Datacom: Low-profile high-flyer

By Anthony Doesburg

With $725 million in sales and 3400 staff, this may be the biggest success story you've never heard of. Anthony Doesburg reports.

Overseas sales will provide a rising share of Datacom's income, says chief executive Jonathan Ladd (left), with NZ head Greg Davidson. Photo / Anthony Doesburg
Overseas sales will provide a rising share of Datacom's income, says chief executive Jonathan Ladd (left), with NZ head Greg Davidson. Photo / Anthony Doesburg

Ask customers of any high-street computer store to name the country's leading IT companies and it's a safe bet that IBM, Hewlett-Packard and Apple will come up time and again.

Yet the outfit that processes the pay for tens of thousands of us every week, that enabled ASB Bank to take its services online, and that answers our technical questions when we phone the Microsoft helpdesk remains practically unknown.

That company is Datacom, whose very name sounds as though it was carefully chosen to ensure anonymity.

Alert visitors to the Auckland and Wellington central business districts may have seen the Datacom sign on half a dozen substantial buildings. But in the words of a long-time computer industry figure, the very boringness of the white on blue logo makes it virtually invisible.

Invisibility would seem to be no bad thing in an industry where the stars have a habit of burning brightly, then sputtering out. There are a legion of big names that shone for decades - Burroughs, Sperry, Digital Equipment, Data General, ICL, Compaq, Sun Microsystems - then faded into history.

If those were all United States or British companies, there are plenty of New Zealand examples too: Progeni, Paxus, Cardinal, CCL and Computerland.

But Datacom, which happened along before many of those one-time big names, continues to prosper as a low-profile privately owned company with sales in the past year of $725 million. It has a blue-chip customer list and expertise in software development, technical support provision, systems and business process outsourcing and IT consulting.

From its origins in Christchurch in 1965, it has expanded into nine New Zealand centres, most of the Australian state capitals and Malaysia and the Philippines. It has about 3400 staff - 1900 of them in New Zealand - and at its present growth rate will be a $1 billion business within three years.

It is also one of three companies vying for a piece of the action as the Government looks towards the clouds for its future IT needs. The so-called infrastructure-as-a-service (IaaS) contract is just weeks from being awarded, is expected to last decades and could be worth billions of dollars.

Datacom is the model of a successful IT services company, says John Blackham, who has had to revise his opinion of the firm that gave him his first job here after he migrated from Britain in the early 1970s.

"Datacom, or CBL as it then was, brought me out here," says Blackham, who did not stay at the company long, winding up working for a Wellington-basedpayroll services competitor CCL.

"Back then I viewed it as pretty stodgy. CCL was a dynamic place whereas Datacom was as boring as its blue logo - that's the way it came across.

"However, it worked under cover to get a solid stable of government accounts."

After selling his own successful software business in 1990, he worked for several years in North America. In 1996 he returned to Auckland, where he soon renewed his acquaintance with Datacom.

"I'd been back a week and went to a Northern Club dinner where Frank Stephenson, Datacom's chief executive, explained his philosophy for running a successful software business.

"It was very simple and was along the lines that you never did any work that took longer than six man-months. By keeping all the pieces of work small you could deliver on time and on budget, and I think that was the key to Datacom's success."

Paul Muckleston, the head of Microsoft New Zealand - a customer of and supplier to Datacom for two decades - says it's a no-frills company, without a huge marketing department, that flies below the radar.

"But I think people are often surprised at the breadth and depth of what it does. It is one of the few soup to nuts systems integrators."

The company's stealth style of operating seems to work.

It was described as a "revenue and profit machine" and "in a class of its own" by the judges in last year's Hi-Tech Awards, who included Dell founder Michael Dell. They named it company of the year.

In 2009 it was in the top 60 companies in the country by revenue, staff and profit. And the TIN100 ranking of technology companies last year listed it as the second-highest revenue earner, behind Fisher & Paykel Appliances.

Rasika Versleijen-Pradhan, who analyses the $2.8 billion New Zealand IT services market for IDC, says Datacom may have a low profile outside the IT sector, but within that field it is an acknowledged leader.

"For anyone who's looking for IT services, Datacom is on the list," says Versleijen-Pradhan. That's particularly so for government and large enterprises.

Its key New Zealand customers include NZ Post, ASB Bank, Air New Zealand, Fletcher Building, the Customs and Justice departments and, since April, Land Information New Zealand.

Its exact ranking on the IT services supplier list is a little hard to ascertain in a market that is already feeling ripples from Telecom's impending split.

According to IDC, last year's top five providers were Telecom-owned Gen-i, Hewlett-Packard, Datacom, IBM and Dimension Data.

But Datacom does the numbers differently. By deducting the substantial portion of Gen-i's revenue that comes from telecommunications services, it puts itself at No2, behind HP.

And it points out that HP's revenue will take a hit of up to $180 million after changes signalled last December to its decade-old outsourcing contract with Telecom, brought about in part by the telco's planned division into separate network and retail companies.

Versleijen-Pradhan agrees that represents a big chunk of HP's business. Further clouding the picture is the sale of Gen-i's 110-strong software solutions arm in the middle of the year to Indian company Infosys, although lost revenue may be offset by a partnership between the two.

Those changes, combined with Datacom's faster growth than its competitors, should continue to push up its market share, which went from 6.5 per cent in 2009 to 7.5 per cent last year. And that is just in New Zealand. Although firmly rooted in this country, in the past year Datacom's overseas sales topped what it made in New Zealand, at $380 million compared with $345 million.

The difference will only widen, says Jonathan Ladd, the Sydney-based chief executive of Datacom Group, as overseas growth accelerates.

"Growth in New Zealand is steady - it hasn't maxed out yet - but outside New Zealand it is exponential.

"We're No5 or 6 in the Australian IT services market, with sizeable businesses in every capital city bar Hobart and we're also in Kuala Lumpur and Manila."

The company has 940 Australian staff. In Asia, meanwhile, contact centre operations - no longer just answering phones but also interacting with customers via social media - employ 600.

At the present growth rate, Ladd says, the billion-dollar mark isn't far off.

"If you look at our growth curve and extend it upwards, we should cross it in the next three years or so."

Minding the IT shop of government agencies and big businesses is just part of what Datacom does. It provides payroll services to 4000 small to medium-sized New Zealand organisations, runs overseas helpdesks for numerous big technology companies, undertakes large software projects such as developing Statistics NZ's online census system and carries out business processing - handling claims, for instance - for the likes of superannuation companies.

Ladd describes its activities as "running right across the stack" of services.

Greg Davidson, Auckland-based head of Datacom New Zealand, says each of the regional offices operates in a largely standalone fashion, catering to local customers and drawing on group resources as required.

For all its size and diversity, says Ladd, the company responds in a "family" way to events such as the 2007 death from cancer of Frank Stephenson, by that time Datacom chairman.

Stephenson played a pivotal part in establishing Datacom's consulting, outsourcing and software development offerings during the 1990s, says Davidson. The project management disciplines he instilled, emphasising getting an accurate handle on project scope, are still followed by the company's 700 software developers.

The Stephenson model seems to work. Datacom can claim a string of project hits, having written the ASB's online banking system, Air New Zealand web sales software and PostShop's counter system.

If there have been misses, they've been well hidden.

"You'd have been reading about us more if our software development reputation wasn't solid, wouldn't you?" Davidson points out. Microsoft's Muckleston says it would be difficult to find an unhappy Datacom customer.

"It's a good competent operator - you don't find a lot of bad projects around."

He says Datacom's approach is to put in whatever resources are needed to bring projects to a satisfactory end, and if they turn out to be less profitable than expected, to take it on the chin.

Last year the company again had to contend with the sudden demise of a key figure when group chief executive Michael Browne died at the age of 47. Ladd, a non-executive director, took over as group head.

"It was a huge shock - he was there Friday and gone Monday," says Ladd.

Browne is credited with getting the company off the ground in Australia in the 1990s after an attempt a decade earlier failed. Success came by building the business on top of a Microsoft support contract that had already got Datacom across the Tasman.

It branched into outsourcing in Australia through a deal with P&O Services, of which Ladd is former chief executive, commissioning a data centre in Sydney. Several years and acquisitions later - a departure from its usual organic growth strategy - it has three Australian data centres and operations in most states.

The one recent blemish on its performance record was the closure in the past year of Relate, a Sydney software development business bought in 2007, costing the company $3.2 million and contributing to a 26 per cent profit fall.

"We tried to pull that up into a fully fledged software services business but it didn't go according to plan in a high-cost geography like Sydney," Ladd says.

On what is possibly the biggest IT contract ever to be awarded in this country, Ladd and Davidson have little to say.

Datacom is one of three companies still in the running for inclusion on a government panel of infrastructure-as-a-service (IaaS) - or "cloud" - computing providers. The other two contenders are IBM and Revera, a smaller New Zealand IT hosting company, while a bid by Gen-i has already been rejected.

The successful bidders were to have been named this month, but the Department of Internal Affairs, which steers government IT, now says an announcement will be made next month.

If Datacom misses out, it can expect to see the gradual erosion of its state-sector business. The Government made it clear in an ICT roadmap last year that IaaS will be the "operational foundation" for its future computing requirements.

That will see government departments giving up their own computing facilities and paying cloud providers for the IT services they use - in much the same way that they pay for electricity and other services.

"We have a lot of business in Wellington so this is important both for protecting what we've got and if we want to move into the new paradigm," Ladd says.

To some extent Datacom's success in getting business from state agencies might be attributable to the company's ownership. Although 54 per cent of Datacom is in the hands of Evander Management, a private investment company belonging to the family of rich-lister John Holdsworth (see story, right), the next-largest stake - 35 per cent - is NZ Post's (staff and directors own the remaining 11 per cent).

As well as being a part-owner, NZ Post is also one of Datacom New Zealand's three biggest customers.

The relationship between the two is unlikely to do Datacom any harm in drumming up other state-sector business, according to IDC's Versleijen-Pradhan.

As a shareholder, NZ Post's chief executive, Brian Roche, and finance chief, Mark Yeoman, sit on the Holdsworth-chaired Datacom Group board, which cycles its meetings around the cities in which it operates.

John Blackham, who today runs Auckland software company Xsol, has not changed his mind about the company's dull exterior. But these days he sees that as a virtue.

"To me, Datacom has maintained that understated presence. There's no question it is the most powerful and persistent IT company in New Zealand.

"It's the only one I wouldn't have doubts about. When all about are curling up their toes and dying, Datacom has created a really solid business."

COMPUTERS' PROMISE SPOTTED WAY BACK IN '60s

It was the swinging '60s, and young Kiwi accountant Paul Hargreaves was working in the City of London.

Sex, drugs and rock'n'roll weren't the only sources of excitement; Hargreaves was also witness to the start of the computer era.

He had an assignment at industrial giant English Electric, one of the first organisations with a computer services bureau.

That started him thinking his hometown Christchurch, also home of family accounting firm Hargreaves & Felton, would be the ideal place to start a computer bureau.

"It seemed to me a bureau sort of a town because IBM at that time was chasing around trying to sell Christchurch companies a computer of their own but they shied away from that.

"There was big money involved and there were few people around with the skills to manage such an operation, let alone write software."

Aged 26, he returned home to look for a collaborator, roping his former accounting teacher, Bernard Battersby, a partner at Pickles, Perkins & Hadlee, into the idea.

They persuaded their respective firms to back what would be a pioneering Kiwi computing venture.

"This was right at the beginning. I think the Treasury had a computer and one or two of the computer companies had something in the way of a bureau, but that was all.

"It was literally the ground floor."

In 1965 they founded Computer Bureau (CBL) with £30,000 in capital, leased a computer from ICL and waited for a British dock strike to end so they could take delivery of their new acquisition.

In the meantime, Hargreaves says, they made the big investment decision to double the memory of the room-sized machine from 32K to 64K, about the same amount as a modern hand-held scientific calculator.

Demand for the bureau's services saw it expand northwards so that by 1971 it had computer centres in Christchurch, Wellington, Hamilton and Auckland, and was doing $1 million of business, with Hargreaves and Battersby playing key executive roles.

Battersby died in 1987 of pancreatic cancer and Hargreaves resigned from the Datacom board in 2006 when he was diagnosed with the same disease.

"Unlike Bernard, I had the good fortune to subsequently make a complete recovery."

In 1984 CBL was renamed Datacom and in 1989 it merged with CCL, whose owner, John Holdsworth, through family investment company Evander Management, today has a 54 per cent stake in Datacom. NZ Post is the second-biggest shareholder, with 35 per cent.

Holdsworth, who debuted on the NBR Rich List this year with assets of $150 million, declined to be interviewed. He was appointed an Officer of the NZ Order of Merit in this year's New Year honours, the same honour received by Hargreaves in 2007.

In 2006 Datacom was rumoured to be on the point of being sold to either IBM or Hewlett-Packard, but Greg Davidson, who heads the company's New Zealand operations, says he's "quite sure" there's no truth to the story.

- NZ Herald

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