Microsoft UK's Toby Willson: singing spreadsheets

Microsoft is a prime example of a global tech company that has succeeded in reinventing itself when society demands something new, while continuing to drive revenue growth in its mainstream products.

Browser technology, office software suites, business software, enterprise servers, mobile phone technology, search engines, consoles and consumer online gaming are all now part of Microsoft’s diverse portfolio. So how does the finance function of a business with a market capitalisation of £216bn manage to hold everything together and bring it all into a sensible reporting structure?

Microsoft’s UK finance director Toby Willson explains that the business works to three core principles – applied in the same way across the global group and in every subsidiary and region – which provide regional and central leadership teams with a coherent, well-mapped view of how the company is progressing. These principles are the faithful scorecard, with 25 metrics applied at both global and subsidiary level; the dashboard and the standard financial metrics any plc management team would expect to see. It is a simple setup.

Meticulous metrics
Part of every plc finance director’s mission is to help the organisation drive shareholder value and Willson says his role is no different. But he has shifted his focus to demonstrating that his finance function is emerging from being the custodian of the numbers to ensuring that the headline figures are shared and understood by everyone in the organisation in an open way. Access to those is on a role-defined basis: everyone knows these numbers affect their role, so every meeting starts with everyone already in possession of the key figures.

This makes those metrics all the more important, and Microsoft helps its FDs by setting in stone the number it uses. The 25 scorecard metrics are not fixed – they can be reset by the board each year, with some being dropped and others added – but it operates a one-in, one-out policy, never adding to that number. The metrics range from key revenue drivers for the financial year to customer and partner loyalty statistics, ratings on how the company is perceived in the media and internal people metrics.

Willson points out that one of the metrics of individual success at Microsoft is the judgment passed on the situation that an individual leaves behind when promotion moves them on. “You have to make sure that you have a successor in place for all key roles,” Willson explains.

One of his top succession-planning tasks concerns the small finance teams his function has embedded with each of the business segments. These teams play a vital role in keeping Willson up to speed with how things are operating at the business segment level.

Heads in the cloud
The Microsoft finance function dashboard has just eight core metrics and focuses on the company relative to its peers. “The aim of the dashboard is to let us see at a glance how we are performing against our key competitors in our mainstream product areas,” Willson tells Financial Director. “It shows where we need to maintain or earn additional market share. These are broad-brush metrics, generating basic numbers such as the volume of Windows server licences shipped versus the total shipment figures for the server market.”

By comparison, the 25 metrics on the first scorecard range more widely and take in progress on incubation projects and aspects of emerging technology, such as cloud computing. For Microsoft, as for just about all top software companies, cloud computing is seen as the game-changing technology, moving on from server virtualisation to the enterprise space, a logical progression from a focus on server virtualisation to consolidating all your data needs in one web-based hub. Microsoft expects its cloud computing business to take off this year and to become a bigger part of its profitability in 2011.

One of Willson’s biggest challenges is to model probable adoption rates of cloud computing business. Microsoft intends to move a huge 90 percent of its R &D budget to focus on cloud computing by the end of 2010, from an already chunky 60 percent. The biggest issue with cloud computing is trying to model how much of the revenue it generates will be additional revenue versus that which cannibalises existing revenue streams.

In preparation for what Microsoft believes will be the cloud’s game-changing impact on profits, one of the key metrics on the scorecard is the total number of cloud computing seats companies are buying from the business. “This is a targeted metric that is crucial for our future success,” Willson says, “as are search engine revenue and the growth in search engine use.”

In the finance function, the idea is to use the scorecard, dashboard and financial metrics to ensure a green light is achieved on all these core operating dimensions.

Every country and region runs off this set of principles, giving the company global coherence. Each regional finance function reports to Microsoft’s central finance operation in the US, not the regional country manager, which keeps the global finance function operating as a tight-knit team. Willson says all 11 regional country finance directors meet every quarter and hold monthly telephone conferences to compare challenges and opportunities – and give each other a sounding board.

Playing the futures game
For Willson, 2009 was a hugely challenging year. Revenue fell, “and instead of business segments talking about hitting profit targets, it was about working out what we could regard as sustainable percentages of profit targets”, he says. “Cost cutting was top of the agenda. Simple actions such as freezing new hires were easy; then we had to look at where we could postpone expenditure, revisiting budgets allocated against core operating principles.”

Global economic retrenchment has made sales projections more difficult and Microsoft has struggled in the past year to put numbers to major product launches.

“With the launch of Windows 7 our initial projections were very conservative and we were amazed when we got the sales figures,” Willson admits. “With all launches, once we get the first few weeks of actual sales data our projections get much closer to reality. But when we ran the Windows 7 numbers on the initial sales data, we thought we were being wildly optimistic.”

Halo Reach, Microsoft’s latest installment of its cult Xbox 360 game, is predicted to generate $2bn (£1.28bn) worldwide.

“Games generate big numbers, but their success is hard to predict and there is a big window, ranging from disappointment to massive overachievement. After a few weeks of sales we can start to get a good prediction of what the total revenue is likely to be for a game,” Willson says.

Judging by the online reviews, Willson will enjoy reporting those numbers to the business. “That is a fundamental shift in the role of the FD [sharing figures with the whole business]. It means you have to have a much deeper understanding of the business and what drives it,” he says.

Read our profile of former Microsoft group CFO Chris Liddell here