Will Servigistics Click on More Service Cylinders? - Part 2

Part 1 of this blog series depicted the rise and fall of of erstwhile public software company Click Commerce based in Chicago, Illinois, United States (US). At the end, the article mentioned the July 2009 merger of Servigistics and Click Commerce's Service Network Services (SNS) division.

The private equity firm Marlin Equity Partners acquired both entities recently with the idea of forming a new combined company to solve the planning, optimization, execution, and analytics challenges associated with delivering post-sale service. The new company, with estimated combined revenue of nearly $100 million (USD), will be headquartered in Atlanta, Georgia (US) and retain the Servigistics name and its chief executive officer (CEO).

(Over-the-top) Ringing Endorsements

The merger’s press release and Servigistics’ Web page dedicated to the event are replete with ringing endorsements and quotes from two of AMR Research’s renowned analysts and some customers. Both in his blog post and in Servigistics’ press release, Bruce Richardson, chief research officer (CRO) at AMR Research said:
"The combination of Click Commerce SNS and Servigistics brings together the pioneer in service parts planning with the leader in strategic service management. This pairing also brings strong vertical expertise. Click Commerce SNS dominated aerospace and defense, while Servigistics owned high tech. Together the two will be a strong force in the emerging opportunities in life sciences, consumer goods, retail and logistics."

The new and upcoming Servigistics' service lifecycle management (SLM) solution is envisioned to enable asset-intensive service organizations, such as manufacturers, to optimize many more components of the complex SLM process. This process includes contract and warranty management (for managing, determining, and tracking entitlements); workforce management (for staffing, training, scheduling and dispatching field technicians); service parts management, warehouse management (for receiving, stocking, deployment and delivery of parts); knowledge management (KM) for gathering, organizing and delivering information); sourcing; repair and returns (reverse logistics); and service analytics.

I was a bit surprised by AMR Research’s atypically unreserved endorsement that didn't really mention any caveats. Although I will admit that the newly combined company is now the clear market leader in terms of the eventual product footprint, total install base, and geographic coverage, I have some reservations.

The new company has about 240 employees (most of which are experts in service-based rather than more common product-based environments), who will serve a global client base of more than 240 marquee companies across motor vehicles, aerospace and defense (A&D), heavy equipment, high tech, consumer and industrial products, and utilities. New Servigistics will have operations worldwide, including regional headquarters in Tokyo (Japan); Bristol, United Kingdom (UK); Gurgaon (India); and field offices in Austin, Texas (US); Warwick, UK; Rochester, New York (US); Irvine, California (US); McLean, Virginia (US); and Chicago, Illinois (US).

As erstwhile Click Commerce that was analyzed in Part 1, “old” Servigistics had also embarked on a journey to break out of the spare parts management niche and address a broader problem set that, presumably, would bring about more revenue. But Servigistics has been much more focused on the aftermarket service arena only.

Initially being only a service parts planning and optimization provider, via a number of focused acquisitions and internal development, Servigistics has developed its strategic service management (SSM) suite, which currently also entails service labor planning and scheduling, KM, and service parts pricing. The value of aftermarket services to business has never been greater. The service market is attractive, especially in a bad economy where companies try to make more revenue by delighting customers via service.

While I can question both old and new Servigistics’ tactics and execution, this unchanged  (continued) strategy is one of only two choices available to any specialist vendor. The other is to become a niche specialist and rely on other mega-vendors to provide the broader infrastructure and ecosystem within which the point product can operate (and to eventually be assimilated by some ecosystem provider).

But while Servigistics has shown much focus and a great command of the services-based industry, those achievements have come at a price of depending too much on the venture capital (VC) community (or being over-leveraged in VC lingo via several rounds of financing). The company’s grand vision to create a platform for service businesses has unfortunately not really translated into the hoped-for customer uptake and adequately increased revenues.

The lion’s share of the old Servigistics customers (about 80 of over 100 before the merger) was still from the “mother” spare parts planning solution. If one discounts the customers inherited via previous acquisitions, the customer uptake via the consequent cross- and up-selling of parts pricing and workforce management solutions has been somewhat thin. In my recent three-part series on the vendor’s impressive Service Knowledge Management (SKM) solution, I pointed out that Servigistics had yet to sign its very first SKM customer.

The situation remains similar even under new Servigistics: about 120 out of 240 customers are still spare parts management customers. What are indeed the chances that the newly added and even more disparate products and technologies will sell like hotcakes in this economy?

Servigistics claims that both the acquisition of former ProfitScience and of Transdecisions have been profitable. Pricing makes up almost 30 percent of the company's revenues now. The workforce management business has already been profitable for Servigistics as well, and is expected to take off this year and next.

For the above reasons, it is likely that Servigistics could not get any more money from its former primary investor Bain Capital, who was apparently more interested in some sort of exit strategy, I guess. After squandering a mind-boggling amount of money on his unsuccessful 2008 presidential Republican primary campaign, is Mitt Romney is back to his prior money-making savvy (or at least protecting money) in his brainchild business? But I digress...

Counter-ringing "Endorsement" from an Archrival

Therefore, in an (expected) sharp contrast to AMR Research, MCA Solutions, which has for now decided to remain a spare parts planning and optimization specialist (and thus a much smaller, albeit arguably more focused, company), immediately came up with its own damning blog post. Sure, MCA has an ax to grind here, but one cannot argue with some of the facts put forth in the blog post. Especially intriguing is the following excerpt:
“…this is not a merger of two companies but rather an acquisition of two financially distressed organizations by an opportunistic private equity firm. Marlin Equity Partners is a well-run company whose transaction approach, according to their Web site, is to buy underperforming business divisions or product lines, and companies in various forms of distress - a label which can certainly be applied to Servigistics and Click SNS (Service Network Solutions).

Consider the following: Click SNS includes a number of acquired companies, most notably LPA, which was a pioneer in the service parts planning space in the 90s. Since it was renamed Xelus in 2001, the core company underwent four changes of ownership, cobbled together a variety of dated technologies, and saw a significant reduction in market share…”

These factors could be a bad omen in the long run. Anyone who has had experience with private equities that buy “distressed” companies expects the ensuing “nip and tuck” measures to be severe. Marlin’s goal is to make profit, and in a down market we might assume what exactly that might mean.

The remaining combined Servigistics and SNS sales team will be eager to close deals and be aggressive. If no immediate success in meeting quotas takes place, some demoralization and departures are likely to ensue.

Anther issue with Marlin, using construction industry terminology, is that the company has traditionally been regarded in the VC community as a “flipper” rather than a “builder.” To be fair, with its other asset, Solarsoft, which dates back to 2006 with the initial acquisition of former UK-based ERP vendor XKO and the 2007 acquisition of the Canadian ERP vendor CMS, Marlin claims to have invested in the merger for long-term growth. Solarsoft’s team experience and install base provides a platform for future investment, with more recent acquisitions of VantagePoint Systems and Chelford Group plc, again in Canada and the UK respectively.

In fact, Servigistics points out that Click Commerce SNS was a profitable division before it was acquired, purely based on its maintenance revenue. Servigistics was also reportedly a profitable company. The combined entity is already profitable, without initial headcount reductions, and has a revenue growth plan for 2009.

Servigistcs also points out that Marlin does not only buy distressed assets. If you look at the company's Web site, it specifically calls out different types of purchases, of which distressed assets is one. However, the site specifically classifies Click Commerce as a "corporate divestiture of a non-core asset" (and I don't think anyone can argue that ITW considered software as its core competency, as mentioned in Part 1).  Servigistics is classified as a "recapitalization.”

Furthermore, in its history, Marlin has acquired 26 companies, and has exited only three of these. This hardly qualifies it as a "flipper." But some VC insiders point to the “leopard can never change its spots” adage (or in Marlin’s case, “fish can never change its scales”). In other words, is Marlin really committed to its assets in the long run, or is this approach just because of the current buyer’s environment (rather than a seller’s environment)?

An unnamed venture capitalist who is always hungry for good deals just told me that his company passed on these two companies (Servigistics and SNS), just as it passed on almost everything else that Marlin or Infor buy. Make no mistake, that company gets one of the first looks at everything that goes down in the enterprise resource planning (ERP) and customer relationship management (CRM) space (customer service is part of CRM), and only passes on those that are either of too low quality for its standards to buy or those that get bought (at a higher premium) by Oracle, Microsoft, or SAP.

Servigistics acknowledges that many bidders looked at the company. Marlin came in and made a preemptive bid to get Servigistics, which looks pretty smart given that it also had Click Commerce.  Servigistics vehemently denies the claims that it was a low-quality asset. Furthermore, the company wonders why ERP vendors and other VCs have passed on purchasing its competitors.

The Platform of the Future: ERP or SSM/SLM?

But even if these comments by MCA and an unnamed VC firm can be dismissed as some sort of “sour grapes,” another legitimate question would be: how viable is a standalone SLM platform in the market? The above VC executive admitted to me that he too loves the service market, but just because Servigistics sticks an SSM or SLM moniker on several disconnected ERP, SCM, workforce management, and whatnot products, this doesn't necessarily mean that Servigistics is the thought-leader in the service market.

One of this VC company’s assets is also building a customer service and support suite with leading case management, KM, and agent-customer collaboration tools like chat, remote diagnostics, etc. The company claims not to be able to find a place for Servigistics and SNS products in what it is trying to assemble.

Claiming a SSM/SLM platform leadership might be in vain if not many folks decide to play that game. In other words, for me to claim that I am the best “hrkljush” player in my neck of woods might be a correct statement, but who cares about this imaginary archaic and esoteric game!?

Sure, I’ve previously clearly repeated that service is not archaic and esoteric, but the point here is whether any prospective company in need of service-oriented solutions will look for an all-in-one SLM solution per se, or maybe would start by evaluating the service capabilities of their incumbent ERP provider? Maybe they would even look for the primary ERP vendor’s recommendation for a specialist solution in its ecosystem?

In fact, critical enterprise asset management (EAM) and asset diagnostics capabilities are still missing from Servigistics’ portfolio. Guess what: many ERP vendors have quite strong EAM capabilities, integrated to other back-office capabilities. Think of SAP, Oracle, IFS, IBM, Infor, and Lawson Software, to name only some. Thus, a winning platform might come rather from Oracle, SAP, or any other transactional service management vendor, and not a group of currently largely disconnected point service solutions.

I am not sure whether Servigistics' all-in-one strategic service suite is the best way to go, in light of SAP and Oracle’s platforms. But also, in addition to MCA Solutions, some other point service solutions are doing fine these days. A great example would be Click Software in the realm of field workforce optimization, with great reference customers such as the Beijing Olympics, Montreal, Quebec (Canada)'s Gaz Metropolitain utility, Vodafone UK, and Best Buy’s Geek Squad scheduling.

Moreover, Vendavo has lately been doing well in parts pricing, promotions, and deal management. All the three above-mentioned companies are in SAP's Industry Value Network (IVN) ecosystem, and might well be acquired by SAP down the track. Even though I am aware of MCA, Vendavo, and Click Commerce integration and joint selling plans, I am not aware of a customer buying these products together.

At the end of the day, Servigistics is selling an ERP add-on into the Oracle, SAP, and Infor market. This is not a viable long-term proposition, as it is only a matter of time before any best-of-breed company is eliminated by those giants, as this area is clearly an extension of what the ERP giants are doing.

Also, if Servigistics could have been sold to SAP or Oracle it would have been, since these two giants pay the most for any company they deem important. However, both Oracle and SAP likely felt that this is an area that they cover already with respective products and ecosystems, and just need to improve their own offerings to shut Servigistics out.

The final part of this blog series will analyze Servigistics’ positions in individual service niches and conclude with some final thoughts (better than Jerry Springer's, I hope). In the meantime, please send us your comments, opinions, etc. on Servigistics’ strategy. We would certainly be interested in your experiences with any of the above-mentioned SLM software categories (if you are an existing user) or in your general interest in evaluating these solutions as prospective customers.
comments powered by Disqus