CAs Kumar Teaches Survival Lesson

Computer Associates Chairman Sanjay Kumar shares the steps his company took to survive in a down economy.

Speaking at a symposium for top business school students, Sanjay Kumar, chairman and CEO of Computer Associates International Inc., told students to be prepared for and learn from change.

In speaking on "Building Leaders for Technology," Kumar noted that the changes in the economy over the last few years have only helped to strengthen Islandia, N.Y.-based CA. Kumar spoke at the Harvard Business School Cyberposium Saturday.

Because of the period of hardship following the downturn in the economy and the slowing of the growth in the technology market, Kumar said CA was forced to examine its faults and to come to conclusions about the strengths and weaknesses of the company. The result has been a new licensing model and a focus on core principles, he said.

The bust of 2000 was "far-reaching," he said. "IT managers were getting fed up. "They were getting really tired of being told that the next great advance would keep them competitive—and employed—and was just beyond the next multimillion-dollar investment."

He said: "Budgets were cut, multitier projects all but disappeared. Savvy customers demanded new ways to address their increasingly complex technology requirements, and above all they wanted top returns on the investments they were making."

Kumar noted it "was a pretty frightening wake-up call for some software companies whose growth had been fueled by satisfying customers insatiable hunger for the latest technological advance."

To adjust to the new environment Kumar said CA decided to "make customers the center of our universe."

Kumar said CA also set out its core values, rebranded its products and switched to a new model for selling its products and reporting its financial performance.

One of the first things CA did, after Kumar was named CEO in 2000, was to create a 650-person customer relations organization. The company also set forth its set of core values revolving around the customer. "Customer first" became a key commitment, he said.

CA reorganized its more than 1,000 products under six brands. Unicenter, the companys largest brand, is responsible for 40 percent of the companys revenues, Kumar said. The companys security and storage solutions account for another 30 percent, he said.

As for the new business model, Kumar said CA moved away from the traditional model of recording all of its license revenue upfront to a method that records all the license revenue from software licenses and maintenance support over the term of the agreement.

"Adopting this model meant that when we switched over from the old model to the new we went from reported revenues that had been in the $5 [billion] to $6 billion range to revenues of around $3 billion."

Also, under the new approach, CA reduced the terms of its contracts from an average of five to six years to three years or less.

Yet, Kumar said the so-called FlexSelect Licensing model has paid off, with 50 percent of CAs customers saying they will buy more CA software. And the company has experienced new customers and an increase in total transactions, he said.

In addition, the company, following a bitter proxy fight over the past two years, named a board of independent directors and elected the companys first lead independent director, and appointed a director of corporate governance.