Market acquisition is changing the manufacturing software solutions market, but not always for the better. We take a closer look at its cost to innovation and service to manufacturers.
By David Oeters, Corporate Communications with CIMx Software
Market consolidation – big companies purchasing smaller companies in order to make even bigger companies – has become a way of business.
Consider this, Google has purchased more than 160 companies since the company was founded. In less than one year, they purchased 21 companies. In 2010, Google bought a company, on average, every two weeks! According to Apple CEO Tim Cook, Apple averages an acquisition every other month. Acquisitions are rampant, widespread, and especially common in the high-tech and software industries.
Market Acquisitions and Manufacturing
Manufacturing software solutions aren’t immune to the epidemic of strategic acquisitions (or, as we call it, “purchase, use, abuse, consolidate, wash and repeat”) trend. Just this year, Dassault Systemes has purchased companies such as Quintiq, which offers supply chain optimization software, Accelrys, which manages research data, and Apriso, an MES. Other manufacturing software companies are being gobbled up at a rate rarely seen outside a holiday meal. Visiprise was purchased by SAP. Dassault purchased Intercim (let’s be honest… not sure why you need two MES – perhaps one was lonely?) Most recently, Siemens has signed an agreement to purchase Camstar, another MES.
The marketing spin factories are hard at work turning these purchases into stories of customer benefit. They tell us about “expanded offerings” (i.e. more stuff you can buy), with “market synergies,” (i.e. more places to sell our stuff) “value delivery focus” (i.e. more ways you can buy our stuff) and even, “innovation accelerant” (i.e. more ways we can make you buy our stuff).
Big companies have a goal in mind with each purchase, and it’s not focused on the customer’s needs. In fact, there’s a “I just bought a company” expense passed on to customers when an acquisition occurs. We call it (mockingly) the “Purchase Pain Payment Plan.” It’s this unspoken sacrifice all customers pay when a vendor decides it’s time to acquire or be acquired.
Customer Payment Plan for MES Market Consolidation
Let’s take a look at a few of the items you might come across in the payment plan:
1) The Service gaps and delays.
Face it, every software system is different. As a company begins to integrate their internal service organizations with those of the newly purchased company, there will be service gaps. The service plan you previously purchased slowly morphs into a new plan that better serves the vendor. You may discover new service charges on your billing, or a flood of “Service Update” notices on legal letterhead. Once the vendor adjusts their workforce (i.e. layoffs) the service gaps will widen, and you may see delays in service or changes in how the company responds to your needs. Eventually, the problems and service questions will be worked out, but not before the company has you and the other customers where they want you.
2) Upcharges and the push for new functionality.
Many companies buy a smaller company to acquire their smartest employees or access their IP (intellectual property). It is one way to fill out a product offering, eliminate a perceived weakness, or make up for a lack of innovation. For example, Google purchased Emu to add context and an interactive element to text messages. Many manufacturing software companies, such as Siemens, will purchase MES to complement their PLM or other software. Vendors seek upcharges and sales of the new functionality, pushing customers to purchase and spend more with promises of amazing new software synergies that may (or may not) be of benefit to you. These vendors will also exploit their new customer base for new sales, offering them their existing products or packaging them with the product they know the customer needs.
3) Adjustments to the upgrade path.
Software ages, and one way to ensure your software stays relevant is an upgrade. Most companies offer an upgrade path, or a plan for upgrading your system. This plan is thrown out the window once a company is purchased, as the teams that were working on your upgrade are now moved to integrating the new software or to other projects. In fact, many times the vendor will push you to purchase a new system in order to move customers to the systems they are actively supporting, leaving customers that were happy with the software and system before wondering how they can work with the system being pushed on them now.
4) Scalability issues.
There is a fine balance between getting the service you and your company needs, and being overcharged for services you don’t want. As a vendor grows through acquisitions (or being acquired) changes will be made in how the business is handled, your software is serviced, and in the relationship between customer and vendor. Many times, this will lead to scalability problems, as customers begin paying for services, functionality, tools or features they don’t want. Your use of the software system may be consistent, but as they vendor begins incorporating new products and employees, they adapt their billing change – which will be reflected in the cost of the software.
5) New features that aren’t focused on your needs.
Many times, an acquisition will herald a strategic change for a company. They will not only purchase a company to fill a void, but bring innovation back into their processes with a solution that has been perfected and scaled for the market. Problem is, the new direction may not be the one you need, and it may not even be the solution you originally thought you were purchasing. As the vendor resources pivot to capitalize on the recently purchased innovation, previous customers are left wanting.
Minimize the Impact of Market Consolidation
The truth is, not all acquisitions are bad. There are benefits, such as rapid growth, additional market penetration, economy of scale and service synergies. Large companies, hindered by infrastructure and layers of management, rely on acquisitions to fuel innovation and growth. Acquisitions can be catalysts for positive change, helping both companies find success. A successful acquisition can propel an excellent idea and successful product to a much wider market.
But not all acquisitions are successful, either for the companies involved or their customers. Even with a solid integration plan, there will be challenges that customers need to recognize and plan for, either with an alternate service or internal adjustments. In the painful process of integrating companies, customers can easily become forgotten in the shuffle. The key is to ignore the hype and marketing surrounding an acquisition and take a critical look at what it means for your business, your shop floor, and your team. Plan accordingly and make sure your business needs are met.
In addition to the inconvenience an acquisition can cause customers and manufacturers, there is also a real danger to innovation. As companies purchase smaller businesses to fuel growth and product line, innovation is lost to integration. Energy is poured into making systems work together as a (somewhat) cohesive whole, rather than solving problems better and faster or creating new solutions. Integrated systems often produce increasingly complex systems that create more problems than they solve.
Innovation has always been the fuel that drives manufacturing growth, and acquisition will never be a suitable replacement to innovation.
Do you have questions about your manufacturing software solution, or want to see how software innovation can benefit you? Give us a call or leave a message. We’re happy to help.