St Valentine’s Day massacre leaves Incite almost out-of-sight

Briefly one of the innovators of the SaaS construction collaboration technology market, Australia-based Incite has suffered under recent heavy-handed management by parent Leighton Holdings.

A couple of years ago, I did some consultancy work for Sydney, Australia-based construction collaboration technology vendor Incite (aka Nexus Point Solutions Pty Ltd). At the time (April 2009), the two serial software entrepreneurs who led Incite, managing director Sean Kaye and general manager, technology Michael Baker, were enthusiastic about the potential of a new, easier to implement and more flexible and user-friendly project platform – Keystone – they were developing (to replace technology the firm licensed from Munich, Germany-based software business ThinkProject! Solutions).

In January 2010 Sean focused on his role as general manager of group strategic IT in the parent company, the giant contracting and mining group Leighton Holdings, and his successor as Incite MD Scott Crane (like Sean and Michael, a former director of Leighton sister company Infoplex), accompanied Michael on a trip to London in November. They talked about a leaner, more commercial, end-user-driven focus to the business and showed me the innovations, some of which were patented, they were building into the new Incite Keystone project platform (see blog post). Initial instabilities with the platform had been tackled, and Michael’s development, deployment and support teams were working closely with Incite customers – mostly Leighton businesses – to build a rich road-map of enhancements demanded by Keystone end-users working on projects.

And, with interest being expressed by Leighton majority shareholder Hochtief, it was clear they were looking to evolve and:

• establish a European beach-head
• grow a market outside of the mainly Australasia-based Leighton Holdings group
• build a reputation for developing innovative, customer/end-user-centric SaaS software
• become a key player in the international market for SaaS-based construction collaboration.

Incite’s St Valentine’s Day Massacre

But that evolution came to a grinding halt on St Valentine’s Day, 14 February 2011. I understand Scott, Michael and another key executive, professional services manager Tyson Garrett, were summoned to a meeting next-door at Leighton Holdings HQ, told their positions were being made redundant and were then accompanied to collect their personal belongings before being escorted off the St Leonards premises. Almost simultaneously, Sean Kaye was ousted from his group role.

This loss of three key directors was followed by the departure of several other Incite staff (numbers dropped from 55 at 1 January 2011 to 41 staff [website Fast Facts], but now stand at 49 – according to Leighton Holdings), and the ambitious plans Incite once had to take the global collaboration market by storm look to be lying in tatters. Release of the new developments – eg: the API, spatial functionality with NearMap, iPhone and iPad support, and an Outlook plug-in – I previewed in November 2010 was postponed, and implementation of Baker’s customer-driven and ground-breaking product roadmap has been scaled back.

Parent problems

For anyone following the Australian construction market recently, and Leighton Holdings in particular (see these Sydney Morning Herald articles, for example), these moves may not be the surprise they were to many Incite staff in February. For instance, Incite’s “St Valentine’s Day Massacre” coincided with the group’s announcement of a 25% drop in first half profit (SMH story), and talk by the new chief executive David Stewart of a freeze on discretionary spending and cuts on overheads:

“We are bringing a rigorous approach to the existing and any new businesses and are focused on reducing costs and increasing margins so as to return Leighton to its historic performance levels.”

But this just one event in a calamitous year for Leighton Holdings. Once one of Australia’s most respected companies, Leighton has seen its share price more than halve, falling from $38 in October 2010 to under $18 in September 2011, amid major upheavals in the boardroom, a $907m profit downgrade (April 2011), and resulting shareholder legal action (September 2011). Long-time CEO Wal King and deputy CEO Bill Wild (both apparently champions of Incite; Wild is now interim CEO at Hastie), left in February 2010, and the incoming CEO, Stewart, lasted little more than six months before resigning at the end of August.

Another relatively new face was brought in by Leighton Holdings’ chief financial officer and former non-exec director Peter Gregg (appointed CFO in October 2009; right); he recruited his former Qantas colleague Jamila Gordon (left) into the group as chief information officer in September 2010 (she was Qantas CIO less than 20 months), and the news release about her appointment also hinted at economies:

“Ms Gordon’s role will span the Leighton Group, and she will be working closely with the Operating Company CIO’s in shaping the Group’s Information Technology strategy and corporate governance; as well as overseeing and evaluating IT risk.  In addition Ms Gordon will work with Operating Company CIOs to identify areas of commonality where the Leighton Group will benefit if aggregated.” [my emphasis]

In May 2011, The Australian reported the group was “reviewing its technology functions” (including possible consolidation of ERP systems), with Gregg vowing to reduce overheads by 10%, or about $100m, over 12 months.

Incite issues

Under Gordon – and notwithstanding the substantial severance payments that would have been paid to Crane, Baker and Garrett (the parent group is also under pressure regarding termination payments) – IT cost-cutting and rationalisation were certainly high on the agenda. I understand:

• disparate IT operations have effectively been merged into a central IT function – The previously semi-autonomous Incite profit centre is now part of a centralised IT function. I understand that support and development of a separate but key internal business ‘engine’, Leighton Group’s computer-aided tendering system (CATS), was also rationalised; three key CATS people, with a combined 60 years of tendering and estimating system experience, were made redundant, with their responsibilities passed to two junior developers). Leighton Holdings have confirmed that Incite Keystone and CATS are now managed by a centralised IT function.
• Incite’s “independence” from Leighton has evaporated – Jamila Gordon’s name and role as Leighton CIO briefly appeared on the Team page of Incite’s website, undermining the previously carefully cultivated separation between the contracting giant and its IT subsidiary (the page now mentions only two people – one of them, Warwick Kirby, listed as “Group Software Development Manager” [my emphasis])
• externally-focused sales and business development staff resigned from the business
• software testing and quality assurance was outsourced to CapGemini (a decision, I believe, since reversed) – Leighton Holdings told me Capgemini provided:
  

  “best practice testing services leveraging the HP ALM suite of products and, as with most projects, there is a transitioning out phase that is currently in progress”.

• internal customers were asked to do user acceptance testing, something for which they had no training.
• the previous ‘agile’ software development process became, er, ‘arthritic’ – new Keystone updates are dominated by bug-fixes and minor enhancements; under Baker’s regime, end-users tell me, new updates were released every 4-6 weeks, but since the 27 January release of Keystone v1.3, updates are now appearing at 8-11 week intervals.
• promised functionality has been delayed – for example, project archives, originally scheduled to be delivered in Q1 of 2011, are still pending. Leighton Holdings deny any slow-down:
  

  “Releases of Incite Keystone software functionality are ongoing and to plan in alignment with the product roadmap, using an Agile development methodology. For example, we recently released a multi-threaded Silverlight file uploader, designed especially to support large file uploads. In relation to archiving functionality, this is in line with the product roadmap and is planned for release 1.3.5.

• hosting is regarded as “slow” and “unstable” – users have started complaining about the time taken to upload/download information to/from Keystone (likely to be an issue at Leighton Holdings subsidiaries, managed services provider Infoplex and Metronode, where the platform is hosted; this may also be a source of unease for some potential customers – if you were a contractor, would you want your data hosted by a competitor’s IT subsidiary?). Leighton Holdings insists:
  

  “In line with our product roadmap, Incite Keystone has improved in its stability and performance.”

• there have been multiple hosting infrastructure outages, including one disastrous and unplanned 36-hour interruption (in a market where 99.7%+ uptime is normal, such downtime – this one unscheduled breakdown alone was equivalent to 0.41% over a full year – would immediately invoke service level agreement, SLA, rebates from other vendors). When I asked about this specific outage (caused by a database issue at Infoplex, I believe), Leighton Holdings chose not to answer the question; it merely talked about planned downtime:
  

  “Nexus leverages planned weekend outages to perform strategic maintenance and upgrades which can vary in duration. Maintenance such as this is undertaken from time to time, as with all enterprise solutions.”

• proactive communication with Incite customers has suffered (“it’s diabolical,” said one source), with the still highly-regarded support team now having to react to and deal with a growing volume of negative feedback
• Incite deployment now takes twice as long – deployment of Incite to new projects has slowed from around four weeks to over two months in some cases. Leighton stated:
  

  “Time taken from initial approval to ‘go-live’ for new projects is highly dependent on size of the project, and can range from 2 hours to 2 weeks, given the governance, complexities, size and approval requirements of large projects.”

• customer dissatisfaction with Incite has led to projects going to competing systems – contacts at both Aconex and ProjectCentre.net told me customers have been deserting Incite (one source told me Leighton Holdings now won’t allow new external projects to go on Keystone due to recent poor stability and bugs – but Leighton insisted: “Incite Keystone continues to serve new external projects“).

In the final quarter of 2010, Incite was gradually extending use of Keystone, with over 100 projects running on the new platform, more than a dozen new projects being added each month, and more queuing up to migrate from ThinkProject! However, the incoming management team’s focus on supporting Leighton group contracting businesses (ie: Leighton Contractors, Theiss, John Holland) meant a substantial pipeline of potentially lucrative new contracts with non-group customers was initially blocked, and then reopened too late for Incite to reap the rewards. The uneasy tension that used to exist between Incite’s external ambitions and the group’s internal focus sounds to have been relaxed – but in favour of the latter. Leighton Holdings told me:

Nexus is a critical solution provider for Leighton Holdings and is in line with the principles of the ‘Leighton Way’ for project collaboration. Nexus does and will continue to support non-group customers globally, as many construction, engineering and mining organisation[s] continue to leverage our service. … Nexus has grown significantly in 2011, and [is] comfortably supporting over 20,000 active users for projects worth in excess of AU$47 billion.

My view

Nine months ago, I was watching Incite and waiting for it to start marketing its new capabilities. Based on the technical quality of its new platform, I believed it could make some giant strides ahead of its competitors, both domestically in Australasia and in other regions such as Europe if it chose to. I also anticipated that it would reduce its reliance on customers within the parent group – particularly if it found customers beyond Leighton’s strongholds in Australasia and southeast Asia.

But February’s events have damaged Incite’s reputation and its prospects. To the relief of its domestic rivals at least, it has not capitalised upon the substantial software advances it was making, and it has lost much of the intellectual firepower behind its innovation. Customers’ patience has been tested by new releases that deliver little or no new functionality, by slow bug-fixes, and by a decline in the speed and reliability of Incite’s hosting regime (the suggestion that weekend outages are normal for enterprise solutions also reflects the business’s downgraded ambitions – Incite doesn’t seem concerned with supporting 24/7 “follow the sun” working – and contrasts with SaaS businesses such as Salesforce.com which pride themselves on almost constant uptime to support their customers’ productivity). And the centralisation of IT within Leighton has seriously hampered Incite’s old aim to be seen as independent from the contracting interests of the parent company – vital if it was to attract more customers from among Leighton’s rival contractors and their supply chains, or from client bodies who might be wary of dealing with a contractor’s subsidiary.

There has also been an impact on Leighton Holdings. The parent, of course, may be content that its in-house collaboration business is now mainly focused on the group’s own projects, and may regard the old Incite team’s expansion ambitions as an unnecessary diversion. Under Jamila Gordon, Incite seems to made a transition from SaaS business to being part of a group’s IT department, with significantly less chance of delivering robust, reliable and industry-leading construction project software in line with Leighton Holdings’ stated policy. If Incite could have expanded its customer base outside of Leighton Holdings, then it would also have gained a wider range of customer inputs into its software development, helping ensure Keystone users always had state-of-the-art tools at their disposal. External customers would also have been more demanding regarding system uptime and responsiveness, helping Incite raise its game.

Moreover, in my view, the group’s own rationalisation requirements have been satisfied at the strategic expense of establishing a SaaS software business with the innovative and commercial potential to rival Australian competitors such as Aconex, QA Software and ProjectCentre.net (see recent post), plus European and US firms such as BIW/Conject, 4Projects, eBuilder and others.

Under current market conditions, we are unlikely to see major multi-million dollar investments like those enjoyed by 4Projects (£21.6m in 2007) and Aconex (Au$107.5m in 2008), but if and when some stability does return to the architecture, engineering and construction sector, then innovative, industry-specific SaaS technology businesses yielding steady and predictable revenues will again be seen as attractive investments. Meanwhile, however, the events of the past nine months at Incite sadly mean that Leighton Holdings may have let a potentially lucrative spin-off slip through its fingers and disappear from sight.

Update (17 October 2011): A contact close to Incite/Nexus Point Solutions Pty Ltd just emailed me:

“They actually blocked the website after a couple of hours so no more people could view it internally 😉

Total paranoia. When Warwick addressed the troops he said that articles like that come out because they are doing such a good job (delusional?).”

If this is true, I am somewhat flattered! But any such censorship does make you wonder if managers really believe that stopping employees reading critical articles about their company is in their best interests. And blocking access to a site from work will, of course, not stop people viewing the blog post from, say, their home computers or from personal mobile devices.