“The bad and the ugly was Sapiens itself”: Sapiens chairman on layoffs, AI and the company’s transformation
Mike Ettling says Advent moved quickly to overhaul Sapiens after its $2.5 billion acquisition, cutting around 800 jobs, replacing much of its senior management and betting that AI can accelerate the Israeli software company’s path to more than $1 billion in revenue.
“Sapiens had a poor culture of failing to keep promises. Company employees would make commitments to clients but not follow through on them. Almost every client we spoke with after acquiring Sapiens cited this as a recurring issue. They told me, ‘Even when we escalated matters up the management chain, and even when we reached the CEO himself and he promised to resolve the problem, nothing was done.‘ We are trying to change that now.”
These remarks were made by Mike Ettling, executive chairman of Sapiens and a partner at investment firm Advent, which acquired the software company last December for $2.5 billion, in an exclusive interview with Calcalist.
Ettling has previously led turnarounds at other Advent portfolio companies, most notably UNIT4, which was sold for $2 billion seven years after Advent acquired it for $1.4 billion.
Almost immediately after the deal closed, Advent, led by Ettling, moved aggressively to replace most of Sapiens’ senior management, a team that had been almost exclusively Israeli and was headed by longtime CEO Roni Al-Dor. At the same time, the fund laid off approximately 800 employees, leaving Sapiens with a current workforce of about 5,000.
The majority of the Israeli company’s employees are currently based in India, as they were when the company was controlled by the Formula Group. Operations in Israel have shrunk by several dozen employees but remain a key technological anchor.
Management has shifted entirely to London, the base for both Ettling and Paul Wheeler, the designated CEO appointed by the fund in June who is slated to assume the role in the coming weeks.
In the nine months since Advent completed its acquisition of Sapiens, and the company was delisted from the Tel Aviv and U.S. stock exchanges, Ettling has been busy restructuring the firm. Now, in a surprisingly candid interview, he opens up about what Advent discovered when it “popped the hood” of the veteran software developer for the insurance sector, revealing details that rarely emerge from corporate boardrooms.
You describe a problematic organizational culture. What do you think caused it, and how do you fix it?
“You could find plenty of reasons and excuses, but ultimately, it’s a cultural issue stemming from a leadership problem,” says Ettling. “I believe managers get the behavior they are willing to tolerate. That applies all the way up and down the organizational chain.
“If the CEO isn’t bothered when an employee fails to keep a promise to a client, that behavior permeates and intensifies as you move up the corporate ladder. That is the leadership issue, and that is what we are changing.”
What else did you find at Sapiens that prompted you to replace the management team immediately after taking over? What strategic error prevented the company from achieving a higher valuation, despite the popularity of its flagship software?
“It’s not that there were many surprises, but one thing stood out as far more significant than we had anticipated. I sat down with many of the company’s clients and asked them to give me ‘the good, the bad and the ugly.’
“The recurring answer was, ‘The product is good.’ I asked, ‘So what, then, are the bad and the ugly?’ Everyone said, ‘The bad and the ugly is Sapiens itself.’
“The product holds up well against competitors, but the organizational structure and the way the company was managed held it back and caused it harm.”
Given how Sapiens is perceived by its clients, did you consider changing the name and rebranding the company?
“We explored the option of changing the name but concluded that the Sapiens brand holds immense value. It is synonymous with deep expertise in the insurance industry.
“The problem wasn’t the name itself, but rather that the market didn’t understand what the brand stood for. That is one of the reasons for the wide gap that previously existed between Sapiens’ valuation and that of Guidewire,” he explains, referring to the American competitor currently valued at $12 billion.
“We transformed the entire structure from a collection of business units into a global management model typical of a software company,” Ettling says. “There is a chief revenue officer, a chief customer officer, a chief product officer and a chief technology officer.
“There is no longer a geographically based management structure that suffers from various barriers. We have begun to make much better use of our extensive operations in India, an important resource that hadn’t been utilized correctly.
“The biggest change we’ve made is structuring management around the customers, ensuring they no longer experience the culture of the ‘old’ Sapiens.”
When you joined Sapiens, the company was in turmoil due to a rapid and aggressive round of layoffs. Have you reached a balance in this regard, or are further cuts planned?
“In the AI era, discussing headcount is meaningless. I’m no prophet. I don’t know what our workforce numbers will look like in a year or two.
“What I do know is that we intend to identify as many company activities as possible where AI can be applied. Three or four months ago, we decided to give every employee access to Claude so they could use it in their daily work and boost productivity.”
“This will significantly alter the company’s workforce dynamics,” says Ettling, hinting that the workforce is unlikely to grow and might even shrink, as is happening at many software companies.
“It is no longer possible to promise employees a 20-year career. It is difficult to even guarantee a career of 10 or five years,” he says.
“But we can promise them that they will learn, grow and become excellent AI builders right up until the day they leave. At Sapiens, we don’t use the term ‘employee turnover.’ We speak of ‘Honest Endings.’ As long as you are honest with employees about their departure, the value they bring while at the company and what they can learn, it is a legitimate process.”
What does this mean for Israel? Are you hiring here or scaling back?
“Tel Aviv will continue to be a very important technology hub for Sapiens. I expect Israel to remain relatively similar in size under the current software development model, though the nature of the roles will shift.
“There will be more technical roles and less administration. A larger share of operations will pivot toward technology. In fact, a significant portion of the development of Sapiens’ new AI platform originated in Tel Aviv.
“It will remain the company’s central technology and product hub.”
Before we dive into AI, let’s talk about the products. Are you discontinuing certain products or selling them off?
“Naturally, there are products that don’t align with the direction we want to take, such as redundant products or those that don’t support our new strategy of focusing on software for life and pension insurance, reinsurance and property insurance. Consequently, some of these products will be discontinued or sold.”
So, once all these changes are implemented, what is your outlook for Sapiens’ performance?
“AI acts as a force for good, but it is also highly disruptive. We developed a corporate plan last year, but we’ve effectively scrapped it and approved a new one. The reason is that the original plan didn’t factor in AI, whereas the new one does.
“We are currently launching an AI platform we built called ‘Sapiens Brain.’ Under the original plan, we projected Sapiens would surpass $1 billion in revenue by 2031. With AI, we see that happening about two years sooner.”
You acquired Sapiens at a time when people are talking about a ‘SaaS apocalypse’ and the possibility that AI could replace a large part of the software industry. Aren’t you worried about that?
“Not at all. Quite the opposite. AI is a massive tailwind for us.
“There is something we can do that AI startups can’t. We possess 40 years of knowledge and experience. Insurance companies are currently experiencing quite a few failures with AI projects because, while you can take a public LLM model, it doesn’t truly understand insurance.
“Hallucination rates are very high in some of these projects, and there have already been significant failures.”
But Sapiens’ workforce is relatively older than that of startups and has less experience with AI.
“We weren’t necessarily looking for people who would bring the playbook of the past with them.
“In the AI era, the old order is breaking down. Experience still matters, but it is more important to know how to leverage your experience and knowledge to create something that fits the new world. We recruited people with that capability.
“This type of leadership simply didn’t exist at Sapiens before. There were many talented, intelligent people at Sapiens, including in Israel, who never got the chance to lead.”
What is your goal? When will you know the transformation is complete? Will you aim for an exit?
“If you look at the InsurTech market, you’ll see we didn’t pay an exorbitant price for Sapiens, yet it has the potential to become a $10 billion company in the future.
“If we succeed in our plans, it could eventually attract strategic investors or return to the public markets.”
