If you keep asking yourself how you can add value to your business as a finance professional, check ‘Reinventing the CFO' by Jeremy Hope (Harvard). The author sees the CFO as a champion of change in the finance operation and performance management practices, but cautions against simply parachuting best practices from one organisation into another. A simple sutra in the book is that successful change is the outcome of three factors, viz. dissatisfaction, vision, and first steps; and, on the other side, there is the resistance to change. Laying down the formula as ‘D x V x F > R,' Hope avers that all the first three variables must be in evidence in sufficient strength to overcome R.
Some of the direct questions the author lists can make you shift in your chair: “How many of your team have worked overtime in the past three months? How many have worked weekends? How many have not taken all their holiday entitlements over the past year?”
Ruing that the work-life balance is poor and it is getting worse in the finance function, Hope reminds that adding more people is not going to solve the problem. For, the root cause is the way the whole performance management system works. How so? More powerful IT systems enable more detail to be held and accessed, and they allow us to set more targets and budgets at every level, he reasons. “They facilitate more measures and reports. In other words, despite the fine words about empowerment and accountability, our systems are taking us in the direction of more complexity and more command and control… Even the best finance managers are bogged down in low-value-adding work.”
Complexity and cost
Among the many examples in the book that you can easily relate to, one is about the complexity and cost in the common budgeting approaches. Asking cost centre managers many months in advance that how much are they planning to spend on relatively trivial items such as hotels, travelling, or telephones. The problem, as the author points out, is compounded by the process of negotiation, since budgets routinely go through three to four iterations before the targets are agreed for the following year. Rather than taking six months to complete the budgeting process even while the market conditions dynamically change, why not use forecasts more actively to manage the business, thus rendering the annual planning cycle a costly irrelevance, the book suggests.
To bring in change, gain the support of key people, especially those whom other managers respect and listen to, advises Hope. He notes that unlike most management change programmes which involve more work and overtime, transforming finance is as much about what you do not do as about what you do differently. “It is about doing less paperwork, generating fewer reports, reducing bureaucracy, attending fewer meetings, and, above all, wasting less time. These points resonate loudly with operating people. These are benefits they can immediately understand. It is not a hard sell.”
The book wraps up with a checklist for the CFO, where the author demands the finance bosses to ask themselves whether they are prepared to devolve planning and decision-making to teams closer to the customer. He instructs CFOs not to waste too much time on grand visions, but to set some directional goals and get started, so as to learn as you go. Other imperatives include — “Aim to simplify everything at every level. Build confidence by showing early wins; do not assume they will be self-evident, but point them out and celebrate your success. Recognise at the outset that this is a long-term journey, so you need perseverance and patience.”
Educative material for finance managers.
Understanding Indian agriculture
Low productivity and high cost of farm produce find mention in ‘Revitalizing Higher Agricultural Education in India' by P. M. Tamboli and Y. L. Nene (www.agri-history.org) as among the key challenges to agriculture. The authors open by stating that fragmented land-holdings, low levels of input usage, poor pre- and post-harvest practices and strong dependence on uncertain monsoons are well-known weaknesses of Indian agriculture that lead to low yields and high cost of production.
They categorise farmers into two types, viz. the larger group consisting of those who produce largely for own consumption, with only a small amount of surplus to meet other necessities of life ; and the smaller group of farmers producing on a large scale. The first group, which adopts traditional production methods rather than scientific techniques, has small to medium-sized farms with an average of about 1.5 ha of land. “The tradition of splitting farmland among all the children in the family has led to a considerable reduction in the average size of farms. In addition, low levels of income and investment result in limited use of machines, technology, irrigation facilities, and best agronomic practices.”
As for the second group, which has made agriculture into a business by taking full advantage of scientific and technological inputs and attaining high productivity, the authors point out the common claim that cost of production is high due to high interest rates, high cost of inputs, and unreliable power supply. “The main incentive currently enjoyed by them is the absence of taxation on agricultural income, although pressures are mounting for abolishing this concession…”
Relevant research
The authors are of the view that agricultural research can effectively reduce poverty if the voice and influence of small farmers is strengthened in any market-integrated agricultural system. They fret that the disproportionate influence of large farmers often leaves smallholders facing the problem of technologies that are inappropriate for reasons of scale, cost, managerial complexity, or simply due to the absence of market integration. A study cited in the book is of Berdegué, Escobar, and Carney (2000), about how the goal of agricultural research must be to assist in the competitive market integration of small farmers. The paper recommends that, since major productivity gains tend to take place more in regions where the poor do not live, and linkages between farm and non-farm economies are also strongest in the more dynamic and more productive agricultural regions, it is prudent to assist small farmers to diversify into cropping systems that are coherent with the types of market incentives they face.
Instructive read for an overview of a critical sector of the economy.
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