By P Ramakrishnan, Vice President – Corporate Accounts & Head Investor Relations , Larsen & Toubro Ltd
The future isn’t a bit more of the past, and the finance we see tomorrow isn’t going to be a bit more of what we saw yesterday. Time was when the CFOs could pat themselves on the back if they carried out the reporting functions satisfactorily.
Today, mere reporting won’t cut the mustard (or) isn’t going to be enough. CFOs need to be able to leverage finance to advance business interests, and the better business enabler you are, the more feathers will adorn your cap. Yesterday’s hard-working number cruncher is today’s smart working collaborator to leadership strategy, helping to execute “transformation”, foster innovation, and drive growth. While doing all this, one can’t afford to gloss over the basics.
The finance function still needs to pursue prudent capital allocation and maintain financial discipline. As the role expands, so does the canvas of responsibility. Also, newer challenges keep surfacing, e.g., ESG reporting, cyber/ransomware threats, and increased regulations. The CFO is also responsible for promoting and maintaining the highest ethical standards across the organisation, ensuring full compliance with extant regulations and accounting rules.
The role of reporting the past has metamorphosed into using past data and predicting the future. In our complex, inter-connected VUCA world, it becomes more challenging to interpret current and past data to arrive at possibilities of the future. It is here, where the use of technology can aid the finance function to interpret events and data and predict future possibilities. As the function tries to strike a balance between chasing growth and controlling costs, the right way to manage this would be the extensive use of data analytics. Needless to say, an outcome from a data-driven decision also needs to be complemented with an intuitive and emotional mindset.
While blockchain, Artificial Intelligence, Machine Learning, and edge computing have been puffed by media hype, it is important to make better use of the existing data by leveraging the features of the current enterprise resource planning (ERP) and customer relationship management (CRM) systems. If one can leverage the organisation’s database that is not fully utilised currently, with appropriate application interface tools, the output itself can be a major source of competitive advantage for the organisation. Lastly, as the function moves into a more data-analytic mindset, talents who demonstrate more intellectual curiosity than functional domain expertise would be more sought after. The demand for finance resources is now targeting skill sets in data science and analytics procedures rather than expertise in the traditional accounting roles. Today in many organisations, the CFO is driving the technology and digital transformation initiatives across the various functions.
As organisations embark on the path of digitised automation, the result is a welcome combination of process duplication avoidance and faster turnaround leading to improved productivity and agile decision-making. In the case of Larsen & Toubro, a multi-vertical organisation having different ERP systems, the instance of a single procurement tracking tool mining the purchase data of different businesses enabled significant cost savings as it was now possible for the company to negotiate a better deal with vendors for the higher aggregate volume of procurement.
Similarly, data from the various procurement management systems and CRM portals has enabled the company to track counterparty risks more effectively. There is yet another advantage waiting in the wings. The use of data mining and analytic tools has identified process control lapses and authorisation conflicts, thereby enabling better internal control compliances.
In the case of L&T’s manufacturing and construction businesses, installing sensors in machines and equipment has led to finer data capture and tracking of asset utilisation, and predictive analytics using such data has facilitated minimum downtime. All of these have enabled the company to improve productivity and continue to remain competitive in the current complex business landscape.
In response to the growing need for robust compliance frameworks, the company’s IT function has invested in systems that enable “comply as you go forward”. The IT function has reimagined business processes through the adoption of intelligent process automation. The company is exploring the potential of Generative AI for Knowledge Management, focusing on harnessing its capabilities to aggregate historical EPC projects’ execution learning, enabling new joiners to onboard quickly and become productive by providing them with relevant project execution insights.
As geopolitical tensions rise and cyberattacks on critical business infrastructure become more frequent, the company has taken significant steps to protect the organisation from potential cyber threats. A comprehensive roadmap and metrics to measure cyber maturity across people, processes and technology have been developed to strengthen the company’s overall cybersecurity position.
Another area where data capture and analytics are getting implemented is in working capital management and ESG reporting. Through efficient use of IT systems, project-wise tracking of cash flows is possible. This can be aggregated back to monitor group-level cash flows. A good visibility of daily cash flows enables efficient cash flow planning and resource management. Similarly, on the ESG front, tracking remotely safety compliances at the site and factory floor, measuring and monitoring emissions, energy intensity, water consumption, etc., have now become imperative to assist the company in meeting its stated ESG goals.
The company is getting accustomed to working with digital information as data is substituting lengthy, linear powerpoint presentations that are opaque in the communication of ‘detail’. The finance organisation is building up the talent with the right skill sets of using appropriate technology to innovate, reduce costs, improve productivity, and facilitate the organisation to achieve its strategic goals.
With the right combination of talent and the use of new-age technology tools, the finance function is effectively geared to face disruption head-on and successfully navigate future risks. Tomorrow’s CFO will be a lot more powerful than today with advanced technology at his/her command. But he/she will also be called upon to do a lot more, a lot faster and better.