RealTime IT News

Cognos Layoffs a Growing Pain For BI

Business intelligence (BI) applications vendor Cognos  announced that it is laying off 6 percent of its workforce.

Cognos president and CEO Rob Ashe said the Ottawa-based company is reducing its headcount in order to improve operating margins and to reflect new market conditions.

Ashe said the layoffs, which will affect 210 employees, are primarily in management and non-revenue-generating areas of the company.

The company will realize $28 million in annualized cost savings as a result of these moves, he added.

"It's a difficult move but it's the right move for us," said Ashe during a conference call to announce the moves.

He also said that Cognos is planning to hire 25 additional sales reps by the end of the year to bolster its 363-person-strong sales force.

Ashe placed the blame for the company's recent lackluster performance on a variety of factors, including the strength of the Canadian dollar, which he said cost Cognos 200 basis points in operating margin.

He also said that a Securities and Exchange Commission investigation during the second quarter cost the company momentum, although Cognos was eventually cleared of any misdeeds.

Ashe also suggested that the company has had trouble closing larger deals that are fast becoming its staple.

The reductions on the one hand and hiring on the other indicate that the company's business is evolving from a plethora of small and medium-sized deals to a greater proportion of larger enterprise deals.

This is having a ripple effect on the company's organizational structure.

"The assumptions are not the same in terms of management," Ashe explained. The company has several multi-million dollar deals were also in the pipeline, said Ashe, who added that Cognos is making changes to get it executing on larger deals.

Ashe said that several deals didn't get done in time for the quarter close and that a combination of more feet on the ground and a leaner management structure will help those deals close more quickly.

"The reality is we're closing more large deals than ever before. Negotiations are longer, more complex with more people involved at the customer end."

Peter Goldmacher, who follows the BI market for SG Cowen, said that Cognos has been a victim of its own success and agreed that the moves make sense.

"They're getting a slightly lower volume of much larger deals. You don't need as much management around those deals, and you need more face time around those customers," he told internetnews.com.

"I think what they're doing is very smart. Most companies continue to look backward while moving their company forward," he said.

The BI market is estimated by research firm IDC to be worth $5.7 billion -- and growing by 10 percent over the next five years.

Little wonder, then, that companies such as Oracle  have announced their intention to enter the market.

Rumors that IBM  might be interested in acquiring Cognos have also been rife.

Nick Patience, director of software research at New York-based The 451 Group, said that Cognos would be a good fit for IBM.

Cognos' share price is approximately 20 percent its 52-week high, making it relatively inexpensive.

"These moves make them even more attractive," he noted.

That said, IBM risks damaging relationships with key partners if it enters the application software space.

Patience said that if IBM wants to take on Oracle and Microsoft  in application software, "buying Cognos isn't going to do it. Only buying SAP would do it."

Arnie Berman, managing director at SG Cowen, dismissed the possibility that Cognos was an acquisition target at this point.

"It's rare for layoffs to precede acquisition," he said.

The announcement of layoffs at Cognos, he said, "is more likely to fuel speculation about Business Objects" .