A CFO’s Role in Navigating Change

The CFO Forum gathered on Wednesday, December 13th at Cisco’s Atlanta Collaboration Center to discuss the CFO’s Role in Navigating Change. We were joined by Scott Herren, CFO of Cisco. Our moderator Leslie Kurtz, Jackson Healthcare CFO, led the discussion.

We rounded out the event by recognizing the 2023 Preeminent CFO of the Year, Capgemini Americas CFO, Ashley Crandall.

Leslie: You were recently brought into Cisco to help the organization transition its business model away from the traditional perpetual license model toward a more modern, SaaS subscription-based approach. Tell us a little bit about this change and your role as a CFO leading the change.

Scott: I spent time at Autodesk for 6 years. Forty percent of our revenue was recurring for maintenance on software. When our value goes up, the delivery must go up.

Our revenue came down and spending went up, had to support both models. In the first and second years, we lost money on our P&L and were cash flow negative. In Year 3 we were up 30% and up 40% by year 4 (From $12B to $60B).

It was fun and intellectually challenging. The change aspect was huge with over 10,000 employees. I relied on our CEO as a mentor.

Leslie: What changes did you have to make for this change to happen?

Scott: We had to build the product, create financial metrics, and change the way we sell to retail and our customers. The CEO of Autodesk declared publicly; that within 2 years we will see their last perpetual license. We had (good) people leave because they did not agree with the new business model, but our CEO was a hardcore proponent of the change. In 6 years, we went to 97% recurring revenue and our value grew significantly.

We are making the same shift at Cisco on a larger scale – currently 44% recurring revenue today. Fifty percent of our business is still hardware. For comparison purposes, we made $3.5B in revenue annually at Autodesk, and at Cisco, we are at $4B per month.

We had to get our sales team to understand that annual revenue is better than 1-time revenue.

Leslie: Change is more difficult the larger the organization. How did you prepare Cisco?

Scott: I spent my time communicating not only to our board but to our investors and employees. When I took this role, I thought it would account for 20% of my time but it was half.

We had to emphasize, “Here is change, and this is why” and that it must be better for employees and customers. You must create a compelling vision, and reason for the change.

Leslie: How long did it take to implement this change?

Scott: From Start to finish, it took 6 years at Autodesk. I am currently in year 3 at Cisco, and it may take longer due to the size of the organization. Essentially, in technology, if you don’t love change you need to find a different industry.

We had to define the difference in the business models and the change must happen at all levels, not just the board.

Leslie: What is the recipe for change?

Scott: Hearts and minds – having people understand why and internalize it. It changes everyone’s job in the company. Do not underestimate the challenge of that. I hosted a quarterly webcast with the entire company after each earnings call.

Do not underestimate the challenge of financial systems infrastructure. Get your sales team to embody “Bigger is Better,” i.e., $10M better than $8M if you had to discount it. We also had to change comp and use data to set target sheets.

Finally, lay out a path for investors and direct communication to new metrics.

Leslie: What is your Macroeconomic outlook and how are you navigating 2024?

Scott: We are in a time of uncertainty that has been accelerated over the last 6-9 months, but we are headed for a soft landing. We sell in 120 markets around the world, and America hit a point of stability. It is a suitable time to be prudent but also continue to invest. We have stability in Europe even with Germany’s recession.

As for Central Banks' response to stabilizing interest rates, there are too many 25% decreases built in, and we are staying at rates longer than expected. China and India have the fastest-growing economies but struggling. As for 2024 – we are feeling the severity and longevity of recession.

Leslie: How have you championed ESG and Sustainability?

Scott: Cisco is on the Leading edge, and it is a first wave of focus with our California vibe. However, it is difficult without ratings in place. As our younger generation gets older, this will continue to be front and center. We must establish a fact base to compare apples to apples. The scope is difficult, and we need compliance around sustainability. It certainly is a costly lift, but we must have it without breaking the bank.

Leslie: Are you embracing AI in business?

Scott: We must use it to make operations more efficient, predictive, and autonomous. It currently plays a key role in security. We currently have a WebEx feature that uses AI to screen out background noise.

Leslie: How is the culture before and after this recent change at Cisco?

Scott: Cisco announced the shift before I got here. We addressed it with a level of candor and debate, which is better than a passive-aggressive approach. You must keep the blockers at bay. If you cannot get on board that is fine, but you owe it to yourself to go somewhere else.

Q&A

Question 1: How far into the future does Cisco try and imagine planning?

Scott: A Minimum of 3 to 5 years. We tend to go further with product strategy reviews, i.e. Here is what we are doing, but it could take longer to leapfrog the competition.

Question 2: Cisco is a highly acquisitive Company – How do you balance it with transformative change?

Scott: With the change, new metrics have been added. We did twenty-five transactions last year. After we determine if the culture is aligned, we ask ourselves if the business models align. Sometimes there is a difference in talent as well. We will continue to be acquisitive and find synergistic companies to acquire.

Question 3: What keeps you up at night?

Scott: The hearts and minds of our go-to-market sales team and channel partners. How do we change the business model and comp our sellers while keeping the momentum going through that channel?