In the second of two articles, Medtronic CFO Karen Parkhill discusses her finance talent model at a time of rapid organizational change at the medical technology company and the importance of role models for women’s progression up the corporate ranks.
In 2018, Medtronic announced a five-year global transformation program, Enterprise Excellence, launching a thorough redesign of its global operations and corporate functions, including finance, with projected cost savings of $3 billion. In September 2020, the company announced a new operating model along with its Simplification program, reorganizing its businesses into highly focused operating units that are structured around specific markets, customers, and therapy areas, to enable Medtronic to become a nimbler and more competitive organization. CFO Karen Parkhill discusses the planning and skills needed to lead these far-reaching transformations, how finance has evolved, and her views on fostering diversity in finance.
Q: What factors led to Medtronic announcing Enterprise Excellence in 2018 and its new operating model this year?
Parkhill: The goal of Enterprise Excellence is to drive greater effectiveness and efficiency across the enterprise. Medtronic’s focus has always been on innovation, and over the years we’ve grown organically as well as inorganically through acquisitions to become the $30 billion company we are today. But we had organized ourselves more vertically than horizontally, and, because of that, we were not able to fully leverage our size and scale across operational and functional activities. We found it increasingly hard to maintain our margins without sacrificing our valued R&D investment, which supports future growth.
Enterprise Excellence means that instead of operating finance in corporate and business unit silos, we are operating finance horizontally, end to end across the company. Achieving this required a change in focus and mindset as well as a critical look at how efficient and effective we were and how we could improve. For example, four years ago, finance had 20% of its activities in a shared services center. We recognized that many companies of our size and complexity had more than 50% in shared services centers and that our more siloed, vertical structures were holding us back.
This organizational hurdle was true not only for our finance function but for other business units across Medtronic as well. Recently, we announced a new operating model that we are rolling out across Medtronic to simplify our organization, get closer to our customers, and accelerate decision-making and execution. As part of this effort, we are also consolidating operations and functions at the enterprise level to provide greater service to our operating units and better leverage our scale. We believe the combination of these programs will enable us to accelerate innovation, enhance the customer experience, increase growth and market share, and produce greater efficiencies.
Q: What challenges are you encountering in executing on these transformations?
Parkhill: Change is hard, and it always comes with challenges. These transformations require us to shift to a new cultural mindset not only within global finance, but also across the entire company as we shift our operating model.
As leaders, we recognized that any change involves concern about what it will entail, and that employees need to be able to trust leaders, connect with them frequently, and see that the transformation will improve the organization in meaningful ways. As we have enacted changes, we have stayed close to our employees and customers, and we are getting positive feedback. Employees are really excited by the changes and the clarity they provide. Our new operating model empowers our operating unit leaders to own more of the decisions that affect their P&Ls, a shift that will invigorate our teams and upgrade our competitive culture. We expect our new operating model to be fully effective at the start of our fiscal fourth quarter 2021, with Enterprise Excellence completed in 2022. Although we were in the midst of various deployment waves of our transformation program when the coronavirus crisis hit, the work we had done prior to that helped us manage better in the pandemic, and we have continued with our wave deployment through the crisis.
Q: What leadership skills are required from you as you enact these transformative changes across Medtronic?
Parkhill: I knew that Enterprise Excellence would need to be a collaborative effort in order to be a success. I identified a seasoned finance executive to lead the overall effort, and then we put in place leaders for the end-to-end processes—we call them the value streams—for each initiative. We created a steering committee and required sponsorship and engagement of my reports into that steering committee. We collaborated with external subject matter experts to determine how a best-in-class finance operation is organized, and we leveraged Medtronic’s broader change management approach and resources along the way.
Because we had to shift our perspective from a vertical view to a more horizontal, global view on an end-to-end basis, we began with a strategy session with our finance executive committee. We used benchmarking to understand best-in-class organizational models, and then we involved subject matter experts to help us to create the future structure for the finance organization. Consistent with our company culture, we focused on strong collaboration, communication, and change management capabilities as we worked to achieve that best-in-class vision.
As far as changing our operating model, our main focus was how to reorganize our businesses to create highly focused, accountable, and empowered operating units that move with greater speed and agility while at the same time more efficiently and effectively leveraging our enterprise scale. As a leadership team, we recognized that we needed to decentralize decision-making and empower operating unit leaders with full responsibility for their individual businesses and markets in order to fuel innovation, accelerate growth, and win in the marketplace. At the same time, we didn’t want to lose the advantages that our scale brings, so we are centralizing our operations at the enterprise level, including the company’s global manufacturing, supply chain, and facilities to provide greater service to our operating units, realize greater efficiencies, and capitalize on our global reach. We are also establishing technology development centers in areas where we have deep core competencies to focus on continual development and efficient sharing of advanced technologies and capabilities across our operating units. Implementing these changes will enable our executive committee to refocus our energy on setting the enterprise strategy, including making capital allocation decisions, building new capabilities, and running the company.
To make this new operating model a success, we will collaborate with our operating unit leaders and employees to ensure that we are best positioned for success going forward. We know that we have to be bold to make the necessary changes to transform Medtronic so that it becomes the leading medical technology company.
Communication plays an important part in both projects, and we are communicating transparently and frequently with employees to address potential concerns. We have established routine outreach using leader-led tools, newsletters, and video messages that can be distributed throughout the global organization by various leaders. For Enterprise Excellence within finance, we rolled out a tool that operated as an interactive exercise called the Root Learning Map. It was an important change management activity, using a physical image created by a team of artists and change leaders. The map walked users through various conceptual, visual, and discovery-based exercises and generated discussions to engage employees and help them better understand the need and rationale for change, and ultimately, our plans around that change. All our finance professionals participated, and we got great feedback from it.
Q: What changes have been made to how finance operates?
Parkhill: For finance, these transformations are meant to better help our business partners by driving more added value to them with improved and more timely business analyses. We’re creating more standardized competencies and better controls around routine processes to allow our finance teams to focus more of their own time on strategic, growth-oriented work and enable finance to be more of a value-added strategic partner to the business. This transformation of finance goes hand in hand with simplification of our organization through our new operating model and will each complement the other as Medtronic focuses on accelerating growth.
The key change has been enabling our finance teams to spend more time thinking strategically and driving greater analytics to the business. Before the transformation, the finance leaders attached to our businesses were more generalists, and they spent a lot of time on routine tasks that are now handled centrally through more automation. We have been investing in new technology tools, especially robotic process automation, to address allocation of time issues to drive better efficiencies and results. Following the transformation, finance leaders will have more time to focus on strategic growth opportunities, which will drive value for the entire organization.
Q: How has the finance talent model evolved, in your view?
Parkhill: I believe the best performing companies position finance as the right-hand strategic partner to the business. Ensuring that finance has the technical fundamentals of accounting and financial analysis are clearly still table stakes, but our ability to think strategically and lead change is how we increasingly drive enterprise value. That requires finance employees working directly with the business, as well as those in a shared service function, to collaborate and contribute to high-value, strategic growth initiatives. Our new operating model will reinforce this positioning of finance as the strategic partner to our businesses and will further encourage the strategic thinking that accelerates profitable growth.
Q: What is your own approach for attracting and retaining individuals with those skills in a competitive marketplace?
Parkhill: We offer compelling opportunities for top talent. At Medtronic, we believe we serve a higher purpose—alleviating patient pain, restoring health, and extending life—and we look for individuals for whom being part of that mission has real meaning and value. When we find those candidates, we offer development and career progressions within the global finance function. We continually demonstrate that we are investing in our people, developing talent, providing opportunities to take different roles around the organization, and giving visible promotions. All these factors are a part of the equation.
Q: How do you see opportunities changing for women in finance, and where is there room for improvement?
Parkhill: Conditions are very different from when I joined the business world. More women are choosing finance as a career today than 30 years ago, but there is still much more we can do. You don’t see proportional numbers of women in finance as you move up most organizations. We have more role models than in the past, and these role models have proven that women can rise in the ranks in finance without sacrificing everything else in their lives. I have an amazing family—a husband and three children—and I am the CFO of one of the largest public companies. When I started my career, I didn’t believe women could have all that in their lives. We’re showing it’s possible.
Although we see more diversity at the top of many organizations, with more women on boards and in leadership roles, we are not where we need to be. We haven’t moved the needle on the second rung of the ladder. As women begin their careers, we see a parity with men, but as careers progress, particularly from the first to the second rungs of the ladder, we start to see that parity for women slipping. A key obstacle is ensuring we have the right management deciding first- and second-level promotions and then having flexibility in place to enable women early in their careers to remain in the workforce and still accomplish the personal things they want to accomplish, such as having a family.
Q: You mentioned the need for more diversity at the top of organizations with respect to women. Do you think there is room for improvement with respect to racial diversity in the finance field?
Parkhill: Absolutely. Just as women benefit from seeing other women as role models in top positions in corporate structures, so do minorities working in finance. We are not where we need to be in terms of the representation of minorities on corporate boards and top management positions, or in terms of ensuring that minorities are being promoted at the same speed as their white counterparts in organizations. The social justice issues of the past year have highlighted the structural barriers many minorities face in society, including in corporate America. As a woman in the C-suite, I want to see more minorities rise to positions of power within companies, and I am committed to doing my part to effect this change.
Q: Who are your role models, and what characteristics or traits of theirs inspire you?
Parkhill: I am lucky enough to have had many role models. The first one who comes to mind is my dad. He grew up in a tough environment, under difficult circumstances, but he knew that with education and hard work he could move himself out of that environment. He ultimately put himself and his four younger siblings through college and supported himself throughout his education to become a prominent orthopedic surgeon. My grandmother would constantly tell my dad and his four siblings that there is no such word as can’t, and I have followed that credo my entire life.
— by John Labate, Deloitte Services LP, editor, Deloitte Insights for CFOs
Editor’s note: This article is part of an ongoing series of interviews with CEOs, CFOs, and other executives. The participation of Karen Parkhill in this article is solely for educational purposes based on her knowledge of the subject, and the views expressed by her are solely her own. This article should not be deemed or construed to be for the purpose of soliciting business for Medtronic.