It was interesting and perhaps telling that on the so-called “Super Tuesday” on March 6, 2012, when the Republican (GOP) presidential candidates were duking it out in 10 US states, two once-fierce competitors in the spare parts planning & optimization (SPP/O) space decided to merge instead of continuing to bludgeon each other. Indeed, Servigistics and MCA Solutions have competed for virtually every major deal in the space since their inceptions over a decade ago.
The NY Yankees vs. Boston Red Sox or LA Lakers vs. Boston Celtics sports rivalry analogies could describe the software rivalry here: there was never any love lost in the process, and the companies and their staffers were monitoring each other keenly (and crowing over each other’s occasional misfortunes or missteps).
Now, why am I relating the presidential candidates’ race to this software merger? Just because of the date coincidence (and perhaps because Mitt Romney’s sometimes maligned Bain Capital used to own Servigistics prior to the current owner Marlin Equity Partners)? Well, not really, since with this merger of two strange bedfellows of sorts we now have the undisputed leader in the SPP/O niche. By the same token, sooner or later, all of the remaining GOP candidates will have to merge their delegates behind one candidate that will become the presumptive party nominee for the fall 2012 US presidential election.
Needless to say, these candidates currently seem to like each other as much as Servigistics and MCA used to like each other. But, time and again, common business interests (and common enemies) force companies and individuals to get over their personal differences to then engage in a love-fest of sorts when justifying their move to market observers and influencers.
Bob Ferrari has already expressed many valid facts and thoughts on this merger in his Supply Chain Matters blog post, with which I concur. There is an SLM Hub blog post by Mark Vigoroso, SVP of Global Marketing and Alliances at Servigistics as well as the prepared Frequently Asked Questions (FAQ) page. In addition, both vendors were described in in-depth TEC articles in 2011, respectively entitled “What’s New at MCA Solutions?” and “A Leader in Service Management Tackles Multi-Dimensional Growth.”
The Merger Rationale
It appears that Servigistics came out of its “Super Tuesday” as the undisputed frontrunner in the SPP/O space. MCA was the major spare parts multi-echelon inventory optimization (MEIO) specialist competitor and a thorn in the side for Servigistics. As said earlier, Servigistics and MCA competed on almost every significant spare parts supply chain management (SCM) deal, especially after Servigistics acquired Xelus via the Click Commerce purchase in 2009.
MCA is very strong in the aviation and defense (A&D) sector (e.g., Airbus Military, Boeing, Bombardier, Lockheed Martin, etc. are its renowned customers) and in the SAP ERP install base. The profitable vendor had about 25 large customers with large contracts, but was quickly hitting the wall, given a huge investment in its intellectual property and not much room for expansion left in the contested space, neither via many brand new customers nor via cross-sale of new modules to existing customers.
Thus, Servigistics should now breathe a sigh of relief when it comes to the downward pricing pressures Servigistics was facing in its duels with MCA. But the competition with enterprise resource planning (ERP) and general supply chain planning (SCP) providers will still exist, at least to confuse the prospective customer and slow the sales process down. Servigistics, Xelus, and MCA Solutions were the three pioneers in the SPP/O place, and there is only Baxter Planning Systems that is left as a respected best-of-breed SPP/O provider. In addition, Logility, ToolsGroup, and Infor (former Mercia) might have some spare parts planning capabilities, while Oracle has leveraged former Demantra for the novel Oracle Service Parts Planning offering.
Moreover, Servigistics is now stuck with three SPP/O codes, which it will have to handle with care – i.e., make existing customers happy while converging the products into a superset SPP/O offering in the future. The vendor is aware of the delicate situation, and plans to have a town hall-like meeting at its upcoming Exchange 2012 user conference with all of the existing install bases to address any concerns they might have. Any question related to the products’ future and roadmaps will reportedly be fair game.
Somewhat similar to Mitt Romney, who is the undisputed GOP frontrunner post-Super Tuesday, but has yet to close the deal with the entire GOP base (as most of his votes repeatedly come from certain US regions and populations), Servigistics too will still rely heavily on the SPP/O revenues (currently the lion’s share of the company revenues). At first glance, Servigistics customers might benefit from MCA’s contract management capabilities, while Servigistics will try to offer other parts of its broad service lifecycle management (SLM) suite such as pricing optimization, knowledge management (KM), service content, remote diagnostics, field service scheduling, reverse logistics, warehousing, etc.
But cross-selling SLM applications has been difficult, although I will acknowledge that Servigistics showed more progress in that area in 2011 than ever before. The company’s future will depend on its ability to bring each of its SLM modules to the level of success of its SPP/O business. With no longer having to drain energy on competing with MCA, perhaps Servigistics will be able to better allocate its resources to selling the SLM platform as a whole.
What’s the Future of the SPP/O (and SLM) Market?
Some might remember that a few years back MCA used to be a SAP-Endorsed Business Solution (or whatever the elite partner solution group is named now) a la SmartOps, ICON-SCM, Vendavo, etc., but then the relationship irreversibly soured when SAP developed its own Service Parts Planning & Logistics solution for Ford Motors (as a beta customer). It appears that many of the ERP vendors think that they can do SPP/O by themselves and don’t need to acquire a specialist solution.
Oracle, SAP, IFS, and Infor have already invested in in-house development and/or leveraged past acquisitions to this end. In the case of some customers needing really strong SPP/O capabilities, these vendors are able to put up with Servigistics or MCA nibbling at their install bases, like crocodiles tolerate the Egyptian Plover birds that clean their teeth.
ERP players are currently focused on other issues such as delivering their cloud offerings and business intelligence (BI) type apps rather than on deep applications. I also think that it is hard for large ERP vendors to market smaller and more focused add-on solutions because their customer contacts are typically in IT departments and not in services operations (I believe that this is a critical flaw in the application consolidation model).
Having said that, perhaps a much broader SLM platform will be more attractive to large ERP/enterprise asset management (EAM) or product lifecycle management (PLM)/computer-aided-design (CAD) vendors to acquire, once Servigistics reaches a sizeable install base. Marlin Equity, Servigistics’ owner, recently sold also upbeat Emptoris to IBM. Like Servigistics, Emptoris was building a broad Strategic Supply Management (SSM) suite in large part via selected acquisitions.
What makes us sure that Marlin will not shop Servigistics around, while vehemently denying it publicly (and professing its commitment to Servigistics’ illustrious future)? At this stage, Servigistics doesn’t have EAM and maintenance, repair & overhaul (MRO) capabilities, which would round out its SLM suite. Curiously, IBM has these supplementary capabilities in its Tivoli Maximo Asset Management offering, not that I am suggesting anything for sure!
Experience has taught us that anything is for sale at the right price. In other words, if large ERP/EAM and/or PLM/CAD vendors did not particularly care for MCA’s 20 plus customers, they might care for Servigistics’ several hundred customers in a few years’ time. Certainly, PLM/CAD vendors are expressing their desire to cover the entire “as designed”-“as manufactured”-“as serviced” product lifecycle.
Is SLM as Sustainable a Market as PLM?
Servigistics might be on to something with its attempt to become a service system of record independently of ERP databases. This is similar to PLM/CAD vendors becoming strategic product design services of record. In both cases, ERP systems are seen as mere transactional repositories of data that are indisputably crucial (even if mundane).
But, as opposed to the PLM/CAD market, there are not that many established vendors to validate the market and remain out of the reach of ERP predators. Indeed, other than Ventyx, an ABB company that now includes Mincom, Astea International, Syncron, Metrix, Click Software, ServiceMax, etc., are all smaller companies and potential acquisition targets.
The $64,000 question is whether Servigistics can grow fast enough to remain a standalone SLM provider. While the market is big and untapped, unfortunately few best-of-breed companies ever get really large. They generally have a high cost structure and complex sales cycles. Most companies focus on a particular tier (company size) and they don’t have a good plan to go down market with their products and services. In addition, many startups are regionally focused.
It just may be the nature of the beast, but I don’t see Servigistics growing organically past US$250 million any time soon. I personally think the market needs to consolidate further, particularly at the high end of the market. The development costs for the unique features that large customers demand with a sense of entitlement is hard to amortize over such a small base of existing customers and prospects.
In the case of multi-billion PLM/CAD players, they were all established CAD businesses with thousands of customers before they made their PLM acquisitions. In contrast, most best-of-breed providers seem to hit a wall and can no longer grow fast enough at some stage, so they must be acquired (or flipped in terms of their owners). Therefore, the onus is on Servigistics to execute its growth well and find new expansion alleys, and perhaps become the next PTC or Dassault Systemes of the SLM space.
What Could Pure-play Vendors Do?
Incidentally, generally speaking, I wonder whether all best-of-breed software companies who want to remain independent should plan for “creative destruction” and diversification in the following manner:
As an example, look at salesforce.com – the company would not be where it is now if it had remained only a customer relationship management (CRM) software provider. The vendor has since expanded into many more alleys, such as being a platform provider (Force.com and Heroku), social enterprise (Salesforce Chatter and Radian6), business data (Data.com or formerly Jigsaw), talent management (Rypple), etc. But such success has not been repeated very often in the enterprise applications space.
Dear readers, what are your comments, opinions, etc., on Servigistics’ ambitious strategy and the prospects of SLM remaining an independent software category? We would certainly be interested in your experiences with Servigistics and MCA Solutions, in any of the abovementioned SLM software categories (if you are an existing user), or in your general interest to evaluate these solutions as prospective customers.
Found this interesting - especially the thought that Servigistics might be sold to an even larger company. IBM was mentioned.