In 2012, when CFO spoke with Red Hat finance chief Charlie Peters, the company essentially had a single significant product offering, the operating system Red Hat Enterprise Linux. Five years later, Red Hat is neck deep in its transformation to a company with a burgeoning position in cloud-platform technologies. And the current CFO, Eric Shander, happens to have the kind of deep technology experience that could help accelerate that evolution.
Shander had served in a number of accounting capacities for IBM and Lenovo when, in 2011, he took over as Big Blue’s vice president of Americas’ IT infrastructure delivery. While he already had an affinity for technology, he spent much of the next four years in close talks with CIOs about their agendas.
In 2015 Shander returned to finance, jumping to Red Hat, a supplier of open-source software and related subscription-based services, as chief accounting officer. In January of this year finance chief Frank Calderoni, who had replaced Peters in 2015, suddenly left for an opportunity to become CEO at Anaplan, an enterprise performance management software company. Shander was named interim CFO, and three months later he assumed the top finance spot on a permanent basis.
We recently spoke with Shander about the changes at Red Hat, his role, and the transition within many industries to next-generation technology platforms. An edited transcript of the discussion follows.
Things have changed a lot for Red Hat in the last few years. You’ve been with the company for only two years, but what’s your view of the evolution?
At the time you spoke with Charlie, the company had just started investing in its emerging technologies. Now that those are really starting to take hold, what’s interesting is how the conversations with our clients are evolving.
We’re no longer talking to just lower-level infrastructure managers. Predominantly we’re speaking to CIOs, but we’re also talking to the businesses, and I’ve met with some CFOs. They want to understand not only the technology, but also how digital platforms are taking hold across different industries.
Historically when we sold something, we moved on to the next client. But with our new technologies, it’s much more of a strategic, long-term relationship.
What’s been the key to successfully executing the transformation?
Five years ago people were saying that all workloads were going to wind up in the public cloud. But Red Hat believed that some workloads would stay in private clouds and that the world was going to be a hybrid-cloud world. And that’s what we’re seeing now.
All of our technologies support hybrid clouds. For example, our OpenShift product enables developers to develop applications on any cloud — public or on-premise, Amazon Web Services or Microsoft Azure. Nobody else is offering that.
OpenShift is said to support something called “containerization.” Tell us what that means.
The way programming used to happen, it would be a huge effort that happened in one big program. Now what happens is, a large application is broken down into several different containers. If you’ve got to make a change on the front end of a large system, you can go into the container that has just that portion of it without opening up all of the code.
With containers you can have a lot more developers working on an application. OpenShift orchestrates how the containers work together.
This might seem like an obvious question, but what’s driving the greater need for things like hybrid clouds and containerization?
You’d be hard pressed to find an industry today that’s not transforming in some way. Look at all the things that are happening in the retail space, where Amazon is pushing the whole sector to reassess their operations, and the changes across the transportation industry, for example. Many of those changes result in IT needs, so a lot of companies are moving to next-generation infrastructures that are more open, scalable, and flexible.
Red Hat’s bottom line was up a lot in fiscal 2017, which ended in February — more than 25%, and that strength continued in the first quarter of your current fiscal year. Is that traceable to the transformations you talked about?
What we’re seeing is that a lot of customers are embracing multiple technologies. In fact, among our top 100 customers, 99 are consuming two or more of our technologies, such as Red Hat Enterprise Linux together with OpenShift and/or [infrastructure-as-a-service platform] OpenStack. Among our top 1,000 customers, 93% are consuming two or more of our technologies.
Then there’s the size of our deals. Five years ago, getting a deal over $10 million was a big thing. In 2012 we had 12 of those. In 2017 we had 48. The same for deals between $5 million and $10 million — in 2012 we had 31, and in 2017 we had 79.
You mentioned speaking with both CFOs and CIOs. It seems that there’s a closer relationship these days between them. Do you see that?
It’s interesting how the cloud has really shifted the role of CIOs. Historically they were crucial in getting an environment set up so a company could determine what kind of technology to use and how to develop and test it. Now, with so many SaaS applications coming out, anybody in the business with a credit card can get an environment set up pretty quickly without the CIO organization being in the middle of it.
So CIOs are getting much more involved in the business and understanding the pressures on it. They have a lot more benchmark information than they had historically on how long technology projects should take and what they should cost. There’s a lot of transparency now around IT projects.
You’re a new CFO. Did you create any different charter for yourself and what you’re trying to accomplish than what Frank Calderoni was doing?
There is a new agenda. In the past, anytime we did long-term strategic planning, it was really planning for what we were going to sell and how we would position our products in the next year. But this year I’ve made sure to take a three-year strategic view.
That means doing two things. One, we’re doing a financially engineered model based off history, like any CFO is accustomed to, looking at the multiples and the financials to decide where we should we be over the next three years.
The second view, which we’re working on right now, is a strategic, outside-in view of how different industries are transforming. It’s about not only how we position the company and our products, but also how we position our critical resources to make sure we’re in the middle of helping these industries transform.
A good example of that is the telecommunications industry. Over the last 24 months we’ve invested in that industry by hiring associates with telco experience. As we think about the transition to 5G, and all the re-platforming of hardware and software that requires, we’re positioning OpenStack as the preferred choice for IT infrastructure for the big telcos as well as the systems integrators.
What do you think are the implications of these transitions for CFOs in the respective industries?
To the extent that CEOs allow them to be strategic partners, they are well positioned. Who’s better than CFOs with operational experience and understanding to help businesses and CEOs understand what it’s going to take to compete in these new environments.
But you know, just because you go digital doesn’t mean you’re suddenly going to find a pot of gold. A transformation doesn’t always mean good news. Some of these digital transformations, if they’re not done right, could even be fatal, depending on the size of the company. You could spend a lot of money on an IT platform that doesn’t necessarily differentiate the customer experience.