FRAMINGHAM (03/03/2000) - When Gene Hatcher joined Danka Business Systems as corporate vice president and CTO in August 1998, the company's IT strategy was nonexistent. Danka, a distributor of office imaging equipment and related services, had a habit of growing by acquisition since its founding in 1977.
Along with new business, Danka acquired a mishmash of outdated hardware and software that had to be spun off and integrated into its own architecture by the concrete deadline of Dec. 31, 1998. But a rudderless IT strategy wasn't Danka's only problem. Along with IT, the company's finances were in disarray.
By the end of fiscal year 1999, revenues were $2.9 billion, down from $3.3 billion for the previous year, and losses amounted to $295 million. Company executives even entertained the possibility of filing for bankruptcy.
Melding the newly acquired systems with Danka's was just one of the challenges Hatcher faced. Hatcher was on the job a mere three months when oversight of the IT department was shifted to the CFO. Following the acquisition of Eastman Kodak's office imaging division in 1997, Danka's IT department was split between operations in St. Petersburg, Fla., and Rochester, N.Y. Consequently, Hatcher had to navigate cultural differences and morale problems. Most of the cultural difference centered around status: the Rochester group comprised consultants and contractors who joined Danka as a result of the acquisition.
Hatcher had to simultaneously gain credibility for the IT department, fashion a strategy for moving his department forward and help Danka itself get a handle on its finances.
While not in the clear yet, prospects are looking up for Danka, both in terms of its IT environment and finances. As the company's first-ever internal executive in charge of IT, Hatcher has instilled a much needed sense of focus and discipline at the global company with dual headquarters in St. Petersburg and London. Now with a unified IT approach in place that includes one database management system, a single internal development environment, centralized IT operations and a common suite of packaged applications, Hatcher is embarking on ambitious strategic projects. "Architecture consolidation is only part of our overall IT strategy," Hatcher says. His main goal is to transform IT into a cost-effective, business-focused service to support a Danka turnaround. Among Hatcher's plans: deploy a web-based sales automation system, develop an e-commerce strategy and put the company's mainframe out to pasture. With earnings from operations in the second quarter, which ended Sept. 30, 1999, of $36.1 million compared with a loss of $2.7 million for the second quarter of 1998, Hatcher is on his way to helping Danka turn the corner.
The practice of growing by acquisition caught up with Danka with the purchase of the office imaging arm of Eastman Kodak Co. While the $688 million price tag was significant, Danka figured the outlay was worth the corresponding increase in its market presence and customer base. Indeed, buying that division of Eastman Kodak pushed Danka's revenues from $1.5 billion to more than $3 billion. Unfortunately, the deal also came with strings that quickly eroded any proposed benefits.
For starters, terms of the sale required Danka to purchase copiers and printers from Eastman Kodak that it couldn't sell. As a result, earnings lagged while inventory levels rose. The deal further strained Danka's finances because of a commitment to more than $175 million in research and development costs. Quarter after quarter of revenue declines followed. Within a year, Danka's stock price plummeted from a high of $42 to $1.50 per share.
"Suddenly, this major acquisition of the Kodak business propelled Danka into a completely new league, and the cracks showed through very quickly," says David Kendall, Danka's chairman. "There simply were not enough professional managers to handle such a big venture and to build the systems that were necessary to make it function well," Kendall adds.
THE IT STRATEGY Danka's board responded by bringing in new blood at the top. In August 1998, Brian Merriman, a former executive at Toshiba America Information Systems, was hired as president of Danka Americas, and in July 1999 was promoted to president and COO of Danka Worldwide. In October 1998, Larry Switzer was named CEO following a stint as CFO of Fruit of the Loom.
The new management team formulated a corporate strategy that mandated a reduction in expenses to the tune of more than $100 million annually. Savings would be achieved through closing and consolidating 60 facilities and cutting the workforce by 1,400. On closer inspection of the company's internal operations, it became readily apparent to both Merriman and Switzer that attention had to be paid to IT. With less than a year and a half to year 2000, Danka hadn't even begun assessing its computer systems for Y2K compliance. But the company had a more pressing deadline: By Dec. 31, 1998, Danka had to separate the newly acquired business from Kodak's corporate systems and integrate it with Danka's IT operations in St. Petersburg.
Danka traditionally relied on outsourced IT management. Hatcher's hiring represented the first time IT was brought in-house. Hatcher, a veteran IT executive who's experience includes posts at Publix Super Markets, Books-A-Million and Richfood Holdings, certainly had his work cut out for him.
While stepping into a newly created role is tough for anyone, Hatcher's challenge was all the more difficult given Danka's shaky situation. "The job of CIO was certainly not a coveted position," Hatcher says.
That's an understatement, considering Hatcher's to-do list. As a result of the acquisition, Danka was running a good chunk of its systems on hardware and software run by Kodak, and paying high fees (although Hatcher won't specify them) to do so. "During the transition, we were actually running on Eastman Kodak hardware in New York, one of our biggest markets," Hatcher explains.
Before Hatcher even joined Danka, the company's managers already designed a plan for separating from Kodak, so he had to carry out a strategy that involved moving over some systems with outdated technology.
The three systems brought over from Kodak were sales automation, contracts management and billing, and service dispatch. At the time of the acquisition, management decided to run both the office imaging (OI) division in Rochester and the office products (OP) division in St. Petersburg as they were. From a systems perspective, Hatcher had to separate the service dispatch system from Kodak's operations and convert Danka's divisions to that system. The contracts management and billing system had to be separated from Kodak as well; Danka would then use it in its OI division, which would also use the previous Kodak sales automation system. Both OI and OP would use Danka's corporate financial system.
To accomplish an amicable divorce between the Kodak and Danka systems, Hatcher followed a systematic plan. First, his IT staff integrated Kodak's data with Danka's systems from the OI division via interfaces and rebuilt the data architecture. Next, the staff integrated sales offices and branches by providing access to Danka's voice and data networks. In addition to building interfaces between the new OI systems and the OP systems, the IT group had to build a technical infrastructure to run the OI systems. On top of the technical details, Hatcher had to prepare his Florida staff to operate the new OI systems and train end users how all the systems would work together. All these tasks were completed on schedule.
In place of seven database management systems, Hatcher has implemented a strategy for a single database system from Oracle. Compuware's Uniface is the internal development environment, which will replace six environments. Hatcher will also install a core suite of packaged ERP components that are common across business units.
Once Hatcher completed the Kodak separation, his next big project was getting Danka's worldwide operations ready for Y2K. In February 1999--a start date Switzer admits was a year late--Hatcher earmarked approximately 90 people (out of a total staff of 120) and $6 million for compliance efforts. By December, the team had successfully met yet another hard and fast deadline. In all, Danka's IT group checked, updated or replaced 9,203 desktops, 414 servers, 314 PBX systems, 307 network routers, one mainframe and 93 major applications that included more than 50 million lines of code.
Successfully pulling off two large-scale projects on time was not lost on Danka's chief executive. "From my standpoint, there simply was not enough time and manpower to do the jobs," says Switzer. "Gene and his people have done a terrific job."
With a track record that solidified his credibility, Hatcher turned his attention to the IT organization itself. He established an IT steering committee made up of senior vice presidents from each of Danka's functional departments along with the COO and the CFO. Hatcher also created the position of manager of information technology (MIT) for each business unit. An MIT, Hatcher says, is a de facto divisional CIO charged with managing the technology on a day-to-day basis.
For a company teetering on the fiscal edge, perhaps Hatcher's most impressive accomplishment thus far has been trimming costs. Despite complex projects, Hatcher has sliced Danka's IT budget from $48 million to $32 million. The $16 million in savings--a welcome addition to Danka's depleted coffers--are a result of reductions in consulting costs and headcount as well as more favorable telecom contracts.
"The reduction in IT spending is critically important," says Mark Wolfinger, Danka's CFO. "We have to make sure the company runs more efficiently from a cost structure standpoint."
The efforts to turn around the company are cause for cautious optimism among the analyst and investment communities. "I think Danka has turned the corner and has moved away from filing for bankruptcy," says Mercedes Sanchez, vice president and business services outsourcing analyst at Raymond James & Associates, an investment firm based in St. Petersburg. While revenues are moving in the right direction, the company has a debt level of about $880 million and sales growth has lagged for the past two years. Nevertheless, as of Jan. 18, Danka's stock price closed at $12.25.
A MAN WITH A PLAN With Danka's IT operations now unencumbered by housecleaning, Hatcher can focus on implementing a wide-reaching strategic plan. With boosting sales a priority, Hatcher is busy working with the sales and marketing department to develop new systems. A virtual private network will enable the company's 1,300 sales agents and 400 support staff to remotely access an intranet for up-to-the-minute sales information. Sales reps routinely fill out as many as 20 forms to complete a sale or lease agreement. A new web-based sales automation system should streamline that process by allowing reps to configure products and input customer data remotely and on the fly. Testing of the system will continue through April with rollout scheduled for August.
Hatcher's overall vision is to deploy an environment that he calls the virtual global system or VGS. Under the VGS umbrella, Danka's American business systems (including the U.S. and Canada) will all be centrally located in its St.
Petersburg office. The centralized approach will support a global marketplace to which Danka's stakeholders--including customers, employees, product suppliers and stockholders--will have access to common information via the web.
According to John Heagney, Danka's senior vice president of marketing, Hatcher's focus on sales has taken him pleasantly by surprise. "Through my years in sales and marketing I have never been with a company that had an IS department that was not only sales friendly but was sensitive to the business issues around the sales organization," he observes. "Gene and his organization are sensitive to what the company has to do to grow," he adds.
Of course, not everything Hatcher has done while at Danka has a rosy hue. When he joined the company, one of Hatcher's first tasks was to give 70 contractors their walking papers and cancel a handful of projects already underway. Hatcher describes that day as "the absolute worst day of my professional life, bar none." Now that the IS group is down to 125 members, Hatcher is looking to hire 113 people, not an easy task for an organization with a recent history of layoffs. In addition, Hatcher has to constantly guard against distractions such as requests from business units for pet technology projects that don't have enterprisewide value. And always, the pressure of meeting deadlines. Within 36 months, plans call for a replacing of all major systems.
Still, the prospect of implementing a unified architecture that can help Danka return from the dead keeps Hatcher on track. So does working with an IS group he describes as "loyal, talented, dedicated, hard working and team oriented."
Unlike two years ago, Danka now has an IT strategy--and a determined IT leader--in place to guide it in the future. If Hatcher's accomplishments so far are any indication, the IT group will have a big role in Danka's turnaround.
Nicole Lewis is a freelance writer based in Miami. Senior Editor Megan Santosus can be reached at email@example.com.
EXTRA CREDIBILITY Gene Hatcher knows what it's like to hit the ground running When hired in August 1998 as Danka Business Systems' corporate vice president and CTO, Gene Hatcher had little time to waste developing an enterprise IT strategy and establishing credibility among business units reeling from financial disappointment. For other IT executives who find themselves in a similar situation, Hatcher offers the following tips.
At the outset, assess the company in terms of politics, organization and strategy. Carefully look at the technology in place. If the technology is old, can the company live with it? Is there an architecture plan? Answer these questions to get a firm grasp of the situation.
IT can't operate in a vacuum, so it's necessary to get support from the business side. The best way to do this is by involving the business side in plans and decisions so they feel a sense of ownership. One strategy for doing this is creating a dotted line reporting relationship between a business unit executive and a member of the IT staff.
Align with key vendors. If the IT department has a three- to five-year strategic plan, make sure key suppliers understand that and buy into it, because it's detrimental to change gears in the middle of projects.
Don't just define a strategy; establish the tactics that will help carry out that strategy. To earn credibility, it's necessary to execute in a way that is consistent with the strategy. For example, one of Hatcher's strategic initiatives called for centralizing all computer operations in St. Petersburg, Fla. The tactics he established to carry out that plan involved hiring adequate staff, implementing disaster recovery plans and building a communication infrastructure. -M. Santosus DANKA BUSINESS SYSTEMS Logistics: Dual headquarters in St. Petersburg, Fla., and London with operations in 30 countries Line of business: Danka is an international provider of office equipment such as photocopiers, fax machines, and related parts and services Fiscal year 1999 revenues: $2.9 billion Employees: 17,000.