As Seen in CFO Studio Magazine Q3 2019 Issue
In the world of enterprise application software, SAP is a giant even amidst a towering $419 billion market. The German-based company has 437,000 customers in 180 countries, including 92 percent of the Forbes Global 2000 companies. Some 70 percent of the world’s transaction
revenue touches one of the company’s systems. But even with a market-share advantage, the organization’s leaders know it can’t stand pat—and that’s part of the reason SAP is transitioning those clients from on premise software to the cloud. Of course, such a maneuver means that SAP’s strategic thinking and internal processes must also change. Radically.
The CFO who is helping SAP make that transition is Todd McElhatton, an energetic, down-to-earth executive whose mission has been to steadily and nimbly steer the Cloud Business Group even as SAP has continually transformed its business to ready itself for the next wave of growth and disruption. He joined SAP in February 2017 as CFO for North America and was promoted into the Cloud role in June 2018. He’d had extensive experience before that, much of it with Hewlett -Packard, but also with cloud technology providers Oracle and VMWare.
SAP has individual CFOs for its regions and largest lines of businesses, but McElhatt on alone has end-to-end P&L responsibility in his Cloud Business Group role. He’s the decision maker on pricing strategies and on deploying resources to accelerate the company’s growth
trajectory. “It’s really like running your own company,” he says. “Th is year SAP’s cloud business will be somewhere between 6.7 and 7 billion euros [US $7.5 to $7.8 billion] based on the most recent guidance that we’ve shared with the Street.” If the cloud segment were a separate company, those revenues would give it a perch on the Fortune 500, at around number 400.
This sector is among the fastest-growing segments in SAP. Moreover, cloud business is not drying up—far from it. “Based on the fast adoption of its cloud platform,” wrote Forbes in January 2019, “we expect SAP’s cloud business to continue to drive [the entire company’s] value in the near term as well as long term.” While McElhatton is quick to hone in on the areas for potential improvement and focus for his leadership team, the cloud part of SAP’s financials looks strong in the near term: Half-year cloud revenue was up 42 percent, the company reported in July 2019, versus 13 percent for total revenue.
McElhatton, with several hundred direct reports, has a small central team that helps him on planning, and six CFOs supporting different businesses. He reports to Luka Mucic, the Corporate CFO and Board Member in Walldorf, Germany.
“It’s been an interesting ride to have end-to-end responsibility in a business that’s growing really fast, growing organically, but also driving growth from a world class acquisition strategy,” says McElhatton.
He and Jennifer Morgan, President of the Cloud Business Group, share a belief that acquisitions can add desirable features to SAP’s cloud offerings and help fuel growth. “Last year we bought just under $3 billion worth of assets,” he says. In April 2018 SAP acquired Callidus Software (now CallidusCloud), a CRM solution; two months later it acquired Coresystems, a field-service management platform powered by Artificial Intelligence (AI). The buying spree continued into this year, with SAP Cloud moving into the new realm of experience data by picking up Qualtrics for almost $8 billion, and thoughtfully integrating each of these assets into its suite of offerings. SAP has been clear that there are only tuck-in acquisitions on its horizon.
An Imperative for CFOs
McElhatton has strong opinions on the 21st-century knowledge CFOs need in order to exercise a leadership role and to innovate their businesses. “CFOs need to be intellectually curious about technology. Take a look at the companies that are the most respected and have the highest market cap,” he says. “One thing you’ll see is they are either technology companies or they are companies that are heavily using technology to drive their businesses.”
He acknowledges that it’s relatively easy for him to learn about Artificial Intelligence and Machine Learning, for example, because SAP has “such deep roots in technology.” But he advises CFOs whose knowledge of the emerging technologies is based on reading, not seeing, to visit customers and learn about new developments and ways technology is being deployed. McElhatton says he goes to peer CFOs and others when he’s got a question. “If we’re looking at doing something [in Finance], I have the opportunity to reach out to my network.”
He traces a line from ERP systems (a centralized approach to business processes) to Supply Chain Management (a centralized view of the company and all its operations) to Machine Learning and AI. “At SAP, we look at Machine Learning and AI and say, ‘Not only are those
ways for us to be more efficient in how we run our operation, but they’re also a way to give us an advantage over our competitors.’ We’re using Machine Learning to help us eliminate some mundane tasks. AI takes that to even the next level: predictive analytics.”
McElhatton says the focus for his customers is less about the technology and more about the business outcome. “Companies and CFOs are constantly looking to improve business efficiency, create new processes, or develop new business outcomes. That’s what matters most. We first need to identify what business process needs to be created or improved, and then back into that with technology. Technology is the enabler to make it all happen.”
Getting his Grounding
At HP in the 1990s, McElhatton got a close look at business operations, sales, and customer relations as the company negotiated the largest deal it had ever done. His bosses gave him an entrepreneurial role next, sending him to Switzerland to start a new business for HP’s Outsourcing Business.
“One of the things I tell people who I mentor now is don’t be so prescriptive: ‘I want to start at X, and I’m going to move in lockstep and manage people at this stage, and manage a larger team at this point,’ ” says McElhatton, who earned his MBA at the University of Tennessee. His early HP experience gave him an understanding not just of the impact the numbers had on the business, but the timing: how long before that revenue adds to the business. It taught him, in other words, “how Finance could make a difference,” he says. “And sometimes the difference was keeping the company from doing something that wasn’t going to have a good outcome.”
He also absorbed how to lean-in on a decision, asserting the correctness of a course when there are “more variables to the equation than just the variables you have on the spreadsheet,” he says.
McElhatton gained other valuable experience when he moved to WebMD in 2000. “Tech stocks were hot,” he says, “and it was an opportunity for me to learn a whole different skill set.” He went from an environment where everything was very structured and the hierarchy was two or three people deep to one where he was making decisions on his own because “nobody had done it before.”
But soon the heady atmosphere soured as the dotcom-led recession hit. Although WebMD was heavily capitalized and able to withstand the downturn, the company had to roll back its ambitions quickly, focus on making money, and release around two thirds of its employees in a three-month period. “It’s super hard, but if you don’t make those tough decisions, no one will be there. You realize you’ll never have perfect information, and how do you make the call with 80 percent of the information because time is of the essence?” he asks before quickly adding: “The difference between having 80 percent of the information and 88 percent doesn’t make that much of an impact.”
A restructuring or a recession can forge character, though. “You learn a lot as a leader about what you don’t want to do,” he says. “People want a leader that doesn’t have their hair on fire. They want one who is calm and can be thoughtful even if you are under the pressure of a deadline or difficult decision. They also want to have a leader who is authentic and thoughtful. You’ve got to provide hope but at the same time be truthful and authentic with people and give them the context around what’s happening in the business.”
Beyond Being a Traditional CFO
That McElhatton brings his best to work every day is apparent. Working hand-in-hand with sales comes easily to this people executive who early in his career absorbed the lesson that broader knowledge is better. He frequently showcases tools for customers—SAP products, aft er all, make the Finance function hum.
He’s a practical man, understanding that no one can focus on too many imperatives at once. “You get a much better outcome if you can help people distill their focus on the three things that are really going to make a difference,” says McElhatton.
In fact, McElhatton believes that one of the most beneficial contributions he can make as CFO is to provide focus in a business world that can sometimes off er too many priorities or directions.