A Cautionary Tale: Sungard Files for Chapter 11

A Complete Failure for the Disaster Recovery Services Provider

Sungard Availability Services (“Sungard AS”), an IT services provider with more than 40 years’ experience specializing in disaster recovery, announced on April 1, 2019 that it would file for Chapter 11 in early May. With an annual revenue of approximately $1.4 billion, the company serves customers around the globe with tailored recovery services but will now file for bankruptcy in an effort to reduce nearly $1.3 billion of accumulated debt. Although Sungard often promoted their ability to help customers “adapt quickly and build resiliency,” it appears as though they were unable to employ those skills for their own business. The recent headlines surrounding the DR services provider can be viewed as a cautionary tale for other well-established IT service providers lagging to adopt new technologies—and their customers.

But what really went wrong? A long-standing company recognized in the industry announces prepackaged Chapter 11 with creditors in agreeance—this is all a signal of a significant flaw at Sungard.

Changing the Definition of Value in a New IT Environment

Forty years ago, the value or success of a service varied dramatically from what businesses and individuals seek today, and that’s true across industries. As most organizations that were around 40 years ago can tell you, disaster recovery services were often costly, difficult to maintain, reliant on colocation, and complex to execute internally. For over four decades, Sungard provided answers to these DR challenges with expertise and hardware, giving customers a valuable and needed service.

Yet as technology trends took a swift turn, traditional DR services no longer held the same value, and the Sungard business model wasn’t adapting fast enough. Sungard’s own Chief Executive Officer Andrew Stern pointed to the company’s inability to keep up with technology as a main driver of the announcement, stating, “The approach the company had taken to disaster recovery really hadn’t changed in 20 years—and the world had moved on…We had been slow in recognizing the business had to change.”

While Sungard continued to provide the brick-and-mortar infrastructure once necessary for tenable DR services, the introduction of the public cloud offered better control and accessibility for DR plans with significantly less cost. The public cloud brought greater scalability and options to DR services and shifted customers’ perception of value, just as many other industries and providers experienced during their own technology transformations.

“With the advent of cloud-based DRaaS solutions that offered customers more economical and more agile options than legacy approaches, a company like Sungard AS that applied a more traditional model was bound to be challenged,” Amy DeCarlo, GlobalData’s principal analyst of security and data center service. “For Sungard AS to make real progress, the company will need to revisit its core solution set and go-to-market model.” Although outside the organization, DeCarlo surmises that “the company has struggled mightily in recent years” and been increasingly challenged by their own design.

Sungard’s diminished traditional service value combined with more economical public cloud offerings may have resulted in the decision to file Chapter 11, but how the company moves forward after bankruptcy will certainly shape its future viability.

The Best Defense for Businesses and Service Providers

The Sungard story serves as a warning to both service providers and businesses:

  • Service providers should be prepared and invest early to meet customer needs and expectations as they change at the same rapid pace as technology
  • Customers should be aware of how well service providers are actively meeting and anticipating business needs and market trends

Both must continually evaluate how to measure value and proactively adapt to the shifting needs of the industry. To become a laggard in IT, for either customer or service provider, is to plant seeds for new challenges.

Outlooks After Disaster

Although their traditional business model may have been the key driver leading to bankruptcy, Stern stated in the press release, “Our creditors recognize the value in what we’ve built.”

While creditors convey confidence, customers may be asking how Sungard’s Chapter 11 plans will affect them. For IT services dedicated to disaster recovery, any lapse could be catastrophic. Although bankruptcy will restructure the well-established service portfolio familiar to customers, Sungard spokeswoman Karen Wentworth assured, “There will be no interruption to business.”

Maintaining support for current customers is a common pledge from companies after filing Chapter 11, but it can still leave analysts and customers skeptical what to expect as the process progresses or is unsuccessful—increased costs, disorganized service sets, or even collapse?

An Open-Ended Outcome

Sungard’s story shows that the wide-spread adoption of cloud-based solutions, service providers that cannot keep up with technology evolution are at real risk of becoming extinct. While there is no one-size-fits-all for disaster recovery or IT infrastructure, hybrid cloud solutions can address the technology changes rapidly unfolding for businesses across industry. The right hybrid cloud solutions can facilitate the goals of a modern DR strategy to reduce risk, optimize IT spend, and increase business agility. Proactive flexibility and scalability that can change alongside a business’ evolving cloud adoption can be realized most effectively with a hybrid cloud approach.

Worried about your own disaster recovery plan? Start with a free consultation to see what disaster you could be preventing today.

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