628: Allocating Resources to Achieve the Right Outcomes | Inder Singh, CFO, Arm

Listen to the Episode Below (00:48:27)

Inder Singh started off his professional life as an engineer, only to learn that the large engineering projects that he aspired to someday lead often faced as many financial obstacles as they did engineering challenges.

So, Singh says, he went back to school and earned an MBA in finance, allowing him to redirect his career down a path populated with unique and imaginative financing deals to support engineering feats as well as business transformations.

One of the more innovative financing projects that Singh has helped to champion came along in the 1990s, when he was working as a business development executive for AT&T Corp. It seems that the Kingdom of Saudi Arabia was looking to upgrade its telecommunications infrastructure—to the tune of $4 billion.

“Other companies were just offering typical bank financing. In our case, we said, ‘Let’s do an oil barter agreement,’” explains Singh, who says that the proposal involved having Saudi Arabia supply $4 billion of oil to Chevron Corp., which then would pay $4 billion in cash to AT&T, which then would build Saudi Arabia a $4 billion telecommunications network.

“If you just think outside the box a little bit, bring your engineering skills, and bring some financial skills and common sense, you’ll see what makes sense for three different parties. And guess what? We actually won the deal,” comments Singh, who notes that the fact that Saudi Arabia may not have demanded such an imaginative financing solution is not important.

Says Singh: “The fact that we put it on the table made us stand apart.” And so it goes for Inder Singh, whose imaginative approach to financing deals over the years has routinely set him apart from his finance leadership peers. –Jack Sweeney

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Guest: Inder Singh

Company: Arm

Connect: www.arm.com

Headquarters: Cambridge, U.K.

Resource allocation sits at the crossroads of strategy and finance.

Singh: Arm is, at its roots and in its soul, an engineering company. And it has to be that way because our product cycles are three to five years, not one to two quarters. So, we really have to put investments in place today to create ROI in the future. And so R&D and revenue don’t happen in the same quarter, not even in the same year, maybe in the same three or five years.

So, one of the things that we’ve been really doing is to say, “What are the portfolio of investments that we need to make as a company from an R&D standpoint, for example?” What are the bets that are most likely to pay off? How do we measure that success? Where are we incubating new things that may take longer to develop? How will we make sure that we keep ring-fencing the right things, but also maybe reprioritizing and exiting some of the things that we don’t want to focus on going forward?”

A big part of the last year or so has been, as we built our new plan, to say, “What do we want to double down on from an investment standpoint, and what do we want to lighten up on?” So again, that sits at the crossroads of strategy, as well as finance to say, “How do we actually blend the right engineering projects with the right financial outcomes?” And so you have to think of an array of different kinds of metrics. It depends on if the technology is nascent. Arguably autonomous vehicles are something that will happen over the next five to 10 years in a bigger way, and so it is arguably a nascent market. But at the same time, it is a market which, which is going to evolve from today’s cars to tomorrow’s cars.

So how do you actually make sure that you have the things that are telling you that you’re succeeding? In something like that design wins or socket wins become really important, maybe more important than the revenue because there are no fully autonomous cars today. But are you actually establishing the same seeds for success that you did in your core businesses in the past and leveraging a model that is familiar to you versus are there some things that you’re doing that may have a very bright future. But maybe if they were managed differently or managed by someone else and invested differently, they may have a greater likelihood of success.

So one year in, we’ve already started to make some of those changes, really strengthen the company’s balance sheet, its financial structure, its profit margins, and its ability to grow with greater confidence. As with anything, you have to introduce metrics that measure the here and now. The mature businesses around revenue and profit and cash flow, and then the new businesses that are kind of adjacent to it in terms of your ability to expand into that and then brand new things, and whether which ones of those you want to be in and which ones maybe you don’t.