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UK Government COO lands Sage CEO role - now what?

Den Howlett Profile picture for user gonzodaddy August 5, 2014
Summary:
Stephen Kelly swaps Whitehall for Newcastle as he takes on the Sage CEO role. Can he succeed. There are plenty of doubts and plenty of questions.

stephen kelly Sage CEO
Stephen Kelly - incoming Sage CEO

SUMMARY: Stephen Kelly swaps Whitehall for Newcastle as he takes on the Sage CEO role. Can he succeed. There are plenty of doubts.

Stephen Kelly, heads north to Newcastle as he takes on the Sage CEO role with effect from 5th November. Guy Berruyer, who announced his intention to retire earlier in the year will leave Sage on the same day. 

In his resignation statement, Kelly is quoted as saying:

I have always been passionate about supporting SMEs, and this role is an excellent opportunity for me to play a crucial role in creating jobs and growth.

Stuart Lauchland has already provided analysis on Kelly's departure. There he observes:

I wrote a couple of weeks ago about what I called IT Stockholm Syndrome in the public sector,whereby conservative (with a small c) decision makers across government still essentially want to gravitate towards the familiar – in this case, the so-called oligopoly of large suppliers. 

Antibodies

I have a different term - antibodies, that work hard to keep things in stasis. It's an extraordinarily dangerous situation for companies that are in transition. What tends to happen is that they continue to grow even while faced with market forces that are moving in a different direction. Then at some point - and that is always hard to predict - the wheels fall off . It then becomes a scramble to regroup.

At Sage, Kelly will be faced with the familiar problem. Angela Eager at TechMarketView correctly points out that:

At staid Sage he will have to deal with the politics of change (no lack of practice in this area) to bring about positive disruptive change while maintaining Sage’s enviable profitability record. That won’t be easy and with major change there is always the risk of losing too many people too quickly if the methods are too far removed from the culture – and Sage cannot afford more delays in its cloud transition.

We cannot know what Kelly will do when he arrives at Sage but we can get some clues from the terms of his compensation package which includes what appear to be unspecified share options in return for: "demanding share return performance conditions."

History echoes

If Kelly is to be the transformation manager that Sage needs, then he has to convince investors that a sacrificing of margin in the short term will be needed in order for the company to become competitive in the SME space. History does not bode well for him.

When Phill Robinson joined IRIS from Salesforce, I had high hopes that he would find a way to take that beast into the 21st century. After five years, Robinson has made precious little progress other than finally acquiring Kashflow in 2013 and then, by all accounts, promptly screwing it up with a messy UI refresh.

Unlike Eager, I'd encourage a root and branch clear out of the old guard and especially those in middle management. Again, history teaches that it is rarely difficult to get top management on board (sic) but it is the Line 2/3 people that need shaking up.

Investor lethargy

Lauchlan has track record with Kelly and is of the view he has what it takes to get the job done. I'd like to agree but I sense that he has one obstacle that will be very difficult to overcome in the short term. Investors have been fed a steady diet of financial engineering for many years. Most of those I speak with in the financial community believe Sage has become a firm value play with a possible PE exit. The terms outlined above would appear to confirm that.

Transformation is not without risk but what most financial analysts fail to understand is that doing nothing is far riskier. If Kelly wants to leave his mark on Sage then that's something he could aspire to while dangling the carrot of growth in front of investors.

The cupboard is bare

One thing is for sure, Kelly is inheriting a very difficult situation on multiple fronts.

Years of neglect mean that core products are old and tired. Even forklifting to the cloud isn't doing it for them. Fear of hearing the truth has kept Sage's doors locked to all but those prepared to give them good news. Competitors continue to eat away steadily at what should be Sage's heartland. Midmarket? Forget it. And to cap it all, the company has just imposed an insane price hike on its core, on premises upgrade customers. Oh yes - and the share price is sluggish.

Right now, Sage looks hard pressed to catch a cold, let alone a break. Let's see if Kelly can change that as Sage CEO.

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