The pressures are many for the Chief Financial Officer, especially in the areas of cost, regulation, governance, and information, says Cedric Read in Creating Value in a Regulated World. And as difficult was the life of the economist whom the technologist and the executive of an organisation saw as a doomsayer, till they saw reason in his language and logic, narrate Shlomo Maital and D. V. R. Seshadri in Innovation Management. Many an innovation has come from intuition and, Arupa Tesolin says in Ting, that it is better heeded.
Economic agendas of companies have become broader, and businesses are routinely scanning the environment for growth and innovation opportunities. But the cranking up of `value creation levers' is turning out to be challenging because of the increasing regulatory pressure the world over, says Cedric Read in Creating Value in a Regulated World (www.wiley.com).
The book is based on interviews with senior finance executives of dozens of global biggies, on their strategies and best practices. Such as, Bjorn Bergabo, CFO (chief financial officer) of GE Commercial Finance, who speaks about IBs or `imagination breakthroughs', an innovation process launched by GE. "Each IB project has the potential for at least $100 million in incremental growth. Today, the company has 80 IBs; some may happen soon, others may take ten years to reach full maturity, and still others may not fly at all."
Hear Jan Hommen, former CFO of Philips, describe the CFO as `the co-pilot of the CEO and the business partner for the rest of the company'. Hommen reminisces how, when he joined the company, finance was `mostly an administrative and accounting function with little real decision-support capability'. Information was inadequate as a base for reliable forecasts, because the focus was backward rather than forward. "There was hardly any coordination across the group on capital allocation, R&D (research and development) investment, systems or marketing. It was every one of the thirteen divisions for themselves with little or no synergy among them."
And this is how they took the `monster' by the horns: Divisions rationalised from 13 to 5, business units from 160 to 40, ERP (enterprise resource planning) systems from 600 to 40, and employees from nearly three lakh to just about half that. "Underneath all this, we changed from processes that were predominantly organised into vertical functional silos to horizontal business processes that are now more integrated. We also standardised many of these processes across the company," describes Hommen.
Snowed under regulations
Regulatory workload is not going to decrease in the future, declares Maurice Oostendorp, Head of Group Finance, ABN Amro. Most CFOs, no matter what industry they're in, are fatigued with the sheer volume of regulation they have to cope with. Examples are IFRS (International Financial Reporting Standards), Basel II, SOX (Sarbanes-Oxley) requirements, the Dutch version of SOX (Tabaksblat), the client-based AFM (Authority for the Financial Markets) banking directives, and CAAML (Client Acceptance and Anti-Money Laundering) regulations.
"Our intention is to deliver at least 600 million euros a year in sustainable savings from 2007 onwards through our shared services initiatives," says Oostendorp. ABN, an international bank that has over 3,400 branches in more than 60 countries, operates a wholly-owned subsidiary in India called ACES (ABN Amro Central Services), where "it's arbitrage first, optimisation and standardisation second." The Indian subsidiary is also becoming `an insourcing hub for other financial institutions a self-standing business,' one learns.
Read's research unearths four key pressures on the finance function cost, regulation, governance, and information. "More than half the CFOs we interviewed said that they needed more `business-savvy' finance executives working for them. They also said they needed to invest in building their finance team's knowledge of the business and the environment in which it operates," writes Read. Ironically, however, he finds that fewer than 20 per cent have programmes in place `to improve their teams' business analysis, communication, and problem-solving skills'.
Packed with takeaways.
The Ec, the Tec, and the Exec
Once upon a time, there were three tribes, the Ec or the economists, the Tec or the technologists, and the Exec, the executives. The Ec did crystal-gazing and were very dismal in their forecasts, even as they used phrases such as network externalities, weighted average cost of capital, Pareto-efficient resource allocation and so on. The Tec built the future, and engaged in expensive innovation, using up resources from the strongbox of capital. The Exec worked on `strategy' and told what the others should do. Though the three tribes had common origins, as their names showed, over time they came to speak different languages...
Thus narrate Shlomo Maital and D. V. R. Seshadri in their innovative preface to Innovation Management, from Response Books (www.indiasage.com). "The Tec and the Exec did not like the Ec at all, because they rarely understood what the Ec were saying, even though they sensed it was very important and potentially useful. The Ec and the Tec did not like the Exec much, because they both felt everyone would be better off if the Exec just left them alone. The Exec and the Ec were not very fond of the Tec, because they claimed the Tec were much too fond of playing with toys." An uneasy truce prevailed... . Till everybody decided to use the Ec's language and logic, and happily lived ever after!
"Successful innovation occurs when an invention, related to a product, service or process in some part of the organisation's value chain, is joined with a business design, which in turn is implemented with discipline and skill through innovation management," the authors define.
`Management' is as important as, or more important than, `innovation', they insist. How so? Because often enough entrepreneurs who come up with phenomenally inventive ideas fail when they forget to ask three key questions "How will I build a business around this idea? How will I make money? How will I sustain growth and profit?" Great innovators are good not only in implementing good ideas, but also in rejecting the terrible ones. The latter belongs to the type II error, that is, `accepting a false hypothesis'.
The book wraps with `ten essential tools', including price-cost-value, managing tradeoffs, economies of scale, learning curves, sensitivity analysis, and the psychology of risk-taking. Tool ten is the 2x2 strategy matrix, where you need to assess if your organisation excels in all four types of competitive collaboration.
The Ec touch to egg you on to innovate.
Intuition is the opposite of effort
Here is `a surprising way to listen to intuition and do business better': Ting, by Arupa Tesolin, from Wisdom Tree (www.wisdomtreeindia.com). The story is about Tony, a professional with a demanding job. He tells his mentor, Hermilla, "I'm an analyst. I study things, talk to clients, make conclusions and recommend solutions to them to help solve their problems." But, are you connecting with them, asks Hermilla. "No, not really. It's more like writing a prescription than having a conversation," says Tony. Just be attentive, in the moment, in the flow, advises the mentor. "And Tony, one more thing, do you want to be more intuitive?" she adds. Tony says, `yes.' That's the first step, says Hermilla.
The next session of mentoring begins with a walk. Tony is still intrigued about what intuition means and how it works, but he seems to be getting more aware. "Tony could feel a slightly damp cool breeze wafting off of the water nearby. It smelled fresh and filled his nostrils with the air of the harbour and all the activities nearby," narrates Tesolin.
Tony wonders if he has to make an effort to be intuitive. "Well, not effort really, it's the opposite of effort," says Hermilla. "Intuition is more about undoing the learned perceptions and seeing what's real. It's very different from thinking. Thinking takes effort." Then comes the next lesson: `Do nothing for five minutes a day.' Pray, why? "Because you've been educated to become a thinker," explains Hermilla. "Intuition is like the high-speed Internet. It's always on. But it would mean too great a change too fast to go straight to this. So we're going to get you started on `dial-up'. It's a little slower but it works." Well, it does!
An innovative reading list, before you hop into February.