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Managing Business Growth in Emerging Markets

Managing Business Growth in Emerging Markets

In this video of a session with Thack Brown, COO and Interim CFO of SAP Latin America & Carribean, Thack discusses the fact that while North America and Europe may be stuck in a crisis, BRIC countries continue to show positive growth.  He points out that because of this growth, it is now more important than ever to have a growth strategy for emerging markets.

Mark Richards says in his blog post on Thack Brown's presentation, "As fellow finance professionals, we all agree the expectations for our roles are changing—in fact a recent Google search on 'The Changing Role of Finance' delivers over 90 million results"

Watch this conference recording to learn how to develop and implement a successful strategy...

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Full Transcript:

SAP in terms of 2008, 2009, not only were we looking at all of this turbulence which continues to happen in the region and now added to globally, but we were at a very serious inflection point where we had a lot of these pressures, a lot of emerging middle class coming out and emerging markets, non-traditional markets necessarily for us, massive explosion of data, mobility coming onto the scene, all of these different things starting to impact us that said, on one had we've got to try and struggle with everything that's going on in the global markets and how do we manage that.

On the other side, we've got to reinvent our business because there are a whole bunch of challenges that are coming out from a technology point of view that because of the crisis now got tremendously accelerated.

We made some pretty big strategic bets on, this is a nice way to put it, in terms of what's the market size for the various markets that we were in, so we said in 2010, the markets essentially within the core, what everybody knows SAP very well for, the core ERP applications and some business analytics that we had, market of about $110 billion, by 2015, they're three key segments that we have to get into in order to stay relevant for our customers.

We've got to get into mobility, get into database, and database acceleration, we've got to get into cloud applications. That takes our addressable market to $230 billion. In the middle of all of this, with all of the turbulence, we have to reinvent ourselves, get into important technology spaces where our customers need us, so that we can help them through these same struggles that they're having, and continue to stay extremely relevant to them.

That means we have to transform our business while we manage all of this global volatility and all of these new pressures. So all of this falls down, of course, as I mentioned, emerging markets, when we took a look at this plan, what we put underneath of it was "today, we are a 10 billion, this is 2010, a 10 billion Euro company, in 2015 we want to be a 20 billion Euro company."

Now, North America, Europe, stuck in a crisis. BRIC countries, growing. It doesn't take a genius to sit down for very long and figure out, "Well, I guess we're going to be where most of the growth is going to happen."
Right? If we want to double as a company, that means within the emerging markets, we're probably going to have to do two and a half to three times growth. So how are we going to do that? And we'll talk a little bit about how we did that.

So a couple of lessons from Latin America, and I'll start out on the regulatory and compliance piece, a little bit about what we have done. I think Latin America, one of the really key pieces, is compliance. Compliance, Sarbanes Oxley, all of the things we have mentioned here.

So a couple of things we have done, we've put together a very, very dedicated, competent team to work on compliance exclusively. Some of that's in SOX, some of that is everything related to foreign practices, to the requirements that we have now with the legislation from the UK and et cetera, how do you do good, clean business in a region that's known for having difficult places to do that.

We got a specific-focused, small, but very competent team together that worked on that, and we made it a significant leadership priority. So whenever we have leadership meetings, compliance office is always invited, they are always at the table, they are always talking to the leaders about what is going on.

When we do our sales kickoff every year, we get the entire sales team together, during the keynotes, the compliance office always has an hour to talk about what's going on and what you need to be aware of. So the sales team knows that we're serious about it. When we get together with our ecosystem, when we do our partner events, the same things.

In the keynote, the compliance office is there, explaining what the expectations are. And we've built a whole infrastructure behind that, but at the same time we've made it very clear we have the compliance office, there's a job that they have to do, the ownership of compliance starts with the entire leadership team, beginning with myself as CFO, our COO, our head of sales, and the president for the region. So that every single person knows that we take it very, very seriously, it's not just something you push to the compliance office and say, they're dealing with it. But you get it into your day-to-day, doing that reduces our risk tremendously.

And in Latin America, like many of the emerging markets, what you'll see is there are a lot of very serious professionals who take this very seriously. I don't know how many of you have a lot of detailed Latin America experience, but there tends to be a bit of a stereotype that says that in Latin America, everything's kind of signed, agreements and et cetera, you can't do business with the government. Incorrect. That's not the case.

There are places where that happens, there's a lot of places where it doesn't. If you demonstrate that you're serious about compliance and you make that part of your internet process and you make it clear to people what you're expectations are, and you show it daily, the guys who don't want to live in that world just won't come work for you. And the guys who do will be delighted to come work for you. And that will be a key differentiator for you.

One of the other key things we did was within shared services. So, Latin America still has a lot of small markets. One of the key things for us to get our compliance into control especially in the SOX side, was getting that pulled in, the key SOX elements pulled into a central location. So we built the shared services centre in Argentina several years ago, and our key SOX processes run through the shared services.

It would be impossible to try and control that on the ground in each one of the countries in Latin America. Not impossible, but it would be very difficult, it would be very expensive. By pulling that all in with the shared services and getting many of those key processes lined up on [xx], I can now be comfortable that that's taken care of.

One thing I do want to talk a little bit more about is on the risk management side. One of the key things we have done within managing risk, we have globally built a completely independent structure for the evaluation of risk. And this is extremely important. That goes direct to our global CFO as the only report, so they work with me in the region, but they are not tied to me, I can't tell them what to do, which I love, because it means that they stay completely independent and we put them into all areas of our business.

We've built out a very nice technology layer that supports them, so that they are a little bit of evangelizers, they get out and they work with the business leaders and explain what we want, what we need to be monitoring and managing and risk, and the business team then helps us get that in place within our systems so that we can get a single, consolidated view of the key risk items that are going on in the company.

That has been extremely important, we've built out what we call the delegation of authority, so very clear rules on what needs to go in and what does not. We've educated our teams on that, and everyone knows that they have that responsibility. The result of that is I have a very good view into risk and into SOX and into compliance, from a very small team.

We have a total of about eight professionals across the region who are dedicated to all of this, this in a subsidiary or in a business unit that's about a billion year-over-year in revenue. So eight people in an organization that size is not a tremendous investment, but if you use it well and you make it part of your management priorities and you put a good technology layer in to support you, you can get very, very effective control and review of your risk.

One of the things that's important for us as CFOs in that, is setting the priorities and really understanding our business. So when I first started in the role, the structure already existed and we started working together, they would send me reports on a monthly basis that summarized up the risk that we had in the operation.

So once a month I would open these up and I would read them from each of our market units. We have three market units in the region and the consolidated one for Latin America. That was comfortably the most depressing day of my month. Comfortably.

If my office was a couple of floors higher, to where I would be sure that I wouldn't make it if I jumped, I probably would not be with you guys. Because these reports just talked about everything, major economic meltdown in the US, impending financial doom and collapse, what would happen if the bird virus took off and caused impending chaos around the world, global warming might flood key markets low on the coast in Latin America and destroy our operations, I mean the list was just enormous.

And you sort of looked at this and said, "But how much of this is really relevant?" Right? What of this do I really care about? And so we got together and really got the team focused in on what are the key elements that we want to know about. So of course you have your basic legal and statutory ones that want to know if we've got audits going on somewhere, if we've got some sort of a tax problem that's popped up, if we have some sort of compliance issue that's shown up on the radar screen, of course I want those things in.

But when I looked at my business, I basically said, "I have two places where I can really get in trouble. I can get in trouble at the time I sell a product", and that would basically mean something slipped through our radar that we weren't paying close enough attention to, and we sold a product that required localization into a particular market and it really wasn't ready for that market. And we need to go jump on that and fix that. That's the one.

And then the other one would be, we have a project going on that gets into trouble, for whatever reason, the complexities, whatever issue, management change, etc. These things happen. These are the two areas where I need to be very aware of risk. That's the reality of my business. Right?

So how do we focus in and look very intensely at that, cut everything else out, I know, I get to read the Wall Street Journal, I know if Europe is going better or worse, all of those sorts of things, I don't need that in my risk report. That's just noise. I need things that will really make a key impact on my business. So we put that together and got really focused on that. At the regional level we got that done, on the local level, then we've used that as the mechanism to manage our business, but to also educate our local teams and help them with their maturity.

It's not about being a control freak, it's about getting people focused on the right topics, and then when they're focused, how you help them understand the issues, work on those issues, prevent the issues, so that they don't happen which is where most of our focus is, is on prevention, and therefore they become better, stronger professionals, that allows them to do their job better and allows you to do your job better. Because a lot of this is about, how do I as the CFO have bandwidth to do some of the other things?

Which is why it's so important to have this focus structure, because I can't spend my whole day worrying about compliance. I have to have the tools and the people there so that I can go worry about point two and primarily about point three.

So point two, superior service at reduced cost. I won't go too much into this, but I think shared services is critical. Right? There's just no getting around it. Today, all of us are under pressure to spend less as a percentage of revenue while handling more things. That's just our reality. You simply can't do that today without shared services in the vast majority of companies because the cost savings potential and the standardization, the elements that I talked about with SOX, are just too relevant and too important.

So again, as I mentioned, we have a shared services that is in Buenos Aires, it actually serves all of Latin America, serves the Iberian Peninsula, some countries in Africa that are Portuguese-speaking where we have some capability a little bit for Italy and also now the North American market.

That's fundamental, because that's a scarce resource where we have good quality service built on a strong technology platform that allows us to do that business well, but where we get the cost savings so we can put that into the other things that we need to do.

The second element that I'll talk about, some of the projects that we have done, is how do we make our existing resources more effective, focused on the right things. So one thing that we started looking at and this was very natural through the financial crisis, we were spending a lot of time on the forecasting process. A tremendous amount of time on the forecasting process. All of that trying to get a view into what might be happening as we go forward, etc.

Well, in volatile markets, that really doesn't make a lot of sense. That's not what you're worried about. Again, what you're really worried about are, do I have a reasonably good view into where things are going, and do I understand the big things that could make my results significantly worse, and the big things that could make my results significantly better?

And then once I know that, how do I get resources focused on doing that?
Because what we found was we had all sorts of important things that we needed to do, but once we got done with the close cycle, so that would go through and start up as we all know right before month end, close that would run through a handful of days at the beginning of the month.

Then we would go through the forecast cycle, we would run through the forecast for rolling four quarters going forward, that would take us through to just over the middle of the month. We'd do some nice analysis of that, we'd do our reporting, we'd talk to the business, we'd have a solid week to actually go do something, and then we'd start into the close cycle again. Colossal waste of time quite honestly. And great resources.
These were the guys who knew where the risks were and where the opportunities were, and they could go do something. So we ran this lean forecast project. Basically we used lean methodology, we got a lot of smart people together from around the globe, we talked about what was working and what wasn't, and we made enormous changes to the amount of reports, to thresholds that we were looking at, and how frequently were we doing the forecast.

So as opposed to doing monthly at the beginning of every quarter, we do a good four-quarter, forward-looking view with a good focus on the current quarter. The last month we do a high level checkpoint that basically says how are we going to close out the quarter? So we know if we've got a few last issues or things that we have to keep focused on.

But basically in that first quarter review, or the first monthly review, we pull out "these are the big risks, these are the big opportunities." And now we have weeks of time to go focus on that and for finance to get engaged with the business teams and help them deal with those issues.

Whereas before, we just threw it over the wall to them and said, "Here you go guys, good luck, but I've got to get back to the close and forecast cycle, hope that goes well for ya". Right? "If you really need something, call me in the third week of the month, I should have some bandwidth".

That's no good. You can't do that. And so now we dedicate week after week to working with them on these key issues and we make sure that the key risk get mitigated and the key opportunities get done.

The second one which was quite simple but has been really a delight to me, we've got all of these young, bright guys in the finance organization around the region. We started pushing some dashboards and ideas down to them, they got proactive, went out, sat down with some consultants, taught themselves how to do dashboards, and they're running dashboards all over the place that help them in their day-to-day.

We have our centralized function, very standard, very key where we look at the same things over and over, but now these guys have taught themselves how to do their own dashboarding so if they know they're going to repeat something over and over and over again that's really for their use, they can put it into a dashboard, pull it right out of the system and make it automatic.

That's been a tremendous efficiency generator and satisfaction generator for these guys because now these guys also want to be engaged, they want to get working with the business, they don't want to be sitting around just running reports all the time. Now they get that automatically out of the dashboard, very simple thing, you don't have to do a lot.

You just have to give the guys the room. I thought I'd throw that one out there because I think that's been very effective.

But let's go in and talk about the last piece. Now that you do the key things that get your costs down, and allow you to refocus that into the key areas of the business, you take a lot of the wasted things out of what you're doing in the day to day, you get a good, strong team focused on the compliance side and you've put the tools and technology underneath of all of that that helps that work, now you can get down to one of the new things that quite honestly is the most enjoyable part to me about being a CFO.

It's partnering up with the business and helping them grow, and see the results. Right? One of the things that I think is really important about that is, as well as coming back to the cost side, from a finance point of view, it's a lot easier to have a great cost-to-revenue ratio if you're growing. It's a lot nastier if you're not growing. Right? Because that's when you have to deal with inflation, we deal a lot with inflation in Latin America, it's much better in some markets, not so good in others.

If you haven't got your business growing, not only is it a problem for you but we all know it's a problem for your bottom line. And you run into that risk of getting into that negative spiral of constantly trying to take cost out and not being able to focus on the business and that's not a good spiral to get into.

So once you do this, the couple of things that I put in here that I wanted to talk about, because again, with the volatility in Latin America, we've gotten very used to dealing with these things. I'll give you a couple of examples.

Focus your time on your opportunities and not your problems. And once you can figure these out, you can move very quickly and push the business to do this, because many times, especially on the sales side, we all know sales guys are optimists. If they weren't optimists, they wouldn't do what they do, because it's really a hard thing to do, to get told "no" all the time until you finally get a "yes," we all know what the win rates are typically, right, it's about a third, which means you get told "no" twice for every time you get told "yes." That's a pretty painful thing to go through.

So if you're not careful, the sales guys will constantly come back to you, telling you "No, no, no, don't worry, I've got it figured out. I've got a new plan. We can go do these things." The CFO, we're a little more battle-
scarred. Right? And we can cut through a lot of the optimism and get down to facts, and we can figure out very quickly we've got scarce resources where we've put them.

An example on this, in I guess about 2003, 2004, I was with EDS, we had a very nice operation going in Venezuela. Venezuela was going through a lot of social change. New government with new priorities, they had a different focus that we looked at and said this is not going to be very good for our business. Where the country wants to go is not favorable to the conditions that we need for our business to work.

We started looking at that as a leadership team. The sales team of course came in, they had all the great plans, we can do this, we can do that, we can do the other. We said, "You know what, no". We can see where this is going, we have a great team, great customers, we've got to keep taking care of those customers, but we're not going to continue to grow there, and at the same time we were starting to see the movement in Colombia.

The violence was coming down, new government there, getting things under control, the economic growth was starting to come to calm, this was a country with tremendous natural resources that had never been explored. We said, "We're going to take our leadership team that's very good, they know what they're doing in Venezuela, we're going to move them, anyone who wants to go to Colombia, they'll continue to run the business in Venezuela from there but they're really going to focus on the Colombian market and we're going to make the Colombian market really grow for us". Tremendous success.

We grew fantastically and we were at the front edge while a number of most other companies were still looking, going, not sure if I really believe in this. And something that amazingly continues to this day, I'm constantly in conversations and discussions with people trying to figure out how to make their business work for Venezuela. And they spend tremendous amounts of time doing this.

When things are booming in Colombia, booming in Chile, booming in Mexico, booming in Panama, booming in Peru, and they're spending hours trying to figure out if there is some way that they could re-work their business model and do something to get things going again in Venezuela. It doesn't make sense. And they're missing out on enormous opportunities. Their focusing on their problem. Right?

One thing that I have definitely learned being in Latin America, you move those priorities really quickly, and when things are booming, because you don't know how long it will last, you invest, you grow your business, you get great returns out of it. When things downturn, you reset your business, you make sure it's the right size, you keep taking care of your customers because it's going to come back at some point.

Then you focus on where things are good. A lot of companies and a lot of leaders struggle to do that, the CFOs are much better at analyzing that and helping the businesses make those decisions.

One thing that we also need to look at, a lot of the CFOs, kind of in our blood, we're a little bit of control freaks. I know that won't come as an amazing surprise to all of you, and I'm sure that none of you have ever been told that by any of your direct reports or any of your business peers, but it happens to be true in a lot of cases. You really have to resist that urge.

I see that all of the time. Something goes wrong, somebody doesn't understand the market, the business starts to move in a new direction, and the headquarters location is too far away from what's really going on in the market. When things start to go bad, their first decision is, I'm going to make the decisions. They cut control, they pull it back in. They stop trusting in their people. Huge mistake.

If the guys on the ground who live it every single day are struggling to get it figured out, I guarantee you, you will not. No chance. You've got to have people that you believe in, that you trust, you have to get enough intimacy with those markets to where you can really cut through what's fact and what's fiction to help these guys, but you have to leave those resources and that functional decision-making in the field.

As you go forward right-sizing your cost structure and you want to get to growth, you have to push more of those resources down into the market unit. An example for us, I don't know, many of you have probably never seen this and I have to speed up, I think I'm getting to the end of the time here, but most of you have probably never sat down to read the Revenue Recognition Guide for Software Revenue Recognition. That's fortunate for you. It makes the Bible look like a comic strip.

It's enormous. I had to reinforce the corner of my desk that it sits on so it could support the weight.

When I came to the region, we had revenue recognition centrally controlled at our Latin America headquarters, so we had a number of professionals there who were dealing with revenue recognition because of compliance. We wanted to make sure that we got a good view into everything. That does not work for high growth.

So the reality was, these guys were great, dedicated, worked harder than anybody I've ever seen, they were bottleneck. And so one of the key decisions that we went through was, as we reduced down cost and we cut out the waste and we improved what we were doing with shared services and we got things under control, we started taking those resources and putting them directly into the markets together with the sales teams.

We kept the high level controls to make sure that they didn't go too native, right? Get so close to the sales guys that they start to lose perspective, so we make sure that we pull them back, we keep them close to us, we keep educating them, we keep them engaged, demonstrate what's going on. We give these guys a lot of freedom to do what they need to do. And as we train them and we see that they get better, we give them more freedom, and we keep going, and we keep going.

The result is, far more projects need to come to a regional level for decision making, the sales teams are far happier and we have velocity. We're not going to grow markets at 30, 40, 50 percent. If everything has to come back just to an L.A. level, let alone think about taking it to a global level. Right?

These are key decisions and trust that the finance leadership needs to drive within our structures where we impact, and we need to drive our business leaders to do the same thing. Because central command and control and high growth very rarely go together. That's not very probable.

The last one I want to talk about here and then I'll go to my final slide, we have to also take ownership of technology decisions. I don't mean that from the point of view of getting into the nuts and bolts and details of technology, that's not what we need to do.

But the reality is, technology landscape is moving too quickly and it's too important to our businesses to really expect that the vast majority of CIOs are going to be able get their arms around it all, understand all of it, understand that the technical bits and details as well as the strategic side of what you need and how the solutions can benefit your business.

It's just too much. The reality is, it's just too much. And so we, what the market calls the line of business leader, but we as finance, must get engaged in deciding what solutions we need and then partner with the CIOs to figure out what ones are the best from a technical point of view, and get them implemented.

We have moved very strongly to pushing, what do we need to make our business run better? Example, mobility. We as a company have moved very strongly into mobility, because we are global, because I spend an enormous amount of time on airplanes, an enormous amount of time in taxis, just to get to the office in any given location, it can be an hour in most major Latin America cities, and an hour back. I can't live off of just doing some email on Blackberry only. It's had to go much further than that.

And so today, through my iPad, for example, I can look at my major business indicators. I can look at the pipeline in real time. I can look at where we are in DSO and what is going on in DSO, major collections issues. I'm looking at liquidity, I'm looking at the business side, I'm making approval decisions, I'm doing all of that off of an iPad which is a button push, and it's on. Right? That's it. Anywhere I happen to be, any time I need it.

If I waited for the CIO to decide that that was a good idea, I would very likely be waiting until 2020, 2030, when he was no longer worried about security and whether or not, if this went bad, it might impact his career, and how he was going to integrate data, and all of those things from his side.

That's not a slam on the CIOs, those are all real, very serious concerns, and I understand that they're hesitant. Of course, because it's new. They don't know it, they've got to carve out time and resources, some will get very proactive and they'll dive in and they'll do it. We see that every day.

A lot will sit back and go, "I don't know. I'm not sure I'm so interested in trying to do that this year, I think I'll wait next year, as long as nobody's screaming, I think I'm good." Right? You can't let that happen.

You have to get engaged and understand what you can do and what you need to continue to be effective in this new global environment and manage all of these elements, and then partner with your CIO to go make that happen. That is critical to your success.

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