Symantec 4.0: A New Strategy

Symantec reported revenues of $6.73 billion in fiscal year (FY) 2012 with a profit of $1.17 billion, and recently reported third quarter FY 2013 results were higher than Q3 2012. In fact, Steve Bennett, the company's president and CEO, stated, "We continue to deliver better than expected results."

So why the change? CEO Bennett said revision is necessary because "Our system is just broken." For instance, in analyst teleconferences the company admitted that only partially integrated acquisitions have resulted in a lot of redundant product silos. The company needs to cut duplicative activities, improve customer renewal rates, improve its slow decision-making processes and dissolve communications barriers. It should also want to address negative customer service criticism in 2012, as well as its internal security after intruders stole source code last year.

Symantec's expressed goal is to address underserved customer needs better than its competitors. This is not just talk; Symantec has defined specific action items. For example, it plans a business continuity value-added service, an effort that will take a minimum of six months to as much as two years to complete.

Tackling tough issues is a good thing as it can provide a competitive differentiation--if it works. However even if the problem proves intractable, it shows willingness to take risks--and to fail. The companies that succeed in the long run are those that accept inevitable failures but have enough successes to more than offset them.

What Symantec 4.0 Means

Let's look selectively at what Symantec is planning to do in its 4.0 effort -- product portfolio, reorganization, and financially.

On the product front, Symantec divides the competitive landscape into startups, specialists, and integrated stack providers. It views itself as a specialist (along with direct competitors such as Commvault and McAfee). It also competes with startups (such as Dropbox and Veeam) that focus on very specific products or services; and integrated stack providers (like IBM and Microsoft) that are platform-focused.

Symantec feels that it wins (and will continue to do so) by focusing on being "best of need," which it views as best of breed tailored to the customer, scale, integration and cross-platform.

An interjection: Symantec's "best of need" claim is something customers need to consider closely. General purpose software has swept the IT industry for a number of years now. So as a customer, you can choose parameters to tailor products to some extent, but there are limits. Going beyond the boundary conditions of your software to introduce enterprise-specific functionality may create problems (such as the inability to upgrade to a new release of software). There are ways to get around this, but they have to be examined carefully.

Symantec states that "best of need" efforts focus on addressing unmet, underserved requirements in three areas: user productivity and protection (simple solutions for home and work); information security (safety and compliance for businesses); and information management, availability and scalability (where business information and applications are kept up and running).

Symantec does not appear to be abandoning any products that fit into the three areas. However, the focus is to deliver ten new, integrated modular offerings over the next 6 to 24 months that fit into the above-mentioned categories:

Although Symantec will not rule out acquisitions, it plans to focus on organic growth, which includes an increase in R&D spending from 14% to 16%.

Next page: ReorganizationAmong the objectives of Symantec's reorganization are improved teamwork, increased customer focus, consolidation for leverage (i.e., eliminate redundancies) and upgraded growth capabilities (such as change sales process management).

The reorganization includes significant layoffs that will occur by June 2013 (having set aside $275 million for severance pay indicates how significant it is). Symantec's challenge is to get remaining employees to remain productive and keep them committed to the new strategy, and not just give it lip service.

Finances

Publicly-traded American corporations are yoked to quarterly results that ideally are supposed to trend upward each quarter. Otherwise, the stock market tends to punish a company's share price. There's no way that Symantec can deliver those rosy results in a transitional year. Quite frankly, it has to get the financial analyst community behind it and cut it the necessary slack so that its stock price is not trashed. Symantec promise 5% or more organic revenue growth and 30%+ operating margins in subsequent years as a "carrot" that will help it avoid the market's "stick."

The question is whether shareholders focus on short-term results, or are willing to be patient as long as they understand the need for change. Symantec needs enough of the latter shareholders so that it has time to make its transition.

Mesabi Musings

Customers naturally focus on products. They want a vendor to do well in part because failure means they have to switch products, which can be painful. They also want to know that a vendor's products have a future (i.e., updates and innovations) that fit in with the changing times.

From a company perspective, business models that may have been successful in the past come under regular attack. Companies may be forced to remodel themselves without abandoning existing strengths.

So from a practical perspective, IT customers and technology professionals should keep a close eye on Symantec as it attempts a significant transition. In the past, too many companies have waited too long, and were either unable or unwilling to make the necessary changes.

We can't know whether this is the right strategy, but the message that Symantec projects seems rational and coherent. Yes, they may very well be biting off more than they can chew in the time frames that they suggest. Yes, they may have made short-term financial promises that, in retrospect, may seem too optimistic. But frankly, that potential overreaching seems to be a much better bet than trying to simply fine-tune the status quo. Boldness may not necessarily win, but meekness would probably have been a certain loser.

Symantec is a client of David Hill and the Mesabi Group.