CA’s New CEO Jolting Old Guard With Silicon Valley Moxie

Photographer: Peter Foley/Bloomberg

CA is the second-largest maker of software for managing mainframes and other technology infrastructure, after International Business Machines Corp., according to Gartner Inc. Close

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Photographer: Peter Foley/Bloomberg

CA is the second-largest maker of software for managing mainframes and other technology infrastructure, after International Business Machines Corp., according to Gartner Inc.

CA Technologies Inc. (CA) Chief Executive Officer Mike Gregoire, who joined the East Coast software maker in January after a career in Silicon Valley, wanted to figure out if his top lieutenants were nervous enough.

So he instructed product executives to download and test trial versions from six startups offering business software online. These were the types of companies that CA, whose computer programs manage data for Verizon Communications Inc. (VZ) (VZ) and other corporate giants, had to watch warily, he said.

The group’s reactions told him everything he needed to know, Gregoire, 47, said in an interview. Some realized CA’s shortcomings and were “sick to their stomachs, like I am” after tinkering with the demos, he said. Others showed little sign of alarm.

“Those are the ones I’m worried about,” he said. “I take these small companies really, really seriously and I need the management to feel the same way.”

Gregoire was most recently the CEO of Taleo Corp., a Dublin, California, maker of human resources software that sold to Oracle Corp (ORCL). last year for $1.9 billion. Now he’s trying to bring that startup culture to an Islandia, New York-based company with 14,000 employees that mostly sells expensive technology for computer mainframes -- an aging industry. After joining this year, he’s in the process of deciding what products and people don’t fit into his goals for fast growth.

“The pain has to be acute enough to where you want to take the medication,” he said during a visit to Bloomberg’s headquarters in New York. “The pain is acute enough.”

IBM Rival

CA is the second-largest maker of software for managing mainframes and other technology infrastructure, after International Business Machines Corp., according to Gartner Inc. The company is 3,000 miles away from Silicon Valley and light- years from the startup mentality, with a market value of $11.2 billion. It also suffered through an accounting scandal in the past decade that led to the 2006 conviction of former CEO Sanjay Kumar on fraud charges.

Gregoire will lay out his strategy for the 37-year-old company later this month at the CA World conference, followed by a May 7 briefing with investors.

CA could use a jolt. Sales are forecast to decline 4 percent this fiscal year to $4.64 billion, according to the average of analysts’ estimates compiled by Bloomberg. Profit, leaving out some items, is projected to fall 1 percent in the period, which ends March 31.

Takeover Threat

If Gregoire doesn’t make the most of CA Technologies’ assets, he said he fears someone else will reap them for profit. Gregoire was running global services at PeopleSoft Inc. when it was bought by Oracle in a drawn-out hostile takeover, making up the worst 18 months of his life, he said. CA’s business has a lot of the same assets that PeopleSoft did then, he said -- like strong cash flow and intellectual property.

“When someone hits you in the head with a hammer you have a tendency to look at the hammer and say, that might hit me again,” he said.

Not all of CA’s current employees like the changes Gregoire is implementing, and some salespeople have left since he took the helm in January, said Joel Fishbein, an analyst at Lazard Capital Markets in New York.

A culture clash is to be expected if Gregoire is working for shareholders, Fishbein said. So far, investors have endorsed a changing of the guard. Through last week, the stock has climbed 13 percent since he was first named to the CEO job in December. CA fell 1.2 percent to $24.30 at the close today in New York after Mizuho Securities USA cut its rating on the shares to neutral.

Entrepreneurial Thinking

“They need more entrepreneurial people,” Fishbein said. “They’ve lost the mentality of needing to be No. 1 in the market, and the prior CEO didn’t go as fast or as deep as he needed to go.”

Gregoire, a competitive mountain biker, mixes things up at CA by wearing jeans, avoiding ties and messaging people directly to solve problems instead of going through the management chain of command. He’s attempting to shift the focus of the company’s sales force from current customers to new ones.

The former CEO, 70-year-old Bill McCracken, worked for 36 years at IBM, where he ran the printing division. CA declined to make McCracken, who is still being paid as a consultant for the company, available for comment.

“Bill is towards the end of his business career and he brought a lot of experience and scar tissue to the game,” said Gary Fernandes, a member of the board who helped lead the search for Gregoire. “Mike brings a fresh outlook and a lot of energy.”

Track Record

Fernandes wanted someone young enough for a 10-year tenure as CEO, with a flair for products and a record of success. Gregoire was chosen partly because he’s entrepreneurial and partly because he “doesn’t want to blow up the place and start over again,” Fernandes said.

While it may not need a complete rebuilding, CA would benefit from a makeover, said Kirk Materne, an analyst at Evercore Partners in New York. The trick is to move into new growth areas while still protecting its profit margins, which at 20 percent are well ahead of the 15 percent industry average, he said.

“I don’t think there’s any silver bullet for them,” Materne said. “There’s no one gaping hole in their product catalog, or one massive drag on the business. It’s how they make smart divestitures and acquisitions to reposition the company.”

CA has made 10 acquisitions since 2010, and many of those purchases turned into products that aren’t giving enough of a return on investment, Gregoire said. He will decide what stays and what goes, and direct the company to focus on internal growth by developing more of its own technology.

Digesting Data

His priority: products that help customers digest data and make business decisions. He’s also focused on manage security on employee smartphones -- a big growth market. CA needs to prove that its $600 million a year spent on research and development can help it acquire new customers, especially smaller businesses that need to buy on-demand products via the Internet, he said.

“One of the things I don’t think we’re even doing yet is looking at the products and seeing if they make sense,” Gregoire said. “If something’s not fitting in your strategy you need to think of divestiture.”

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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