Has Consolidation Made the PLM Market More Agile? Part Two: Market Impact

Recent Announcements

Early in August, Agile Software Corporation (NASDAQ: AGIL), a San Jose, CA-based provider of PLM solutions with historic strength in the electronics and medical devices industries, announced it has entered into a definitive agreement to acquire, Eigner (www.eigner.com), a German provider of PLM solutions to the automotive, industrial equipment, aerospace and defense (A&D) industries, for an undisclosed consideration comprised of stock and cash. Agile and Eigner expect to complete the acquisition as quickly as possible.

Other recent Agile announcements include:

  • Quarterly financial results

  • Acquisition of certain customer assets and the intellectual property of privately-held MS2, Inc., a provider of the product portfolio management solution, MS2 Accelerate

  • Completion of the acquisition of ProductFactory, Inc., another product portfolio management company

  • Completion of the acquisition of oneREV, Inc. of Cupertino, CA, which added important enabling technology that should benefit Agile's customers by speeding the exchange of information between Agile systems and external information sources

  • Launch of Agile MD, a PLM solution designed specifically for the medical device industry in their aim of accelerating time to market, reducing operating and direct material costs, and ensuring regulatory compliance

  • General availability of Agile Product Cost Management 8.5.

This is Part Two of a three-part note.

Part One detailed recent announcements.

Part Three will discuss challenges and make user recommendations.

Market Impact

Mergers in the enterprise applications space can be justified if the combined company both fills functional voids within its product portfolio and enlarges its installed base, while the merging products' technologies are compatible enough so that merging development paths will not be terribly complex. Still, while one could find these elements of similarity (e.g., market share bolstering and cross-selling opportunities) with the ongoing raging consolidation in the overall enterprise applications market (particularly in the mature ERP segment), the above merger of two notable pure-plays in the PLM market might still have more to it than meets the eye. One reason would lie in different current evolutionary states between ERP and PLM markets (i.e., the mature and highly penetrated first versus the still fragmented, morphing and far from being saturated latter). For a detailed comparison of the ERP and PLM markets see The Different Evolutionary Stages of ERP and PLM.

The raison d'tre for manufacturing companies is logically the delivery of products, and while these products can range from something as simple as a screw to something as complicated as an airplane or a transoceanic crude oil tanker, a great deal of effort and coordination must occur for the product to be designed, manufactured, delivered, and so on. The product development life cycle—innovate, conceptualize, plan, design, procure, produce, deliver, service, and retire—naturally includes multiple people, operating in multiple departments, and typically from multiple companies, each with locations in multiple countries around the world. Solving these inherent difficulties that result from managing this complexity are the raison d'tre for PLM solutions.

Thus, one PLM definition espoused by Agile Software would be that "PLM is the concept of managing the enterprise product record to drive profits, accelerate innovation, reduce costs, and ensure regulatory compliance, whereby the product record would include all the information required by the extended enterprise to conceptualize, design, source, build, sell, service, and dispose of products." PLM expands traditional engineering applications with business processes that stretch further into the enterprise and even further into the value chain. The multi-departmental, multi-company nature of PLM is changing the way that engineering-related systems are bought and sold, and has caught the attention of the CIO and Corporate IT who apply enterprise application evaluation criteria and processes to PLM selections.

The several dozen vendors that are offering suites of PLM functionality come from different worlds, based on their origins. A great part of these logically hail from the engineering space and have since added to their design-focused product data management (PDM) applications to support additional manufacturing and operations-oriented business processes. Companies in this space include EDS PLM Solutions (based on EDS' acquisitions of UGS [formerly Unigraphics] and SDRC products), Framework Technologies, MatrixOne, and Dassault Systemes (being offered in partnership with IBM). These vendors have deeply penetrated this market from selling PDM, computer aided manufacturing (known as CAM—the use of computer technology to generate data to control part or all of a manufacturing process), and related products such as engineering workstations, mainly into the complex, discrete manufacturing industries like automotive.

Other heavyweights include companies with roots in CAD/CAM, such as Cadence and PTC. All the above vendors' products tend to have a strong engineering foundation and thus have gained a strong early following from product-oriented, design-centric companies, which see PLM as a way to increase collaboration and improve management of engineering-specific data. On the other hand, companies such as Agile Software, Eigner, and Arena Solutions (formerly bom.com) were created with the idea of providing an extended PLM platform that generally balances design and collaborative manufacturing functionality. Agile initially focused on expanding traditional PDM out into the supply chain, first by adding strategic sourcing capabilities, and recently with a few other modules like product service and improvement for after-sale information collection and for passing feedback to a product development team.

Agile from PDM to PLM

As we slightly touched on earlier, Agile Software has had an interesting journey since its inception as a PDM provider in 1995. In 1997, while only two years old, Agile revised its initial mission statement and dropped its early focus on providing PDM to small and midsized enterprises. Meanwhile, the company attempted advocating many brand new acronyms, starting with PCM, for product chain management, whose strategy emphasized the focus on "supply chain driven virtual/distributed enterprises of any size," rather than only on small and midsized enterprises. The focus was on applications (versus merely tools) for managing the new product introduction (NPI) process across the supply chain including contract manufacturing. Thus, Agile has since gathered extensive expertise in the strategies and applications needed for managing product records throughout a supply chain from ramp-up to mass production during the NPI process.

Extensive use of contract manufacturing in the electronics and medical device industries has given Agile Software notable experience with collaborative product development over extranets. Its early web-enabled content management (formerly called Agile Anywhere) offering was geared to the traditional power user, and it aimed to expand web viewing capability to those members of the supply chain that do not need to manipulate the product data content. Suppliers would be able to view data either live over the network or off-line to view bundled electronic product content. Key to this extranet vision was Agile's XML-based product build package format, named Product Definition eXchange (PDX). Further, a combination of Agile's collaborative PLM process support in partnership with Arrow's electronic component data services, Ubiquidata was also aimed at high-tech users to enrich the support for critical functions such as end-of-life (EOL) and validation.

Agile went public in 1999 and shortly after, it acquired Digital Market, a small provider of Web-based sourcing and procurement automation for the NPI process. The geographically close companies have long had a focus in the electronics/high-tech sector and had been working together for some time with joint customers. As more high-tech and medical device original equipment manufacturers (OEMs) contract the production of assemblies and printed circuit boards out to contract manufacturers, controlling and collaborating on product information is critical to the success of both parties, and participants must integrate collaborative processes to support the inter-company exchange of ideas to improve the manufacturability of products. Agile Software has made a name for itself by providing the tools that support the collaborative exchange of product data, appealing to companies that rely on contractors for the manufacture of its products. For companies whose BOMs change frequently, this integrated capability set has been extremely important, and Agile has thrived in the PLM selection situations requiring extensive external collaboration.

The Ariba Connection

Early in 2001, Agile itself was even targeted as a high-profile acquisition by the then still upbeat Ariba, but the decision to terminate the merger only a few months later, although controversial and embarrassing, made sense given the adverse economic climate and a sharp, 80 percent drop in Ariba's market valuation due to its poor business performance at the time.

However, Agile received a public relations boost from the proposed merger, since before the acquisition talks Agile was virtually unknown to the broader markets. On the other hand, the deal could have significantly increased Agile's ability to penetrate new markets. Agile represented at the time a strong combination of collaborative manufacturing (i.e., the Agile Anywhere and MyAgile portals) and Agile Buyer direct procurement facilities. The combination represented an ability (within the typically design-oriented collaborative space) to integrate several processes, including component/supplier management, requisitioning/procurement, and product change management at the BOM level. The merger had offered Agile a greater potential to win new customers from Ariba's customer base, which extended significantly beyond Agile's markets, dominated by the electronics industry. Thus, all costs to grow its business into new markets have fallen on Agile alone.

Post-Ariba Agile

Consequently, Agile Software has fallen on tough times. Its core customer base in discrete high-tech manufacturing virtually froze IT spending, and questions about growth potential have abounded due to narrow market focus and also the narrow functional footprint of Agile's PLM platform compared to the above-mentioned competitors addressing many more processes. The earlier release, Agile 8, was quite strong in sourcing and many of the standard PDM and visualization areas, and it offered excellent integration capabilities with support for numerous ERP and CAD integrations. However, the package lacked in requirements management (it could not provide a means of relating requirements to design, visualizing how requirements relate to designs, reporting requirements not addressed by design, etc.) and project management (Gantt-based planning and management charts, project work breakdown structures [WBS], etc.) capabilities, both of which would require the use of a third party application, though the Agile integration kit has been available and has enabled customers to create their own custom integrations.

Agile's Expanding Portfolio

However, Agile's fortunes appear to be turning lately, since its product has been expanding with support for execution of new product development and introduction (NPDI) and a relatively mature direct materials sourcing capability. Owing to a number of recent acquisitions and in-house development, the current Agile PLM suite enables organizations to design, source, make, sell, and service products, giving them the ability to support a large portion of most companies' PLM objectives. For more information on the common elements of companies' PLM objectives, see The PLM Program - An Incremental Approach to the Strategic Value of PLM.

At the core of each of the solution is the above mentioned product record—information that uniquely defines all aspects of a product at every stage of its profit cycle:

  • For product definition this includes BOMs, component attributes, drawings and models, specifications, data sheets, and revision history.

  • For strategic sourcing, it includes information such as approved manufacturer lists (AMLs), component pricing, product costing information, and historical cost information.

  • For field support, service, and repair, this includes information such as product service instructions, quality data, and defect data.

The suite is comprised of the following solutions: Agile Engineering Collaboration, Agile Product Collaboration, Agile Product Cost Management, Agile Product Service and Improvement, and Agile Program Execution. While these applications close some of the gaps mentioned earlier (e.g., the planning and project management of the NPI process), they may also vouch for more add-on license business for the vendor, which lately also been in a slump. Finally, Agile recently introduced its Guaranteed Business Results program, in which payments for Agile solutions are linked to results, which should appeal to current economic sentiment.

Eigner's Contribution

While Agile has emphasized its understanding of how PLM business processes should make (and save) companies more money, Eigner, founded in 1985, has a long tradition of delivering superior support for complex engineering processes. Consequently, the above acquisition exhibits traits such as:

  1. The bigger vendor availing itself of complementary products, since Eigner brings its expanded engineering solution (i.e., comprehensive CAD management and integrations to over forty CAD Systems) to the Agile Engineering Collaboration module, it creates a new module for customer needs management (i.e., requirements management, product catalog publication, product variants, configuration management) within the Agile PLM suite, and it brings product genealogy (i.e., maintenance, repair and overhaul [MRO])/serial number management to Agile Product Service & Improvement suites of the Agile PLM footprint. Conversely, Agile brings program and resource management, product sourcing and cost management, supply chain collaboration, and product quality and service to the table for Eigner's existing customers. Eigner customers should benefit from Agile's strengths in coordinating supply chains for sourcing, product definition, NPI, and aftermarket support.

  2. Both vendors have strengths in different industries and geographies—Agile is strong in high-tech/electronics, medical devices/life sciences and beginning to penetrate CPG, while Eigner's strengths are in the automotive, aerospace and defense, industrial machinery and other supply chain intensive and complex engineering industries. On the other hand, Eigner's existing base of customers is almost all in Europe (Germany, Switzerland, Austria, Benelux, Italy, and France) presenting a strong barrier to SAP's market entry, while Agile's is especially strong in the United States and Asia.

  3. The acquisition should somewhat reshuffle the PLM market ranking, finally pushing long underrepresented Agile and Eigner within the top ten PLM providers, at least revenue-wise. Eigner gives Agile a broader customer base and complementary software functions, and this greater breadth will make Agile more visible in the PLM market. In mere numeric terms, the combined company should have over 1,150 customers, 500 employees, $100 million and revenues, and be comfortable with over $250 million cash.

The two companies have some things is common though, such as a high level of customer satisfaction, a good grasp of understanding collaborative PLM processes, and leadership positions in their sweet spots, if not in the overall PLM market.

There is always the challenge of the products' inevitable overlap, but the mitigating factor is that the precise products' roadmaps have already been produced. Offering a single, globally supported PLM suite based on the two companies' existing applications will still take a few years and there is no rush to push the organizations together. Agile indicates it has already begun consolidating business operations and software technology, such as CAD integrations, PDX data integration, business process integration and delivery of industry specific solutions. By mid 2004, Agile will create interfaces that share a formidable subset of data across both vendors' software (e.g., branded and similar user interface [UI], portals, single sign-on through lightweight directory access protocol [LDAP], common vault, workflow integration, a and common viewer). These coexisting initiatives will be business opportunity driven, while only some time in 2005, Agile plans to deliver a single integrated software platform that should feature a single database schema, application server, java server pages (JSP), layer, user administration, search engine, reporting, workflow, vault, LDAP directory, etc.

This concludes Part Two of a three-part note.

Part One detailed recent announcements.

Part Three will discuss challenges and make user recommendations.

About the Authors

Predrag Jakovljevic is a research director with Technology Evaluation Centers, Inc. (TEC), with a focus on the enterprise applications market. He has over fifteen years of manufacturing industry experience, including several years as a power user of IT/ERP, as well as being a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade, Yugoslavia, and he has also been certified in production and inventory management (CPIM) and in integrated resources management (CIRM) by APICS.

Jim Brown has over fifteen years of experience in management consulting and application software focused on the manufacturing industries. Jim is a recognized expert in software solutions for manufacturing and has broad experience in applying enterprise applications such as Product Lifecycle Management, Supply Chain Management, ERP and CRM to improve business performance. Jim is a frequent author and speaker on applying software technology to achieve tangible business benefits. Jim can be reached at jim.brown@tech-clarity.com

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