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SEPTEMBER 22, 2004
By Steve Hamm Can Cron Keep the Top Job at CA? He'd like to, and insiders praise his efforts at getting it back in shape. Many analysts, however, are pushing for an outsider The amazing thing about Computer Associates International's scandalous saga is that its business didn't melt down during the investigation and a nearly complete turnover of its executive team. Now with the probe finally over, CA (CA ) will be able to focus on getting revenues growing again (see "Judgment Day for CA"). That won't be a cinch. Demand is slow in general for corporate software, and CA still has to hire a permanent chief executive to replace former CEO Sanjay Kumar. But a new management team headed by interim CEO Kenneth Cron seems to be doing the right things to get CA on track. Before Cron took over, management had embarked on a rehabilitation of its finance operations, a retooling of products, and a foray into the small and midsize business market. Since Cron took the temporary post on Apr. 26 he has spent much of his time firming up CA's customer relationships and staff morale. "I don't want people sitting around waiting for Godot," says Cron, a former board member. MAKING HIS CASE. This fiscal year, CA's performance is solid, but not spectacular. The software maker reported revenues for its fiscal first-quarter (ending in June) of $860 million, up 9% from the same quarter a year ago, and net income from continuing operations of $53 million. "The company is performing reasonably well," says analyst Richard Sherman Jr. of Janney Montgomery Scott. "The fundamentals underlying the business are strong. Its prospects are strong going forward." Yet in spite of a generally positive response to CA's performance, most analysts are urging the board to hire an outsider as permanent CEO, rather than Cron. Their concern: While Cron ran Vivendi Universal's (V ) electronic-game division and was the longtime leader of a Long Island computer industry magazine publisher, he hasn't run an enterprise-software company before. Also, the outfit is looking for a CEO with no past ties to CA. Cron, however, was a board member for two years before being appointed interim CEO. "Given the history of the company, the more outside blood you bring in the better," says Cowen & Co. analyst Drew Brosseau. But Cron wants the CEO job and is working hard to prove he's worthy. He has reorganized the managers into three teams to improve communications and give executives more power and responsibility. Kumar was respected for improving relationships with customers and strengthening the management team, but Cron believes he didn't delegate enough. "GOOD LEADER." Cron's management teams include one headed by Chief Operating Officer Jeffrey Clarke that runs day-to-day operations, a small tech strategy group, and a larger management group that gathers once a month -- for the first time bringing sales and products executives together at a single regular meeting. Clarke points out that while Cron may not have run a software company, the rest of the management team has extensive enterprise-technology experience. "He's a good leader. I'd support him," Clarke says. Clarke himself is in the thick of the turnaround effort. The former Compaq and Hewlett-Packard (HPQ ) executive was hired as CFO last April but was reassigned as COO after Kumar stepped down as CEO on Apr. 26. He's looking for a permanent CFO and has already beefed up the finance team by hiring a corporate controller, a chief accounting officer, business-unit controllers, and five new auditors. "This is a company where the checks and balances failed. We're putting them in," he says. CA's technology strategy is going through a transition, too, in an attempt to take advantage of a shift among corporate tech buyers. In the 1990s, they often chose so-called best-of-breed products made by many different companies. Now they're buying more and more of their technology from a few key suppliers. INTEGRATION CHALLENGE. CA already has a broad portfolio of 1,200 products, including clusters of them in the areas of system management, storage management, security, and application development. It's now in the process of rebuilding products so they're integrated with one another -- saving customers the cost and trouble of doing that work themselves. This strategy was launched last year by Mark Barrenechea, executive vice-president for product development, whom CA hired from Oracle (ORCL ). He expects to roll out new versions of core products in the next 18 months. "Technology-management software is the next hot thing for CIOs," says Barrenechea. "They have built out their applications and are looking to improve how they run their operations." Analysts approve of the strategy, but they say CA has yet to convince them that it can integrate products successfully. "The story sounds good, but the details are absolutely critical," says analyst Ray Paquet of Gartner Group. "Everybody in the software industry has a poor track record at integrating. It's especially difficult if you put together a business through acquisitions, like they did." CLEANUP CREW. While CA works on its new versions, it's doing well against tough competition. It's tied with IBM (IBM ) in the systems-management market. It ranks No. 3 in storage management and is growing at a healthy rate. Cron says the security business, where it trails Symantec (SYMC ) and others, is expanding at more than 100% a year. Cron wants to increase revenues by boosting sales among small and midsize companies, an area where CA hasn't done much before. Only 10% of its revenues come through resellers that deal with smaller customers. Cron hopes to boost that to 30% by staffing up the telesales department and expanding retail sales. At the same time, CA is looking to cut costs where it can. Cron says CA has been slow to take advantage of low-cost Indian programming talent. It has 500 employees in India now and plans on boosting the number to 1,000 by yearend. Can Cron hold on to the job for good? While board members, including Chairman Lewis Ranieri, have praised his work, they're under pressure to pick an outsider. One thing is clear: Whoever runs CA next won't have as huge a mess to deal with, thanks to Cron's hard work as interim CEO.  Hamm is a senior writer for BusinessWeek in New York Edited by Beth Belton
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