-border merger to be in cash or Depository Receipts or a combination of both. Merger of listed company with unlisted company • The Act permits merger of listed company with unlisted company subject to exit offer by unlisted transferee company to the shareholders deciding to opt out. In this case, pricing to be in accordance with pre-determined pricing formula or at a fair value, which shall not be less than price arrived as per relevant SEBI regulations. Other matters • Under the Act, only persons holding 10 percent or more of the shareholding or having outstanding debt of five percent or more of the total outstanding debt can raise objections to the scheme.The existing Act permits any shareholder, creditor or other interested person can raise objection to a scheme placed before the court if such person’s interests are adversely affected . • The Companies Act makes it mandatory for all companies (whether listed or unlisted) to obtain statutory auditor’s certificate stating accounting treatment envisaged in scheme of arrangement is in compliance with notified Accounting Standards. Currently, SEBI requires similar certificate only for listed companies. • The Companies Act introduces a gap of minimum 1 year gap between two buybacks.This is applicable in all cases, regardless of whether buyback is authorised by board resolution/ special resolution. • The Act prohibits creation of treasury shares, in other words, holding of treasury shares through a trust, recognition of dividend income on such shares, etc., will not be permitted. 8Role of CFOs in today’s Environment
  12. 12. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Role of CFOs in today’s Environment 9 A new entrant to the corporate board room agendas –“working capital and cash management” The priority given to cash and working capital management tends to have an inverse relationship with economic performance. In periods of contraction or sluggish growth, cash and working capital issues rise to the top of the boardroom agenda. When prosperity returns, the focus shifts elsewhere. However, global experience suggests that companies that tended to have better focus on cash and working capital management were able to weather successive downturns and capitalize quicker when the cycle turned. Many of these companies used times of uncertainty as an effective catalyst to implement, embed and retain a cash culture in their organisations, long after the worse of economic pain was over. Given the current macro environment in India, cash is likely to stay on top of corporate agenda for the next few years, as companies battle the effects of inflation, low growth, high interest costs and a volatile currency. Given this new reality, you might assume that corporate India is ready for a shift in corporate behavior, with effective cash and working capital management remaining a key priority for businesses - even when demand and revenues begin to gather pace. However, our experience suggests that commitment to cash management in good times remains elusive. A lot of the hard work done during difficult times unravels as the cycle turns and businesses shift their focus to expanding the top line, leaving little energy or focus for addressing process inefficiencies that needlessly tie up cash. All of this begs some critical questions. Should cash and working capital management by prioritized in good times and bad? And if that’s the case, why does it seem such a struggle to sustain a commitment to running a tight ship when the economic cycle turns up? Focusing on what is important – the five pillars of effective cash management A holistic approach to working capital should address all areas of the business impacting cash performance, which typically entails an in-depth assessment of five main drivers of working capital set out below:
  13. 13. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10Role of CFOs in today’s Environment Source: KPMG International 2010 Pillars of working capital management Inventory management Receivables management Payables Taxing matters Hedge your bets • Fine-tuning production capacities by stalling production for a time, sending workers home on almost full pay or moving staff to a shorter working week. • Better sales and production planning • Changing distributor terms and channel behavior • Optimising ‘buffer’ stock levels • Accurate billing and revenue leakage • Better credit control and arming your sales team to spot trouble early • Cash discounts for pre-payment • Reminders of payment before due date • Supply chain financing • Eliminating early payments • Tracking service and quality defects • Changing commercial focus to be tax efficient • VAT planning • Domestic supply alternatives • Treasury strategy • Realisation of redundant or under-utilised assets The role of the CFO – measure, engage and lead • The problem is that outside the financial function, working capital is not very well understood and most CFOs will agree that driving cash discipline in an organisation is the finance function’s responsibility. However, achieving this discipline requires concerted effort from functions across the business and cannot be done by finance in isolation. • A CFO has to be able to create standardized metrics that operational staff can easily understand and at the same time lead the organisation to objectively measure performance against these metrics.This cannot be done on the back of excel sheets alone, but requires significant engagement with business leads and a deep appreciation of their various functional priorities. Forecasting • Working capital is often poorly or simplistically modeled in the forecasts resulting in upside opportunities.To ensure better visibility and information around cash performance, implementing a robust short and medium term forecasts, based on input from various streams within the business, e.g., sales, credit control, purchasing, etc., is quite imperative. In order to reap the benefits of a forecasting process, the management reporting framework needs to cover cash flow reporting as well, including a variance analysis with the actual performance. Engagement • For example in most organisations there is a natural tension between sales and finance - where sales wants to be sure of a sale, and finance wants to be sure of collecting cash from a sale.Terms branding finance as ‘sales prevention’ or ‘commission control’ come out of this conflict. • It is important that CFO is leading his team to ensure that the sales team is engaged and understand how to collaboratively manage this conflict. As an example a credit call to a customer should only be made after intimation to the account manager, as he is the first person a customer will call after a credit call. Linking cash performance and pay As companies evolve their DNA towards a more sustained focus on managing cash, they are beginning to instill various changes that allow the cash culture to embed deeper in an organisation: • Better metrics around the cash performance of operating units. While most companies tend to stick to basic measures such as Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), Days Payable Outstanding (DPO), the key challenge is the ability to generate this information consistently and have it well understood by the operations team • Capital lock-up charges from group to operating divisions is another tool that is used effectively to let management feel the pain and take accountability for managing its cash more effectively • Variable compensation is increasingly being linked to cash flow related measures.These could range from group wide measures like bonuses linked to Economic Value Added (EVA) to more tactical steps like holding back sales commission until cash is realized. In summary, companies have a great opportunity to use the current challenging times to get their balance sheets in order, particularly around working capital. Cash management in the past was just a task; a responsibility to ensure sufficient funds on the account to process daily payments. But as company’s focus is more on cash today than ever before, cfo’s seek to improve this function on a centralized level. This leads to an integrated view on all cash related processes through engaging all the key stakeholders.
  14. 14. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Role of CFOs in today’s Environment 11 Journey to an extended finance function CFOs need to answer the following questions before embarking on the journey for optimizing the finance delivery model: • Where do I stand vis a vis global finance operating models? • What factors do I need to keep in mind to design an optimal finance delivery structure? • What pitfalls should I avoid during implementation of delivery model? Evolution of finance function: cost management to enterprise management Finance functions are moving beyond just cost savings. Leading companies are advancing their capabilities, evolving to models engineered to be positive influencers of change. Consequently, the delivery model for finance function has also evolved from being cost focused to a model that treats the finance function as a partner in key business decisions. Such a finance function operates from a set of optimal locations and delivers seamless service with a key focus on capabilities and specialization.We call this evolved finance function as ‘Extended Financial Function’. The economic pressures have been rapidly changing the Indian business marketplace.The Indian Industry had grown at a fast pace through the enabling environment, increasing demand and supply of talent and resources. However, the recent uncertainty and economic downturn has forced the need for organisations to drive efficiency across business activities, focus on what they do best and seize new, lucrative business opportunities. But to be able to do that finance must ensure faster, more accurate and more insightful operations and effective compliance and risk management. CFOs have been struggling with their process and models to ensure faster, more accurate and insightful operations in the most cost efficient way while in parallel also trying to ensure effective compliance and risk management.To achieve that modern finance function needs to be both nimble and reliable to respond to a myriad of internal and external pressures. By necessity this also requires CFO to not only transform their roles but also transform the overall Extended Finance Function.
  15. 15. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12Role of CFOs in today’s Environment Success of the Extended Financial Function depends on the ability to dynamically assemble a variety of capabilities regardless of where those capabilities reside geographically or functionally in the organisation into a seamless end-to-end process that is focused on specific business outcomes. As organisations mature and grow they slowly move from level 1 maturity to level 5 maturity. Majority of the organisations have still not reached level five of the Finance Function Maturity curve depicted in figure 2, despite having intentions of doing so. It is important to realize as a first step, where the organisation is currently and where it wants to reach. Source: KPMG’s Role of CFOs in today’s Environment, September 2013 Ongoing evolution of finance function
  16. 16. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 Role of CFOs in today’s Environment Source:“Global business services innovation - optimizing the business model for competitiveness”, KPMG International, 2012 KPMG Extended Global Enterprise (EGE) maturity model “It is critical for organisations to recognize their own process maturity, organisational readiness, and what they realistically can handle” Moving towards the Extended Financial Function is a continuous program and requires serious leadership commitment. Even mature organisations must constantly re- evaluate and re-balance resources for the optimal mix to meet strategic and tactical objectives. Exactly, what constitutes the ‘right balance’ of strategic services and tactical execution will differ by organisation, industry and internal capability. In each case, CFOs will need to take a long-term view of their service models and ensure that their people, process, technology and structures are appropriate to meet the evolving needs of their organisation. Key questions to consider for the purpose: • Can you measure the efforts spend on Controls, Performance Management and Operations and make sure they meet your expectation and the organisation’s culture? • Can you stand firm on the table stakes to enable the finance function to move into a more strategic role? • Are there benefits to using a shared services model, or even outsourcing certain activities? • What opportunities exist to leverage technology to reduce the manual intervention needed on processes and controls? Design extended finance function Identifying organisation maturity is the first step in designing the extended finance function.The next step involves in detailing out the design of the operating model. It defines the major business capabilities required to execute organisations business strategy; and how each capability is linked and further designed in terms of three components (Process,Technology, and People) to drive efficiency and effectiveness. See figure below
  17. 17. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14Role of CFOs in today’s Environment “In an optimal finance delivery model processes, people and systems are arranged to achieve optimum efficiency and effectiveness for a defined business model” Subsequent to defining design of operating model, organisations typically formulate standard processes across business units. In our experience, organisations that adopt and enforce standard data definitions, along with common processes and a consistent data platform can provide their organisations with more precise, multidimensional snapshots of performance. Equally important is to assign process ownership at a granular level to each business unit. Process ownership typically allows enforcement of established process standards and enables stricter control over the design and execution of financial processes.Well defined ownership also makes it easier for companies to implement consistent process and data improvements, preparing the organisations for growth initiatives. Identifying location for setting up Extended Financial Function is also critical.Technology has made the world boundary less enabling companies to locate their operations and leverage skills virtually anywhere in world. Identifying a location that minimizes costs, increases efficiency and is easiest to expand in would ensure that finance function would optimize economics of the global enterprise. Besides the three key decisions mentioned in the sections, some key questions that need to be asked during the design are: • How do you develop a compelling finance vision? • What is the organisation ability to absorb change? • How do you establish an appropriate baseline? • What system changes and resources will be required for realizing the operating model? • Does operating model designed enhance service delivery and minimizes risk? Source: KPMG’s Role of CFOs in today’s Environment, September 2013 Delivery model design levers
  18. 18. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Implementing extended finance function Once the future state of the finance function is determined, it is important that it is implemented in a thorough manner. Paying attention to how the EFF is executed is as important as the plan itself.Transforming the EFF is a complex prospect loaded with potential to disrupt business and harm relationships with affected employees and other stakeholders. Realistic business case –There may be a tendency for organisations to try to achieve too many things in too little time. Such an ambitious effort may at times be counter-productive leading to loss of precious time and money with sub-optimal results. Before embarking on the finance function transformation, it is important to establish a realistic business case through engagement with leadership, and arriving at consensus among all stakeholders. It is also important to estimate the required costs and resources for the purpose and allocate the same accordingly. Assigning a dedicated team – It is important to invest in building the right team with appropriate skills and keeping them motivated.While CEO and CFO should provide a strong tone at the top, it is imperative to assign a dedicated team for implementation. Organisations cannot expect transformational changes without equipping their teams with necessary skills, knowledge and technology. Communication Management – A transformation effort is successful only when there is a communication management framework put in place. Assigning change agent networks/’champions’ to augment and support leadership will ensure broad based participation and ownership from organisation. Enabling a communication strategy and plan allows for a clear/ credible, targeted and timely exchange of information to facilitate awareness and understanding, and ultimately stakeholder buy-in. Getting governance right – In our experience, leading cause of organisations failing to realize transformation dream is that they have not backed implementation plans with appropriate governance structure and decision making methods. Conversely, organisations that adopted effective governance mechanisms were able to transform finance function more rapidly than those that didn’t. In designing the new operation, finance leaders should pay close attention to the details of its governance, which can be much more difficult to deal with once the finance function is established. While effective implementation is crucial, it is equally important to not succumb to “analysis paralysis” that could doom the new model’s prospects for success before inception. Companies should recognize that they likely will not get things right at the outset. Rather, they should build in the expectation that the finance function will evolve for the better over time and design processes to facilitate continuous improvement.That way, the company can help ensure that it will continue to derive maximum value from its finance shared service operations, now and into the future. 15 Role of CFOs in today’s Environment Source: KPMG’s Role of CFOs in today’s Environment, September 2013 Critical Success Factors for a successful implementation
  19. 19. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Key obstacles in implementation of extended finance function In our experience, key obstacles that can complicate successful deployment of even the best laid implementation plans. It is important to keep these in mind and putting together a mitigation plan in place. Unrealistic expectations – Organisations may sometimes demonstrate unrealistic expectations in their desire for cost reduction, transformation, and innovation from their finance function. Such unrealistic expectations may lead to conflict with the finance function. It is therefore important to manage expectations through have a thorough communication plan, getting stakeholders buy-in and setting time bound goals for the function. Lack of proper planning –There may be many changes that an organisation might want to implement. But moving a lot of changes at once without understanding the ramifications may result in cost increase, and loss of valuable time. Before embarking on a radical change, it is critical for organisations to recognize their own process maturity, organisational readiness, and what they realistically can handle. So, in short “plowing ahead” might be a viable option; but in the long term, much will be lost by not thinking things through. It is therefore important to temper expectations while embarking on this long term journey. Differing stakeholder views – If there aren’t mutually shared goals, conflicts might arise between the organisation and the finance function. It is therefore important to have industry benchmarks on performance, setting clear goals for the function and employing good governance to manage the function. It is important to avoid conflict through various measures. Lack of commitment – No transformation exercise can be successful without commitment from senior leadership. Finance leadership needs to demonstrate a clear and continual commitment to change, depicting why change is necessary, including the consequences of not changing. Specific and evolving responsibilities for sponsors of the change need to be identified and executed to maintain leadership visibility. Neglecting change management – Any change is usually met with resistance from people and a well planned change management approach can be a key to success of any transformation exercise. A proactive change management approach is needed to mitigate the people- related challenges (e.g. resistance to change), and to capitalize on enablers (e.g. a sense of urgency to do things differently). A communication strategy and plan allows for a clear/ credible, targeted and timely exchange of information to facilitate awareness and understanding, and ultimately stakeholder buy-in. Cost and time overrun - Successful change requires a thorough plan with major milestones in the finance transformation being balanced in a way that creates ‘wins’ (motivators and sustainers) along the way. Nevertheless, due to unforeseen circumstances or certain inefficiencies, many times cost and time overrun are part of the process. Certain flexibility in terms of cost and time needs to be in-built in the plan to allow for reasonable buffer. There is also a need for building in contingency plan in case the over-runs are beyond the predicted limit. Lack of quality resources – Organisations cannot maintain the same people with same skills, and expect them to lead transformative change.True changes require new investment and significant work in processes, talent, and technology. While the executives, stakeholders, and project team may know their organisation well, outside advisors with the experience and knowledge of marketplace should be trusted to deliver organisation needs.There may also be need to evaluate the possibility of hiring experts from outside or up-skilling the existing resources. 16Role of CFOs in today’s Environment
  20. 20. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Role of CFOs in today’s Environment 17 People management CFO - Leadership success profile Till a decade ago, the role of the CFO or the Finance Head was managing - accounting, working capital, inventory, capex and cost control.Today, the role of a CFO requires him/ her to be part of a board, manage investor relations, interact with bankers, regulators & policymakers.The CFO is also a strategic partner to the CEO and a torchbearer for sustainable financial growth. Given the criticality of the CFO role, organisations are focusing on building a talent pipeline to address the succession challenges for the CFOs role. KPMG research indicates that the ingredients for successful CFO succession planning include - enhancing technical skills and developing the following set of competencies in future finance leaders: • Strategic leadership: the ability to envision, create a compelling business case for change and identify critical success factors and potential obstacles to change. And also, the ability to translate the organisation vision into long term strategic objectives through effective mobilization of finances, efficient pricing and optimizing the value chain. • Stakeholder management: the ability to collaborate effectively, influence & negotiate effectively to create win-win situations for the organisation & the external stakeholders i.e., bankers, investors, policymakers etc Organisation imperative “Cash is king” in today’s challenging business environment. Organisations with sustainable growth plans, strong balance sheets, well managed cash flows and large cash reserves are viewed favorably by stakeholders. Therefore, the role of the CFO to manage these challenges in todays’ complex business environment has become the key to organisational success. In order to manage the dynamic business environment, organisations need leaders who can adapt and demonstrate “FAR” (Flexibility, Agility and Resilience): • Flexibility – demonstrate flexibility to manage changes in market dynamics. Financial rules and policies need to be designed to address needs across different geographies, cultures and markets. • Agility – the ability to take prudent long and short term decisions and address organisational goals in the context of highly volatile financial markets. • Resilience – the ability to manage “courage under fire” for over sustained durations. Given that, Finance leaders are often under immense pressure while making long term and short term decisions it is important to build resilience. The million dollar question is …What are constituents for a successful CFO?
  21. 21. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18Role of CFOs in today’s Environment • Customer focus: ability to understand current and future customer needs (both internal and external customers) and provide solutions. • BuildTalent: ability to foster talent development, i.e., build capabilities amongst identified of finance colleagues and groom potential successors. • Operational Focus: ability to execute business plans and ensure timely delivery through diligent planning, resource utilization, process efficiency and regular review.This includes the ability to achieve high degree of process efficiency i.e., payment processing, receipts, taxes etc and ensuring adherence to them. Building for the future Succession planning is a long term program and needs to begin with recruitment; i.e., people for managerial roles should be on-boarded if they display not only competencies required for the immediate role but also display potential for higher roles. The role of a CFO being complex, diversity of experience is the key while grooming any person for the role. Development of people for the CFO role necessitates movement of the identified personnel through various roles like accounting, treasury operations, manufacturing process/ supply chain, IPO or M&A experiences, and strategy. Gradually expanding the scope of activities is important for transforming the finance executive to a potential CFO. The ability to create an impact and influence decision making at the highest levels is a core competency the potential CFO must develop.This can be achieved only when the budding CFOs gains exposure in broader business and commercial aspects of the organisation.The budding CFOs must be provided enough opportunities to interact with the CEO, the Board and external stakeholders like the banks and investors, so as to build equity and credibility with them. Credibility is built only when these incumbents are able to display strong pertinent views on the business, over and above the finance related issues, which they are in any case, expected to be an expert at. A credible CFO is more likely to be seen as a potential CEO. However, there may be instances where the Board may be reluctant to elevate the CFO to the CEO role given that two critical roles would be managed by new incumbents, i.e., the erstwhile CFO as the CEO and the replacement for the CFO. Hence, organisations may run the risk of losing high performing CFOs, particularly if such CFOs display strong potential and aspire for the CEO roles. In such instances, organisations have to adopt a multi pronged approach to retain and at the same time, continuously motivate their high performing CFOs. An organisation’s approach may comprise a mix of: • Opportunity for professional development • Enrich role and set stretch goals • High degree of autonomy Like in the case of succession planning for the CFO, there cannot be a ‘one size fits all’ approach for career management of an incumbent CFO. Organisations need to assess the aspirations, potential of the CFO and its own capacity to meet the latter’s growth needs while drawing up a career management plan for the incumbent CFO.
  22. 22. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Role of CFOs in today’s Environment 1. The Economist,“Data, data everywhere,” Feb. 27, 2010 2. KPMG article, 2009 http:/ /www.kpmg. com/EU/en/Documents/does_business_ intelligence_whole_story.pdf 19 Data analytics - Right information, Right hands In the current scenario of financial turmoil, data analytics has shot up in the executive agenda. Finance executives want higher-quality information and better analytics so that they and their coun-terparts in the lines of business can make better, timely, and informed decisions. According to trend analysts, by 2013, companies will be spending upwards of USD 60 billion on analytics capabilities. Increasingly, companies are finding that financial investment does not necessarily lead to greater insight or business value and analytics has its own traps and pitfalls. It’s been observed that project sponsors and managers can fall easy prey to the following traps: • Business Intelligence (BI) might be misunderstood to be just a quicker and more efficient way to deliver information that is spread across different spreadsheets. • Objective of implementing BI at a company may be unclear.Without well defined objectives, project teams may agree to incorporate additional requests leading to a delay in the project.This increase in time and cost, may risk executive support for BI. • Business stakeholders may not understand the complexities involved for a successful BI. Even when a BI project results in a significant technical achievement it can still be useless for business if it does not focus on the right information. To help deliver relevant outcomes, BI project owners should ensure that ownership of the project lies with business, with technology in a supporting role. How others have benefitted Our experience shows that whilst some companies may have set up comprehensive data infrastructure, they still run the risk of lacking useful insight. During recent financial crisis, KPMG worked with a client that found themselves unable to properly explain the sudden and unexpected volatility in key cost lines. Combined with a general failure to notice poor performance of key indicators in time to take appropriate decisions, the company was ‘losing’ more than USD 50 million in revenues. Our analysis showed that the key reason for this was the fact that despite having several hundred performance measures the organisation lacked a finite set of measures to form the core of their performance management strategy and provide broad insight into the business.2 At another KPMG client, implementation of BI, resulted in reduction in manpower costs for analytics. Earlier, real time analysis was tricky and detailed level analysis took hours to complete as queries were fired on data warehouse on real time. However, now with the help of analytical cubes which are pre-calculated and presented in a user friendly GUI, users can perform deep- dive analysis on the fly at the click of a button.There is no dependence on IT to provide data dumps for business team to generate reports. “Every day I wake up and ask how can I flow data better, manage data better, analyze data better?” - Rollin Ford, CIO of Wal-Mart1
  23. 23. Other companies are bridging the gap between data, insight and action. For example, Catalina marketing uses data for real-time insight for better customer experience.The company uses a data-store of more than 2.5 petabytes of information onto which it adds in excess of 300 million retail transactions per week.When a consumer checks out with a loyalty card at any one of the 50,000 grocery, drug, or mass- merchandise retail stores in the US, Europe and Japan, insight derived from Catalina’s database triggers promotions and offers based on the customer’s past purchases.The coupons stream out of Catalina’s point-of-sale printers at every checkout lane and within seconds of the transaction are handed to customers along with their receipts. Catalina uses a combination of analytical models and a robust information management infrastructure that leverages non- relational database techniques.3 Another leading e commerce company is using big data to their advantage. Working closely withTeradata to deliver big data analytics to more than 7,500 users, eBay on-boards more than 50 terabytes of new information each day in response to millions of queries. eBay has built out three separate analytic environments to serve their users: a six petabyte, 500+ concurrent-user data warehouse designed for structured data and SQL access; a 40 petabyte, 150 concurrent-user data warehouse for deep analytics; and a 20 petabyte, five to 10 concurrent-user Hadoop system to support advanced analytic workload on unstructured data. Confirming the exploratory mind-set at eBay, Oliver Ratzesberger, senior director of eBay’s analytics platform recently noted that ‘The metrics you don’t know are expensive but high in potential ROI.’ These huge data stores provide eBay the benefit of ‘Behavioural Analytics’ capability.This allows eBay to use their vast amounts of click-stream data to understand customer behavior.4 Role of technology Business Intelligence systems have been around for decades. Previously, BI systems focused on delivering the ability to analyze data across various dimensions.These systems have predominantly provided descriptive analytics (which is a depiction of past performance), businesses are now demanding the capability to predict outcomes. Looking at market trends, we note that some important guidance and possible solutions are emerging.These new trends relate to the ability to make sense of unstructured data, to handle large volumes of data, and to use new visualization tools. For example: • Complex Event Processing (CEP) systems can be made to process large volumes of data as well as different data types.These CEP’s can be used to detect anomalies or patterns that can in turn trigger corrective actions. • To run focused and direct marketing, social media can be used to judge customer reactions for different products. • TheWall Street Journal’s sentiment tracker is a good example of a tool that gathers information viaTwitter and uses it for pictorial data. • An increasing number of organisations are leveraging Information Management technologies that are designed and built on inexpensive commodity hardware, rather than relational database systems that are often considered to be prohibitively expensive. • The Advanced and Predictive analytics software market has also evolved and now includes new offerings such as industry-specific packaged solutions which offer a quicker time-to-market. • Other database technologies like Massively Parallel Processing (MPP), shared-nothing architectures and in- memory analytical systems are also seeing increased adoption. However, while such systems handle large volumes of data efficiently, they are generally limited in their ability to handle unstructured data. • Consumer-oriented features like interactive visualization and mobile are also contributing to the increased interest in big data. It seems clear that many of these organisational trends deal with the increasing recognition that an empowered information management capability is critical to business success. Not just technology, but a paradigm shift In these turbulent times, leaders are looking for new ways to align their teams to meet emerging business requirements. A strengthened finance and business partnership model that delivers better business value through assessment in gaining increased popularity in the market. This translates into a significant shift in capability requirements for finance professionals.The change is not with regard to routine activities, but, rather, the broadening and enhancement of skills.This is required to deliver higher value-added support for business. And it is not just analytical skills that are required. Both technical and enabling competencies are required.To carry out a broader business mandate, finance teams should consist of professionals with soft skills. For instance, stronger collaboration between finance and IT may be needed to convert business leaders’ requirements into efficient and timely sources of true business intelligence. So, it follows that finance transformation involves more than just structural change.The new analytical and business partnering activities require new skills, mindsets, and behaviors. KPMG has developed a proprietary Business Analytics Maturity model that can help organisations to plot their capabilities and assess their plans against a test group of leading peers from around the world.The model, summarised below, not only helps organisations to determine what they should be aspiring towards, it also provides a guideline to help decide where resources should be allocated and at what level. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20Role of CFOs in today’s Environment 3. Information Management Magazine, 2011 http://www. informationweek.com/global-cio/interviews/catalina-marketing-aims- for-the-cutting/231600833 4. Information Management Magazine, 2011 http://www.information- management.com/issues/21_5/big-data-is-scaling-bi-and- analytics-10021093-1.html?zkPrintable=true.
  24. 24. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21 Role of CFOs in today’s Environment Data analytics maturity model Source: KPMG’s Role of CFOs in today’s Environment, September 2013 While there seems to be ample evidence that organisations that base their decision making on a strong analytical foundation tend to outperform their peers, it would be folly to assume that business analytics is the silver bullet that will solve all business issues. That said, our experience and research clearly shows that it only takes a small step change in the way that analytics is approached to make a significant difference in the overall business result. Ultimately, our research reinforces the widely-held belief that there is real value in getting business analytics right.5 5. KPMG in the UK“BusinessAnalytics Research, 1 June 2013
  25. 25. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Leveraging Business Analytics • Today, organisations are evaluating new business models, investment opportunities, and other strategic decisions.With the right information, CFO can well lead the charge on business strategies. • Finance is uniquely positioned to be the strategic information leader as he has detailed financial information of the organisation. The CIO and CFO partnerships determine the overall opportunity for efficiencies and access to the right information. Simplifying access to information through technology creates opportunities for CFOs to take more strategic roles in the business.To reduce enterprise costs, drive growth, and increase returns an understanding of information flow from creation to decision makers is required. • The CFO along with help from functional leaders can define a road map for change.Technology enhancements must be part of a holistic technology portfolio analysis to support the organisation’s overall strategy. • The Intelligent Enterprise philosophy puts information first, moving beyond a traditional “Process” focus. Greater flexibility is provided as organisations adapt to changing business conditions in a coordinated fashion rather than just replacing or adding to silos of data.The strategy should target the information necessary to enable decisions and should utilize cross-functional groups that include finance, IT, and operational participants to reduce rework in delivered solutions. 22Role of CFOs in today’s Environment In conclusion In the current scenario, changes are happening not only in the application of data analytics, but also in the way that soft skills and technology are deployed to address the demand for insightful and relevant analytics from the business. Unfortunately, many executives tend to concentrate their efforts only on technology in the belief that by acquiring the same technology as market leaders, they can instantaneously leap into the ‘premier league’of data analytics. The reality is however very different. Technology is more of an enabler rather than a means to an end. Getting relevant information from data analytics involves creation of appropriate governance, operating, and process models to facilitate the transformation towards an information- led organisation.
  26. 26. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. About Indian Chamber Of Commerce (ICC) Founded in 1925, Indian Chamber of Commerce (ICC) is the leading and only National Chamber of Commerce operating from Kolkata, and one of the most pro-active and forward-looking Chambers in the country today. Its membership spans some of the most prominent and major industrial groups in India. ICC is the founder member of FICCI, the apex body of business and industry in India. ICC’s forte is its ability to anticipate the needs of the future, respond to challenges, and prepare the stakeholders in the economy to benefit from these changes and opportunities. Set up by a group of pioneering industrialists led by Mr G D Birla, the Indian Chamber of Commerce was closely associated with the Indian Freedom Movement, as the first organised voice of indigenous Indian Industry. Several of the distinguished industry leaders in India, such as Mr B M Birla, Sir Ardeshir Dalal, Sir Badridas Goenka, Mr S P Jain, Lala Karam ChandThapar, Mr Russi Mody, Mr Ashok Jain, Mr.Sanjiv Goenka, have led the ICC as its President. Currently, Mr. Shrivardhan Goenka, is leading the Chamber as its President. ICC is the only Chamber from India to win the first prize inWorld Chambers Competition in Quebec, Canada. ICC’s North-East Initiative has gained a new momentum and dynamism over the last few years, and the Chamber has been hugely successful in spreading awareness about the great economic potential of the North-East at national and international levels.Trade & Investment shows on North-East in countries like Singapore, Thailand andVietnam have created new vistas of economic co-operation between the North-East of India and South-East Asia. ICC has a special focus upon India’s trade & commerce relations with South & South-East Asian nations, in sync with India’s ‘Look East’ Policy, and has played a key role in building synergies between India and her Asian neighbours like Singapore, Indonesia, Bangladesh, and Bhutan throughTrade & Business Delegation Exchanges, and large Investment Summits. ICC also has a very strong focus upon Economic Research & Policy issues - it regularly undertakes Macro-economic Surveys/ Studies, prepares State Investment Climate Reports and Sector Reports, provides necessary Policy Inputs & Budget Recommendations to Governments at State & Central levels. The Indian Chamber of Commerce headquartered in Kolkata, over the last few years has truly emerged as a national Chamber of repute, with full-fledged State Offices in New Delhi, Guwahati, Bhubaneshwar, Patna and Ranchi functioning efficiently, and building meaningful synergies among Industry and Government by addressing strategic issues of national significance. Dr. Rajeev Singh Director General Indian Chamber of Commerce 23 Role of CFOs in today’s Environment
  27. 27. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. About KPMG in India Acknowledgement KPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. Our professionals leverage the global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. KPMG in India provide services to over 4,500 international and national clients, in India. KPMG has offices across India in Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Kochi, Hyderabad and Kolkata.The Indian firm has access to more than 7,000 Indian and expatriate professionals, many of whom are internationally trained.We strive to provide rapid, performance-based, industry-focused and technology- enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment. KPMG is a global network of professional firms providing Audit, Tax and Advisory services. KPMG operates in 156 countries and have 152,000 people working in member firms around the world. Our Audit practice endeavors to provide robust and risk based audit services that address our firms’ clients’ strategic priorities and business processes. KPMG’sTax services are designed to reflect the unique needs and objectives of each client, whether we are dealing with the tax aspects of a cross-border acquisition or developing and helping to implement a global transfer pricing strategy. In practical terms that means, KPMG firms’ work with their clients to assist them in achieving effective tax compliance and managing tax risks, while helping to control costs. KPMG Advisory professionals provide advice and assistance to enable companies, intermediaries and public sector bodies to mitigate risk, improve performance, and create value. KPMG firms provide a wide range of Risk Consulting, Management Consulting andTransactions & Restructuring services that can help clients respond to immediate needs as well as put in place the strategies for the longer term. The KPMG team which contributed towards the content presented in the document comprises of Nirav Patel, Ashish Chawla, Chiradeep Bhattacharya, Amit Roongta,Vyom Krishna and Nidhi Dandona kpmg.com/in 24Role of CFOs in today’s Environment
  28. 28. kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in India. Latest insights and updates are now available through our KPMG India App. Download the app on your smart device from Google Play | App Store KPMG Contacts Pradeep Udhas Partner and Head Markets E: pudhas@kpmg.com T: +91 22 3090 2040 Ambarish Dasgupta Partner and Head Management Consulting E: ambarish@kpmg.com T: +91 33 4403 4095 Rajiv Gupta Partner Financial Management & Outsourcing Advisory E: Rajivgupta@kpmg.com T: +91 124 307 4586 JehilThakkar Partner Financial Management & Outsourcing Advisory E: jthakkar@kpmg.com T: +91 22 3090 1670 ViralThakker Partner Financial Management & Outsourcing Advisory E: vthakker@kpmg.com T: +91 22 3090 1730 Indian Chamber of Commerce (ICC) Contacts Dr. Rajeev Singh Director General 4 India Exchange Place Kolkata 700 001 T: +91 33 2230 3242 F: +91 33 2231 3380/ 3377 E: ceo@indianchamber.net W: www.indianchamber.net

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