The three years since 2020 saw organisations focus on digitalisation, payment efficiency, security, and cash forecasting.
With continuing uncertainty in 2023, how are CFOs and treasurers calibrating their strategies in the years ahead to reflect desires for growth and profitability, a return to business as usual in the face of unpredictability and market volatility?
Kabir Ahmed Shakir, chief financial officer at Tata Communications oversees the financial management of the company. In a 2021 blog post, he posited that one of the biggest challenges facing CFOs and other leaders is predicting and being prepared for a future "when you don't know what is around the bend."
"The CFO is making decisions today for what can transform a business and not just make it more profitable five years from now but also relevant and future-proof," he added.
"Ultimately, it is the CFO’s decision to invest for this unknown turn in the bend. They must develop the knack for steering and accelerating at just the right speed, in blind yet calculated anticipation of what’s coming."Kabir Ahmed Shakir
Top of mind for CFOs in 2023
What lies ahead in 2023 and beyond? Amid the continuing uncertainties, including socio-economic and geo-political disagreements, businesses remain constant in their one agenda for 2023 – growth.
"I've been born and brought up with a very simple thought that if there is a cost that is not facing the consumer, if there is a cost that is not adding value to the consumer, then it has no place in your P&L," he added. "As a CFO, you need to bring that hygiene to the table. Once you have done that, the focus moves towards “How do I shift this organisation to a very different trajectory?” and “How do I unlock those potential opportunities for growth?”
Shifting attitudes and approaches as it relates to capital strategy
Shakir offered his version of the "cash is king" phrase: “sales is vanity, profit is sanity and cash is reality.” He explained that while revenue growth is important, he nonetheless believed that cash is the reality.
That 'cash is important' is not limited to periods of crises only. "Crises separate the strong from the weak," he opined. "You are stripped naked in how you have managed your balance sheet and therefore the weaker ones die. That's the reality."
To Shakir, the pandemic revealed that being profitable does not guarantee a business will survive. Rather, it is the liquid ones. "At Tata Communications, we have extended our regular metrics of deal profitability to deal cashflow. We no longer approve deals only based on profitability, but extend the deal to its cash flows, and consider how fast it returns cash to the company," he continued.
M&As in times of crises
On the topic of M&A, S&P reports suggest that overall APAC saw a decline of 11% in deal volume and 24% in transaction value in 2022. Globally, Morgan Stanley sees muted M&A activities in 2023. PwC says M&A tends to slow during times of uncertainty or market volatility—but those can be precisely the times when valuations become more attractive and opportunity knocks.
Asked if CFOs and leadership are being prudent or overly cautious during the pandemic, Shakir believed that for a company that has been managing its business well, with a hygienic and clean balance sheet, you can dream about M&A possibilities how to use that cash, even in times of crisis.
"At Tata Communications, the CEO and I put together a finance strategy to become fit and continue to sustainably grow for years to come.
"I'm proud to say that we announced a deal back in December which will close soon for close to $60 million, which is entirely going to be funded through just an efficient balance sheet, better-working capital management, and all internal accruals," Shakir added.
Aligning capital strategies to change
With three years of muted growth, if not declines for most organisations, inflationary concerns, coupled with continuing uncertainty in other parts of the world, are making their mark in 2023.
With the recent closures of several large banks in the US, FutureCFO asked Shakir whether he sees CFOs shifting capital management strategies to reflect the continuing albeit different kinds of crisis in 2023 and beyond.
"A company needs to be able to generate its returns, revenue growth and profitability on a quarter-to-quarter basis, and not park everything for the future," responded Shakir. "Capital management becomes the centre point of how we do it. In not-so-great organisations, ROI is seen as a finance metric. In great organisations, ROI is seen as a business metric."
"When you bring the ROI mindset to every individual in the organisation, capital management is automatically taken into account."Kabir Ahmed Shakir
IT in capital management trends in 2023
Shakir acknowledged that the external environment remains choppy, volatile and uncertain. He posits that given the environment, it is natural that boards and CFOs are looking at conserving and prudently investing cash. In such conditions, capital management is at the front and centre.
"I think there is clearly continued investment and push in digital and technology. There are also robust digital transformation plans which were multi-year journeys - organisations need to continue to fuel those investments promised earlier. It’s important that organisations don’t compromise or sacrifice the digital capital needed to make themselves future-ready," said Shakir.
He opined that it is a disservice to use the term working capital management. He preferred to use the term cash conversion cycle.
"This is because “working capital management” connotes that it’s a finance and supply chain task. The moment you call it “cash conversion cycle”, you give it a business connotation. Suddenly the ownership enlarges beyond finance and supply chain, and every person in the business takes accountability for turning around that cash better," he added.
He closed by suggesting that amid instability, CFOs need to be extremely rigorous in reviewing the credit situation of their customers and improve the cash conversion cycle to efficiencies.
Click on the PodChat player to listen to Shakir deep dive into his opinion around capital management strategies in times of persistent instability.
- Briefly please elaborate on your role at Tata Communications.
- As a CFO, what is top of your mind in 2023? (narrow to treasury)
- How does this compare to the previous 3 years?
- In times of crisis, cash is king. Is this phrase still relevant in an increasingly digital world? Have you noticed a significant shift in attitude and approaches as it relates to capital strategies as digital transformation continues to mature? (from 2020-2022)
- Shifting to M&A, S&P reports suggest that overall APAC saw a decline of 11% in deal volume and 24% in transaction value in 2022. Are CFOs and leadership being prudent or overly cautious?
- How do you see CFOs shifting their capital management strategies to reflect the continuing, albeit a different kind of, crises in 2023 and beyond?
- In your opinion, what will be THREE capital management trends in 2023?
- To what extent will technology support these trends?
- What is your advice for CFOs and those in charge of capital strategies as regards 2023 and beyond?