The future of financial decision-making will depend on a vital, valuable commodity: data. And it is up to the CFO to ensure that the finance function collects and makes the best possible use of the data it can access. I recently discussed the role of CFOs in driving the data revolution with Jason Child, CFO of software company Splunk. Jason discussed how data is increasingly driving the purpose of the finance function – and why upskilling finance staff to use data insight tools is essential.
Jeff Thomson: Business leaders—including CFOs and other finance leaders—are increasingly relying on data insights to measure success and drive value. Splunk’s mission is to help remove the barriers between data and action. How do you use data to help inform your CFO leadership strategy? How important are data skills to finance teams and what is your recommended strategy for upskilling them?
Jason Child: As a leader, there are thousands of decisions to make – and data is an essential element to help us make informed decisions. At Splunk, our leadership follows that mentality. We look closely at what our data tells us about the value we need to deliver to customers and how to optimize it. Finance leaders in particular need the ability to understand where the business currently stands and predict the spending needed to achieve future success and maintain compliance. Every day I focus on being a truth seeker and work with my team to analyze our financial data.
I spend a lot of my time making sure our finance team can identify the signals against the noise and build efficient processes with tight controls. We use a variety of tools to increase efficiency, including data warehousing, financial planning to generate budgets and confirm tracking, process mining to increase productivity worldwide and Excel for complex data analysis to assess growth and cost drivers. Refining these tools is essential to mapping business performance metrics to financial results. Effective processes help us ensure we are efficient and have the insight and time to take the organization into its next chapter.
The more you use data, the more you can reduce the chance of making a mistake or missing an opportunity for competitive advantage.
Thomson: Splunk is undergoing a significant business model transformation through its focus on the cloud. What are the critical components you recommend leaders consider when undergoing a major model transformation? How is the modern CFO expected to play a role in shaping strategy while evaluating finances?
child: I’ve worked for a number of organizations that either helped clients transform their business with the cloud or used the cloud to scale quickly – sometimes too quickly. CFOs are vital leaders in digital or cloud transformation, and I’ve learned firsthand the right and wrong ways to accelerate scale with the cloud. Splunk is now in the final stages of its own business transformation, and we’ve done so by following several principles:
Focus on the basics of business. As Splunk transforms, we’ve aligned our business metrics with our cloud growth strategy. This change is fundamental because, first and foremost, and most of the time, the cloud is good for our customers. The cloud allows our customers to outsource the infrastructure and implementation of Splunk software to the company that does it best (Splunk), freeing up valuable resources, especially given how lean most IT or security teams are today. The cloud also allows users to flexibly increase or decrease data capacity as needed, which is both convenient and cost-effective.
The primary metric we initially set for our cloud transformation is annual recurring revenue (ARR), not a GAAP metric, because ARR best reflects the growth of our business through cloud transformation.
Stay aligned with growth drivers. We have a huge and growing base of successful renovation customers, which opens up additional windows for growth. With each customer’s cloud software renewal cycle, we have the opportunity to deliver greater value to our existing customers through their data and infrastructure expansion. We’ve moved to being cloud first – but not the cloud only – in everything we do, helping us to expand customer relationships and the value we deliver to their business.
Control the controls. As economies present challenges beyond our control, we focus on the things we can control. In our case, we can control our team’s efforts across all of our go-to-market and product priorities. We focus on providing the services, support and platform features they need most, and find new ways to delight customers.”
Thomson: According to a recent study by Gartner, “40% of all business workloads will be deployed in cloud infrastructure and platform services by 2023.” How is Splunk evolving to take advantage of the opportunities ahead in FY23 and the growing impact of the cloud era? As CFO, how do you help inform strategy through financial forecasting and risk management?
child: Splunk helps its customers solve critical security, IT and DevOps challenges. We play a key role in this hyper digitized world where organizations are rethinking all their applications and using data to make a different set of decisions that they couldn’t make before. As CFO, my job is to help position Splunk financially as a driver of our larger transformation from the past to the future. Splunk’s security and visibility products are critical for customers as they navigate hybrid, multi-cloud environments with increasingly complex environments and threat actors.
In FY22, our company reached a significant milestone as we surpassed $3 billion in total ARR, with cloud revenue growing by 70%. The significant financial problems associated with our transformation are now well behind us. We also continue to drive cloud adoption and develop migration strategies with our customers. The cloud mix is likely to gradually increase from this point. And as CFO, I’m working closely with Splunk’s leadership team to examine the strong demand environment, and the impacts of our business transformation that we’ve largely worked through, to ensure we’re poised for continued growth with a much simpler financial model moving forward.