Saying that a reorganization in May required a different skill set in its executive ranks, Sage Group plc today said that its North American chief executive and chief financial officers have left the company.
Sage CEO Ron Verni and CFO James Eckstaedt left following a board review of Sage's North American business. In a financial trading update, also announced today, Sage said that it expected North American organic revenue growth for the fiscal year ended Sept. 30, 2007, to come in at only 4%, below all of Sage's other geographic regions.
But in a conference call with European press this morning, Sage Group Chief Executive Paul Walker attributed the departure of the two executives to a reorganization of Sage's North American operations in May into four divisions. On May 9, Sage announced that it was forming the Business Management Division, encompassing accounting, ERP, CRM, and related businesses for small and medium-size companies, and the Industry & Specialized Solutions Division, for construction, real estate, and non-profit companies.
These two new divisions joined the Healthcare and Payment Solutions Divisions to create the four-division structure in Sage's North American operations.
"Having put this new structure in place, we needed a change of style," Walker said. "We needed a change in how we managed a divisional business, compared to running an executive team. It was appropriate to bring in a new CEO with experience in managing a divisionalized business."
Nevertheless, during a question-and-answer session with reporters, Sage Group Finance Director Paul Harrison acknowledged that the company had expected a better than 4% organic revenue growth performance. "There is potential for better organic growth in this region," he said.
Walker said he did not expect the executives' departures to cause any disruption in Sage's North American business, about which, he said, he continues to be "extremely positive," Despite the 4% revenue gain expected for the fiscal year, the officials described the £500 million North American business as highly profitable, with EBITA of £100 million expected in the fiscal year.
A search to find replacements for Verni and Eckstaedt is under way, Walker said, adding that the company was close to hiring a new chief executive for Sage Software Healthcare, whose president and CEO, Andrew Corbin, resigned in July.
Analyst reaction to the announcement of the departures centered more on the factor of growing competition in the mid-market in North American than Sage's move to the divisional structure.
David Bradshaw, a principal analyst with London-based Ovum, said in an interview with Managing Automation that he thought the new divisional structure was only one factor in the departures.
"I buy it to an extent, but they weren't delivering the organic growth that they needed," Bradshaw said. "It's been going on for a while, but I'm not sure they [the executives] are to blame." Bradshaw said that growing competition, particularly in the U.S. market from such competitors as Microsoft, was also a key factor.
Bradshaw said that the management shakeup may indicate a change of strategy, which has been to grow Sage's business through acquisition, to one with greater emphasis on organic growth. Nevertheless, even such a change will present Sage with challenges. "They need to develop an integrated product set," he said.
In its trading update issued today, Sage confirmed that group revenue for the year will be £1.158 billion, compared with £892 million in its 2006 fiscal year, with EBITA at about £283 million, compared with £239 million. Organic revenue growth for the year for the entire group will be about 7%, with the United Kingdom expected also to come in at 7%, mainland Europe at 10%, North America at 4%, and the rest of the world at 17%.
Sage Group will report its fiscal 2007 results formally on Nov. 28.