Digital Transformation Isn’t An Option, It’s A Necessity

According to Eric Shander, executive vice president and CFO of Red Hat, digital transformation is not an option, it’s a necessity. A veteran in the business, Shander works with his team to stay nimble in the face of rapid technological change, to not only harness it for the betterment of the business, but for customers too. I spoke with Shander this month to learn more about the impact technology has on the finance function and how he’s embraced it through a “process-led, technology-enabled” mentality.

Jeff Thomson: Red Hat is the largest open source software company and recently reported significant increases in profit across hybrid cloud computing, application development, and other emerging technology segments. How is Red Hat differentiating itself in the cloud-based, subscription platform space? What is the role of innovation within Red Hat?

Eric Shander: At Red Hat, we have positioned our product strategy around the hybrid cloud environment. As we spend time with our customers, we begin the conversations with what is happening in their respective businesses. Ultimately, these discussions result in what our customers need from their IT environments. Given how fast industries are transforming, customers are looking for an IT infrastructure that can scale, has the flexibility to leverage the benefits from multiple cloud service providers and can be both on premise, as well as in the public cloud; all of this translates to what is referred to as hybrid cloud. Customers also want IT environments and applications that can be rapidly updated, embracing the agile development approach that Red Hat has been leveraging for years.

From a product standpoint, what differentiates Red Hat is our cloud-enabling technologies, such as OpenShift and OpenStack, which work on all the major cloud providers. Customers really like this flexibility. All of our cloud-enabling technologies are built on top of the critical operating system Red Hat Enterprise Linux (RHEL), which is installed in more than 90 percent of Fortune 500 companies and enables an easier transition to the cloud because our customers do not need to change their core operating system and the applications they have written to run on it.

Our open culture is also a key differentiator for us. How we work is truly different from other companies I have worked for. We have an open decision framework that allows the best ideas to emerge, no matter where or from whom in the organization they come from. We place our customers at the core of our focus and that is evident in the solutions we bring to them in order to help their businesses be successful. The result of all this focus is the growth we have experienced – 63 consecutive quarters of revenue growth.

A recent McKinsey report notes that executives admit their companies are under-investing in big data, analytics and digitally transformative initiatives (just 45% marked it as a top-three priority). As EVP and CFO, what’s your role in aligning the leadership team on the need to adopt modern technologies effectively? And how do you manage expectations, and cash flow, knowing these types of processes can be complex and oftentimes slow?

In many ways, the CFO function has been viewed historically as solely a control function or focused on cost containment and efficiency. However, as companies continue to look to technology as a key component to their strategy, the CFO function has the opportunity to provide advice to the CIO and CEO on how to best make investments. Understanding and embracing technology is a must for the finance organization, and I always encourage my team to spend time with the business to understand how they are leveraging the available technologies. Yet, I always encourage the team to first clearly define and understand the business processes and then consider the technology to support them. This is what I refer to as being ‘process-led, technology-enabled.’ The reason this is important is that oftentimes, teams will select a tool to solve a business problem without properly understanding the process. I can tell you from experience that this typically results in project delays and costly rework.

From a financial perspective, allocating proper investments to IT transformations is essential to maintain our competitiveness. Our finance team works very closely with the business to ensure we continue to drive productivity out of the core businesses and we reinvest those savings to our strategic IT priorities. Given the importance of our IT investments, I also ensure that at the corporate level we allocate an adequate amount of funding to our CIO’s priorities. As a CFO, you really cannot de-prioritize the most critical IT projects around cyber security or other key IT infrastructure requirements that could have significant external implications. We have been successful at getting corporate-wide support for these initiatives principally due to preparing detailed business cases. My team knows that we follow through on the committed savings that each project delivers, so everyone feels the empowerment of these large projects, but also the responsibility and accountability to deliver on commitments.

What advice would you give to a finance team looking to re-evaluate and prioritize budgets to accommodate digital transformation? You spoke to about digital not always being a “pot of gold?” Can you elaborate on that?

As I spend time with customers, it is apparent that digital transformation for many of them is not an option, but a requirement to maintain their competitive position. These business transformations do require an upfront investment of both skills and financial resources. Oftentimes these investments are required just to keep pace with the change that is happening within a particular industry. As an example, take the retail sector: there is significant disruption happening that is requiring many traditional players in this space to be much more nimble and change many of the routes to reach their customers, such as increasing the level of online channels. These changes require companies to be able to quickly re-tool their IT environments to respond to the market.

As a CPA how have your financial practices changed to keep pace with global business digital transformation? How do you leverage data analytics and data science in support of Red Hat’s larger strategies?

The CFO function has evolved from being transaction-oriented to being stewards of the data that runs the company. As an example, within my organization I have a department of data scientists that are amazingly talented individuals who take large amounts of disparate data and turn that data into digestible information. This results in business insights that enable us to make data-informed decisions. A current project we are working on is to model certain activities and data so that we can develop a set of operational and predictive indicators of what a customer may need. We will be able to provide these indicators to our account teams so that they can better meet our customers’ current and future needs.

At a more macro level, we are able to use data to evaluate how our customers are using our technology to incorporate future product enhancements, as well as even more sophisticated modeling to determine what future products customers may need. The best example of this is several years ago Red Hat was saying that the IT world would be a hybrid cloud environment, while many of our competitors were not in agreement with this view. Our perspective was based on our own data analytics and as a result we made several strategic decisions. When you fast forward to today, you are seeing that hybrid computing is what customers are choosing and it is here to stay for the foreseeable future. This aligns with how we have designed our products and company strategy.

Your finance tenure includes stints at IBM and Lenovo. How has your own career transformed over the last 25+ years? What skills do you feel are most crucial to succeed in today’s business landscape?

I started out as an accountant, which enabled me to really understand how business worked from a financial standpoint. During my first 10 years at IBM, I was afforded the opportunity to have more than 10 assignments, which allowed me to quickly get exposure to many of the areas within the accounting and finance organization across a few of their business units. Once I got into management, I really enjoyed leading people. I reflected back on my most impactful manager and his skills – he was a great people manager but he also had a strong technical background. While this may seem fundamental, oftentimes I come across managers that are much stronger or prefer one of these areas, but not both. The most successful executives exhibit both of these skills. Mid-way through my career I had an opportunity to go into an operational role within a business unit and that was instrumental to my development, since I was ‘part of the business’ and was responsible for the operational activities and being with customers. I have also had the opportunity to deliver on very large projects while at IBM and Lenovo which helped build up my credibility among my peers, but also among senior management. I have had the privilege of mentoring many people over the years, and from each mentoring relationship I learn a lot. Every one of my mentees wants something different from their career, which makes that part of my job very interesting. However, the one area I always discuss with my mentees is the importance of work-life balance and to consider the impacts to it based on the career decisions and trade-offs they make.

While I was being considered for my current position as CFO at Red Hat, prior CFO experience – which I did not have – was one of the preferred requirements for the role. What I did have was business experience and acumen – I ran a large IT infrastructure delivery team consisting of more than 22,000 IT professionals supporting hundreds of customers. Having hands-on business experience and being with customers every week provided me with a deep understanding of what Red Hat does. After all, the business I ran was a large user of Red Hat products! This experience enables me to talk credibly to our customers, industry analysts, and investors about the business, our products, and the impact we are having in the market. To me, this experience is much more valuable than being a prior CFO.

Lastly, it is imperative that financial people at every level have strong analytical and communication skills. We often have to explain complex technical topics to others, and having the ability to present a topic succinctly is essential. I always encourage the team to ‘communicate for impact’ – think about your audience and what the main points are that you want them to understand, or the decisions that you need them to make. Whenever I make a presentation, even if it’s a subject that I’m very familiar with, I always follow these three steps that I learned from a very senior executive years ago: you think critically about your topic, then you prepare your content and lastly you always rehearse it. Too often I see executives winging presentations and the audience typically knows it. Take the time to prepare and you will be better received. Your audience will also get more out of the presentation.


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