Twenty-First-Century Management _ the Revolutionary Strategies That Have Made Computer Associates a Multibillion-Dollar Software Giant

“this became the company’s number one priority. Charles: “The important thing is this can-do attitude. It’s a damn-the- torpedoes, full-speed-ahead, ready-aim-fire approach that says the hell with anything else, and it’s that kind of take- charge, we-can-do-it, nothing-can-defeat-us people who move ahead and it doesn’t matter where. In other companies, people with that kind of attitude don’t move ahead, they keep hitting this wall, and they pile up or leave. They leave—or get acquired, the whole company. Here that’s what gets people ahead. What kind of person succeeds at CA? I say self-moti- vated people. Hungry people, people who have been through a little pain in life. First-generation immigrants—they know, they've seen their parents struggle, people who arrived in this country with three suitcases, two suitcases. They’ve seen struggle, they've seen people go to school at night. They know. Something about Queens, Brooklyn people—they are so down-to-earth. You know the people. They come out of city schools, and there is something about them, there is a hustle in them, a thing that says, ‘I can do it, and if I can’t, Ill find a way—it’s not a big deal.’ That’s the kind of people who succeed. The ones who don’t succeed are the ones that come”

“is wrong. Sanjay: “He was very up front. It shocked most people. Someone asked him if there were going to be cuts, and he said, ‘Yes.’ What area? ‘Well, I don’t really need two finance departments, two personnel departments. Technical, we ll have to look. Sales, we'll have to look. But I'll let people know day one.’ And to date he has never waivered in that in an acquisition, which I think is one of our strengths. It is”

“create new products that clients could afford. When a software package built around a very useful function found clients who liked it but were unwilling or unable to shake loose $50,000, CA neither discounted the product nor sat around waiting for the economy to improve. Both approaches are passive. Instead, CA developers simply undeveloped the product, removing from the package everything but its very attractive basic functionality so that marketing could offer it for $7,500. That the response was”

“Products already developed were often not quite suited for the market; those created in-house had a way of simply re-creating software that had already been created elsewhere. Charles syn- thesized the two: software produced outside was enhanced so as to work together with software already being sold or on its way to the market; software produced in-house was increasingly targeted toward creating the bridges that would allow diverse software to work together or toward filling product needs—say, three software programs needed two other entirely new pro- grams to create a comprehensive new product line. Charles:”

“Most American high-tech acquisitions vacuum up people with experience in fields the acquirer needs. CA, however, has never targeted talent. Charles looks instead for products to meld into CA’s software line, access to new markets, a customer base. Charles: “You look at the financials, you look at the product, you look at the sales. Then you ask, ‘How’s it all going to fit in to where we're going? How does this part make it all greater than just adding the pieces together? How do we leverage off what they’ve got or what we’ve got?’ If they have a product that I can sell through my sales force, God bless, that’s great, then I have leverage beyond what they have standing alone. If they need one piece for their product to”

“By the end of the decade the market for business books seemed to be dominated by two groups: (1) computer-armed academics who had spent their lives studying market condi- tions and had the printouts to prove conclusively that garbage in still means garbage out; (2) Japanese soothsayers—or their fans—weighing in with good advice if you happen to be Japa- nese, have the government in Tokyo behind you to cut out foreign competition, and employ docile zombies who smile through eleven-hour workdays, execrable pay, and zero job satisfaction before going home to apartments the size of your standard American golf cart.”

“In France, for instance, I was privileged to spend time in the mountains of Savoy with Georges Salomon. He had built an innovative ski company based on a kind of mystical belief in better ways to do things—from design (his seemed predi- cated on such unsubstantive hunches that the very idea would be laughed out of venture capitalism school) to manufacturing approach (that combined robots with human labor in a kind of craftsman’s assembly line).”

“growing companies. Around dessert I mentioned Computer Associates and wondered if its size, with revenues then ap- proaching $1.4 billion, meant it would not be of interest to Inc.’s readership of more modest entrepreneurs. “Oh,” George said, “that’s the one that’s grown by acquisition.””

“would ever write a business book about it. Its chairman ran CA like a storefront family business. It was so rife with nepo- tism that a shockingly large proportion of its nearly eight thousand employees could name at least one co-worker who was related by either blood or longtime friendship. Opera- tionally there were no rules, or they kept changing. Nobody ever bothered writing a memo to let others know what he or she was doing. Lines of authority shifted constantly, usually undermined by CA’s chairman himself or his brother, presi- dent of the company.”

“Employee turnover was thought to be the highest in the software industry, which may itself have the highest turnover of all U.S. businesses. Understandable, since CA evidently”

“of all U.S. businesses. Understandable, since CA evidently thought so little of its labor force that it paid bottom dollar for its office space and furnishings. You could count the employee benefits on the fingers of a hand that had survived a serious industrial accident: a health club and free breakfast, but that was probably only because CA chairman Charles B. Wang liked to play basketball and eat donuts.”

“In fact, Wang seemed to run the company by whim, so that at least once a year he would reorganize it from top to bottom. The rumor was he did it every month. By himself. Just like that.”

“It may well be the only business book around that’s full of people talking.”

“One would think a company that broke the $1 billion revenue mark after little more than a decade and that now, three years later in the midst of a serious recession, is closing in on twice that would be pointed out with boring regularity as a rare and inspir- ing American triumph, with the State Department practically running guided tours and the news magazines pestering CA founder and chairman Charles B. Wang for authoritative an- swers to the usual dumb questions about the ongoing crisis in the economy, how to stop Sony from taking over the world, and why Johnny not only can’t read but can’t count.”

“In an era in which Japan has all but given the boot to American technological leadership, it seems only reasonable that a corpo- ration whose subsidiaries in Europe are the largest independent software companies in their respective countries would be talked about constantly as an example of successful American multinationalism.”

“And this is a corporation that, since its inception as a four-person software outfit selling one program, has acquired and integrated unto itself no fewer than forty-two companies at a cost of some $2 billion, a corporate entity so revolutionary in its management and so successful in nearly every aspect of its being that one would think it would be at least as well-known and admired as IBM or Digital Equipment Corp. (DEC) or Microsoft or Lotus or Campbell’s soup.”

“CA sells products priced in the thousands, the hundreds of thou- sands, and the millions, but to far fewer clients. Had the two gone into communications and not computing, CA would be making enormous and extremely complex switching systems to run entire telephone companies, Microsoft would be making cute little phones that light up in the dark.”

“*Financial comparison of the two giants is an accounting minefield. Microsoft appeared to have pulled ahead in revenues as of 1991, but this included $213 million from sales of hardware. Subtracting the hardware revenues leaves $1.63 billion net. By the same measure and for approximately the same period, CA has characteristically understated its total revenues by choosing not to take into account at least $348 million from companies acquired for cash in 1991. With these included, CA revenues surpassed $1.7 billion.”

“Poor CA, it didn’t have a pricing committee. Instead, it was compelled to limp along relying on one man with a sharpened pencil. This single individual has the power to set up a price structure and the same power to alter it when a client comes in and says he wants to pay 15 percent down in U.S. currency, with the rest over three years in 40 percent dollars and 60 percent a mixed basket of Portuguese escudos, Italian lire, and Belgian francs—and would it be possible to package the software with another program and pay for that at a 20 percent discount (though the discount does not normally apply to the second program), but beginning 180 days after installation and payable entirely in Swiss francs indexed to today’s dollar—franc rate so long as the spread between the current and later rates does not exceed 10 percent?”

“them better. As La Rochefoucauld put it, “There is nothing so distasteful as the lesson of a good example.””

“which sold off a money loser like ADR only to watch CA immedi- ately cut out unproductive managers and their even less produc- tive perks—and in so doing pay off the $170 million purchase price not in five years’ worth of revenues but in five months’. To”

“price not in five years’ worth of revenues but in five months’. To say that CA had some magic formula is to seriously underesti- mate the simple rationality of people who are able to discern that heavy fixed overheads do not add to revenues and that when you have healthy revenues and are still broke, you don’t have to look far for why. ADR’s director of marketing and its entire sales force were actually getting bonuses while the com- pany was seriously in the red. Everyone was getting bonuses. How come? Because this veteran company—the furthest thing from a start-up situation (in which it is understood revenues will not cover costs)—was simply budgeting for a loss. Hey, they were losing less than they had expected, right? Right. That’s worth a bonus, right?”

“Because CA is in the main interested only in companies with legitimate products and strong sales, the ADR tale is hardly a novelty. The same story has been repeated dozens of times in large companies acquired for hundreds of millions each—like Uccel, Cullinet, On-Line, and Pansophic—and small ones with one product generated by technical sophistication, but without a clue as to what to do with it. Reviewing these acquisitions is like fast-forwarding through a collection of early television west- erns in which an outsider is called in to bring justice to a town under seige from its own corrupt leadership. After a while you wonder that no one ever complained that it is all the same plot, sometimes even the same lines.”

“CA’s hardheadedness in sales and marketing is paralleled in its pragmatic approach to software development itself. Unlike most companies, CA has been able not only to make decisions quickly—how and why, we'll get into shortly—but also to im- plement quickly. Its genius at software development is not the genius of inspiration but of putting together the right people to do the right jobs now so that it can all be ready next week, not next year. This is not academic but industrial, not science but engineering. When a new basic principle of thinking machines is discovered, CA will not be the one to do the discovering but will instead have a dozen commercially attractive products or enhancements to existing products up and running on com- puters as diverse as IBM mainframes and Apple Macintosh desktops, and many capable of working at the same time with different types of software. “Not invented here” is not a problem at CA. Maybe it wasn’t invented here, but hell, it works.”

“for producing cars that people actually want. Indeed, CA’s ap- proach is so market-oriented that if you close one eye, it may be looked upon as a nontechnology company; the technology is the response, not the impetus. If so, it’s clear the CA approach will work if the market is calling for freeze-dried bananas, two-seat sports cars, or underwater glue.”

“totally up-front. On D-Day of the Uccel deal, I had to let thirty people go, thirty-some-odd people.” The villain can’t be us—it must be them. Sanjay: “So after the meeting, the next”

“hard choices. But every time we fire people, we are not firing people, we're replacing them with better people. Not neces- sarily more-talented people, but more-willing people, people who bring a good attitude. The people at Uccel were used to”

“told them, ‘Hey, work like hell and do great things and we’ll make you rich and you'll be happy to go to work in the morning. You’d think it was the simplest thing in the world, but in every takeover we've had—I mean companies in deep trouble, looking for help—the same people, most of them, can't realize that there’s a very simple way to do things.””

“Essentially there are two ways to add products: acquire the right to sell them or create new ones. Charles pursued both courses, but each had its limitation.”

“high-tech beyond the word. Yes, we imitate. We don’t de- velop what I call elegant solutions in search of problems. We go and focus on what our client requirements are, where we see the market as it is or we’re laying down the foundations for the future market.””

“Charles: “Tt all comes down to a couple of very simple things, which are: One, we ve got to get people. People who work for you. Work for you. But they’ve got to have reasons. They want to have a sense of career and that what they say has some impact. They’ve got to know their contribution has some meaning. You don’t want to work for something where you just punch in, be there for so many hours. That’s mind- less, and people will resent that, and that’s when you polarize groups. So you get them involved in decisions. Ask them. Make mistakes, but correct them, and make sure the people are always heard. The second piece of it is they want to have fun doing it. You’ve got to have a relaxed kind of driven. Driven but relaxed.””

“faster. CA had become something of a rapids. Either the water source could be dammed and the rapids turned into a slow- moving and predictable river, or it could be allowed to run free and follow the shape of the market by creating new channels, which would of necessity be the fastest flowing and the most treacherous.”

“Charles pushed the nose of the company into the current. But to run in those channels without being swept away would require paddling faster than the current. Finding people he trusted to do this became the company’s number one priority. Charles: “The”

“Charles: “We’re a mostly sales- and marketing-driven com- pany. We put it together with marketing more than other companies, so the development people can develop what the marketing people want, what the salespeople say is required by their clients. It’s straightforward.’ Equally unsuitable were”

“say—then that’s another leverage. If we put this together with what we have, it’s a whole new product, going to knock the socks off the industry. But that’s just short-term. The strategic stuff has nothing to do with today. There are certain things we have to be in four, five years down the road. We better have the foundation built for those.”’ Charles’ clear goal”

“better have the foundation built for those.”’ Charles’ clear goal from the outset was to build the world’s best independent soft- ware company, and he had found the way. Nancy Li, senior”

“vice president, research and development: ““There’s the per- ception out there that because we've acquired so many com- panies, our products are like a K mart—that we bought this one from here and that one from there, and then we package them and sell them. But within each area we’ve done a lot of”

“within each area we’ve done a lot of”

“architecting, taking what’s good in the new products and merging it in with the overall vision to create this layer and allowing us to be independent of any of the hardware plat- forms. That’s a lot of investment that people don’t realize CA”

“forms. That’s a lot of investment that people don’t realize CA has done and which has allowed us to keep coming out with new products—and absorb companies, because without hav- ing laid this down, things would really go crazy. We would end up just being a distributor. But that’s no value to the client because all you would have is these disparate products that don’t talk to each other and don’t add value to each other. And it would make our efforts so much greater. We'd”