Asia Vs. Headquarters: Dealing With Stretch Targets

In two decades as a finance leader focused on the technology sector, Robert Krakauer spent some time in Korea, Singapore and other places in Asia. Now Executive Vice President and CFO of Aspect Software in the US, he has been on both sides of the corporate-regional divide. “Typically in Asia, a lot of organisations don’t have much issue on the revenue growth,” he says. “It’s more on profitability.”
 
Krakauer spoke to CFO Innovation’s Cesar Bacani about how he runs financial management at the US$515-million-a-year-in-sales company, which counts the world’s top financial institutions, business process outsourcing companies, and other organisations as customers of its work optimization and contact centre solutions. Excerpts:   
 
Some regional finance executives complain that it is sometimes difficult to deal with corporate headquarters because it is so far away and the global CFO does not seem to have an appreciation of what’s happening in Asia, particularly in China.
I understand why many regional CFOs feel that way. There are many global CFOs who maybe don’t have regional experience so it’s harder for them to relate [to regional issues]. I think the more modern requirement for CFOs is to be more international, and one of the things than can help is if you’ve been in a situation where you have been a regional person.  
 
But as Shared Service Centres are increasingly being located in Asia, I think global CFOs are tending to get a better understanding of what the more international issues might be. For example, I was previously with [aerospace and automotive company] Allied Signal and we built out a Shared Service Centre in China. For quite a few of the senior corporate team, that helped quite a bit getting that understanding [about the region].
 
Asia, if you include Australia, India or New Zealand, is actually geographically very dispersed and culturally very different.  It so can be quite challenging to cover the entire region well. The difficulty of coverage is probably one of the more challenging issues.
 
There’s also a sense that because Asia is one of the few bright spots in the global economy, unrealistic targets are being set for the region.
I’m not sure I’d call it unrealistic. The job of corporate CFOs is always to issue stretch targets. Whether they are a stretch or unrealistic is a matter of perception, but I don’t think setting challenging goals is any different for Asia versus Europe or Latin America. For example, there are all sorts of very good expectations for growth out of Brazil, where I would say [Aspect Software has] got at least equally encouraging and impressive growth targets.
 
Typically in Asia, a lot of organisations don’t have much issue on the revenue growth. It’s more on profitability . . .  We have the same profit objectives globally. I think, you sometimes have different expectations in Asia in regards to profitability on accounts. I think that’s one of the tougher things to manage.
 
It’s more customer expectations. When you operate in Asia Pacific, it’s going to be more competitive pricing than when you’re operating in North America and Europe. For software companies in particular, our costs are in R&D and we’re essentially charging for the value we provide and our intellectual property.
 
We are in a continual discussion with customers about the value we provide. It’s more a value-based pricing model rather than a cost-pricing model, especially given the fact that we are selling intellectual property. We’re not a manufacturing company.
 
It seems it’s more a marketing issue, then, rather than cost management or efficiency or productivity, this quest to raise profit margins in Asia.
It’s also around available talent. We have to be in global labour markets. Looking for the best talent is a key goal.
 
Aren’t wages rising rapidly in India, where you have a large R&D centre? Are you looking to go somewhere else in search of cheaper talent?
We’re already in China, and I’d have to say India has a better price point than China for us.
 
Going forward, the strategy in Asia is to convince customers to pay more?
We’re trying to fight a battle with customers to make them understand the value that we bring. Finance has a key role [in terms of providing the required information using analytics and business intelligence].
 
Are you happy with the way FP&A is being done to support you as CFO and other departments?
From a technology perspective we continue to work and evaluate the IT tools that are available to us.  Increasingly we’re trying to move toward a more automated data warehouse approach in some of our key objectives.
 
We have a premise-based Hyperion package. I don’t see cloud based applications as necessarily being cheaper. I think they can be cheaper if you don’t have an IT infrastructure. If you look at the lifetime of a piece of software, a monthly subscription format versus paying upfront does not necessarily equate to it being cheaper. If you look at a 3-5 year time horizon, a subscription based package can actually cost you more.
 
Where people see saving is the IT staffing, hardware, those kinds of issues from avoiding all those charges. But premise-based software can give you control over security, over confidentiality of information. It depends on the application.
 
There are cloud applications that we use for example. We have found a cloud-based solution for cross-functional project management is quite efficient for us because we’ve got people globally on projects, so the insole and ability to make that a seamless and easy implementation is a better approach for us than a premise based solution. There are trade-offs.
 
We do see cloud based solutions increasingly being attractive for small and medium sized businesses, and premise-based systems being more attractive for larger enterprises. But that’s shifting over time. It depends on the nature of your application, the complexity and also security and compliance considerations.
 
How is the finance function organized at Aspect Software?
I actually run my back office a little bit untraditionally. I run all of my international finance with an International Controller, who manages all of the regions outside North America in a Shared Service Centre out of Ireland. Additionally we have some shared services [in legal services, local taxation and other processes] done in India.
 
I don’t have finance staff in every office. I’ve tried to centralize in our SSCs in Ireland and in India. Customer facing issues we put in the regions. The regional headquarters are really more customer and sales oriented and are staffed with regional marketing and sales people.
 
So if I look at the cost of finance, would you say your cost is best practice for your industry?
We think we have a best practice tax structure. I think running the SSC as well as our intellectual property ownership in Ireland has been quite advantageous. Doing the other shared services out of India, that has cost advantages. I think we have done some things that are benchmarks.
 
I’ve seen studies that put the benchmark cost at 0.6% of revenues. Will you be close to that?
Yes, from a cost perspective, I think we are.
 
Is there concern, though, about leadership succession and development in the finance function because of the shared service structure?
I see your point. I don’t think for us there necessarily is [implications on talent management and succession], but it does impact succession planning. You have a smaller base of staff to grow. I think that’s a valid point.
 
I think the bigger challenge is your succession planning is geographically dispersed, so for people to move up in some of those ranks, they will be required to move. People aren’t always open to international assignments. I was very much open to it for much of my career, I think it helped my career, but many people don’t want to take that adventure.
 
I was at Allied Signal [formerly Honeywell], which was a Fortune 50 company and there wasn’t always those opportunities in the same geography, but there was opportunity if you moved to take advantage of this.
 
Will the finance people in the Shared Services Centres be part of the talent track? Can someone there rise to become International Controller or CFO?
Of course. I would say they have different value-adds. I wouldn’t differentiate between my SSC and other jobs, because they’re doing equally value-added work.
 
I know you have been with other companies. Is this the same structure?
No, because we are a software company, we actually have significant tools that we deploy that make it very seamless for us to run operations internationally. Every desktop [in Aspect Software] has videoconferencing, an integrated presence system where you know if someone is in the office or not, instant messaging, email, voice-over-IP phone calls – it doesn’t cost us to make international calls.
 
So for us, our architecture in communications makes it pretty easy to work in multiple offices. When you’re a manufacturing entity you have the inventory and other kinds of considerations that you’ve got to think through.
 
Before you did the SSC and BPO and all the technological tools that you now have, was the finance much larger at Aspect Software?
No, but it was more centralized in our Chelmsford location [in Massachusetts]. So it was not as cost effective and I think it was also probably not oriented to solving all the international problems that we have now. The company has done that over a number of years. We’ve been operating in India for ten years and in Ireland for three or four. We’ve changed our strategy over time.
 
In terms of revenue, what does the geographical segmentation look like? What are the plans for Asia Pacific and other emerging markets?
We have a bigger percentage that is North America, but we do have significant Asian and international customers. HSBC is a very large account. Citibank is a very large account. We have to operate in all places that they operate. The financial services vertical is about 30% of our revenue. We are in the BPO industry, healthcare, retail, financial services, technology companies.
 

We expect that our international markets especially Asia and Latin America have a faster growth rate. We’re seeing a lot more customer service migrate to both geographies. We’ll be going where customers are. 

 

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