Driving business continuity during turbulent times
The CFO can play a strong, central role in stabilizing a business and positioning it to thrive when conditions improve.
They are the leader who most directly contributes to the financial health and resilience of an organization.
That’s according to Anand Saboo, Global Product Finance Controller at Olam International.
Speaking to the World Finance Forum, Anand explained the CFO’s role in driving business continuity.
Identify and mitigate risks
For Anand, the first of three key objectives for finance in business continuity planning is to identify and mitigate potential risks to financials as a result of the evolving business environment.
Finance takes a key role in developing scenarios for estimating the impact on business.
This process consisted of three steps:
- Defining the parameters for evaluating different possibilities of business outcomes
- Modelling the impact of various business scenarios on financials
- Working with business teams to define measures (operational, financial, etc) to mitigate risks
Anand developed relevant parameters for his business counterparts to evaluate risks to business.
There were demand considerations to take into account. For different scenarios, they developed potential pathways for the impact of the diseases, and both micro and macro-economic factors.
There were also geographic considerations, with the team identifying the potential variation across the business’ key geographies when evaluating the different socioeconomic factors at play.
Another set of considerations were those concerning the value and supply chains. Anand provided a series of key risk factors across the entire value chain to identify specific areas of risk.
Based on these parameters, multiple stress tests were conducted. This was an agile process as the Covid-19 pandemic was, and still is, an evolving and unprecedented situation.
The scenario modelling and results from the stress tests enabled Anand to develop options to withstand potential revenue decline.
These entailed anticipating and supporting customer needs through; adjusting offerings, pricing and payment terms to support customers’ needs during the crisis, maintaining loyalty and trust.
Anand also focussed on key revenue streams, mitigating risks, and reviewing potential demand shocks.
Avoiding operational breakdowns
Olam were on a mission to ensure their supply chains and services were maintained during the pandemic.
They put various measures in place to ensure there were no operational breakdowns and they could continue to function as normally as possible.
A priority was to stabilize supply chains, which they did by:
- Maintaining suppliers’ trust in the crisis
- Identifying critical dependencies in the supply chain to ensure raw material availability
- Developing contingency scenarios for likely disruptions
- Safeguarding assets (farms, factories, plantations, warehouses) to protect production capabilities
Strengthening shared services was also high on the agenda for Anand and the team at Olam.
They created a backup plan for all critical support functions, and continued to foster remote working effectiveness to build capacity.
These decisions were able to be made because of the creation of their Corporate War Room structure.
The Corporate War Room (CWR) fed down into the Business Unit War Room (BUWR) levels.
The CWR served to form the organizations opinion on scenarios and discuss the most pressing issues. These discussions were used as a springboard to develop and communicate Covid-19 impact assessment templates and guidelines.
This body also evaluated organization-wide cash preservation and capital productivity improvement initiatives for both liquidity and cash flow management.
The BUWR’s purpose was to lead and monitor work streams to manage business continuity, employee safety, and cash preservation.
As they were one step closer to the ground, their job was also to evaluate the impact of disruptions within their business units and define risk mitigation measures.
Ensuring company resilience
Adapting to the rapidly evolving situation was, by necessity, the priority. However balancing short-term adaptability with longer term planning was another important step in crisis management.
Finance aimed to generate transparency by identifying major cash inflows and outlaws, interfaces, risks and contingencies.
Their role of securing finance was crucial, applying their knowledge of the finance structures in place, which instruments were required and launching immediate actions.
They also maintained a rolling forecast to build out liquidity scenarios, factoring in the cash preservation plans.
Operating under the main aim of ensuring cash-in throughout the crisis, rigorous cash measures were introduced. These measures included minimizing cost out and avoiding any financial waste, alongside improving net working capital.
Olam used two main levers to focus on capital productivity. In terms of working capital, they leveraged their supply chain financing to drive efficiency, put a daily focus on receivables, and allocated capital to maximize returns.
The other lever was on fixed capital, where they deferred all non-essential capex.
They developed a prioritization plan for capex to ensure all spending on capital was only for the most essential and deserving projects.
Whether these were obligatory or legal investments, due to regulatory/compliance reasons, or if the investments were specifically and provably linked to efficiency and growth.
Anand’s key takeaway was to balance rapid adaptation and cash flow management with longer-term resilience planning, through ruthless efficiency and prioritizing their workers ability to maintain capacity.