There’s growth, and there’s growth. The latter is the kind found at Cognizant Technology Solutions, where Karen McLoughlin recently wrapped up her first year in her first CFO job.
When McLoughlin first came to work at the technology-services provider 10 years ago, it was not quite a $400 million company. Today it’s part of the Fortune 500, placing 398th in the most recent ranking, which reflects 2011 revenue, at $6.1 billion. The company reported 2012 revenue of $7.3 billion, up 20% from the previous year. Its guidance for this year is $8.6 billion, which would be a 17% jump from last year.
To some, McLoughlin might seem an odd choice to be the CFO of such a large, surging company, considering that she’d never held the title. On the other hand, she grew up with Cognizant. For five years, until 2008, she was vice president of financial planning and analysis. Then she was promoted to senior vice president of finance, and in January 2010 took an additional major role heading “enterprise transformation.” All along, she worked closely with the company’s business units, ingraining in herself a deep understanding of what made them tick.
She climbed into the CFO chair a year later when Cognizant’s longtime finance chief, Gordon Coburn, was promoted to president. McLoughlin recently spoke with CFO about her time at Cognizant, her first year running finance, and the challenges ahead. An edited version of the interview follows.
The company could have gone outside for an experienced CFO. What made you the logical choice?
We talked about that, and just recently had another conversation about the pros and cons. I wasn’t sitting in the boardroom when they first talked about this. But knowing the culture here, my impression is that they wanted somebody who understood the business and could continue to drive the things we were focused on. I understand what our strategic plan is, because I’ve been involved in its creation.
Now, the risk you always run when you promote from within is that maybe you’re missing an opportunity to get fresh outside ideas. Frank [the CEO, Frank D’Souza] and Gordon constantly challenge me to make sure we don’t fall into the trap of thinking that just because we’ve done something one way for 5 or 10 years doesn’t mean we shouldn’t be looking forward. That’s particularly so because we are in such a high-growth business and fast-changing market.
Many technology CFOs spend most or all of their career at technology companies. But that wasn’t your background before Cognizant.
No. But except for three years at Ryder System [a transportation company], my background was steeped in professional services, which is what Cognizant does as well. I started out as an auditor for six years at PricewaterhouseCoopers and later spent six years at what was then called Interim Services, which later became Spherion Staffing.
How has your experience in financial planning and analysis informed you in your CFO role?
My first team was two guys who basically did internal reporting. That was basically the extent of FP&A at Cognizant back in those days. Since then, we’ve been very fortunate to be at a company with a very strong balance sheet and amazing growth. So the corporate side of the house was actually fairly easy. We built out our FP&A capability by focusing on the business operations.
I loved that — working with our account teams, doing all the pricing, coming to the table to help negotiate large deals. I spent so much time with the business leaders. That’s what really allowed me to transition effectively into the CFO role.
What’s your first year as CFO been like? As expected, or have there been surprises?
Mostly as I would have expected, but it certainly was a change for me. The last couple years, in particular, I had been leading a team called enterprise transformation that focused on executing our strategic plan. So I had backed away somewhat from day-to-day finance.
When I became CFO I had to step back into that, and step out of the business side for a bit so I could focus on the finance organization and ensuring that my t’s were crossed and my i’s dotted, and that we had the right governance structure, team, and organizational design to take us to the next level. It was really important my first year to get that done and be able to tell the board and the rest of executive team that “Yes, I’ve got this under control, and nothing slipped through the cracks in the transition.” Now I feel I’m at a point where I can get back into the business side.
Have you tried to do anything different than the previous CFO did?
Nothing vastly different. But Gordon had been CFO for so long that he had intimate knowledge of just about everything that happened, because he built it. It’s different for me. Even though I’ve been with the company for a long time, I wasn’t necessarily part of all the day-to-day accounting transactions. And at our scale now, the CFO can’t be the point of contact for everything. So we’re really making sure to delegate appropriately and empower people. That would have happened regardless of whether we changed CFOs, but it’s certainly been a big part of my focus for the past year.
Break down what you do with your time into slices of pie.
It’s fair to say that 50% is on strategic initiatives, combining the planning and the execution of the plans. About 10% is investor relations. The rest is fairly evenly split among reporting, governance, and business-unit support.
With financial reporting, you’re really on the hook. You have to sign off on the financials, and you have personal liability for them. In such a big company, how can you be sure you don’t get caught in a bad situation?
It’s a real balancing act. Certainly this first year I spent more time on that than some of the team may have liked [laughs].
Our controller is terrific. And recently we assigned one of the best folks on our accounting team to be the head of internal audit. I have a lot of confidence in those teams.
What have you learned about the company from the perspective of being its CFO?
For me it’s the outside exposure to investors and analysts. Previously I was working primarily with either our business units or our clients. So I’ve been getting a better appreciation for what they think about Cognizant and their focus on long-term growth opportunities and returning shareholder value. It’s important to get that outside perspective.
We have to focus on what we’re going to look like in a few years. And we can’t assume that just doing things the same way we’ve done them for the last 10 years will lead to continued success.
What other growing pains are associated with Cognizant’s expansion?
It’s pretty easy, as CFO, to just say, “I’m going to clamp down on everything.” But that’s the wrong answer for our business. It’s also very easy, with the growth we’ve had, and the scale we’re at now, to become bureaucratic. As we’ve grown, we’ve certainly had to put more structure and governance in place, and the business has become more complicated. But we’re constantly fighting the trade-offs that can happen along with those things. Our objective is to lean more toward empowerment.
We have to really challenge ourselves on how to continue both growing and supporting our mission, which is making our clients successful. We believe that if they’re successful, that will lead to our success.
People who are often promoted frequently end up with responsibilities that don’t have much to do with the reasons they got promoted. How do your feel about that aspect of the job of managing your finance staff?
I’ve always thought, and told my team, that if you want to be promoted or move into another role in the organization, you’d better have hired your backfill. You can’t leave it to someone else to do that for you.
On the FP&A team, we very much created that culture: continue to hire, continue to develop, and promote from within where possible. That’s a theme throughout the finance organization, and it is a constant challenge because we have grown so fast and we are global. My team is spread primarily across three geographies, but I have people in many, many countries.
A big percentage of my team is based in India, and the talent market there is very different. I have young finance people, 26 or 27 years old, who have lots of potential opportunities due to the fast-growing economy in India. For us to retain the best talent we have to be able to adapt to that and provide the right opportunities for our people.