Capital Insights: IT’s all about innovation
Cisco CFO Kelly Kramer talks deals, driving growth and the race for innovation
With an infectious smile and business acumen that has navigated Cisco’s finances through her first year as CFO to growth success, Kelly Kramer is the epitome of the modern multitasker.
The CFO steered the company to US$49.2b in total revenue at the end of their fiscal year 2015, and results for Q1 fiscal year 2016 were announced in November 2015, Kramer is already bettering her own results, posting revenue of US$12.7b — an increase of 4% year-on-year.
“We continue to drive profitable growth, with our earnings per share (EPS) is growing faster than top line,” Kramer says.
In 2012, Cisco made a commitment to shareholders to drive profitable growth — and it’s a commitment Kramer intends to keep. “In fiscal year 15, we grew top line by 4%, we grew 4% in Q1 and we grew EPS 7% in FY15, and were up 9% in Q1FY16. We’ve continued to be able to do that in a very tough macro environment where a lot of big multinationals haven’t.”
Not bad for her first year in the job. Kramer succeeded Frank Calderoni in November 2014, after joining Cisco in 2012, and she is quickly ticking off her list of intentions for the role. “What I wanted to bring to the party was helping the business through operational discipline and portfolio management. I wanted to see the business continue to grow and to maintain our strategy of driving profitable growth.”
In the technological cauldron that is Silicon Valley, keeping ahead of new innovations is a hard task. “We never minimize the potential for competition and disruptors, so it’s all about constantly having a healthy paranoia to make sure we’re staying abreast of what we call product transitions or market transitions,” Kramer says. And part of this “healthy paranoia” is to ensure that innovation dollars are being invested in the right areas.
For a multinational such as Cisco, keeping pace with future technological developments requires a multi-pronged approach. For example, Cisco’s own dedicated venture fund, which is part of the company’s corporate development strategy. “We invest in the very, very early stage companies. That could be something to do with our existing product lines or it could be something in an area that we are interested in; could be a future area,” she says.
Buying up big
Of course, when it comes to new innovations, acquisitions can provide a quick injection of talent and intelligence — and Cisco are not shy of a deal. Having invested US$70b in more than 180 acquisitions, M&A has become a core part of the Cisco growth story. Indeed, Cisco also recently announced the acquisitions of Portcullis, ParStream, Lancope (US$542.2m), 1 Mainstream and Acano Ltd (US$700m) in the security, data analytics and video areas, all of which are expected to close in the second quarter of fiscal 2016.
“It could be anything from a US$2b acquisition of a company such as [Wi-Fi start-up] Meraki, or it could be what we call ‘tech and talent’ acquisitions. Those might be very small private companies that could have anywhere from five to 30 employees that have a certain expertise in an area of interest … That way we have a lot of different avenues to get in front of the technology trends.”
Race for tech and race for talent
It is not just the latest innovations that spark a flurry of activity for companies such as Cisco, but also the quest for talent. Kramer is a firm believer in the value of her workforce, and Cisco has no hesitation in investing for their future leaders. “It is a race to get the best technology talent, the best engineering talent,” she explains. “We are fighting with the Facebooks and the Googles of this world.”
To make the company more attractive to prospective talents, Cisco have devised a series of internal start-ups called ‘Alpha projects’ to foster entrepreneurial creativity and innovation. “We hire someone from the outside, give them a charter and get them to build a team and a plan of what they are going to deliver,” she explains.
Sharing the success into the future
At the November announcement of Q1 results, Kramer told stakeholders: “We are continuing our commitment to shareholders as we returned $2.3 billion of our free cash flow back through dividends and share repurchases in Q1.”
As we move into 2016 — this is precisely the kind of speech that Kramer hopes to make again. “First and foremost, we will continue driving top and bottom line growth for shareholders and customers,” she says. “Our approach has always been to break our company up into three constituents: employees, customers and shareholders, and they are all extremely important,” she explains
However, looking into 2016, there are no signs of an investment slowdown. “We’ve had over 36% growth in our software subscription business in the last quarter. That will continue to benefit from the partnerships or acquisitions that we’ve announced and we are aggressively going after these areas where we see growth and we will continue to do that. Of course, also delivering profits with that.”
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