'Hands off ' philosophy central to Datacom success

FIONA ROTHERHAM
Last updated 05:00 24/09/2012

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In the first of a series on business success from our global exporters, we investigate how Datacom has achieved a 14 per cent compound annual growth rate in revenue over the past decade. Fiona Rotherham talks to group chief executive Jonathan Ladd about keeping a small business culture while growing a large company.

When asked what his biggest mistake in business has been, Datacom group ceo Jonathan Ladd gave a typically insightful though non-specific reply.

'Whenever I hear CEOs asked that question or a variant about what they would have done differently, the reply is always generally the same - I should have acted sooner on the things I did do. Keeping up the pace is critical and trusting your judgment and that of those around you is key."

The latter part - trusting the judgement of those around you - is central to how he's run the firm since he took over the helm two years ago. He'd been on the board since 2006 but suddenly found himself in the driver's seat with the death of Michael Browne, who suffered a heart attack while mountain biking just weeks after being appointed ceo.

"It was very traumatic for the business. I may have survivor guilt but I find it an exhilarating group to lead, testament to our previous CEOs," Ladd says.

He's a former global chief information officer for P&O which was Datacom's first customer when it set up in Australia in the 1990s so he knew the company well before coming on board.

The privately-held company, owned predominantly by the Richlister Holdsworth family from Wellington and NZ Post, recently reported another year of strong growth. Revenues for the year ending March were up 9 per cent to $788 million, net profit rose 12 per cent to $25m, and staff numbers grew 13 per cent to just over 4,000.

Just over half of the company's revenues now come from outside New Zealand, mainly from Australia. It also expanded into China this year, provides technical phone support services from offices in Malaysia and the Philippines, and has a footprint in North America.

Recent wins include being selected as prime contractor for an $80m overhaul of the Immigration Service's computer systems and being named by Government as one of three providers of data centre capacity and "infrastructure-as-a -service".

Given the company - then named the Computer Bureau Ltd - was started 47 years ago by two Christchurch accountants, you could hardly call it an overnight success. But it has been a consistent performer, is one of the few Kiwi companies to have made a successful foray across the Tasman, and has now grown to become one of the largest independently-owned IT services companies in Australasia.

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It has also kept a relatively low profile, preferring customers to spread the word.

There was a comment from a recent focus group on the company that resonated with Ladd: "This is a large company that resolutely refuses to behave like one." Speaking at the annual Morgo conference for entrepreneurs this month, Ladd said part of its success was being unlisted and able to take risks when it wanted to because it had stable shareholders who take a long-term view. Its broad spread from datacentres, software and integration, IT management, business processes such as payroll and tech support ,and cloud computing, also gave it resilience, he said. It had benefited from others in its industry going under since the global financial crisis but preferred the lower-risk option of growing organically rather than via acquisition. It will consider buying a company or collaborations where such a deal adds critical mass, complementary skills and geographic expansion.

But the bedrock of its success, Ladd said, was allowing each strand of the business to be self-regulated with a hands-off approach from head office in order to keep the entrepreneurial spirit alive.

Datacom's head office comprises just four people - the CEO, the chief financial officer, the chief operating officer, and a newly appointed communications director - 0.1 per cent of the payroll. There is no HR department. When Ladd gave a speech at Datacom's annual conference this year he talked about the purpose and values of the company, what made it good and what was needed to carry on being good. One staffer, a recent "refugee" as Ladd calls them from another IT company, told him that he had never listened to a speech by a CEO before that didn't have any numbers in it.

"That's a really important part of our success, that cultural difference," Ladd says.

He's a straight talker who discourages dissembling and expects staff to show tenacity when the going gets tough. An independent measure is taken yearly on people engagement and this year the company had edged up to the 85th percentile on a global basis for IT industry firms.

"If you get engaged people you will get satisfied customers, you will get innovation and risk taking, and results will follow," Ladd says.

The 25 local directors who run the company are paid bonuses based on a scorecard that includes people engagement, customer satisfaction, and lastly financial performance.

These directors have skin in the game via a staff share scheme. They also have hire and fire responsibility, set their own targets and have complete control of their own profit and loss. "We have enough commonality of view with some very old hands to go with the new heads and they get an understanding of what they can and can't do," Ladd says.

He cites the example of a small software company that Datacom bought in Sydney. It hadn't read the market properly as it proved to be different to that in New Zealand and the purchase ended up failing to deliver on the investment. "We know that was a collective failure, not that one person got it wrong. It was a collective failure because we didn't follow what we know and that is you have to be close to your local customers and allow locals to follow what they think is best." The autonomy at senior management level is backed by a leadership training programme focused on strategic management, leadership, motivation and managing change.

"The way we do things allows people to chase what they think is right and gives them permission to serve the customer," he said.

Part of the values leadership involves a Learning for Life programme where up to two per cent of profits in each local market can be spent on community development. Staff can also take two days a year to do volunteer work.

One of the constraints on future growth, in particular in Australia and New Zealand, was a lack of skilled people, Ladd said. Demographic trends and a drop off in the number of university students studying IT was a real threat, Ladd said. "We have to do something about that." He's fond of quoting Jack Welch, the legendary former boss of GE, who said once the rate of change internally gets below the rate of change externally the writing is on the wall.

That means you need to have staff that can understand the trends and how that will impact on their market. It also means having to export more, moving beyond Datacom's dominance in New Zealand and Australia, Ladd says.

The long-term goal is to become number one or two in each of its markets.

"We have to understand how we can compete in Asia. We have to export to protect our home market," Ladd says. "What drives us at Datacom is to keep allowing people to be able to do what they need to do in their local markets and then further out."

Learnings:

1  Allow people a significant amount of freedom - be minimally prescriptive with maximum flexibility, within the agreed broad statement of direction.

2  Encourage entrepreneurialism and then fail fast.

3  Limit the amount of your beachheads to one to two things you try this year not five.

4  Self-fund growth by ploughing profits from the business back in so you can take longer term risks.

5  Balance short and long-term objectives.

6  Foster collegiality, keep your head office overhead low, and don't do the seagull mentality.

7  Allow businesses to evolve to suit their local markets. Let the local managers follow their own noses and dictate what kind of local culture they have, within the overall Datacom culture.

8  Ensure devolved leadership with profit and loss visibility and ownership.

9  It's always all about the people. Recruit well and then allow people to chase what they think is right and not to let go of their entrepreneurial spirit.

The numbers
Staff numbers: 4,000
Revenue: $788 million 2012
Net profit after tax: $25 million 2012
Export as percentage of revenue: 52%
Location: New Zealand, Australia, Malaysia, the Philippines, China, US

If you want to know more about Datacom's tips for success, leave us a question in the comment field.

- Fairfax Media

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