Misys Plc is to sell off a majority stake in its Sesame IT services unit for financial advisers and look for an expanded role for its own services operation rather than rely on its core banking software in a huge reorganization designed to turn around the sleeping giant of the UK software company within the next three to five years.
New chief executive Mike Lawrie said the changes will achieve annual cost savings of 25m pounds ($48.2m) in 2008, rising to 40m pounds ($77.2m) in 2009. However, he plans a total reinvestment of these savings of 70m pounds ($135.2m) between 2008 and 2011. He said he is targeting annual revenue growth of 2% to 4% by the mid-point of the turnaround program reaching a figure of 4% to more than 6% by the end of program.
Lawrie’s experience was honed during 27 years with IBM before he held the post of CEO of Siebel Systems from 2004-2005. He joined Misys in October after his then employers, San Francisco-based ValueAct Capital Partners, bought a 4.1% stake in the company.
He joined a company in turmoil after former chief executive Kevin Lomax quit after a failed MBO and other potential bidders walked away without making any offer.
Despite the cuts in costs he plans, Lawrie insisted that the effect on jobs would be minimal as it would rebalance the workforce.
He was short on details of how the strategy would be implemented, but its emphasis on moving up the value chain suggests it would increasingly look to systems integration and services, rather than banking software.
Lawrie said the strategy was more than shipping products but helping customers integrate the products. It’s helping, in many cases, to redesign the business process and, in some instances, actually running those applications for the customer. That’s where customers derive value, he said.
What he sees as the company’s strength is its installed base. But what we haven’t done is leverage that installed base and extended that installed base with these additional value-add offerings. So I think Misys is very well-positioned, with the people we have, to enter some of these and partner with other players around the world to deliver these value-add capabilities, said Lawrie.
A hugely significant change is that Misys plans to partner, something he said that it had not done particularly well. So there is a whole host of services partners that we can begin to learn from and who can help build our skills. There are technology players in the market. There are even other application software companies that we can partner with and learn with, he said.
One of the weaknesses of Misys banking software is that it is based on IBM iSeries architecture. Lawrie said that many of its customers would want to evolve to services-oriented architecture, but he insisted it would support forever all of its core banking platforms.
While Misys has languished in the banking software market, competition has been growing and it has been outperformed by Temenos AG, while application software giant Oracle Corp has increased its holding in Indian supplier i-flex Solutions Ltd to 75% while SAP AG is showing an increasing interest in the market.
In this daunting market, Misys sees building up its services credentials as essential for long-term survival.
Though the synergies between the banking software in the UK and its healthcare operation in the US are not apparent, Lawrie has no plans to sell its off and wants to focus on the physician market.
Misys plans to sell 60% of Sesame to its management, and said this would reduce its annual revenue by 350m pounds ($676m).