To thrive in a digital economy, companies are adapting their operating models to unlock the potential of new technology, particularly in the information services sector. Kevin Entricken, CFO at Wolters Kluwer, speaks to Finance Director Europe about how the company has invested in digital capabilities to improve efficiency and drive profitable growth.
As a global company that built its business on providing information to professionals working in law, tax, finance, risk and compliance, and healthcare, Wolters Kluwer is adept at incorporating digital technology into its operating model. The business, which started as a publishing house in the Netherlands in 1836, has a rich history in printed materials, but, in recent decades, it has become a provider of software and services to the industry sectors it previously occupied. This change has been due to in-house technological development and a series of important and savvy acquisitions.
To stay at the forefront of the market, the company must provide the most relevant and up-to-date information to its clients. It must offer a comprehensive suite of digital solutions so that its customers can access content to use it effectively and efficiently.
Wolters Kluwer stated its aims in its 2016-2018 corporate business strategy, 'Growing our value', as continuing to improve its organic growth rate and increase its margins. The company's 2015 financial results showed growth of 3% with a 21% increase in margins and a 5% improvement in digital and services revenues that now account for 83% of its total revenues. To maintain this momentum, Wolters Kluwer aims to expand its market coverage by allocating most of its capital to its leading growth businesses and digital products, and extend them into new geographies.
"It is an interesting journey," says Kevin Entricken, CFO at Wolters Kluwer. "Our business is information and we want to be domain experts in all of the areas we cover. All of the professionals we sell to face increasing pressure on their time, and the wealth of information to which they have access is also a challenge for them. We need to provide more than just knowledge. We need to provide solutions and productivity tools, so our journey is taking us towards being a digital solution company. Now, less than 20% of our revenue comes from print products."
Entricken has been CFO since 2013, having previously spent three years leading the finance function in the company's health division. He began his career in accounting with KPMG, but moved into the media and information sector with posts at EMI Music and Reed Elsevier. His career at Wolters Kluwer has led him through different business units, including the law and business division, and into the investor relations team for which he was vice-president. He is now responsible for accounting, business analysis and control, internal audit and internal controls, investor relations, legal, mergers and acquisitions, risk management, and tax and treasury.
"This is a very exciting industry to work in, and there is always a new adventure. When I joined, I had to get to know all of the different areas in which we worked, from legal to healthcare, but I also worked in investor relations during the global financial crisis, so I understand the business from a different angle. One thing that is always true is that customers' needs always change, so it is good to work in such a dynamic environment," he says.
"When I joined the company, most of our products were print-based, but we have moved to digital products such as solutions that help accountants complete tax returns more efficiently or that make it easier for doctors to create a treatment plan at the bedside. Now, I am looking at the allocation of capital to foster a growing business. We are looking for opportunities to become more embedded in our customers' workflow. We have very sticky products on which our customers rely day in and day out."
Wolters Kluwer has an extensive product portfolio for workflow, business management and information services. Kleos, for instance, is an end-to-end practice-management software tool that gives lawyers access to client files from anywhere across Europe, and at any time through a secure virtual office. Another example is CCH Integrator, which is a web-based solution that simplifies the compliance and reporting processes for local and multinational businesses dealing with tax issues.
"If an accounting firm is using our tax software, then we can offer workflow solutions that improve productivity because there is a synergy from using our solutions," Entricken says. "We can provide a range of different modules to automate workflow and, therefore, help our customers serve more clients. Our digital solutions are designed to make our customers do business better. To do that we have to understand their businesses very well, so we employ lawyers, doctors and accountants who understand those segments well, and we develop the technology."
In all of the sectors that Wolters Kluwer serves, there is growing demand for digital solutions that significantly impact workflow. This trend is particularly clear in healthcare, where too few doctors serve an ageing population and a growing number of patients with long-term care needs. The only solution is for those doctors to be able to work more efficiently.
The company's UpToDate solution is an evidence-based, physician-authored, clinical-decision-support resource that helps clinicians make the right point-of-care decisions. It is backed up by a rigorous editorial process performed by more than 6,000 world-renowned physician authors, editors, and peer reviewers who synthesise the most recent medical information into trusted, evidence-based recommendations that are proven to improve patient care and quality. Currently, more than one million clinicians in 180 countries, and almost 90% of academic medical centres in the US, rely on the tool.
"There is a lot of information available about how to treat illnesses and UpToDate puts clinical synoptic information into the hands of doctors through a phone or an iPad to facilitate the diagnostic process, get to a treatment programme quicker and create confidence in the outcome," Entricken says. "Increasingly, insurance companies are paying hospitals for outcomes rather than treatment, so better outcomes are better for a hospital's bottom line.
"According to the American Institute of CPAs, 75% of CPAs will retire within 15 years. As they leave full-time practice, the demand for qualified CPAs to fill the ranks will increase, which means the industry needs productivity tools to improve efficiency. Our role is progressing from information to insight to better workflow," he says.
The transformation of Wolters Kluwer into a digital business has come partly through mergers and acquisitions, though it also has made investment in organic growth and development.
"There is always a build-versus-buy decision to make. We look at mergers and acquisitions for smaller bolt-ons when a company has done a good job developing a technology. In the healthcare sector, for example, UpToDate came through acquisition and now we are investing to develop it into 30 healthcare specialities," Entricken says.
Along with the push to make technology relevant to specific sectors or geographies, there is a simultaneous effort to generalise some elements of the product portfolio to ensure that they can be leveraged on a global basis. This helps the company move faster when opening up a new market because it has solutions that can handle business management or workflow issues while taking the time to adapt the specific content to local needs.
Presently, China offers the potential for rapid growth, not least because the government is making multibillion-dollar investments in healthcare. UpToDate launched in China after a long period of development to ensure it suits the specific needs of the local market. Brazil is another interesting market because the government is trying to improve the efficiency of its tax collection processes, and the onerous tax code creates the need for enhanced information services and sophisticated software to automate the management of tax submissions.
"It helps us in our product development, too. We have a local-for-local business model; we provide information on local tax laws," Entricken says. "As we become more digital, we see many similarities in the ways professionals work across geographies. The management of firms is similar, so firm-management software can be rolled out across the globe. It is a competitive advantage to have products with a global appeal because we can have economies of scale. Information is local, but productivity solutions are global.
"A CFO has to be well-versed in the digital-technology business. In 2015, recurring revenues grew organically by 3% due to the subscription model. As a finance function, we hire digital natives and use digital technology to help us do our job, such as consolidation tools to look at results or make an assessment of our sales pipelines. Digital investment is about timing. Wait too long to decide what to invest in and analysis paralysis sets in, so always look at incremental improvement. It is better to make steps forward than try one giant leap."
The possibilities presented by digital technology are growing at an accelerated rate, but Wolters Kluwer is proving that for the business as a whole - and its finance function in particular - it is possible to keep up to speed through smart investment.