By the time Sanjay Kumar ascended to CEO of Computer Associates, the software giant was inundated with troubles. The tech market bust had stunted previously impressive growth. Its software was perceived as second rate. Customers railed against outrageous contracts sold by arrogant sales staff. Disenfranchised investors began demanding heads, Kumar's among them. Lawsuits mounted. Then the feds started to question the company's bookkeeping.
But Kumar, an immigrant and college dropout who's now worth hundreds of millions, had a strategy based on the same simple business practice he learned as a 15-year-old grocery store bagger in South Carolina: You earn more money by making the customer feel special. Twenty-six years later, that same simple plan is helping him turn around one of the world's preeminent software companies.
By heavily promoting CA's extensive library of security solutions, Kumar wants to convince the world it's a changed corporation. He hopes security becomes CA's entry point to the rest of the enterprise.
"I don't believe we can achieve the total picture without security being successful," Kumar explains during a recent interview at CA's headquarters in Islandia, N.Y. "It's now 11 or 12 percent of total revenue. It has to keep growing."
Continued growth could prove more difficult than teaching 16,000 employees how to play nice.
Shedding Its Past
Security currently generates about $350 million a year in sales, according to Toby Weiss, senior VP of the eTrust unit, which includes all 23 (and counting) security products--each largely leveraged on two complementary software engines and tightly integrated with other CA offerings.
CA is also putting money and manpower into storage and enterprise management, but, as Weiss and others in the eTrust unit know, security has to be a breadwinner.
"In terms of growth, security is going to be one of the technologies and solutions that drives the company, without a doubt," he notes. But there's still plenty of doubt outside of CA headquarters.
Before CA can prove it's the company of choice for securing an enterprise, it needs to dispel its bad boy image and demonstrate its one-stop shopping approach to security can work where others have failed--and where better-known security vendors have gained ground.
1987 Computer Associates acquires mainframe competitor UCCEL Corp., where Kumar was director of software development
1988 Kumar moves to CA headquarters in Long Island to assume various leadership roles in development, strategic planning and operations
1994 Kumar named president and COO at age 31
2000 Kumar replaces mentor Charles B. Wang as CEO
2002 Kumar appointed chairman of CA's board of directors
Neither will be easy, analysts say.
"All of the reputation that CA ever earned or was saddled with had nothing to do with its security products," says Forrester analyst Steve Hunt. "Their security products were not widely known, not widely used and not marketed well."
Placing CA cofounder Russell Artzt in charge of the eTrust division sent a clear signal that Kumar was serious about making money with homegrown and best-of-breed security technologies culled from among 50-plus acquisitions. He hired outsiders like former Symantec exec Ron Moritz, now a senior VP and chief security strategist. He pumped up CA's marketing arm so it could flex more muscle with startups and seasoned vendors in nearly every major security space.
Hunt and other analysts say eTrust's software works as advertised, which, of course, is a good thing. But a rapid release schedule may be more than the market can absorb--and may even make CA appear a little desperate. "I think they're going a little overboard and adding too many products too quickly," he says. There's a risk of being unable to maintain developers who can keep all the products working well, and support staff who know every item well enough to help customers, he explains.
Among the company's biggest battles is stealing market share from more established vendors, like security powerhouse Symantec, and smaller point solution companies that already meet customers' needs. "CA is not an obvious or necessary option for most companies looking for security solutions. They have to become more obvious and more necessary. And they're working in that direction," says Hunt.
Kumar is aware of this and is convinced that cultural shifts within enterprises, such as the rise of the chief security officer, tilt favorably toward CA's tightly woven, all-in-one advantage.
"Security is coming around from this highly diversified, very point-solution-driven decision environment to a more integrated, more cohesive, more holistic approach...and this is CA's home," says Kumar. "This is our home advantage."
"Computer Associates is the place where good technology goes to die."
That was the widely held perception CA earned at the height of its acquisition spree, when it was snapping up companies every six to nine months and force-feeding new technologies to the marketplace before the last batch had been swallowed. As a result, good people and good products went stale.
By the late 1990s, CA's growth spurt was taking its toll. A majority of sales staff at one point were rotating accounts annually, providing customers with little or no continuity. Employees were edgy, wondering who'd survive the next round of layoffs. In addition to combative customer relationships came very public battles like an antitrust lawsuit to thwart CA's eventual acquisition of mainframe competitor Legent Corp. Former Platinum Technology employees waged another widely publicized legal war over contractual issues. Another seller, Sam Wyly, former owner of Sterling Software, attempted to overthrow CA's board of directors. It didn't work, but the tenacious Texan millionaire remained determined until the board agreed last year to pay him $10 million. All investor lawsuits have been settled.
Adding to the maelstrom was the Securities and Exchange Commission and the U.S. Attorney's office, which both opened investigations into CA's accounting practice, based on the way it reports software sales since Kumar took over as president. Just last month, former CFO Ira Zar and two other executives resigned under pressure after the CA board discovered that some sales revenues in 2000 had been booked before the contracts had been signed.
Pressure is something Kumar is accustomed to since CEO Charles B. Wang made the technologist his protege and groomed him to lead the company after he retired in 2002. "Being a CEO is like being in a fishbowl, but in the last couple of years, it's like being in a fishbowl with the spotlight constantly following you around," he says.
Even before he became chief executive, Kumar was the target of investors' ire, such as when shareholders questioned a $1.1 billion stock grant issued to CA's top three officers in 1998, when Kumar was president. But rather than evade the harsh spotlight cast on all big-company CEOs in the post-Enron era, Kumar's attitude is to embrace it. "My view of the world is this: CEOs are leaders, and it's a great chance to lead. If you lead by example, so what? It's an opportunity to shine."
Today, the $3 billion company again operates in the black. USA Today recently held up Kumar as the model corporate leader for giving up his bonuses in the past two years. And in August, shareholders voted to reelect all 10 directors and even threw in a 60 percent raise--a majority of it deferred stock compensation.
Being a CEO is like being in a fishbowl, but in the last couple of years, it's like being in a fishbowl with the spotlight constantly following you around.
How is Kumar turning things around?
First, he reversed a longstanding trend to grow expertise organically and convinced the company to hire outsiders, particularly to beef up marketing. He also broke CA's 1,200 products into three distinct areas: enterprise management, storage and security.
eTrust evangelists now promote a comprehensive line of security solutions, some developed decades ago. Others, like Security Command Center, build on management software and integrate with other security vendors' products and services. Command Center is an important launch, since security enterprise management is a space still up for grabs. This fall, CA again was named the market leader in the AAA--authentication, access control and administration--market, well ahead of its worldwide competitors.
Kumar's greatest risk--and payoff--has been revamping CA's software licensing contracts. For the past two years, CA customers have been offered month-to-month contracts for sales and services, rather than more traditional long-term agreements of three, five and seven years. Given how few were fans of CA at the time of the change, Kumar knew this would make or break his career.
"That took a lot of guts, let me tell you," Artzt says.
Back in the CA conference room, Kumar agrees that the licensing strategy was a huge gamble. "My job was on the line with that one. I think it was a good thing for our company to be put in that spot, because it made us stand up and be counted on the field. If I don't do it right, the customer will be gone.
"It was a big risk, but in hindsight, it's probably the smartest thing I ever did."
Kumar's family fled civil unrest in Sri Lanka for South Carolina in 1976, the same year that CA was founded. His parents found jobs and a two-bedroom apartment in Greenville, arriving with three children, five suitcases and $80 cash. Each evening after work or school, Sanjay, 14, his two sisters and parents learned English while adapting to a new world filled with telephones, televisions and below-freezing temperatures.
Today he lives with Sylvia, his wife of 15 years, and their two daughters, ages 10 and 14, in far more opulent surroundings. But the advice his mother passed down still resonates: "My mom always told me you meet the same people on the way up as you meet on the way down. And you will rise faster and fall slower if you are nice to people."
Dan Mathis backs him up on that one.
The network administrator's first encounter with CA came a few years ago when he approached sales reps at a trade show. When he told them the size of his small accounting firm, they brushed him off. "That left a really bad taste in my mouth," he remembers.
After Mathis joined the IT department of a New Jersey school district, he again approached CA for a help desk solution. But instead of being blown off, he was blown away. A customer rep responded immediately, tracked down technical help when needed, and within weeks had the enterprise utility installed on the district's 2,000-node network. Sold on such service, Mathis has since purchased several CA security solutions, and plans to buy more.
"I'm not Pepsi. I'm not Ford. I don't have a million-dollar IT budget," he says. "And still Computer Associates is willing to do whatever they can to get my business."
Kumar's down-home approach is working with just about everyone-customers, analysts, CA insiders and outsiders-who credit Kumar with making positive changes.
"They've turned the company around, and I think Sanjay has an awful lot to do with it," says Jim Hurley, an analyst with The Aberdeen Group, which placed CA on its list of Top 10 security suppliers based on the past two years' revenue contributions.
Adds Forrester's Hunt, "All this attempt to reinvent CA that Sanjay's engaged in-eTrust is really the test bed for it, because it's essentially new products, new brand, new sales specialists and new support engineers pitching and supporting a new CA."
So far, Kumar claims, things overall are looking "pretty good."
"Today, we're far from perfect, but if we were perfect, they probably wouldn't need me," Kumar says with a smirk. "So, I'm glad we still have a few problems."
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