As the finance chief’s remit has grown, companies have looked further afield to fill the role. Here’s how a former chief strategy officer fits in.
Broader expectations of the role of the finance chief are leading to some unconventional CFOs—executives with deep experience outside the traditional finance, comptroller, and accounting career paths. This is especially so the more companies rely on the CFO to shape, refine, and implement their strategic plans. The best candidate for the role, as some of our colleagues have noted, reflects a balance among the demands of a company’s strategy, the skills and abilities of the CEO and other senior managers, and the given individual’s ability to drive change.
So perhaps the logic was obvious three years ago, when ADP tapped its chief of strategy, Jan Siegmund, to step into the CFO role. A 15-year veteran of the data-processing company, which boasts $12 billion in annual revenues, Siegmund describes his chief-strategy-officer (CSO) tenure as marked by a series of changes that transformed ADP from a primarily national payroll-centric company to a global human-capital-management company.
That experience has proved helpful for Siegmund as CFO, especially in his ongoing efforts to transform ADP’s finance function.
We recently sat down with Siegmund in ADP’s Roseland, New Jersey, headquarters to discuss his role as CFO, ADP’s finance transformation, and the impact of technological innovation on the industry. (View an abridged version of the conversation in the video on this page.)
McKinsey: How did the transition from CSO to CFO come about?
Jan Siegmund: I joined ADP around 15 years ago and spent more than a decade in a variety of strategy roles. It was about two and a half years ago that our CEO, Carlos Rodriguez, approached
me about taking on the role of CFO. It caught me by surprise, I have to admit, because it had not been core and center to my own career planning.
Throughout the discussions with him and the board, it became clear that ADP was seeking to interject more of a strategic view into the finance organization. ADP, as a company, has had a very strong foundation in finance, but the function was a little more operations and transaction oriented than it should be. Part of the idea and intent of transitioning me into the role of CFO was to add a component of driving change a bit more aggressively—not only for the finance organization itself but also for leveraging the role of the CFO to help the company accelerate its performance over time.
That was consistent with my career as a CSO, which focused on executing change programs for the company—whether facilitating and driving acquisitions or divestitures, instituting new product introductions, or building different skill sets across the organization. I think that experience helped me become the kind of action-oriented person needed in a large, classic function like finance.
McKinsey: How did serving as chief strategy officer prepare you to be an effective CFO?
Jan Siegmund: As a chief strategy officer, one has a unique opportunity to think about the enterprise in its completeness—to focus on the big-growth drivers and performance drivers for a company. That kind of prioritization is also crucial to being effective in the CFO role, where it’s easy to lose the big picture of what’s needed to drive the company’s success in myriad daily transactions. For me, that was one of the biggest benefits of having a background in strategy: the ability to take apart complex problems, isolate core performance factors, and focus on those—and to set aside smaller issues that can eat into your day.
McKinsey: What is it like coming into the CFO role without the technical background in areas such as accounting and treasury management?
Jan Siegmund: As an unconventional CFO, you have to have a fair amount of respect for the function. There’s a huge amount of learning to be done in the initial years to perform well. During my first 100 days, I invested a significant amount of time in learning and understanding—in particular the areas that had not been natural areas of focus for me, namely external reporting, compliance, audit, tax, and treasury functions.
Like most strategists, I like to think of myself as a lifelong learner—I like to understand and to dig deep into problems. Bringing that mind-set into the finance role helped me learn about the needs of our external-reporting functions, the compliance needs, tax needs, audit needs, and so on. Being open-minded and being an avid learner clearly helps a CFO with a nontraditional background. I also had a strong team that was very patient with me—that also helped. Is it a good idea for other companies to follow, in some ways, in ADP’s shoes—to have CFOs without that kind of technical training? It would be hard to generalize. Every company is different. In ADP’s case, we had a successful, highly functioning finance function that needed strategic direction—and it seemed I was a good fit for the role. But without that kind of context, a board would probably want to consider different profiles for the role, to meet the specific needs of their company.
McKinsey: Going back to your unique background, do you think one person can fulfill both the strategy and comptrolling requirements of a large, multinational company? Is there a future where the two roles converge?
Jan Siegmund: At ADP, the chief of strategy drives our corporate strategy, and the role is separate from the chief of finance. I’m a big proponent of that split and it serves us well. As a CSO, you need to have the time and resources to think about what affects a company’s long-term trajectory without the demands of a broad set of daily operational responsibilities.
That’s different from being a strategically focused and strategy-minded CFO; and, the scope of the role has always oscillated as companies defined it in various forms. I don’t see a general trend toward changing the core elements of being a CFO—compliance, external reporting, tax, and so forth. If anything, those things are getting more and more complex. What I do see is that many chief executives are searching for a CFO who can be a more strategically oriented business partner—who can help the senior management team make better use of the finance function’s resources. The CFO today needs a balanced set of skills that combines a focus on long-term success with the ability to be a change agent for the organization.
McKinsey: Let’s talk about the finance transformation that you are leading at ADP. How did that come about?
Jan Siegmund: ADP’s finance organization has long been a strong, capable, and important part of its broader culture and its success. But over the past 30 years, it had grown rather complex, and we hadn’t undertaken a fundamental review of its effectiveness. After my first 100 days of listening and learning, the senior team and I got together, and we decided that we had significant opportunities to change how finance would contribute to ADP. We launched, basically, a finance-transformation process that covered outsourcing our external-reporting function, optimizing our order-to-cash processes, as well as a real rethinking our global financial-planning-and-analysis [FP&A] organization.
The biggest success I’m seeing is that reorganizing and rethinking how we want to deliver decision support and FP&A functionality will yield a lasting contribution for ADP. We started by establishing centers of excellence: how do we do revenue forecasting and planning, for example. We build much better data and analytics capabilities in our offshoring location and have started rethinking the role of our field support with new definitions, new career paths for our associates, and different skill requirements. A side effect of this is that we will also save a considerable amount of money. ADP used to spend about 2 percent of its revenues on its finance function, and we were overinvested versus the benchmark. Our goal is to bring that down over the next year or two to around 1.2 to 1.3 percent of revenue.
McKinsey: What challenges have you encountered while trying to transform the finance function at ADP?
Jan Siegmund: I have led a number of larger change programs throughout my business career. One thing I’ve learned is that change programs in a finance organization are very complex. The functions we perform are often interlinked with a variety of workstreams, and unwinding them to implement change while still maintaining a strong control environment and full compliance with the law can be challenging. Moreover, finance teams typically haven’t experienced a lot of change processes on their own. I found my finance team a little hesitant, almost needing to muscle-build change processes while engaging in the process. The change readiness of the organization was a little lower than I expected. It took a lot of communication, team building, and aligning with a joined vision of the finance team to get the process going. But after we overcame the initial hesitation, we got good momentum. I would say we have completed phase one, and phase two is still to come.
McKinsey: If you reflect back on your first couple of years as CFO, both in the finance transformation and how you transitioned into the role, what would you do differently?
Jan Siegmund: Anyone appointed to a role like CFO of ADP will spend the first two years drinking from the proverbial fire hose. Getting into the job is an enormous task, and making the best use of time involves complex trade-offs. In my case, I invested a good amount of time in shareholder and investor communications, learning about the accounting and regulatory functions of the role, and establishing a good working relationship with our board and audit committee. Because those external pressures are demanding and take priority over internal pressures, I wish I could have invested more time building a more intimate relationship with the field organization, working directly with teams to understand their pressures—in finance in particular.
McKinsey: What do you think about the pace of technological change that’s going on in the industry?
Jan Siegmund: It’s incredibly exciting to be a part of the HR technology and service market because big technology trends, like mobility, globalization, and the movement to the cloud are all intimately affecting our business. Companies are more global, and employees expect HR solutions that have the functionality and ease of use of Facebook—and big data and cloud delivery are key factors in that.
Big data may be a perfect example. Many people know the ADP National Employment Reports and our ability to predict the growth of the national labor market very well. Now we’re using the vast amount of HR and payroll data that we have in our systems to provide our clients specific, analytical support to better understand how their organizations can leverage their employees to be more effective and more engaged, to make better contributions to their business. Namely, we’re providing a set of benchmarks that companies can use to analyze the effectiveness of their own HR organization—to leverage and better understand wage levels and benefit levels that they should provide compared with their competitors, or with participants in similar market segments. The application of big data at ADP will mean that services we already offer today will become even more valuable for our clients. We’re excited about the opportunities that big data, as a trend, offers to us.
The cloud is also affecting us and our clients—it’s a welcome technology trend that allows us to deliver our solutions to clients in an even faster and more cost-effective way. Today, about 75 percent of ADP’s clients already process on the most modern SAS
solutions in the cloud. The excitement for us in ADP is about leveraging these global trends and accelerating and enhancing our own value proposition.
McKinsey: Thinking back across your various roles, how important has storytelling been in the way you communicated about strategy and now about financial results?
Jan Siegmund: One of my early observations as a new CFO meeting with shareholders and analysts was how helpful it was to have a background in strategy when telling the company’s story. Most professional investors have a fairly good insight into the actual financials, but what they’re missing is the context, understanding, and drivers of certain business decisions. So I spend much of my time in investor meetings telling the story of ADP rather than reconciling financial results that are already available in our reports.