Developing global strategy
Stuart Kennedy | October 16, 2007
world according to| Adrian Di Marco
THERE have been plenty of innovative, well-run Australian software outfits over the years, but most either stagnate, founder or are sold because they can't achieve scale.
'The industry has to make a fundamental transformation,' says Adrian Di Marco
Queensland software entrepreneur Adrian Di Marco, executive chairman of the ASX-listed Technology One, reckons he has the scale to push through the critical $100 million revenue barrier, establish Technology One in offshore markets, and keep on growing at 25 per cent a year.
The firm has opened up a beachhead in Britain and wants to tackle the super-competitive US market when the British operation is bedded down.
While Technology One is still a pipsqueak compared with US and European heavyweights such as Oracle and SAP, Di Marco believes it can scrap with the big boys if it gets a sliver of a chance.
With enterprise resource planning software, especially at the big end of town, once you get a customer, they are hard to lose, aren't they? The vendor has to really stuff up to cause the customer to want to go through the pain of moving from one ERP system to another.
That's spot on. That's what has made the software companies complacent. They know once they've got a customer that has made a huge investment, that customer is going to be very sticky, so companies like SAP and Oracle become very complacent and very arrogant.
But if you go back 15 years, who were the big vendors then? It wasn't SAP and Oracle, it was MSA and McCormack-Dodge (these later merged into Dun and Bradstreet). So people do change vendors and it will happen again. Unless companies make the transformation from simply selling products to actually selling solutions with all the services, and guaranteeing delivery on time and on budget, and guaranteeing upgrade paths, customers will move.
That's not what vendors are doing today. It's all about a big licence fee and getting someone else to set it up. If there's something wrong, what do they say? The SAP chief executive said it last time he was in Australia. The problem isn't with SAP, it's with implementation partners.
In the end it's about who signs that contract to deliver the solution, the service. Currently in the ERP world, it's not the ERP vendors.
We've changed, we've moved the other way. We build it, we market it, we sell it and we implement, we take the contractual responsibility, we guarantee the solution and if there's a problem we fix it, no ifs, no buts.
We started the change quite a few years ago to become more services-oriented with products as a secondary focus. It has been a huge cultural change for us and we've still got a few years to go. But it's what underpins us today.
Do you see ERP commoditising at the low end?
Commoditisation is a natural phenomenon. It's happening with technology generally and applications will become more and more commoditised, but customers will always pay where there is additional value.
You've got to move up the value chain, and services are part of that, but also extend your product range. We've extended our product range dramatically over the past five years.
When you build these big, broad enterprise applications you end up delivering some products that are good and some that aren't so great.
It used to be that if some part of an enterprise suite wasn't best of class, the customer would live with it, but the pendulum is swinging back to customers wanting best of class.
What we've done is say if every product has to be best of class, we'd better make sure we deliver that. If we can get into a competitor's customer with just one product because they weren't happy, then we can open that as a wedge. We see huge opportunities at the top end of the market. We see a lot of dissatisfaction there.
We are driving in with point solutions at the top end, say just financials or business intelligence.
Once you create an opening, they are responsive to taking other products from us and slowly replacing the other parts of the solution.
How do you see the working definition of SOA playing out in the marketplace?
SOA is very important and one of the holy grails of the industry. It's about opening enterprise applications and it's something we've put a lot of money and time into.
Our Intelligence series of products has been architected from the ground up based on the service-oriented architecture concept, so we are well-positioned for this evolution as companies adopt SOA-type products.
Is SOA really something customers care about or is it more something that vendors have come up with to help sell their next load of software?
I think it's something customers will need and it's important to them, but I think what's driving it at the moment is the vendors and the hype that goes with it. The industry has to make a fundamental transformation. Companies such as Oracle, SAP and Microsoft are still technology-centric. You've got to have technology and the architecture but it's just tick-the-box stuff.
There's a really fundamental change involving moving businesses from being product-oriented, which is what our competitors are, to being service-oriented. It's delivering something that works out of the box. It's about being a services company first and a product company second. In the end it's a zero sum game. There are no new customers. Someone will win customers and someone will lose customers.
We've heard a lot about the skills shortage. From your point of view how serious is the problem and what strategies is Technology One using to get around it?
It's a huge problem. Unfortunately, addressing it is going to take a long-term approach because we need more graduates to go through university. We are trying to position ourselves as an employer of choice. Having research and development in Brisbane helps. It's a nice environment, people like developing intellectual property and we are really focused on graduates, bringing them in from university and having them work with us from day one. We are also looking at offshoring as another part of the strategy.
You mean using offshore development centres?
Yes, using people to cut the code. We still do all the design because that's the value-add. We've got a partnership arrangement with Mitrais in Bali. Mincom has used them for years. We like it because it's not too far away and a nice place to go. They have very talented people and it's not a hot-spot yet, like India has become a hot-spot.
You also bring in 457 visa people. How well has that worked for you?
We've had some success with it but it's hard to find people. We have a presence in Britain and have brought some people in from there to Australia. To be honest, in a lot of the world they don't have the same culture we do - which is to do what you're doing well. A lot of the world is dictated by time to market. You know, how do you reduce time to market? If the quality isn't quite right, the customer can sort out the issue.
It's an attitude that permeates a lot of countries like Britain and the US. In Australia we have a very different culture. We are very focused on quality and doing the job properly. That has been an issue for us with 457 people.
Does the federal government need to become quicker at turning on the skilled immigration taps in the good times and off more speedily in the bad times?
Definitely, we need to look at being a lot more switched on and opening up the taps when it's needed, but I don't think that's a good long-term solution.
The long-term answer is to get more young kids into IT. Our kids are really good, our universities are really good. We have world-class universities. We have world-class talent here. We are just so impressed with the kids we get from universities. They are switched on, they are smart, they are computer literate and they think outside the box. They are passionate about what they are doing, and want to do things properly.
You don't find that in other markets. In other places like the US it's all time to market and it's all what's in it for me. How do I make money here? How do I make my exit quickly? That has become the overriding culture there.
Even though the IT market has come right back after the dotcom crash and we now have a skills shortage, young people are not fronting up for tertiary IT courses in anything like the numbers they were pre-crash. Why is that and do you have any answers to the problem?
Part of it is this next generation, this Y generation as they call them. For some reason they are staying away from the hard sciences. They are just not being attracted to them for some reason.
Whether it's the school system that has failed or whether they just find it easier to do things like merchant banking and finance and quick ways to make money, it's a fundamental issue, not just IT. IT and the harder sciences are just not being promoted enough early on. It's the easy wins that are being promoted.
What is the percentage split between Technology One's onshore and offshore revenue at the moment and where would you like to see that ratio head over the next five years?
Currently about 20 per cent of our revenue comes from offshore and that will change. Over the next three or four years that will probably shift the other way around. We'll probably do 20 or 30 per cent in Australia and the rest offshore. We are moving very fast to become an international organisation.
Britain is the start and we are getting traction in Britain.
Is there any particular market in Britain that you have concentrated on at the start?
Yes, we started with the hardest market in Britain, financials, which has been done to death. But it was the first product available on the Connected Intelligence platform, so we took that to Britain, which is a very, very tough market, and we've done well.
The next set of products we take there, such as our student management and business intelligence products, will be strong differentiators. It's only a small office at the moment, about 10 people, but it will be growing. I expect it to be pretty much doubling every 12 months.
What are your plans for the US?
The US is a very exciting market for us and we see higher education being a very big market for us, so that will probably be the lead product. There are a lot of universities there. Then, later on local, state and federal government.
We'll open our first office in the US in 18 months to two years.
What about China and India?
We are not overly keen about either China or India. We've looked at both very carefully. The problem we have with both is that the currency works against you, they don't value software over there and there's not a lot of intellectual property protection. There's a lot of hype that has gone with those markets but they are really, really tough markets.
What are your thoughts about on-demand software?
For isolated cases it's a good model, but is it right for everyone? I don't think so. For enterprise applications at the end, people will still want to run them in-house.
Your revenue last financial year was about $78 million. When do you think you'll break the $100 million barrier?
We'll do $100 million this financial year and we expect to grow pretty comfortably at about 20 per cent to 25 per cent per annum for the next five years.
