Where CA Technologies Is Headed: Q&A With CEO Mike Gregoire
Why is CA better off going it alone as opposed by being acquired by a bigger player that might be able to drive greater profits and perhaps more shareholder value? The thing is, there are not that many bigger ones. It's a very small pool, and if you take a look at the bigger ones, they're going through their own problems. They're probably at least two years behind where we are in our transition. We identified very early on that the whole idea of making software that's not easy to use, easy to install and easy to upgrade was going to be problematic. So we started making those development changes a couple of years ago. Now you've seen in our announcements today how many new products we have that are able to do that. We've also gotten very disciplined about our product portfolio, and each year that I've been here—I'm in my third year—we've taken 10 percent of revenue from existing products and put it into new development, so we're building a flywheel of net new products. We've completely transformed our sales organization to a modern organization as driven by the new digital footprint, so our cost of sales plus our own footprint has expanded. So when you take a look at all these things together, we are a very stable company. We've got a great balance sheet, we've got great investments in net new R&D, we've been able to do acquisitions at scale, and we've been able to improve our customer satisfaction.How do you see CA's M&A activity in the coming year? The strategy is still the same. Given our choice, the first thing we'd like to do is go build. Given where our market is, and what is most effective use of capital on behalf of our shareholders, we will always look at buy versus build, and I don't think there would ever be one complete leap into one or the other. Last year, we spent about $200 million in acquisitions. This year we spent about $600 million, but we still spent the exact same amount in R&D. When you're building a product from scratch, it takes several years for that product to get traction. The organic story hasn't changed at all. It's just that when you buy something, the impact is more immediate. But the strategy is to be very thoughtful and buy things that fit our strategy and continue to place the biggest emphasis on organic build. CA has long been an operations-type software provider, and now it is providing a lot more SaaS (software-as-a-service) products. What is CA's strategy toward developers and about self-service adoption? I think you win in the marketplace if your product is easy to use, easy to install and easy to upgrade—regardless of whether it's on the ops side or the dev side. As a fundamental philosophy of how we build products, that's a core tenet of our design. We have tended more toward dev in recent years. If you take a look at where the power was in the company five years ago, it was definitely in operations. I made a joke in my keynote today that everybody knows that ops doesn't trust dev; that's true, and it's still true today. But on the operations side, the best companies are merging those two teams together because they have no choice. Now when you walk into a room and take a look at the scrum team, you don't know whether somebody's an architect, a UI developer, an application developer, an ops person, a DBA—because in order to get your product into the market as soon as possible, you don't have the time to serialize all that development—you have to have it done all together. This is how software is being built. Nobody has time to build the software, put in the unit test, put in integration test, put in the system test, put in the performance test and then kick it over to operations. By the time you do all that, your competitor that is doing agile has had their product in the market for three months. They're getting instantaneous feedback because it's a SaaS solution and they can see the features that are being used and the features that are not being used. They're taking that feedback and putting it into the next release—which is coming out the next day. We're going to be on that side of the house. Our [recent] purchase of Rally clearly puts us in the wheelhouse of the developer and how they're thinking through the development process.
So to the extent that we are able to operate (and compete) in that environment, I think we are very formidable as a stand-alone company with scale.