of a direct intra-market consolidation, some tormented public supply chain execution
(SCE) and warehouse management system (WMS) vendors or smaller, but profitable,
undercapitalized, and undervalued WMS/SCE vendors have found a shelter under
wealthy, more visible parents with complementary products. The example of the
first would be the recent acquisition of former EXE Technologies
by SSA Global (see SSA
GT To EXE-cute (Yet) Another Acquisition).
examples of the latter would be the agreement by 3M also known
as Minnesota Mining and Manufacturing (NYSE:MMM) to acquire
HighJump Software Inc., and the acquisition of OMI
International, Inc. by Retalix Ltd.
Given the market opportunity for cross- and up-sell, 3M will have to resist the temptation to expand a HighJump software suite to new, unsupported verticals. 3M will have to be careful not to lose the deep SCE domain knowledge present in HighJump today. Vertical industry depth and expertise is critical to ongoing success, and should be encouraged and nurtured. However, it maybe easily neglected with a slew of complementary but diverse technologies and subsequent attempts to intertwine them.
While the product overlap is seemingly small, there is still the challenge of integrating the companies. At this stage, 3M maintains that its key strategy is to only integrate those elements that are absolutely necessary and try to preserve the culture and autonomy that has made HighJump special. As evidence of this, HighJump is organized as a separate LLC; it is maintaining HighJump Software as a name (HighJump Software, a 3M company) at a separate location, and 3M is placing only two resources into the company (a controller and a person that is supposed to keep the rest of 3M at bay). Still, company cultures and work styles may come into play, and experience teaches us that often following a seemingly promising acquisition, a major difference in philosophy might emerge between the acquired and acquiring management teams on how to execute strategies for growing the company while "increasing operational efficiency". This inevitably results with the exodus of the acquired team. 3M, a large and established industrial company, has never sold complex SCE software with peculiar sales cycles, and it might expect HighJump to grow even more quickly to match new (and possibly too optimistic) growth targets from 3M. Consequently, this could deteriorate customer service levels if 3M pushes the vendor to expand uncontrollably.
Further, in the long term, if 3M finds the SCE market too difficult to compete within, or if HighJump falls short of expectations for whatever reasons, the eventual ensuing divestiture would likely disrupt customer support and implementations in progress. Thus, HighJump might be pressed to maintain profitability and revenue growth levels on its own until sales, service, and consulting groups from both merging companies align their different products and services. The company claims that HighJump's growth expectations under 3M are actually very manageable (in the range of 20 percent) and is less than it has grown historically for the past several years. 3M also contends it has never divested an acquisition before and that it does very few divestures in general. It spun-off the magnetic tape division years ago and created a new company call Imation, but that is the only divesture that anyone could recall from distant memories. Still, the devil will be in the execution going forward.
Similar, albeit not that drastic, tenets hold for the merger of Retalix and OMI, with the addition of technology platforms disparity. Namely, Retalix leverages the Microsoft environment, while OMI uses a Java 2 Enterprise Edition (J2EE) architecture, which will require much pondering about how best to go forward in terms of preserving existing customers' investment and of rationalizing research and development expense.
is Part Three of a three-part note.
One detailed recent events.
Two discussed the market impact.
Current HighJump and OMI customers should not feel any increased sense of urgency from these events. If anything, existing customers should be comforted by the backing of a financially stable parent company with money to invest. Although this acquisition sounds like a very positive event, and 3M and Retalix appear to have strategic growth intentions. Look for future proof in the actions they take in the coming months. Additional acquisitions that provide strategic value and synergy with HighJump and OMI should be welcomed, while significant cost-cutting and management turnover should be looked at cautiously. Typically successful software acquisitions have been those where the acquirer valued the acquisition of "brains" rather than only a code base.
Existing smaller customers of both acquired vendors should closely monitor any changes to determine whether they will continue to receive acceptable support and service from their providers within new arrangements. Owing to Retalix' sole focus exclusively on grocery and convenience stores, existing third-party logistics (3PL) customers of OMI product should rethink their WMS/SCE strategy going forward. Existing and potential OMI customers should clarify "black on white" the architectural blueprint with Retalix' management, despite the company's assurances that it will continue to support OMI products on J2EE.
Enterprises with outdated warehouse management systems (WMS) looking to automate supply chain execution functions should evaluate HighJump . Agile enterprises anticipating frequent business practices changes and from fifty up to few billion dollars in annual revenues (both corporate-wide and per division) looking for full function, adaptable warehouse operations systems, and particularly with existing investments in the ERP systems that feature certified interfaces from HighJump should place HighJump on their short list.
The Advantage SCE suite delivers measurable results for manufacturing companies with over one hundred employees, distribution companies with over twenty-five employees, and divisions of Fortune 1000 companies in many markets, including high tech and electronics, consumer packaged goods (CPG), food and beverage, third party logistics (3PL), retail and wholesale, and make-to-order (MTO) manufacturing. Still, prospective clients should bear in mind that HigJump's adaptive configuration technology may not be suitable for some highly complex warehousing environments, since implementation lengths depend on many factors but especially on solution architecture (i.e., degree of customization required); size and complexity of the warehouse; and the amount of materials handling equipment installed in conjunction with software. Existing HighJump customers should evaluate the remaining portions of the product suite in search for additional value, including the potential acquisition in natively weaker areas like ITL and TMS.