By Giridhar Sanjeevi, Executive Vice President & CFO, The Indian Hotels Company Ltd
I hold an annual conference of my finance folk from around the world each year. A few years ago, I did an exercise with the whole of the finance group – this was in 2017. I divided the attendees into groups and asked them to imagine a world for my company Indian Hotels Co Ltd (IHCL) in 2022 – like a newspaper report on April 1, 2022 in terms of the many successful outcomes that the company would have achieved. Most importantly, the newspaper report in the future was not just about what IHCL had achieved five years forward, but what the newspapers talk about the role of finance in making this happen. Try this with your teams – and ask them to come up with a newspaper report for April 1, 2028. And ask the groups to present in fun ways.
Having done this exercise in different organisations over 20 years, there are a few themes which emerge, irrespective of the organisation.
The First is the Timeless Message on the Ethos of the finance function. Many organisations will word this differently but the essence is that of “Being Great Business Partners, driving Great Business Performance.” As simple as that, and as profound as that. How do you be Great Business Partners and how do you drive Great Business Performance?
The virtuous cycle: All the elements below must come together as a virtuous cycle
Controls and basic services: At the heart is Controls and basic Services – simple things like Order to Cash, Purchase to Pay, Record to Report, and similar matters that keep the wheels of the organisation humming. And yet, we have seen finance functions spend a disproportionate amount of time in getting this right. To be a great business partner, finance teams need to ensure that say 90% of the time is spent on value added activities, and just perhaps 10% on the Controls and Basic Services. But get this wrong, finance teams spend a huge amount of time on this, thereby limiting time to be great business partners.
What has changed in the future of finance are efficiencies in managing this process well. At IHCL, as a multi-unit organisation, we are spending a significant amount of effort in upgrading our ERP (our current version is over 15 years old), with a focus on shared services, document management, RPA, and the like to ensure that the routine stuff is efficiently handled. Master data management is a major effort here and simplifying our interactions with vendors and customers (esp in the new GST era) is a major focus.
One of the big challenges of listed companies today is the enormous SEBI and other statutory compliances. Here we are investing in third-party software that sits on top of our ERP to extract and provide information to ensure 100% statutory compliance and reporting.
Right information for insight: With the basics out of the way, the finance team’s fundamental job has to be to provide insights. Not historical, look back monthly reporting, but forward-looking predictive stuff. Forward-looking business insights require data and information from multiple sources. In my role, I manage the Revenue and the Procurement function beyond finance.
Revenue function is critical in that it seeks to ensure that hotel rooms are sold at optimal prices – without leaving rooms empty or underselling. We have nearly 190 hotels in operation, opening two hotels a month – and we have to ensure that each day, we optimise revenue for every hotel by each room category (surely a basic room is differently sold from a luxury suite) and rooms unsold is lost revenue.
Optimising the occupancy and the rate at a hotel level depends on the micromarket – which is not just a city, but a suburb. In the city of Mumbai, the Bandra suburb has different dynamics than the South Mumbai suburb. And what happens with us is influenced by what happens at other competing hotels in the competitive set – are there conferences or weddings on those dates and many other such factors?
Given this, we have invested in Revenue software which pulls in micro market demand information dynamically – multiple times a day and keeps adjusting pricing for different room categories for a hotel. Such software can plug in the pricing decisions into the booking engines so that customers who try to book can do so at these prices. As you can imagine, such revenue optimisation tools use AI algorithms to get this right. Fortunately, this software can be subscribed to. Getting this right is critical for revenue and profitability. Always forward-looking, predictive.
With multiple sources of data, a major focus for us is to democratise data – and we are in the process of setting up a data lake. This data lake will ensure that all the relevant data is in one place and different departments can take whatever slice of data to get insights into performance.
Providing these insights to the business allows the finance team to build respect with the business – with good insights, the business recognises that the finance teams understand the business. And I encourage my teams to work in a way where they maximise time on understanding the insights and discussing these with the business teams.
Right judgment for decision making: Once respect has been established in terms of providing the right insights – the finance teams get a seat on the table on decision making on choices that an organisation must make – on say pricing, on say make or buy or so many other decisions.
Decision support systems become very important. When I was at a global consumer organisation, we spent more than GBP 2 billion on advertisement and sales promotion expenses. This was a very significant investment. A&P effectiveness was critical. Finance teams played a great role in a process called the GAME:
Goals – What are the key consumer questions that we are trying to address and how do we translate these into tangible consumer goals which lead to some sales outcomes? Defining that goal was important.
Activities – What are the activities on which A&P spends would be required to drive activities that lead to better sales outcomes? And this is where the money was spent.
Measurement – Having spent the monies, did you get the sales uplift as a one-off, with sales going back to the old levels post the promotion or did you get a permanent uplift in sales? Measuring these was very important.
Evaluation – And what does the measurement suggest? Are there things that we should stop doing? Should we start something?
These are market-facing measurements and the goal is always to seek out new growth drivers – to see what promotions work well in different situations. Before spending monies, scenario analysis has been useful in working out alternate outcomes possible and thereby providing some gating for spending.
The ability of the finance teams to work with the sales & marketing teams in pulling together cogent data that demonstrates the effectiveness of spending and new growth drivers is a key imperative.
Right engagement for influence: Too often finance teams work in silos. The effectiveness of the finance teams is considerably enhanced when they work hand in hand with the business folks at the trenches. Constant engagement with empathy is important, so that the finance folks are seen as being there as the sales teams work hard to drive sales or production teams work to produce stuff. Great engagement builds trust. With business complexities, one of the biggest implications is the composition of the finance teams. I have always ensured that I have strong operating finance folks as part of my teams. The MIS teams are getting restructured to bring in data scientists; I am open to bringing in operating folks into my team. All these help to enhance the quality of engagement. A core objective is to ensure the operating teams consider the finance team as “one of us”.
Right holding to account: A core part of the finance team is also risk management and the ability to say “No”. Too often finance teams say “No”. My boss says that a CFO is many times a CF-No. There are two aspects here. To use football parlance, a CFO has not just to keep score but to score goals. This means that finance teams have to enable risk-taking. No risk, no gain. Capital allocation and building resilience to take measured risks is a critical function of the CFO. In a VUCA world, understanding the risks is a critical imperative. The Covid pandemic and the Ukraine war have resulted in significant supply chain risks. The rapid pace of digitisation, AI, and other developments threaten business models. Making sense of the developments and allowing strategic choices to develop, capital allocation to be done and monies invested is now engaging CFOs significantly.
The CFO, at times, has to be a CF-No. Exercising this has to be done very carefully. Done too often, the finance teams become a blocker. But if the teams have done enough to provide insights, engage well with the business, and develop trust – saying a “No” is accepted as sage advice by the business. Getting this right is an art. But this is something that finance teams now have to constantly work on.
In the final analysis, finance teams need to remember the basics – how to be a great business partner driving great business performance. The elements highlighted above are some very simple things that have to be done to become great business partners. While times have changed and complexities have changed, these timeless imperatives have not changed.
