Challenges for an Expanding Supply Chain Solutions Vendor
Written By: Predrag Jakovljevic
Published On: November 16 2006
Although Click Commerce is a thriving provider of on-demand supply chain management (SCM) solutions for a variety of worldwide industries, it does have to face up to a variety of challenges, some of which are of its own making.
Part Four of the series Will a Tool Manufacturer and a Supply Chain Software Vendor "Click" in Matrimony?
For background information, see Will a Tool Manufacturer and a Supply Chain Software Vendor "Click" in Matrimony?, A Supply Chain Applications Vendor Expands Beyond Its Roots, and Method to the (Expansion) Madness: Some Common Threads.
In 2005, Lucent Technologies Inc. accounted for 13 percent of Click Commerce's total revenue, whereas during 2004 and 2003, Microsoft accounted for approximately 11 percent and 19 percent, respectively, of the total revenue. This means that the vendor's quarterly product license revenues remain substantially dependent on product sales to new customers. Thus, the vendor's ongoing growth path has been based on the ability to attract and win new customers with expanded solution sets, and to cross-sell extended solutions into the acquired installed base. Click Commerce's objective is to offer comprehensive business-to-business (B2B) automation solutions that optimize the internal and external business processes of large, global companies, including their channel partners and their supplier community. There are several key elements of the strategy to achieve this objective:
- delivering industry-specific solutions (in addition to addressing the existing market needs of high technology, industrial and consumer product manufacturing, retail, higher education and health care, and financial services);
- targeting large, global enterprises—especially divisions of these large companies, where there are often opportunities to sell other products to the same division or similar products to other divisions within the organization;
- providing value-added services to existing and prospective customers, since via numerous client implementations, Click Commerce has developed expertise and best practices in managing partner relationships, launching solutions, driving adoption, hosting, and administering and optimizing its software and the network environment; and
- acquiring more complementary businesses, as the vendor continues to evaluate strategic opportunities to acquire complementary businesses that can enlarge its customer base, provide additional revenue streams, and leverage the existing corporate and technical infrastructure. The vendor is looking for markets that are underserved by the traditional enterprise resource planning (ERP) vendors, and that leverage its expertise in enabling business relationships, by (for example) increasing the breadth and depth of its compliance automation and radio frequency identification (RFID)-enabling product offerings.
Although Click Commerce has a good vision; an intriguing product roadmap; responsible growth; financial discipline; a recurring revenue model; a proven management execution; a successful merger and acquisition (M&A) track record; a loyal, blue-chip customer base; strong governance; and whatnot, one can nonetheless imagine how colossal the job has been for the company (with no prior expertise in some acquired realms) to cohesively enhance the product portfolio, and how challenging it will be in the future. Also, the footprint has now become indisputably large and unclear, and will involve significant integration work.
To be fair, the vendor aims at delivering its applications through integrated, high-performance technologies designed for maximum compatibility with its customers' existing systems and computing environments. Its underlying platform is based on the latest open standards (to facilitate integration with customer relationship management (CRM) tools, ERP systems, portals, and legacy enterprise systems), and provides some tools necessary to derive better return on investment (ROI) for its customers:
- real-time configuration and distributed administration for greater business flexibility;
- easy-to-use web interfaces allowing business users to modify workflows;
- detailed feature configuration to align the system with business needs;
- implementation tools covering customization, deployment, management, and upgrades (these tools are part of an integrated environment providing access across the system);
- configurable security, which operates throughout the levels of a system, from encryption of network traffic to business-oriented authorization policies; and
- multilingual capabilities for international deployment, with fairly high-performance, cost-effective, reliable, and scalable operations.
Yet dynamic multi-enterprise supply chains require even more sophisticated solutions to connect enterprises with their suppliers, partners, distributors, dealers, and customers. This is necessary to coordinate and optimize business processes, accelerate revenue, lower costs, and improve customer service. To that end, in July 2006, Click Commerce unveiled a new solution architecture blueprint. The Click Commerce Composite Application Framework (CAF) is based on service-oriented architecture (SOA) principles, so as to enable the delivery of tailored solutions without the typical cost, development, and time required for customization (see Architecture Evolution: From Web-based to Service-oriented Architecture).
With the framework, customers will eventually be able to combine application services in Click Commerce and third party products to create new solutions that more precisely address particular business problems. These new solutions can then be installed on customer premises or delivered via a software as a service (SaaS) model. The framework uses the Click Commerce Enterprise Service Bus (ESB), which coordinates and orchestrates the composite applications and the Click Commerce Master Data Management (MDM) solution, which in turn ensures the accuracy and consistency of data. The framework is envisioned as the foundation of Click Commerce software development moving forward. As a proof of concept of sorts, at the same time Click Commerce announced the availability of two composite applications:
- Click Commerce Service Supply Chain, to provide end-to-end support of service and repair planning and execution
- Click Commerce Extended Order Management, to orchestrate the management of orders from businesses and consumers across an extended network of user company-owned and third party facilities
However, more concrete details and products are needed to see how well-rationalized this framework will be for all Click Commerce products. Given how much thought and excruciating effort is has taken for even the likes of SAP to deliver on its (ongoing) SAP NetWeaver promise (see Multipurpose SAP NetWeaver), one can only imagine the magnitude of the still outstanding work for Click Commerce. The size of the vendor also begins to matter in this market, as prospects have increasingly been paying attention to the perceived stability and viability of the vendor, in addition to the typical price, quality of service, and customer reference decision-making factors in the industry segment. The principal competitive factors affecting the market include speed of implementation; price; knowledge of the industry and its related distribution channels; core technology; an ability to integrate and interoperate with existing technology; and the financial capacity of the respective vendors.
Competition is Notable—And Diverse
The market for such products is intensely competitive, subject to rapid technological change, and significantly affected by the new product introductions and other market activities of industry participants. There are relatively few barriers to entry in the Internet-based software market, and one should expect competition to persist and intensify in the future. Click Commerce currently has four primary sources of competition:
- the in-house development teams of its potential clients;
- large SCM and ERP vendors;
- infrastructure and platform providers; and
- various niche independent software vendors (ISVs). Given its recent expansion into several related markets, the vendor's competition has intensified, and now comes from many directions, as indicated in the table below:
|Demand channel management/partner relationship management
||Comergent, IBM, SAP, Oracle, Salesforce.com
|Supply chain management
||Manhattan Associates, RedPrairie, HighJump, Infor, One Network, i2 Technologies, JDA Software (including former Manugistics), Logility
|Service Parts Planning and Optimization
||Servigistics, MCA Solutions, Baxter Planning Systems
|Master data management (including global data synchronization and secure communications)
||GXS, Sterling Commerce, Lansa, ISS, Cyclone Commerce, Inovis, Seeburger, IBM, SAP
|E-research and health care
||InfoEd, iMedRIS, API Software
|Contract and service management
||IQ Navigator, Fieldglass, ICG Commerce
Solution Focus Competitors
Demand channel management/partner relationship management Comergent, IBM, SAP, Oracle, Salesforce.com
Supply chain management Manhattan Associates, RedPrairie, HighJump, Infor, One Network, i2 Technologies, JDA Software (including former Manugistics), Logility
Service Parts Planning and Optimization Servigistics, MCA Solutions, Baxter Planning Systems
Master data management (including global data synchronization and secure communications) GXS, Sterling Commerce, Lansa, ISS, Cyclone Commerce, Inovis, Seeburger, IBM, SAP
E-research and health care InfoEd, iMedRIS, API Software
Contract and service management IQ Navigator, Fieldglass, ICG Commerce
On its own, Click Commerce might not be able to maintain its competitive position in the long term against current and potential competitors, especially against those with significantly broader product lines or greater financial, marketing, service, support, technical, and other resources. Many of the above competitors indeed have longer operating histories in related markets; greater financial, technical, marketing, and other resources; greater name recognition; and a larger installed base of customers in related markets. Moreover, a number of competitors, particularly major business software companies (including those known for their ERP, database, CRM, and other pertinent software) have well-established relationships with Click Commerce's current and potential customers, as well as with independent system consultants and other vendors and service providers likely to influence certain customer's product selection processes. In addition, such competitors will likely be able to respond more quickly to new or emerging technologies and changes in customer requirements (or to devote greater resources to the development, promotion, and sale of their products) than Click could, as a relatively small publicly held company.
In fact, Click Commerce has had to make investments in research and development (R&D) through internal development, licensed technology, and acquisitions. In fiscal years 2005, 2004, and 2003, it spent approximately $7 million (USD), $2.9 million (USD), and $2.4 million (USD), respectively, on R&D. Its R&D staff is responsible for enhancing existing products and services, and expanding the product line and services offerings. The recent product development activities naturally focus on product enhancements to increase the functionality and ease of integration of its configurable applications, and on the integration of external services and partner technology.
With a slew of recent acquisitions, and a number of acquisitions seemingly necessary in the future, it looks as though Click Commerce has overreached itself and bitten off more than it could chew. Therefore, although at first it might have seemed odd for a manufacturing company like Illinois Tool Works (ITW) (which hardly anyone in the enterprise applications market has ever heard of) to acquire a software company, there might be method to this madness after all. There are immediate apparent benefits for Click Commerce, which estimated that up to $5 million (USD) of its costs (about 10 percent of total costs, and almost equal to product development costs), were associated with complying with federal regulations and burdens associated with being publicly traded. These overhead costs can now be mostly offloaded to ITW, and given that ITW has thus far acquired over 700 companies which are run in a decentralized fashion, Click Commerce might get the best of both worlds: "business as usual," while having extra money to invest in organic product development and growth, as well as growth from future acquisitions. Certainly, ITW's track record of astutely identifying targets for profitable acquisitions is promising.
Despite its impressively broad product portfolio, Click Commerce will either have to plug some functional holes, or simply bolster the footprint. For instance, it could improve its focus on the retail sector by supporting a number of the US Environmental Protection Agency (EPA) and Food and Drug Administration (FDA) regulatory compliances, such as FDA 21 CFR Part 11 (on electronic records and signatures), which would be a springboard for other vertical initiatives. Also, one can imagine the vendor encroaching into the realms of inventory optimization (other than spare parts), service parts price optimization, field service workforce routing and scheduling, distributed order management (DOM), partner incentives and compensation management, etc.
Thus, Click Commerce will have to continue to make investments in or acquire complementary businesses, technologies, services, and products (or enter into relationships with parties who can provide access to those assets, if appropriate opportunities arise). However, in almost any acquisition, there can be difficulty in integrating the acquired products, services, or technologies into its operations, and these difficulties can disrupt the ongoing business, distract management and employees, and increase expenses. Furthermore, integration of such acquisitions may result in a significant use of capital, which can certainly be better absorbed by a larger parent company.