Marcam Solutions: Shifting its Focus to MES

Vendor Genesis

Marcam Solutions, headquartered in Newton, MA, is a global provider of enterprise resource planning (ERP) and enterprise asset management (EAM) software exclusively for process manufacturing enterprises and large corporate divisions. Marcam Solutions was created after the 1997 breakup of Marcam Corporation, a company founded in 1980 that was struggling to manage the business of two product lines that targeted the two completely different markets of discrete and process manufacturing. The dissolution of Marcam Corporation created two new ERP software companies, Marcam Solutions and MAPICS Inc. Marcam revenues in fiscal 1998 were $124.5 million. Paul Margolis and John Campbell founded Marcam (a name derived from their surnames) in 1980 to provide MAPICS installation and customization services. In 1983 Marcam began developing its own planning and control software for process manufacturing companies such as food, chemicals, and pharmaceuticals. The result was PRISM, first licensed in 1987. Marcam went public in 1990 and acquired ShawWare (maintenance management applications) in 1991 and the MAPICS product line from IBM in 1993. Marcam launched Protean ERP software in 1994. In 1995, it formed subsidiary Foresight Software to develop customer interaction applications, and it halted development of a client/server version of PRISM to focus on its similar Protean line. Today, Marcam Solutions offers three product suites for process manufacturers: an AS/400 based ERP package called PRISM, an open platform ERP product called Protean, and an EAM product called Avantis, initially released in 1981 by ShawWare. The PRISM and Protean software suites automate tasks such as resource planning, production model development, and quality control management. Avantis software manages inventories, maintenance schedules, and all related paperwork.

Marcam sells its product primarily through its direct sales force in 19 offices worldwide. The Company also partners with a number of industry-leading vendors including HP, NEC, IBM, and PeopleSoft. By fiscal year end 1998, the Company had approximately 1,400 customer sites in over 40 countries. In 1999, Marcam Solutions was acquired by Wonderware, the factory automation division of Invensys Plc., a global electronics and engineering company with headquarters in London, UK.

Vendor Strengths

• We believe that PRISM, Protean, and Avantis are leading core ERP products for the Small-to-Medium Enterprises (SME) market segment, particularly due to their deep respective niche functionality (process manufacturing and asset management), low total cost of ownership (TCO), and speed of implementation.

• Marcam was one of the first mid-market ERP vendors to incorporate concepts of component technology, Internet and e-Commerce, and integration with other vendors' components, all providing for flexibility and ongoing post-implementation system agility. Furthermore, the Marcam product suite can run on the most popular platforms and databases.

• PRISM and Protean have long exhibited certain plant-level features (e.g. the ability to track the status of product throughout the production process, and finite scheduling) in addition to performing a standard range of ERP business functions. Moreover, the envisioned integration with Wonderware's FactorySuite 2000 will allow Protean users to solve shop floor problems with all production data collected and made instantly available.

Vendor Challenges

• Marcam has struggled financially for over four years, (see Fig. 1 - Marcam Solutions Inc. - Annual Results Chart) and the trend of decreased revenues and loss reporting continued throughout 1999 (see Fig. 2 - Marcam Solutions Inc. - Quarterly Results Charts), leading to the Company's acquisition for the price less than a half of its annual revenue ($60 million).

• Marcam is confined to the process manufacturing market and does not support discrete manufacturing. In addition to this, PRISM and Protean lacked financial and distribution functionality until late 1998, which forced the Company to seek product interfacing partnerships. This has resulted in a number of lost opportunities, since certain customers have opted for more complete solutions from a single vendor. Moreover, the Marcam product suite still lacks a strong CRM, SCM, and HR product offering.

• While the merger with Wonderware brings the positive prospects referenced above, we believe Marcam's future as an ERP vendor is uncertain due to its future need to blend a variety of different core competencies, and its possible shift of focus towards plant integration applications. We expect the situation will become further aggravated with product integration issues.

Vendor Predictions

• The next 18 months will prove to be very challenging for Marcam. We predict minor revenue growth (maximum 15%). Break-even net income in fiscal 2000 is the most optimistic scenario (30% probability).

• We believe that within the next 4 years Marcam will gradually shift its focus to plant integration and operations applications, while de-emphasizing its financial and order management components and relying on interfaces with ERP vendors with strong core competencies in these areas, like PeopleSoft, SAP, Lawson, and Great Plains (60% probability).

• Marcam's service and support revenue will contribute more than 65% of its total revenue within the next 4 fiscal years (70% probability) based on the Company's need to interface its products with other 3rd party components.

Vendor Recommendations

Since its inception, Marcam has focused solely on process manufacturing expertise, and existing Marcam resources and corporate culture do not make diversification a viable option at this stage. Therefore, we recommend the following:

• Marcam should further entrench its position in the Small-to-Medium Enterprises (SME) market segment in the following ways:
  
  

  • Further expand its global presence, both by opening new offices and developing new affiliate partnerships. Consider utilizing Invensys' infrastructure to fill existing gaps in current geographical coverage.
    
    

  • The delivery of more new, focused and pre-configured vertical solutions would make Marcam additionally attractive to resource constrained smaller enterprises.

• Identify the most appropriate partnerships for its current enterprise application gaps (Front-Office, Supply Chain, Business Intelligence), and leverage those partnerships to create sustained service revenue and regain the Company's profitability.

• Explore other joint research and investment opportunities in order to both financially strengthen the Company and expand its distribution channel. A good example is the arrangement Marcam has made with NEC to jointly develop Marcam Financials, while NEC remains one of Marcam's strongest partners in the Asia-Pacific market.
  
  

• Conduct further ongoing cost scrutiny and identify opportunities for further cost reduction. Marcam's sales & marketing count remains one of the highest in the industry, measured as a percentage of a total number of employees, while the sales revenue per sales and marketing employee of $445,000 is one of the lowest (See Fig. 3).

User Recommendations

• We generally recommend including Marcam in a short list of an enterprise application selection to mid-market and low end tier 1 companies (with $50M-$1B in revenue), based on its long presence and proven expertise within the Chemical, Food, and Pharmaceutical industries.

• Until the outcome of Marcam's merger with Wonderware regarding its R&D vision is clear and unequivocal, any organization evaluating Marcam products should exercise caution and consider existing functionality only.