IT’S becoming something of an arms race in the technology sector as the pace of change accelerates and the demands of clients – and, indeed, employees – grow.
The market in the UK is becoming more heated, as established names such as Sage, Thomson Reuters and Iris take on newcomers to the market including Xero and Intuit.
Unlike its competitors, Wolters Kluwer does not solely deal with accounting, with legal and medical information services both major service lines for the business. Not natural bedfellows by any means, but unsurprisingly, given the nature of those areas, keeping pace with change has become central to the firm’s operation, according to global CFO Kevin Entricken.
That drive has seen the company make drastic changes, including spending €36m (£26.6m) on restructuring in 2014, with a further €30m-€35m projected for this year.
The focus of those moves was efficiencies in the company’s tax & accounting and legal & regulatory businesses in Europe, which had faced growth challenges following the continent’s economic crisis.
“We’ve seen organic revenue decline, and in fact the European legal business declined 3% last year, so what we’re doing is looking at editorial processes, we’re looking at consolidating real estate where it makes sense, we’re looking at distribution channels,” he explains. “We saw an opportunity and we still see an opportunity there and we’ll continue to restructure in 2015.”
That move is part of wider changes to Wolters Kluwer’s business model, taking in the company’s IT systems, subscriptions and new technology as it increasingly shifts towards a fully-digital model.
The aim is to be “more a software and service company”, Entricken explains – a shift that affects his finance team profoundly, particularly given the rapid shift from paper-based systems to an online- and cloud-based model.
The thinking is as one moves from what Entricken describes as a “legacy business” based on paper output, towards a “digital environment”, the margins become less testing.
“As your revenue becomes more recurring, and retention rates go up your profitability does as well as you don’t have to invest the same dollars in sales and marketing trying to convince them of what you do,” he explains.
Wolters Kluwer’s core business today has higher margins, something that’s “quite attractive”, Entricken says.
It means that the finance team is required to have a far greater breadth of knowledge of other functions and systems.
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“For different business models, you have to find different ways of recognising revenue,” he says. “When you go to a software product, the customer can buy the software and we can support them for a year, so it’s more a recurring subscription model. But you also now have transactional components, where customers can buy additional features online, so you’re opening up new revenue streams. Your accounting policies have to keep up with that and your accounting policies have to become more complex.”
Even beyond that change, investing in technology itself requires caution, Entricken warns, particularly with the price of new technology.
“If you allow a project to go on too long, you could waste a lot of money,” he explains. “So the finance team needs to be closely involved in project management, in understanding the technology and how it interacts with other parts of the business.”
It all means the finance team is increasingly looking to people with technical skills, with knowledge of cyber security, capable of appropriately addressing that risk.
“Years ago, you’d never think about cyber security or what that could do. By going from traditional products to more digital ones, the complexity increases and so does your risk profile, and you have to have a finance team that can meet those challenges,” he says.
Privacy, too, is a consideration, Entricken notes, given accountants, lawyers and medical professionals who all use Wolters Kluwer’s software will be putting sensitive information into the cloud.
“You’ve got to be very, very sure you’re protecting your customer and their customers,” he says gravely. “It means you really have to think carefully before you release a product – how you’re serving your customer, but also how you’re protecting them.”
Alongside that shift in model, the company is also keen to increase its global footprint, with moves into growing markets including Brazil and China.
Somewhat counter-intuitively, one of the factors that has drawn Wolters Kluwer towards those markets is, in fact, the complexity of the environments.
In Brazil’s case, it’s the tax code, which Entricken astonishingly claims is more complex than the UK’s, US’s or any other he’s encountered. And, he explains, where there’s complexity, there’s opportunity.
“We acquired a Brazilian business called Prosoft, which has been excellent for us because of the complexity,” he says. “What really attracted us is that the Brazilian tax code is probably the most complex I’ve seen in my career. Not only do you have to do a tax return in Brazil, but you literally have to turn over transactional data to the tax authority, so it’s very difficult to comply with the tax legislation.
“Anywhere there’s complexity, that’s a good place for us to be because we can manage through that complexity.”
It’s a similar story with China, accompanied by a significant push for access to healthcare, particularly for the country’s rural population. Following the country’s huge economic growth over the past ten years, the number of professionals in the country is growing at an “astronomical rate”, Entricken says.
“The Chinese government is putting a lot of money into the healthcare system, not only in improving it but bringing it to the masses,” he explains. “We’re working on a full-translation of our products for China that we plan to release at the end of this year. You have got to know the market very well, be close to the change that’s going on in that market, understand legislative changes and regulatory changes.”
As the company seeks to become more global, it is agility in responding to those changes quickly that will prove key to success.
“We’re a global company, but we use a local-for-local model. In Europe, the tax regime changes and the legal system changes as soon as you cross a border, but we find that if we build the platforms centrally – if we can build the software centrally and the content platform centrally – we can roll them out to the globe relatively quickly.
“So we’re investing more and more to do just that and mitigating the risk of developing technology,” he says, noting that developing technology in siloes can see “a lot of mistakes made twice”.
“If you’re going to fail, fail fast, learn from your mistakes and move on,” Entricken says. “We can do that and address issues by developing centrally, rolling it out around the world.”
Kevin Entricken CV
2003 – present Various roles including CFO, Wolters Kluwer
1998 – 2003 Vice president of finance, Reed Business Information
1990 – 1998 Vice president of finance, EMI Music Publishing
1987 – 1990 Various roles, including senior accountant, KPMG