Teradata’s business transformation strikes CEO’s exit

San Diego – Mumbai: Teradata’s CEO Oliver Ratzesberger recently resigned from the top executive role without completing his first year as CEO.

From Teradata’s COO role Ratzesberger was elevated CEO’s role in January this year.

Teradata CEO’s position

However his sudden exit from the CEO’s position recently have raised questions about Teradata’s management – the board members and in particular, Victor Lund, Executive Chairman of Board.

Chairman Lund, Ratzesberger’s predecessor has been appointed as Interim CEO. And the board has initiated a search for a permanent CEO.

Interestingly, Lund’s opening remarks during the analysts call last week had begun with the “CEO change,” where he called Ratzeberger as “great visionary,” but quickly, pointed to his lack of “executional skills,” in context of Teradata’s business transformation plan.

“Oliver did a fantastic job of defining our strategy and developing our vision centered on customer success. However the skills that make a great visionary are not always those that drive great execution,” said Lund in a statement.

“Our Board believes we are at a point in our transformation where strong executional skills are required to continue to drive through a successful completion of our strategy. It is for this reason that the Board decided a change was required at this time,” added Lund.

Lund’s remarks have reignited the old boardroom debate: Can tech leaders become good CEOs or precisely – good businessmen?

The fashion in which the event have unfolded at Teradata over the past two weeks are nothing new in the corporate world, but what has been subservient in triggering them, certainly need a closer look.

Among the key factors that caused a cascading impact on Teradata’s CEO Ratzesberger, business strategy as well as earnings, is the company’s “business transformation” plan, which is nearing its completion.

Unfortunately, Teradata’s top brass including the chairman, board members, investors and shareholders have shown lack of patience with Ratzersberger and questioned his executional skills, although he was with the company for over five years. The role of Chairman Lund and board members has come under firm scrutiny from the analysts.

“Execution has been a challenge this year, but not any more so than past years, and with a number of possible impacts (restructuring, business model transition, new sales leadership) we just don’t see how this justifies such a sudden and dramatic change in leadership,” said Citi’s senior equity research analyst Tyler Radke.

“We see a risk that the CEO change could drive further fallout / upheaval and have more of a negative impact than the company realizes,” added Radke.

It seemed the company’s top brass was expecting too many things, too fast. This eventually led to Ratzeberger’s untimely and unexpected exit.

Ratzesberger’s old association with Teradata

Ratzesberger’s association with Teradata started in 2004. First as a customer representing eBay in 2004 and six years later,he joined Teradata’s Software business as SVP in 2013. Ratzeberger had held different executive positions in Teradata.

That includes President – Teradata Lab, Chief Product Officer (CPO), Chief Operating Officer (COO) in February 2018 and then getting elevated as Teradata’s President and CEO in January 2019.

Perhaps, large organizations and enterprises, to an extent are more focused on business processes and technology piece — in terms of investment and time, compared to their workforce.

Teradata’s business transformation plan

And secondly, there’s this myth that implementing business transformation plan will change the company’s fortunes overnight, which is not the case.

In other words, Teradata’s management showed more faith and trust on the “business transformation” plan rather than the designated executive in-charge of the plan that has been serving the company for a long time.

“Commentary on the call suggested this transition was due to the board’s desire to be more focused on execution (e.g., being a visionary doesn’t always translate to great execution) and performance below expectations,” said Stifel’s analyst Brad Reback.

“We are left confused as to how the board did not have a better understanding of Mr. Ratzesberger operational execution issues given his long tenure at the company. We note 7 of the current 11 board members have been with the company since 2015. We wonder if the board is not also in need of some refreshing,” added Reback.

The four decade old, data analytics company has been put through a massive business transformation plan. Teradata wants to make its the software business turn more align and attune to today’s style of business functioning and defy challenges.

As part of this plan, Teradata has been moving away from the ‘perpetual licensing’ to the much popular “subscription licensing” model, which most software companies are following today.

But mind well, this certainly is a big shift for any enterprise software company, including Teradata and is likely to cause some amount of disruption as well, which requires good patience, better understanding and coordination in order to achieve the desired business outcomes.

Given that shift, industry analysts say that Teradata would see some churning in terms of customers and even fall in its quarterly earnings, impacting the company’s annual revenue and profitability. And Teradata has been witnessing all of these in the last one year.

“Teradata is approaching the completion of its business model transformation, but the sudden departure of CEO Oliver Ratzesberger adds another change into the mix, while the Q3 earnings miss and reduced 2019 guidance won’t help sentiment,” said UBS analyst Jennifer Swanson Lowe.

“We think TDC shares continue to drift lower as investors await further news on the CEO front, and until we see more evidence that the model shift translates to an improved growth and profitability profile for the business overall,” Swason added.

In the third quarter 2019, Teradata reported $459 million in total revenue, but was 13% less against same quarter previous year’s $526 million earnings.

Except the recurring revenue, which grew 10% to $343 million over $312 million in Q3, 2018, Teradata’s perpetual software licenses and hardware revenue ($16 million) and Consulting services revenue ($100 million) slumped 79% and 27% respectively compared to the same quarter last year.

During the first nine months of 2019, Teradata’s overall revenue stood at $1,405 million, which is 11% less than the previous year’s $1,576 million earning.

Unfortunately, Ratzesberger wasn’t able to delivered the expected numbers nor was he able to withstand against the internal pressure from the company’s board members and shareholders. And later agreed with the board and stepped down from the CEO’s position.

American rating firms Cowen, Bank of America Merrill Lynch and Stifel have downgraded their ratings for NYSE listed Teradata’s stocks following the corporate crisis.

(Image credit – Teradata)

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