It was a message employees and customers might not have wanted to hear, but Bob Beauchamp knew it needed to be said: “Prepare for a storm, and watertighten the ship.”
It was 2002, and BMC Software Inc., a beneficiary of the technology boom of the 1990s, was foundering.
After 32 percent growth from 1999 to 2000, market shifts caused Houston-based BMC, and many other companies that provided technology solutions for corporate customers, to start to bleed money at an alarming rate.
BMC’s revenue started to decline in late 2000, and the backslide continued into 2001. “Our revenue declined 12 percent from 2000 to 2001, and 15 percent from 2001 to 2002,” says Beauchamp, BMC’s president and CEO since 2001. “Any time you’re in a large company that is going through a dramatic revenue decline, it’s almost a life-and-death situation. Statistics would show you that most companies don’t recover from that kind of revenue decline.”
The mainframe utilities and Unix tools markets that BMC had built its foundation on were turning from concrete to quicksand right before Beauchamp’s eyes. Something needed to be done, and fast.
Beauchamp sat down with his senior management and mapped out a plan that would not only save BMC from financial distress, it would identify an entirely new market in the technology solutions industry.
Trimming the fat
Beauchamp says the first order of business was the most basic: BMC had to maintain profitability. It was a tall task considering that the company’s revenue had slipped from $1.7 billion to $1.2 billion in two years.
Maintaining profitability meant, first of all, that BMC’s leaders had to identify what aspects of the business were nonessential and begin pruning them away. “We had to cast a critical eye on the noncore things we were doing, cut expenses and really, really tighten our cost structure,” Beauchamp says.
BMC’s leaders looked across the board and products, programs, people and geography. “We just had too much investment in everything, which is natural during a period of growth,” he says. “Every function of the company, we just had too many people.”
When BMC declined to $1.2 billion in revenue, it had about four times as many employees as when it first achieved $1.2 billion.
The company cut employees by eliminating services and exiting geographies. BMC left the storage management space and pulled out of countries such as Turkey. If a product or geographical connection was losing money or was not received well by customers, it was dropped.
The pruning of the unprofitable portions of BMC stabilized the company.
The next step was to start building in a smarter direction.
Identifying the space
The space in which BMC could operate in was wide open, but Beauchamp says the best course of action is to stick to what you know you can excel at. “We decided we are not going to go off into video games, home PC software and other things we really didn’t know anything about,” he says. “We decided we were going to stay true to the large enterprise customers we already supported.”
The key, he says, was to find a new market within large enterprise software that hadn’t already been exploited.
BMC’s leaders began a research effort that looked at the IT industry inside and out, not only who the industry was serving but how it was serving itself.
Beauchamp says a pattern started to develop. Across other industries, technology firms had developed software to manage, integrate and simplify day-to-day operations for a wide spectrum of businesses. “Companies like SAP and Oracle brought to the table well-defined processes, user interfaces, and most importantly, data integration,” he says. “The application space had gone from thousands of homegrown applications to standardizing on a tightly integrated suite.”
However, what technology firms had provided for other industries, it hadn’t provided for itself. “IT had put shoes on all the other children, but not on its own children,” he says. “The story of the cobbler’s children is a perfect metaphor. IT was still running with tens of thousands of home-grown applications.”
BMC had found a new market. Instead of being forced from its space by shrinking revenue, the company started to create a new demand curve for the space it was already in by providing technology solutions for customers in the technology industry itself. “First, you have to decide where you are going to play,” Beauchamp says. “Then you look at the change factors, what are the points that really drive customer angst. What is costing them money, revenue, expense, embarrassment, pain and brand image problems?”
From there, a company needs to look deeper to the causes of those problems, a major ingredient in deciding how to sell a solution to those customers. BMC hired consultants to help paint a picture of its customers’ revenue growth, market share opportunities and the overall competitive landscape of the industry. “We saw certain markets as being red hot, high-growth markets,” he says. “Within there, then you look for individual products you believe will drive revenue growth. We get very specific on what the customer’s pain points are and how to solve them.”
Winning over employees
Beauchamp says a vision for change is just that: a vision. The only way it can become reality is if the entire company buys in.
At BMC, the process started with an all-company meeting in June 2002. Still in the planning stages, all Beauchamp could tell his employees was that a change was coming. But it was an important initial step in getting everyone to buy in. “We had to change the company, one time, hard, which was to get everybody on board with a new business strategy and new service management,” he says. “It was a multiyear process.”
In that first meeting, Beauchamp told BMC’s employees that a major shift was coming. He didn’t get into details because the concept of BMC’s new market wasn’t at a point where it could be sold to employees.
After a year of work by company leaders, the plan was ready to be unveiled. “We came back and said, ‘Here it is. We’ve done acquisitions, we’ve begun to build them, but don’t stop doing what you’re doing. Just start learning the story,’” he says.
Beauchamp says a year after that, BMC started training its sales force to sell technology solutions to technology companies, producing the first real results of BMC’s rebound.
Getting those first customer wins is crucial because without them, a company cannot totally win over its employees. It’s something Beauchamp says comes with the territory of change. “A certain percentage of employees, when you say something, will say, ‘I believe you, let’s do it,’” he says. “A certain percentage will say, ‘I don’t believe you.’ Then in the middle is a big group that says, ‘I’ll wait and see.’”
No matter how much success a company generates, there will inevitably be employees it cannot keep moving forward. “There will be people that not only don’t believe in what you are doing, they don’t want it to be successful,” Beauchamp says. “They want to prove the old way was the right way. Sometimes, you just have to let them go, but fortunately, that’s not a large number of people.”
For the fence-sitters, results are what matter. The company’s employees must see that what they are working toward is having a positive effect. At BMC, the moment of truth came when sales-people started reporting back from the field. “Once our salespeople stood up and said (the customers) needed this, wanted this and liked this, and that they’re successfully installing it and using it, that they’re endorsing it, the opinions change very rapidly,” he says. “At that point, the skepticism leaves the room.”
The need to have every employee buy in to an idea is not an immediate one. When a major change is conceived, those closest to the top of a company are the ones who need to be on the same page. Lower-rung employees need to be instilled with a sense of trust that the company leaders will do right by them, so that when the time comes for them to jump aboard, more will be willing to do so. “At first, all I needed was the employees to know that we have a plan and hang on,” he says. “I needed them to have faith while a smaller group deployed those early customer wins.”
Balancing old and new
Things at BMC have settled down, and its financials are improving. The company posted revenue of $1.49 billion and net earnings of $102 million in fiscal 2006, compared to revenue of $1.28 billion and a net loss of $184 million in fiscal 2002.
Beauchamp says companies undergoing a full-scale change routinely commit one critical error. “A lot of times, those companies look at what they were doing as all bad, kind of the inertia of the old culture and the inertia of the old business is bad,” he says. “It’s not bad. It’s simply a remnant of what was once very good.”
While undergoing its shift to a new market, BMC did not totally abandon all of its former practices or products. Beauchamp divided the company into two broad areas, named “red” and “green.” Red was the area that dealt with the old practices and products BMC kept on board. Green was responsible for the new market and products.
Good idea, bad color selection. Beauchamp says employees working in the red area felt like they were stationed in a less-critical area of the company, stamping out the same old products, while those in the green area worked on the cutting edge. “They viewed red as a negative color,” he says. “It meant stop, it meant a warning. Green was all up and positive.”
Employees asked Beauchamp to come up with a new name for the red area. Company leaders settled on “gold.” “I asked our employees, ‘If we were in the gold business, which is more important: Gold coming from existing mines, or striking new gold?’” he says. “The answer is that one is not more important than the other. You need the existing mines to pay the bills, but you’d also better be prospecting for new mines.”
In fact, the gold area forms BMC’s backbone. Those working on new products occupy the company’s fringes as part of a system that allows BMC to test new products without putting the company at risk.
The company’s leaders fashioned a system that allows the research and development wing to develop and test new products and services without concern for how it will fit in to the big picture. The new product is kept separate from the larger structure of the company as its own project.
Once an idea has passed the R&D phase, BMC’s sales force takes the product to customers to see how it will be received. If it starts to catch on with customers, then it is rolled out to the larger organization.
Starting each new product as a separate R&D project allows the umbrella organization to remain stable while change is happening in small increments underneath. “We built small organizations designed to move very quickly, then build systems to on-ramp those onto the larger organization,” he says. “Larger organizations are not designed to move as rapidly. You can’t change them quickly without a lot of risk.”
HOW TO REACH: BMC Software Inc., www.bmc.com