Need for agility and control
The Hindu Business Line
Partner — Advisory services
Ernst & Young Pvt Ltd.
Over the last six months, I have had discussions with several entrepreneurs and managers on how they balance the pressing need to be agile in the market with the stakeholder expectation of running a well-controlled establishment. Most of these companies have achieved a certain scale and are aspiring to drive the next wave of growth in the medium term; hence the dilemma is real and now. Interestingly, the key challenges we heard from managers in India are not very different from what we heard from leading global corporations.
Most managers believe their business is over-controlled and the complexity of the control environment slows their response to the changing competitive landscape. A chief financial officer reflected that the sales team spent more time filling internal forms than in front of customers.
Managers everywhere believe that nearly 40 per cent of the controls are not focused on risks their company cares about, and more than 50 per cent of the controls they rely on for decision-making continues to be manual in spite of heavy investment in Enterprise Resource Planning. Add to that the inconsistent control environment resulting from inorganic growth and new markets, which tends to make business integration lengthy and often a drain on leadership time.
The bottom line is that the actual spend on control is not known beyond the narrow definition of audit, clause 49 and compliance organisations. In spite of all the money and time spent on controls, stakeholders still report lack of transparency and confidence, prompting management and boards to align the control environment directly to the business. The prescription may differ from company to company, but the end-game is consistent:
Fewer controls, focusing on most important business risks;
Single control environment across the organisation, very important for growing Indian multinational corporates;
Free up executive time to focus on growth, and delegate operating controls;
Optimising IT investments;
Increase reliability of reporting.
Easier said than done? Not really, if you follow a structured and focused approach.
The important first step is to get your organisation to understand the opportunity available. Whether it allows the CFO to report improved profitability or a sales executive to service your customer better, there is something in it for everyone. Having set the agenda, it is important to create a zero-based controls framework. This is where the rubber hits the road: challenge every control for its relevance and cost, streamline your business process and control environment, and stop unnecessary activities.
A zero-based controls framework calls for a robust IT infrastructure, not just for automating workflow and controls through ERP, but also in using smart analytics to deliver business insights for decision-making. With this new sustainable operating model you can drive down costs by centralising most monitoring activities and speed up decision-making.
An efficient control organisation can give you a competitive edge; your organisation will be nimble in responding to new opportunities. The paradigm shift of using controls as a competitive differentiator and not just a protective layer is here to stay.