1. 6 CFOCONNECT  June 2015
A
FutureOfficer
ON MY MIND
Technology is an
enabler for industries and
many a times, destroyer
too. Innovation takes
time and should start
much before it is too late.
Mobile phone companies
have demonstrated
this and how they have
captured market share
of IPod, Ipads, and
cameras and even watch
companies.
CFOs as Chief
 Sanjay Banka,
CFO of Landmark Group, Kingdom of
Saudi Arabia
braham Lincoln had once said: “The best way to predict your future is to
create it.” The business revolution in last two decades which is propelled
by the Internet and communication technologies has kept the corporates
on tenterhooks. Incumbent businesses are facing onslaught from new-age
businesses driven by innovative models. CEOs are investing considerable
time in reshaping their business strategies based on the challenges posed by the
VUCA world, a term coined to indicate Volatility, Uncertainty, Complexity and Ambigui-
ties. In this article, we delve into the role of CFOs who are partnering with CEOs and
their Boards in co-devising business strategies to face the uncertain future through
strategic collaboration.
Across the industry, CFOs, being at the centre of businesses, are acting as catalyst
and partnering with CEOs and Boards in the implementation of Future Proof Strategy as
Chief Future Officers. To this end, CFOs are required to focus on key areas impacting
the future of their organisations, including innovation, regulation, risk management,
digital transformation, and cost management in shaping such strategies.
Innovation
Technology is an enabler for industries and many a time, a destroyer too. Innova-
tion takes time and should start well before it is too late. Mobile phone companies
have demonstrated in the manner they captured the market share of portable music
players, tablets, cameras and even watches. Nokia gifted away the market leadership
to Apple and Samsung, as it continued to cling on its Symbian platform with slow
WAP browsers to the chagrin of its loyal customers.
CFOs are encouraging innovation and R&D investments as they
don visionary and entrepreneurial hats while supporting innovation.
This should also be complemented with innovation in finance itself
like innovative financial products, processes to reduce finance cost
and improved analytics to provide predictability. CFOs should also
encourage a continuum of innovation pipeline to stay ahead of the
competition curve.
John Levis, Global Chief Innovation Officer of Deloitte, recom-
mends a portfolio approach while allocating Capital for innovation.
Firstly, Core Innovation (70 per cent) with a proportionally low risk
of failure that aims to achieve 10 to 15 per cent improvement on, for
example, the productivity of an operation or the sale of a product.
The second category is adjacent innovation; efforts to extend a
product set or customer base by way of new products or a new set
of business for the organisation. Adjacent innovations aim for a higher
impact and will likewise have a higher level of risk. They generally
should account for no less than 10 per cent and no more than 50 per
cent of an innovation portfolio. The third category of transformational
innovation (max 10 per cent) should usually be the smallest piece.

2. June 2015  CFOCONNECT 7
ON MY MIND
Markets and
customers are main
forces that decide the
future of companies by
continuously demanding
more, seeking better
choices and lowering
prices. Companies that
keep their ears to ground
analyzing each customer
feedback carefully stay
afloat on the competition
curve.
These can give the biggest potential return
but also have the highest risk of failure.
Fund allocation for innovation should follow
a portfolio approach to ensure a continuous
supply of funds at affordable costs.
Some companies are now running pilot
projects on drone-based deliveries in USA.
CFOs in such scenario would need to adopt
a pragmatic approach in permitting capex in
such models based on realistic paybacks.
If CFOs apply the risk criteria they use for
traditional and stereotyped norms to innova-
tion projects — especially those that might
be transformational — that could make it
very hard to justify the funding approval.
In such scenarios, CFOs need to develop
new approaches to access investments in
such transformational investments that value the future return. Another important role
which CFOs play here is to support the acquisition of a competing or complementary
product to gain a quick acceleration on innovation.
Decoding Customer and Market trends Behaviour
Markets and customers are main forces that decide the future of companies by
continuously demanding more, seeking better choices and lowering prices. Compa-
nies that keep their ears to the ground analysing each customer feedback carefully
stay afloat on the competition curve. Companies like Blackberry have faced a huge
net worth erosion as they did not foresee the competition from Apple and Google
Android products. According to a recent media report, CFO of Pioneer West Virginia
Federal Credit Union, who, by aggregating financial data across the full portfolio of the
credit union’s services, created new visibility into the health of his business — and of
potential mergers — allowing the company to grow through smart
acquisitions as well as smart investments. For the last two years,
Pioneer has had the best return on assets among the three largest
credit unions in their markets.
CFOs can use their analytical skill and that of the finance team
by analysing customer trends, their choices, and continuously chan-
nelising predictive feedback to the product team to adapt to changes,
retire obsolete products and develop new lines. CFOs are increasingly
adopting Business Analytics tools and leveraging big data to provide
predictable behaviour of customer and market to enable higher topline
and bottom-line.
Regulatory Ecosystem management is essential
for profitability and survival
Regulatory intervention has become critical in highly regulated
sectors like telecommunication, food, drugs and pharma, retail,
airlines complicated by consumer activism; and any neglect can
lead to payment of a heavy price. A futuristic strategy should ensure
that emerging developments in the industry are constantly monitored
and suitable industry response is developed in tandem with industry

3. 8 CFOCONNECT  June 2015
ON MY MIND
bodies. There have been examples, where some companies simply vanished due to non-
compliance and tussle with regulators. Recently, Uber Taxi is a case in point. This was
banned for brief period in India due to its non-compliant employee verification process.
Pharma companies today are facing major risk from generic drugs and drug price controls
including compulsory licensing. Telcos are facing major risk from VOIP and mobile apps
enabling free ISD and STD calls putting at risk billions of dollars invested in 2G and 3G
licenses and network infrastructure.
It is thus very critical for CFOs to be on their toes and be a step ahead of regulatory
uncertainties and ensure compliant business model since inception. A healthy and trans-
parent info sharing with stakeholders can go a long way in building trust, especially in
times of crisis. CFOs also need to maintain their independence and ensure a transparent
accounting and reporting framework to ensure sustainable growth.
Digital can play havoc with future
Organisations which have not embraced digital are losing market share swiftly, espe-
cially where customers have a choice to make online purchases and transactions. Adopting
digital gives wider access to market, and opens up new customer segments while savings
costs associated with brick and mortar model. The global ecommerce market is likely to
touch USD1 tn in 2015 and USD 1.5 tn by 2018. Alibaba.com’s record-setting USD 25
bn initial public offering in 2014, which valued the China-based company at about USD
170 bn, continues to indicate the likely business trends. Thus, to enter into the new future,
digital is a compulsion and no more a choice. CFOs are now actively partnering with CIOs
in devising Enterprise Digital Strategy in all aspects of business and implement a supportive
digital framework in finance to enable users in accessing information seamlessly and get
decisions quick and faster. CFOs need to quickly align finance office in transitioning finance
function to online business model.
Process Reengineering and Cost Management
Providing best products at affordable costs continues to be a key
component of future-proofing strategy. CFOs with in-depth business
understanding are playing a critical role by supporting the management
team in developing an integrated value chain, and cutting unproduc-
tive processes and business layers. In doing so, CFOs are required to
analyse the cost of finance function itself and moving to outsourcing
and centralisation as a major strategy in cutting finance cost. Shared
services are increasingly becoming popular across most industries to
enhance the efficacy of finance function. Similarly CFOs are guiding
CTOs in IT outsourcing which is so much prone to obsolescence.
Conclusion
In light of the above, CFOs have to play a larger role that investors
and Boards expects of them, which can be made possible with a busi-
ness centric mindset in the finance team. CFOs’ roles in this context
would be a risk enabler and manage funds judiciously for new and
existing investments. In the current scenario, when businesses are fac-
ing challenges of onslaught from MNCs and online businesses, hyper
active customers, regulatory onslaught and judicial activism, it places
a greater burden on us to understand and support business sustain-
ability. When corporate priorities push CFOs to play a larger role, the
need for future proofing from finance office is growing even stronger. n
Providing best
products at affordable
costs continues to be
a key component of
Future proofing strategy.
CFOs with in-depth
business understanding
are playing a critical role
too by supporting the
management team in
developing an integrated
value chain, and cutting
unproductive processes
and business layers.