LAS VEGAS—CA Technologies has, over a lot of years in business, earned the reputation of being a company that would rather buy than build. All one has to do is look at the number of acquisitions the company has made—65 since 1981, 20 of those since 2006—to observe CA’s strategy.
While CA in 2015 isn’t exactly saying it is veering away from that approach under new CEO Mike Gregoire, it is allocating many more resources (including $600 million this year) toward research and development of its own as it continues to integrate all that intellectual property into products and services that it believes enterprise IT systems will want, now and in the future.
A little background: CA Technologies, formerly known as Computer Associates International Inc. and CA Inc., is one of the largest independent software corporations in the world. It is a New York City-based, publicly held, multinational company that creates systems software (and previously applications software) that runs in mainframe, distributed computing, bare metal servers, virtual machine and cloud computing environments.
Not a Takeover Target Any Longer
The company has a large, diversified installed base of enterprise, government and retail clients around the world, including the U.S. federal government, Nike, Comcast, Capgemini, Qantas, Loreal of Paris and many others.
CA has a market cap of $12.44 billion and produced $4.4 billion in revenue for fiscal year 2014; it maintains offices in more than 40 countries. The company employs 13,000 people and holds more than 950 patents worldwide; it also has more than 900 patent applications pending.
Toronto native Gregoire (pronounced greg-WAH), 49, former CEO at Taleo and executive vice president at PeopleSoft, replaced 70-year-old CEO Bill McCracken in January 2013 and invigorated a company that was treading water. Industry analysts believed the company to be stagnating, focusing on maintaining still-useful but conventional tech, such as mainframe and client/server systems, and not moving quickly enough to embrace new-gen IT and agile development.
Gregoire has brought forward-thinking people with him to run his divisions, including CTO Otto Berkes (one of the four creators of Xbox at Microsoft and former product leader of HBO GO), Chief Product Officer Ayman Sayed (Cisco Systems), Vice President of Product Management and Strategy Mo Rosen (former COO of government security provider Xceedium) and Senior Vice President of IT Business Management James Harvey (Taleo).
Immediate Impact by New Management
All of these men have joined the company within the last two years and have already made inroads into pushing the company to 21st century sensibilities.
Prior to Gregoire’s arrival, CA for a long time was considered by many analysts to be a takeover target by one of the larger all-purpose IT vendors. That isn’t the case anymore, especially in the wake of Dell’s acquisitions of Quest Software and EMC, the split-up of Hewlett-Packard, the continued evolution at IBM and other factors.
At CA World ’15 on Nov. 18, Gregoire did a question-and-answer session for eWEEK and a group of international journalists. Following are highlights from that session.
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.
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.
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.
In your market, how worrisome are competitors like Splunk and ServiceNow?
They’re all good competitors, and they all focus on a piece of our total ecosystem. When it comes to service management, ServiceNow is a very good company, but we have a different offering there. For certain types of high-scale opportunities where you want to really link your service management into your operational management, we are more than very competitive in that space.
Similarly with Splunk: They’re a very good company that’s taken a novel approach to some of the monitoring of infrastructure management. You have to remember that they are reviewing logfiles that have happened in the past; we deal in real time. If you have servers that have just gone out, you’re going to want to have a system like ours that reports immediately that this server is going down now.
You’ll see us move more into analytics-based decision-making. That’s where everybody in the industry is going. I think Splunk will have to move to more real-time decision-making.
Do you think that IT will have to get out of the tech silo and start managing social, cultural and political implications of disruptive innovation, rather than just producing technology?
That’s a great question. We believe the overall benefits of new technology will be much greater than some of the harms that will come in its way. The issue happens when you ignore it and not get on board. If you’re not improving your skill set, for example, you do get left behind.
Look at this example: migrant farm workers. If you’re picking grapes, a machine visioning system picks grapes better than humans. And they’re more accurate; as these machines are going through the orchard, they’re looking right at the grape and can determine the sugar content of the grape and whether to pick it or not. Humans have to do this by look and feel, and there’s going to be a margin of error. If you go whole hog on some of these systems, you’ve just displaced a whole workforce.
What are we doing to help that workforce understand the new skill sets? This is not an easy question to answer, but it is a question that has to be answered, and we have to be very thoughtful as we play to some of these technologies and truly understand how they affect everybody. On the other hand, to get in the way of it would be a huge mistake.
Look at Uber. If you think you’re going to stop this sharing economy, it’s just not going to happen. The analogy I use is this: Back in 1908, when cars first started showing up in London, they had a law that lasted like six weeks that said someone had to walk in front of the car with a red flag. What they were really trying to do is keep the horse and buggy business going. Well, the population was violently against that, so the politicians got rid of the rule.
The same thing is happening with a lot of new technologies. It’s in all of our best interests to work through it in a systematic fashion.
Chris J. Preimesberger is Editor-in-Chief of eWEEK.