Change and the CFO: When Business Is Just Too Good

It’s a milestone that many companies might reach this year or have already achieved. Regus, the US$1.9-billion-in-annual-sales global provider of business centre office spaces, has grown so much in Asia in the last 18 months that it has had to rethink parts of its business model.
 
“We’ve gone past the tipping point,” says John Henderson, the company’s Asia Pacific CFO. “We need to move from a very much centrally managed business to a country focus.” This means assigning country managers to individual markets – and “strong financial talent” along with them.
 
Henderson spoke with CFO Innovation’s Cesar Bacani about the new structures and how finance is rising to the challenge, including the issues of shared services, talent management and non-transactional functions. Below are excerpts of Part 1 of this interview:
 
I understand financial management at Regus is being transformed. Tell us about it.
We’re going through quite a lot of change at the moment. As the Regus business in Asia has grown quite exponentially almost, with a lot of growth in the last 18 months or so, we’ve gone past the tipping point.
 
What we understand by looking at our strategy, by looking at our opportunity in the [region’s] markets, is that we need to move from a very much centrally managed business [out of Hong Kong] to a country focus.
 
That is something that Regus has been pursuing quite strongly over the last 12 to 18 months, starting with putting country managers into some of our smaller markets where we see opportunity, where previously they have been run as a small cluster of markets, to give them the right focus to achieve potential in the market.
 
What we’re looking to do simultaneously is to align strong financial talent with each of those country managers. That is our challenge at the moment, because we’re actually quite a small finance team.
 
How small?
Currently I have 27 heads in total in Asia – that’s 16 countries – and it’s very different, depending on the market. So in China we have more resource, India we have more resource, in Hong Kong we’ve got one who looks after our Hong Kong business. But that’s on the back of a shared service platform [in Manila].
 
So you would be hiring more finance people?
I just submitted some plans to Group [to bring up headcount to] about 33 in 2013. And then it will grow again, very much driven by our growth strategy, which is again quite aggressively looking forward.
 
Can't the shared services facility in Manila handle the in-country functions?
One of the challenges was finding people in Manila that had enough knowledge about the local market that they were going to be responsible for, whether it was Indian withholding tax structures and foreign exchange issues. With a business like ours, where we have a lot of legal entities, we’ve got quite a strong compliance requirement.
 
We also want to have a core management team who could sit together. We found that it was much more efficient and effective if the finance resource sat next to the CEO, the country manager. It builds a stronger unit to drive the business.
 
Now our challenge is to find the [finance] resources in-market that meet this mix of both technical skill and commercial skill.
 
How easy or difficult is it to find financial professionals with this mix of skills?
We’re finding that quite a challenge . . . Obviously, with CVs, we look at their technical qualifications. That’s your basis. You don’t need to be able to do it all, but you need to know enough to make sure it gets done right.
 
Then you’ve got to be a good fit for business. You do get professionals who like to have a very rigid structure. They like to have it all very nicely set up for them and they like to be in their comfort zone. So someone like that is not going to fit well within the Regus environment because we are much more fluid and moving and changing and growing and expanding and we’re entrepreneurial.
 
You want to have someone who’s a self-starter, someone who is able to make decisions, someone who knows how to ask questions, someone who has a certain amount of gravitas, who can get what they need from talking to people. They got to be able to strike good relationships with the other functions and get the right information. They’ve got to be listeners.
 
I imagine finding the right talent is especially difficult in China, for one.  
In China, there’s tremendous education, wonderful education. But sometimes it’s more challenging for people there to apply that within a broader business sense, because they’ve got all the knowledge, but they haven’t necessarily had a lot of experience at being able to use that knowledge across multi-functions.
 
Also I think traditional firms tend to have more of a silo approach. So we look for people who have worked in international firms, who understand how business is done in the local market, because that’s very important for us, but also understand how foreign companies operate. That foot in each camp is also valuable. So we look at CVs that have come up through that route.
 
But those are very expensive people.
Can be, can be. It doesn’t need to be Fortune 500. It can be any multinational or even an Asia Pacific presence, because they see operations outside of an individual market.
 
And these are people that other companies want.
Everybody’s looking for the same, shrinking talent pool.
 
So once they have joined you, then the challenge is . . .
To hold on to them. I think we have created a very challenging and interesting environment for people. There’s always something to be doing and something new, which is what kept me here at Regus for 12 years. It’s a long time.
 
They would have an accounting background and they will be asked to also be involved in the commercial side and function as a business partner. How do you deal with that?
You get people involved in projects. At the start, you may have them building financial models and asking the questions about what are the financial levers and what are the business levers that would drive that performance and understanding that.
 
Slowly they’d start to pool more information in and get exposed in project teams to working with the other functions. Because we’re a small team, finance is involved across the board. We’re making hiring decisions, we are getting contracts drafted, we re-negotiate leases, we’re buying businesses and doing due diligence . . . There’s a lot of scope in the finance function.
 
It’s almost conventional wisdom now that people need to see a career path, not just get paid well, if they are to remain engaged and committed to a company.
Career-pathing is a challenge. Some companies do incredibly well, and some companies don’t do it at all. I think the benefit that Regus has is we’re a growing business, we’re an evolving opportunity, and if you’re in a growth environment, there will be need for good people all the time.
 
What does your attrition rate look like?
Like any business, we get churned at different levels at different types of jobs. If you look at our business centres, you’d see CSRs – our customer service representatives – are very often first job or second job employees. They come in, they get some good training, get some good experience and then they’re looking to move on. So there is much more at that level.
 
But our more senior roles are a lot less churned . . . I haven’t had a lot of churn in my existing talent, which I’m quite lucky with. Many of my key finance staff have been with me for over five years, and some for 12 years. Most of the churn has come from people going back home to London or to America, rather than wanting to leave Regus.
 
What is the cost of the finance function as a percentage of revenue?
Having gone through a shared-service migration, it’s moved quite a lot. If you were to look back to 2006, we’d be about 2.6% in Asia . . . Today, excluding [the 500-strong Manila shared services centre, which now serves all other regions, not just Asia], I’m at about 1.3%.
 
That’s the 27 heads that I have at the moment across Asia. Because they tend to be more senior people, they’re slightly more expensive. It also includes the cost of compliance, bank charges and other costs.
 
Manila, at the same time, has also increased a little bit. It was 0.5% [of Asia revenue] about three years ago. In 2011, it was 0.55% and it’s probably a little bit more now. So net-net, we’re probably looking at just over 1.8% [as the cost of finance] in Asia.
 
With the added headcount of higher salaried new hires, do you anticipate the cost of the finance function to rise going forward?
We can grow all of these businesses without having to grow our finance function exponentially. We’re leveraging the efficiency of the shared service environment for our transaction base and then we’re putting in key people to support the key initiatives and make sure we meet demands in the market.
 
What we want to make sure now is that people are delivering, they’re performing. It’s productivity. Are you achieving the objectives for that market which is to drive growth and to maintain the existing portfolio? So drive performance of the existing portfolio, and leverage that to drive growth.
 
In real terms, we’re probably spending the same amount of money now that we were four to five years ago, in field costs, whereas our revenue more than doubled in the same period. So the percentage drop [in the cost of the finance function is caused more by] the increase in revenue, and holding that cost.
 
Can I step back and ask about your personal and professional background?
I’m actually Irish, but I left Northern Ireland when I was about seven. Moved to South Africa, then moved to England, then moved to Nigeria, then moved to America, then Australia, now Hong Kong. I’m a bit of a gypsy, a global traveller who understands the needs of businesses around the world.
 
I’m a chartered accountant, a CA [member of the South African Institute of Chartered Accountants]. I’m ex-Arthur Andersen, that’s where I started, then I worked with Canada’s Nortel, when Nortel existed in its heyday, then with Guinness plc, which became Diageo, then a short stint with a Swedish company based in America.
 
I was with Regus as Global Best Practice Director – Sarbanes Oxley and so on – but for only a short period of time. I started there in the UK . . . I came out initially through internal audit, and then into financial control, and then into CFO positions.
 
How has the transition been from financial control to CFO?
Have I been to a formal ‘How to be a CFO’ school? No . . . I think the school of life has proved to be quite a training ground. It depends on the business that you’re exposed to, and it’s down to yourself as how much you put yourself out there and getting involved in things and want to be involved in things.
 
I think the CA qualification is a very good grounding because it does talk about planning and adding value to the business, legal issues and the Companies Act, the various aspects that you find useful in future. Then, in profession, you’re looking at lots of different businesses. Whilst that’s very compliance focused, you do get an opportunity to see how different businesses work, how different functions work within those businesses.
 
Getting into business, really, is the best training of all, working out how finance can add value to the operation, where can you point your management team to improve the performance of the business.
 
The remit of the CFO is getting broader and broader every day.
In Regus in particular, it’s very broad and I would say very commercial. I’m involved in legal issues. I’m involved in operational issues. Marketing, finance, development, we touch across the board, because we have a matrix structure.
 
We’ve got country ownership and leadership, and then we have functional leadership as well. We don’t have lots and lots of people, so the whole silo thing doesn’t exist within Regus. You get an opportunity to work in small teams. You’ve got to be able to do multi-task, look to different opportunities and be involved in the businesses. It’s very entrepreneurial, it’s very fast-paced, it moves and changes all the time. And I think very exciting place to work because of that.
 
Do you see yourself becoming a country manager or CEO?

The thing is, there’s all those sort of cross-over roles because you had a multi-functional experience. You can move into a country role, as well as a financial role, or regional role, or shared services role. So there’s lots of scope. 

 

Click here to read Part 2 of this interview

Click here to read Part 3 of this interview

 

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