Outlook is Sunny

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As Seen in CFO Studio Magazine Q3 2019 Issue

In the world of enterprise application software, SAP is a giant even amidst a towering $419 billion market. The German-based company has 437,000 customers in 180 countries, including 92 percent of the Forbes Global 2000 companies. Some 70 percent of the world’s transaction
revenue touches one of the company’s systems. But even with a market-share advantage, the organization’s leaders know it can’t stand pat—and that’s part of the reason SAP is transitioning those clients from on premise software to the cloud. Of course, such a maneuver means that SAP’s strategic thinking and internal processes must also change. Radically.

The CFO who is helping SAP make that transition is Todd McElhatton, an energetic, down-to-earth executive whose mission has been to steadily and nimbly steer the Cloud Business Group even as SAP has continually transformed its business to ready itself for the next wave of growth and disruption. He joined SAP in February 2017 as CFO for North America and was promoted into the Cloud role in June 2018. He’d had extensive experience before that, much of it with Hewlett -Packard, but also with cloud technology providers Oracle and VMWare.

SAP has individual CFOs for its regions and largest lines of businesses, but McElhatt on alone has end-to-end P&L responsibility in his Cloud Business Group role. He’s the decision maker on pricing strategies and on deploying resources to accelerate the company’s growth
trajectory. “It’s really like running your own company,” he says. “Th is year SAP’s cloud business will be somewhere between 6.7 and 7 billion euros [US $7.5 to $7.8 billion] based on the most recent guidance that we’ve shared with the Street.” If the cloud segment were a separate company, those revenues would give it a perch on the Fortune 500, at around number 400.

This sector is among the fastest-growing segments in SAP. Moreover, cloud business is not drying up—far from it. “Based on the fast adoption of its cloud platform,” wrote Forbes in January 2019, “we expect SAP’s cloud business to continue to drive [the entire company’s] value in the near term as well as long term.” While McElhatton is quick to hone in on the areas for potential improvement and focus for his leadership team, the cloud part of SAP’s financials looks strong in the near term: Half-year cloud revenue was up 42 percent, the company reported in July 2019, versus 13 percent for total revenue.

McElhatton, with several hundred direct reports, has a small central team that helps him on planning, and six CFOs supporting different businesses. He reports to Luka Mucic, the Corporate CFO and Board Member in Walldorf, Germany.

“It’s been an interesting ride to have end-to-end responsibility in a business that’s growing really fast, growing organically, but also driving growth from a world class acquisition strategy,” says McElhatton.

He and Jennifer Morgan, President of the Cloud Business Group, share a belief that acquisitions can add desirable features to SAP’s cloud offerings and help fuel growth. “Last year we bought just under $3 billion worth of assets,” he says. In April 2018 SAP acquired Callidus Software (now CallidusCloud), a CRM solution; two months later it acquired Coresystems, a field-service management platform powered by Artificial Intelligence (AI). The buying spree continued into this year, with SAP Cloud moving into the new realm of experience data by picking up Qualtrics for almost $8 billion, and thoughtfully integrating each of these assets into its suite of offerings. SAP has been clear that there are only tuck-in acquisitions on its horizon.

 

An Imperative for CFOs
McElhatton has strong opinions on the 21st-century knowledge CFOs need in order to exercise a leadership role and to innovate their businesses. “CFOs need to be intellectually curious about technology. Take a look at the companies that are the most respected and have the highest market cap,” he says. “One thing you’ll see is they are either technology companies or they are companies that are heavily using technology to drive their businesses.”

He acknowledges that it’s relatively easy for him to learn about Artificial Intelligence and Machine Learning, for example, because SAP has “such deep roots in technology.” But he advises CFOs whose knowledge of the emerging technologies is based on reading, not seeing, to visit customers and learn about new developments and ways technology is being deployed. McElhatton says he goes to peer CFOs and others when he’s got a question. “If we’re looking at doing something [in Finance], I have the opportunity to reach out to my network.”

He traces a line from ERP systems (a centralized approach to business processes) to Supply Chain Management (a centralized view of the company and all its operations) to Machine Learning and AI. “At SAP, we look at Machine Learning and AI and say, ‘Not only are those
ways for us to be more efficient in how we run our operation, but they’re also a way to give us an advantage over our competitors.’ We’re using Machine Learning to help us eliminate some mundane tasks. AI takes that to even the next level: predictive analytics.”

McElhatton says the focus for his customers is less about the technology and more about the business outcome. “Companies and CFOs are constantly looking to improve business efficiency, create new processes, or develop new business outcomes. That’s what matters most. We first need to identify what business process needs to be created or improved, and then back into that with technology. Technology is the enabler to make it all happen.”

 

Getting his Grounding
At HP in the 1990s, McElhatton got a close look at business operations, sales, and customer relations as the company negotiated the largest deal it had ever done. His bosses gave him an entrepreneurial role next, sending him to Switzerland to start a new business for HP’s Outsourcing Business.

“One of the things I tell people who I mentor now is don’t be so prescriptive: ‘I want to start at X, and I’m going to move in lockstep and manage people at this stage, and manage a larger team at this point,’ ” says McElhatton, who earned his MBA at the University of Tennessee. His early HP experience gave him an understanding not just of the impact the numbers had on the business, but the timing: how long before that revenue adds to the business. It taught him, in other words, “how Finance could make a difference,” he says. “And sometimes the difference was keeping the company from doing something that wasn’t going to have a good outcome.”

He also absorbed how to lean-in on a decision, asserting the correctness of a course when there are “more variables to the equation than just the variables you have on the spreadsheet,” he says.

McElhatton gained other valuable experience when he moved to WebMD in 2000. “Tech stocks were hot,” he says, “and it was an opportunity for me to learn a whole different skill set.” He went from an environment where everything was very structured and the hierarchy was two or three people deep to one where he was making decisions on his own because “nobody had done it before.”

But soon the heady atmosphere soured as the dotcom-led recession hit. Although WebMD was heavily capitalized and able to withstand the downturn, the company had to roll back its ambitions quickly, focus on making money, and release around two thirds of its employees in a three-month period. “It’s super hard, but if you don’t make those tough decisions, no one will be there. You realize you’ll never have perfect information, and how do you make the call with 80 percent of the information because time is of the essence?” he asks before quickly adding: “The difference between having 80 percent of the information and 88 percent doesn’t make that much of an impact.”

A restructuring or a recession can forge character, though. “You learn a lot as a leader about what you don’t want to do,” he says. “People want a leader that doesn’t have their hair on fire. They want one who is calm and can be thoughtful even if you are under the pressure of a deadline or difficult decision. They also want to have a leader who is authentic and thoughtful. You’ve got to provide hope but at the same time be truthful and authentic with people and give them the context around what’s happening in the business.”

 

Beyond Being a Traditional CFO
That McElhatton brings his best to work every day is apparent. Working hand-in-hand with sales comes easily to this people executive who early in his career absorbed the lesson that broader knowledge is better. He frequently showcases tools for customers—SAP products, aft er all, make the Finance function hum.

He’s a practical man, understanding that no one can focus on too many imperatives at once. “You get a much better outcome if you can help people distill their focus on the three things that are really going to make a difference,” says McElhatton.

In fact, McElhatton believes that one of the most beneficial contributions he can make as CFO is to provide focus in a business world that can sometimes off er too many priorities or directions.

 

Finance Transformed

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As Seen in CFO Studio Magazine Q3 2019 Issue

WHEN CFOS ASK, ‘WHAT CAN I GET OUT OF THIS DATA?’ SUTHERLAND CAN HELP THEM PUT THE RELEVANT INFORMATION TO WORK IN THEIR BUSINESSES FASTER

To understand how the Finance organization role has changed in today’s digital age, we recently interviewed Jim Lusk, CFO, and Tim Leger, SVP Business Process Transformation, for Sutherland, a digital process transformation company headquartered in Rochester, NY. Sutherland’s focus is on improving the customer experience and delivering meaningful and measurable business outcomes to clients. Lusk and Leger provide a unique perspective, bringing insights from a company’s CFO as well as from a business leader responsible for partnering with primarily small and medium businesses to transform and automate their Finance operations.

Jim started by sharing that, as CFO, his ultimate goal is “to become a strategic partner to the business.” To achieve this, his top priority is to make “the Finance organization more agile, forward looking and decision-centric to address stakeholders’ growing demands for access to the right information, at the right time, to make the right decisions. With the right data and business insights, he said, “you can really beat your competition. Th e most important question you need to ask is, ‘What information do we have that is not being used that can help the business run better?’ ”

 

Transformation Journey
Jim, like most CFOs, shares a passion for improving business operations, and recently completed a “multiyear end-to-end intelligent
transformation” of Sutherland’s entire Finance organization. It included implementing a new ERP system along with digital technologies and
an analytics platform. Th e results are noteworthy. The 50 percent operating cost savings are impressive, but the true benefits, Jim pointed
out, were the “business outcomes delivered and improved controls and compliance.” The department’s process transformation significantly improved cash fl ow by reducing DSO (days sales outstanding) to world-class levels. By rethinking and digitizing its transaction activities, the close was reduced from 22 calendar days to 7, leaving time to analyze results as opposed to just reporting them.

The most important result was significant improvement in customer satisfaction, achieved by automating the billing process. Automation improved accuracy while at the same time reducing cycle time from 80 hours to less than 8 hours.

Jim admitted the significant advantage he had was a built-in partner, Tim’s F&A transformation team. They have 8,000 finance professionals working with clients to create next-generation Finance organizations. Tim shared that a majority of small to-medium businesses, even some Fortune 500 companies, lack the skills and investments required to truly transform their Finance operations. An
interesting statistic he quoted was that “more than 50 percent of companies that try this themselves fail. The primary reason is that they lack the required automation experience, and there is a shortage of those skills in the market. My organization has that expertise to accelerate automation and takes on the risk of delivering the results.”

Real Estate A CFO’s Lever?

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As Seen in CFO Studio Magazine Q3 2019 Issue

SHEDDING EXCESS OFFICE SPACE FACILITATED TRANSFORMATION OF A 5,000 EMPLOYEE COMPANY

Sas Mukherjee, CFO and Chief Strategy Officer for York Risk Services*, has delivered his company millions in benefits using a financial lever that few CFOs employ. When he joined York, an insurance services provider, in 2016, he saw the potential to consolidate its real estate footprint. The company, based in Jersey City, NJ, had more than 100 facilities across the United States. By year end 2018, the number of offices had dropped 43 percent, with over 31 percent reduction just in 2018.

Decreasing the size of that footprint was not the only positive result. An important outcome that York is tracking in tandem is employee engagement, which has become markedly more positive over that period.

What York needed at the time of Mukherjee’s hiring was an operational leader who was more than a traditional CFO with proven track record who could help the company drive quick transformation. And that’s what the company got.

Mukherjee’s atypical route to the CFO role includes stints as Chief Executive at two different firms, including a top private equity portfolio
company; as Managing Director at a Big Four consulting firm where he formed a center of excellence to help Fortune 500 companies develop plans and implement long-term strategic transformation; and as Shared Services CFO/Head of Strategy and Business Excellence at health care company Kaiser Permanente.

He found his niche in the CFO role with its “360-degree view of the company, a view that is grounded in solid facts and financial numbers.”
Thus, a CFO “is in a much better position to develop a realistic vision and has a higher probability of success” he says. To take that a step further, “CFOs are uniquely positioned to wield many levers to drive strategic transformation,” Mukherjee says.

He has been an evangelist for the evolving strategic role of the CFO and has been a sought after speaker delivering keynote addresses at CFO
conferences around the country. He has engaged CFOs at Executive Dinner Series events hosted by CFO Studio, discussing how real estate can be a financial lever for organizational change, among other levers.

 

Not Just Cost-Reduction
Back in 2017, Mukherjee was implementing a broad portfolio of transformation initiatives requiring access to top talent, among other criteria. Location of York’s real estate, he knew from his prior global resource and real estate optimization experience, was an important enabler. Through a competitive procurement process, he selected Jones Lang Lasalle (JLL) to be York’s commercial real estate broker, partnering with Scott Lesh, JLL Managing Director, after the two were introduced by CFO Studio’s CEO, Andrew Zezas. Mukherjee determined that any office space for York would feature elements of what Lesh calls the improved workplace experience.

The two made a good team, sharing an understanding that “the real estate lever can be equally as effective and enabling” as outsourcing or analytics for driving strategy, says Mukherjee. “We’re seeing a significant shift in the way employers are looking to attract and retain talent,”
says Lesh. “They’re giving employees spaces to collaborate and the opportunity to cross-pollinate with their colleagues.”
*York was acquired by Sedgwick in early September

In many companies it’s work-your-own hours, he adds. Huddle spaces or lunch areas that encourage getting together can be retention and collaboration facilitators, particularly with Generation Z and Millennials, whose focus is more on well being than on putting in long hours to
demonstrate their career commitment.

 

Areas of Savings
At York, Mukherjee absorbed JLL generated market data for portfolio optimization.

“What we wanted to do was leverage this opportunity to identify markets within our current footprint with best talent pools, better cost structures, higher safety or lower crime, and ease of access to airports,” says Mukherjee. “There were multiple aspects to those requirements. We had to do the analysis based on families of jobs.”

Where current employees lived—and where customers were—factored into the decisions too.

“As part of the study we did with JLL,” says Mukherjee, “we looked at tapping into locations with proximity to good schools, producing students with the skill set we needed for our future workforce, or migration patterns of workers to certain parts of the country. We looked at the availability of government tax dollars, although they didn’t play a very big role in the end.”

The course York eventually took was to create a hub and satellite model, where hubs would have at least 200 employees. Satellites were markets York had presence in that didn’t have the critical mass of employees but were strategically important.

Substantially fewer York locations meant savings in lease, maintenance, and utilities expenses. In addition,

•Leveraging existing available space to support growth avoided the cost of leasing additional space.

•Long-term commitment to occupancy costs and capital expenditures was reduced by using co working spaces (WeWork and Regus) to fill needs for offices in some cities where York needed a presence with few employees.

•Corporate policies to enable work-from-home arrangements, where appropriate, also reduced space requirements.

And then there are the soft benefits. To name just one, York adopted more cloud based technologies and “collaborative working tools for sharing documents and video meetings between employees across geographies,” says Mukherjee.

 

Sold on the Value
“Real estate was a lever to support a broader transformational journey that we were undertaking.” So real estate rationalization enabled other decisions, such as reorganizing the Finance team and anointing some of York’s existing locations as shared services hubs and promoting local leadership, says Mukherjee.

Were there tough choices? Yes, but Mukherjee emphasizes that the entire process was collaborative. “We engaged the business and operations executives to jointly agree on, ‘Here’s what’s in it for you.’ ” Business leaders who became more efficient in their use of space and in helping consolidate real estate would get a benefit on their P&L that in turn could be re-invested in employees and improving customer service.

From this point, York’s journey becomes a little harder, he says. The plan is to stay engaged with the global leadership team and, using criteria Mukherjee’s team has developed, continue to review “if the hubs and satellites we agreed on make sense and quarterly action plans. In that way we’ll keep executing on the long-term plan.”

Mukherjee is passionate that “CFOs who aspire to be more strategic should be looking at this lever and getting involved, because of the independent and unbiased view they can bring to the analytics around real estate and the bottom-line and cultural impact.” For him, rethinking real estate usage helped support “a broader transformational journey that we were undertaking—real estate wasn’t leading
that, but was enabling and supporting our shared services strategy and our brand rationalization.”

Copyright 2017