Tuesday, April 12, 2011

Timing ripe for IT bargain hunting in Europe

While the IT mid-market continues to be soft in Europe, with margins being ever so squeezed by major accounts, Infosys is taking the lead and expanding its acquire-onshore-to-offshore-in-India business model. It has been known in European IT circles that Infosys is looking for acquisitions, and it might just have happened. Sources tell us that they may have finalised two European acquisitions. The leading IT offshoring giant will invest about USD 300M for the acquisitions.

Clearly the timing is right as European IT company values are down, for the mid-market ones. And if Infosys executes their integration correctly into their backoffice in India, margins will bump up and the acquisitions will look like a bargain. 

On another note, the IT giant is not sleeping on its laurels. I always said that you need to reinvent your org chart every 24 months. Well, Infosys has appointed a three member panel to chart out the giant's restructuring roadmap.

Infosys is looking to reorganize into seven key verticals, where each vertical will be divided into different horizontals. Three to four key vertical heads are likely to be shuffled in the reorganization. The restructuring roadmap is planned to take three to four months to complete. Good initiative!

Now they just need to officialize a good succession plan, and inform the market.

Monday, April 11, 2011

Mr. Board Director, You're Fired!

Most venture CEOs do not think ahead and let the wrong people get on their boards. A CEO must do proper emotional evaluation of the type of people he lets sit on his board. 

Sure a venture fund is entitled to a certain number of seats, but some venture funds assign the wrong people to boards. This DOES destroy value because these board members do not bring anything to the board or the CEO. Rather they bring their emotional baggage with them, mostly their insecurity.

Having lived through numerous venture boards, I thought I'd share with you my list of the traits of people who should NOT be on boards:
- a person who does not spend time understanding the business
- a person who wants to be the "Monday-quarterbacking" CEO of the business
- a person who "acts as if" he is a close friend of the CEO
- a person who likes to talk a lot, debate forever and never take positions
- a person who does not dare to stand up and say that he/she does not agree
- a person who thinks that surviving is enough for a company
- a person who badmouths everyone and thinks that building a leading company is easy

These are the most detrimental traits to any growth company. They discourage other board members from engaging the CEO, they make everyone regret the notion of proper governance, and finally they wind up disgusting the CEO from his job and his passion.

Venture CEOs should challenge their VCs to assign to their boards emotionally well-balanced directors, and retain the right to ask such shareholders to change "persons" if necessary. These should be as much part of term-sheets as any other financial clauses.

Sunday, April 10, 2011

Reorganization before restructuring becomes a matter of survival

Technology companies have to constantly be on the lookout for entrants that will destabilize their competitive landscape. As I said many times, the technology map changes every 18 to 36 months. The fact that Facebook, a company founded a year after Google went public, overtook Google in 2010 in terms of unique users signing on in the US was a shocker not only to Larry Page but also to the Google board.

This week, co-founder Larry Page took over the CEO job from Eric Schmidt, and his first order of business was to reorganize the company. Indeed he laid out 5 key Business Groups within Google with clear accountability for each of their leaders to focus on bottom line, and the competitive landscape. And today's competitive landscape is Social Media.

Many companies get settled in a comfort zone thinking they are safe with their market share and leadership position, and forget to see their environment changing around them. And that is where cash flow slows down, margins start shrinking and debt-service becomes more difficult to cover. When that happens it is too late to reorganize. It is time for restructuring. New management is appointed. Payroll is cut. Overhead is drastically shrunk. And the company winds up fighting for its survival. 

The lead time between the awareness that a reorganization must take place, with clear accountability, and the time the necessity of a restructuring hits, is generally between 12 and 18 months. Yes, it does happen that fast.

I frequently recommend to the companies and CEOs I advise to reorganize their org chart and their business lines every 24 months regardless of sector, just so that group heads don't start getting too comfortable. But in the technology sector it is a matter of survival to reorganize in shorter cycles.