Today is a busy and exciting day for Software AG. It’s Q4 and FY 2018 Earnings Day for us – and ordinarily that means a status update on our financial progress and our ambitions for the year ahead.
But even though today is only my second quarterly Earnings Day as Software AG CEO, today’s announcement has a different, bolder flavor. Sure, we’re still talking about our earnings and our outlook. But we’re also laying down a marker for our longer-term ambitions, our purpose as an organization, and a plan to pursue growth.
The first order of business today is, of course, our earnings – so let’s cover that. We have a solid performance to report for 2018. For the year we grew revenue and net income by 2% and 17% respectively: a solid performance, coupled with another excellent free cash flow generation, up 14% year-on-year.
We have such a strong platform as a company, and progress in some of our most exciting growth areas continues at pace. In IoT and cloud, we grew revenues by 106% year-on-year.
But while we know our platform is strong, and clearly the markets we’re pointing at are full of growth potential, we also know that we need to “step up.”
With all of the market-leading products we have and all of the growth markets we serve, we have the right to grow faster.
If I look to other great software companies winning today, they all have the same mix of awesome products, financial firepower and rich culture that we do. And so we’ve asked ourselves – over 2,500 employees – and asked our customers – more than 100 – how we can better harness these strengths and evolve how we use them to drive our company forward.
Today, as we enter our fiftieth year as a company, we’re feeling bold enough to offer the answer. That answer is Helix: Our multi-year pathway to sustainable, profitable growth. And from here on in, everything we do starts with the customer.
We have a tremendous opportunity before us. Integration, our core strength, is a huge challenge for organizations everywhere and it is only getting bigger because of IoT, API, B2B integration and mobile. Where in the past it was a technical problem, today integration is an opportunity for businesses to differentiate through agility, efficiency and innovation.
It also needs to happen fast. Capturing business events as they happen and turning business data into information and acting on that data. That is real-time business situational understanding. Digital business provides you with that ability. It gives you the chance to access and integrate data in a range of systems and locations, break it free from siloes and democratize it.
It is an opportunity that is large, no matter how you cut it. Hybrid integration, according to Gartner, is expected to grow from $12bn in 2017 to $18bn in 2022. Take all of the growth opportunities our technology touches, and that represents a Total Addressable Market of €24bn to 2023.
To be successful in making the most of this opportunity, we will re-purpose how we think, act and organize to start always with the customer, and we’ll use three levers to pivot our organization for success:
The first is all about sharpening our focus.
On product, we’ll add clarity for ourselves and our customers by re-configuring the Digital Business Platform (DBP) into three new go-to-market identities: Integration and APIs, IoT & Analytics, and Business Transformation, itself comprised of our ARIS and Alfabet businesses.
We’ll optimize, modernize and transform A&N to make sure customers can still support their mission-critical applications in the future.
We’ll also reallocate R&D spending to the areas with the greatest potential, and make selective acquisitions in areas where we can really supercharge our growth.
On markets, we’ll define the geographies in which we are best positioned to drive growth, prioritizing investment in those markets that are growing fastest and where we have ability to materially increase our share. These include North America, Germany, UK, France and key parts of Asia Pacific.
The second lever is perhaps the most vital – and it’s all about execution.
First, we’re going to implement a new operating model to break down functional siloes and create end-to-end accountability for geographic and product sales. This will give us all greater clarity on what we’re supposed to be doing and for whom, driving productivity as a result.
We’ll sharpen our go-to-market by giving our sales teams clearer direction, focusing on the capabilities we have and the issues we solve rather than the products we sell.
We’ll create a customer success function to help customers meet their goals – improving retention, delivering references and enabling cross- and up-sell.
Our Global Consulting Services team will also evolve into a new Professional Services organization, supporting transformation license projects and empowering our all-important partners to succeed.
And finally, we’ll accelerate our shift to selling subscriptions. This is a major shift. Something that is customer driven; and something we absolutely must do if we want to address one of the major trends within our industry.
Our customers want this. They have wanted it for some time. And we can benefit from being bold and making it happen for them.
And our final and all-important lever is what we’re calling “team.”
We’ve already assembled a diverse leadership team committed to executing Helix, combining deep sector and product expertise to ensure we stay on the right path throughout the process. I’m delighted that Bernd Gross as Chief Technology Officer (CTO), Paz Macdonald as Chief Marketing Officer (CMO) and John Schweitzer as Chief Customer Officer (CCO) have joined us. I’m also delighted that Stefan Sigg has agreed to become our Chief Product Officer (CPO).
Alongside Arnd Zinnhardt, who has an unparalleled knowledge of this company and deep financial expertise, the leadership team we have is well-equipped to make Helix a success. We are rewiring the company for growth.
For people, we’ll roll out a new employee proposition to ensure that we retain our best talent; attract the best talent from outside the organization; and create a performance framework that equips and rewards you in a way that’s aligned with the growth plan ahead.
And we’ll invest substantially in a comprehensive new partner program designed to ignite our indirect channel.
Through Helix, we aim to return Software AG to sustainable, profitable growth. To do so, we’ll make the most of the considerable strengths we have, empower our people, reduce complexity and add clarity to our business, and make it easier for customers to interact with us and engage with our products.
For me, today has been a long time coming – the culmination of a number of months learning about this business and working with the teams to prepare for the next phase in our journey.
I can’t wait to get started, and look forward to sharing the many successes I know are still to come with you on this channel in the future.