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| John Weston |
Jon Hoeksma
During the last few months iSoft has had a ‘near death experience’ the company’s chairman and acting chief executive John Weston has told EHI in an exclusive interview.
Speaking the day before CSC replaced Accenture as local service provide in two NHS regions, the iSoft boss said that without CSC’s support, and the new deal they signed with iSoft last month effectively “wiped the slate clean.” Without the deal he says that iSoft would probably have gone under.
“Clearly we’ve had a torrid few months, one way and another,” acknowledges Weston. But with new banking facilities in place he says “the spectre of the company going bust the day after tomorrow has been removed.” The new financial arrangements provide no more than a reprieve, getting progressively more expensive over the next 15 months.
“The company has clearly been through a very rough time, partly because of the circumstances it finds itself in, but partly because of things that were in its control. And what we’ve got to do is go about fixing those things.”
“What we need to fix is delivering things when we say we are going to deliver them, to a quality we can be really proud of,” Weston told EHI.
But drawing on his BAE experience on complex projects such as Eurofighter and Astute nuclear submarines, he says that he hasn’t come across a complex programme yet that “has run like a Swiss watch.”
However, Weston says that this is beginning to be turned around and once uncertainties are removed, “the fundamental attractions of the business will shine through, particularly the company’s strong installed legacy position across the UK.”
BAE Systems chief executive, between 1998-2002, Weston was appointed non-executive chairman of iSoft in October 2005. However, following the resignation of chief executive, Tim Whiston, in June of this year Weston took the helm as acting chief executive through the most turbulent three-months in the company’s short history.
“The biggest issue we had facing us was that having stopped trading revenue on the national programme we had about a third of the business, with no clear way forward as to how we were going to be generating revenue while we still had considerable bills to pay and continuing to develop the software solution we were supposed to be delivering.”
We had a share price at that point which was pretty badly bombed out, a set of nervous banks, a set of nervous auditors and if we were going to find our way through all of that there were a number of things we needed to square away.”
Key issues that had to be dealt with included securing ongoing banking arrangements, publishing results and getting a set of accounts signed off and published – iSoft published provisional – or qualified – accounts six months late in August.
Aside from finance the most pressing issue to be dealt with was the relationship with its key client the National Programme for IT though its prime contractors. Weston says that it was vital that when in line with announcing annual results the company was able to announce a new deal with CSC “that would essentially wipe the slate clean and started again on the basis of the CSC cluster, and contained commercial arrangements as to how we could deploy solutions into other areas where that became a possibility.”
He said the deal, initially for the “London Seven” – iSoft sites in London and the South – “was a vote of confidence in the product from a number of independent sources as well as Connecting for Health.”
On iSoft’s financial results he says that the key precursor was the change in approach to revenue recognition “from a policy from the days when iSoft was a company that wrote software and sold licences”, which he described as a fairly common revenue recognition policy in the software industry, to a situation where customers implementing complex systems over an extended period were “less ready to give us all the licence revenue up front.”
“Recognising all licence revenue up front was becoming somewhat inappropriate, not least on the national programme where we were signing contracts to develop software. So we changed the revenue recognition policy and that required us to go back and look at how on historic contracts would be treated under the new revenue recognition policy.”
Weston said this started a lot of speculation on the historic profitability of iSoft, but stressed the company had been profitable in each of the last two years, “though lower than some of the numbers that have been reported in the past.” He added though that “the trend is in the right direction.”
He told EHI that he did not have full visibility of the extent of the problems when he took up post, with the problems only becoming visible to him from January, with the first profit warning. “There’s been a steady escalation of things that needed dealing with since that. But that’s one of the risks you run being chairman of a business, occasionally you find that things aren’t as you expected when you arrive…”
“We have been making some steady progress and after August we do think that we are turning the corner,” said Weston. “Having got through August and got a set of banking facilities in place that will run for 15 months the spectre of the company going bust the day after tomorrow.
In addition to dealing with the immediate crisis issues that had “crawled out of the woodwork”, Weston says iSoft also has other fundamental issues it must now work through are around organising the business to ensure it is “really high quality producer of software.” “There’s work that needs doing on that as well”, he says.
The extent of the work needed was spelled out in a joint CSC/Accenture report produced in February, which identified significant problems with iSoft’s software development processes and procedures in India.
Weston says the February report dealt with three main issues: whether there was credible scope and definition to the Lorenzo product. “When that report was written we were still having a debate with CSC and Accenture about some of the fundamentals like the architecture and product set,” says Weston.
“One of the issues we’ve had with this programme is that although we are responsible for producing the scope and definition documents those are not effective until we’ve got them signed off by both LSPs and CfH, and that hasn’t always been the easiest or smoothest process”
He says that where scope and definition documents have been missing iSoft has been “shooting in the dark a bit when working on the software.”
Weston says that much more integrated management of programme activity has now been agreed with CSC. “We now have a joint team in Chennai that is working on this and supervising it on a day-to-day basis.”
He says this is “beginning to deliver fruit in terms of better visibility against main deliverable milestones and the dependencies we’ve got on other organisations and the things they need to provide.”
Weston says that every Monday iSoft and CSC are looking at a report on progress against delivery milestones, and whether they are green, orange or red, “and what issues need dealing with to put things back on track.”
“There is now much more of a closed loop and real-time management of what the hell’s going on.”
Asked why such mechanisms were not already in place the iSoft boss says that the company has grown very rapidly and the development organisation in India had grown from 300 to 1500 people in two years. “You wouldn’t expect an organisation to grow that rapidly without some growing pains in terms of strength in-depth of middle management and use of a standard set of development tools and procedures. I think everyone would have to admit that left something to be desired.”
These issues are currently being addressed he says: “One of our key priorities is to ensure we do a great deal better in the reliability of delivery. Everyone gives the company quite high marks about innovation, domain expertise and producing software that people get excited about, but what they need to do is improve the reliability of delivery.”
Asked when Lorenzo will now be delivered, Weston says that he gets in trouble with the national programme for quoting dates for when software will be delivered to LSPs, rather than out in the market. “But we now have under the agreement with CSC a very clear delivery timetable, with clear increments or stepping stones to the delivery of Lorenzo 3.5 and Lorenzo 4.0.”
Weston says that the first of these key Lorenzo releases is now due to be delivered to its LSP “in the last quarter of 2007” with delivery to trusts about six months later. The iSoft chairman says the GP product “should be available earlier than that, but we haven’t got firm agreement on that yet.”
Weston acknowledges that the various naming and versioning of Lorenzo over the past few years has “created enormous bloody confusion about what is Lorenzo and when is Lorenzo available. I think not because anybody is being cute about it but because you’ve had an all things to all people interpretation.”
He explains: “On the one hand you’ve got things being delivered into the national programme which are essentially legacy products with what you might call a Lorenzo wrap on them in terms of the front end and what you get on the users’ screens, and activity modules; which is quite a long way away from what you’ll get when you get the full Lorenzo up and available.”
Weston rejects the idea though of using different names. “I think it’s too late to give the interim solutions different names, which may be undesirable in any case when you are trying to create brand recognition.
Of the three layers of Lorenzo currently being developed: the technology level, the applications level and the delivery level, he says “They are respectively something like 70%, 40% and 20% complete, but that gives blocks of software we can combine with other things.”
He says that one of the key strengths of Lorenzo is its flexibility and “its ability to interoperate with existing systems.” Weston says that key components, such as single sign-on to the spine delivered as part of the NPfIT version of iPM, “will follow through into the final solution.”
He says that securing the new deal with CSC was critical, and that iSoft now has a 15-month window in which to secure it financial position and prove it can deliver.
Overall, Weston told EHI that iSoft has got “almost three-quarters of the way towards getting an underpinning position where we’ve got a programme for the development of the new generation of product, together with the marketing to go with it. I think at that stage we are then coming out of the bathtub.”
One of the final pieces of the jigsaw will be to secure the appointment of a new chief executive able to both keep investors happy, and ensure software is developed and delivered to schedule.
Asked by EHI whether he would have taken the iSoft job knowing then what he knows now, Weston is to the point “No.” But adds: “I’ve been involved in a lot of difficult programmes in my time… None of them have been easy but the question is can you demonstrate that you have a bunch of resources getting to grips with those issues as fast and effectively as they can? And can I keep the customer confidence while I’m doing it?”
He stresses though that the firm is on the road to recovery and says he is “a lot more confident about the long term future of the business than I was in July and August.” He says he is now “absolutely convinced that we will deliver.”
“I think we are already beginning to see the fruits of some of the changes we’ve made organisationally, and our ability to control our workflow and we’re beginning to see some reaction to that out of the LSPs and the customer base but we’ve got a lot of work to do.”
He concludes: “The key test in the next 18 months will be whether we hit the milestones that we’ve agreed to. I don’t think there is anyone in the company who is in any doubt that’s what they are going to get judged on.”