John Swainson: CA's Mr. Fix-It

Since becoming president and CEO of Computer Associates International in February, he has helped refocus the technology giant, still dogged by past accounting and management troubles, on the business of selling software.

Or acquiring companies that can. This year alone, CA has made six acquisitions, including providers of security software, business services optimization and enterprise systems management.

Swainson, 51, also has pushed the company to expand internationally, improve customer relations and enhance CA's integration capabilities. "The reality of the situation is that significant change at CA is clearly more a marathon than a sprint, but Swainson is now putting his stamp on the company and positioning it for greater success," says Gregg Moskowitz, an analyst at Susquehanna Financial Group.

John Swainson is
CA's incoming CEO.

Beyond his leadership qualities, Swainson is, deep down, a classic gear head. An engineer by trade, he spent 26 years at IBM, where he held 13 different positions, including a job overseeing software sales. In corporate circles, Swainson is known not only for his sales skills, but also for his industry insight and technology chops--he was a driving force in creating WebSphere, IBM's popular middleware platform.

At CA's annual trade show in mid-November, held this year in Las Vegas, Swainson offered his thoughts on the biggest problems confronting companies in dealing with technology and laid out his vision of the rapidly changing software sector.

Q: What are the biggest technology challenges facing companies today?
Swainson: Companies have two almost conflicting challenges. They have technology that is getting ever more complex, ever more sophisticated and ever more critical. And at the same time, the business is saying, "But I need more faster, cheaper."

The challenge is that technology has become even more important, and yet the complexity of managing that technology has grown, and that's why we've started to talk a lot about enterprise information technology management as a way of helping reconcile what appears to be two irreconcilable things: simplifying and unifying the IT environment and then connecting that environment better to the business environment, allowing people to make IT responsive to business and not the other way around.

Why has technology become so complex and, in many ways, unmanageable?
Swainson: In the computer industry in general, we still have all of the sort of architectures and artifacts that have existed since essentially the beginning of the software era. There has been some attrition, but the fact is that there are mission-critical business applications that are 30 years old running inside most large corporations today. And there are 20-year-old apps, 10-year-old apps, 5-year-old apps and 2-year-old apps, and there are applications that just got written.

All of those things coexist and have different standards for management, interoperability, security, and somehow you have to make sense of all that stuff. It's a really hard problem for customers to then make it secure, make it manageable, make it auditable, make it compliant with Sarbanes-Oxley. This is not for the faint of heart.

What are the biggest mistakes companies make in buying technology?
Swainson: They don't think about how they are going to manage the technology infrastructure long-term, and they end up with messes--huge messes that are almost impossible to unravel. They look at everything in a very isolated way.

I've looked at hundreds of different IT installations, particularly over the course of the last year. All the ones that are well-managed have one characteristic--they are architected to be managed. Some have mainframes, some have Unix systems, some have other platforms. It doesn't matter what architectural choices you've made. It's the fact that you've made a choice and created something that you know how to manage.

So how can companies take control of their systems?
Swainson: Well, ultimately, you have to reconcile things. It makes a great business for consultants. It makes a great business even for companies like CA, because our job is to help manage the complexity. But frankly, people make it harder than they need to by not thinking about the long-term operational implications of the technology choices.

Obviously, part of the difficulty in doing that is there are arguably too many choices for customers. Do you predict more consolidation in the software sector?
Swainson: I do not subscribe to the philosophy that everything ends up aggregating into one or two big companies. I do, however, believe that you will end up with leaders in market segments.

In enterprise applications, it's now very clear that the category leaders are SAP and Oracle, and to a lesser extent Microsoft. Then within that there are some subcategories by industries. There is a very big category that we call infrastructure management, and inside of that there are going to be, I believe, three or four major players: IBM, CA, perhaps BMC, Hewlett-Packard--companies that have $3 billion and bigger businesses with very broad reach and scope across the industry. And there will always be companies that sort of transcend categories and play in all of them, such as IBM, Microsoft and perhaps HP.

CA was built on acquisitions, and recently you've stepped up the company's dealmaking. What do you have planned on that front?
Swainson: To continue to do deals. It's a maturing industry. Software as an industry in particular favors economies of scale. We will continue to use acquisition as part of our overall four-point strategy for growth.

But first and foremost, our intention is to grow organically through the development of our own products. We spend roughly $650 million a year on development. In other words, we'll spend about 20 percent of revenue on development going forward. We'll also grow by expanding internationally, particularly into places like Eastern Europe, the Middle East, China and India. We'll expand by building stronger relationships with business partners to grow into some new markets, particularly the midmarket, which for us is virtually untapped. And last but not least, we'll grow by acquisition.

How has the corporate IT spending environment changed in recent years?
Swainson: People no longer buy IT simply because their mother-in-law said they had to buy it. I'm making a joke of this, but they're not doing things because of herd pressure or peer pressure. They're doing things in a much more thoughtful, careful way, and for those of us who think that this industry needs to grow up one day, that doesn't strike me as being a bad thing at all.

Over the course of the last year, we've seen a fairly consistent pattern of IT buying that has been focused around a smaller set of high-profile things: security, IT management and compliance, risk management. So I see the environment as being less willing to jump off a cliff into some untried and unproven technologies, but nevertheless people are spending money on IT. They're continuing to view it as a critical business resource.

What advice do you give executives regarding Internet security?
Swainson: There are two kinds of security. There is what we call threat management, which is keeping the bad guys out--firewalls, antivirus, anti-spyware, intrusion-detection. And then there is identity and access management, which is letting people in.

My advice to small businesses in particular is that if you can't do this yourself, with a partner or a consultant, you should not be presenting a Web face to your customers. You should not be exposing yourself and your business to the Web, to all of these hazards, if you don't have the expertise and confidence to do it. You should go to a service provider, someone who has expertise in doing this, who can outsource this for you. There are companies that do this for a living, such as Internet service providers and some of the big telephone companies. And by the way, CA is not one of those experts. We are a provider of the tools for those experts, but we don't participate in that business.

Wall Street has expressed concern that CA relies too heavily on revenue from your mainframe business, which many believe will steadily decline. Are mainframes a dying business?
Swainson: No! It's not a dying business. I frankly think these are stupid comments. The mainframe is a very important, very vital business that is going to be around forever. It's over half of our business.

Now, having said that, it's a mature market, and mature markets tend to consolidate. They don't tend to grow as much. We're not under any illusions about the growth possibilities there, and so we have also balanced our portfolio with high-growing products in the distributed areas, meaning Windows, Linux, Unix and so forth. So I get very frustrated with people who talk about the mainframe as somehow being bad. When has it been bad to have strong, predictable cash flows?