Anatomy of an acquisition: creating the “perfect storm”

Conventional wisdom on developing new capability holds that there are three distinct approaches – companies can build, buy or ally. Each path is viewed as offering its own advantage: while many organizations acquire companies for quick entrée to new IP or resources, others choose to partner for low cost access to technology, and yet a third group tends to invest in internal R&D to support more gradual evolution of new products or services. But what if it were possible to simultaneously pursue organic growth, alliance relationships and a fast ramp up via acquisition? According to Laurence Capron and Will Mitchell, authors of a Harvard Business Review Press study of various growth tactics, sustainable growth is most likely achieved when business leaders make active choices across the range of growth options. But what does it take to make this multipronged strategy successful? In the CenturyLink case which follows below, the key elements are keen assessment of market direction, cultural fit between merging partners, an integration plan and vision for the steady evolution of the company’s new – and growing – IT services business.

Gary Gauba, president, CenturyLink Cognilytics
Gary Gauba, president, CenturyLink Cognilytics

CenturyLink’s acquisition of Cognilytics this past December was in part a product of the company’s determination to capitalize on one of the most significant trends in IT markets today. While estimates for Big Data growth vary depending on who’s counting, by virtually all accounts, the data explosion is a reality that presents undeniable storage and management challenges for many companies. Data may also offer potential opportunity, though, provided appropriate tools are available to allow companies to delve into the massive amount of information generated by company systems, social networks, and, increasingly, the physical world. Information without insight represents a problem; data viewed through an analytics lens can offer the user competitive advantage, a key value proposition promised by Cognilytics. Founded by Gary Gauba, an entrepreneur with two other successful business launches under his belt, with “a mission to help customers monetize their data as a strategic asset,” Cognilytics is a recognized provider of predictive analytics, decision sciences, Big Data deployment, management and visualization – a solution area that CenturyLink has targeted for development over the past year or so in its emerging IT services business.

According to Gauba, Conilytics’ primary attributes include the company’s facility with Big Data, domain knowledge, deep expertise with SAP-based customer environments and strong growth. Reliving Cognilytics’ origins, he explained: “It was clear to me that the next decade would be the decade of data,” a prediction substantiated by his note that half of all Fortune 500 companies will have a chief data science officer by the end of 2015. Gauba also pointed to extensive consulting resources and Cognilytics’ ability to apply vertical knowledge in the deployment of analytics to solve business problems. At the head of each of the company’s vertical focus areas is a veteran from financial services, retail, consumer products, health care, oil and gas, manufacturing, high-tech and logistics – domain expertise that Cognilytics leverages in first encounters with clients. The company’s services strength also extends to SAP implementations: while it is platform agnostic and can work with a variety of customer environments, Cognilytics has developed 17 analytics-based use cases for SAP, which, Gauba argued, is deployed in 70 percent of the Fortune 500, and has a deep foothold in the enterprise finance software market.

And while services are an important asset, Gauba noted that many analytics functions have been productized via the company’s “technical wrapper” – its data management, analytics and visualization platforms, which feature a high performance fabric and architecture that leverages Hadoop or SAP’s HANA to deliver “analytics-as-a-service.”

In Gauba’s view, the merger with CenturyLink brings the Cognilytics Analytics-aaS vision closer to reality as the company’s extensive data centre footprint (57 globally) and cloud expertise can form the basis for SaaS-based analytics delivery, and as data from the 20 percent of global Internet traffic that flows through the CenturyLink network serves as the foundation for the creation of architectures using deep machine learning techniques: with “their capability combined with our capabilities, we will ultimately provide analytical services to the market as it matures in that direction.” The merger also offers Cognilytics new market exposure – approximately 90 percent of Fortune 500 companies are CenturyLink clients, Gauba noted. But most attractive to Cognilytics was the CenturyLink management team, which Gauba characterized as “down to earth” and “visionary”: “it came down to the chemistry, the culture, the assets which compliment what we brought to the table with SAP, and Girish’s vision of entrepreneurship from within a company came together to create a perfect storm.”

Girish Varma, president, global IT services and new market development, CenturyLink
Girish Varma, president, global IT services and new market development, CenturyLink

“Girish” is Girish Varma, president, global IT services and new market development at CenturyLink, who Gauba will report to as president of CenturyLink Cognilytics. Varma has presided over creation of CenturyLink’s IT service division, which benefits from the addition of 200 staff members who come with Cognilytics. According to Varma, some of these are located in India, a group that will have “synergies” with the existing CenturyLink team of a couple thousand that also reside in India. CenturyLink also has 200 or so IT services staff who are located in the US.

But the acquisition was also inspired by market trends. Primarily a network services provider, CenturyLink has expanded over the last half decade or so into a number of additional enterprise business services, such data centre (with the Savvis and Tier 3 acquisitions) colocation, cloud, hosting and managed IT services. However, to address the trend towards commoditization of infrastructure products, the company has also worked to develop its services portfolio, including broad IT consulting that serves, Varma explained, “to help sales gain traction in discussion with CXOs around reducing cost, accelerating time to market and nudging them towards virtualization, cloud, etc.” Based on success of this activity, which generated “huge pull through for the rest of our product portfolio,” CenturyLink opted a year and a half ago to create a new IT services business unit targeted at developing services which are complimentary to the CenturyLink hosting and application platforms and that not only pulls through infrastructure but generates its own direct revenue growth.

“To achieve this,” Varma explained, “we focused on systems integration for new technologies – so introduction of new services around cloud enablement and that brought us to Big Data and analytics.” Market interest drove CenturyLink’s orientation around Big Data, as did the latitude this would provide to branch in multiple directions: “the most attractive thing about analytics is that this capability allows us to be industry vertical,” Varma noted. While vertical solutions are difficult for a telco to achieve, with acquisition of Cognilytics, CenturyLink is better armed to target discrete solutions for each vertical. In terms of product integration, Varma intends ultimately to take the high end vertical solutions developed by Cognilytics and productize these for delivery via the CenturyLink cloud platform, an approach that he expects will resonate especially well with the company’s extensive mid-market enterprise customer base which may not be able to afford customized solutions.

Big Data professional service also lends itself to ERP and CRM deployments that Varma also characterized as a “huge SAP HANA new market play” that CenturyLink intends to address through the combination of CenturyLink and Cognilytics expertise. Part of logic behind acquisition of Cognilytics Big Data expertise is the potential to drive additional business for CenturyLink as a whole: “we are not only growing revenue in the Big Data and analytics business, it is a huge pull through on our conventional business. When Gary does SAP HANA consulting and implementation, behind it there is a huge managed offer on SAP HANA that can be hosted – we can become the preferred provider on SAP implementations.”

Varma views the Cognilytics acquisition as a first step in CenturyLink’s IT services expansion: “As you know when you are trying to grow an IT services business, to be successful, it’s not going to be all organic. It’s going to be strategy around a string of purchases, and this is our first one.” At the same time, he pointed to the sizable IT services resources that CenturyLink has developed on its own: “we are growing organically and through acquisition,” he concluded. Now part of the company’s IT services group and organizationally integrated at a sales level, Cognilytics will continue to operate independently, bringing its unique capabilities to market in standalone engagements or in support of other CenturyLink solution sales – a partnership of sorts that reflects confidence in the shared entrepreneurial approaches of both parent and acquired company. At the same time, Cognilytics was attractive to CenturyLink for its potential to pull through significant recurring revenue for the company’s conventional business – IT hosting for example – as Varma’s goal is to “move the needle” on the large telco’s business, a goal he believes would not be achieved by buying a SaaS based, Salesforce.com-type of company.” Going forward, the partners expect that Cognilytics’ profile in the market for advanced predictive analytics tools, combined with its expertise in finance, retail, health care and heavy asset industries and CenturyLink analytics experience in the telco sector will offer entre to new opportunity – and a proving ground for a united buy/build/ally strategy.

 

 

 

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