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How Bob Beauchamp led BMC Software out of a financial nosedive and into a new market
Turnarounds

Rewriting the code

How Bob Beauchamp led BMC Software out of a financial nosedive and into a new market

By Erik Cassano

Smart Business Houston | December 2006

Page 1 of 1

It was a message employees and customers might not have wanted to hear, but Bob Beauchamp knew it needed to be said: “Prepare for a storm, and watertighten the ship.”

It was 2002, and BMC Software Inc., a beneficiary of the technology boom of the 1990s, was foundering.

After 32 percent growth from 1999 to 2000, market shifts caused Houston-based BMC, and many other companies that provided technology solutions for corporate customers, to start to bleed money at an alarming rate.

BMC’s revenue started to decline in late 2000, and the backslide continued into 2001. “Our revenue declined 12 percent from 2000 to 2001, and 15 percent from 2001 to 2002,” says Beauchamp, BMC’s president and CEO since 2001. “Any time you’re in a large company that is going through a dramatic revenue decline, it’s almost a life-and-death situation. Statistics would show you that most companies don’t recover from that kind of revenue decline.”

The mainframe utilities and Unix tools markets that BMC had built its foundation on were turning from concrete to quicksand right before Beauchamp’s eyes. Something needed to be done, and fast.

Beauchamp sat down with his senior management and mapped out a plan that would not only save BMC from financial distress, it would identify an entirely new market in the technology solutions industry.

Trimming the fat
Beauchamp says the first order of business was the most basic: BMC had to maintain profitability. It was a tall task considering that the company’s revenue had slipped from $1.7 billion to $1.2 billion in two years.

Maintaining profitability meant, first of all, that BMC’s leaders had to identify what aspects of the business were nonessential and begin pruning them away. “We had to cast a critical eye on the noncore things we were doing, cut expenses and really, really tighten our cost structure,” Beauchamp says.

BMC’s leaders looked across the board and products, programs, people and geography. “We just had too much investment in everything, which is natural during a period of growth,” he says. “Every function of the company, we just had too many people.”

When BMC declined to $1.2 billion in revenue, it had about four times as many employees as when it first achieved $1.2 billion.

The company cut employees by eliminating services and exiting geographies. BMC left the storage management space and pulled out of countries such as Turkey. If a product or geographical connection was losing money or was not received well by customers, it was dropped.

The pruning of the unprofitable portions of BMC stabilized the company.

The next step was to start building in a smarter direction.

Identifying the space
The space in which BMC could operate in was wide open, but Beauchamp says the best course of action is to stick to what you know you can excel at. “We decided we are not going to go off into video games, home PC software and other things we really didn’t know anything about,” he says. “We decided we were going to stay true to the large enterprise customers we already supported.”

The key, he says, was to find a new market within large enterprise software that hadn’t already been exploited.

BMC’s leaders began a research effort that looked at the IT industry inside and out, not only who the industry was serving but how it was serving itself.

Beauchamp says a pattern started to develop. Across other industries, technology firms had developed software to manage, integrate and simplify day-to-day operations for a wide spectrum of businesses. “Companies like SAP and Oracle brought to the table well-defined processes, user interfaces, and most importantly, data integration,” he says. “The application space had gone from thousands of homegrown applications to standardizing on a tightly integrated suite.”

However, what technology firms had provided for other industries, it hadn’t provided for itself. “IT had put shoes on all the other children, but not on its own children,” he says. “The story of the cobbler’s children is a perfect metaphor. IT was still running with tens of thousands of home-grown applications.”

BMC had found a new market. Instead of being forced from its space by shrinking revenue, the company started to create a new demand curve for the space it was already in by providing technology solutions for customers in the technology industry itself. “First, you have to decide where you are going to play,” Beauchamp says. “Then you look at the change factors, what are the points that really drive customer angst. What is costing them money, revenue, expense, embarrassment, pain and brand image problems?”

From there, a company needs to look deeper to the causes of those problems, a major ingredient in deciding how to sell a solution to those customers. BMC hired consultants to help paint a picture of its customers’ revenue growth, market share opportunities and the overall competitive landscape of the industry. “We saw certain markets as being red hot, high-growth markets,” he says. “Within there, then you look for individual products you believe will drive revenue growth. We get very specific on what the customer’s pain points are and how to solve them.”

Winning over employees
Beauchamp says a vision for change is just that: a vision. The only way it can become reality is if the entire company buys in.

At BMC, the process started with an all-company meeting in June 2002. Still in the planning stages, all Beauchamp could tell his employees was that a change was coming. But it was an important initial step in getting everyone to buy in. “We had to change the company, one time, hard, which was to get everybody on board with a new business strategy and new service management,” he says. “It was a multiyear process.”

In that first meeting, Beauchamp told BMC’s employees that a major shift was coming. He didn’t get into details because the concept of BMC’s new market wasn’t at a point where it could be sold to employees.

After a year of work by company leaders, the plan was ready to be unveiled. “We came back and said, ‘Here it is. We’ve done acquisitions, we’ve begun to build them, but don’t stop doing what you’re doing. Just start learning the story,’” he says.

Beauchamp says a year after that, BMC started training its sales force to sell technology solutions to technology companies, producing the first real results of BMC’s rebound.

Getting those first customer wins is crucial because without them, a company cannot totally win over its employees. It’s something Beauchamp says comes with the territory of change. “A certain percentage of employees, when you say something, will say, ‘I believe you, let’s do it,’” he says. “A certain percentage will say, ‘I don’t believe you.’ Then in the middle is a big group that says, ‘I’ll wait and see.’”

No matter how much success a company generates, there will inevitably be employees it cannot keep moving forward. “There will be people that not only don’t believe in what you are doing, they don’t want it to be successful,” Beauchamp says. “They want to prove the old way was the right way. Sometimes, you just have to let them go, but fortunately, that’s not a large number of people.”

For the fence-sitters, results are what matter. The company’s employees must see that what they are working toward is having a positive effect. At BMC, the moment of truth came when sales-people started reporting back from the field. “Once our salespeople stood up and said (the customers) needed this, wanted this and liked this, and that they’re successfully installing it and using it, that they’re endorsing it, the opinions change very rapidly,” he says. “At that point, the skepticism leaves the room.”

The need to have every employee buy in to an idea is not an immediate one. When a major change is conceived, those closest to the top of a company are the ones who need to be on the same page. Lower-rung employees need to be instilled with a sense of trust that the company leaders will do right by them, so that when the time comes for them to jump aboard, more will be willing to do so. “At first, all I needed was the employees to know that we have a plan and hang on,” he says. “I needed them to have faith while a smaller group deployed those early customer wins.”

Balancing old and new
Things at BMC have settled down, and its financials are improving. The company posted revenue of $1.49 billion and net earnings of $102 million in fiscal 2006, compared to revenue of $1.28 billion and a net loss of $184 million in fiscal 2002.

Beauchamp says companies undergoing a full-scale change routinely commit one critical error. “A lot of times, those companies look at what they were doing as all bad, kind of the inertia of the old culture and the inertia of the old business is bad,” he says. “It’s not bad. It’s simply a remnant of what was once very good.”

While undergoing its shift to a new market, BMC did not totally abandon all of its former practices or products. Beauchamp divided the company into two broad areas, named “red” and “green.” Red was the area that dealt with the old practices and products BMC kept on board. Green was responsible for the new market and products.

Good idea, bad color selection. Beauchamp says employees working in the red area felt like they were stationed in a less-critical area of the company, stamping out the same old products, while those in the green area worked on the cutting edge. “They viewed red as a negative color,” he says. “It meant stop, it meant a warning. Green was all up and positive.”

Employees asked Beauchamp to come up with a new name for the red area. Company leaders settled on “gold.” “I asked our employees, ‘If we were in the gold business, which is more important: Gold coming from existing mines, or striking new gold?’” he says. “The answer is that one is not more important than the other. You need the existing mines to pay the bills, but you’d also better be prospecting for new mines.”

In fact, the gold area forms BMC’s backbone. Those working on new products occupy the company’s fringes as part of a system that allows BMC to test new products without putting the company at risk.

The company’s leaders fashioned a system that allows the research and development wing to develop and test new products and services without concern for how it will fit in to the big picture. The new product is kept separate from the larger structure of the company as its own project.

Once an idea has passed the R&D phase, BMC’s sales force takes the product to customers to see how it will be received. If it starts to catch on with customers, then it is rolled out to the larger organization.

Starting each new product as a separate R&D project allows the umbrella organization to remain stable while change is happening in small increments underneath. “We built small organizations designed to move very quickly, then build systems to on-ramp those onto the larger organization,” he says. “Larger organizations are not designed to move as rapidly. You can’t change them quickly without a lot of risk.”

http://www.sbnonline.com/National/Article.aspx?Category=96&CID=10286

BMC: Gartner's 2008 IT service desk Magic Quadrant focuses on enterprise-class vendors that met Gartner's criteria, as defined below, that includes the vendor's ability, demonstrated through customer references, to address the needs of customers seeking to provide functionality for incident, problem, change, knowledge, self-service and service-level agreement (SLA) management. Additional analysis for the 2008 Magic Quadrant has been placed on change management features, functionality and integration, because Gartner is finding that 60% to 80% of organizations are choosing change management and the service desk from the same vendor.

IT organizations adopting a holistic approach to IT service and support tend to acquire the vendors' suites of IT service management (ITSM) modules. These suites can help clients aggregate data among modules, which leads to better decision making regarding end-user downtime, whether due to application failure or end-user-based issues, the cost and quality of IT service and support, and the business's overall satisfaction with IT. Tool selection is influenced by ease of deployment, integration with other ITSM modules, in particular change management and configuration management database (CDMB), pricing, as well as core functionality around incident and problem management, self-service, reporting, dashboards and workflow. The vendor's ability to deliver feature enhancements and additional ITSM modules has been evolutionary, not revolutionary.

http://mediaproducts.gartner.com/reprints/bmc/article21/article21.html

Source: Gartner (October 2008)

Market Overview

IT service desk tools continue to be the focal point of an IT organization's strategy to deliver service and support. The increasing complexity of the IT environment, the pressure to reduce costs and the drive to align IT resources with business priorities continue to fuel the IT organization to improve the people, processes and technologies of the service desk. Vendors' products have been slowly evolving from the early 1990s, with basic incident ticket management functionality, to today's integrated suite. Typically named ITSM, this suite comprises modules covering incident, problem, asset, configuration/inventory repository, change, knowledge, self-service and SLA management functionalities. The IT service desk portion of a suite tends to include incident, problem and self-service modules, and is the base-priced offering. Moreover, the Information Technology Infrastructure Library (ITIL) continues to influence the functional additions of future suite modules, such as service request management, service catalog and release management modules.

Today's IT service desk market has three fundamental characteristics:

Maturity: The IT help desk has been in existence since the 1980s, and several vendors ranked in this Magic Quadrant have had service desk products for more than a decade.
Saturation: Most IT organizations have a service desk tool in production; as a result, few "greenfield" opportunities are left for vendors.
Competition: Gartner covers more than 20 different vendors and service desk products installed in enterprises worldwide. Two vendors, IBM and Service-now.com, met our strict inclusion criteria for 2008 and are newly ranked in this Magic Quadrant. In 2006, Microsoft announced that it would enter this market, but this has been delayed, and its product is now scheduled for official release in 2010.
Even with the service desk market's maturity, saturation and competitiveness, Gartner estimates that the market was nearly $1 billion in 2007 and grew at a 14% rate annually. We find that the average IT organization replaces its service desk tool approximately every five years. This replacement cycle has endured for more than a decade due to various factors, such as elongated and incomplete implementation, customization (which, over time, prevents migration to new versions) and ITIL-based process refinement initiatives. Regrettably, at least one-third of tool implementations suffer from poor project and key performance indicator management. However, process maturity has become a powerful force toward influencing the degree of success regarding implementations. Market growth is also fueled by growth of modules and seats (named and concurrent). All these market dynamics continue to spur vendor investments in meeting evolving customer requirements. However, larger ITSM suite deals have significantly increased the dollar amount of new deals for vendors and have lengthened the sales cycle.

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Current Customer and Vendor Trends in the IT Service Desk Market
With the ongoing emphasis on increasing the effectiveness and efficiency of IT service and support, IT organizations are demanding more from their service desk tools. The following are the major customer trends we are seeing and how vendors are responding:

Breadth of the integrated ITSM suite: There is an industry desire to have better management data to aid in IT service support analysis. Influenced by process methodologies such as ITIL, IT service and support organizations have acceded that they can derive greater value when the data and processes from these modules are integrated. Based on this, vendors have expanded beyond the service desk module (including incident, problem and knowledge management) by adding change, configuration/inventory repository (most often identified as a CMDB), service-level, request and release management modules. These modules and other features are bundled into a suite offering typically called ITSM. This level of management knowledge is needed to drive continuous IT service support quality and efficiency improvement. Data from these integrated modules should offer insights, such as root cause analysis, enable trend analysis and influence future IT investments. The "promised" value in data and process integration between service desk and various ITSM modules fuels the trend for IT organizations to buy suites of modules from one vendor, because integrating best-of-breed tools from separate vendors can be time-consuming and costly. Key evidence of this is the growing desire to integrate incident, problem and change processes, which leads IT organizations to purchase the IT change management (ITCM) module with the IT service desk tool. Gartner inquiries with clients also show a sharp increase in the role of CMDBs in the selection criteria for IT service desk tools. Clients are also interested in tight integration of their service desk tools with other ITSM functionality, such as PC configuration management, and service catalog and inventory/asset management. However, IT organizations should not assume that just because the modules all come from one vendor, the integration is already done, easy and preconfigured.
The ITSM suite will continue to expand as long as other ITSM vendors see the value of adding ITSM to their overall portfolios. During the past 18 months, vendors have responded to clients' demands for a large and more-integrated ITSM tool suite by building or acquiring additional modules, such as for service catalogs and service requests. Vendors also had tied their IT asset management modules to their ITSM suites. BMC Software recently acquired ITM Software to integrate financial management capabilities focused on IT service portfolio and service catalog. Several vendors have begun to add the release management module, integrated with change management, to improve change governance. Using an acquisition to expand a vendor's ITSM portfolio is also common: EMC acquired Infra, and Avocent LANDesk acquired Touchpaper to extend its operation management capabilities.
Ease of deployment: A positive trend in the service desk market is the vendor focus on ease of deployment. At the beginning of 2000, IT service desk tools had the well-founded reputation for being difficult to deploy and for requiring a lot of customization. The high degree of customization required to deploy a service desk tool stifled enhancements and upgrades, curbed flexibility and added to the already high total cost of ownership. A trend for IT organizations, so as to remain more flexible and have a quicker return on investment, is to perform little to no customization, run more "out of the box" and rely more on best-practice workflows and templates, rather than create their own. Vendors have recognized this trend and have invested in easier drag-and-drop configurations of workflows, fields, graphical user interfaces and additional prebuilt templates and workflows. Gartner clients report that the vendors' focus on configuration versus customization and prebuilt workflows and templates has improved the ease and time of implementation. We expect vendors to continue investing in this area to show value to their customers and to gain a competitive advantage. Some vendors have even started to guarantee a service desk implementation in a specific period of time.
The interest in software-as-a-service (SaaS) service desk solutions can be linked to deployment concerns in the industry. Ease of deployment is a main reason why some service desk customers and prospects consider SaaS solutions. SaaS service desk products are delivered on-demand using the Internet as the platform, which can noticeably reduce the time and resources required for implementation. Additionally, this type of solution can accelerate new version upgrades. The inability to upgrade in a timely manner is a contributing factor in service desk replacements.
Best-practice process management: Often, service desk tools are scrutinized and replaced when an IT organization undergoes a major process improvement initiative. Therefore, vendors try to convince IT service desk customers that their tools are more aligned with the ITIL than those of their competitors, and that the tools are better-suited to help develop best-in-class process management. The vendors tout their depth of knowledge of ITIL, their best practice resources acquired from ITIL "master" specialty resources and how their prebuilt templates and workflows are closely aligned with industry best practices. BMC Software, CA and HP recently invested heavily in best-practice templates and guidebooks. IT organizations that are just starting process improvement initiatives, or that have a maturity assessment of less than a committed Level 3 (see "Introducing the Gartner IT Infrastructure and Operations Maturity Model"), will find this content helpful, but more-process-mature IT organizations will find little value in them.
Any help clients can get from vendors to marry their tools and processes is welcome, but vendors are having increasing difficulties differentiating their offerings from those of their competitors, which tout the same message and expertise. With little perceived competitive value for a free service, vendors will likely curtail investments in this area.
Simplified and flexible pricing: A piece of good news for all service desk customers is that vendor pricing has become simpler and more flexible. Service desk tools have historically had complex pricing, with separate licenses required for incident, problem and change management. In addition, developers may have needed separate licenses, and many application and integration licenses often were needed as well. The result was that customers found themselves with too many of one type of license and not enough of another, frequently facing high maintenance fees. Several years ago, a few vendors began offering simplified pricing, with fewer product numbers and, more importantly, one license per analyst for incident, problem and change management. In addition, vendors are beginning to charge per seat for end users for service request integration with the self-service portal. The other vendors have had to follow suit and are offering simplified pricing, although vendors still need to make more progress in this area, according to Gartner clients.
The advent of the SaaS licensing model has been the largest innovation in the service desk market in recent years. SaaS has opened up pricing flexibility that did not exist a few years ago. Now, IT service desk tools can be bought on a month-to-month subscription basis, which creates opportunities for IT organizations with constrained capital budgets, limited staff to administer the tool, evolving service desk strategy or a preference for the SaaS license model. Gartner has seen a sharp increase in the number of IT organizations requesting service desk tools that are sold as SaaS, and we expect this trend to increase sharply during the next several years. Service-now.com has benefited significantly from the trend, because it was the only SaaS service desk provider for a period of time. HP recently began offering SaaS for IT service desks, and we predict that most vendors will offer this pricing model during the next two years.

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Little Innovation in Core Service Desk Features and Functionality
The vendor focus on adding modules to a wider ITSM suite footprint has established a common pattern of incremental enhancements, which results in more-modest enhancements, instead of driving real innovation in the core service desk module. From a vendor perspective, development resources become stretched across a horizontal expansion of new modules, and vendors face integration challenges with integration when acquiring new capabilities. Vendors seem content with modest enhancements to the service desk product and are playing catch-up with each other, rather than trying to drive real innovation. Innovation can be a double-edged sword. Customers may clamor for innovation; however, they find "innovative" new releases costly and lack the budget/plan to execute quickly. Gartner clients tell us that, when they undertake a detailed comparison of the features and functionality around incident and problem management, the vendor's offerings are 90% to 95% the same.

The similarity in service desk tools has made it difficult for vendors to differentiate themselves in this market, and many vendors have identical marketing and sales messages. The lack of considerable competitive differentiation among vendors ensures that overall market share will continue to be fragmented, with every vendor replacing and being replaced by competitors. A SaaS solution may not be real innovation, from a feature and functionality perspective; however, the SaaS model offers innovative ways for companies to buy, implement and update a service desk solution. In many cases, this will translate into lower ownership costs and will improve the potential return on investment.

Is There Really an Area of Marked Differentiation or Innovation?
Fundamentally, differences tend to be at the administrative and technical layer, or in the depth of a specific function. The ability to differentiate within the administrative and technical layer materializes in the ease of policy configuration, drag-and-drop manipulation of established workflows, implementation time and the ability to integrate among process modules. Another discernible area of differentiation is associated with how configuration/inventory knowledge is leveraged in the change module. The greater the knowledge, the stronger the functionality in automation and reporting associated with change assessment and scheduling.

Areas of Improvement
Although the service desk market is mature, and vendors have had years to continually improve their products, there are still several glaring improvements that vendors should be working to address to help differentiate their products from those of their competition:

Self-service and request management: Although the benefits and return-on-investment potential for self-service in IT service and support are well-known, most IT organizations struggle to provide meaningful self-service sites to end users. A lack of best practices, transparent workflows, metrics and reporting has made implementing a self-service site challenging for IT organizations. A recent trend is that vendors are putting cosmetic enhancements on their self-service portals and are trying to call them full-fledged service catalog offerings, without the necessary service templates, workflows, integrations, metrics and SLA reporting. This is leading to confusion in the market regarding the difference between self-service, request management and service catalog offerings; thus, IT service desk customers will need to look behind the marketing hype.
Knowledge management: As with self-service, the benefits of knowledge management for reducing downtime and decreasing costs are well-known, but only a small percentage of IT organizations successfully use the knowledge management capabilities of their service desk tools. IT organizations know the value of knowledge management but often lack the metrics, reporting and best practices necessary to justify the investment in people and processes needed for a successful implementation. Many IT service desk vendors bundle a mediocre keyword search knowledge management tool with the service desk tool and offer a more robust knowledge management module or similar partner offering for an additional cost. This adds to the workload of the service desk manager, who must justify why the "free" knowledge management tool isn't good enough.
Reporting: Service desk reporting functionality continues to receive low scores from users. Most IT organizations report that they have given up on the reporting that comes with the tool and must purchase a best-of-breed database reporting tool, such as Crystal Reports. IT organizations are frustrated with the inability to pull real-time reports and say that they spend too much time creating customized reports for management. Most templated reports are centered on basic tracking of a few data fields by record within a given module. Vendor vision on integrated reporting seems to rest on next-generation, service-level management products that are priced separately. We find that insufficient reporting capability is a main reason why IT organizations replace their service desk tools every five years.
Small or midsize businesses (SMBs) have a more modest number of end users and typically require less functionality depth and only a few, core ITSM modules. In most cases, SMBs focus on implementing only incident management, holding off on problem management. SMBs also may want to implement basic change management procedures, reducing the depth of risk and impact requirements, which translates into less configuration integration. SMBs will find that many competent vendors not included in this Magic Quadrant may have solid products, lower pricing and financial viability that is well-suited for their needs (see Note 1).

Market Definition/Description
The IT service desk market consists of vendors that offer tools to improve IT incident, problem and change management, in alignment with additional ITSM modules, such as asset, configuration/inventory repository, knowledge, self-service and SLA management. IT service desk tools document, review, escalate, analyze, close and report incidents and problem records. Information captured within the numerous data fields in a record now becomes a management source for analysis and reporting. Foundational functionalities include classification, categorization, business rules, workflow and search engines. These tools manage the life cycles of incidents and problem records, from recording to closing. IT service desk tools automate the process of identifying the individual or group responsible for resolution, suggesting possible resolution scenarios and escalation, if necessary, until the service-and-support request is resolved. Typical IT service desk suites extend incident and problem management to Web self-service, basic SLAs, end-user satisfaction survey functionality and request management. ITSM suites also offer integration with event, inventory discovery, knowledge and PC life cycle management modules. Furthermore, the IT service desk is considered an important function in ITIL v.2 and v.3 best-practice process frameworks.

As highlighted, most ITCM tools are modules offered within IT service desk suites and provide integration with incident and problem management. ITCM tools offer functionality that governs documentation, review, approval, coordination, scheduling, monitoring and reporting of requests for change (RFCs). The basic functional requirements begin in case documentation, with industry-standard assignment capabilities of classification and categorization (such as risk and priority). The tool must include a solid workflow engine to manage embedded workflows (such as standard RFC life cycles) and provide escalation and notification capability that can be executed manually or be automated via business rules. RFC workflows are presented graphically and can manage assessment and segmented approval with the ability to adjust automatically, based on alterations and multitask change records. To assist with managing the large volume of RFC activity, ITCM tools enable workload assignment, scheduling and calendar functionality, as well as the reporting analysis of SLAs and production metrics. Critical integrations with configuration, release and CMDB technologies are required for change management tool success. For example, the categorization of a configuration item within the case log in the ITCM tools will improve risk, impact and collision assessment capabilities via integration with a CMDB. Integration with release management tools provides improved quality and efficiency when ITCM workflow policy automates RFC hand-offs to release. Other critical integrations include configuration audit tools and governance, risk and compliance tools.

Inclusion and Exclusion Criteria
Our criteria for inclusion in this Magic Quadrant are:

Vendors must have an IT service desk offering to support enterprise environments of more than 5,000 employees, as demonstrated by customer references.
The product (see Note 2) must include modules for incident management, problem management, change management, inventory management, self-service, knowledge management and SLA management. Vendors' customer references must have incident management, change management and at least two of the other modules in production.
Vendors must generate client interest and inquiries sufficient enough to be noticed by Gartner analysts. Analysts must also receive feedback from enterprise clients indicating that they are using the products.

Added
IBM and Service-now.com were added.

Dropped
Oracle's PeopleSoft HelpDesk was dropped.

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