Business software: Intelligence test

John Schwarz sees a bright future as his company teams up with a global giant and reshapes the hottest growth area of corporate software.

It may have been one of high-tech’s biggest takeovers of 2007, and it was not its best-kept secret. By mid-September, anyone following the industry had heard that Business Objects SA (Nasdaq: BOBJ), a large and fast-growing French business-software company with headquarters in Paris and San Jose, Calif., was about to be acquired. The most likely suitor: German corporate IT giant SAP AG (NYSE: SAP). On Sunday, Oct. 7, the two companies confirmed the rumours, announcing an estimated €4.8-billion deal (about $6.7 billion).

No one seemed more excited than Business Objects’ Canadian CEO, John Schwarz. He crowed to analysts that it was a “hugely important day for both organizations,” but especially his own. “This new relationship with SAP only strengthens our ability to put further distance between ourselves and the competition,” he said. “We have a very bright future ahead of us.”

The future began on Jan. 15, when the offer was approved by investors. Now, the hard part begins: making all those promises come true. The burden will be shouldered largely by Schwarz. The agreement calls for Business Objects to remain an independent division within SAP, with the 57-year-old as its chief exec (he also joins SAP’s executive board). It will be his task to grow the business as a separate yet integrated piece of the larger organization.

The deal reshapes the hottest growth area of corporate software, business intelligence, a category of technologies that gather and analyze data to help office warriors make better decisions. According to IDC, a tech-industry research firm, BI has grown into a US$7-billion industry in 2007, and will expand at an annual rate of about 12% through 2011. Business Objects, founded in Paris by chairman Bernard Liautaud in 1990, has been at the forefront, competing closely with Canada’s largest software company, Ottawa-based Cognos Inc., among others. As BI has grown, so has the attention of the lumbering giants of corporate IT — SAP, IBM, Oracle and Microsoft — each seeking new ways to get bigger, faster.

When Oracle got to BI and snapped up third-ranked Hyperion of Santa Clara, Calif., for about US$3.3 billion last March, investors took it as a sign that it wouldn’t be long before Hyperion’s larger rivals, Business Objects and Cognos, would also be bought. (Indeed, in November, IBM announced a $5-billion deal for Cognos, its largest acquisition ever.)

Big tech mergers and acquisitions are fraught with risk, largely because of the challenges inherent in integrating product lines and corporate cultures. But the SAP and Business Objects marriage makes for an especially odd couple. SAP has steadfastly shunned making major acquisitions, preferring to focus on internal development to expand its offerings, so it lacks experience; Business Objects has grown into a 6,000-plus-person global operation largely on the notion that BI software is best sold independently from the major IT purveyors, so that it can be integrated with any database system. Putting the two together is either a match made in heaven — or bedevilled from the start. “It will be interesting to see how all that plays out at an executive level,” says Jim Davis, chief marketing officer of SAS Institute Inc., a privately held company based in Cary, N.C., and a direct competitor to Business Objects. “I cannot imagine that it [the SAP-Business Objects organization] will stay in its current form long-term. It doesn’t make a lot of sense to me. The people at SAP need a business intelligence entrée to expand their offerings. Why would SAP buy Business Objects just so they could be a separate company?”

Schwarz is out to prove the skeptics wrong. A 25-year veteran of IBM, and former president and chief operating officer of IT security heavyweight Symantec Corp. (Nasdaq: SYMC), the low-profile executive may be uniquely suited for the job. An engineer by both training and character, he is a well-respected, pragmatic manager who keenly understands both technology and business, and relishes the process of fitting the pieces together. Successfully completing this feat of corporate engineering will be his greatest test — and likely his last.

Schwarz knew it was going to be a busy fall. He said as much during a talk one sunny morning last August, shortly after SAP had begun to propose rough ideas of how an acquisition might work. (Naturally, he gave no hint of the discussions at the time.) The setting was a hotel in Scotts Valley, Calif., not far from his home in Santa Cruz, a coastal haven for the tech elite that is just “over the hill” (i.e., on the other side of the Santa Cruz Mountains) from Silicon Valley and Business Objects’ San Jose headquarters. Schwarz, a lean six-foot-three, commands a quiet physical power. Once an avid player of soccer and volleyball, he now exercises using a military health regimen for strength, flexibility and cardio that requires no weights or machinery — perfect for the solitude of hotel rooms during his frequent global travels. “For me, it’s a kind of religion,” he says.

Schwarz was born in 1950, in Prague, to an engineer father and commercial artist mother. His life took a dramatic turn during the Prague Spring of 1968, when Alexander Dubcek’s reforms in the Czechoslovak Socialist Republic failed. As a 17-year-old with a year left of high school, the politically aware Schwarz was, like his friends, making plans for the future. Nearly all came to the same conclusion: “The environment was simply not conducive to a life that was worth living there,” he says.

When the Soviet Union and its allies invaded, Schwarz’s fears were realized. About 10 days later, he fled with friends by train to West Germany, part of an exodus that over a year would see 150,000 professionals and entrepreneurially minded people — about 1% of Czechoslovakia’s population — leave the country. But Germany was not his final destination. After he spent a month there, his father called from London; the elder Schwarz had served with the Royal Air Force in World War II, and held landed resident status, so Schwarz joined his parents and younger sister in the U.K. Having renounced their Czechoslovak citizenship, the family remained in London for only a short while before tough economic conditions forced them to look abroad. “We applied to the Swedes, Australians, the New Zealanders, the Americans and the Canadians for immigration, and the Canadians processed our applications first,” Schwarz says. Officials at the Canadian High Commission urged the family to consider moving to Montreal or Winnipeg instead of Toronto or Vancouver; lacking French skills, they decided on Winnipeg. “We didn’t even know where it was. Somebody said the middle of the country,” Schwarz recalls. One non-stop flight later, they woke up on an October morning in a hotel room at Portage and Main, staring out the window at a fresh layer of snow on the ground.

Six years later, Schwarz was a Canadian citizen, with a University of Manitoba Computer Science degree under his belt, newly married and living in Toronto. He joined IBM Canada, writing software applications for manufacturing. About a year and a half into the job, an aging vice-president of Schwarz’s division asked him: “Fifteen years from now, what would you like to be?” Fumbling to set a goal on the spot, Schwarz set his sights high, and responded he wanted to be IBM president. “I don’t even know why I said it,” he recalls. “I didn’t have a burning ambition. I just felt I might as well make it as big as I could see.” Still, the VP gave Schwarz some good advice — and helped him build a multi-step plan that approximated a career path. “I said to myself, ‘Why not?’ And it worked. I followed it religiously, I would say, until today.”

Schwarz never did become president of IBM. But he spent 25 years working his way up, getting hands-on education in many facets of the business in Toronto. He eventually became director of the company’s celebrated software lab in the early 1990s, and held U.S. assignments that led to several divisional VP jobs at Big Blue’s headquarters in Armonk, N.Y. “I’ve seen him stand up in front of a roomful of engineers and give an impromptu one-hour speech on technology and its directions,” says John Swainson, chief executive of CA Inc., based in Islandia, N.Y. — another Canadian and former IBM exec who now leads a global corporate-software company. Swainson worked for Schwarz at IBM in the 1990s, succeeding him as director of the Toronto lab, and continues to speak to him every few months. “ John has the ability to motivate engineering teams,” he says, “which is a big deal in this industry.”

Schwarz speaks fondly of his time at IBM, where he never stayed in any role longer than about two years. Why did he leave? “Well, I’m an ambitious sort,” he explains, “and after 25 years, I concluded I wasn’t going to get to be the CEO of IBM.” At 49, he figured on about 10 more years as an executive, and wanted the chance to take full responsibility for a business. “One thing about IBM is you’re kind of coddled. You’re always surrounded by people who can save you from making big mistakes, which is good, but it’s kind of stifling.”

In 1999, Schwarz tried his hand as CEO of a New York–based online media startup, and two years later helped sell it to Microsoft. So he found himself sitting bored on a Florida beach, when he got a call from Symantec CEO John Thompson, a former manager at IBM, asking if wanted to be his chief operating officer. “I don’t think I even asked him how much I would make,” Schwarz says. While Thompson focused on external matters — the board, investors, media — Schwarz ran everything inside the company, helping revenue grow from about US$800 million to $5 billion by 2005. In his four years there, he took careful note of Thompson’s leadership style. “I’m an engineer by training,” he says. “So to me, projects and schedules and deadlines and accuracy and quality — all those things are the stuff of life.” In contrast, Thompson looked at attitudes, relationships and the psychological effects of decisions. “He has a great gut feel for what’s right and what’s wrong,” says Schwarz. “No amount of business cases or proof points would sway him from that gut feel.”

In 2005, Schwarz followed his own gut and walked away. Symantec had just acquired rival Veritas for US$13.5 billion. He and the CEO of Veritas were to divide the operations, with Schwarz getting product development. “I concluded that the real fun part of the job I had when I was running the end-to-end company was going to disappear,” he says. “You know, at my age, if you can’t have fun coming to work, why be there?”

Business Objects seemed custom-fit: it was a well-run company hitting the US$1-billion annual revenue milestone that wanted to break out to the next level. And it needed a chief executive. “I am not blindly ambitious so I have to be the top dog in every circumstance, but I’ve been in just about every job in this industry and I have a very good feel for what works and what doesn’t work,” Schwarz says. “With that level of experience, it’s very hard to divide the job into pieces and somehow share the responsibility with other people without feeling constrained. So I guess I can say, Yes, I think it’s essential for me at this stage of my life to be in a CEO position.”

Of course, with Business Objects owned by SAP, maintaining ultimate authority might not be quite so straightforward.

The issue of making clear just who calls the shots was on Bernard Liautaud’s mind in 2005 when he hired Schwarz. Liautaud had managed Business Objects’ growth for 15 years, and decided to make way for someone experienced with larger organizations. Schwarz worked quickly to leave his mark, hiring new executives in marketing, human resources and IT. He also urged the company to make acquisitions part of its growth plan: from 2005 through 2007, it made eight of them worth about US$500-million. Schwarz tore a page from IBM’s playbook and began offering more complete systems and sevice. “I’ve brought a lot from IBM to this job,” he acknowledges.

Business Objects has always defended its independence as its key competitive differentiator. While Oracle, Microsoft and SAP urged customers to transfer as much of their IT systems as possible onto their platforms, Business Objects remained agnostic, selling technology that could use and analyze data from multiple platforms. It’s an approach Schwarz argues will become more critical as the data BI software analyzes comes from new sources — not just internal databases, but external market information and so-called unstructured information in e-mails, documents, online files, and the like — the sources of some 80% of all information inside a company.

But his plan to compete on independence is muddied now that SAP owns the company. “We really intended to stay as a stand-alone business,” Schwarz said in a late-October interview, noting that SAP approached Business Objects, not the other way around. What intrigued him and Liautaud was SAP’s vision of how Business Objects could operate autonomously but still have the market power and financial strength of SAP. “I think the company gets the best of both worlds,” Schwarz says. Business Objects will get SAP’s BI-related technologies, and there will be closer collaboration on some of SAP’s platforms. But Schwarz says Business Objects will be mostly left to pursue its strategy.

Nevertheless, Schwarz will be working overtime, especially to alleviate customer uncertainty. Already there are signs that fewer deals are getting done while the dust settles: Business Objects’ quarterly financial results for the period ending Sept. 30 (before the acquisition announcement) fell short of expectations, which Schwarz chalks up to the effect of market rumours; the company has also suspended its forecast for year-end figures, which it will release Jan. 30.

The clock is ticking, and Schwarz can hear it. He knows this will probably be his last hurrah as an executive. “My next steps, wherever, whenever they happen, will probably take me more into the public service,” he says, citing his commitment to improving the environment as well as the U.S. education system. “I don’t need to be CEO of GE, or of Google for that matter. This company satisfies virtually everything that I wanted to do, and very importantly, it satisfies it in a context that it’s still small enough that it feels like it’s mine.” Should he begin to feel stifled by SAP’s oversight, he may choose to spend more time sailing on his boat, Primadonna, near his vacation home in B.C.’s Okanagan.

Then again, Schwarz is now sitting on the executive board of SAP. And while that’s not quite the same as being president of IBM, he’s closer then ever to that goal he set more than 30 years ago. Perhaps he will end up in Germany, after all.