New CEO has new vision for CA Technologies

For CA Technologies to succeed, Michael P. Gregoire says the software giant must catch up with the latest digital trends, create products faster and, paradoxically, learn how to fail.

Gregoire took over seven months ago as chief executive of the Islandia company, arriving from Silicon Valley to put some swagger and creativity back into an aging tech stalwart where sales have slipped for five consecutive quarters. While it's good to take risks developing software, Gregoire says CA spends too long on projects that turn out to be duds. And that, he says, is the wrong way to fail.

"If you want to be great as a product company, you have to learn the skill and art of failing fast," Gregoire, 47, said during an interview at CA's midtown Manhattan offices on Madison Avenue.

CA, Long Island's largest company by stock-market value, has built a hugely profitable business over the past 37 years selling software for mainframe computers, the workhorses that crunch data for banks, airlines and other giant corporations. But as CA's lucrative mainframe business stagnates, the company is struggling to grow. As one analyst put it, CA is stuck within a "gilded cage."

Gregoire's job is to break the company out. He arrived at CA in January after eight years running Taleo Corp., a Dublin, Calif., software maker bought by Oracle Corp. last year for $1.9 billion.

Long Island has a lot riding on his effort. CA has about 1,400 workers in Islandia, making it among the largest local employers. And as the region's most successful homegrown software company, CA is a key player in the push to build a high-tech economy in Nassau and Suffolk counties and replace jobs lost in the decline of the local aerospace industry.

Gregoire's task is daunting. It is not easy to change the culture at a company as large as CA, which has a stock-market value of $13.77 billion, about 13,000 employees and 100 global locations. Plus, developing new products is an inexact science.

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"When you innovate, by definition it's risky," said Michael Useem, a management professor at the University of Pennsylvania's Wharton School.

Pushing past mainframes

Gregoire, a competitive cyclist and married father of 14-year-old twins, hopes to push CA to build new software and grow sales outside the company's core mainframe business.

Think of mainframes as supercomputers, big as refrigerators. They remain critical at many corporations, which use them to process credit-card transactions, airline reservations and other tasks requiring top speed and reliability.

Few companies make software for the huge computers, which partly accounts for CA's towering 59-percent mainframe profit margins last year. The downside, however, is mainframe sales are dwindling, limiting demand for the software.

"You've got this very profitable business, but it's very slow growing," said Norman Young, an analyst who tracks CA for Chicago researcher Morningstar.

Instead of mainframes, many companies use distributed systems. Rather than hinging on a single, massive computer, distributed systems utilize a series of smaller machines, often called servers. And increasingly, companies are turning to "cloud-based" systems that store data remotely, allowing users to access it from home, the office or elsewhere via the Internet.

CA has been selling software for distributed systems for about a decade, accounting last year for 38 percent of the company's $4.64 billion in revenue. But CA has been slow to push into cloud software. And that's where Gregoire wants to expand.

"We are super dominant in mainframe . . . The company was very successful in distributed systems. But for the cloud -- we are a little late," Gregoire said. Now, he said, CA needs to catch up.

Analysts expect CA's sales to fall 4 percent this fiscal year, to $4.46 billion, according to data from Bloomberg. But the company's annual net income, adjusted for one-time items, is forecast to rise 14 percent, to $1.33 billion.

Rivals and customers

CA was founded in 1976 by Charles Wang and Russell Artzt, both former Queens College math majors. It began as an arm of a Swiss startup named Computer Associates. Wang, who owns the New York Islanders, soon bought out the parent company.

Once in control, Wang aggressively expanded, acquiring rivals and building a customer base that includes most of the Fortune 500. By 2000, Computer Associates was the world's third-largest software maker.

The company fended off an acrimonious takeover attempt by Texas billionaire investor Sam Wyly in 2001. It also survived an accounting scandal that resulted in a $225-million fine and the 2004 resignation of chief executive Sanjay Kumar, who is serving a 12-year federal prison sentence for securities fraud.

In recent years, CA has continued its pattern of growing by buying other software makers, including a string of cloud-computing companies acquired under chief executive William McCracken, who retired this year.

Gregoire, however, wants to push deeper into cloud software and develop more products in-house.

The one-time physics major grew up in Canada near Niagara Falls, the son of two school teachers. He spent four years at PeopleSoft Inc. -- which Oracle also bought -- and arrived in 2005 at Taleo, which specializes in cloud-based software. Gregoire took the company public and developed the reputation as an aggressive, demanding executive.

"He is incredibly driven," said Neil Hudspith, who worked with Gregoire at Taleo and is now chief revenue officer at San Francisco-based DocuSign Inc.

Need for innovation

When Gregoire arrived at CA, he was impressed with the company's products, sales force and engineers. But he was struck by its cumbersome and calcified processes.

New employees sometimes waited weeks for laptops, credit cards and other key tools. The commission system primarily rewarded sales reps for renewing old customers rather than signing new ones. And large teams of developers toiled months on "skunk works" projects only to bury them in the dead of night.

Four months after arriving, Gregoire announced a $150-million reorganization to kick-start innovation and boost sales. It included laying off 1,200 employees, replacing many with workers who better understand new technology. He redrew the commission structure to reward for bringing in new business. And he revamped the development strategy, consolidating research locations to 40 sites, down from 81, and creating smaller, nimble teams to decide quickly whether product ideas should be junked.

"We are not in a slow-moving business. This isn't sumo wresting," said Gregoire, who stressed that Islandia would remain central to CA.

So far, investors appear happy with Gregoire, who lives in Greenwich, Conn., and spends much of his time traveling or working at the company's Manhattan office. CA's stock is up 32 percent since he arrived, closing Friday at $30.39.

Yet challenges remain. For one, the market for cloud software is packed with fast-moving startups that tend to be far more agile than behemoths like CA at catching the latest tech wave. Plus, cloud has lower profit margins than mainframe, meaning it could take time for the new sales to boost CA's bottom line.

Meanwhile, CA is about halfway finished with the restructuring. And Gregoire tries to be patient for his new company to get up to speed.

"This is a marathon," he said. "We want to be thoughtful, careful, ethical -- but fast."