Five imperatives for CFOs in the new normal

Given the ambiguity, uncertainty, and lack of perfect information that have characterised our recent circumstances, Vietnam CFOs have found themselves in an unprecedented position to offer strategic counsel to their CEOs. In addition to their traditional mandates of financial performance and risk management, many CFOs have needed to step up amidst the ongoing COVID-19 crisis to provide the necessary financial leadership to drive business strategy.

Across the board, the pandemic has also provided Vietnam CFOs with some stark realisations of the vulnerabilities of their organisations and finance teams to significant disruption. But for those whose organisations came into the crisis slightly more prepared, there is also a newfound appreciation of the importance of sustained, long-term investments in areas such as digital infrastructure and capability upskilling.

With the increasingly widespread recognition that COVID-19 is never really going to go away, Vietnam CFOs are now looking towards the new normal, and embracing the important roles that they will need to play to ensure their organisation’s resilience now and into the future. In this article, we will discuss five imperatives that they should consider addressing as they prepare for this new reality:
 

1. New business models
As Vietnam CFOs look ahead to the future, the ability to respond quickly to market needs with new business models will be crucial to enabling their organisations to gain a competitive edge and emerge as a leader of the pack. Key focus areas should include investing in product innovation and diversification to capitalise on some of the new demand that has emerged during this pandemic – most notably in e-commerce, e-payments, and other digital behaviours – and which are expected to persist as permanent consumer habits in the long haul.

To enable companies to deliver on their new value propositions, it is also important that CFOs support their organisations in enhancing their distribution channels and bolstering their supply chain resiliency. Earlier in May 2021, this lesson was underscored for many technology hubs located in North Vietnam – many of whom function as crucial links in global technology supply chains – when authorities had to shut several industrial estates in response to new infections.

2. Digital transformation
While digital transformation is not a novel concept for Vietnam CFOs and business leaders, the COVID-19 pandemic has highlighted the benefits of digital readiness in ensuring business continuity. CFOs whose organisations have made prior investments in digital technologies have found that their finance teams were able to better adapt to new working arrangements and perform their jobs more efficiently and effectively.

Looking ahead, CFOs should explore ways to further leverage enterprise resource planning tools, artificial intelligence (AI) and machine learning algorithms to derive strategic insights from data to anticipate various business trajectories, and conduct forecasting and scenario planning. Such planning activities should also be done in close collaboration with key leaders across the different functions, including marketing, sales, finance, supply chain, HR, and IT, to obtain a diverse set of perspectives on the possible futures for the business.

3. Workforce agility
With the increased emphasis on the use of digital tools during this pandemic, work is likely to become more digital in nature for the foreseeable future. Within Southeast Asia, recent Deloitte estimates suggest that a potential 50 million jobs could switch to remote work across the ASEAN-6 economies of Indonesia, Malaysia, Singapore, Philippines, Thailand, and Vietnam over a multi-year time horizon.

Vietnam CFOs should therefore capitalise on this momentum to review where digital technologies, automation, and AI could make the finance function more agile, resilient, and innovative, and re-examine their existing notions of work to more effectively lead and engage their workforce. Such efforts should include the reskilling and retooling of their workforce to facilitate business continuity, including more remote training and support to help employee better adapt systems and collaboration tools for their work.

4. Risk management
As a result of COVID-19, certain key accounting and disclosure considerations may arise both in the short-term, as well as across a longer time horizon due to potential drawn-out impacts on the economy. Currently, many Vietnam CFOs are in the process of re-assessing several potential accounting implications for their organisations, applying the appropriate impairment and loss recognition guidance, and re-evaluating which aspects of their business will be more or less profitable in the long run.

But in a volatile environment, CFOs also need to watch out for the emergence of interdependent risks, where the trigger of a single risk could lead to a series of cascading risks with unknown consequences or impacts. These include not only the perennial challenge of minimising liquidity and currency risks, but also potential credit risks as a result of counter-party exposures for contracts, and fraud and cyber security risks that typically tend to be magnified during a crisis and its aftermath.

5. Restructuring and M&A
With the wide-ranging impacts of COVID-19, it is conceivable in the short-term that some companies will require corporate and debt restructuring. In the longer term, merger and acquisition (M&A) activities are also expected to rebound as organisations see the need for structural and systemic changes to safeguard their existing markets, accelerate recovery, and position themselves to capture market leadership.

For companies with a strong balance sheet but facing significant disruption in their sector, M&A could be used to safeguard their customer base and supply chain. On the other hand, CFOs could also leverage M&As to acquire disruptive companies who are at the forefront of the industry, and use them as the springboard to launch new offerings that will shape their sectors in the future.

In addition, to reduce risk and capital outlay, CFOs could explore other avenues of inorganic growth strategies in tandem. These include, but are not limited to, partnerships with their peers, co-investments with private equity, investment in disruptive technologies, cross-sector alliances with specialists.

Fundamentally, there will be no return to business as usual. In fact, it may be quite the opposite. But amidst all the changes, one thing will always remain constant: CFOs in organisations with relatively stronger balance sheets and cash reserves are likely to be better positioned to seize opportunities to innovate, pursue opportunistic acquisition opportunities to outdistance their competitors, and grow more quickly in the ensuing recovery.

The views and opinions expressed are those of Nguyen Khac Huy, Director, Consulting, Deloitte Vietnam, and do not necessarily reflect Deloitte’s view.