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Informatica Goes Private

Today, Informatica announced that it has agreed to be acquired by international private equity firm The Permira Funds and the Canada Pension Plan Investment Board. The all-cash deal, which values Informatica at US$5.3B, takes the company private. Private equity takeovers are as rare as white tigers in the IT market with mergers and acquisitions with other tech companies more common. The most recent (and dramatic) exception was Dell which was driven by founder and CEO Michael Dell. Like Dell, taking Informatica makes infinite amounts of sense. The conversion of revenue from one time capital expense to subscription based services is making it hard for technology companies, especially software companies, to

Disruption and Failure = Waste

It seems like I can’t get away from two ideas that have been widely adopted by the information technology industry – disruption and failure. The first trope says that the best company is a disruptive one. By disrupting the status quo, in markets and inside a company, you create change. The second trope is that failure is good so long as you fail fast. You see this often in companies that have pivoted. Their first business model or product has failed but they are building something else using technology and money obtained using the first idea. There are problems with this both of these ideas because of something they share

Leverage Talent through Master Data Management

Who are you? Not philosophically but digitally. What is your identity within your organization? Not just for authentication purposes but for informing others what you have to offer and what you want. This is not a trivial question, at least from a software point of view. Each of us is likely to have many different digital footprints at work. Who you are on the enterprise social network, through email, or even on external services such as LinkedIn cannot be divorced from who you are in the company directory. Your transactional work product, usually recorded in a System of Record is also a part, but an incomplete part, of the total

Taking One for the Cloud Team

The quarterly earnings announcement season is in full swing for large tech companies. This past week IBM announced its quarterly financial results and SAP issued guidance. Oracle did the same a month ago. Each of these companies is still showing reduced overall revenue due to the shift to cloud computing. On the surface, this would appear to be a big problem. When companies undergo radical changes that drop revenues, everyone has to worry that their favorite supplier may become the next Sun, Palm, or worse, Novell which is only a shadow of its former self. I, for one, am not worried. Yes, these quintessential IT companies are taking it on

The Real Danger of Cloud Applications

This week I ran into an interesting problem. My email stopped working. That is, my Microsfot Outlook and Lync could no longer communicate with our cloud-based Office 365 Exchange server. Microsoft support was flummoxed. I eventually found the solution and it lay in system updates. By applying an optional system update to my laptop, not an Office update, I was able to get back to normal. Certainly makes you wonder what the word “optional” means in this context. If it is necessary for applications to work, it’s probably required not optional. Although Microsoft never admitted it, it is very likely something changed in the back-end. Nothing had changed with my

Informatica Goes Private

Today, Informatica announced that it has agreed to be acquired by international private equity firm The Permira Funds and the Canada Pension Plan Investment Board. The all-cash deal, which values Informatica at US$5.3B, takes the company private. Private equity takeovers are as rare as white tigers in the IT market with mergers and acquisitions with other tech companies more common.

The most recent (and dramatic) exception was Dell which was driven by founder and CEO Michael Dell. Like Dell, taking Informatica makes infinite amounts of sense. The conversion of revenue from one time capital expense to subscription based services is making it hard for technology companies, especially software companies, to meet the ever increasing expectations of Wall Street and global public equity markets. The constant pressure to show quarter over quarter growth in revenue and profits is out of sync with the investment cycles of technology companies. Technology based companies, like all companies that rely heavily on R&D, need to make investments that may not pay off for months or even years. It’s not like typical investments in capital goods, such as machinery, that start paying off soon after they come online. Intellectual capital needs time to develop into revenue and the short term desires of public equity markets is too impatient for this type of development.

Another reason is the culture of technology companies. Technology companies, founded and driven by engineers and developers, work best when the environment is collegial and open which is anathema in public companies. When a company goes public, every initiative needs to run past lawyers and accountants, slowing down progress and closing off conversations.

Informatica especially seems like a company that will do better as a private venture. From the CEO, Sohaib Abbasi, down you get the impression of a more relaxed, open, and patient organization. They seem the opposite of public company culture. It’s not that Informatica isn’t competitive, just not cutthroat. There is a willingness to let a line of business take the time it needs to develop. That’s hard to manage with Wall Street analysts breathing down your neck.

There is a big question though that hangs over Informatica now; “What will be the investment strategy?” Private equity companies tend to take a number of paths. First, and least common, that of the patient investor who allows the company to reach its next level outside the glare of Wall Street. These companies eventually go public again but as much stronger companies. Second, they can become the base for an aggregation strategy. The acquired company then goes on an acquisition binge buying up lots of complementary companies and emerging as a much bigger and more integrated entity in the market. Finally, a breakup. Popular with the large and distressed conglomerates of the 1980s and 1990s such as Tyco, these are unusual in the technology sector. Informatica doesn’t have enough discrete components that could be spun out profitably for this strategy to work. They are too big to be the basis for a roll up or similar aggregation strategy. They could use some acquisitions such as a data analytics company but that’s to fill out their product portfolio. Hopefully, the strategy will be the long term one, allowing Informatica to make patient investments and precise acquisitions that drives long term value.

Unless something dramatic happens, Informatica will be soon move from the public markets to being a private company once again. How they will emerge ten years hence is anybody’s guess. Hopefully they will be a better and even stronger version of themselves.

Disruption and Failure = Waste

It seems like I can’t get away from two ideas that have been widely adopted by the information technology industry – disruption and failure. The first trope says that the best company is a disruptive one. By disrupting the status quo, in markets and inside a company, you create change. The second trope is that failure is good so long as you fail fast. You see this often in companies that have pivoted. Their first business model or product has failed but they are building something else using technology and money obtained using the first idea. There are problems with this both of these ideas because of something they share – waste.

The ongoing love of disruption and failure is based on a conceit. The premise is that most, if not all, disruption and failure are beneficial or at least benign. The IT industry seems to have wholly accepted Clay Christenson’s thesis on innovation and disruption without critical examination. The premise that disruption and failure are good is based on a limited number of successful companies. It doesn’t take into account long term effects or the numerous disruptors and failures that have never achieved any lasting positive effects. Jill Lepore, the David Woods Kemper ’41 Professor of American History at Harvard’s scathing indictment of the gospel of disruption in the June 23, 2014 issue of the New Yorker lays bare the assumptions and failures of this mindset.

Disruption is clearly not beneficial to all players, whether internal or external. If the supplier of your critical systems are disrupted, they will cause you disruption that you did not ask for. That disruption creates a lot of waste. How much time, money, and effort has gone into reengineering critical systems for no real reason other than a vendor’s insatiable need to keep up with the disruptors. When IT companies buy into disruption for the sake of disruption, they do so in a “keeping up with the Joneses” way, creating no new value and distributing pain to their customers.

If a great new IT project causes widespread internal disruption, it will create tremendous inefficiencies for a long time. End-users need to get used to new systems and processes. Systems that worked before may stop working now. More waste. Wasted money, wasted time, and wasted human capital. Anything that disrupts a company in any kind of scale needs to have measureable long-term effects but they don’t always, do they?

Failure also wastes resources and can be devastating emotionally and financially. If you’re super rich already you may weather a big failure but not anyone else. Lots of stakeholders will lose such as employees and small investors. When a big project fails, the brunt of that failure is felt much more by the grunts writing code than the CEO of the company. The developers get fired while the CEO makes excuses. One of those excuses these days is that failure is good. For the CEO perhaps but not for the psychological and economic health of employees.

When companies fail, dreams are shattered, people lose their jobs, and small investors lose money. It’s all part of portfolio management of the venture capital firms but can crush the people working at the company or the early friends and family investors. If you are a developer lucky enough to work in Silicon Valley, perhaps you can find another job at another potential failure easy enough. For everyone else, it creates uncertainty. The admins and bookkeepers may not fare so well as the coders. Failing fast may mean a failure to think through what is being done. It’s an excuse for not having given due consideration to a project or product. It allows a company to do without thinking and get away with it.

Disruption can move us down a path of progress. However, it can also be a genuinely selfish act that adds nothing new and only causes others difficulty and pain. It’s true that failure is a natural consequence of risk. Flippant failure on the other hand ignores the consequences of risk, thereby wasting time, money, and human capital. If we think of failure and disruption as inherently bad, then we need a damn good reason to risk them. Rather than accept the idea of disruption and failure as good, stop and think about the consequences of both. forces us to mitigate those consequences by proper planning and thoughtful consideration of alternatives. Speed up good analysis and planning rather than plan to fail and disrupt.