Computer Associates Gets User FriendlyEvan I. Schwartz
One day last year, a salesman from Computer Associates International Inc. got an earful from one of his biggest customers. Bausch & Lomb Inc. was furious because CA had jacked up the annual maintenance fees for one software package to $13,000--from just $2,000 three years earlier. Worse, says Rui Figueiredo, a software manager for Bausch & Lomb, the CA salespeople seemed concerned only with meeting their quotas--not with making sure customers were satisfied. "Their attitude was just sell, sell, sell," he says. "I told him that we perceive CA as an adversary."
CA can't risk making enemies of its customers anymore. In the 1980s, it streaked to $1.3 billion in annual sales by selling aggressively and acquiring shrewdly. Each deal brought it millions in revenues and hundreds of new customers. But the buying binge came to a halt in 1989, when the company ran into trouble with the $289 million acquisition of Cullinet Software Inc., a struggling maker of mainframe data-base programs. At the same time, mainframe and minicomputer sales stalled, depressing the market for programs that account for nearly 90% of the Garden City (N. Y.) company's revenues. In the 12 months after the September, 1989, Cullinet buy, growth slowed to a dreary 6%, from 45% in fiscal 1989, ended the previous March. Earnings fell 30% in fiscal 1990. By last fall, the stock had skidded 75% from its mid-1989 price (chart).
CAPTIVES. To turn things around, Chairman Charles B. Wang has been trying to meld the 20 or so companies that he bought into a single entity with a coherent strategy. Having virtually exhausted his growth-by-acquisition formula, he now must persuade existing customers to buy more products. Many of them, however, became customers not by choice, but because CA bought their chosen software suppliers. "A lot of customers feel they have to buy from CA," says Michael Braude, an analyst with Gartner Group in Stamford, Conn. "But CA has to make it so customers want to buy from them." That's a "big opportunity," says Sanjay Kumar, CA's senior vice-president for planning, because today the average CA customer only has five of its 250 products.
So CA is learning to make nice with customers. To assuage Bausch & Lomb, the software giant dispatched a senior vice-president to Rochester, N. Y. There, he and the local salesman hammered out a deal with Figueiredo: For three of his CA packages, they agreed to a ceiling on price increases for maintenance contracts. The yearly contracts cover periodic updates to the software. Since the visit, says Figueiredo, his relationship with CA has "been a lot better."
Indeed, Wang and brother Anthony--CA's president--have spent the past year reorienting the company's 7,000 employees to software's basics: product development and customer service. Although CA officials say they never stinted on such chores, former employees say that in 1990 there was a definite shift. "The message came from the top," says a sales manager who left last year. "A main priority was to be customer satisfaction and service."
To bring some much-needed coherence to the CA product line--everything from "utility" programs that keep computer centers running smoothly to accounting and data-base software--the company came up with a scheme called CA90s. Last April, Wang and other top executives hit the road to explain their vision. There's nothing radical in the CA90s plan, but that's the beauty of it: It's designed to soothe customers by assuring them that if they stick with CA, it will make sure that more of their incompatible programs work smoothly together.
CRITICAL TARGET. A more critical objective for CA90s is to shore up the company's business in mainframe data-base programs, which stalled after the Cullinet acquisition. Customers bought less because they feared that CA might not be able to add long-awaited features to both the Cullinet data-base programs and those it got with the 1988 acquisition of Applied Data Research Inc. Meanwhile, IBM has been pressing customers to adopt its newer "relational" data-base technology--and scuttle the Cullinet and ADR packages (box).
Back at CA's development labs, programmers are working overtime on updating older programs. "They have reached a crossroads now where they have to deliver new products or risk customer defections," says Hollis Ezell, assistant controller at Avondale Mills Inc., a Sylacauga (Ala.) textile manufacturer. As the chairman of a group of 5,000 CA accounting software customers, Ezell recently held an annual "pow-wow" with top CA executives. He was impressed that this year, CA people came to the meeting with proposals on how to improve software and service. "They did their homework for once," he says. Payman Pouladdej, a former CA vice-president for development who recently left to form a startup, sums it up this way: "In tough times, you get humble."
ALL NEGOTIABLE. Whatever the motivation, customers welcome the change. Now, CA is willing to bend on the annual prices it charges to update and troubleshoot complex software. These maintenance fees have become an important source of cash, rising from 20% of revenues to 33% in just four years. But now, customers say that their CA reps are willing to ease off the hard sell, sometimes even throwing maintenance in for free with a software purchase. "They are more willing to work with customers now," says Ronald K. Blue, a researcher at State Farm Mutual Automobile Insurance Co. and the president of a CA user group. Says Bausch & Lomb's Figueiredo: "Everything is negotiable now."
It's hard to tell whether CA's new attitude is really paying off. In the September quarter, earnings tripled, but analysts predict a slightly down December quarter and flat earnings for the fiscal year. At this point, no one expects the 15-year-old company to post the incredible growth it achieved in the 1980s, when it routinely bought companies and then slashed overhead to boost profits. Says Shearson Lehman Brothers Inc. analyst David Readerman: "It's a different type of company now." But for customers who want their biggest software supplier to act more like a friend than an enemy, different means better.