How CFOs create value in the post-pandemic world
November 29, 2021
November 29, 2021
Co-authored with Lily Fang, Dean of Research, Professor of Finance, INSEAD.
I had the pleasure of joining the first two sessions of our recent ‘CFO of the Future’ Summit Autumn series. The animated discussion focused on the CFO’s role in creating value in the post-pandemic world. During the first session of this INSEAD and Accenture initiative, Bruce Burrows, Senior Vice President of Finance, Supplier Management and Business Transformation (FSB) at Tetra Pak shared insights into what value creation means today, nearly two years on from the outbreak of the global COVID-19 pandemic. He and Lily Fang, Professor of Finance at INSEAD and co-author, went on to explore how CFOs need to play their part in integrating value creation with their organization’s broader purpose.
At the outset it’s important to state that we’re not yet in the “post-pandemic” era. However, as the world begins to establish what the post-pandemic “normal” looks like, business leaders are re-focusing on growth and value creation. The pandemic has certainly increased creativity and accelerated the pace of innovation and digital transformation. It’s changed how we work, where we work—even when we work! Post pandemic, while the fundamental economic principles behind value creation remain the same, delivering on value creation requires new thinking to leverage our new ways of working and new macro realities. Two specific new realities stand out: work arrangements—where and how people work, and supply chain issues, in particular the relevance of just-in-time or lean management.
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Against the backdrop of COVID, Bruce explained that Tetra Pak’s number one priority—aligned to its purpose—has been to continue to “protect people, food, and the planet.” With a focus on protecting its people, the company made important investments in digital capabilities to remotely test equipment safety. This allowed Tetra Pak to switch quickly and with greater ease to remote machine testing and remote auditing when lockdown orders were issued. This not only protects workers safety but also is more efficient. This way of work should become permanent.
Tetra Pak also started thinking of the purpose of its offices five years ago—much before the pandemic, but the value of that preparatory work is made salient by the pandemic. The office is no longer just a space to work. To unleash productivity, and enhance morale and identification with work, Tetra Pak moved to a function-driven office design concept, where spaces are designed for different purposes. Tetra Pak identified a dozen different types of activities and functions to support, including semi-focus, high-focus, formal meeting, collaboration, and design among others. And the real estate is designed to suit each purpose. The upshot is more engaged and productive workers who enjoy coming to the office.
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A poll conducted among participants of our first session revealed that 4 in 10 consider working two days from home with three in the office to be the ideal blend. Nearly 7 in 10 said their company plans to redesign the layout of their office space because of these evolving working patterns, without reducing the amount of office space. Given these changing preferences, CFOs should optimize the space available by activity and function to improve employee wellbeing, enhance the office experience and ultimately worker productivity.
The second topic discussed in detail was the growing problem of supply chain disruptions across sectors, and whether the just-in-time or lean management model is still relevant.
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For Tetra Pak, just-in-time has been a central part of operational efficiency as net working capital has been quite low. But since the pandemic, just-in-time has been supplemented with just-in-case inventory management as the company is committed to making food safe and available.
For some critical and non-perishable supplies such as microchips and semiconductors, even “just if available” has become a practice. CFOs need to remember that being lean doesn’t mean holding zero stock. When we polled our CFO of the Future Summit participants, we found that 80% of their companies have not practiced just in time. However, they also believe that post pandemic, the principle of just-in-time still apply. An interesting perspective when one considers that the importance of building up strategic inventories, using balance sheet strength to support members across the value chain and the accelerated development of AI-based simulation capabilities have been used with success by companies that have thrived during the pandemic. These leaders have effectively channeled growing data flows from connected supply chains, point-of-sale capture, and multiple external data sources to drastically increase the speed and accuracy of decision making.
Another important point that Bruce raised was the relevance of just-in-time in a business climate where capital is widely available, the cost of capital is low, and the urgency to receive goods from suppliers is low. When capital becomes scarce and the cost of capital is high, just-in-time is much more important and beneficial. Our era of abundant capital also offers an opportunity to reprofile Capex portfolios and systematically gear towards zero-based, more responsible, and more digital supply chain operations to drive long-term performance.
Supply chains have been thoroughly disrupted by the pandemic crisis, but classic tools such as just-in-time should remain relevant if they can be supplemented by the development of new analytics capabilities and skills.
The main takeaway from the sessions? There are opportunities for value creation everywhere one looks. But people are a company’s most important asset and value creators. Looking ahead at our post-pandemic world, it is critical for companies to focus on their people and create the proper business and work environments to unleash their drive, creativity, and productivity to seize the opportunities created by the accelerated disruption and change.
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