Case Study: Principled Entrepreneurship And Shared Leadership: The Case Of TEOCO (The Employee Owned Company)

Case Study: Principled Entrepreneurship and Shared Leadership: The Case of TEOCO (The Employee Owned Company)

Read the case study located on page 361 of the section titled Case Studies in your textbook and prepare a 5- to 6-page report in a Microsoft Word document, based on the following situation:

The CEO, Atul Jain, has made some very radical decisions recently that he believes will help to move TEOCO forward in ways that were previously unavailable to the company. He has asked you to serve as a consultant over the next 12-24 months as TEOCO navigates working with their new investor group, TA, and as they seek to incorporate the new acquisition, TTI, into their corporate culture.

To familiarize yourself with the client; your first task is to prepare a background report which analyzes TEOCO’s business environment and strategy. Your report should include the following:

• Analyze and discuss the external forces and industry conditions that have impacted TEOCO’s performance over the years?

• Analyze and discuss how the internal organization and culture at TEOCO influence its performance?

• Discuss how TEOCO has strategically responded to its competitive environment and internal capabilities?

What strengths and weaknesses do you perceive Jain’s management style lends to TEOCO’s overall effectiveness?

What issues do you expect to arise given TA’s recent investment in TEOCO? What recommendations do you have to assist with these issues?What issues do you expect to occur while incorporating TTI into the TEOCO culture? What recommendations do you have to assist with these issues?What challenges to you foresee in maintaining TEOCO’s strong corporate culture given the need for continued organizational change?In your report, you should be able to demonstrate an insightful look at TEOCO’s situation, make recommendations for incorporating TA’s requirements into TEOCO’s unique management style, and recommendations for incorporating the employee’s of TTI into TEOCO’s organizational culture.

Support your responses with examples.

Cite any sources in APA format.

Book Reference:

Hitt, M.,Ireland, R., and Hoskisson, R. (2011). Strategic Management: Competitiveness and Globalization. [Vital Source digital version]. Mason, OH: South-Western Cengage Learning.

 

Remember to have an introduction and conclusion.

Analyzed and discussed the external forces and industry conditions that have impacted TEOCO’s performance over the years. Use this heading: External Forces/Industry Conditions Analysis For those seeking help in remembering where you read about these concepts, hint….. this includes but is not limited to your going back to week 1 where the external business environment was discussed, Porters Five forces, etc…	30
Analyzed and discussed how the internal organization and culture at TEOCO influenced its performance. Use this heading: Internal Organization/Cultural Analysis For those seeking help in remembering where you read about these concepts, hint….. This includes but is not limited to your week 5 reading on organizational culture	30
Discussed how TEOCO has strategically responded to its competitive environment and internal capabilities. Use this heading: Competition and Capabilities Response For those seeking help in remembering where you read about these concepts, hint…..   this includes but is not limited to your going back to W2 and our discussion of competitive dynamics and W1 core competencies	30
Discussed strengths and weaknesses perceived in how Jain’s management style lends itself to TEOCO’s overall effectiveness. Use this heading: Internal Strengths and Weaknesses For those seeking help in remembering where you read about these concepts, hint….. …..   this includes but is not limited to your going back to the first part of a SWOT analysis	30
Discussed the issues that might arise given TA’s recent investment in TEOCO. Made recommendations to assist with these issues. Use this heading: Investment Issues and Recommendations For those seeking help in remembering where you read about these concepts, hint….. this includes but is not limited to concepts addressed in W4 and W5 lecture	30
Discussed the issues that might occur while incorporating TTI into the TEOCO culture. Made recommendations to assist with these issues. Use this heading: TTI/TEOCO Culture: Issues and Recommendations For those seeking help in remembering where you read about these concepts, hint….. this includes but is not limited to concepts addressed in W4 and W5 lecture	30
Discussed the potential challenges in maintaining TEOCO’s strong corporate culture given the need for continued organizational change. Use this heading: Maintaining Strong Culture During Organizational Change For those seeking help in remembering where you read about these concepts, hint….. this includes but is not limited to concepts addressed in W5 lecture

 

CASE 28: Principled Entrepreneurship and Shared Leadership: The Case of TEOCO [The Employee Owned Company] 1

Prof. Thomas Calo, Ed.D.

Perdue School of Business, Salisbury University

Prof. Olivier Roche, PhD

Perdue School of Business, Salisbury University

Prof. Frank Shipper, PhD

Perdue School of Business, Salisbury University

Introduction

Fairfax, October 6, 2009. Atul Jain, founder of TEOCO, a provider of specialized software for the telecommunications industry, had been meeting all day to finalize a partnership agreement with TA Associates, a private equity firm. For Atul, the pace of activities had been relentless on this special day. 2  By all accounts, the last 12 hours had been hectic, but the closing of the transaction was a success. The event had started with back-to-back meetings between TEOCO’s senior management and their new partner’s representatives and had culminated with the usual press conference to mark the occasion. The senior management teams of both organizations announced to the business community that TA Associates [TA] had made a minority equity investment of $60 million in TEOCO. It was indeed a memorable day, the culmination of intense and uneven negotiations between two organizations that did not have much in common except for deep industry knowledge and a shared interest in seeing TEOCO succeed.

©Vividfour /  Shutterstock.com

This new partnership marked the end of a marathon, but Atul did not feel the excitement that usually comes with crossing the finish line. It was late and he was tired. Back in the quiet of his office, he reviewed, once again, the draft of the press release relating the day’s event. As he read the various statements captured from the meetings, he still had the uneasy feeling that comes with making life-changing decisions when one does not have all the required information. There were so many unknowns. Partnering with the right investor, like many other entrepreneurial endeavors, was not a decision made in a vacuum. It was all about good timing, cold analysis, gut feeling and luck; the latter was last but by no means least. Despite all the uncertainty, Atul felt that this was a worthy endeavor.

Atul had come a long way since his humble beginnings in India and a lot was at stake, not only for him but also for the 300 employees of the company. The TEOCO enterprise had been a successful business endeavor and at the same time a very personal journey. What had begun as a result of frustration with his old job in Silicon Valley 15 years ago had become one of the fastest growing businesses in the telecom software industry; the fast pace of the company’s development had not gone unnoticed. For quite some time now, TEOCO had been on the “radar screen” of investors looking for high-growth opportunities. However, Atul had never cultivated a relationship with potential external investors; he had remained congruous with his long-held business beliefs 361362that an alliance with external financiers was rarely in the best interest of a company and its employees.

Atul [CEO & Chairman]: “I am often asked why we didn’t approach an investor for money or seek venture capital. I have two answers to this question. My first answer is: that’s not our way of doing business. I believe that every entrepreneur must aspire to be debt-free and profitable from the very first day. My second answer is: nobody would have given me the money even if I had asked! I also had a fear – that external investment might impact the culture and values that I wanted TEOCO to promote and cherish. I wanted to steer the TEOCO ship along a very different course. My dream was to set up an enterprise based on a model of shared success. TEOCO’s success wouldn’t just be my success; it would be our success. TEOCO wouldn’t just have one owner; it would be owned by each of its employees – who would therefore be called employee owners.”

But several months earlier, events had taken an unexpected turn; unsolicited financiers approached TEOCO once again, this time offering to invest a substantial amount of capital. Still, Atul was reluctant to engage in negotiations with a party that, as far as he knew, did not share TEOCO’s values.

Atul: “[In the early days]we took a conscious decision not to accept venture capital. I have always had a healthy disdain for venture capital because it numbs the entrepreneur’s competitive edge and enfeebles him. I still remember TEOCO’s early battles with [competitors] Vibrant and Broadmargin and how difficult it was for us to compete with all that extra money flowing into the rivals’ coffers. But we took the hard road – and survived…. What, then, went wrong with Broadmargin or Vibrant? If I have to over-simplify, I’d say that both were done in by venture capital. VC is an impatient master; it forces you to always go for the home run, and always push hard on the gas. With certain kinds of businesses this works; indeed, it might be the only way. Think of Google: their business space is so vast that only continuous and unbridled growth can sustain the venture. But TEOCO’s space is very different; there is no exponential growth here that everyone can go chasing…I would guess that the size of the telecom Cost Management business is no larger than $100 million per year; so to survive you have to be patient and play your cards carefully. This isn’t the place to be if you are in a tearing hurry to grow…. While this strategy of focusing on niche markets significantly limits our market potential, it does keep the sharks away. The big companies are not bothered by niche products for telecom carriers; they don’t want to swim in small ponds.”

Atul’s comment reflected the situation a few years ago; TA’s recent partnership offer was made in a new context. In this rapidly changing industry, there are constantly new directions in technology and the landscape continually shifts. The industry, consolidating quickly, required that in order to remain a viable player, TEOCO would have to change gears – sooner rather than later.

Until now, the primary focus of the company had been on the North American telecom carriers. However, with the anticipated consolidation of the telecom industry in North America, TEOCO needed to focus on international expansion. In addition, to leverage TEOCO’s deep expertise in cost, revenue and routing, the company would soon need to fish “outside the pond” and enter the global business support system / operations support system (BSS/OSS) market. Here, TEOCO could find itself in competition with much larger players, and it would be valuable to have a strong financial partner.

Indeed, the company had reached an important threshold in its organizational development. But if TEOCO was at a crossroads, so was its founder. Atul was in his late forties and he was not getting any younger. In this industry Atul had known many entrepreneurs who, like himself, had rapidly grown their businesses only to find out that “you are only as good as your last call.” For a few of these entrepreneurs, one or two poor decisions had triggered a descent that had been as swift as their earlier ascent, and they ended up with very little to show for their efforts. These were the intangibles. During rare moments of quiet reflection, Atul realized that his “risk return profile” had changed imperceptibly over time. Having all his eggs in the same basket and going for all or nothing had been fun in his mid-thirties when everything was possible, but it would be much less so in his early fifties when starting from scratch would be a very unappealing scenario for Atul and his family. Furthermore, he felt an obligation to create liquidity for the employees who had supported him on this fifteen-year journey and had their own dreams and goals. At the end of the day, any business has only three exit options: it could get listed, be sold or go bankrupt! And the latter option is not particularly appealing.

It was in this context and mindset that he had agreed to listen to what TA Associates had to offer. Founded in 1968, TA had become one of the largest private equity firms in the country. The company was managing more than $16 billion in capital by 2009, and it had an extensive knowledge of the industry. Atul was impressed by TA’s approach, its willingness to take a minority position, and Kevin Landry, Chairman and the “spirit” of TA. This private equity firm not only managed capital; it also had 362363an impressive network of relationships. In addition, TA executives had been adamant that Atul remain in charge, and he was keen on continuing as the controlling shareholder. The fund would appoint two board members (see Appendix 1), but TEOCO’s current management team would still lead the company as it had in the past.

Reviewing the details, Atul could not spot any flaws in the logic of the transaction. It was neither a marriage of love nor a “shotgun wedding,” just a pragmatic alliance between two companies with complementary skills and resources at a time when such an alliance was valuable to both parties: TA looking for a good investment and TEOCO shareholders looking for partial liquidity. As Atul re-read the press release and a few of his quotes, he reflected that he meant every word.

Atul: “We are pleased to welcome TA as our first institutional investor. As a company that has avoided external capital for 15 years, we are delighted to find a partner that will strengthen TEOCO without changing the culture of our organization. We see this as the beginning of a new phase in TEOCO’s history where we look to add even greater value to communications service providers worldwide.”

This was definitely a new era and there would be no turning back. For better or for worse, this partnership had to work. Atul made minor corrections to the wording of the document and authorized its release.

Company Background and Activities

TEOCO’s predecessor, Strategic Technology Group (STG), was founded as an S corporation in 1994. The company’s initial focus was to provide high quality consultancy for IT projects. STG’s first clients included Mobil, Siemens, Cable & Wireless, SRA, TRW and Freddie Mac. The company started operations in April 1995 and three years later, in March 1998, the company name was changed to TEOCO (The Employee Owned Company). At the same time, TEOCO made the strategic decision to shift its business from consultancy to product development and to focus on the telecommunications industry. This was achieved through the acquisition of a fledgling software product that processed invoices of telecom payables. BillTrak Pro would ultimately become TEOCO’s best-selling network cost management software.

Subsequently, the company grew rapidly. As the number of employees exceeded 75, the maximum numbers of shareholders an S corporation can have, the company changed its status to a C corporation to enable a broad-based employee ownership. Over the years preceding the burst of the “ Dot.com ” bubble, TEOCO not only expanded its client base for its basic products but also invested substantial amounts of capital in three startups. These entities were:  netgenShopper.com  for online auctions; Eventrix, an event planning portal; and  AppreciateYou.com  to support employee retention. These internet startups functioned as separate entities, each at their own location, with their own business goals and core values, managed by different entrepreneurs/managers; at the same time, they each relied on TEOCO’s cash flow for their development.

Ultimately, none of these ventures emerged as viable businesses and this left TEOCO in a difficult financial situation. As a result, TEOCO registered its first year of losses in 2000.

Atul: “This failure was devastating, but also a humbling experience. I learned the hard way that no entrepreneur can survive inside a technology incubator. We had to pay a price for all these transgressions…Our revenues were still impressive, but the money in the bank was dwindling rapidly… We were truly caught in deep and dangerous waters. I have often wondered what went wrong. It wasn’t as if we made one big mistake….I guess we just took our eyes off the ball. Somewhere along the way, we lost our focus; we tried to do too many things at the same time and ended up getting nothing right. We had to quickly get back to our knitting. The question was: how?”

Under Atul’s leadership, TEOCO made the judicious decision to refocus its activities on its core industry expertise and its largest clients. To achieve this, the organization solidified its position in the telecom sector by improving its services and developing new products. In 2004, research and development efforts resulted in the patented XTrak technology which today represents the core of the company’s invoice automation solution. In addition, TEOCO was able to migrate from software licensing to the far more lucrative software-as-a-service model. Instead of a fixed licensing fee, the company charged a recurring monthly fee based on the volume of data processed for each client. As the recurring revenue model took hold, it became much easier to grow revenues from year to year and improve the company’s profitability.

In 2006, TEOCO acquired Vibrant Solutions, bringing in cost management and business intelligence assets with its 24 employees. Ultimately this resulted in the important development of TEOCO’s SONAR solution for cost, revenue and customer analytics. Finally, in 2008, Vero systems was acquired, adding routing management and its 36 employees to the repertoire of communication service provider solutions.

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This stream of acquisitions and internal development left TEOCO with a staff of about 300 employees and a portfolio of three major activities: cost management, least cost routing and revenue assurance.

Cost Management

Cost management solutions include invoice automation and payable processing. Powered by XTrak, TEOCO’s invoice automation solution processes over 1,000,000 invoices annually. This facilitates the audit and analysis of billions of dollars in current billings due to each telecom company. While the usual scanning of paper bills relies on optical character recognition technologies that routinely require hands-on intervention to correct misrepresented characters on complex invoices, the XTrak technology mines the original formats which produced the paper to create files for loading into cost management solutions. By eliminating the tedious, costly and error-prone task of manual invoice data entry, telecom companies increase productivity and reduce costs by increasing the number of disputes filed and resolved and by reducing late-payment charges. In addition, TEOCO also processes “payables” on behalf of clients by managing the full life-cycle of invoice payment, including account coding, management review and payment reconciliation. TEOCO’s employees audit client invoices, comparing rates, inventory and usage with other source data to identify and recover additional savings. Finally, the company manages disputed claims on behalf of its clients from creation through resolution. TEOCO has the technical capability to capture all correspondence between parties and can review and track every claim to resolution.

With regard to cost management, it is worth noting that the Sarbanes-Oxley Act of 2002 requires every listed company to implement a reliable reporting system. TEOCO’s services support this compliance by improving the details and timeliness of the reports generated by/for telecom companies. TEOCO’s rapid development in this area coincided with a market need that was augmented by the legal requirements imposed by the Act.

Least Cost Routing

TEOCO’s routing solutions help telecom companies determine the optimal route between two customers with regard to cost, quality of service and margin targets. Capable of supporting multiple services and various networks, the company is able to monitor CDRs (Call Detail Records) in near real time to identify bottlenecks, re-route traffic and improve the quality of services for greater satisfaction of its clients’ customers.

Revenue Assurance

Communications service providers can lose 5-15% of gross revenue due to revenue leakage. TEOCO’s SONAR solution is an industry first in supporting switch-to-bill reconciliation. TEOCO combines its specialized industry expertise with high-capacity data warehouse appliances to create a unified CDR and makes a high volume of current and historical CDR data available on a single platform for in-depth analysis. This helps telecom companies uncover billing discrepancies, detect fraudulent behavior, reveal usage patterns, understand customer profitability, conduct margin analysis, and determine the financial viability of reciprocal compensation agreements.

Industry Landscape: Continuous Change

Competitors

TEOCO operates in a fragmented and highly competitive industry.  Appendix 2  lists its competitors in each of the three major business segments. TEOCO operates mostly in North America; therefore, the main competitors in the cost management segment are Razorsight, Connectiv and Subex. These same companies compete for revenue assurance, as well as others such as cVidya and Wedo. Finally, in the least cost routing segment, TEOCO faces a different set of competitors: Pulse Networks, Global Convergence Solutions and Telarix.

Brian [Marketing & Communications Department]: “So [from the customer’s point of view] what we bring to the table is just end-to-end solutions that reach all of these different categories. While we still compete with certain people, it’s on a specific product; not across the board.”

Indeed, with the possible exception of Subex, none of the above competitors operates in the same three business segments as TEOCO, and Subex does not provide a domestic least cost routing in North America. Since TEOCO derives 50% of its revenue from cost management and 25% from revenue assurance, Razorsight and Subex could be considered TEOCO’s main business competitors. Faye summarizes TEOCO’s current market position.

Faye [General Manager/Account Management]: “In North America, we dominate the cost management space. We’ve got a decent lock on least cost routing, which is a very operational and technical function that bridges between network and finance.”

One of the ways TEOCO differs from most of its VC-backed competitors is its focus on internal cost 364365management. This manifests itself in two different ways. The management begins the year by making a conservative revenue plan for the year. The company then manages its expenses to be a fixed percentage of the projected revenues. Investments in Sales, Marketing, and R&D are adjusted throughout the year to ensure that expenses stay within the pre-defined limits. The second way cost management manifests itself is how the cost of each individual transaction is closely managed and monitored, whether it be purchasing hardware, leasing office space, renewing supplier contracts, recruiting new employees, or planning business travel.

One of the consequences of this strong discipline of cost management is that TEOCO is consistently profitable, something most of its competitors struggle to accomplish. This enables the company to focus its energy on clients and innovation.

Clients

TEOCO operates in an industry where clients are known and clearly identifiable. One of the key reasons clients buy from TEOCO is because its solutions have a strong ROI (Return on Investment). In other words, TEOCO’s products quickly pay for themselves and then begin to generate profits for the companies that subscribe to them.

Faye: “The telecommunication space is who we sell to exclusively, and within that space, we have a relatively known and discrete customer list or target list, if you will. We don’t sell cookies. Not everybody’s going to buy what we’re selling…I know who those customers are and I can identify groups within that addressable market that fall into natural tiers. So either because of their size or because of the market that they cater to themselves, whether they’re wireless or wire line or whether they’re cable companies, I can identify who they are and then try to focus products and services that I think will best meet their needs.”

There are four telecom companies that drive about 65% of TEOCO’s domestic revenue: Verizon, Sprint, AT&T and Qwest; these are the “platinum” accounts. For obvious reasons, they get a lot of attention from both the engineering and product delivery standpoints. Thirty-five other companies, including Cricket, Global Crossing, Metro PCS, Level 3 and Bell Canada, account for the remaining balance of revenues.

TEOCO, like most of its competitors, is client-centered. Smooth customer interactions are not only critical to increase sales and garner new relationships but also to develop new products. Over the years, most of the ideas for new products or improvements to existing products have come out of discussions with customers.

Hillary [Marketing & Communications Department]: “Our number one avenue for receiving customer feedback is our TEOCO summit, our annual user meeting…where customers are able to talk one-on-one with not only TEOCO representatives but also with other customers to learn what they are doing…and then circling back with TEOCO.”

Initially, TEOCO used its generic products, either developed in-house or brought in via acquisitions, to start relationships with new clients. More recently, however, the company has innovated solutions driven by specific clients. These, in turn, are adjusted to suit the needs of other clients. Dave describes this “evolutionary loop.”

Dave [Software Architect]: “With our first product [BillTrak Pro], we sold it to a number of different carriers resulting in a broad footprint of wireline and wireless carriers. Then we had account managers engage with our customers, and it’s through conversations with our existing customers, generally, that the ideas for the next set of products come out… More recently, I’d say that most of our products are customer-driven, so what will happen is we’ll have someone in the company that will identify a need at a specific customer. Then, we’ll enter into some kind of partnership with them, whether we’ll develop the application specifically to their needs and then work to resell that and make it useful to other customers as well.”

Growth Strategies

TEOCO’s Product Strategy: “Spidering” through Clients’ Organizations

Since the number of clients is limited, two other ways to grow the business are cultivated. A company like TEOCO can either “productize” its current services or acquire a competitor with a different client base and cross-sell its products.

Faye: “But for the products we’re selling, if we have two new sales a year, that’s significant … maybe you could squeak out a third in a good year. So the majority of the sales growth really comes from existing accounts…most of the growth though is coming from those large platinum accounts. Those are the ones that have money to spend and where we’re driving products, driving solutions, trying to help them tell us or help them identify where they have needs. The other way to grow the business is to acquire companies that have a different business and then cross-sell services. For instance, with the Vero acquisition, we added 365366another ‘vertical’ line of business [least cost routing]…And then Vero had a relatively separate client base… so we were able to cross-sell products into each other’s companies’ portfolio of clients [i.e., TEOCO’s clients buying least cost routing services and Vero’s clients buying cost management products].”

Faye joined the company in March 2010, a few months after TA’s investment in TEOCO with a charter to grow TEOCO’s revenues with its smaller customers. With Faye in position, the company became more market-driven and far more aggressive in cross-selling its services and products among the three main lines of business. As well, it adopted a more cohesive approach to expand the client base, including leveraging its reputation for excellence and for having the technical ability to solve problems across various business segments.

Faye: “We’re ‘spidering’ through [our clients’] organizations. With each additional organization that we enter into, the stickier we become. Our software products run the gamut from mission critical to nice-to-have. And the more mission criticals and nice-to-haves we get, the stickier we are in that organization, in all the organizations…. [For instance]…I’m not going outside AT&T, but I have-instead of two customers at AT&T, I now have ten. And they’re distinctly different sales each time.”

TEOCO’s Acquisition Strategy

For the first ten years of TEOCO’s existence, Atul had built the business based on the premise that growth had to be organic and financed through internal cash flow. To some extent, his views on acquisition were consistent with his opinions about external financing from VCs and private funds. For Atul, acquisition and growth financed by external funds represented a risky development strategy that could dilute a company’s culture.

However, as noted earlier, internal growth through innovation had been slow and limited in scope. Cross-selling products between vertical lines of business coming from acquired companies with a different client base offered far more potential for the organization’s growth. Therefore, it was just a matter of time before TEOCO would decide to “experiment” with acquisitions:

Atul: “When we started building TEOCO, I was very focused on organic growth. I felt that acquisitions tend to dilute culture and values. But then we happened to acquire a company called Vibrant Solutions (in 2006) and that acquisition went so phenomenally well, it gave us a lot of encouragement. The people were great, the product was solid and the client relationships were very valuable. They integrated well into our company and into our culture. We felt it made TEOCO a much stronger company. We had just broadened from cost management into revenue management before we acquired Vibrant, but I don’t believe we would have been as successful in delivering on that without the expertise of the people that came from that acquisition.” 3

The subsequent acquisition of Vero in 2008 brought TEOCO closer to the network and strengthened its position in the marketplace, particularly with the larger customers. This reinforced TEOCO’s belief that acquisition of carefully selected targets should be a key component of its overall growth strategy.

Atul: “So at the end of that I said to myself maybe my narrow-minded thinking about acquisition diluting the culture was wrong, that in fact, if you do it right, you have an opportunity to strengthen the culture.” 4

From these two positive experiences, Atul established guidelines for the kinds of companies to target when scanning the market for future acquisitions. TEOCO would look for companies that:

·  Had people with deep industry expertise;

·  Offered solutions/products that the marketplace valued;

·  Had a solid customer base that had been established over time;

·  Offered potential synergies with current products/services offered by TEOCO;

·  Had not been able to develop their full potential due to poor management;

·  Had a manageable size to facilitate their integration into TEOCO’s current businesses.

Atul: “One thing you will see in the companies we acquire is that before the acquisition those companies were not running that smoothly. If they were, perhaps they wouldn’t be up for sale or be affordable. We tend to acquire companies that present a challenge but also an opportunity for us to improve the business and make it much stronger and more valuable.” 5

What enabled TEOCO to successfully integrate Vibrant and Vero into its business? TEOCO brought to the table: 1) a solid core business that generated a positive and stable cash flow; 2) a well-established strength in cost management (not only for its clients but also for itself); and 3) a disciplined approach to the management of human resources. Indeed, TEOCO is conservatively managed, and Atul is recognized by employees for his ability to select and retain the best while optimizing the 366367use of the organization’s human resources. TEOCO core strengths, when applied to the business of Vibrant and Vero, resulted in a bigger and better company.

TTI Acquisition Rationale: Going Global and Getting “Closer to the Network”

In December 2009, TEOCO began to consider the acquisition of the company that would become in 2010 its biggest acquisition ever – TTI Telecom. TTI was an Israel-based global supplier of service assurance solutions to communications service providers. The company had 300 employees and was listed on NASDAQ (TTIL). Through this acquisition, TEOCO would gain access to a wide array of intellectual property including a Mediation Platform, Fault Management and Performance Management Systems, and valuable expertise in 4-G and data-centric networks. Service assurance is important in a data environment because it reduces jitter and packet loss during the delivery of high value data transfer. To some extent, TEOCO’s existing portfolio of services and products would expand on TTI’s well-recognized expertise in the next generation network (i.e., 4-G). In addition, TTI had an international client base that offered the potential to cross-sell TEOCO’s existing product lines. In August 2010, TEOCO completed the acquisition, thus taking a big step in a new direction which, as of this writing, has yet to show conclusive results, but is considered a positive move.

Atul (at the time of the TTI acquisition): “Our last acquisition was Vero Systems (in October, 2008) and that brought us one step closer to the network. We were doing least cost routing and in that world you are trying to help determine how to terminate calls in the most cost-effective manner. The Vero solution got us working with network players and got us into the switches. It became clear that the closer we got to the network, the better business value we could create. So we started looking for companies that have intellectual property and an international client base that would bring us even closer to the network. TTI [Telecom] really fit that bill for us. TEOCO has traditionally been focused on North America so we thought acquiring a company with an international client base was of value to us. Their solutions in fault management, performance management and service management all bring us closer to network and assuring Quality of Service. We are good at handling large volumes of data and deriving intelligence out of that data. And we convert that intelligence into business value. A lot of people can derive intelligence from data but they aren’t able to create actionable intelligence that creates bottom line value. We think we will be able to improve the economics of the data TTI collects for our customers. It may be a little into the future, but we believe this acquisition positions us to get to that future.” 6

TTI Acquisition Challenges

From a technical and marketing point of view, the acquisition of TTI represented a very logical move that would allow TEOCO to expand its business while remaining focused on telecom carriers. It fit many of the acquisition criteria that Atul had laid out (see prior section), but it also represented a substantial departure from previous acquisitions in three critical aspects: its size, its location and culture, and the means of its acquisition.

· 1. The Size of the Target Company: In terms of revenues, TTI was four to five times larger than the last acquisition made by TEOCO, and this purchase effectively doubled the size of the organization. On that point, Atul was the first to recognize that TEOCO was entering uncharted territories.Atul: “All the other acquisitions were small. We bought a company with 24 employees, we bought a company with 36 employees, and this time we bought a company with 300 plus employees. So, this is going to present a completely different challenge and I don’t know what that is going to be because I haven’t dealt with it. So, it’s yet to come.”From the outset, and unlike prior acquisitions, TTI remained an entity that was managed separately. Therefore, one of the key issues to be addressed in the short to medium term would be the degree of integration between the two companies.

· 2. The Location and Culture of the Target Company: TEOCO had essentially been operating in the U.S., whereas TTI was located in Israel and was far more international in its operations. This created tremendous opportunities for marketing synergies and for cross-selling products to a different client base.Faye: “So I see leveraging a lot of the existing sales and marketing resources in Israel. I mean they have a strong presence in Israel, but they’re really European. EMEA is big. But also CIS, they do a lot in Russia. … MTS is one of their customers, which is just a huge, huge Russian company. Internationally, it’s a brand new client base into which we can cross-sell the least cost routing and probably not the cost management products because they don’t translate outside of North America as well. But certainly the least cost routing products. Taking their products into the North American base is definitively something we can do. And as far as clients’ 367368crossover versus new, they have about ten North American customers, only four of whom are existing customers of ours.”At the same time, however, it also exposed TEOCO’s business to a pool of larger competitors that competed on a global basis. TTI was “swimming in a different pond” in which blue chip companies with well-recognized brands and deep pockets were aggressively marketing their services.Faye: “We participate in a handful of shows, and again, that’s expanding quite a bit this year because of the international presence and customer base…it’s further complicated, though, by this acquisition of TTI because … they are a very sales and marketing-centric company, and it’s going to be interesting to see how the cultures meld. … I see a lot of Advil for me between now and then. We’re going to have to get there. Traditionally, TTI has gone to a lot of shows and they like to build brand new booths and spend hundreds of thousands of dollars for each of these shows on their presence there, and [at TEOCO] we don’t do that.”Indeed, TEOCO’s management was cost conscious and not prepared to invest heavily in shows and other marketing activities where Return on Investment (ROI) is difficult to measure. It was not evident how the two cultures would merge. TTI management might argue that substantial resources would be needed to compete in their market segment while TEOCO’s management would probably take the position that overspending on marketing and poor cash-flow management were the reasons for TTI’s financial problems prior to its acquisition.

· 3. The Means of Acquisition: One cannot understand the acquisition of TTI without first understanding how the alliance with TA changed the company’s and CEO’s ways of doing business, as well as their risk/return profile. To some extent TA gave TEOCO’s management both the means and the incentives to take more risks. TA’s involvement provided TEOCO with the credentials to approach financial institutions and increase the company’s financial leverage to acquire a large target. It is one thing when a US$50 million company approaches a bank to finance the acquisition of another company of equivalent size. It is quite another when a US$16 billion equity firm with a substantial stake in the acquirer approves the transaction at the board level. Following TA’s equity participation, no one ever asked TEOCO if they had the means to acquire TTI and complete the transaction. The legitimacy provided by TA’s participation was essential for the financing of the acquisition of a listed company where time is of the essence.Avi Goldstein [CFO]: “Before TA came on board, taking debt was something that was not on the table. And when TA came on board and they asked us, Are you willing to take debt to finance acquisitions?’ and we said, ‘Yes’… And maybe without TA we wouldn’t go after TTI because of the debt, not so much because of the size of TTI.”While providing the means to be more aggressive in TEOCO’s growth strategy, the partnership with TA also reduced Atul’s aversion to risk. It was the TA “push-and-pull” strategy (i.e., providing the financial means while reducing the acceptable risk threshold) that allowed this transaction to materialize.Atul: “I haven’t fully understood how the TA transaction has changed us. I think, over time, I will understand how it has changed us. All I can tell you is that I feel a degree of financial independence and I personally feel that it is more important for me to focus on making a greater difference for the world. I don’t know that I could have supported this acquisition if I hadn’t gotten liquidity because this acquisition had a much higher risk profile.”

Company Culture and Philosophy

 

The background and evolution of TEOCO provide the context for exploring the unique way in which the organization functions, which in turn explains the basis for its success. Three different lenses provide the focus for this understanding: shared leadership; a culture of employee ownership; and human resources as a strategic function. These three characteristics have combined to contribute to TEOCO’s success, as well as its competitive advantage.

 

Shared Leadership

 

The shared leadership team is comprised of three leaders of the organization with distinctly different, but complementary, skills and responsibilities. These leaders are Atul Jain (Chairman and CEO), Philip M. Giuntini (Vice Chairman and President) and John Devolites (Vice President and General Manager). (See Appendix 3.)

 

Atul is the central figure in the story of TEOCO. By understanding Atul’s background, philosophy of life, vision and style, the organization and its unique culture create a cohesive portrait.

 

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Atul was born in India in the early 60s. He has an older sister and an older brother. His father was a mid-level civil servant in India, now retired. Both of his parents live with him and his family, which is customary in Indian culture. Atul is married and has three children. His intellect and abilities were identified at an early age. When he was a teenager, he was invited to attend the prestigious Indian Statistical Institute, known as one of the best schools in India for the study of statistics, which required that the young Atul move away from home to live in another part of the country.

 

Atul was raised in the Indian religion of Jainism, an important aspect of his background that shaped his view of people and organizations. While he does not wear his religion “on his sleeve,” it is evident that his religious beliefs and upbringing have had a significant impact on his leadership style and the culture he has shaped within TEOCO. Atul does not go to temple and does not even pray, so in that sense he does not consider himself to be a religious person. On the other hand, he expressed that he has internalized the culture and religion and that it manifests in his thinking about business. Jainism is an ancient but minority religion in India,7 yet its influence far exceeds its size, as Jains represent some of the wealthiest Indians. Among its core beliefs are a philosophy of non-violence toward all living things, vegetarianism, a strong belief in self-help and self-support, and a continual striving toward the liberation of the soul. These tenets can be seen in Atul as he believes that everyone is an “independent soul,” and that consequently he “can’t make you do anything that you don’t want to do.” What stands out is that this type of thinking is very uncharacteristic for a leader.

 

Atul: “As a CEO of the company, I understand that I have no control over anybody. I can’t get anybody to do anything…so I don’t spend my time trying to control people… what I try to do is to conduct myself in a manner that may encourage people to work in a certain way. I can try to create an environment that is encouraging, an environment in which people wish to excel.”

 

When he came to the United States it was not to be an entrepreneur but to study for a doctorate degree in Probability and Statistics. He describes himself as an “accidental entrepreneur.” A disillusioning experience working for a Silicon Valley firm led him to reconsider his options. When commitments regarding future assignments and compensation were not honored, and he felt disrespected by the company’s CFO, he became motivated to take the risk to establish his own company to prove that “you don’t have to be an *&%$# in order to succeed in business.” At the same time, this experience impressed upon him the importance of treating his future colleagues with fairness and respect.

 

Atul’s personal leadership style, which is reflected by the organization overall, is quite atypical, especially for an entrepreneur. Atul openly admits his shortcomings. While manifesting many of the traits of an entrepreneur, he sets himself apart by claiming that one of his greatest strengths is that he knows what he does not know. In fact, he even says, “I know that I don’t know how to run a business.” In conjunction with his perceived shortcomings, he also believed that you create joy at work by sharing the decision making with others in the organization. The end result was his desire to establish a structure of shared leadership within TEOCO. He demonstrated this by establishing a “Steering Committee” of the senior employees within one year of the existence of the company, much prior to his association with Philip and John.

While there has been much discussion in the management literature on the potential value of shared leadership, few organizations have attempted it, and even fewer have utilized it successfully. In many respects, the notion of shared leadership is quite contrary to traditional beliefs about leadership in U.S. organizations, which have strongly followed the military model of command and control. Atul’s personal background and beliefs, coupled with a unique confluence of circumstances, have made shared leadership a major factor contributing to the success of TEOCO.

To understand why shared leadership at TEOCO was both possible and successful requires an understanding of the unique combination of personalities, leadership strengths and styles, along with the career and life circumstances – not only of Atul, the founder and CEO, but also the other two members of the leadership team: Philip, President; and John, General Manager.

Philip was a very successful, retired executive. Atul read an article in the Washington Post in September, 1998, that profiled Philip’s retirement from American Management Systems (AMS) after 28 years. He contacted Philip, established a relationship with him, and eventually persuaded him to become a member of TEOCO’s Board of Advisors. Within a year, Philip agreed to come out of retirement to serve as the Vice Chairman and President.

John followed a path similar to Philip’s. He served as President of Professional Services for Telecordia. His earlier career experiences included executive positions at PriceWaterhouseCoopers, American Management Systems (AMS), and Booz Allen Hamilton. He became a member of the board in 2000, and in February 2004 369370he joined the company as a senior executive. In January 2005, he assumed the role of General Manager of its Telecom Business unit.

Personalities: In contrast with these two veteran executives, Atul was an entrepreneur with little or no experience in running a sizable business. However, he was a leader with a vision, strong intellect and a passion to build a successful company. In explaining why shared leadership works at TEOCO when it has not worked at many other organizations, Atul says that “I recognize that Philip and John are far more seasoned business professionals than me…. I go to them for guidance and advice and I will rarely do things that they do not agree with.” That said, Atul acknowledged that there are many challenges to shared leadership.

Atul: “The single biggest thing it requires on my part is to give up a ton of decision-making authority, and most people in a CEO chair are not willing to do that. I have to be subservient to John and Philip, and I’m happy to be … I feel that it is not in my personality to be authoritative… being forced to conduct myself in an authoritative manner is offensive to my soul.”

 

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