The generation game

Charles Wang made Computer Associates International the world's third-biggest software house. He earned more than any other boss. But he was always overshadowed by his rivals. So, in a shock move, he handed over his company to his 38-year-old deputy. Can Sanjay Kumar overcome their identity problem?
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Computer Associates International has an identity problem. With annual revenues of $6bn (£4.2bn), it ranks number three among pure software companies after Microsoft and Oracle. Its products are used by everyone from power-plant engineers and designers of e-commerce websites to the McLaren FI racing drivers, Mika Hakkinen and David Coulthard. Unlike its bigger brothers, however, CA is little known beyond the corporate computing engineers who use its software.

Computer Associates International has an identity problem. With annual revenues of $6bn (£4.2bn), it ranks number three among pure software companies after Microsoft and Oracle. Its products are used by everyone from power-plant engineers and designers of e-commerce websites to the McLaren FI racing drivers, Mika Hakkinen and David Coulthard. Unlike its bigger brothers, however, CA is little known beyond the corporate computing engineers who use its software.

Not that CA, based in sprawling, campus-styled headquarters in Islandia, Long Island, New York, is without the quintessential larger-than-life billionaire founder. In CA's case he is Charles Wang (pronounced Wong, pictured below), its founder and chairman.

Although his public profile pales in comparison to Bill Gates and Larry Ellison, Mr Wang, a youthful-looking 56, made headlines last year as the world's highest paid boss. His remuneration, including bonuses, options and salary, came in at around $650m, give or take a few tens of millions. That puts Mr Wang a long way from Shanghai, which he left aged eight with his family in 1952. That early dislocation and the fact that Mr Wang's father was a Chinese judge, who had to start again in the United States, helps to explain the son's no-nonsense determination and plain-speaking, even abrasive, manner.

Founded in 1976, just one year after Microsoft, CA has grown from a single product enterprise, with Mr Wang and four other employees, into a global giant, largely as a result of 70 acquisitions. That method of growth has earned CA a reputation for being the scavenger of the software industry. It also has a reputation for ruthlessness, both in slashing staff numbers as it integrated acquisitions and in cajoling customers, sometimes through the courts, to enforce long-term contracts.

Then, in August, Mr Wang stunned Wall Street by relinquishing the chief executive officer post to Sanjay Kumar, the company's Sri Lankan-born 38-year-old president and chief operating officer. Yet another shock was delivered last week when Mr Kumar turned the company's business plan inside out and vowed to focus on about one-third of its 1,200-strong range of software products, while waxing earnestly about returning choice to customers. The new strategy will see CA dump its software licensing model, replacing it with a super-flexible, pay-as-you-go approach that will allow business customers to rent programmes on a monthly basis with no tie-in period.

"It's the most important decision we've announced in the last five years and may be the most important for the next five years," Mr Kumar said. "The way we sell and the way we interact with customers will change radically. We will offer customers different ways to procure software. They will be able to commit one month at a time. We are the first large enterprise software company to do this."

Part of the reason for CA's relative anonymity is that it operates in the non-flashy mainframe and networking market. Its products help large corporations get the most from their vast data-processing systems that deliver computing scale and functionality far surpassing PCs. CA's software empire divides into three broad categories: systems management, database and development tools and applications like anti-virus security software.

The company aims to create software products that give corporate managers a single, comprehensive view into all of their computers and networks so they can be managed centrally. That helps network managers pinpoint and repair trouble spots before they damage an organisation's ability to do business. Such systems also let companies control computing policy, for example, ensuring that workers are only using certified software.

The company's most nifty product is Unicenter The Next Generation, or TNG in CA parlance. TNG was created to give companies a way to manage everything on a network: from monitoring the mainframes to tracking and updating the versions of software loaded on desktop PCs on any local area network, anywhere in the world. TNG presents a 3-D graphical view of a company's systems and networks. This allows computer engineers to enter a virtual building, travel along a network and go right "inside" a computer that is malfunctioning.

Another key product is Jasmine, an "object-oriented" database programme that lets developers create multimedia applications. Unlike conventional databases, which handle only text and numbers, object databases such as Jasmine can store and retrieve sound, video and image files. The use of such files has exploded with the rise of web-based content, although CA faces tough competition from database giants such as Oracle.

Industry analysts say CA doesn't lack for smart tech products, but that its brand value hasn't been unlocked. Tony Picardi, a senior vice president of global software with International Data, the technology research group, said: "CA's heritage is in the data centre. In e-commerce CA hasn't made its market yet. That's the biggest challenge." He added: "In technology, it's ahead, but in building the brand it's behind."

To redress that, CA turned to IBM, whose mainframes are a big user of the software group's programmes, hiring Ken Fitzpatrick in July as director of global marketing. The former "Big Blue" executive is straightforward about the marketing challenges facing CA and has been given $120m to spend in the year to March on boosting product awareness and brand recognition. "We want to reintroduce CA to the general populace," Mr Fitzpatrick said. "One of the things we don't do enough of is promoting our brand and making the public aware."

Marketing and promotion will be concentrated on a core range of about 400 products. To facilitate this CA is in the process of segmenting and prioritising its portfolio. Many mainframe software offerings, for example, have only a few long-term customers and don't require substantial marketing. "From a marketing perspective this hasn't been done before," Mr Fitzpatrick said. "This exercise will determine which software products we continue to invest in and which we don't."

Few inside or outside CA deny that it has a long, arduous road to travel in building a public profile to rival tech giants such as Oracle. This is despite the fact that both companies have similar annual sales and a similar corporate customer base, albeit in mostly different product areas.

There, however, comparisons cease. Before its recent upturn, CA had slumped from an all-time high of $79.44 in late January, at one point last month having wiped $40bn or two-thirds off the company's total value. It is now worth about $18bn. That compares poorly with Oracle, whose stock has proven a relatively safe haven during the technology stock sell-off, retaining a market valuation of $174bn. CA stock was up $1 yesterday at $31. contributing to a 20 per cent upswing since the licence plan was unveiled last week.

Still, Mr Kumar believes that the vast valuation gulf with Oracle is, in large part, a function of the latter's better marketing ability and far stronger growth. "I would argue our software is as important as Oracle's," he said, while crediting Mr Ellison with doing a "fantastic job" at marketing. That lesson hasn't been lost on Mr Kumar: "I think marketing and product positioning can help us. It's not too late."

In Britain, CA employs about 1,000 staff and provides management software to Tesco and Sainsbury as well as various local governments and most of the country's banks. It has recently finished building a new £80m headquarters near Windsor in Datchet, Berkshire. Located there is one of CA's two backup control centres (the other is in Sydney) to its global control centre in Long Island. From these outposts the company can access the networks and computers of clients around the world.

Ultimately, Mr Kumar's reputation and Mr Wang's $1bn fortune hinge on the new licensing model. Traditionally, enterprise software companies have booked revenue up-front on long-term contracts, even though the cash payments might be paid month by month for years. That practice, according to Mr Kumar, distorts the long-term trend and makes sales revenue difficult to predict accurately. With the stock's recent gains CA would appear to have won an early vote of confidence from the investment community, as the initial impact of deferring the tabulation of sales to the period when they are earned will be a downturn in revenue and earnings, though cash flow will not be affected.

"The majority of our competitors will face tremendous pain in the next six months from the new business model," said Mr Kumar. "We're changing the way the industry works. Who of the large enterprise vendors is willing to sell customers a licence month to month? Nobody," he said. After more than a decade with CA, Mr Kumar may only have a year or two to prove that the new model delivers. CA has won numerous awards for the quality of its work environment, which includes lavishly funded day care for all employees who want it. Such perks, the company's East Coast location and, in software terms, its long history, make CA a different type of organisation to its rivals in and around Silicon Valley.

The challenge facing Mr Kumar is to deliver change, while being careful to preserve Mr Wang's legacy. "My plan is to build on the last 25 years, and change a lot as well. Charles and I are really in sync on that." Should the new model not deliver, Mr Kumar admits that the group, which is divided into about half-a-dozen product areas, could float off some divisions. "If we don't get the values they deserve," he said, "those companies will be ready to go out on their own."