Rapid change in the external environment makes it incumbent on CFOs to be involved in all aspects of their company’s operations. Going forward, the strategic expectations from CFOs will become more pronounced, requiring a much more diverse, multidisciplinary skill-set to meet those demands. Vivek Karve, CFO of Marico, is that rare Finance professional who also has an excellent strategic sense and a great understanding of business. That, coupled with strong task orientation, flair for technology, and stewardship for talent, makes for well-rounded capabilities to drive business growth in an era of disruptive change.
Mr Karve’s focus on cost management is most comprehensive, encompassing a joint partnership with the business to build a culture of cost accountability. Under his leadership, Marico runs a structured cost management programme – ‘Marval’ (Marico Value Enhancement) – to systematically identify areas of cost savings while continuing to deliver on ‘consumer delight’. Over the years, Marval has produced substantial gains for the company, allowing it to either improve its operating margins, or to plough them back to drive growth.
Centrally driven under his leadership, the firm-wide ‘Project SiMPLe’ (Simplified Marico Processes to be Lean) has ambitious and well-grounded objectives: reducing cycle times and user pain while ensuring the highest levels of governance and control. By questioning the process status quo, challenging the existing authority levels, redefining the control points, and setting new targets for turnaround time, the project has yielded impressive results in a short span of time.
On Mr Karve’s vigil, business partnership has risen to a whole new level, with the sole aim of creating enterprise value. He ensures that business decisions are grounded in sound financial analysis, and that Finance provides high-quality analysis and insights to the business. He encourages his team to deeply engage with the wider organisation in the design and execution of business plans. Moreover, he personally participates and contributes with his own insights at every business review session.
Mr Karve has built up a truly technology-enabled Finance function. He has embraced the use of technology for predicting business performance, gaining visibility into the supply chain, monitoring threats, and managing risks. In the Treasury department, for instance, automation has enabled better cash-flow, forex and investment management. As a result, Marico’s Treasury team is recognised as among the best in the industry. Mr Karve draws a direct link between his department’s use of technology, and Marico’s ability to compete successfully. By bringing in forecasting systems to improve the predictability of business performance, he has helped differentiate his organisation from other, less tech-savvy companies.
Mr Karve has enabled his team to become true all-rounders, able to switch roles, both within Finance, and beyond. He has been instrumental in fostering the right talent experience through on-the-job learning, prompt guidance, rigorous training, and external exposure. Finance and L&D collaborated to create a ‘Finance Functional Competency Framework’, which maps the functional and leadership competencies required at different levels. The framework is then translated into a heat map for each team member, highlighting the proficiency levels required for each competency. Marico has embraced a strong culture of learning that does not compromise on employees’ developmental needs. To that end, the company has built an e-Learning platform – iLearn – that provides on-demand training and learning inputs.
In a conversation with CFO Connect, Mr Karve lent insights on Marico’s strategic goals, the opportunities ahead for India’s FMCG sector, the changing role of the CFO, and the role of technology in shaping the Finance function.
The Big Picture
Marico aspires to be a leading emerging market MNC in its five chosen markets in Asia and Africa in the categories of leave-in hair nourishment, male grooming and healthy foods. It aims to achieve that by winning over consumers, traders and talent, while retaining the highest standards of corporate governance and risk management practices.
In India, the bulk of the growth in the FMCG sector is driven by recruiting new users and ‘premiumising’ existing users from base to premium products. Therefore, availability and affordability are key drivers of consumer demand for Marico. The external environment is turning inflationary, with crude prices firming up. In that context, keeping costs under check while continuing to expand reach will be a key challenge for the sector in the coming 12-18 months. Another key change has been the emergence of organised or modern trade (MT) and e-Commerce as new channels of distribution. Traditionally, the sector has reached consumers through mom-and-pop stores. But now, to develop a new eco-system with MT and e-Commerce will be both challenging and exciting for the sector in the coming years. Thirdly, millennials are emerging as a big consumer class. They are big users of the Internet, and get influenced by global trends. Consequently, the line of differing consumption patterns between urban and rural India is getting blurred. Therefore, building a digital reach for such consumers that is backed by a strong food portfolio, which appeals to consumers, will be a key task.
"As the line distinguishing urban and rural consumption patterns get blurred, building a digital reach backed by a strong food portfolio will be a key task"
Given the opportunities and challenges, Marico has identified a few pivots of growth in the next 8-10 years:
"Marico’s trademark process – Marval – systematically identifies areas where costs can be reduced while continuing to deliver on consumer delight"
Marico believes in driving sustainable volume growth. Together with the premiumisation agenda, we aim to drive sales value growth. Therefore, for us, it is the ‘AND’ and not an ‘OR’ strategy. In Q4FY18, we delivered a subdued volume growth for a variety of reasons. Parachute coconut oil in rigid bottles (PCNO-R) had posted a handsome growth in mid-teens in Q4FY17, and therefore the base was high. Further, in H2 FY18, Marico had taken two back-to-back price increases in response to cost-push. This also affected trade buying. As a result, PCNO-R volumes shrank by 5 per cent during Q4FY18. However, for H2 FY18, PCNO-R grew at 5 per cent, which is in line with our medium-term volume growth guidance. In Saffola, we have been facing some headwinds due to a lack of relative competitiveness and ineffective promotions. As a result, Saffola posted a mild de-growth during the quarter. Other segments such as value added hair oils (VAHO), Saffola Oats, Serums, Set Wet hair gels posted a decent performance.
As we look ahead in FY19, we are confident of delivering 8-10 per cent volume growth in India and a double-digit constant currency growth in international markets. In Parachute-R, we believe that the headroom for growth in the form of loose oil pool is intact. In Saffola, we have changed our communication and promotion strategy. In other categories, we will build on the momentum of H2 FY18. For new age categories of serums, healthy foods and male styling, our focus will be to build relevance, grow the category and secure a fair share of the growth.
As a CFO, my job is to ensure sustainable, profitable growth in collaboration with business teams. Therefore, I push myself and encourage my team to work as a business partner rather than merely as a controller. We try and achieve this by engaging deeply with business teams during the design and execution of business plans. I personally participate in business review sessions and contribute with my thoughts and concerns that I keep hearing from shareholders.
The shareholders would like to see Marico diversify its portfolio within the boundaries of its chosen segments. They would like to us to continue maintaining the highest standards of corporate governance and transparent communication. I believe that the company and its shareholders are on the same page.
Lastly, I believe walking the talk is important for building credibility. Therefore, as a CFO, I ensure that we communicate the story in a more transparent way. We would typically be open about our failures, and I believe that our shareholders value us for the same.
During FY18, the copra (the key ingredient for manufacturing coconut oil) prices went up by 75 per cent, while Marico raised the prices of Parachute-R by ~22 per cent. This impacted operating margins. In FY19, we will continue to be judicious about our pricing calls. In the first half, the margins will continue to be under pressure, while in H2, we foresee some expansion in margins as prices of copra start to taper off.
Inflation has been creeping up over the last six months or so. Crude oil prices have been rising, pushing up inflation. Increases in the customs duty on edible oil imports may also impact retail inflation. The government’s commitment to improving farmer incomes may also have some inflationary impact. We believe that our brands are strong and their equity should allow us to pass on this inflation in the form of increased prices. However, we will be judicious in these calls, as we firmly believe that protecting consumer franchise is more critical compared to short-term margins.
To manage volatility and ensure supply assurance, we build strategic positions in coconut oils and other edible oils. This helps us weather short-term price volatility as well as supply issues. However, our international business is in categories that are materially different from India, and we therefore do not enjoy any significant natural hedge.
As an organisation grows, it needs processes for efficiency and controls. However, over a period of time, the process becomes an end in itself. We are acutely conscious of this pitfall and therefore, have embarked on a journey of process simplification. This year, under my guidance a senior leader from Finance is driving ‘Project SiMPLe’ (Simplified Marico Processes to be Lean). The idea behind this project is to question the process status quo, challenge the current authority levels, redefine the control points, and set new targets for turnaround times – all towards the end goal of reducing cycle times and user pain while ensuring highest levels of governance and controls. We have already secured some early gains, and we believe that this is just the beginning.
"‘Project SiMPLe’ is driven by Finance with the aim of reducing cycle times and ‘user pain’ while ensuring the highest levels of governance and controls."
Marico’s international business accounts for 22 per cent of the firm’s consolidated turnover. The principal clusters are Bangladesh, South East Asia, MENA, South Africa and exports from India. Bangladesh is the largest, with a 45 per cent share of the international business. In that market, we are a dominant player with 87 per cent market share in the coconut oil category. We are working towards diversifying our business by growing aggressively in VAHO, male grooming, skin care and edible oils. This will help us grow the business at double-digit constant-currency growth.
The South East Asia segment (26 per cent of the international business) has its centre of gravity in Vietnam, where we are the leaders in male grooming. We will drive growth by diversifying beyond shampoos into deodorants, shower gels, and waxes. Myanmar, which is also a part of this cluster, has been growing steadily, and is now a USD 8 million business. We are optimistic about growth there.
The MENA business (14 per cent of the international business) has faced some serious macro headwinds over the last 2-3 years. Our male styling equity (hair gels) in Egypt is very strong, while in the Middle East, our hair oil and coconut oil business are on a strong wicket. We therefore remain cautiously optimistic about this geographical cluster.
In South Africa, we operate in the ethnic hair care, skin care and health care businesses. We recently concluded the acquisition of another ethnic hair care brand, ISOPLUS, which has been successfully integrated into the company. This cluster, like the MENA cluster, has been facing macro issues; despite that, the business has been posting constant currency growths.
The exports business to adjacent and diaspora markets is now a decent USD 11 million in size. We are aiming for aggressive growth in this segment both organically (deepening penetration and reach in existing markets) and inorganically (entering new markets).
Marico has been expanding its direct reach in urban and rural India. Improvement in direct reach helps assortment selling due to the involvement of distributor sales representative. There has been an uptick in rural demand driven by a better monsoon, and an efficient direct benefit transfer scheme of the government. We expect this buoyancy to continue, and as a result, the share of rural, which is currently at 32 per cent, is expected to inch up by 3-4 per cent over the next few years.
We intend to invest ~10-11 per cent of sales in A&P spends. This is higher than the current spends. The additional investment will have to be funded from efficiencies and cost management. Digital is emerging as an important platform for consumer engagement. Realising this need, we have already upped our digital spends, which are now greater than 10 per cent of the total A&P spends. For some of the brands, these spends are in excess of 30 per cent of the total A&P for those brands.
In Finance, we have developed competencies in business finance and commercial finance to track the efficiency of sales and marketing spends. They are involved at an operational level in sanctioning consumer promotions and trade spends and are responsible to measure the post spend ROI. My involvement as a CFO is higher at the design level, either during new product launches or during the annual budgeting process.
Digital is emerging as an important platform for consumer engagement. Digital spends are now greater than 10 per cent of the total A&P spends.
Marico Finance has two main objectives to fulfil – value enhancement and value protection. In fulfilling the objective of value enhancement, it focuses on multiple agendas such as business partnering, strategic tax, funds and cost management. To meet the objective of value protection, it focuses its attention on best-in-class governance, risk management, compliance and control processes. Automation is a key lever that we leverage in achieving both the objectives.
Finance at Marico has two main objectives to fulfil: value enhancement and value protection. Automation is a key lever that we leverage in achieving both these objectives.
Digital Transformation of the Finance Department
In my view, this is an irreversible trend, and the faster we join the wave, the quicker will we adapt and win. The digital transformation is manifesting itself in multiple ways – the way we engage with consumers, the channels through which we service their demands, the mode in which we transact with business partners, the manner in which we communicate with employees, and the method in which we review the business performance. Finance is no exception. The importance of automation and analytics was never so pronounced. In every function under Finance, we ask critical questions such as, ‘Can this be automated?’ ‘Can we deploy RPA?’ ‘Will exception analytics layer improve empowerment within the organisation?’ And, ‘Can we digitise the entire communication with banking partners?’ Solutions to these questions have a deeper impact on internal capabilities and costs.
Digital transformation is an irreversible trend, and the faster companies join the wave, the quicker they will be able to adapt and win
Lack of imagination is the biggest impediment. The next is resistance to change in the wake of an unnecessary fear of irrelevance. I believe that this fear is unfounded. Analytics and automation will equip and enhance managerial productivity.
Every business has an objective of sustainable profitable growth. Towards this objective, businesses are seeking to achieve the outcome of fulfilling customer demand in the least possible costs. New-age technologies like IoT and blockchain can either provide better insights into the consumer needs, or improve the efficiency and effectiveness of the business eco-system by providing data-rich insights, significantly crunching timelines, or by improving transparency. The proven business cases are gradually on the rise.
This is not an outcome of one year. More than 10 years ago, when I took charge as Head of Treasury, I sat with the team and defined what we wanted to do. The first resolution was that we would ‘not be a profit centre’, and this helped us define the objectives of fund management – safety, liquidity and then returns. Second, within these boundary conditions, we would beat the benchmark. This led to a very proactive management of daily cash-flows, and of investment and borrowing calls. Third, we would be at the frontier of leveraging technology. Today, we have host-to-host banking, automated, work-flow-enabled investment and forex management systems, just to quote a few examples. Fourth, we would be highly process-oriented. We have a very well-defined (and, I would say, to some extent prescriptive) investment and forex exposure management policy. Fifth, we would work with best-in-class partners – bankers, investment advisors, forex consultants. Lastly, we will adhere to the highest standards of compliance. This shared vision was later cascaded into measurable annual goals, which treasury teams have been systematically implementing. The focus on detailed planning has helped timely implementation.
This structured approach has helped contain the team size to roughly the same headcount as five years ago, while the business has almost doubled. The treasury team is headed by a middle-level leader, who is ably supported by two managers and their respective executive teams. While most of the training is on-the-job, we have detailed SOPs that help newcomers come to terms quickly with the tasks on hand. We also nominate our members to attend courses on money markets, forex management etc.
For better cash flow management, we have deployed an Excel template of cash-flows, which shows, on a daily basis, the likely funds flow for the coming seven days. This provides enough clarity to the treasury manager for investments and borrowings. We maniacally track idle bank balances, and have ensured day-end sweep-ins. To avoid idle weekend cash balances, we have worked with one bank which has offered a unique FD facility to us to park funds generated over the weekends.
We have a well-defined investment policy, which has defined permissible investment avenues, the limits and sub-limits and authority levels for approvals. We work with an investment advisor with deep knowledge of money markets. We have developed a portal – which has mapped the investment policy – to help investment advisors quickly generate investment proposals that are pre-approved. This ensures policy compliance and process efficiency.
We also have a well-defined forex exposure management policy, which mandates systematic hedging of receivable and payable forex flows with simple-to-understand hedging tools of forwards and plain vanilla options. The entire forex management is enabled with a workflow-enabled portal with an in-built delegation of authority, MIS, and accounting that speaks to the SAP system.
All these initiatives have helped contain the team size to roughly the same level as five years ago. They have also significantly enhanced the process capability. Finally, micro-management of the float has led to a small saving, which provides a vital message of cost consciousness.
Reliable forecasts improve the predictability of business performance and lend efficiency to its supply chain operations. With a growing franchise and complexity, we felt that it was time we implemented an integrated demand planning and forecasting system. While the project was led by demand planners from the supply chain, there was close involvement of marketing, sales, manufacturing, and operations. There were a few focus areas. The first was to improve the adherence to the plan agreed at the beginning of the period. The second was to ensure that the plan was adequately funded with trade and consumer inputs. Third was to enable planning and then monitoring at micro-elements, such as depot-SKU. Fourth was to facilitate rolling quarterly plans, which get updated every month. Lastly, and most importantly, was to achieve a handshake between demand and supply, and improve availability metrics at both the depot and the distributor level. While we have met with some success in improving forecasting efficiency in sales, there has been a significant improvement in availability metrics in terms of absolute and range availability.
Over the years, there have quite a few initiatives that we have taken leveraging technology. I would name a few as under:
In today’s digital world, data is king, and it will separate winners from laggards. A company’s ability to read the trends that data and analytics throw-up will determine its edge over the competition. Another key differentiator will be agility – companies that are able to drive an owner’s mindset without compromising process discipline will be tomorrow’s winners. Lastly, companies that master the art of digital engagement with consumers will win the war.
What will separate winners from losers is an organisation’s ability to read the trends that data and analytics throw up, drive an owner’s mindset without compromising on process discipline, and master the art of digital engagement
Finance Talent Management
Functional expertise is the first gate, without which a Finance professional will not be valued in any organisation. As Finance touches every aspect of business, deeper business acumen is the second competency that needs to be honed. As finance professionals, we live in a connected, inter-dependent world. Therefore, the ability to network and influence will provide an edge. Lastly, internal and external stakeholders lean a lot on finance folks for the numbers that they report and the commentary they provide. To that end, authenticity and credibility are the two behavioural competencies that finance professionals must believe in and practice.
As we look ahead, data analytics is the other competency that I would like to add to the list. Over the next two-three years and even beyond, I see finance managers emerging as business managers, capable of adding value through their finance perspectives. I also foresee a greater focus on governance and compliance in the coming years and therefore, finance professionals will have to hone their technical skills a lot more than in the past. With digitisation, the finance organisation has to reorient itself to be able to deal with the onset of new ways of working. Therefore, I foresee a lot more automation in the next two-three years.
We began this journey about three years ago. The Finance and L&D teams collaborated to develop what came to be known as ‘Finance Functional Competency Framework’. We first identified the functional and leadership competencies relevant to Finance as a whole. For each competency, we articulated the proficiency levels at different degrees. We then identified various unique roles in Finance, and mapped relevant competencies against each role. We then defined the proficiency level required for each competency. We then looked at the incumbent and assessed the AS-IS proficiency levels. This led to the identification of a heat map for every Finance member, which we used to drive personal development planning for each individual. For instance, for a manager working in the taxation and company secretarial department, drafting is an important competency while for a business finance manager, data analytics is a very critical competency. We have also deployed the competency framework in the process of recruitment. Going forward, we will use these for determining transfers and career planning.
We recruit management trainee talent from freshly graduated CAs. They go through a rigorous process of selection, which involves group discussions and a few interview rounds. We assess them on functional skills and attitude. So far, we have had a good journey.
It is the leader’s job to drive the quality of the team and therefore, he needs to invest in four building blocks. The first is the working environment of openness and learning followed by the leader’s drive for excellence and bias for action. The third is providing opportunities for talent to broad base their skills. In Marico, we rotate our managers practically every three years. This allows them to get diverse experiences. We have even had cases where a Finance member has gone to business function and then returned to Finance. The fourth, and most important, is the passion to win and deliver something big.
Finance comprises a little less than 10 per cent of Marico’s global workforce. While most of the training is on the job, for technical functions, like, taxation, secretarial, treasury, there are external courses/knowledge sessions that we nominate our members to. The L&D cell facilitates soft-skill training, such as communication, leadership, and influencing. I have never faced any budgetary constraints on the training, thanks to the philosophy of our organisation to invest in its talent to maximise their potential.
To succeed in an environment of change, Finance staff need to have technical skills, deep business acumen, strong communication skills, data and analytics capabilities, and a flair for technology
Most of the members of my leadership team have grown in the company. I have spent almost 18 years in the company. When I reflect on the longevity, the biggest factor is the growth of the organisation. Growth is the oxygen that provides the fuel to keep running that last mile. The second catalyst has been the culture of this organisation, which empowers its members early in their career, and provides them with challenging and fulfilling opportunities. The third, and a very important, factor has been the passion for excellence and winning. This has fuelled members to surpass expectations and prove themselves.
In my view, a healthy amount of attrition is required as it brings freshness. Our attempt has been to bring candour in our dialogue with members whom we do not see growing any further. We believe we get it right most of the times. However, at times we falter, but we ensure we learn from that experience.
In terms of design, the iLearn initiative has a big potential. For us, to leverage the same to its hilt, we need to integrate the learning with the personal development planning process.
During the process, the supervisor and member identify the learning and development needs and then the L&D cell facilitates the assignment of the relevant iLearn modules to the member. These are early days and we see some green shoots. For example, we have launched training on Marico’s code of conduct and insider trading regulations on iLearn, and we have been very successful at reaching out to the desired audience.
On a lighter note
Trustee of shareholders’ wealth
People matter… structures evolve
P Balaji, CFO of Tata Motors, and Jayesh Merchant, CFO of Asian Paints. I have been fortunate to know them both personally.
The toughest decisions have always been people decisions.
a. Communication and the CFOs: Authenticity
b. CFO & Strategy: Sustainability
c. CFO & Risk Management: Hedge against VUCA
Cruise in Alaska
Animal safari in Africa
Any book by PL Deshpande or Ranjit Desai, both of whom are Marathi authors. Favourite movies: Chupke Chupke and Golmaal
Simple, wholesome Maharashtrian Food
Regular exercise for 30 minutes at least three times in a week; time management as a ritual; and unwinding over the weekend with music classes.
FROM THE EDITOR
On Sunday the 10th June, the United States’ Air Force One, ferrying President Donald Trump, landed at Singapore’s Peya Lebar Airbase at 8.20 PM for a summit with Kim Jong-Un, of North Korea.
Most European vacations are a blur of city-hopping and ‘must-do’ sightseeing. Not for us, at least not this time, when we returned to Barcelona after a two-and-a-half-year gap.