Built on sound IT and standard processes, LinkedIn’s finance department goes from startup to IPO—and beyond.
by Fred Sandsmark
Transformation is a constant theme in the career of Steve Sordello, CFO of the online business network LinkedIn. It’s also the key to the success of his employer.
Many types of transformations occur simultaneously at LinkedIn, Sordello says. On one level, the technology behind LinkedIn’s professional social network empowers users to transform their careers, helping them find a new job or succeed in their current position. On a more personal level, Sordello and his colleagues transform themselves into more productive, valuable contributors as they help LinkedIn achieve its business objectives. Then there’s the big-picture view: by transforming its members’ work lives, LinkedIn can be “transformative in the world,” Sordello says. “I think transformation is a good way to approach working for a company, working within a particular function, and working on your own career,” he concludes.
When Sordello joined LinkedIn in 2007, he spearheaded two transformative projects: First, he transformed LinkedIn’s startup-style finance function into an operation that would be suitable for a large, global enterprise. And second, he helped prepare LinkedIn for its transformation into a public company. As the company grew from a startup to a post-IPO market leader, Sordello and the management team at LinkedIn relied on Oracle applications to support these transformations.
LinkedIn was just four years old when Sordello signed on as one of the company’s first 200 employees. (LinkedIn has nearly 3,200 employees now.) The company was still in startup mode and growing fast, and most of its resources were devoted to building the LinkedIn Website at linkedin.com and the underlying services for members, businesses, and advertisers. “At the time, the company primarily invested in getting products out to market—and rightly so,” Sordello says.
Finance wasn’t as high a priority. Accounting was done with a common off-the-shelf small-business software package. Budgeting and reporting were limited, and the existing software wasn’t scalable or flexible enough, in Sordello’s view, based on his 20 years of experience in the finance departments of pharmaceutical, technology, and internet companies. “We knew we wanted to be a very large company,” he says, “so I thought it was important, early on, to move LinkedIn to a certified tier 1 system.”
We’re making decisions on data in real time. We can test things live and see the results.
Sordello and his fellow managers not only expected that LinkedIn would grow large (and quickly); they foresaw that the company would have complicated operations and characteristics that might choke an inflexible, underpowered finance system. These included the ability to take in multiple revenue streams (from advertising, premium subscriptions, and talent solutions); the requirement to integrate and share data with the many one-of-a-kind systems that LinkedIn developers were creating; and the company’s need to constantly test new products, monitor the performance of internet-speed business processes in near real time, and respond very rapidly to changing needs. They chose Oracle E-Business Suite.
“One of the benefits of Oracle E-Business Suite was its flexibility,” Sordello says. “The internet space is relatively new, and a lot of the [finance solutions] out there don’t have prebuilt systems for everything that we needed, so getting a system that could scale, and that was flexible enough to customize where we needed, was critical for us.”
Number of people who are members in LinkedIn’s online professional network. LinkedIn members live and work in more than 200 countries and territories.
Eighteen core modules of Oracle E-Business Suite were deployed simultaneously in May 2008 with help from Oracle Platinum Partner KBACE and Oracle Gold Partner Infovity. As the Oracle system was designed and implemented, Sordello began hiring IT and finance professionals with skills and experience suited to LinkedIn’s eventual needs—including IT people with backgrounds in finance.
Of course, the rest of LinkedIn—particularly the product development engineers—couldn’t stop and wait for Sordello to stand up the financial systems and grow the finance department. “Obviously, there’s a lot of pain when you walk into a situation like that,” he says. “The business is moving very quickly, and you’re trying to keep up while you’re implementing systems. But it was a greenfield opportunity, both in terms of the systems we put in place and the team we were able to build.”
Sordello’s team had to design LinkedIn’s financial systems to capture data generated by customers’ use of the site. On top of that data the team needed to build end-to-end, no-touch business processes to monetize the data. “We had to make sure, early on, that we were putting in processes—in terms of forecasting and reporting capability—so that people could make timely and accurate decisions based on the right information,” Sordello says. It helped that LinkedIn had strong leadership that set and maintained clear priorities, he adds.
It also helped that Sordello charged his teams—he oversees both financial planning and analysis and business operations—to work operationally and strategically with line managers to define and refine business processes. “My philosophy is that we want each area in finance to play a dual role,” he says. “One role is making sure that you’re safeguarding the assets of the company. The other is being a business partner.”
Number of Fortune 100 companies that use LinkedIn’s corporate talent solutions
One way the finance team could be a business partner was by bringing a value-add mindset even to routine tasks. For example, Sordello encouraged accountants to focus not just on daily activities like reconciling accounts, but also on how to add value through transformation of roles and proactively providing the business with accurate and timely information and analysis. “This makes us a better-functioning organization, and ultimately it gives the company a competitive advantage,” he explains. And that, in turn, makes LinkedIn’s finance team more than just a back-office function. It makes them a force for transformation.
Once the finance function had been transformed into an enterprise-class operation, Sordello and his teams were ready to handle LinkedIn’s transformation into a public company. Management brought the company to the market in May 2011, and the IPO was widely praised in the business press and is considered to be the most successful public offering in the social media space. “Sales keep surging, and existing customers keep spreading enthusiasm for what LinkedIn has to offer,” wrote journalist George Anders in a July 16, 2012, Forbes magazine cover story.
The financial groundwork for LinkedIn’s successful IPO had been laid years earlier, in the form of the company’s Oracle systems and the financial data collected by those systems. For example, an IPO registration statement must include audited statements of income, cash flow, and shareholder equity for the three fiscal years prior to the offering. But Sordello’s finance department was not much older than that, making the information collected in the Oracle solutions all the more critical. “We had to do a three-year audit on a look-back basis for the IPO,” Sordello recalls. “Having Oracle really helped us get through that phase.”
Indeed, the business processes established on Oracle solutions were key to the IPO’s success. As a result, the company didn’t need to alter financial processes after the IPO, even though public companies must file quarterly (10-Q) and annual (10-K) reports with the US Securities and Exchange Commission (SEC). “I think we did a good job of setting things up pre-IPO—it’s been tremendously smooth,” Sordello says of LinkedIn’s transition from private to public. “It’s really a testament to the team that we have. We’ve put into place some really good people managing the governance side as well.”
In addition to filing quarterly and annual reports, starting in 2012 LinkedIn was required by the SEC to certify the internal controls over its financial reporting to comply with Sarbanes-Oxley Act (SOX) rules. Again, the Oracle financial systems and processes proved invaluable. “Data quality and reliable financial reporting are really a critical part of [successful SOX reporting],” says Sue Taylor, vice president, corporate controller, and chief accounting officer at LinkedIn.
Taylor joined LinkedIn in January 2012—several months after the IPO, but in time for the company’s first 10-K filing and SOX reporting. A veteran of internet, high-tech, and accounting firms, she was impressed with LinkedIn’s business processes and the IT systems that supported them. “They’re really the cornerstones of our financial reporting,” she says. “I don’t know how anyone could function without both an excellent IT department and standardized processes.”
The accounting team aggregates data from multiple high-volume transactional systems to close the books. Taylor says that process starts with standard Oracle financial reporting and is augmented by a variety of custom applications and reports. The close is carefully scheduled and automated, giving Sordello and his team time to analyze the data. And because the finance and IT teams have worked hard to ensure data quality, management has confidence in the reports. “We can dig into the details and the trends, rather than wondering whether the data is right,” Taylor explains.
The closing process is now routine enough that both Sordello and Taylor took time to be interviewed in late October 2012—just a week before LinkedIn’s sixth end-of-quarter close as a public company. “It’s actually been smooth,” Sordello says of the close. “The only complexities [in the past] have been in quarters where we did a follow-on [offering] while we were doing the earnings announcement, or when we had an acquisition.”
LinkedIn keeps growing, and transformations in the company’s finance department continue. The addition of Oracle Essbase for planning and reporting, used in concert with Oracle E-Business Suite, brought new dimensions to planning and financial reporting. “The primary benefit of using the products together is that they talk to each other really effectively,” Taylor says. “It’s easy for us to roll up the forecast versus the actual in a quick, easy, standardized way.” (See the “Oracle Essbase: Beyond Planning” sidebar.)
Percentage of LinkedIn members outside of the United States
The Oracle platform constantly delivers information to LinkedIn management. “We use KPIs [key performance indicators] across the organization,” Taylor says. “We’re a very data-intensive organization. We’ve got lots of dashboards and analytics data that we look at on a real-time basis, as well as on a postclose basis.”
Those dashboards extend all the way to the desk of CEO Jeff Weiner. “He’s very analytical,” Sordello says. “Every morning he’s e-mailing the staff, looking at and questioning metrics.”
To feed this need for metrics, the connections between finance and the rest of LinkedIn’s operations have only grown deeper over time. The finance team works to ensure that the new products and services created by LinkedIn’s developers integrate well with the company’s financial systems. “We spend a lot of time up front planning those product launches so that they’re successful from a financial reporting point of view,” Taylor says.
Product launches require careful planning because LinkedIn’s products are likely to be used heavily and generate tremendous amounts of data and transactions. LinkedIn has more than 187 million members in more than 200 countries—adding approximately two new members every second—and had nearly 9 billion page views last quarter. “These are pretty massive numbers, and all of them have dollars attached to them,” Taylor says. Because of careful integration, the data generated by LinkedIn’s products is straightforward to work with. “The ability to slice and dice that data is really the value that an integrated financial reporting system like Oracle gives us,” she says.
Sordello adds that launches are constantly measured and tuned. “We’re making decisions on data in real time,” he says. “We can test things live and see the results. Ultimately it comes down to data and metrics to optimize decision-making.”
After more than five years at LinkedIn, Sordello still marvels at the volume and depth of data that LinkedIn generates from its products and services, and the capabilities that data gives to decision-makers. “We have daily, weekly, and hourly metrics,” he says. “That gets you into a rhythm of being able to catch things, and to be more proactive to make changes when you need to. It’s really enhanced our predictability as a company.”
Those metrics, and that predictability, will power future transformations at LinkedIn. “There’s so much potential around what a company like this can do,” Sordello says. “It’s really important for us to prioritize effectively, more so than at other companies. We try to leverage information as best we can to make the best decisions in real time.”
Fred Sandsmark is a regular contributor to Profit.
Oracle Essbase, the market-leading online analytical processing (OLAP) server for enterprise performance management (EPM) applications, supports forecasting, variance analysis, root-cause identification, scenario planning, and what-if modeling. Oracle Essbase can make data available rapidly to nontechnical users through interactive dashboards, standard financial and production reports, common Microsoft Office formats, and advanced data visualization tools.
At LinkedIn, Oracle Essbase is owned by the financial planning and analysis team and used to examine revenue along multiple dimensions, including product, channel, geography, and managerial control or influence. That data is then used for reporting, dashboarding, and planning of expenses ranging from IT hardware to employee bonuses to food budgets.
But because of the high data volume and velocity generated by LinkedIn’s customer-facing systems, and management’s desire to understand and monetize that data, Oracle Essbase is also used for reporting at the company. “We use Oracle Essbase in the financial reporting system to pull reports as quickly as possible,” says Sue Taylor, LinkedIn’s vice president, corporate controller, and chief accounting officer.
Steve Sordello, LinkedIn’s CFO, says the integration of Oracle Essbase with Oracle E-Business Suite is the key. “The core ERP [enterprise resource planning] system is the area where the data is housed,” he explains. “Oracle Essbase integrates into that and provides us all with reporting and the ability to slice and dice the data.”