PTC Acquires Servigistics - Doubles Up on Its “Product and Service Advantage” Mantra

The recently held PlanetPTC Live 2012 conference espoused the following two mantras – “Systems are Today’s Products” and “Product and Service Advantage.” Look for an exhaustive report from the conference and on PTC’s Winchill PLM (product lifecycle management), Creo CAD (computer aided design), and MKS Integrity application lifecycle management (ALM)/system engineering strategies.

Most recently, on August 8, 2012, PTC doubled down on its latter mantra by announcing it has signed a definitive agreement to acquire Servigistics, Inc., developer of a broad suite of service lifecycle management (SLM) software solutions, for approximately US$220 million (USD) in cash. Pending regulatory approval and satisfaction of other customary conditions, the transaction is expected to be completed in September 2012. The Atlanta, Georgia-based privately held company has roughly 400 employees worldwide and generated approximately $80 million (USD) in revenue in the last 12 months.

PTC’s SLM Evolution Continues

As mentioned earlier, PTC recently redefined its mission in life with its new tagline “Product and Service Advantage.” As it has begun explaining its new charter to the industry, PTC is seeking to move beyond its roots in product development (and engineering departments) to focus on building technology solutions that help manufacturers transform the way products are created and serviced. Once this acquisition is closed, PTC expects to be well positioned to help manufacturers capture a real “service advantage” with a set of integrated technologies that will enable a more comprehensive service strategy and appeal to supply chain managers.

The acquisition should greatly complement and enhance PTC’s existing portfolio of SLM solutions, which, today, includes solid capabilities in the areas of warranty and contract management, service parts definition, and technical information – including mobile delivery. During PlanetPTC Live 2012 keynote presentation, the vendor cited well-known facts that 24 percent of revenues comes from aftermarket services, with even 40 to 80 percent of profit coming from services.

In fact, for manufacturers that get their service strategy right, the market opportunity is huge – a trillion dollars plus by some estimates – and this is especially welcome at a time when profit margins from durable goods sales are under constant assault by global competition and soft economy. Manufacturers and their service network partners have a chance to generate profitable new revenue streams by ensuring service on the products they sell is systemically planned, delivered, and analyzed. Customers should benefit as well by the improved performance of the goods they buy over their useful life.

In other words, for smart manufacturers, getting their service strategy right presents a multi-billion dollar, high-margin revenue opportunity to differentiate themselves in the market from their traditional product-oriented competitors. As an enabling technology, SLM helps manufacturers and their service network partners optimize the customer experience by ensuring service is systemically planned, delivered, and analyzed to continually improve performance and maximize customer value.

Yet, few manufacturers have either a coordinated strategy or the integrated technology suite needed to capture this new market opportunity – with many manufacturers realizing as little as 25 percent of the total service value in their products’ service lifecycle. Indeed, as a poignant example, some field service personnel still use microfiche technologies for service delivery (repair instructions).

PTC has long been known for its aforementioned CAD and PLM technology solutions that optimize the way companies create products. With a number of acquisitions and internal development PTC has been significantly expanding how it helps companies service those same products. In fact, starting with the acquisition of Arbortext in 2005, PTC has been developing solutions that enable manufacturers to plan and analyze service based on how their products are designed and built. Arbortext provides nice service plans—i.e., the ability to reorganize engineering drawings and data into illustrative service views (assembly and disassembly instructions for service staff and customers).

This service-focused strategy has driven PTC to deliver specialized solutions that are the result of innovative technology development combined with capabilities gained through the acquisition of companies such as ITEDO for technical illustration in 2007, LBS (Logistics Business Systems) in 2007 for integrated logistics support (ILS) solutions to the aerospace industry, and 4CS for warranty transaction and contract management. As for the 4CS acquisition and related solutions, there is a $50 billion (USD) spend in warranty worldwide, whereby 5 percent of product costs go to warranty issues.

What Does Servigistics Bring?

By adding Servigistics to this portfolio, PTC should be able to deliver a more complete system for service – providing advanced capabilities across all key components of the service lifecycle. Servigistics is recognized as a technology leader in complementary areas such as service parts planning & optimization (SPP/O), parts pricing, field service management, returns and repair management (reverse logistics), and service knowledge management (SKM).

With Servigistics, PTC’s SLM solutions are envisioned to provide global discrete manufacturers with a real-time, single view into the extended service environment to identify and respond to areas for improvement, opportunities for new business, and risks to avoid. Only with a connected service network – supporting the owner/operator, distributor, dealer, service partner, field service force, repair depots, and warranty desk – can an original equipment manufacturer (OEM) plan, deliver and analyze all necessary resources to ensure that service performance and overall value is meeting or exceeding their customers’ expectations. In addition, this acquisition further enhances PTC’s ability to help customers gain competitive advantage throughout the entire product lifecycle – from conception and design to sourcing and service (what PTC describes as “product and service advantage”).

What Do I Really Like Here?

On paper, this move seems to be a great catch and a brilliant concept. With Arbortext, 4CS, and Servigistics, PTC will certainly be way ahead of any PLM/ERP (enterprise resource planning) competitor in the realm of SLM. In addition, Servigistics should be additive to PTC’s revenue (which PTC quite needs), potentially accretive to the bottom line in the near term, and it bolsters PTC’s “complete scope” story. All of these facets are good for PTC.

For many companies, servicing products or upgrading products is more profitable than manufacturing those products per se. While Dassault Systemes, SAP, Oracle, and Siemens PLM are focusing on native manufacturing execution systems (MES) features and/or immersive 3D experience & visualization, PTC can outflank them in the realm of SLM. For companies that outsource manufacturing and have large services revenue streams, PTC should be a best fit now.

Some Caveats

While I love the concept and the potential is great here, possibly the biggest issue is adding increasing levels of complexity and cost with PTC’s continued acquisitions, which are putting pressure on the company’s corporate profit and loss (P&L) statements over time (one can see it in the vendor’s financials). Every acquisition adds further field sales expenses and potential channel confusion (at the same time when PTC is trying to reduce and simplify its global sales structure).

Needless to say, this addition means yet another completely separate code base with somewhat overlapping functionality. Indeed, Servigistics is still figuring out the rationalization of once fiercely competing offerings by MCA Solutions and Servigistics in parts planning, while 4CS and Servigistics were also competitors in warranty management. Arbortext, MKS, Servigistics, 4CS, Polyplan, Relex, etc are all complicated code bases with substantial costs associated to advance moving forward. PTC can either leave them as separate systems and hide them under the Windchill brand or its can try to duplicate/migrate on to the underlying Windchill technology. Either way, the costs over the mid-to-long term could be significant.

Some PLM competitors that have more unified offerings think that this move could ironically be beneficial for them. Namely, it remains to be seen to what degree SLM and warranties will be attractive and lucrative in the long term, given that some products are no longer serviced and repaired. Indeed, it is already much cheaper for the vendor to just give you a new device (PC or phone) than to repair it on site or even in its own repair shop. In addition, further distraction for PTC and more potential to pressure customers to “buy, buy, and buy” might make them disenchanted and opens up opportunity for less aggressive PLM competitors.

SCM: Challenge and Opportunity

Moreover, PLM and SLM solutions still have very different buyers in different departments. PTC might end up selling separate, tactical applications if it cannot find the supply chain management (SCM) executive sponsor who buys into the holistic “product & service” story. PTC's SCM savvy is non-existent when it comes to pricing optimization, parts planning optimization, reverse logistics, warehousing management, etc., but that can be built slowly over time and even added through additional SCM acquisitions.

Slowly but surely, PLM is continuing to surround traditional transactional ERP. PTC maintains that the strategic role of PLM is to help companies develop the right products and services with efficient strategies and collective knowledge, according to product performance targets. The value of PLM, on the other hand, lies in increasing revenue with innovative and tailored products and services, and increasing profit with efficient use of resources and effective cost controls.

Only time will tell whether PTC can get beyond its CAD/PLM and engineering strongholds, so that the brilliance of this acquisition does not get dimmed. Dear readers, what are your comments, opinions, etc., on PTC’s ambitious strategy? We would certainly be interested in your experiences with PTC and Servigistics, in any of the abovementioned SLM software categories (if you are an existing user), or in your general interest to evaluate these solutions as prospective customers.

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