Richard Sharpe
April 2022
The headline on an article in System House April 1990 said it all: “Newcomer Capita increases profits 74%” The story went on: “It’s really satisfying, for once, to see a newcomer to the Stock Exchange meeting forecasts.”
Capita had been formed as a computer services company in 1987 by a management buyout from CIPFA, the public sector accounting body. The buyout was led by Rod Aldridge OBE, now Sir Rod. Under his steady management the shares in April 1990 were 70% higher than the placing in 1989.
Sir Rod mortgaged his house to finance his stake in the company, he says: “When I signed the deal with the bank manager for the funding, I’ll never forget his face. I knew in my own mind that he would never have the opportunity to take my house away from me because failure of the company was not an option. There were four of us as directors in the management buy team which led to the creation of the Capita Group Ltd and all of the staff we employed came with us. The energy that came from that time, it was probably one of the greatest periods I’ve ever worked in in an organisation. We just went for it and we became successful, because, we couldn’t afford to fail not only because of our houses being on the line, but equally, pride. Pride is a great motivator.”
Under Sir Rod’s capable management Capita became the leading computer services vendor to local authorities, apart from ICL. It grew so steadily and returned profits so efficiently that it became “boring”, according to Richard Holway, editor of System House. Holway initiated the Boring Awards for computer companies who consistently did well.
Holway told the archives: “People have written many articles now about why boring is actually good, and, and I think it is good. One of the things as an analyst is that, I do get very annoyed about companies that consistently make losses, bigger and bigger, bigger losses, and investors plough more and more money into it. Although people have got the Boring Award, the two that held it for longest, and have only lost it in the last year (2016) have been Sage and Capita. Capita in fact had an uninterrupted run since their IPO in 1989.”
Holway wrote about the Boring Awards for the Archive. (Read in full here.)
His criteria for winning the award is:
1 – They ‘Stick to the knitting’. They concentrate their efforts on one thing and do it well. Capita for UK Business Process Outsourcing. Sage for accounting for SMEs.
2 – Strong brand identification. Everyone knows what they do.
3 – They only expand geographically in their own market area. In other words, if you are good at doing ‘A’ in the UK, you might stand a chance of being able to do well at ‘A’ in France or the US. You will undoubtedly fail if you try something new in a new geography.
4 – Strong and Stable management. Before Teresa May devalued that phrase, it really did mean something. All Boring Award holders were run for decades by the same top managers – most often their founders.
5 – They avoid Acquisition Indigestion. Sure, Boring companies do lots of acquisitions – Sage and Capita acquired many companies every year. But firstly they tended to be in areas or geographies they knew well. And also they tended to be relatively small – never > 10% of their then market cap. As your doctor will tell you, to avoid indigestion, eat small meals regularly. Big blow outs can sometimes be fatal!
Sir Rod got the skills which allowed him to steer Capita successfully from his background. His father was a skilled sheet metal worker on the south coast. Sir Rod failed his 11+ which meant a Grammar School was out of the question. He left school at 16 with a handful of GCSE’s He joined the East Sussex County Council in the finance department. He learned quickly and eventually took professional exams in accounting. He moved to the CIPFA.
“The institute had a range of panels, as they called them, and one of those panels was, technology, and interestingly, Bernard Harty, who was the, one of the, the original man who established the Worshipful Company, he was the chief executive at that point. So I started to work with Bernard as well around technology. And the panel that I looked after on the technology was faced with an opportunity that was driven by the Conservative Government of the time, Thatcher, who was trying to restructure local government, some would say demolish it, and was doing it through driving more efficiency into local government, and they introduced something called compulsory competitive tendering. And what we saw was, that there was an opportunity to standardise the systems that were going to be needed to be able to deal with the requirements of that. And a lot of that was around a computer system, because every local authority was exposed to it. And so what we did was, we put together a consortium that designed a functional specification that would be able to offer that solution to local government. And that then introduced me to all the computer suppliers, because they were interested in designing that system…
“At that time, ICL was the large operator, with Honeywell and IBM. And, you know, these were people that earned a lot of money through selling. And, and I had to work with them on the design of this specification. So that was quite a, an interesting added experience that gave me an entrée to a new world. Because what CIPFA did was, they offered a seal of approval to the system, so we, not only did we then design a function specification, we went on to write it. And we had to work with ICL and another organisation called McDonnell Douglas to actually design and implement the system in local authorities.”
So, the lesson is that IT does not have to be all razzamatazz. It really can be quite “boring” but still inspiring.
