The advantage of strategy

Cegeka is a fast growing IT company with places to be and the know-how to get there

Cegeka boasts one of the most impressive growth stories in Belgium, standing out head and shoulders in the IT crowd. Quite surprisingly, they seem to have come from nowhere. What is more surprising, however, is what they did next.

The rebirth of Cegeka in the early ‘90s began (rather unconventionally) with a death: management had decided to let an entire department go. The head of that department decided then and there that this was not going to happen. André Knaepen (today Cegeka CEO) initiated a management buyout and took the entire team with him to start afresh. What began as a tremendous risk—i.e. launching a new company with 30 people from the start is costly—has now become a robust business with over 1200 employees. It is a remarkable story of growth, one that continues even in these difficult economic times.

Composition

Looking under the skin of Cegeka does not at first glance seem to reveal anything too revolutionary. The company comprises three main areas: Firstly, Cegeka functions as an outsourcing partner in data centre services. This kind of heavy duty long-term (seldom less than 5 years) contractual business requires intensive face time with clients. This is something that Cegeka shines at. They are not an overseas giant; on the contrary, the company’s decision makers and data centres are right here within reach. This might not be a big feat internationally, but it is so to many Belgian companies who consider data their lifeblood. Indeed, numerous companies such as Delta Lloyd Life, AVR - Van Gansewinkel and Ewals Cargo Care are opting for a full outsourcing model at Cegeka.

Cegeka’s second area of focus is application development. Here we begin to see a little more of what makes the company unique. The division is called the Agile Software Factory—and the name says it all. It is a factory because it is fast and efficient, and it manages to be a factory because its approach is agile. Cegeka’s software factory has developed a methodology whereby it is able to get a significant head-start on projects and reduce their risk. As a result, it is able to start delivering working software within two weeks of a project’s launch.

Rounding out the company is their third division: product development. While a significant proportion of the big players in the Belgian IT industry rely on hosting and maintaining third-party software, Cegeka has been bold enough to develop or acquire enterprise level products, mainly in the health care sector. This kind of software (for instance, a central patient record application) allows for remote installation and feeds the company’s international expansion plans, as it does not require a hands-on approach – it can be supported (unlike the other divisions of Cegeka) from anywhere.

André Knaepen, CEO of Cegeka

Strategy

It is clear that the company aims at being the best at what they do, but this only makes for a strong company, and not necessarily one that grows in the manner that Cegeka has. To really understand Cegeka, one needs to understand its core values and principles:

The company believes in the long-term approach, and shirks short-term thinking. This applies to both staff and clients. This does not mean that the organisation is static, far from it – there is a strong corporate culture around constantly fine-tuning processes and methodology; being self-critical, flexible and adaptable in order to grow in the right manner. But the company’s decisions are always guided with an eye on the future. For example, while their application development work might not seem long term, it more often than not leads to subsequent support, maintenance and hosting, which ends up being just that.

Pragmatism is another core value. This manifests itself in at least two ways. Firstly, in the mantra: ‘never, ever promise what you cannot deliver.’ This takes discipline—a business developer is always tempted to paint a positive picture. Cegeka, on the contrary, wants to keep things practical and realistic. Sometimes a project just does not make sense since the costs outweigh the benefits. Secondly, Cegeka is pragmatic about its investments. Every euro needs to count. The company expects a payback time of a maximum of five years for its investments. Also, they look for projects with predictable, low-risk returns.

So how do these principles translate into the way Cegeka works with customers? For one, Cegeka tends to target companies with local IT decision making. This allows Cegeka to form a closer relationship with its customer, at a strategic level, and thus realise a far bigger impact. But to accomplish this you need a long-term perspective and an open-book approach to engender trust. Cegeka does not just sell projects. On the contrary, it works with its customers to reduce IT costs (which may run counter to Cegeka’s immediate business results) and deliver strategic benefits. What matters is value for the client—be it reduced costs, improved profitability or revenue growth. Only in this way can Cegeka bind its customers in a lasting manner. And this matters, because Cegeka’s business is all about predictable recurring revenues. While this might sound boring, consider that while the company’s core business is indeed stable and robust, they have nevertheless been growing at a remarkably rapid rate.

Growth

While Cegeka had shown reasonably consistent organic growth in the 1990s, its growth strategy kicked into gear properly in 2004, with acquisitions nearly doubling the size of the company. While this seems out of character with their usual low-risk approach (and indeed the rest of Belgium’s), a closer inspection reveals the opposite:

The company’s basic strategy is all about timing. Acquire a company after the hype, when the technology is solid and the market is finally ripe. Acquisition is also about keeping a full tent: ensuring that the company you buy retains the staff that built it. It is in this area that Cegeka is particularly strong, and is often neglected (to their peril) by other companies. Cegeka’s approach is value driven. The company concentrates on promoting mutual respect and equality with the newly acquired entity – buying a company does not mean you know everything about it or its market. Both entities look at what is best for the big picture. Cegeka then aims at closing any blind spots as quickly as possible, creating a seamless entity (especially to clients) within 6 months, while still respecting previous client relationships. Careful management at a divisional level, to ensure that everyone is on the same page, is the glue that holds this picture together. This way the business keeps running, and stays focussed on revenue targets.

Open communication, honesty and a healthy dose of pragmatism seem like the elements of a simple formula, but the results are clearly profound. It not only makes for a reliable, stable business, but it is also critical to an acquisitive growth strategy.

The Future

It is clear that the future of Cegeka will include a lot of their past – their strategy for success has undoubtedly held them in good stead. A strong focus on the home Benelux market with acquisitive growth into the Netherlands and further afield is nevertheless tempered by the company’s overarching pragmatism: instead of opening offices overseas to see if there is work to be had, Cegeka grows with their clients – a low-risk organic strategy.

This is indeed what makes Cegeka truly unique: a combination of striking boldness (through acquisition) and carefully tempered caution—via measured investment and stable long-term relationships. Belgian companies have contented themselves with stability, but Cegeka has seemingly turned this paradigm on its head by showing that growth can be just as stable and risk free.

Cegeka may not be the largest company in Belgium, but with a 70% recurring revenue stream the company is a strongest contender to be the fastest growing in the sector; they are not only making waves, but riding them too.