iba
Alumni Magazine
January - June 2021

Shahid Ilyas is a qualified Chartered Management Accountant-UK, MBA-IBA (EMBA 2007), Fellow member of the ICMA Pakistan and Certified Director.

At present, he is working as Chief Executive of a consulting company “VGC” offering services in three main domains, Finance and Accounting, Digitization and Training. He is visiting faculty member of leading universities as well.

Background

The need to organize the business in terms of financial discipline has never been so high than it is now. Your business data, financial and non-financial, is your greatest asset, if you are not making the most of this asset, you are probably not capitalizing on the great opportunity. The real challenge is to capture synchronized and structured business information. Processes and capabilities need to be built to get data and more importantly to use that data. Data analytics and data visualization are helping businesses these days to find their hidden growth potential, especially predictive analytics, but the prerequisite for this is the “reliable data” which is generally collected by ERPs. Small, medium and even large businesses in Pakistan are still being managed in conventional style, they don’t seem to be believing in numbers and technology. Perhaps, this is one of the reasons why our businesses have not been able to position themselves in the international market except for only a few.

Use of financial and non-financial business data

Accurate financial information can leverage your business much more than just fulfilling statutory & regulatory requirements. For instance, while deciding the products/services mix, the bottom line can be maximized by focusing on the “high yield” product/service. This fact can only be determined based on accurate data as against mere perception. Another example is the words of Peter Drucker "What gets measured gets managed", optimizing operational and non-operational costs provide businesses with the competitive advantage that helps them gain sustainable profitable business growth.

Same way, the non-financial information can provide you a deep insight into your business that you never knew before and it can surprise you as well. Take, for example, the case of Netflix, One of the major success contributing factors was the introduction of Binge-Watching after analyzing the data related to the viewer watching behavior.

Strategic use of financial & non-financial information allows you to make winning business strategies. While doing so, two important things to consider; 1- businessman uses his gut to take business decisions, sometimes in a blink of an eye, this works, no doubt about it. 2- analysis-paralysis, over-thinking can paralyze the decision-making process. Smart entrepreneurs can synergize by creating an optimal mix of both business gut + relevant supporting business data. Malcolm Gladwell in a book "Blink" talks about the concept of "Thin-slicing", it says, that smart decisions can be made with little information with minimal deliberation, but this little information has to be factually correct which is not possible if the businesses do not have the complete visibility of their most valuable asset, “DATA”

The approach of SMEs in Pakistan

In the case of family businesses and SMEs in Pakistan (not in all cases, of course) I’ve seen in my experience over the years that financial information is produced to fulfill regulatory and statutory requirements only instead of using the valuable information to analyze and improve the business performance. In general, the activities related to accounting and finance are perceived as non-value adding, as a result, poor financials are produced that serve no strategic purpose. A premium tool to gauge the business performance is the amount of cash coming in and going out, owing to which, the entrepreneurs can never have the true reflection of their business in numbers. What aggravates further is the confidentiality phenomenon of business information, centralized organizational structures, micromanagement, week standardized processes, inadequate hierarchal structures, low level of process automation, inefficient ERP and nebulous reporting, etc. Considering the ongoing digitization of the economy and stringent tax & corporate governance measures by the government, sooner or later, businesses will have no option but to get their house in order.

Process efficiency is another area with huge potential for improvement in local businesses. Inefficiency refers to spending more time and money than required to arrive at the same result. Inefficiencies do have a cost associated with it, which never surface since it is hard to capture. Also, information systems are generally not capable enough, but this doesn’t mean that it doesn’t exist, High margins generally absorb the inefficiencies, it doesn’t bother the entrepreneurs until the margins start to get thinner and business growth gets stagnant. So the leaders must act in advance and prepare the business to run efficiently. Time has changed, the increasingly competitive business environment is now pushing businesses to minimize operational inefficiencies and cost leakages (cost of non-quality) to optimize their cost to stay in the game. Global companies regularly follow this approach, their teams continuously look to minimize the cost, this forces their suppliers to come up with challenging offer all the time, if they do not organize their businesses, they won’t be able to meet their expectations.

Conclusion

Process Standardization, Financial Discipline, and Digitization are highly significant in organizing the business, to do so, being open to new solutions and adapting to new technologies is the best approach. In this era of disruption, it takes no time to become irrelevant. Businesses must take all those measures that enable them to adjust to the changing competitive business environment.