But there was one bright ray in that otherwise grim tech landscape: it marked the end of all those pipe dreams about what information technology could do for a corporation.
So it was that IT bosses had to get business savvy in a hurry. Chief financial officers were no longer pushovers for the big song and dance that simply buying more technology would necessarily lead to a leaner, more efficient corporation.
That changing mind-set paved the way for the spread of business management software. This relatively new category of applications is supposed to give businesses a better handle over their IT infrastructure. The research community buys into the argument. Forrester Research says it can help a company cut 25 percent of its total IT budget within 18 months.
One technology supplier that has benefited is BMC Software. In its recent quarter, the company's sales grew about 30 percent, and it ranked as one of the top three share gainers in a Goldman Sachs survey of software and security vendors. CNET News.com recently visited with CEO Bob Beauchamp to talk about his company, as well as the evolution of IT and its place within the corporation.
Q: Your third-quarter sales were strong. But selling management systems, you might say, is the least sexy technology business imaginable.
Beauchamp: (laughing) We live in the boiler room.
But still, business is good. As you look ahead to the remainder of this year, how do you see IT demand for your class of products?
Beauchamp: We think they're going to be pretty strong, unless something at a macro level changes--which I don't see. I'm not an economist, but I haven't seen any reason to believe that we're going to see some sort of turndown. We've had seven quarters in a row of meeting or exceeding estimates.
Can you wrap some context around this? Is this a part of a larger trend, in which companies are trying to add more structure to unstructured data?
Beauchamp: Let me back up for a second. What's happening is something really, really big--in fact, Gartner calls it "the biggest topic in all of IT operations." In the 1990s, the CFO came to the head of IT and said, "Help, I've got general ledgers all over the floor. I've got accounts payable written in COBOL (Common Business-Oriented Language), and accounts receivable written in Fortran (Formula Translation)--and we got to fix all this."
And so SAP came along and said, "How about a really integrated way of solving things with common data models, a common architecture, workflow, user interfaces and APIs?" PeopleSoft did the same thing when they looked at human resources. Everybody said, "I love it." It now turns out that the way they implemented it was very complicated.
What we bet on in 2002 was that there'd also be a move to automate IT in this decade--and that's what's finally happening. Back then, I said to our board that somebody is going to create a huge company by building integrated ERP (enterprise resource planning) for IT.
That's because IT is probably the least automated department in all of large corporations today. It is the most manual, the most backward, the most boiler room-like (and the) ugliest ball of yarn in the entire organization.
You're talking about the need to bring in something like a service-oriented architecture (SOA)?
Beauchamp: A service-oriented architecture so you can be ready for rapid change. Let me give you an example. I know of a company that suffered an outage. They had 70 people from different locations all over the world on the phone trying to figure out what was causing the problem. To me, that is just crazy.
The IT department is supposed to be all about automation. It's supposed to be all about technology. But having to get 70 people on a phone to resolve a single production failure--or to even determine what happened--that just screams for somebody to fix this, somebody to tie all the parts together in a service-oriented architecture.
So if you're right, then in the future, things are likely to change at an even faster pace. But how long do you think it will take before SOA moves from the concept phase to becoming a widespread, workable reality?
Beauchamp: I think that it will develop as strong new applications get developed. You already are starting to see that now. But at the risk of being cliche, I do think it will be slower to evolve--just like all big trends are slower in the short term than we think. But it also will be bigger in the long term than we think.
Beauchamp: No question about it. If you don't understand the relationship between the infrastructure and the business services, then you can't guarantee that you have your arms around the process. You know, the ankle bone is connected to the foot bone and so on.
You were CEO when the company had to implement Sarbanes-Oxley requirements. There has been a lot criticism from corporate leaders who say the legislation is an encumbrance to doing business. How much of an issue is it?
Beauchamp: I would say that we're a better company because we had to do it.
Beauchamp: We discovered some deficiencies that, while they never did burn us, could have caused us to make a mistake.
Can you remember an example?
Well, one was with our sales commission processes. We found out that (with the processes we had in place, we could have) misestimated the sales commissions and therefore had a problem. We might never have tripped over it.
Because we found it during the SOX review, we were able to tighten up the process, and so our shareholders were never subjected to an error that potentially could have happened. This was several years ago, and that deficiency has been resolved; it's gone.
So Sarbanes-Oxley, on balance, has been a plus?
Beauchamp: Well, I'll say yes. I think that SOX made us a better company. I think the amount of money spent and the amount of time spent on it is really extraordinary, though.
I don't think there's any question that foreign corporations are rethinking their listings in the U.S. exchanges. But now you're seeing some of the problems turning up that companies have hidden in Europe. So, as I said, I think it's made our system better. It's made our company better. I think we just have to watch that we don't get carried away.
I'd like to talk about mainframes, since that part of your business continues to chug along.
Beauchamp: It actually grew. Up 4 percent.
Interesting. But the general perception, of course, is that
Beauchamp: No, they're not. In general, if you are going to get off the mainframe, you probably did already. There are still a few companies I talk to every now and then that have an end-of-life strategy. But you're not going to find a bank or any of the money centers in the world that don't still run on mainframes. And they are quite happy.
Do you think this is going to be able to sustain itself over the course of the next decade?
Beauchamp: I do.
How do pricing pressures compare with five years ago?
Beauchamp: Five years back, we were under extraordinary pricing pressure when the bubble popped. All of the venture capital-funded companies were melting, and many of our customers had layoffs. Then outsourcing resulted in a huge shift.
The pressure was so extraordinary that customers would say, "I don't care what it does or how much I need it. You've got to lower the cost." Since then, we've seen the pendulum swing the other way.
Is that because they've realized that the end of the world was not about to occur?
Beauchamp: I just think it was a natural part of the business cycle. I think now we've gotten back to a healthy place. Customers are still quite focused on real cost savings, but if you can show them real cost reduction, they'll spend the money with you.
How has that affected the sales cycle?
Beauchamp: What happened in the 1990s was that IT was this black box, and the CFO would believe IT workers when they said, "I've got to have this new Tornado 2000 tomorrow." What's happened since is that the chief financial officer basically doesn't believe a word they say anymore.
What's also happened is that CIOs who survived have learned how to embed a really good financial person as part of their staff. So, when a deal goes forward, the i's are dotted and the t's are crossed on real savings, and they're presented to the CFO.
The revenge of the CFO has gone from one of almost just revenge to now, I think, just a much more disciplined process, and IT is managed like all other departments of the company.