CA Starts Buying Again, Amid ReorganizationCA Starts Buying Again, Amid Reorganization

Computer Associates' new president and chief executive, John Swainson, kept a low profile over the winter months. But he began to put his stamp on the management-software company last week with a corporate restructuring and disclosure of plans to make a $350 million acquisition.

Swainson was hired in November to take over leadership of CA, which had been struggling to deal with legal and financial difficulties during the past few years. The plans he unveiled last week to set up a new structure make it clear that company managers will be held accountable both financially and ethically.

"It's a simple vision in some respects," Swainson says. "We're going to focus on customers and building relationships. ... We're going to focus on building the culture and making it a performance-based culture that values personal integrity, trustworthiness, and high ethics as its top priority."

Swainson has a long and difficult job ahead of him, analysts say. "It's too early to tell what all [he] will bring to the company, but the really difficult worries that have been on the minds of CA customers and prospects for the past two years have certainly calmed," says Debra Curtis, an analyst with Gartner. "It will take time to recover credibility. It's not something that happens based the creation of some new business units. It has to roll out over time."

Rebuilding trust with customers and shareholders will happen slowly, Swainson says. "There was a significant betrayal of trust," he says. "This is a multiyear process, and I certainly intend to manage it as such."

Federal investigations into illegal accounting practices forced the company to restate financial reports for fiscal years 2000 and 2001 and resulted in the firings or resignations of more than a dozen executives. One of Swainson's first orders of business appears to be creating a corporate structure where financial accountability will be visible down to the business-unit level.

The five units--enterprise-systems management, security management, storage management, business-service optimization, and a products group--all will have profit-and-loss responsibility. Individual financial metrics will be reported in quarterly earnings.

"It signals how we intend to run the business," Swainson says. "This company has traditionally run without a lot of facts at the investment level. This starts a change [in] the financial structure of the company."

CA hasn't been as severely damaged as many observers believe by the federal investigation, some analysts say, but the company must move forward to create a new culture. They note that CA has a reputation for making large acquisitions, cutting costs, and milking the customer base for a recurring revenue stream.

CA's plans to acquire Concord Communications Inc., which were disclosed two days after the restructuring announcement, don't appear to be a return to the old acquisition philosophy, Gartner's Curtis says. The proposed deal seems to be designed to fill a specific gap in the company's product portfolio. "It addresses a need that has been a bit of an Achilles' heel for them and has caused them to lose some deals," she says.

The acquisition of Concord, which provides network-management software used primarily by telecommunications companies and service providers, is expected to close by the end of summer. Most of the company's 640 employees are expected to remain with CA.

The company is on the road to recovery, Swainson says. "I don't think the damage was terminal, or obviously [I] wouldn't have ever come here," he says. "We've been preoccupied internally for a few years ... and now it's time for a return to the basics of business blocking and tackling."