One on one with Craig Conway
Craig Conway is trying to do nearly the impossible — turn a big, high-tech company around. As Pleasanton’s PeopleSoft CEO, Conway has torn apart the company Dave Duffield built in the last 18 months. Business Times contributing writer Steve Ginsberg met with Conway last week to gauge PeopleSoft’s progress.
Q: What have been the biggest obstacles and what stage is the turnaround in?
A: We are at base camp ready to summit. We faced three obstacles, one was the market slowdown and backdraft for our kind of software because of Y2K. The second factor was the retirement of Dave Duffield who was the icon of the company. The third factor was a maturation of PeopleSoft’s infrastructure, it was breaking down. The company grew so quickly that policies and management team could not support the growth.
Q: Where are you in the turnaround?
A. We are at base camp ready to summit. The company always has been a fabulous brand, one of the strongest in high tech but we faced three obstacles. One was the market slowdown and back draft for this kind of software because of Y2K. The second factor was the retirement of Dave Duffield who was very charismatic and the icon of the company. The third factor was a maturation of its infrastructure a favorable way of saying the infrastructure was breaking down. The company grew so quickly that the framework and process practices and policies and management team could not support the growth.
It’s been a marvelous reemergence for the company in a software space where its hard to come back. We always maintained profitability every quarter and we had cash in the bank but we came close to being unviable. Viability is the killer in the software industry. When a company licenses enterprise software it makes a 5 to 10 year decision. People weigh viability much more critically than if they are buying a piece of equipment whose life cycle is 18 months.
We’ve had tough moments but the market seems to be vindicating Peoplesoft.
Q: Where is hard evidence of progress?
A: The main metric that customers look at is the stock price. When I joined it was $12.80 and we traded recently as high as $35 a share. When I joined we were breaking even and last quarter we posted 5 cents a share. The company’s revenue last quarter was higher then it has ever been in its history at $420 million.
Q: Isn’t revenue growth the true barometer because you can always cut expenses to prop up the bottom line?
A: That’s true. When I joined people were worried about layoffs and extreme expense cuts. I said you couldn’t cut your way to viability.
Q: Where is the revenue growth coming from?
A: We’ve always been fortunate in having a balance between new and old customers. Another metric is when a software company is getting a high percentage of revenues from existing customers that can be a dangerous sign. We always got 50 percent from our installed base and the rest from new customers. We generated growth through expansion. We are best known for human resources but last quarter our number one product line was customer relationship management. Our acquisition of Vantive played a key role in the growth of the company. Our financial applications and supply chain management applications are also in the top two among our competitors. We are a well-diversified company.
The areas of disproportionate growth was international and we have concentrated more resources in international.
Q: Has the dot-com revolution hurt your ability to attract new blood?
A: For a year recruiting and retainment was the No. 1 issue because of dot-com fascination. There was a traumatic period when the dot-coms were raiding us. People were leaving here with a sense that money was just being given away. It was if you walked into a Vegas casino and every slot machine was paying off. Even if you weren’t a gambler you grabbed that slot machine, but this is business, and it is no less risky than Las Vegas. Today our turnover rate is back to manageable and below the industry average.
Q: What is the market for ERP software?
A. The opportunity today is using technology as a competitive advantage to increase revenue and this really should be thought of as combining customers, suppliers employees into a collaborative network.
Q: What are the biggest priorities the next six months?
No. 1 is marketing execution, No. 2 is sales execution and No. 3 is the next generation of innovation. The fourth is continuing to improve financial management.
We live in a tough neighborhood with tough people all around us. Tom Siebel and Larry Ellison are very aggressive seasoned business people and we can not have a casual attitude to financial management.
Q: What is your employee count today?
A: It’s around 7,500. We had dramatic expansion in last five months we added almost 1,300 new employees as we grow we will add.
Q: Over the next 12 months how many more?
A: I would expect if the company grew 25 percent the employee count would grow 10-20 percent. We will grow our employees a bit slower as we return more profitability to the bottom line.
Q: That’s a far cry from 430 layoffs in 1999.
A. That was a necessary step at that time. That was followed by a traumatic period when the dot-coms were invading and raiding. There was a period where the attraction to dot-coms was irrational People were leaving here with a sense that money was just being given away. It was if you walked into a Vegas casino and every slot machine appeared to be paying off. Even if you weren’t a gambler you grabbed that slot machine. This is business and it is no less risky than Las Vegas. For a year we struggled with retention. Recruiting and retainment was the number one issue.
Q: What is the turnover rate today?
A: It’s back down to 15 percent and below the industry average. Our historic average had been 4 to 5 percent. It’s not tolerable now its manageable.
Q: In terms of real estate what are your needs?
A: We just moved into three buildings next door and I’m told we will be out of space in 18 months. It’s on our long-term radar. We do have space in Santa Clara through our Vantive acquisition, but it’s likely if we expand it will be here and around the world.
A: We continue to do them, historically they have not all been successful but we have had some noteworthy ones that went well. We are committed to acquire technology in products and markets that we are not in. I’m not limiting ourselves to particular types of companies we are exploring several initiatives and opportunities.
Q: Talking to anybody now?
A: No, but we are in an discovery mode looking at industries where we want to expand. We would like to strengthen our e-commerce infrastructure The world has figured out that e-commerce is not easy to run it takes alot of pieces and you need a collaborative network.
Q. So are we talking $15 or $500 million acquisition?
A: I’m not limiting myself either way. I’m not opposed to using our collateral to make a larger deal.
Q: What is the competitive landscape, who can you take market share from?
A: The real once-in-a-10-year opportunity has come along and its the change in architecture. Peoplesoft8 introduced a pure Internet architecture and it competes with oracle 11i and MySap.com Both those other companies don’t have a pure Internet architecture. That change in architecture is about the only time in our industry where you can steal large chunks of market share. In between changes you slug it our for new business but its unlikely existing customers would switch because its costly.
Q: You are a former Oracle executive. What is the chink in Oracle’s armor?
A: The chink in oracle armor is the quality of their applications not their database. The database industry has shaken out and there are three competitors and they are all very good — Microsoft IBM and Oracle. Oracle has never been known for its applications and that division is the same size as Peoplesoft.