CA opens a new chapter — again

Computer Associates International Inc.’s (CA’s) user conference next week in Las Vegas will give Chief Executive Officer (CEO) John Swainson, on the job for 10 months, his first opportunity to broadly discuss with customers his plans for reviving growth and innovation at a company buffeted by an accounting scandal and the legacy of its past scorched-earth policies.

CA’s last CA World user show, held 18 months ago, came as the company was in the thick of sorting out the problems caused by a widespread accounting fraud. CA’s now infamous “35-day month” practice let it prematurely book $2.2 billion in revenue over a period of several years.

At CA World 2004, the company had just released the results of its internal investigation and restated several years’ of financial results, but it had not yet reached a settlement deal with the U.S. Department of Justice to avoid criminal charges against the company. Controversial leader Sanjay Kumar had turned in his CEO title but remained with the company in a nebulous new role, frustrating those who called for CA to make a clean break with its past management. Interim CEO Ken Cron, on the job for less than a month, used his keynote address at the show to speak of a “new chapter” for the company, but CA was still visibly struggling to deal with the fallout from its last chapter.

As it heads into next week’s show in Las Vegas, CA is once again looking to turn the page. The company’s most urgent problems are finally behind it. Kumar left CA and was subsequently indicted for his role in the fraud there; the case is slowly progressing toward trial. (Kumar has pleaded not guilty.) In September 2004, CA agreed to pay $225 million in restitution for its fraud and struck an agreement with the government that will allow it to avoid prosecution if the company complies with an assortment of good-governance terms for at least 18 months.

CA is more than a year into the agreement, and so far, all appears to be going smoothly. Not long after finalizing the settlement deal, CA recruited former IBM Corp. executive Swainson to be its new leader. Swainson has spent the past year filling out his management team and reorganizing the company.

“I think CA has done pretty well weathering the storm. They’ve emerged with a new leadership and a new plan,” said analyst Ron Schmelzer of ZapThink LLC. He likens the company to another famed sinner: Martha Stewart, whose stint in prison softened her shark-like reputation.

Even before its accounting debacle, CA had a heavy load of bad karma to work off. It spent the 1990s snapping up smaller software companies, then alienating their customers with poor product support and brash sales tactics. The company became one of the industry’s largest vendors, but at the price of amassing a massively unhappy customer base.

“As a competitor for many years, I knew that was their Achilles heel,” Swainson said in a recent interview. “You could never beat [CA] on product, but sometimes you could get them to beat themselves.”

Rebuilding customer faith in CA has been a slow, painstaking process, Swainson acknowledged. “One of the frustrations is that sometimes you’ll go into customers and they’ll regale you with tales of atrocities. You’ll say ‘when did this happen?’ and they’ll say ‘oh, 1993 or ’94.’ There are such long memories to some of our clients.”

CA World will be one of the company’s most public steps toward rebuilding relationships. The show was one of the casualties of CA’s turbulence; the company initially cancelled its 2005 show, then reinstated it at Swainson’s urging. “I thought it was a mistake to leave it too long. We’re using it as a catalyst for a whole bunch of other events — PR, product campaigns, marketing launches,” he said.

But CA’s stumbles in planning its conference had a toll. The show that returns will be a smaller one — CA expects to draw about half of the 10,000 attendees that turned out for its last CA World.

IDC analyst Stephen Elliot said CA needs to demonstrate to customers that it’s ready to be an IT industry leader. “It’s critical CA do a good job of communicating,” he said. “This is first time for the new management team to address some of these issues in detail, to really look at the product lines and support practices.”

Elliot sees a pent-up market of customers that would do more business with CA if the company can sell them on its product direction and customer commitment. With revenue last year of $3.5 billion and a portfolio that includes hundreds of products, CA has a foot in the door of nearly every major business. It’s picked up even more customers this year through acquisitions, such as its $330 million buy-out earlier this year of network management technology maker Concord Communications Inc. Those acquired customers represent a fresh market that probably doesn’t know what CA has to offer, but will be willing to listen to the company’s pitch, Elliot said.

One of CA World’s centerpieces will be Unicenter 11, the first major overhaul in several years of CA’s flagship management software. Scheduled to ship this quarter, the software has received the most extensive customer testing of any product in CA’s history, executives said. Technical details on the software’s advances will be discussed at the show.

Swainson says he feels good about CA’s progress along what he sees as a three-to-four year effort to bring the company up to optimal performance.

“I hope we’ve moved a lot of people from a position of outright hostility to skepticism, perhaps neutral skepticism,” he said. “We have to demonstrate by virtue of what we do, not simply what we say, that we are worthy of being a business partner to our customers, and it’s going to take some time to do that. I’m delighted with the progress that we’re making. We’ve done contracts with customers in the last six months that had never done business with CA before — or that had said explicitly, in some cases, that they would never do business with CA again.”