This is the logic of Logica's success
THE MONDAY INTERVIEW; Martin Read
Monday 31 July 1995
If the performance can be sustained, Dr Read will have managed to double the share price since he took over in August of 1993.
The City likes him, analysts praise his instincts and employees are complimentary about the sea-change in attitudes he has brought in his wake. But the convincing recovery in the share price is the compliment that Dr Read is perhaps most happy about. During an interview in Logica's central London offices recently, he interrupts proceedings to take an update on share trading, boastfully pointing out how impressively Logica has outperformed the market.
The share price rise reflects a sharply better operating performance for the supplier of software "solutions" to a blue-chip list of British and international companies, driven by a management newly focused on marketing and sales and a divisional structure more closely tied to its core businesses.
Logica concentrates on three key sectors - finance, telecommunications and energy, offering billing systems, data network control, retailing banking systems and a host of off-the-shelf and customised programs and hardware for business. It clients include the major UK banks, the Stock Exchange, a host of major industrial and utility companies and the major telecoms operators, BT and Mercury.
Logica management readily concedes that the company had become complacent in the late 1980s and 1990s. Following the departure in the late 1980s of Philip Hughes and Len Taylor, founders of Logica (both remain on the board), the company drifted sideways, its impressive 20-year growth stalled in its tracks.
Dr Read says: "Operations at the top had lost their punch. There wasn't enough attention paid to detail." These days, he personally reviews all main areas of the business every three months.
Dr Read was enticed away from GEC-Marconi, the electronics and telecommunications giant run by Arnold Weinstock, and told to pummel the organisation back into health.
But he surprised a few of his supporters by taking a slow and steady approach. Despite one serious round of management-level cuts within four months of his arrival, most of the changes Dr Read introduced were heralded with a soft tongue and a light touch.
"This is a people business," he says of his staff of 3,500. "When you contemplate making changes, you have to think about the employees."
In fact, he goes even further, lauding the work done under his predecessors. "The engine room at Logica was always very good. What needed to be improved were the directions from the deck."
Nonetheless, he did make some staffing changes, getting rid of people "who couldn't learn to think in different ways". He wanted a more focused company, less driven by technology and more aware of the customer and the need for aggressive marketing.
Using what he learned from working alongside Lord Weinstock for eight years - "anybody who can survive that will know a lot about running operations" he then redesigned the company - into its new three-part structure, and introduced tighter lines of management control between headquarters and the company's operations in 18 countries around the world, including the US and continental Europe.
"In the past, those operations were really like separate countries. We weren't benefiting from being part of a single organisation," he says.
In "Year One" of Dr Read's restructuring plan, reorganisation was the key theme. Last year, the focus changed to profitability. Following several years of impressive profits growth, the results turned disappointing in the early 1990s. The downturn coincided with the recession, which hit Logica's traditional client base, particularly banks and other financial institutions, very hard.
Profits were pounds 9m in the 12 months to 30 June 1993, on sales of pounds 217m. By last year, profits had grown to pounds 13.5m, while sales climbed to pounds 228.8m. In the first six months of fiscal 1995, profits were pounds 7.2m, and in line to exceed pounds 15m in the full year.
Promisingly, the company's US operations returned to profit, after disappointing losses.
"How did we do it? There are three ways to improve margins. Grow by acquisition, grow by market share and repeatability."
"Repeatability" is a favourite Read word. By it, he means the use and reuse of standard software solutions, or "kernels," in many different applications and for different clients. A water management system developed for Anglia here in the UK, for instance, might be the core of an application developed for Sydney Water in Australia. "It's money for old rope," Dr Read says. His goal is to be able to re-use up to 60 per cent of a given application sometime in the future.
Acquisitions are also favoured. Last year, the company bought Precision Software and Synercom, two US software houses. This year, there are plans to expand in the Middle East and on the continent. A new office in Prague will be launched within a few weeks.
Of the company's three major markets, Dr Read holds out the greatest hope for telecommunications, one of the building blocks, he says, for the information superhighway. The company is in alliances with Baby Bells in the US to develop software for interactive banking, shopping and video on demand.
Refreshingly, Dr Read is no unthinking convert to the infobahn hype. "If you asked me what the highway will look like, and when it is likely to emerge, I have to say honestly that I don't know." Not that it matters, however. "I don't give a monkey's," he says. "If clients such as Ameritech think it is all going to happen very quickly, and are willing to spend money seriously, then I am happy to be a flea on the elephant's back." Logica, after all, can make a profit whatever the contours of the highway - software to deliver future multimedia products will always be needed.
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