In 2013, venerable IT management vendor BMC Software went private, a move that CEO Bob Beauchamp says enabled the company to invest heavily in modernizing technology, fresh leadership and a new strategy aimed at helping customers advance their digital transformation initiatives. In this installment of the IDG CEO Interview Series, Beauchamp talked with Chief Content Officer John Gallant about how BMC’s Digital Enterprise Management plan can deliver ‘massive cost savings,’ make it easier for companies to get to the cloud and manage services that span the data center and cloud. He discussed the cloud-focused transformation of the BMC product line and how the company is helping customers capture opportunities around the Internet of Things as well.
Bob, we last spoke when BMC went private in September, 2013. Will you remind us why you did that? Also, what did that allow you to do that you couldn’t do as a publicly held company?
Those are two very different questions. Let me take the second question first. Since going private, the company has been able to invest an enormous amount of money in innovation and developing new technologies, new go-to-market capabilities and bringing on some world-class executives. In order to do that, we decreased our profit goals because our investors felt that with this new digital wave coming, those companies that have the right products, technology, go-to-market offerings and executives would be in a great position. They let me invest a lot of money in those areas.
As a public company you could do it, but the company back then was already under quite a bit of pressure from the public market that wanted profits to just go up forever. The private investors let me go the other way. They let me lower the profits, to spend literally hundreds of millions of dollars on new technology and new people.
I’m going to ask a number of questions about your new Digital Enterprise Management strategy but before we get into that, I want to dig in a bit more about what’s changed in the past two-plus years at BMC.
At the highest level our financial goals are different. We set out to invest so that we could accelerate the top line. Our goal has really been about top-line growth in the newest areas, the fastest growing areas of the IT market and less about generating profit every year. We’re still very profitable, by the way, but it was less about that. It’s all been about top line growth. In order to do that, we brought in a whole new set of executives. I brought in a new head of worldwide sales from Salesforce. I brought in a new chief human resources officer who had also been at Salesforce. We brought in executives who had worked at VMware, Mercury [Interactive], PTC. We’ve been able to bring in executives from some of the fastest growing companies out there. In our business units we have two general managers who were here at the time but the other three are all new executives that were brought to the company around that time, so a whole new executive slate all focused on growth.
Then the business model is different. Before we went private we were functional. We had one head of development, one head of sales. In order to be successful at innovation and growth, we set up five different business units with presidents across each. Their job was to be innovation centers to drive best-in-class products and the most competitive products in each of those areas. That’s succeeded. Every single one of those product lines has improved the top line markedly since then.
We also set up an overarching strategy that we believed would carry us into the next decade which, as you brought up, we coined Digital Enterprise Management. That strategy [centers on] managing the digital enterprise, that BMC was going to be the company that would manage all of that complexity so that customers could make this digital transformation. At a financial level, as I’ve said before, the company has been delivering significantly better top-line growth. We had year-to-date total company new bookings growth [in the] strong double digits.
Remedy, which had been in decline back when I last talked to you, had new bookings up double digits in the quarter -- strong double digits year to date through three quarters. Now that we’ve got the top line moving, our profit is also now improving. We’ve had several quarters of steady, improving EBITDA over the course of the last year. Financially we’re in better shape, technologically we’re in better shape, management-wise we brought in a whole team of high-growth innovators and we’ve launched a new strategy for the entire company.
I wanted to ask about one role in particular. It’s my understanding that you hired a chief customer officer. What’s been the result of that?
Yes, we created a position of chief customer officer and hired David Gai, who had been at BEA. He is focused on tracking the complete customer experience and customer satisfaction and customer value realization. We’ve had significant improvement in customer renewal rates across virtually every product line, which is very important to us. Customers are betting with their wallets that the products they bought from BMC previously are going to take them into the future. We’ve seen much higher customer loyalty through improved renewal rates across the entire portfolio. We’ve seen our customer satisfaction scores continuously improve, our NPS {Net Promoter Score} improve. We’ve seen the number of open customer trouble tickets go down and the time to remediate go down markedly. We’ve set up campaigns to drive down the amount of time it takes from when a customer calls in until we get their problems resolved.
This executive doesn’t get into whether the problem is sales’ fault, is it support’s fault, is it the product’s fault? He calls all of us together, the entire executive team, and says: ‘This is what that customer is experiencing. We need to make significant changes in order that no other customer has to suffer through what this customer did.’ The other executives trust that this person, who doesn’t have a dog in the fight, is articulating a clear view of what we could do better with all of our customers. That helps all of us.
Let’s get into managing the digital enterprise now. These questions are designed to go top-down from the strategy to the implementation of it. Provide a high-level overview of Digital Enterprise Management, which I believe you have described as the operating system of the company.
Digital Enterprise Management is our vision for the management of all the digital services that the company provides, the infrastructure underneath those services, the processes underneath those services and enforcing the policies that are in place so that you can provide digital services to your customer. Essentially, we allow you to request, provision, automate, tune and optimize services in a digital world. We provide a complete suite of products that integrate to give you the platform to manage all of the capabilities of the digital enterprise.
Specifically, you have brought to the table new products that are moving that strategy forward. We’ll also talk about how existing products have evolved, but what’s new that’s advancing this Digital Enterprise Management strategy?
I’ll talk about one of the core platforms. Remedy 9 has come out. Remedy originally was a trouble ticketing system that allowed you to enter a ticket and track it to resolution. We’ve transformed it into a complete service management platform. An employee, from their mobile device, can request a digital service, perhaps something as simple as a password reset, perhaps it’s something more complicated like they need access to one of the core applications, like SAP, for their entire team. They can use BMC’s MyIT solution to make the request and then Remedy 9 can process the workflow associated with it and pass that to our workload automation product that can execute all of the necessary steps in the right order to provision those systems.
We can actually provision the servers from bare metal all the way up. It’s providing self-service to the enterprise for employees and customers and we’ve done that with MyIT, we’ve done that with Remedy 9, we’ve done that with BMC’s TrueSight Intelligence, BMC TrueSight Pulse. We came out with, I think, 70 new product announcements last year and it will be well north of that this year.
You’ve got a lot of customers who have been using your products for a long time. Can you help them understand how you’re going to move them forward there, how you’re moving the exiting products forward?
In general, it is important that we, as a company, not talk as much about products anyway. What we’re really doing is helping customers to implement their vision, their strategy and it’s our job to listen to their requirements and then bring technologies to bear that can solve that problem, that can help them deliver that innovation that they want to deliver. For instance, in the case of Vodafone, their global CIO wants every employee to have the ability to request any digital service from their mobile device and so we bring MyIT to bear for that. When that request comes they want Remedy Workflow Management, the service management product, to manage all the workflow associated with that request and then they use the automation products from BMC to automate, provision and build the systems necessary to deliver that request and do it very, very quickly with great reliability.
We ask our customers to tell us: ‘What is your vision of innovation? What are you trying to accomplish?’ We’ll implement a system that allows you to deliver your digital services using these technologies. Customers are less interested in hearing about individual point products than they are about solving big, complex problems using technology. We bring a set of technologies that’s the best in class to solve those problems.
But the reality is that you have customers who have existing investments in BMC technology. What kinds of upgrades are they looking at? What’s the roadmap for a customer?
Let’s talk about the Remedy install base. A few years ago BMC had an on-prem solution with Remedy version 7.x and, frankly, the upgrades were somewhat complex. The customer had to have people on staff whose job it was to maintain, build and provision that system. Today we offer Remedy 9 as a service, a SaaS offering, and that complexity is gone from the product. The product has been rewritten in Java. We have zero-downtime updates. When customers are using BMC products today, they should be the easiest to use, easiest to update, fastest time to value of any product in the portfolio and we bring our install base along with that just by the fact they pay maintenance.
They don’t have to buy the new product to get this, they get that new capability. If they want our mobile client then yes, we have MyIT that we’ll offer to them. We have millions of customers now, millions of end users around the world that have bought that new technology. But the core platforms that they’ve bought, we’ve modernized all those and brought them up to the digital era and the customers get that just by staying on maintenance.
Bob, can you speak more about how cloud is transforming the product line?
Two different ways. The first is we assume all of our customers are going to be using both public and private clouds to augment their existing on-prem systems. All of our products are designed to manage services. Heterogeneity used to mean different operating systems and different databases. Today, heterogeneity - which is what we really manage, heterogeneous environments - assumes the customer has components of their application on {Amazon} AWS or Azure or the Oracle or SAP cloud, as well as in their data center. We manage those and the data center seamlessly.
The other thing we do is offer our own products as a cloud offering, as a service. TrueSight Pulse is SaaS-based monitoring for web-scale applications and infrastructure. You can have it up and running in minutes and you can deploy it against your legacy systems inside your own data center or you can deploy it against AWS or Azure applications and manage inside those environments in a matter of minutes. We’re writing our software to give customers a single product portfolio that can manage into private clouds, public clouds and legacy systems seamlessly.
What percentage of your revenue today comes from cloud-based offerings versus traditional packaged and licensed software?
We don’t break it out, but I’m going to try to tell you without giving you numbers. The difficulty in answering that question is that many of the world’s largest global outsourcers and systems integrators use our Remedy platform. They host it and offer it as a cloud service to their customers. To the customer, it’s a cloud service but to the outsourcer systems integrator, they’re running it on their cloud. The global outsourcers are very large, if not our largest customer set. They use it themselves. We have probably over 1,000 customers that are using our cloud-based IT service management products.
When you’re talking to customers, what do you tell them they’re going to gain if they follow the path you’re laying out? What percentage change in costs or streamlining?
First we’re going to give customers the ability to move very rapidly. We’re going to give them agility. They’re going to be able to move to the cloud, to move their legacy systems to cloud-based systems very rapidly. We’re helping them with migrations to take advantage of cloud-based technologies and we’re going to give them high reliability. We’re going to give them a system that can manage the service wherever it may be – components of that service they’re running on-prem, components that are running in the cloud. We’re going to give them a single system to manage across all those environments.
The other thing we’re going to give them is massive cost savings. My general rule of thumb is that if we’re not saving 30% a year of the way you were doing it before, we’re not doing our job. We have to be able to help customers cut by about a third the cost of the way they were doing it or improve the agility by a third. That’s a rule of thumb. That’s what we shoot for.
What work remains to be done to flesh out this Digital Enterprise Management strategy?
In each of our product areas we’ve done a really good job of modernizing the portfolio. You see that in our top-line growth and in our win rates. We’re winning consistently against the competition. A few years ago, companies like ServiceNow and others were taking share from us as we didn’t have yet full SaaS capabilities and cloud capabilities. Today we do and, as a result, our win rates are extraordinarily high. In the next year we’re going to be focused on the horizontals across the products, making the integrations between the portfolios better - things like a common data architecture, data planes, shared analytics engines, shared end-user experiences so that if you pick up any BMC product you know it’s a BMC product because they all interoperate in a more seamless fashion. Helping customers implement IoT is something I think you’ll see. We’re working on it with some very large customers. BMC wants to be a leader in that.
What’s been the most difficult part of making this change?
The most difficult part of all corporations is people. Change is hard and it’s one of the reasons why I’m glad we were able to bring in new people. It helps change some of the culture from being a slow-growth company with huge margins to being a high-growth company with good margins. In order to do that, we really had to focus on innovation and growth and going to where the new hot areas of the IT landscape are and investing heavily in those. We’ve had to make some tough decisions. We’ve had to invest in areas that we know are not going to be the most profitable areas for us because we have to grow in those areas. The first few years are going to be about growth and not about profit. It’s making those decisions, investing heavily and getting the entire team to row in the same direction.
How has this changed the competitive landscape?
It’s changed the conversation with the customer so that we’re not talking about individual point products as much. We’re talking about how those products work together. You mentioned ServiceNow. If you’re talking about a service desk, that’s one thing. But with Digital Enterprise Management we’re talking about a mobile client that can request services and it ties to the IT service management which then kicks off the automation that actually does the provisioning of the systems, then the monitoring tool to monitor the performance and availability of those systems and the tuning of those systems. It brings the power of the breadth of our portfolio together so when BMC goes to the customer, we’re not talking about just a service desk. We’re not just talking about a monitor or a service catalog. We’re talking about how those things come together and give the customer a platform for managing their massively complex digital enterprise – which every customer is now having to deal with.
We give them a platform to manage it and not death by a thousand products, which is what our competitors today have to deal with. You buy this bit from me and that bit from another company and that bit from another company and if you’ll buy these 30 products from 30 different companies you’ll have a great solution. BMC tells the customer: ‘We can give you a platform from one company that can do it better or as good as any one of those components and our goal is to be better than all of them’.
Bob, is this changing your partnership strategy as well? Does this open up the doors for different partnerships to get you in to customers?
Let me give you an example: Internet of Things is such a huge, complex topic that BMC, while we deliver great technology to do that, we need [companies] like Capgemini and Wipro and other partners to help us with designing and deploying these systems because there is a lot of process and business process reinvention involved and new business creation. We’re probably more attracted than we’ve ever been to those companies who advise clients on business process redesign. That’s an area that our products enable but that we need partners to help implement these global platforms.
One of the other areas that’s hot today is DevOps and I know that you have focused on this area. How are you helping customers realize that DevOps vision?
Maybe the hottest thing we’re doing right now is a slight variation of that. We call it SecOps, security operations, and it’s like DevOps but focusing on vulnerability management. As you know, the big hole in enterprises has to do with either Day Zero or, more often, known vulnerabilities in existing infrastructure. We all know about the retailer that got hit through their HVAC system. It doesn’t take more than a few hours to find that most enterprises have either back-dated versions of operating systems, databases or network software with known exploits. The bad guys can go in, take control of your systems and steal your data for months and months before they’re found. BMC has the capability now to discover your platform, how your systems are designed, what operating systems, what databases, what versions you’re running on, then through partnerships with people like Qualys, we’re able to tell you which one of your software or hardware components has known vulnerabilities.
The really important part is we then prioritize those. Do you want us to do it? If you say yes, our software can patch those solutions. I was with a bank in Germany recently that told me when Heartbleed came out, in the course of less than two days, they were able to use our security operations product to patch over 30,000 servers and close that out so they didn’t lose data. BMC is really the only company out there that can provide powerful patching, provisioning, prioritization and diagnostics of your vulnerability exposures.
Bob, what should customers expect from BMC in 2016?
They should expect some incredible innovation. You’re going to see even more new products coming out, each one focused on managing the cloud and helping the customers get to the cloud quickly. We’re going to change the experience that all digital workers have today by providing them a true digital workplace. Our technologies are going to be leading edge, innovative solutions to help them deploy their own digital strategies.
Is there anything important that I didn’t cover?
The only thing I might mention is our mainframe business. Today it is less than 25 percent of our business but even there we’re continuing to innovate. We’ve come out with multiple products [recently] on the mainframe and they’re growing incredibly fast – in fact, they are some of the fastest growing products we have. These new products we’ve come out with are helping customers cut their MLC [monthly license charge] prices dramatically. We just came out with a new suite of next-generation DB2 utilities. We’re continuing to invest in the mainframe, even though it’s not a high growth area for the industry. CA and others appear to be walking away from the market. We’ve been investing in it and it’s resulting in really solid growth. I don’t know a single bank today of size that isn’t still running mission-critical systems on mainframe. When we promise customers we can manage from the mainframe all the way through distributed into mobile, we can and we’re committed to it. Where others are picking little pieces of the enterprise, we give them a platform to manage all of it.