By Lalit Kasliwal, CFO, Tata International
Tectonic shifts have taken place in the global business and risk environment over the years. The dynamic and sometimes disruptive business landscape mandates robust risk and compliance management. Organisations are exposed to fragile supply chains and appreciate the criticality of agile business continuity planning and risk management strategies. Global businesses work within the compliance of a myriad of regulations and any non-compliance can prove to be expensive.
Technology and digitisation are today the backbone of global risk management. Data is the new oil and intelligent analytics provide invaluable insights to the organisation. Real-time data and collaboration are imperative for global conglomerates like Tata International. The right data management strategy improves the organisation’s consumption of available information in support of its risk management strategy.
Tata International is a global trading and distribution organisation with manufacturing capabilities in select businesses and a footprint across 29 countries. We partner with various stakeholders for growth. Our journey is fascinating, given the incredible diversity of our businesses. Each business operates in a unique landscape of products, markets and regulations. Technology helps us navigate these complexities with dexterity to proactively identify, assess and mitigate risks, and ensure resilience and sustainable growth.
More the Risk, More the Returns?
Embracing risks is crucial for survival, as risks are inherent in every aspect of business, whether financial or non-financial. As Mark Zuckerberg says, “The only strategy that is guaranteed to fail is not taking risks.” However, this leads to a fundamental question: should businesses pursue risks solely in pursuit of higher returns?
Going beyond the pursuit of returns alone, businesses in today’s context should focus on Return of capital and not just Return on capital. Business is about taking calculated risks and managing risks to achieve business goals. Risk exposures must be strategically crafted, with a comprehensive risk management framework in place.
We piloted technology-enabled compliance way back in 2015, starting with an India-centric compliance tool that has now been implemented across the global organisation. The tool aids informed decision-making and swift response to emerging risks. The digital solution facilitates seamless communication and collaboration between dispersed teams, ensuring a coordinated approach to risk management. A bird’s eye view of the company’s global litigation landscape, with real-time updates from various judicial forums, facilitates qualitative analysis, while spend management helps balance litigation costs. A mobile app version makes access and updates available on the go.
The 5 C’s of Risk Management in the Digital 5G Era
There are 5C’s of risk management that organisations must contend with in global operations, namely Country risk, Currency risk, Commodity risk, Counter-party risk, and Community risks. These encompass a spectrum of challenges, each with the potential to make or break an organisation.
To mitigate these risks, various technological tools and platforms can be used. Tata International is set on the digitisation journey across the various components of financial management, encompassing working capital, liquidity, cash flow, and forex management, amongst others.
Workflow management tools allow for the responsibility matrix to be integrated into the system. Standard operating processes mandate approvals and a workflow system ensures that all approvals are seamlessly a part of the operating system.
We track currency through a platform that cuts across businesses and business entities. A workflow mechanism and integration with multiple ERPs helps fetch real-time data across fund-based and non-based instruments. This ensures optimal utilisation of credit facilities and governance without any manual intervention for the collation of data.
The forex hedge reporting system allows visibility of transactions with multiple authorised dealers to the central treasury. The tool includes post-transaction documentation and management reporting functionalities. The workflow straddles an approval matrix enabled initiation of a request for hedging to record the hedges undertaken.
Finance today must act not only as a control function but also as a partner offering innovative solutions to address the needs of the organisation. Optimised cash flow management is a core requirement of any business and we have pioneered a cash pooling solution. We have implemented a surplus cash pooling system across our trading geographies that has helped us accrue substantial savings. Tata International won the award from the reputed financial magazine ‘The Asset’ in FY 21-22 under two categories across Asia for this solution.
One of the biggest risks that a trading organisation is exposed, is the risk of a counterparty failing to meet their contractual obligations. Our global presence makes it imperative for us to have a rigorous counterparty risk assessment and a robust contract management process. An end-to-end automation solution supports transparency in this process without manual intervention. The tool not only allows storage of contracts and their underlying obligations in a digital form but also ensures that the obligations are tracked, notified, and completed. By quick access to standard clauses, incorporated clauses, previously reviewed versions and more, risk evaluation becomes simplified.
Trading companies operate on limited margins and hence commodity risk management becomes crucial. Fluctuations in commodity prices arising due to factors like supply and demand imbalances, geopolitical or environmental reasons can disrupt supply chains and impact profitability. Remaining updated on global news and information is a crucial part of our business. Technology platforms can help aggregate and analyse data across the entire value chain very quickly, enabling informed and timely decisions. Data analytics and market intelligence tools coupled with a diversified portfolio and strategic sourcing practices help mitigate the impact of commodity price fluctuations, ensuring stability in operations and cost management. This proactive approach enables us to adapt swiftly to changing market conditions and maintain a competitive edge.
Digital Platform: The Way Forward
Technology and digital solutions play a crucial role in our operations and growth, enabling us to stay agile and meet the evolving demands of our business sectors and customers. I believe in ‘Digital 5G for 5C’ mantra, using advanced technology and digital solutions as keys to sustainable growth in a disruptive environment.
Global risk management is about embracing the inevitability of risks and proactively addressing them. It requires a forward-thinking mindset and a commitment to adaptability.
We are working with technologies such as blockchain to facilitate transparency and seamless information flow among stakeholders. Leveraging machine learning and artificial intelligence to automate repetitive tasks, will allow our resources to optimally focus on qualitative analysis, and benefit from the 80-20 principle. We are committed to enhancing efficiency through continuous evaluation of emerging technologies.
Tata International believes that the future calls for prioritising customer satisfaction which can be achieved effectively through technological advancements, with digital risk management encompassing all stakeholders.