Case Study
The remaking of a legend
Steve Joubert, one of the Big Four at beleaguered IT giant Dimension Data, is just 44 years old. In IT`s halcyon days of the mid-nineties, that would have been considered positively ancient. Not any more.Right now, Didata needs every wise head it can get. And Joubert will need to draw on wisdom and experience beyond his years to handle one of the most daunting assignments in South African corporate history: to put the razzle and dazzle back into the company that practically pioneered IT in the country.Joubert, Dimension Data`s executive committee member charged with strategy execution, heads up an ambitious restructuring and refocusing plan called “The DD Way” which, he says, will lead the good ship Didata back to the safer waters of sustainability after losing several masts in the almighty storm that was the implosion of the IT market.Whether the company can successfully remake itself remains to be seen. Like icebergs, the challenges facing Didata are numerous and forbidding – and most of the problems lie beneath the surface.Battered by angry investors and a sometimes spiteful media, Didata`s legendary brashness – bordering on arrogance, even – of the glory days has turned to bewilderment. The share price has gone south. Morale among the company`s 9 000-odd employees is said to be fragile. Asian subsidiary Datacraft and Dimension Data North America still prove to be problem areas for the group.But perhaps the biggest obstacle remains an operating environment which is decidedly IT unfriendly – very little infrastructure spend, not much in the way of new capital expenditure and replacement cycles which may only kick in next year. In short, the market is still extremely tough.To make things even tougher, the general consensus in the marketplace is that Joubert and his colleagues don`t have much time in which to turn the juggernaut around.No-one is more acutely aware of this than Joubert himself. “We have to do things differently and we are,” he admits candidly. “The days of R80 a share are over. We understand the new market dynamics and we`re addressing the new market fundamentals. Now it`s time to build a new business based on sound, old-fashioned business principles.”Slashing jobsThe company has certainly made a decisive start, trimming its South African operation from 26 businesses down to nine in less than four years. Top management has been radically restructured: although executive chairman Jeremy Ord still presides over the Dimension Data Holdings plc board, tribal elders like Peter Hird, Bruce “Doc” Watson and Rob Taylor have been deployed to take charge of key solutions areas and new investments.In fact, the executive committee has a decidedly new look to it, with an infusion of dynamic new blood – like chief operating officer Brett Dawson, global services head Denis Hocking and global sales and marketing head Adam Craker – aimed at introducing new energy and ideas.Needless to say, head count has been slashed too, from 12 000 to the current 9 500, with more cuts in the offing if conditions don`t improve in the near future. The obvious result has been the perception that The DD Way is just a sugar-coated job reduction programme, but Joubert insists that “sustained open communication” with employees means staff understand the business imperatives and the current tough market conditions, “even if they don`t necessary like them”.“The strength of The DD way is the way we have engaged the organisation,” says Didata`s investor relations manager Bronwyn Goeller, who must sometimes wish she`d stayed a news anchor on e.tv.“Obviously there are huge people issues around any change. We`ve seen a huge revitalisation and reawakening of Didata staff around a common vision, and staff surveys show high levels of positivity. But we are changing the way we do things to meet the needs of the new market, and many people may still be unsure of the role they have to play. However, we`ve already seen how morale has been positively impacted by bringing all South African employees under one roof at the new Campus.”The common vision to which Goeller alludes is the cornerstone on which The DD Way is built, and on which Didata`s makeover will stand or fall. In simple terms, it is a vision of building a global company which provides and manages application network solutions. The key words here are “global company”, as opposed to a holding company with various subsidiaries scattered across the world.The nuts and bolts of The DD Way are contained in a slick presentation with motto “One Step Beyond”, which talks of streamlined lines of business, restructured management to put the old hands on deck in more active roles, a radical overhaul of the way the company remunerates its staff, the need to create solutions groups which cut across traditional lines of business, and so on.Show the moneyBut while Didata insists The DD Way will fundamentally transform the company, and talks of taking tough decisions along the way, the response from the markets has been under-whelming, to say the least. It all makes perfect sense, say the analysts, but right now people aren`t buying promises and strategies. They want to see the money.In some ways, says Corpcapital`s David Shapiro, now is the right time for Didata to be having plastic surgery, with growth and profitability not exactly top of mind for technology markets. But the market is withholding judgment on the success of the new Didata for the time being, and Shapiro feels the delay could see the company slipping off the radar screens of some market gurus.“The danger is that Didata`s current market capitalisation of R4 billion puts it way down the ladder, at about 48th on the JSE,” says Shapiro. “That`s half the size of Barlows and a third of Imperial. Remember that the top 20 account for 80 percent of all trade and 70 percent of capitalisation, and the smaller you are, the less attention is paid to you.”It`s a threat which doesn`t particularly faze Joubert right now. “We are concentrating more on operations than on what the market thinks at this moment,” he retorts. “Our challenge right now is to be positive. It`s how to balance operating in a tough market with making investments for a future in which IT and the Internet are here to stay. We could go for a one-year market gain and kill our business in the process. We prefer to take a longer term view.”Ironically, it`s the very lack of a longer-term view that many say started the problems at Didata. Some analysts, like Deutsche Bank`s Chris Veegh, feel the company should have seen the writing on the wall for the old product-driven way of business and moved to a services-driven model while the going was good.“On paper, The DD Way makes sense, but you have to ask the question as to whether it shouldn`t have been done four years ago. Unfortunately, the answer to that is yes, and now the market is standing back and waiting to see what Didata can do,” says Veegh.Joubert concedes the point. “We have always said that the future of IT would lie in the convergence of application infrastructures and network infrastructures. We just didn`t know exactly when and how it would happen. Looking back, perhaps, we should have driven this integration process within the company earlier, but when you`re generating revenue growth of 40 percent a year, it`s hard to want to change that.“We knew the glory days couldn`t last forever – but could we realistically have foreseen the crash? I don`t know about that. It`s not as if we were the only ones in the industry that were impacted by the market fall-out… in fact, it`s fair to say the majority were caught unaware. The only IT companies that have weathered the storm with any success have been those with long-term income streams and hedging.”Times a`changin`The uncomfortable truth is that Didata (and the greater IT market) was caught entirely unawares by the way the IT value chain changed when the financial bubble finally burst in the late nineties. Suddenly clients wanted web applications that would extract information and value from their legacy systems, and network infrastructure became just another commodity.Most of all, the way clients perceived the so-called “e-business specialist” changed, with more focus on understanding the customer`s business rather than the supplier`s own back pocket.This leads one very neatly to the issue of the Proxicom acquisition, without which no discussion of Didata`s past and present woes would be complete. Indeed, there are many who still point to the disastrous acquisition of Proxicom, for the best part of $500 million, as the beginning of the slide.The mere mention of the P-word to any Didata executive elicits an involuntary shudder, as there`s no doubt that the Proxicom debacle took an extraordinary toll on both the share price and the bottom line. As Joubert points out, though, it`s easy to be clever in hindsight.“Again it`s a context story. One must remember that Proxicom at it`s height was just over $70 a share. We acquired it at $7.50 a share – a tenth of it`s original value and a fact many people aren`t ware of. Looking back, even at $7.50, we probably did pay too much for Proxicom, but that`s what the market would bear at the time,” he says. “Analysts in the US felt we were too light in areas like deep application integration skills, which are key to our vision, and Proxicom still has the right skills we were looking for. If we could do it again, we may have paid a different price, but we would still have made the acquisition.”On the face of it, Didata had little choice. Before The Great Meltdown, it was basically doing two things: globalising its core competency of network infrastructure, and delivering on its strategy, which at that stage consisted of e-business and the application space. And one can`t deny that it was doing this rather well, with revenue growth of 40 percent per annum fuelling a stellar price:earnings ratio in the region of 70.The analyst factorIn all fairness, Didata would have been foolish not to take advantage of the prevailing market conditions. Indeed, the shareholders would have got very restless very quickly if the company had chosen to sit back on its cash pile – especially at a time when analysts were muttering that for all its successes in Asia, Australia and the UK, Didata was still not a global player.“When you`re sitting at a p:e of 70, that`s driven by the market. So to say you should disregard the very people driving the market, like the merchant bankers and the analysts, is naïve, especially when you`ve raised billions with a listing in London,” says Joubert.(This opens an entirely new can of worms altogether: the notion of analysts taking responsibility for their forecasts, and acknowledging the impact their musings have on the markets. If they shared the risks, they would almost certainly be more measured in their pronouncements. But we digress.)Ultimately, though, Proxicom was only part of the problem – and if the markets had stayed stable, Didata might even have escaped relatively unscathed. Fact is, Didata was too successful for its own good. After all, it had seen the convergence of the application and the network infrastructure coming from a mile – well, at least five years, anyway.But as any surfer will tell you, when you`re riding the crest of a wave, you`re not going to get off and change boards, let alone trade in your surfboard for a paddleski in case flat seas are around the corner.“How do you tell guys whose business has grown 40 percent year on year that the market has gone away?” asks Joubert, almost plaintively.What remains a problem for Didata is the market perception of the extent to which the company`s fates are still intertwined with those of Cisco. JP Morgan IT analyst John Poluta, for one, feels that, apart from still being too product-oriented, Didata`s reliance on Cisco could still cause pain further down the line as Cisco moves towards a direct sales model using telecoms operators aggressively as a sales channel.If he`s irritated by the idea, Joubert hides it well. “It`s always been very convenient for analysts to try and put us in a box. When we were a network company, and Cisco had 90 percent of the market, it was obvious that we would sell Cisco. The fact is that we`ve been spreading our vendor risk for some time now, and have been continuously reducing our dependence on single vendors.“Besides, hardware margins are rapidly commoditising (Cisco`s gross margins are also growing, to the detriment of re-sellers, from 69.3 percent to 70.4 percent - ed), and it is far more important to us that solutions and services drive our business, rather than technology.”Taming the oddballsIf that`s the case, Joubert would do well to make more of a fuss of it. As things stand, when Cisco sneezes, Didata`s share price catches a cold. There are clearly some perceptions in this regard which need managing.What will also need careful managing is the logistics of being in the services market, which brings its own set of headaches.“Given the depressed trading environment, particularly in the UK, it`s a tough ask to sell services right now,” says JP Morgan`s Poluta. “Under these conditions, Didata as a global company is an expensive business to run, especially when there`s still some transition to be made.”Joubert sighs. “Didata has been increasing its revenues from services for some time now. What we need to change is not so much the way we earn our revenues, but the way we disclose to the market how we derive those revenues from services. If the market turns tomorrow, we could handle an extra 25 percent revenue without an additional cent in overheads.”Sanlam Investment Management analyst Claude van Cuyck thinks Didata has done a lot of things right, given the circumstances. “There are still problem areas, like Asia and the US, and there`s a lot of operational pressure and a lot of gearing. But they have a good balance sheet, and as soon as the spend comes back, the company will be well placed.”Van Cuyck also expects positive developments from Didata`s South African operations in the coming months in the area of black empowerment, where the likes of Arivia.kom have been making merry while the so-called “white” IT companies play catch-up.“We must remember that technology is a good indicator of the economy as a whole, and there`s no doubt that technology still has a lot to deliver,” says Van Cuyck.That`s exactly what Didata is banking on. For all the media`s collective glee at its fall from grace, the company had to have done something right to get where it has, and to have survived the turbulent waters relatively intact. It is a peculiarly South African phenomenon that we kick our icons when they`re down.Will The DD Way work? It`s too early to tell. Will it mean the emergence of a new, humble Dimension Data? Don`t bet on it. That would be boring – and as Bronwyn Goeller herself will tell you, life at Didata is never boring. Colouring in the ivory towersBy Jeff DelaneyDidata clearly has good intentions on the empowerment front, but will it be given the time to realise a somewhat idealistic strategy?Authentic black economic empowerment [BEE] is a concept guaranteed to turn the alabaster skins of the executives of old school South African companies an even lighter shade of pale – and with good reason. The local business landscape is littered with the corpses of failed BEE initiatives, but it is not a challenge that will be wished away, nor will it be assuaged with the appointment of a couple of token Uncle Toms.Dimension Data is one of many companies that have endured harsh criticism over a perceived lack of progress in the area of BEE and, in truth, to an outside observer there might seem to be some validity in allegations it has been somewhat tardy.“Not true,” says Tshepo Mahlangu, corporate affairs manager at Dimension Data SA. “While people may have known Dimension Data as a company dominated by white males, we realise this is not the way to go and there`s a firm commitment to doing things properly.”He points out that in order to comply with the demands of the Empowerment Commission, a company has to consider a number of aspects: empowerment equity, employment equity, affirmative procurement and corporate social responsibility. Dimension Data, he claims, has made considerable progress in at least the last three.It can, however, be argued that the most pressing issue facing the company today is identifying a credible empowerment equity partner and speculation is rife about just who that might be. Dimension Data is, not surprisingly, playing its cards very close to its chest.Corporate finance director at Dimension Data plc Patrick Quarmby says while the company takes the issue very seriously, it will not be rushed into making any hasty decisions.“We`re not after taking on board a BEE group that remains in the company as a shareholder for a short period and then departs with the cash. Dimension Data is looking for a long-term partner that will ensure the company is transformed – that in the years to come we are truly representative of the demographics of the country.“We`re prepared to take our time. There`s no doubt there are a lot of interesting parties out there and we`re talking to a number of possibilities.”Never a borrowerWhile refusing to be drawn on just who these possibilities might be, Quarmby says Dimension Data is wary of companies that would look to borrow money to buy a shareholding. “The problem here is that these companies have investors behind them who are looking for returns so, generally speaking, your time horizons are quite short.“Whether you can achieve transformation in a company like Dimension Data in a two or three year time frame is debatable. We`d prefer to look at an option that links the obtaining of a shareholding to performance, which will ensure both profitability and transformation. However, it remains early days and we have yet to identify the parties and negotiate the way forward,” he says.This caters for Dimension Data SA, but what of the eventual empowerment shareholder`s aspirations for a piece of the ultimate pie, Dimension Data plc. Quarmby believes that, given the need for the international shareholding to reflect the global nature of the company, equity empowerment at this level would, at least in the short term, be difficult.“Having said that, in time to come and once we have achieved a truly transformed operation, if the South African empowerment shareholding moves up to the top, then well and good. That`s the ultimate aim. The immediate issue is dealing with the challenge in the local context.”Lone black faceDimension Data has not been entirely idle in terms of doling out equity to empowerment companies. Quarmby points out that WorldWide has benefited greatly from being part of the fold through its 51 percent shareholding in Plessey, while the growth of Choice Technologies has been well documented.So much for Dimension Data`s empowerment equity plans, but, Tshepo Mahlangu`s assurances aside, where does the company stand in terms of employment equity, particularly at executive committee level where non-executive director Moses [Moss] Modidima Ngoasheng is the lone black face?Quarmby believes this approach is unfair. “You can`t look at it like that as we are a global company and our board must be representative of the regions we operate in.“We`re planning to bring in significantly empowered management over time [operational control of 40 percent to black executive directors of Dimension Data South Africa by 2006], but you must remember we cannot ignore the aspirations of current staff,” he says.The slump factorIn terms of employment equity overall, Mahlangu says Dimension Data subscribes strongly to the requirements of the Department of Labour. “Our aim is to create an organisation that represents the demographics of everyone in the country and our plans going forward are geared to just that.“Dimension Data has met its transformation targets at all levels within the organisation, as submitted to the Department of Labour every year since 1998. The company has run a “learnership” programme involving 50 black interns since 2001. This is in addition to management development programmes involving 20 black managers and potential managers.“We have also committed ourselves to ensuring that 60 percent of the attendees on our management development programmes are black. This includes ensuring that we sponsor and provide internships for at least 20 black learners per annum in a sector education and training authority (Seta) approved learnership programme,” Mahlangu says.Adds newly appointed human resources director at Dimension Data, Vusi Dlamini, “Yes, we have not done as much as we would have liked from an employment equity point of view, but we have made tremendous progress.“We are currently sitting at a 45 percent staff complement of previously disadvantaged individuals and we will be looking to grow this to a 60/40 split in the short to medium term. This is a difficult challenge for a company operating in an environment which is going through a slump, but we are confident we can attain our goals through natural attrition and enhanced training initiatives,” he says.Dimension Data, says Mahlangu, is not resting on its laurels in terms of affirmative procurement. The company is committed to achieving at least 30 percent of non-stock purchases through black-owned companies by its 2004 financial year.“We`re currently carrying out an audit of SMEs on the procurement side and we will be diverting training and skills capacity here with the aim of building sustainable partnerships,” he adds.It is clear the company has made some real strides in the BE arena and is committed to the process. Nonetheless, the dictates of doing business in the new South Africa [which still accounts for around 14 percent of the company`s total revenues] may mean it is not given the time it desires to find an empowerment equity partner. Defying the oddsBy Jeff DelaneyInternet Solutions (IS) is something of an IT anomaly – a growing and profitable Internet-based business operating successfully in a market stifled by cumbersome regulation and a bullying monopolist.A member of the Dimension Data stable since 1997, the company appears to have maintained more than a smattering of the original entrepreneurial and sometimes zany flair of its founders, something current management credits for much of its success.MD Angus MacRobert confirms that while being part of a global corporation has brought benefits in terms of strict corporate and financial governance, IS is still given plenty of free rein.“We`re fortunate that IS has a very strong brand, identity and culture. We strive to be entrepreneurial and live the business,” he says.Co-founder Ronnie Apteker, perhaps now better known in Tinseltown than Silicon Valley, is still employed by IS and, according to MacRobert, plays an active role in determining new ideas, marketing strategies and internal culture.“He`s fantastic at that. Ronnie lives off the wall and makes his dreams happen. This encourages us to do the same and is a reason why the spirit and culture at IS is so much higher than at many other companies,” MacRobert says.To the cynical observer the above may read like an excerpt from a Clive Simpkins monologue, but the company certainly seems to be working.Last year it says it saw growth in turnover of 30 percent and a remarkable 59 percent increase in profit before tax. [IS is reluctant to release financial figures, but an educated guess would put revenues at just under R900 million.]Gross margins were retained despite pricing pressures and a depreciation in the currency.Business fibreIS COO Jason Goodall says the switch from satellite to fibre technology has opened up substantial opportunities for corporate customers from a communications point of view.Adds MacRobert: “What`s exciting for IS is that being cash generative allows us to continue investing in new technologies, networks and solutions, keeping us at the forefront of our field.”The field is, however, still overgrown and although much of the flotsam from the dot com period has been weeded out, further consolidation is inevitable.“I don`t think we`ve seen the end of the shake-out as far as the dot com period is concerned,” confirms Goodall. “We had to absorb some pain where a number of the companies that fell by the wayside were clients of ours and no doubt we`ll see a bit more of that this year.“We have, however, been quite successful in cross selling value-added services to our existing customer base, something that`s been vital to ensure continuing growth as the market leader in our space.”This said, there is considerable pressure on pricing and costs as IS customers feel the brunt of the downturn.All just talk“At the same time there are huge opportunities out there. We`re submitting proposals in response to request for proposals daily; however, we`re constantly held back by the fact that we don`t play on a level playing field.“There`s been talk of a deregulated environment for the last eight months, but still no indication as to when Telkom`s monopoly will end. While it still exists, all other players will continue to be bullied.”IS has a point. The cost of communications for corporate South Africa is prohibitively expensive and the villain of the piece is clearly visible – the monopoly. The ongoing debacle surrounding the formation of a second network operator (SNO) to compete with Telkom looks set to continue indefinitely and, with the industry watchdog Icasa effectively sidelined, it is doubtful any final solution will be controversy-free.IS celebrates a decade of operations this year. While management says it has embraced Dimension Data`s new global corporate transformation philosophy, The DD Way, and that this has brought it closer to its parent, the company remains almost entirely rooted in South Africa.Globalisation at IS so far has been limited, but this could change.Hiring, not firingShrewd investment of both intellectual and monetary capital in business processes, and the automation of its interfaces internally, have enabled IS to avoid the retrenchments that have formed an inevitable part of its parent`s realignment.Comments Goodall: “The business has grown around 30 percent compounded over the past couple of years, but the growth in administrative costs and the like has been very small. Unusually for the IT industry, we are a net-added employer of staff.”IS continues to dominate its chosen fields of operations in South Africa, and its mixture of youthful entrepreneurial spirit, backed by surprisingly strict financial disciplines, has enabled it to weather prevailing market conditions. Now, if only someone would have the gumption to level the playing field and chastise that bully… Phantom or phoenix?By Ivo VegterThere are encouraging signs that Dimension Data is emerging from its funk. If not in share price, then at least in the commitment and clarity with which executives nowadays speak of its transformation.“The end is nigh!” This prediction, exaggerated or not, used to elicit solemn nods or derisive snickers from pundits and tech sector observers. For the employees and shareholders of the big daddy of South African IT, Dimension Data, it was merely depressing, irritating or infuriating.It`s easy to kick someone when they`re down, and when the boom-time extravagance and sudden implosion of its core markets hit Didata like a cyclone, it drew more fire than most.Now, the phrase might well be apposite again, but in a different sense. Today, members of the newly created executive committee of Didata talk animatedly, optimistically and with uncharacteristic clarity about the company`s past and its future.For close on two years, executives displayed a reticence that analysts and media took – naturally – as a sign of impotence. It seemed management either failed to recognise problems in the business, or didn`t know how to address them. Communication with the market and the media suffered, and was reduced to financial reports replete with detail but lacking clarity, and rare, well-rehearsed statements that disclosed little and failed – except in the most general terms – to inspire confidence.Executives in turn lamented that the same analysts and merchant banks that pushed Didata into boom-time markets and acquisitions when its share was stratospheric, proceeded to blame management for not foreseeing that they were acquiring companies in an overvalued market about to crash.Journalists looked for reasons to criticise, and found many. They looked for reasons to be optimistic, and found little but platitudes. What should have been messages of confidence in the face of wounded pride, came across as denial and irritable arrogance.Come together, right nowPerhaps the catalyst has been that the high-profile American acquisition, Proxicom, is finally back in the black. Perhaps it`s the unusually detailed and coherent strategic realignment programme that`s finally got off the ground. Perhaps it`s the fact that executive management has been restructured and revitalised. But something has changed.In more than ten hours of in-depth interviews with Dimension Data`s executives, one didn`t have to scratch deep to expose the anxiety beneath the surface. The press – this publication included – has been hostile and disbelieving in the past. But in many meetings, over six weeks, one executive after another stepped up and told a convincing story.There is a palpable sense that the worst is over. That the end – of the pain – is nigh.The detailed and far-reaching realignment programme, quaintly known as The DD Way, has multiple objectives, and it`s too early to speculate about success. But some strategic moves are already bearing fruit. The decision – a tough one, as described by the executive in charge of strategy execution, Steve Joubert – was made to build a global company with a single vision, rather than a holding company with regional interests. This required “rapid integration, having to get out of some areas, and restructuring the business to stop the bleeding and hold the vision – to quote [IBM`s ex-CEO, Lou] Gerstner`s book Why Elephants Can`t Dance.”While some of the execution was decidedly messy and acrimonious (one word: i-Commerce), other cases, such as turning around Proxicom, have succeeded against expectations. Regional executives are also starting to report that they are feeling the impact of the integration efforts.Allan Cawood, CEO for the African region – Didata`s oldest and most mature business – says a lot of dependencies have recently developed among the regions. “We`re starting to feel the benefits, from a South African point of view, of being a global organisation. We have technology leadership coming out of the US, and it`s great having that on tap rather than having to pull in one of the consulting houses. We have had opportunities to export locally developed intellectual property – mission-critical systems and top-end capabilities – and deliver it in other parts of the world. And globally, the regions are seeing South Africa provide skills and capacity at competitive rates. We have monthly meetings with the global CEOs, which gets us working together on cross-border deals. It`s really coming together in the last six to 12 months.”Denis Hocking, CEO for global services, says that regional differences remain. “In terms of model, South Africa, Australia and Asia are most sophisticated on services and solution development. In the US, by contrast, we`re in the SME space, in the UK we`re still below the radar screen for major clients, and in Europe we`re still very dispersed. But it`s growing.”Lease on lifeThis publication has in the past echoed some analysts, saying that Didata had better turn North America around quickly, or kill it. Proxicom is now known to be in the black, and while Didata has not disclosed the performance of the remaining US networking businesses, fulfilling its promises of a turnaround at Proxicom is a credit to management and should boost confidence in the company.Now that Proxicom no longer bleeds cash, explanations from Didata executives are easier to accept. Joubert points out that while the market was clamouring for Didata to get into the sexy e-commerce space, the company felt underlying network integration skills were important as a foundation. He says many potential acquisitions were evaluated and rejected because they had only the e-commerce element, but they found both in Proxicom. Though he explains that trading overvalued shares for other overvalued shares – even with cash as intermediate step – cannot in fairness be interpreted as overpaying, he admits that the company would have valued Proxicom lower had it known how rapidly the e-commerce and web design sector would implode.A lower valuation would have had far-reaching consequences. An alternative future in which Compaq got saddled with the Proxicom turnaround effort and Didata retained its cash and an opportunity to find a less expensive acquisition at some date when valuations had retreated to more realistic levels is something many investors probably still dream of.Even with hindsight, however, Joubert says neither commitment to globalising, nor the decision to focus on the convergence between network infrastructure and application integration would have been different.But bygones are bygones, and whether or not this explanation is true is now moot. At least Proxicom can now contribute to the global strategy and – importantly – to global profits. The man responsible as chief financial officer in North America for turning Proxicom around, Brett Dawson, has been given the job of running global operations.But he has seen the impact an event like September 11 had in decimating business with entertainment and hotel customers. Networking companies – including, one must assume, Didata`s North American businesses – remain under pressure. Despite having turned a massively unpopular and loss-making acquisition into an integral part of Didata that is breaking even, Dawson says he doesn`t consider the job in North America done. “I don`t think we`ll ever have to stop worrying about it.”Walking the walkDidata has also met with scepticism over its claims about transforming itself from a basic network infrastructure company to a services and solutions outfit.Though evidence in the past has been thin on the ground, an increasing number of case studies are showing that the tide may be turning. Though its share price is still closely tied to that of its biggest supplier, Cisco Systems, Steve Joubert no longer sounds disingenuous when he says that this was a case of pigeon-holing, and that the sooner a de-coupling happens the better.“When we stopped disclosing services and product revenue separately, we didn`t give the market another measurement,” he says.Hocking was brought in last year – ironically from the same investment bank that advised Didata on many of its acquisitions during the boom time – with a brief to take the share of pure services revenue from today`s 40 percent to a 60 or 65 percent level.“I joined with a mandate to leverage intellectual property, collateral and infrastructure to develop services into a consistent and growing offering,” he says. “There`s a burning ambition to continue the success that Didata has had in the past. Changing the mix was in progress already, and that was key to me. It was a challenge, but not just an idea on paper.”Adam Craker, group director for sales and marketing – like Joubert – notes that some services billed according to time and materials are as commoditised as products, and are as “dead in the water”. Product sales can`t simply be replaced by services, but need to be combined into solutions. Joubert adds that Didata`s research and development is aimed at “productising solutions developed at the coalface to build repeatability”.Says Hocking: “Nothing is as certain as continuous business improvement among customers. As long as they`re doing that and challenge their services companies, we have something to offer. That sort of churn is good for us.”Bringing in people with experience in developing services and solutions has been a conscious strategy at Didata. Besides Hocking, another example is Brett Dawson, who, before being given the tough job in the US, was a veteran of Omnilink, the company`s first pure services play, creating virtual private network solutions for such blue-chip clients as Old Mutual.Quo vadis, Ord?When a share falls from R70 to R3, investors, analysts and journalists start asking hard questions. Like: “When will executive chairman Jeremy Ord retire to a cosy non-executive role, to make way for someone who can manage a multinational like Didata?” Or: “Now that Ord is comfortably off, is he still hungry enough to face the immense effort it will take to recreate Didata?”The question ignores the invaluable role Ord has played in taking Didata from a 1983 startup to the country`s largest listed IT firm, but entrepreneurs are not always the best corporate managers. And analysts famously point out that a chief executive is only as good as the company`s last set of results.There are other reasons why the question is valid. Several Didata executives have mentioned IBM as a case study of a product business that transformed itself into the world`s biggest services organisation. Inevitably, this leads to: “Will Didata bring in a Lou Gerstner?”Corporate governance principles dictate that while some executive chairmen – especially founders – do a great job, the rule of thumb should be to split the roles.Didata acknowledged this as a goal when it restructured its board and operating executive, and at some unspecified time, a CEO will be appointed.These questions, according to Craker, were hotly debated last year. “But the board took a decision to do something quite radical, and bring in new talent, skill, blood and hunger through the operating executive.“Jeremy and the founders are very proud of what they`ve created, and would like to retire – in South Africa – on what they`ve built – with Dimension Data once again a winning company . They`re very driven and committed.”Hocking says this influenced his decision to join Didata. “I tested that. People have options in life, but that doesn`t mean they`ll exercise them. [Didata`s founders] convinced me that they didn`t want to throw the towel in. They wanted to succeed as professional businessmen – even more so than when they started.”Jeremy Ord explains the decision, saying that the option of bringing in an outside “Lou Gerstner” wasn`t discussed. “I think what it was, was recognising that we have a whole bunch of talented people in the ranks, and we felt very strongly that it would be best to look at giving internal people opportunities, rather than looking externally.”This is also the reason why the chairman and CEO roles weren`t split immediately. “We have a number of internal candidates who could actually step up to the plate and do the job [of CEO]. However, we felt that they also needed time to grow into their roles. Some were in their roles, but some had just been appointed to new roles and were amongst the candidates we`d like to consider.”One of those new to his role is Brett Dawson, as COO. He`s not the only likely candidate, of course, and we wouldn`t want to detract from the qualities of the other executives. But consider that he has the six CEOs of the regions reporting to him, he succeeded – at Proxicom – with one of the most difficult and important challenges Ord could have thrown at him, and by his own admission he likes running companies. If Brainstorm were in the bookmaking business, we`d give Dawson the best odds to get the nod for the CEO spot.Importantly – if only to dispel notions of a power struggle – Steve Joubert notes that the board`s nominations committee will make the decision, rather than Ord himself.Quo vadis, Didata?Joubert says Didata has gone back to basics (see Remaking of a legend, p.20), concentrating on fundamentals.Dawson adds: “We`re very cognisant of the risk of internal focus, but we have to focus on operations, and external views shouldn`t get in the way.”And while the long-term goal – predictably – is profitability, Dawson says that a very short-term (six-month) goal is to ensure that every business in every part of the world is structured such that at current output it runs no worse than breakeven.Though the visible signs are good, whether or not this goal is achievable remains unclear. Indeed, the biggest threat to the company, according to Joubert, is whether or not the market will give it time to execute its strategy. The executives are clearly aware that the changes and strategies now in place won`t impact significantly on the bottom line for another 12 to 18 months, and there might still be some – possibly serious – pain ahead.“We need to have a big enough focus on transformation while taking care of the business, and avoid the organisation retreating when faced with challenges,” Joubert says.Cawood`s says his experience is that customers are recognising that despite tough times, Didata has addressed concerns they may have had. With staff, it`s been harder, primarily because of retrenchments, but he says, “They`ve come through tough times with us, but there`s a sense of commitment now. DD Way has pulled the organisation together, everyone has bought into it, and there`s also a lot of people development ongoing to ensure the right skills mix for the new market.”As for the public, Cawood says, “People you talk to socially are really quite positive about the group – rooting for us. The ‘proudly South African` thing is playing into our hands. Didata was built in South Africa. We can be proud of it.”Dawson adds that internally, the culture is one of openness, regular reporting, and regular meetings. “The culture is one of: ‘Let`s face our demons. If the numbers are bad, how do we get them good?`”In his signature style, he adds: “I don`t like surprises, especially bad ones. If it`s good news, put it on e-mail. If it`s bad news, call me.”The Didata name may have taken a battering, but Dawson for one is convinced the core brand equity remains. “A year from now, the business had better be worth more, considering the pain we`re going through. And we wouldn`t have the talent at Didata if we didn`t believe we can create value. Personally, all my wealth generation capability is tied up in Didata.”Didata, version twoThe transformation of Dimension Data is no longer something vague and ephemeral. It is a work in progress, and a work of impressive scale. The signs are good so far. The executive team is committed, and seems capable. They remain wary, but no longer seem to hide behind generalities and platitudes.The verdict will be in the numbers, and the success – or failure – of this transformation will take a year or two to filter through to the bottom line. But the bleeding is being staunched, and the outline of a new – perhaps even bigger – Didata is taking shape.The share price remains low, market visibility remains cloudy, and nobody expects fireworks in the short term. But it might well be time to search the ashes for a phoenix: Call it Didata 2.0.
05 March 2003
Steve Joubert, one of the Big Four at beleaguered IT giant Dimension Data, is just 44 years old. In IT`s halcyon days of the mid-nineties, that would have been considered positively ancient. Not any more.
Joubert, Dimension Data`s executive committee member charged with strategy execution, heads up an ambitious restructuring and refocusing plan called “The DD Way” which, he says, will lead the good ship Didata back to the safer waters of sustainability after losing several masts in the almighty storm that was the implosion of the IT market.
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