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Role of Indian CFO

Past, Present and Future

-Siddharth Agarwal

MS12A086

Note – I, Siddharth Agarwal declare that the following document is an original work. References

have been mentioned if used.



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Today's CFOs are juggling more balls in the air and that, too, in front of an audience which is moredemanding and knowledgeable than ever before. Over the years, there has been a significant change inthe role of CFO. It has become more complex and demanding than ever. From being just a chief accountant in the organizational setup to becoming the key decision maker, one who is involved indeciding on the strategies of the organization, the functions have grown far more than what the nameCFO or Chief Financial Officer suggests.

With the change in the competitive environment and market scenario, CFOs are now considered asthe coordinators between non-financial matters and company’s investments and financial processes. In the current scenario of increasing economic uncertainty, a CFO is not only expected to access the past as in accessing the history of company investments but also forecasting the future by predictingcash flows, accessing competitors, global environment and mitigating risks.

As Mrs. P.Alli Rani, CFO of Concor and also the recipient of Best Women CFO award suggest that inthe current scenario, not only CFO must have knowledge of past trends in the industry and currenteconomic situation but also should be able to envisage the future business environment. Hence, onecan say that CFO plays an important role of an all-rounder in any organization.

From being a chief accountant who keeps records of the finances of the company to becoming themain strategist, let’s see how the role of CFO has evolved over the years and what shape is it going totake in future, i.e. the past, present and future of an Indian CFO.

The position of a CFO in the organization setup has been shown in Figure 1.

The Past

Before 1990, the role of an Indian CFO was better known as Chief Accountant or Chief Controller. Asthe industry used to be production oriented, the role of the CFO was limited to purely accounting based. Main focus of CFOs was on maintaining formal accuracy and analysing past performance

financials. The role then was mainly internal or company centric.

The skills of a CFO were limited to accounting and budgeting and technical analysis of the performance of the company.

It was only after the economic reforms of 1991, the era of globalisation came to India and hence therole of a CFO in an Indian company was redefined. Now a CFO was not just an accountant but afinancial specialist who knew the market dynamics and had a better business understanding.

After the year 2001, the CFO took the role of a value creator who strived for cost-efficiency and profitable growth. CFOs went onto spread their knowledge areas beyond the field of finance and

developed understanding about various financial instruments and legal requirements of the business.

It was in September 2003 that ITC head Yogi Deveshwar and Larsen & Toubro (L&T) spearheadA.M. Naik told in a CII seminar dedicated to finance heads that the book-keeper was now emerging asthe conscience-keeper in corporate India.1

Hence, CEOs at two of the country’s biggest conglomerates accepted to have put their chief financial

officers at the forefront of decisions that determine where and how their companies will go in futureand that was the time when CFO’s were seen coming out of their desks and financial papers to standalongside the thought leaders.

Back then, L&T announced that the role of a CFO will now be more of strategic one.

1Press report: www.itcportal.com



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The Present

Today, CFOs are faced with ever-broadened functional responsibilities. The role of a CFO hasstretched beyond what it was in the past. It includes adding strategically important functions such asinvestor relations, value management and most importantly strategy architects. CFOs today have to bemulti-specialists and not just generalists, capable across various functions varying from financial tostrategic to operations.

Never before a CFO’s role been more complex, multifaceted and rewarding. Change of economicenvironment, government regulations, enhanced disclosure norms, greater shareholder involvement,and a day to day changing Indian economy have dramatically changed the role of the CFO.

Besides being a financial expert, today, CFOs can be seen performing in various roles across thelength and breadth of the organization. Some of the important ones are:

1. Strategist- CFOs today are better seen as the chief decision makers who are involved in

building the organizational strategy to implementing it. They are no longer the controller of finances but a business partner.A recent example of this can be attributed to Mr. Rajiv Tandon, CFO, ITC Ltd. It was him

who was involved in the strategic decision of saying no to acquisitions to grow business in theconsumer goods business.ITC, rather than going by acquisitions went on to build its own brand, a better and more cost-effective approach.

This was one such example of many incidents where important strategic decisions involved aCFO. CFOs are increasingly involving themselves in all areas of company management

including strategy selection. The role of CFOs is evolving to what we can call as “Stra tegicCFOs”, linking financial policies to strategy in the context of managing the company.

2. Innovators- Out of the box thinking approach are the new required skill sets for a CFO. With

Intrapreneurship being the top priority among companies so as to showcase a better anddifferent brand from its competitors, the companies want their leaders to take up thechallenge.One of best examples of innovation is by AirTel who asked its vendor and suppliers to sharecosts till the money rolled in from users. This helped Airtel to save huge amount of moneythus giving the spark of innovation from CFO in India.

2

3. Technologists – CFOs used to believe that IT was just another cost centre, but the things havechanged with time. CFOs now understand that with the help of IT they can actually reducecosts. Hence, an understanding of technology for CFOs today is as important asunderstanding the financial details of the company.The finance division at ITC also led the use of information technology (IT) in the hotels business. The company can now track the availability of the rooms at all its properties acrossthe country. This helps not only in revenue maximization but also results in better customer experience and satisfaction. With IT, ITC has better information about their customers andserve them better leading to more revenue generating opportunities.

4. The Conscience Keeper – The Satyam fiasco raised concerns about the corporategovernance and ethics among all the organizations. Governance is about taking the rightdecisions that balance the interests of all the stakeholders. It is the CFO’s responsibility tokeep a check on the financial whereabouts of the organization and make sure that all

transactions are carried out with due diligence.

2The Economic Times, Feb 6, 2011



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5. The People Manager – A CFO can be seen as a people’s manager as his decisions play animportant role on the HR policies of the company. Ranging from the decisions of giving outESOPs to the employees to cutting out on the number of employees are all cost and cashdependent.Infosys gave the option of ESOPs to its employees in 2010. It was the CFO’s job to decide onhow many shares to give and how much the company can shell out.

The role of CFO today may be across various domains but the core around which it is built remainsthe same. He has to make sure that the finances of the company are robust and secured. The requiredskills set now includes an ability to be a strategist, lead change initiatives and prepare value-addedanalyses to enhance the company's value.

The Future

The CFOs role in future will be wider and hence would need additional skill sets to handle it. Theevolution of CFO’s role that is already underway will continue to evolve in the coming years. Thefollowing will be the key factors in the years to come

CFO's role as business strategist and influencer will become more important.

I believe, over the years, Innovation will be an important factor which will create substantialvalue to the organization and will add to the value offerings of the CFO.

CFOs can support innovation in the organisation by giving voice to the trends and patternsthey see in the data. Today, when Indian companies are competing with foreign brands across

the geographies, innovation can prove to be a differentiating factor.

CFOs should be a part of regulation policies development so that these policies are alignedwith the strategies and business model of the organization.

Future CFOs will need to ensure appropriate policies in relation to capital investments andshareholder return, thus balancing risks.

In the days to come, it is evident that competition is going to increase and to be in the race,the companies follow various strategies which on one hand would suggest cost cuttingmeasures while the other would suggest growth. CFO must make sure that the strategies and business goals are aligned.

Understand the drivers of the organization and the power of data analytics which can give

them a competitive advantage

The future roles of CFO would require development of multiple skills; inter domain knowledge andunderstanding of economic scenario. What is clear is that tomorrow's CFO will be a more complete professional. Today’s CFO need to add creativity and vision to their strategic skills to preparethemselves for the upcoming challenges, the competitive world with cut-throat competition.

References:

1. The Strategic CFO - Ulrich Homme, Michael Fabbish, Ervin Schellenberg, Lutz Firnkorn

2. Business Standard

3. Economic Times

4. Cfoinstitute.com

5. Cfoconnect.com

6. The Wall Street Journal Blog

7. Itcportal.com



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FIGURE

LEGEND

External relationship

Internal relationship

Fig 1: Internal and External (Outside the organization) relationship with CFO and other entities

CEO and CFO Frequent interaction and cooperation regarding Strategic Management

CFO and Corporate Centre Potential alignment of business disclosures such as Strategic Planning

CFO and External Entities Relationship between CFO and other external entities such as Customer,

Supplier, Shareholder and Government

CFO

CEO

BOARD OF

DIRECTORS

EMPLOYEESCORPORATE

CENTRE

SUPPLIER

GOVERNMENT

SHAREHOLDER

CUSTOMER

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