Taking on the big boys

The founder of software developer TechnologyOne learnt a big lesson early on – don’t be shy about competing with the biggest companies in the world. By KATE CARROLL

By Kate Carroll

Opportunity: A novel business model has enabled software developer TechnologyOne to dominate the Australian higher education sector and made the ASX-listed company a takeover target.

Studying IT at university in the late 1970s, Adrian Di Marco, founder of Australian software company TechnologyOne, thought the big multinational software companies were unbeatable. But when he started working for them, he became disillusioned with their products and processes and decided he could do it better himself.

“Don’t be shy to compete with the biggest companies in the world,” he says. “Because they are so big means they’re slow, they’re cumbersome, they make bad decisions and they’re not innovative.”

Di Marco founded enterprise software company TechnologyOne in 1987 with a financials product but over the years developed a suite of enterprise software.

By taking complete responsibility for the products his company built, and removing any middlemen from the selling and implementation process (a value proposition Di Marco called “the power of one”), he grew TechnologyOne into an ASX-listed company with a market cap of about $300 million. It recently announced a half year, after-tax profit of $7.3 million.

Like its competitors SAP, Oracle and Microsoft, TechnologyOne started off using resellers and implementation partners to sell and implement its products, but came to realise this was an inefficient model, putting a middleman between it and its customers.

“The implementation partner is never going to be as efficient as the original product developer. They’re never going to understand the product to the same level of detail,” explains Di Marco.

In the mid-1990s, TechnologyOne began selling, implementing and supporting its own products.

It was a big move. Not only did it have to build new consulting and sales teams but also change the company’s entire culture. Whereas previously customer problems were the arena of the implementation partners, now TechnologyOne had to take responsibility itself.

“You have to say to the company ‘no, it’s no longer someone else’s problem, it’s our problem’.” It took about seven years to implement, terminating its last implementation partner in 2000.

Di Marco says the model has made TechnologyOne more accountable to its customers and helped the company reduce its attrition rate. “We retain 99.9% of our customers in an industry where customer retention is probably more around 75% in a seven-year period.”

Working closely with customers enables it to quickly identify any issues with software and make improvements. “We are constantly working with our customers in very short release cycles to evolve our products based on their requirements, where the market is going and where technology is going,” explains Di Marco.

Not everybody agrees the model is ideal. Michael Reidy, general manager of SME at SAP, believes implementation partners and resellers can actually benefit customers through specialised industry knowledge. “A partner may choose to specialise in the pharmaceutical industry or a partner may choose to specialise in apparel and fashion.”

TechnologyOne has specialised in higher education and government. “We started off as the underdog as people didn’t believe we could compete in that market,” Di Marco says. “We worked hard and over the last seven years we have shown them that our product is superior and we’re now becoming the dominant player in that market.”

This very success has led to speculation that TechnologyOne, like Australian software companies Mincom and Tower Software before it, could become a takeover target.

But Di Marco, still a major shareholder, is not interested. He says it is very unlikely a takeover would succeed. “We believe we have a compelling story for where we’re at and where we’re going. We are competing with the world’s biggest software companies, and we are winning.”

In February, Di Marco announced TechnologyOne would be creating a new “federated product model” – an individual business unit for each product line, incorporating its own research and development, product specialists, marketing, implementation and support teams.

Over the next 10 years TechnologyOne plans to continue increasing its product range and expand geographically. It has offices in Australia, New Zealand and Asia, and an office in Britain was opened in 2006. “We plan to open another one in the UK, and the US is next,” says Di Marco.

Last week Di Marco announced a new acquisition strategy. With $60 million in funding set aside for this purpose, he expects to add approximately four new products to the range via acquisition. “We are today one of the major software houses in the Australian, New Zealand and Asian markets. We see ourselves as being one of the major software houses in the global market.”

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