SA not a Software AG focus geography
German business software firm Software AG wants to grow in a few specific geographies globally, but South Africa is not one of them.
This is according to Software AG's new CEO, Sanjay Brahmawar, speaking to a small group of journalists at a press event at the company's headquarters in Darmstadt, Germany.
"South Africa is definitely an important market but I'm differentiating between the markets where we are going to put extra attention versus the markets where we continue to maintain our attention.
"South Africa is a market where we already put a significant amount of attention because we wanted to tap in and build our relationship back up," he said when asked by ITWeb why SA was not a focus area.
He said SA has a large customer base for the company and it has "brilliant relationships with SITA and you name it, most of the big customers are customers of ours".
Software AG has worked with SA's State IT Agency (SITA) for 25 years and National Treasury for around 30 years.
Brahmawar said growth is key and Software AG needs to make changes after years of flat growth. The company is present in 70 countries and had revenue of EUR866 million in 2018.
"We are in the market of digital transformation and this market overall is growing, it has a healthy compound annual growth rate, but we have not grown for the last eight years, we have been pretty flat," he noted. "We have to get this company on a growth path."
"We definitely have lots of opportunity [in SA] but when you look at it in terms of the scale of the markets that really shift the needle for us, those are the markets where we are focusing."
The markets Brahmawar is targeting to "smartly invest" are North America, Germany, the UK, France, China and Japan because he believes "there is a tremendous amount of potential in those geographies to tap into".
"North America is 35% of our business but it's not a market where we are really well known."
New CEO, new strategy
Brahmawar has only been in the job for about seven months and in his first 100 days travelled around the world meeting his employees in various countries, including SA.
He met with around 2 500 of Software AG's 4 700 staff to gain insights into what needs to change at the company and what must be maintained to make sure it accelerates its growth.
Brahmawar is former MD of IBM Watson Internet of things (IOT) and took over as head of Software AG from long-time CEO Karl-Heinz Streibich in August 2018.
The new CEO is trying to revitalise the 50-year-old company and has a new vision and multi-year transformation strategy, named Helix.
"I decided I wanted to tap into the brain power of the workers. Helix was not an exercise that was done by a few people, it was an exercise done by 47 people chosen from across the organisation to represent the 4 700 employees.
"Helix is about addressing those issues that are holding us back. We have so much potential in the market, such great capabilities and such great people, so we have got to remove the thingsthat are holding us back, in order to accelerate, and that is what Helix is all about."
Software AG is investing EUR50 million (R805 million) in the Helix strategy. Brahmawar said between EUR20 million and EUR30 million will be "net new investment" which he said will come from the company cash flow, and EUR20 million (R320 million) will come from reallocation. This as the group shifts funding and research and development from "non-core product areas" to core product areas.
He would not specify what the "non-core products" are but said no customer would be abandoned by the company and it will also be honest about the areas it is not putting new investment.
"We need to put our investment into areas that are high growth".
In January, the Frankfurt Stock Exchange-listed company reported a 1% decline in fourth-quarter revenue and flat operating profit; however, its new cloud and IOT business did well over the past financial year, achieving 106% revenue growth to EUR30.3 million.
Besides the focus on growth geographies, Brahmawar said Software AG is also targeting "focused acquisitions".
Although Helix is focused on organic growth, he said with the company financially in a strong position, it would also look at focused mergers and acquisitions, which will help it to accelerate in the specific areas it sees growth potential.
Software AG recently announced a partnership with US tech giant Dell Technologies, which will rollout this year, in which the company will bundle Software AG's Cumulocity IOT Edge application with a selection of Dell's servers. This will provide a joint plug-and-play solution for IOT.
Brahmawar plans more focus on a comprehensive partner programme to tap into the partner ecosystem. "One of the areas that we are really not capitalising on is the ecosystem.
"If you think about software sales, now almost 70% of software sales are generated through the ecosystem but for us, our ecosystem is only contributing about 5% of our revenue.
"So it's very clear we have a channel to market and a partner ecosystem that we could capitalise on a lot more. This really is an opportunity for us to grow and we have a great set of partners that want to do more in this ecosystem."
In terms of SA, he said the partner programme is "absolutely" a big focus area.
"When I was there, Kholiwe [Makhohliso] was working on an intensive partner programme in terms of being able to tap into value-added resellers and tap into local system integrators and give them access to our technology and then create.
"I think with partners there are two things that are critical: one is relationships because nothing happens without building a really good relationship, and secondly, you have to make it worthwhile for the partner; they need to make lots of money out of it otherwise they are not interested."
The South African office of Software AG was opened in Johannesburg in 2004, and last year, the company appointed former Oracle SA boss Kholiwe Makhohliso as its new VP for sales and country leader for SA.