On 2nd March 2016, Mr. Abhijit Chaudhuri, Founder of Milestone Consulting, conducted an Econ Lab on Why Business Plans Unravel And What We Can Do About It at the Meghnad Desai Academy of Economics. Drawing upon his own learning from the old, disjointed world of business in the 1970s to the real-time, connected business world of today, Mr. Chaudhuri explained various aspects of Business Strategy and Financial Statements Analysis. Through diverse examples, he elaborated on how businesses sustain themselves through competitive advantage and strategy, and how the Financial Controller uses financial statements and ratio projections to support the chosen strategy. Mr. Chaudhuri defined strategy as filling a gap, and competitive advantage as something that makes one better than the others. On one side, there is an opportunity in the environment, and on the other there lies the capability of the company. The gap between the two is filled by strategy and competitive advantage. Complementarily, financial analysis senses these gaps and positions the company to deal with them efficiently.
Mr. Chaudhuri began his talk by tracing the changing orbits in the business sphere from the 1970s onwards. While the core remains the organization, several strategy paradigms have emerged, like the McKinsey 7S Framework and the BCG Growth-Share Matrix, which increase emphasis on the market. For example, the advents of consumer-driven companies like Facebook and Whatsapp have led to new dynamics and ways of planning business. Further, the changing management of resources (internal and external), information, and tools are driving businesses in a way never seen before. Different orientations of data analysis and operations expertise are providing new viewpoints every day. For example, a shift from the Monthly Production Plan to the customized ERP to the daily EBITDA is facilitating minute-to-minute planning with the access to global competitive data. This allows companies to ‘control’ and ‘create’, ‘collaborate’ and ‘compete’, at the same time. A classic instance of real-time information is the Google search engine that explicitly states the time taken to find results when words are typed into the search bar on the site.
From a financial point of view, the time dimension of money has never been felt so strongly. This increases the role of the Financial Controller who analyzes the criteria for acceptability in terms of returns and risk. It becomes important for the Financial Controller to understand returns from profit, cost-benefit, real options, and shareholder value. As quantification difficulties and problems related to intangibles (like pollution) arise, analyzing risk through financial ratio forecasts and the sensitivity analysis become vital. How does a company focus on its long-term and short-term goals at the same time? Mr. Chaudhuri answered that the financial plan is a two-bucketed system between operational funds and capital funds. While the former deals primarily with the here-and-now through the market, the latter looks at the future through stakeholders and other entities. The golden rule is to prevent cross-pollination between the two. He also asserted that theoretical models like Porter’s Five Competitive Forces would need to be modified with the internet of things as today as emphasis is moving away from the enterprise and onto the consumer.
Achieving sustainability in a business is often directed by effective business strategy and financial evaluation. ITC is a remarkable case. In the 1970s, with the negative impacts of smoking increasingly being recognized, ITC, which has been largely associated with tobacco, was at risk. Over the past few decades, the company has increased focused on its non-tobacco ventures and overturned this threat so much so that ITC was the only Indian company to have been listed in GRI 4 (a global initiative that sets guidelines to de-risk business and increase sustainability and commends companies for the same). Another example that Mr. Chaudhuri explained was the management of the supply chain at Ispat Industries by defining value in the use of materials and services. Situated near Mumbai, the company was facing severe financial problems as its raw materials came from far off places and the presence of a tidal jetty allowed barges to operate for only ten hours a day. In order to minimize these losses, a loss matrix was created and then converted into an opportunity matrix. For example, the loss of iron ore through transportation was 4.3%. With improvisations the loss reduced to 1.2%. The process used, ViU (Value in Use) was such a large success that today several steel companies use it for their own improvement. A third example was that of BIL and the conceptual constructs for formulating corporate and business strategies for its transformation. It was evident through screenshots of the company’s financial statements and graphs that interest rate burdens were on the rise and inventory was badly managed, leading to the bullwhip effect. The situation worsened till the company was declared an NPA. With a transformation strategy that included improving organizational communication, arresting stagnation, and enhancing asset utilization, the Company has now stabilized and is expecting higher growth.
To conclude, Mr. Chaudhuri opened the floor to questions and answered several on the future of big data, the role of forecasting, and the consulting sphere in general. Mr. Chaudhuri’s talk was enriching as it provided an insider’s view on Business Strategy and Financial Statements Analysis through his own experiences.
Date(s) - 02/03/2016
3:00 pm - 5:00 pm