CASE STUDY - 4 About the Company Founded in the year 1976, M/s. ECOFEN is a joint venture company (hereinafter referred as 'the company') between the Indian ECO Group and Malaysia based FEN Group. The Company is one of the few FMCG companies which manufactures and markets household equipment, essential kitchen commodities and plethora of grocery products. Their packaged food brands are top brands in South East Asia and are registered in many countries. The company operates through eighteen plants across India and several south Asian countries. Control features established by the Company 1. The Company has a strong team to monitor internal financial controls and has established enterprise risk management framework across all the processes and functions except for Research & Development. 2. The Finance & Accounting functions plays a critical role in the organisations, managing the treasury risks across the countries and accounting for the hedge transactions. Since, the company operates in multiple countries; the Corporate Finance team has developed a dash board to monitor the pricing movements of each foreign currency and looking for arbitrage opportunities. They have benchmarked Indian Rupee & US Dollar as to two currencies, with other country currencies and repatriated the surplus funds, whenever the prices are favourable and ensured that the company accrues forex gains. 3. The Company invests heavily in the Research & Development activities, and has Centre of Excellence (COEs) in five countries including India. The COES continues to study the market demand, consumer preferences, environment and sustainable products. There is a proposal to invest ₹100 Crores on the R & D centres which will carry out scientific research on evolution of human needs over next twenty years and come up with innovative products and services. 4. In order to improve operational efficiencies, the Board of Directors advised the management, to establish a Steering Committee to evaluate the areas of cost reduction and identify efficiency improvement projects, besides prioritizing retention of employees. The Committee comprised of Operations Head, Chief Financial Officer, Chief Risk Officer, Human Resources Head, R & D Head & Marketing Head. Observations and suggestions by the Steering Committee 1. The Committee observed that the R & D centres are facing multiple issues like: • Lack of skilled personnel: Availability of talented resource is a serious concern. Retention of talents is equally a concern. Due to family constraints and lucrative salary offered in the market, retention of talented resources proves to be a bottle neck in running R & D centres. The HR team could not fill up all the vacancies and there is high level of attrition in the last five years. • IPR Compliances: Intellectual property registration are in the form of patent right, copy rights trademarks and trade secrets. Due to global presence, the Company is finding difficult to comply with the local IPR laws of the respective countries. This has led of leakage of revenue due to similar design packages was used by the unorganized players. This has also had a reputational risk due to the inferior quality of products being sold by the infiltrator. • Long duration of Technology projects: It is imperative that R & D projects generally consume a considerable time to study the changing market dynamics. The Company has targeted for 45 different projects to be completed over three cycle, however were able to complete only 15 projects, and the three year cycle is almost getting completed. • Information Breaches/leakages: Securing R & D data is critical. In spite of having the state of art technology and controls, there has been data compromise in the recent days, which impacts the development projects. The Company has also spent on Ransomware breaches of about ₹ 250 Crores after which the importance of technology and the gaps in their IT systems were understood. 2. The Committee after multiple rounds of discussions and data analysis has come up with various suggestions which are listed below: (a) Outsourcing the R & D Surveys to external agencies at fixed rate contracts. (b) Modernisation of lab equipment, which would enhance quality of product analysis. (c) Upgrade the existing IT systems, to ensure on-line monitoring of all projects initiated by R & D Team and have adequate data protection protocols. (d) Establish Risk Management Framework to the R & D function and ensure it is integrated with other functions in the organisation. Steps taken by the company on the suggestions made by the Steering Committee: 1. The Committee wanted to assess the risk maturity levels in the organization and the level of integration of risk management with operational performance. An external firm was appointed, to study the existing risk management practices, assess the gaps compared to industry best practices and also advise on settling for risk framework to the R & D Centres of Excellence. The external firm carried out a risk maturity exercise and applied various techniques to identify whether all related risks have been covered and adequately mitigated. They have also carried out an independent assessment of the Governance Framework and submitted their report after a detailed study. They have identified that the company has a qualitative and quantitative risk assessment process, based on which all risks are classified in High, Medium and Low. A step by step process for implementation of Enterprise Risk Management to R & D Centres was covered in the report, including the bottlenecks for its implementation. The report also included suggestions for enhancing the effectiveness of risk management across the functions & geographies. 2. The Chief Risk officer advised his team of risk managers in various countries to monitor the geo-political changes, climatic conditions, consumer preferences, regularly which forms the basis to mitigate R & D Risks. 3. The Management has engaged third party professional firms, to carry out various consumer preference surveys and to provide HR support respectively. The marketing team and the R & D team would consider the survey findings. The marketing team understands the needs of the consumers and place the products from the existing portfolio basket. R & D team picks up the futuristic preference into their product development process. The actions taken by the Management, based on the recommendations by the Steering Committee is yielding positive results. Multiple Choice Questions Choose the most appropriate answer from the given options.