Computer Associates 2005 Annual Report Download - page 12

development. The mainframe is a very important and profitable part of our business, but mainframe
developers in the United States are scarce. In Prague we have tapped into a development workforce
at a very competitive price point.
Over the past year, we at
CA have made a concentrated effort to identify and invest in technologies
that fit into our product vision and are able to generate solid returns in a reasonable period of time
through a combination of revenue synergies and expense efficiencies. For instance, when CA identified
the market opportunities in the rapidly growing anti-spyware arena, we considered the cost and time
involved in building a product in-house. Ultimately, we concluded that immediate entry into the market
was the best course of action, and in August 2004 we purchased PestPatrol for $40 million in cash.
In November 2004 CA made a second acquisition -- Netegrity, Inc., a leader in identity and access
management (IAM) in the distributed environment -- for net $340 million in cash. Prior to the
acquisition, CA had a strong portfolio of mainframe IAM products; the acquisition of Netegrity gave us
the leading position across both platforms. Netegrity had 26 direct salespeople who generated
approximately $90 million in sales; CA is able to leverage the might of 2,500 direct salespeople and 250
security specialist salespeople to truly drive sales of the Netegrity products.
In June 2005 we purchased Concord Communications for $350 million. Concord’s products
complement and strengthen our network management capabilities, shore up one of our most important
products (our $1.3 billion Unicenter business) and at the same time open up opportunities in
verticals and new technologies (such as telecommunications and wireless), in which we previously had
little presence. We expect Concord to deliver an outstanding ROIC .
In June 2005 we also announced our intent to acquire Niku, a leader in IT management and
governance, for net $285 million. Niku will expand CA ’s offerings in one of our fastest growing businesses,
Business Service Optimization. While the acquisition of Niku is pending at the time of this writing,
we believe it too will yield strong returns.
A MORE DISCIPLINED CA
A well-integrated internal IT infrastructure is critical to a well functioning enterprise. CA is implementing
a $100 million ERP and CRM system that will enhance financial accountability and transparency,
enable the company to better serve its customers and help ensure the controls and checks and
balances that are crucial in a culture based on the highest standards of integrity and business ethics.
In the second quarter of fiscal 2005 , we looked at what the company needed to achieve and
the resources we had available to meet those goals. We concluded that we were doing too many tasks
internally that could be readily outsourced to outside vendors at a fraction of the cost. Over the years
an unwieldy infrastructure had emerged. Neither cost efficient nor effective, this infrastructure did
not reflect an ROIC mentality. Consequently, we made some difficult decisions to reduce costs and the
number of employees, which have produced about $70 million in savings on an annualized basis.
For other employees, we changed some of the internal metrics and compensation systems in order
to drive changed behavior in fiscal
2006 . As a result, sales commissions have been restructured to
reward sales of new products and sales to new customers versus renewals of existing customers. In
addition to revenue growth and net profit, the senior executive team is being measured on several
new metrics: customer satisfaction, ROIC , billings growth and cash flow from operations growth.
Finally, I’d like to briefly touch on
CA ’s fiscal 2006 budget planning process, in which we employed
a rigorous procedure that challenged department heads to identify efficiencies, avenues for growth
and investment initiatives with clear
ROIC metrics. Department heads who could not say how they
were going to be more efficient and articulate a plan for growth were sent back to the drawing board.
Those who could not demonstrate a clear
ROIC for a new investment went away empty-handed.
Clearly, this is a new, more disciplined, focused and strategic
CA -- driven by an uncompromising
dedication to achieving growth, outstanding
ROIC and superior shareholder value. I am excited to
be part of
CA ’s new management team, which is committed to building a company in which its owners,
employees and customers can take pride.
Jeff Clarke
Chief Operating Officer
Letter from Chief Operating Officer Jeff Clarke