Stephen Kelly, CEO of UK-based legacy modernization software vendor Micro Focus, on his company turn-around plan, and why there are so few UK-based software champions.
Q. When you were appointed CEO in May last year, the company was in trouble: the former CEO had quit after a series of profit warnings and gloomy results.
A. I came in to do a rebuilding exercise. The year before our product revenue had slumped by 15%, and as you know being a software company makes no sense unless you are growing. But our challenges were around sales execution.
Q. You don’t think there are only limited growth prospects mainly selling Cobol modernization tools?
A. If you look at banks and so on, over 70% of their systems still run on Cobol. We do enterprise applications modernization. In IT there are waves of fashion. Ten years ago everybody was replacing Cobol, but now the trend is to try and get more out of what you have.
Q. Why do you think that is?
A. My view is that the CIO is a hell of a lot more pragmatic than he or she was ten years ago. There are less extreme opinions about things. CIOs are now having a conversation about how to reduce their maintenance costs and shift some of that to new developments. I also think they are much more business savvy, and conscious of the fact that it is a far more heterogeneous and complex environment.
Q. So what did you do when you first took the reins?
A. We had to reassure ourselves that there is growth in the market we are addressing, so we did a strategic review. The good news is that Cobol is still growing, and that there is even higher growth around application portfolio management.
Q. Tell me about the company’s purchase of Hal Knowledge Solutions in November last year – what does it bring to the table?
A. We bought Hal because it gives you a dashboard of all your enterprise applications: once you populate it, it keeps itself up-to-date, and then gives you visibility into the likes of the impact of changing a line of code, or changing shared processes.
It’s a great opportunity because if you add all the application management companies it comes to about $150m in revenue altogether, but it’s going to be huge. Analysts are predicting 52% growth in that sector.
Q. But don’t those products have a different audience?
A. That’s true, historically we have been selling relatively low down the IT food chain. But we have been moving up, helping CIOs get control of their applications factory. We’re well positioned for applications management and modernization.
Q. You were formerly CEO of a US-based firm [CRM software player Chordiant]. Why do you think there are so few UK-based software champions?
A. I think it’s a combination of things. I think there is this sad British mentality around software, which I think is reinforced in the education system. There isn’t the mentality of innovation that there is in the US.
In the US there is more of a culture of building companies and taking risks. Also, sales is treated there as more of a profession. It’s a discipline in its own right. But I do think it’s important to build a strong European software company. I want to put Micro Focus on the map by increasing its value and taking it into the FTSE 250. We generate a lot of cash and I will use some of that to fund acquisitions.
Q. You didn’t come in to prepare the company for a sale then?
A. I’m someone to grow a company, not sell a company. I still think there’s more to do on execution and how we present our brand, but I definitely believe the opportunity is there.
Stephen Kelly was named CEO of Micro Focus in May 2006. Before that he was CEO of CRM software vendor Chordiant from January 2002 until February 2006. Kelly joined Chordiant in 1997 setting up its international operations from start-up. Before that he held various senior roles at Oracle, and he has a B.Sc. in business administration from the University of Bath, England.
Micro Focus recently gave a trading update in which it said sales and profits for the full year ended April 30 will be above original expectations: total sales are expected to come in at $170m, up from $143.7m last year, and EBITDA of around $65m, up from $38.8m in the same period a year ago. The firm also announced the acquisition of a smaller application modernization software player, Acucorp, based out of San Diego, California.