When Cisco’s low-to-mid $20 stock hit the $15 levels in 2011, the networking equipment maker put a number of key turnaround strategies in place. But none took a higher priority than transforming its finance function, said Frank Calderoni, executive vice president and CFO at Cisco Systems, speaking at CFO’s CFO Rising West conference on Tuesday.
“We were getting a tremendous amount of attention externally from investors and the media about Cisco and what was broken,” says Calderoni. But after accepting the criticism and setting plans to revamp its operations away from just information technology to one focused on business technology, it decided to take a long hard look at the strategy and planning within its finance organization, he said.
One of its first changes to its finance function was to alter the operating model. “How do we change the operating model and make it much more consistent with a much more pervasive view of the business globally over a long period of time?” he asked.
For one thing, Cisco had to re-evaluate all of its business units and who was responsible for their performance. To help in this endeavor, the firm created an actual transformation office, dubbed ACT, which stood for Accelerated Cisco Transformation. Here it aligned goals and objectives globally from engineering to sales and marketing, matching financial metrics and business metrics.
But to effectively transform its finance function, Cisco realized it had to reset the internal and external expectations it had for revenue growth. “For a number of years we were looking at [revenue] growth in the 12 to 17 percent range,” he said. With 80 percent of its revenue occurring from new business, and not having a subscription-based model with recurring revenue, it was very challenging to keep to those levels, according to Calderoni.
Cisco, in his words, had to become more “realistic” and reset its top-line revenue growth back to 5 to 7 percent. Its new emphasis would be placed on profitability, instead of on bookings. “We wanted to drive faster growth on the profit side,” he said.
But that change was only made possible with the finance function taking on what he called a “value oriented role,” in the company, instead of just keeping track of data and performing fiduciary responsibilities. To him, the old way of thinking about the finance organization was “very basic.”
To assist his staff in its new way of thinking, Calderoni made sure business executives were focused not just on the balance sheet but also on the drivers behind the balance sheet from a business perspective. “The more you build that [finance] talent, you start seeing more need in the business for those capabilities,” he said.
Additionally, he made staff cultivate lots of relationships with the CFOs of clients such as Walgreens, Merck and General Electric, so staff had “external relevancy.”
With Cisco’s stock now back to $22, Calderoni believes the plan is working, although its “transformation” is not over, by any means.
What has also helped Cisco is product diversification like its push into videoconferencing systems. Cisco’s revenue was $48.6 billion for fiscal year 2013, up 6 percent compared with fiscal 2012. Its product revenue rose 5 percent during that period, to $38 billion.