FINANCIAL PERFORMANCE
Culture of transparency
Channa Manoharan
The ability of a company to navigate financial challenges depends largely on the sector and markets in which it operates, the customers it serves, and its scale and maturity, according to Channa Manoharan.
“To effectively manage these macroeconomic challenges, it is crucial for companies to adopt an enterprise risk management (ERM) approach. This enables them to proactively identify key risks, optimise resource allocation, and refine strategies to maintain competitiveness, mitigate risks – and remain resilient,” he posits.
He asserts that inflation reduces consumers’ purchasing power, directly impacting demand while also increasing costs.
RESILIENCE STRATEGIES During economic crises, organisations face challenges in maintaining financial stability. Manoharan affirms that implementing strategies to mitigate these challenges calls for a balanced approach that considers both financial prudence and human centric solutions.
He points out that organisations with mature ERM frameworks and robust business continuity management (BCM) processes have weathered the storm better than others.
Manoharan opines that cultivating a culture of transparency and open communication helps employees understand the challenges an organisation faces, encouraging them to contribute innovative solutions and cost saving measures.
“Diversifying into new markets and revenue streams can help create a buffer against market fluctuations. Prudent financial management – e.g. maintaining adequate cash reserves and reducing unnecessary expenses – can provide a cushion during a downturn,” he explains.
Manoharan continues: “Balancing these measures with a commitment to supporting employees through training programmes, mental health resources and flexible work arrangements has paid dividends.”
COMPETING PRIORITIES The immediate priority for many corporates has been short-term survival by maintaining profitability and liquidity.
Manoharan believes that balancing financial performance with competing priorities like market expansion and product development requires a nuanced approach aligned with overarching business goals.
He reiterates that growth initiatives are essential but must be financially sustainable: “Especially in the Sri Lankan context, where there are many growth opportunities beyond domestic borders, market expansion becomes a pivotal factor. It’s crucial to manage priorities between short-term survival and long-term growth, striking a balance between them.”
According to Manoharan, assessing the financial impact of initiatives, and considering factors like ROI and cash flow, guides strategic resource allocation. Regular performance reviews facilitate informed decision making to optimise financial outcomes while pursuing growth opportunities.
MANAGING RISKS Assessing and managing risks associated with financial performance “requires a multifaceted approach and can be achieved by integrating the principles of ERM.”
“This involves conducting comprehensive market analysis, diversifying across geographies and products, and employing various hedging strategies to mitigate interest rate and currency risks,” Manoharan elaborates.
Moreover, he asserts that transparent communication with stakeholders about risk exposures and management strategies ensures alignment and trust – and by implementing these measures along with ERM practices, a resilient financial framework capable of navigating uncertain market conditions can be created while seizing opportunities for growth and innovation.
KEY INDICATORS Measuring financial performance includes metrics such as revenue growth rates, profit margins, ROI, cash flows and customer lifetime values.
In response to current market conditions, he adds that these key performance indicators (KPIs) have progressed to include more forward-looking and resilient measures – viz. scenario based planning to assess potential economic impacts; resilience metrics focussing on liquidity and sustainability; integration of environmental, social and governance (ESG) metrics; and the inclusion of digital transformation metrics, reflecting the accelerating pace of technological change in organisations.
TARGETS AND OBJECTIVES Aligning financial targets with broader business objectives including ESG goals is the cornerstone for organisations. Manoharan explains that “this involves setting clear and measurable goals, for both financial and nonfinancial objectives, that reflect the organisation’s mission and values.”
These objectives, he stresses, must be integrated with performance evaluation frameworks, linking compensation and incentives to progress toward ESG goals alongside financial metrics.
And finally, Manoharan asserts that a culture of accountability and transparency, and promoting cross-functional collaboration to ensure all departments work towards shared objectives, must be fostered.
