CRN Interview: Sanjay Kumar, Computer Associates International

CA President and CEO Sanjay Kumar, who took the helm of the software giant nearly two years ago, sheds light on CA's new storage strategy and channel business model as well as a potential proxy battle in an interview with CRN Section Editor Jennifer Hagendorf Follett and Editor/News Steven Burke.

CRN: In CA's last fiscal year, about 20 percent to 25 percent of storage revenue came via the channel. For the new fiscal year, what percentage of storage sales will be channel-derived?

KUMAR: All of it--BrightStor products, BrightStor backup, BrightStor SRM [storage resource management and the new portal product that we are announcing. All of it is going to go through partners. I mean, this is a major announcement because you have all of the other storage software guys going the other way. Veritas is going more direct.

CRN: How big is CA's storage business?

KUMAR: It is a big business for us. It includes the ArcServe business, the BrightStor enterprise backup business. It includes the SRM business, BrightStor Vantage and the BrightStor portal products, for example. And we will effectively compensate our [sales people for partner business. As part of [CA's annual compensation plans, we have already built all of that in for the new fiscal year. The compensation to a CA [sales person is based on if [a deal lands in his or her territory. They essentially get compensated on whatever the net money is to CA.

CRN: How did it work before the new program?

KUMAR: Before, they didn't get paid--a big difference. And when I say CA, I mean the CA direct-sales force. The partner guys always got paid whenever a partner sold something. But they are small compared with the 4,000 direct salespeople running around. So in this instance, I am talking specifically about compensation. The proof is in compensation.

CRN: So the direct-sales force had to register the deal previously?

KUMAR: And so did the partner. Let's say there is another joint deal and that CA and the partner are working hand in hand. This is one of those customers that has done business with CA for 20 years and has never done business with the partner and that says, 'I am not buying this from the partner. The only person I do business with is CA.' And that happens. Partners sometimes don't like to hear that, but it happens. So CA writes the deal. Essentially, we pay the partner.

CRN: How does CA's partner program compare with those of its competitors?

KUMAR: They do partner registering deals, which we used to do. And large enterprise deals they take direct. There is no size limit on the deal. Also, in this model, there are two other important points: ArcServe boxed product we will not touch.

CRN: Did CA handle ArcServe product before that?

KUMAR: For super-large enterprises we would. We won't anymore. If a customer wants that, we will now simply refer the customer to the reseller.

CRN: How much compensation funds will be made available to solution providers? How much will it cost CA to do that?

KUMAR: Let me put it to you this way: If we sell the same amount of software as we did last year, we will lose money in this model. If we sell 10 percent to 15 percent more, we also will lose money because of the compensation issues. You have to prepare to pay partners. We need to sell substantial amounts more.

CRN: How big of a cultural shift this is for CA?

KUMAR: For the channel organization, this is not a problem whatsoever. We have been building it and building it to get it here. In the last year--with what we have done with BrightStor and BrightStor Enterprise Backup and how much we have encouraged the sales organization to work--I don't think it's a problem. The message we are sending clearly also to the sales organization is this: We are comping you so there's no conflict. In addition, we are not hiring more salespeople in the storage business. We are telling our sales organization and sales management team that the place that you have to go for additional salespeople is not direct anymore. It is through partners. That is where you are going to have to go find it.

CRN: So CA isn't hiring any more sales staff or putting any more account reps out there?

KUMAR: No. Today, I clearly could use 100 more people in the storage business. I could easily drive to 100 more people and add 100 more. What we are telling our people is to go work with partners. It is a big move.

CRN: In light of this shift toward channel sales, what percentage of CA's sales do you expect to come from the channel in 2002 vs. 2001?

KUMAR: In storage, there is no reason for all of it not to come from [partners. I am telling partners: Come one, come all. If a partner is not there, then that is the partner's fault. The thing that our company is going to ask in return is that partners have trained, committed people. They are going to have to go through certification.

CRN: Overall, how will the channel revenue picture change for CA?

KUMAR: Storage is going to drive channel revenue bigger. I would hope that we would get as a company maybe 10 to 15 points more channel revenue.

CRN: Up from how much?

KUMAR: Aggregate, it is probably 20 percent of our business or something like that. So we are doing this in storage. That is the place where we have all of these compensation [plans in place. We are, however, putting all of the products under one umbrella, under one roof. And we will evaluate how storage does to see if we go with the same model [for other products.

CRN: Over what time frame could we expect to see that?

KUMAR: There is no specific set time frame. I think, on modeling, we will do something sooner rather than later. That is a smaller business, more manageable. There are probably a dozen partners in that business. You can get them all in a room and can roll that out. Storage is a little bit more complicated. If we can manage storage and manage it worldwide, then maybe we can do the others.

CRN: CA hiked channel program spending 20 percent last year. How much will the company's channel spending rise this year?

KUMAR: It is going to have to go up, if you think of the compensation numbers. Compensation in the channel and spending in the channel, I think, will go up 60 percent to 70 percent year over year. That is a big number. But to be fair, I am hoping returns on revenue will also be substantially higher.

CRN: What is your message to CA's partners?

KUMAR: This company can give them no greater commitment in the storage business than we have given them. There is no reason not to partner with CA. And when you compare us to the competition, there is every reason to partner with CA. We have the products, and I think we have the wherewithal. We have the desire to work with partners [at a time when other companies are running the other way and going direct to do large deals. We are telling partners to come work with us and that we will work with you. We have the compensation to match. Every single CA salesperson is walking in with a compensation plan that has these metrics. It is in black and white. They're pumped up and ready to go. We have the organization in place. If partners say, 'I don't see the business,' it is because they are not engaging. That means they are not training or doing this or that.

CRN: Partners are saying that they're happy with CA's rules of engagement in security and storage. But some say there's sales conflict with Unicenter. Can you respond to that?

KUMAR: Unicenter is a much more complicated thing. What happens there is that all partners want in on all of the large Unicenter deals. It is a very complicated beast. There are some partners who have been successful with Unicenter, especially with Unicenter 3.0 focusing on certain disciplines. Unicenter is a broad product family. It is difficult for partners of a certain size to get mastery across multiple areas. That has been a big frustration for some people.

So I think having focused partners with certain specialties in Unicenter has worked out for people. Things will change in Unicenter. I want to roll one thing out at a time. I don't want to lose all momentum. Clearly, the idea of the rules of engagement worked well. We realized it worked well. Our first priority is to combine the two organizations, with no transition pains whatsoever as far as partners are concerned. Roll out the storage thing. And then we have some additional steps to take in the next, let's say, three to four months.

CRN: So no new rules of engagement for Unicenter are upcoming?

KUMAR: Not yet. One thing at a time. If I do too much, I am changing too many things and it is too confusing. We are also moving a large direct-sales organization here. And you want to send a specific message.

CRN: Will there continue to be a channel play for Unicenter?

KUMAR: Absolutely, we will continue. I am not taking anything away. They can register, and they can work together. They can do all those kinds of things.

CRN: Sam Wyly's Ranger Governance investment arm is again taking aim at CA's leadership. Is it distracting? How are you dealing with that?

KUMAR: It was interestingly timed at the end of our quarter. But again, as our preliminary results indicated, the company held together in the quarter despite distractions. And I think we did well in a difficult environment--and the environment is still difficult. The new business model, I think, has a lot to do with that. Our ability to sell smaller deals and focus on lots of new products was good. I think the Ranger issue was addressed. The shareholders voted last year. And I think we are reasonably clear on what their message was. I disagree with their assertions in the letter. To point out that we are not focused on partners is absolutely ridiculous. The amount of work we have done with partners and the things we are doing today--I mean, these are not things you put together overnight. They talked about our company and governance issues.

CRN: Do you expect to have another proxy fight on your hands this summer?

KUMAR: I don't know. The Ranger folks have said they haven't made up their mind. I think it was a big distraction last year. And I think to have one this year would be a disservice to shareholders.

CRN: Have you done anything to prepare for the possibility?

KUMAR: As I have said, I am absolutely focused on running the business as I was in the quarter with the team. And I think you have to build the right business and do the right things. I think you have to ask partners, 'Do you think CA has a better partner program or did [CA acquisition Sterling Software have a better partner program?' I think that should speak volumes about which company is focused on partners.

CRN: The Securities and Exchange Commission and the U.S. Attorney's Office have investigated CA's accounting practices. Has CA had to provide certain information to them?

KUMAR: I can tell you as I have said before: We have no desire to engage in a public debate over that issue. Our company continues to believe that our accounting is proper. We have a very conservative and transparent model today, which we believe very strongly the rest of the software industry will have to move to over time. People will clearly come our way.

By the way, we are going to allow partners to sell multiyear deals but also to sell month-to-month licenses in storage in this new [channel model. Imagine a partner walking into a customer and saying, 'Let's do a trial month to month.' What other software company does that today? None. What other software company is able to do that today? None. CA can do it today because of the flexibility of its new business model. So I think we have a transparent model. We have a flexible model. We will work with these agencies to help them understand the business, and hopefully it will work.

CRN: But has CA actually been asked to provide any documentation for the federal inquiry?

KUMAR: We have said that on a voluntary basis we will provide any information they need. That is all that I have said.

CRN: Is it still considered an inquiry at this point?

KUMAR: I believe that it is. We have not been told otherwise.

CRN: CA's new business model was a dramatic change. What is your message to the industry players on Wall Street who may be confused?

KUMAR: I think confusion is a convenient excuse. I think people should stand up and say, 'I like CA's prospects, I like the company and I like its products,' or 'I don't like CA's prospects, I don't like the company and I don't like its products.' There is plenty of research out there that analyzes our [business model eight ways to Sunday and back.

CRN: Last year, CA capped its services group at 2,500 employees. Will you add people there?

KUMAR: No. It has come down a little bit since then. In this [new model, there are a whole bunch of other things I didn't talk about. But we will have some enhancements to partner programs and services as well.

CRN: So the enhancements will be related to partners working with CA's services organization?

KUMAR: But it's a two-way street. I want to be really clear. Partners have to commit. They have to be willing to sign up and work hard because there are enough people in this model willing to do that. What we are telling partners is really clear: There is no advantage for CA [sales people to do anything on their own anymore. None. That means that if I was a CA [sales person, every opportunity I would get I would go to partners and say, 'Listen, you are my storage partner. Let's go sell together.'

CRN: What do you think has been your greatest accomplishment as CA's CEO?

KUMAR: I think it is getting smart people around me who are able to bring different perspectives to problems and opportunities. To me, that is the hallmark of being successful. Having someone like [CA channel chief Mark Milford. Mark was unusual for CA: a veteran from HP, a channel business hire. At the same time, I took the risk of getting a smart direct person out of the direct business, putting them in the channel and saying, 'You understand CA. Go figure out how to make this thing work with partners.' I think having people around me like that has been good. The [new business model was a big thing. If not for the business model [shift, we wouldn't be talking about the things we are doing today.

CRN: Are channel partners taking advantage of that subscription model?

KUMAR: For the most part, it is happening on the direct side. There have been a few instances where we have done things jointly with partners where, to take advantage of the subscription model, we have written it on CA paper because the partner can't write it.

CRN: So it is not an option for partners today?

KUMAR: No, not today. It will become one a week from now, on storage.

CRN: Do you plan any other organizational changes?

KUMAR: This [new business model is big enough.

CRN: It doesn't seem like acquisitions are on your mind.

KUMAR: It has been over two years now [since CA's last major acquisition. We have done a few tiny deals, with which we will continue. You can never say never. You never know what opportunities may come around. But our focus at this point is to work on the new business model, work on the partner model and get the new technology out. We will have some new products out at CA World.

CRN: What is your message to channel partners at CA World?

KUMAR: I am putting our money where our mouth is with respect to the biggest part of the channel business at CA. There can be no greater commitment. Where we take it from here is really up to us working together. I have taken the next step. I am looking for others to step up. And if we can step together going forward, then we can do successive steps.

CRN: So if CA's new storage model does well, partners can expect to see the same thing with security and other parts of the company's business?

KUMAR: If it works. But remember, I said that if I do the same amount of business last year then I lose, given the compensation model. If I do just a little bit more, I lose. I mean, we are doing this to grow it--seriously grow it. We think we have the products. We have the opportunity. We have the competitive push. And we had some good competitive wins last quarter.