One Vendor’s Mission to Make Service Businesses Click - Part 4

Part 1 of this blog series introduced ClickSoftware Technologies (NASDAQ: CKSW), which until recently has focused solely on workforce and service optimization software solutions for large field service companies. Gradually, via both internal development and a few appetizing acquisitions in 2009, the vendor has added a few important growth engines, such as mobile computing solutions, shift planning (rostering) solutions, and solutions for small to medium businesses (SMBs).

Part 2 then analyzed the individual modules (in a price list manner) and logical bundles of the vendor’s flagship Service Optimization Suite as well as a number of original concepts that have differentiated ClickSoftware in the field service workforce optimization market. One of these concepts is the so-called real-time service enterprise.

Part 3 analyzed ClickSoftware’s Mobility Suite, as the major enabler of the real-time service enterprise as well as the vendor’s existing customers and go-to-market strategy. One of the major tenets of the vendor’s expansion into new markets has been the strategic alliance with SAP. This final part will recap the company’s strengths and point out its still outstanding challenges. 

What Has ClickSoftware Been Doing Right?

Given that the series has thus far sounded quite positive, as a recap, I believe that ClickSoftware's success has been based on a few strengths. First and foremost, the vendor has remained focused on its core competency of complex field technician scheduling and optimization problems while adding complementary functionality only when it makes sense. In other words, ClickSoftware’s functional footprint has not become too broad too quickly.

In addition to judiciously expanding its functional capabilities, ClickSoftware has been executing its “bowling pin strategy” in terms of industry coverage. The extensive configuration and customization tools that are available to customers also help in this regard. As I said in Part 1, the vendor has gradually moved from its traditional core markets of utilities and telecommunications to markets with similar, though not exactly identical, workforce optimization problems. Examples of new verticals are insurances, government agencies (police, fire brigades, etc.) and hospitals, extending the company's scheduling and optimization beyond field technicians and into an expanding list of workforce types.

In my opinion, ClickSoftware should continue to focus on advanced scheduling scenarios and invest in mobile applications, its user interface (UI) intuitiveness, and multi-channel order management capabilities. Further focusing on mobile functionality will help the company to penetrate new markets such as healthcare, medical devices, and retail.

As mentioned in Part 3, ClickSoftware has strong geographic coverage (and balanced revenue contribution from its major regions), as well as a growing set of partners, including the aforementioned strategic partnership with SAP. Many independent software vendors (ISVs) incorrectly assume that SAP (or IBM, Oracle, and Microsoft for that matter) will do all the sales and marketing legwork and that the partnership is an instant gold mine.

Well, not so fast. ClickSoftware recognized that it still needed to lead the sales effort as the owner of the intellectual property. Consequently, the company exceeded the goals it set for this partnership both in 2009 and 2010.

Additionally, what I really like about the company is that it recognizes its shortcomings and has been addressing them (instead of being defensive or in denial). The relationships with SAP, IBM, and Microsoft Dynamics help with regards to ClickSoftware footprint’s incompleteness in the realm of full-fledged strategic service management (SSM) or a service lifecycle management (SLM) suite.

This actually gives the company an advantage over competitors who attempt to build their own full-scale SSM and SLM, thus making it difficult to build joint solutions with these large partners. This is one way in which ClickSoftware's above-mentioned decision to expand its footprint judiciously is paying off.As discussed in TEC’s recent article entitled A Candid Conversation with a Field Service Workforce Management Leader, the vendor has been criticized for the somewhat dated-looking UI of its flagship ClickSchedule product (as compared to the snazzy look-and-feel of today’s social consumer applications), but the company has made progress on that front with a cutting-edge web UI in its latest release and with its mobile applications (mentioned in Part 2), which are built to deliver the same experience as consumer-oriented mobile applications. ClickSchedule has occasionally been knocked for being overly complex and too brainy (rocket science), so the company has created several slimmed-down editions and offerings for SMBs (see Part 1 for more information).

Moreover, ClickSoftware has delivered automated schedule-tuning tools which package the "rocket science," making it much more accessible. It has also created a unique delivery process called WISIK (When I See it I Know It) – meaning that from Day One, ClickSoftware's customers can see the solution working, and thus can quickly identify what needs to be configured or tuned. Furthermore, the company contends that when you're addressing a mission-critical need in a large company with diverse processes, integrations and roles, some complexity comes with the territory. 

Competition Remains Fierce (and Diverse)

ClickSoftware is in a great shape with regards to the principal competitive factors in its industry.  These factors are as follows: functional domain expertise and performance (scalability) of the solution; a sizeable installed base; key reference customers with large-scale implementations; strategic alliances; interoperability and integration of complementary products and services; and financial strength.

Still, the vendor’s challenges cannot be overlooked. Namely, the market for its products is competitive and rapidly changing. The industry has witnessed a substantial amount of merger and acquisition (M&A) activity over the past few years and this trend of industry consolidation will likely continue, particularly as larger and better capitalized companies seek to acquire smaller and weaker rivals that have been adversely affected by the economic downturn.

Being a relatively small company with a specialty product in a time of market consolidation, ClickSoftware could, like most of still independent best-of-breed software companies, become an acquisition target. As described in AMR Research’s 2006 book entitled “The Future of Enterprise Applications” and in TEC’s previous article on SLM, the following three distinct groups of vendors make up the SLM space: enterprise resource planning (ERP) companies, pure SLM vendors, and niche functionality players.

With significant insights and control of transactional data in their manufacturing clients, ERP vendors such as Oracle, SAP, IBM, Infor, IFS, UNIT4, Epicor, and Lawson offer enterprise asset management (EAM) and service order management functionality. Their value is helping to integrate the extremely diverse nature of a client's service needs, from managing the incoming call to field service, parts requisitioning, entitlement management, and contract management.

In addition to ClickSoftware (which is a clear leader in its area), the main SLM suite vendors include Astea International, Ventyx, Metrix, NEW (formerly ServiceBench), Servigistics (including former Click Commerce), SERVICEPower Technologies, Syclo, Trimble Navigation Ltd. (its @Road Division), Viryanet, and Vertical Solutions Inc. These companies are evolving into this space, each with their own unique attributes for customer management, field service execution, decision support, and/or parts management. These products integrate with existing enterprise systems, often competing with the incumbent ERP vendor for these value-added services services (as mentioned above, ClickSoftware's strategy mostly avoids such competition, making it easier to work with the ERP vendor as a partner rather than compete with it).

Finally, niche functionality vendors usually partner with the previously mentioned companies or are deployed extremely narrowly to address a given pain point. Examples include products to provide technicians with mobile and social communications functionality, diagnostic tools to assess new product failure rates, and (reverse) logistics tools.

Some of those competitors have stronger financial viability, larger marketing budgets, and a more robust customer base than ClickSoftware. As the best example, Oracle Siebel has solid functionality and does the job for many companies that do not necessarily require more advanced workforce optimization. Regarding the other vendors, the answer is similar: if advanced optimization is not required, then the other service functionality gets weighed more heavily. For example, Astea has repair depot functionality, Lawson M3 excels at service rental and maintenance, Servigistics is the leader in spare parts planning and pricing, and so on and so forth.

Because the market for service and delivery optimization software is evolving, we expect additional competition from other established and emerging companies if this market continues to develop and expand. For example, ClickSoftware could face competition even from its abovementioned marquee strategic partners or from other companies that may in the future decide to enter and compete in this lucrative market.

In particular, since the company’s contracts with resellers generally do not include non-competition provisions, it may be easier for these partners to compete with ClickSoftware in the future. Systems integrators (SI) and internal IT departments can occasionally join forces to develop a special service solution in-house. Competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share, any of which could cause ClickSoftware’s business, financial condition, and results of operations to suffer in the longer term. Still, ClickSoftware's competitive factors should keep it on the shortlist for any project that involves workforce optimization, for a few more years at the very least.

Other Risk Factors

As mentioned in Part 2, ClickSchedule accounts for the majority of ClickSoftware license revenues, and this trend will likely continue to be the case in the future. Accordingly, any decline in the demand for ClickSchedule would not only have a materially adverse effect on the company’s license revenues, but might also affect revenues derived from other ClickSoftware products (since ClickSchedule is typically a beach-head product). The company intends to balance this risk by establishing its enterprise mobility solutions as another beachhead in their own right, and this is supported by the rapid growth of ClickMobile's customer base.

Moreover, until recently, the several largest customers together accounted for over a significant chunk of the company’s revenues. If for any reason, the relationship with a key customer is terminated, or if any of these key customers reduces its purchases of ClickSoftware products, then the vendor’s business, financial condition and results of operations could be materially and adversely affected. However, the recent major new customer wins, such as at Direct TV, will help with regard to the vendor's future revenues that will be derived from these “VIP” customers.

For any of the above reasons, ClickSoftware may not be able to compete successfully against its current and future competitors in the long term. Still, the company is currently quite far from running out of the steam, and not many vendors have been that rapidly growing and touting new user adoption these days.

At the end of the day, dear readers, your comments, thoughts, suggestions, or individual experiences with ClickSoftware and other field service workforce management tools are more than welcome. What do you think about the vendor’s product development and go-to-market approach and how it compares to other competitive solutions?
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