By Nancy Rouse-Talley
In part 1 of this roundtable, our panel of experts gave us their take on the costs of implementing PLM (product lifecycle management) and whether emerging technologies will simplify the implementation as well as offer more robustness and flexibility for end users.
Here in part 2, our panelists discuss the economic viability of the PLM firms and make some predictions as to where this technology will lead us in the future.
Data Management in the Black
DE: It’s been extremely difficult for technology companies to make money on the data management segment of PLM. What will it take for PLM firms to get their data management businesses into the black?
Gable of Dassault: Software vendors will continue to be unprofitable if they articulate their value proposition as data management, since that is a commodity. They key to profitability is for PLM software vendors to understand that data management is only an aspect of delivering product development process solutions. In other words, companies are not approaching PLM vendors for a data management solution. They are approaching PLM vendors to improve processes such as program management, engineering change, collaborative product design, product planning, materials compliance, direct-material sourcing, etc. Improvements in these business processes result in tangible benefits to the customers, which software vendors can leverage to sell the value of their products and be profitable.
Miller of CIMdata: Well, I’m not going to start with the premise that none of them are in the black. A number of PLM suppliers have developed their businesses very nicely and have become successful as a result. Their success is a key reason that you see the kind of increasing and substantial investments in the PLM-related data management solutions today. But PLM suppliers have evolved along with the industry, and the successful ones clearly understand that success doesn’t happen just because they offer nice technology. They have to combine the technology with the right process knowledge, pre-packaged and focused solutions, and implementation expertise to ensure customer success and their own success in turn.
|Chris Farinacci, Agile Software|
> > Customers are increasingly looking for solutions that allow them to better manage product-lifecycle business processes and use embedded decision support and analytics.
— Chris Farinacci, Agile Software
Farinacci of Agile: While product data management is a core foundational requirement for PLM, customers are increasingly looking for solutions that allow them to better manage product- lifecycle business processes and use embedded decision support and analytics. The packaged combination of these technology elements into industry best-practice applications enable customers to maximize the value obtained from PLM investments — which is directly related to the revenue and profits generated by the PLM vendors themselves. Over time, it is clearly customer results and value that will drive growth for the solution providers.
Jim Doxey: This is a tough one since the relatively low cost of entry into this market allows small garage shops to launch point products to manage data, while the higher end solutions have such a poor track record on the aggregate, that CIOs and CFOs typically don’t allocate a lot of budget for products data management like they would for ERP. In the ERP market there are two major players with over half of the market share, and the rest of the 298 vendors make up the bottom tier. I don’t expect PLM and PDM vendors to consolidate that much, but the costs of doing business are tremendous. First, the cost of the sale is high because there is a lot of educating required for a PDM sale. And lower cost products constantly are being offered. That’s why most vendors bump up their revenue via consulting and services versus raising the price of their offerings.
Stephen Wolfe: Vendors of PDM software will make money when they offer their customers real value. Today’s model for PDM sales doesn’t do that. Most PDM software companies write bad software with processes that are not efficient for the customer. When the customer complains, the vendor’s response is to customize the system to make it work like it should have in the first place.
Customization is costly for the customer in two ways. First, people who write custom code work slowly and get paid a lot of money. Second, when the customer wants to update its highly tailored PDM system to a new release of software, many of the custom features break because the APIs are not stable. The solution is for PDM vendors to design software that buyers can tailor without writing scripts in Java, C#, or some other arcane language. Customization must be done with menus and dialog boxes, just as you would customize a CAD or word-processing application.
|Robin Saitz, PTC|
< < It’s not good enough to offer great applications. It should be the responsibility of vendors to ensure that their products work well together as a system in support of the customer’s objective to optimize processes.
— Robin Saitz, PTC
Saitz of PTC: It’s not good enough to offer great applications. It should be the responsibility of vendors to ensure that their products work well together as a system in support of the customer’s objective to optimize processes. This approach significantly improves the value customers realize by reducing the number of systems they must maintain. But it also places further requirements on the vendor to deliver an integral system that is simultaneously open. This is the approach we’ve taken at PTC and we view it as one of our competitive differentiators.
Carrelli of UGS: In the past, the ratio of PLM services to software has been very high. This has placed a great deal of pressure on the profitability of the data management segment of PLM business due to the significantly lower margins on services. However over the last one or two years we have seen that ratio decline as companies are rolling out larger deployments of what were previously pilots. This has led to greater profitability from the data-management segment of the business.
|Bill Carrelli, UGS Corp.|
> > The big ERP companies cannot dominate this space because they typically store only BOMs for manufacturing execution and business processing.
— Bill Carrelli, UGS Corp.
Further improvements to overall profitability are expected as a result of additional initiatives such as packaged, out-of-the-box functionality that will decrease the upfront service requirements and make those needed services much more repeatable and therefore less costly. In addition, look for templates for standard implementations and core product-lifecycle processes, code-less business-process modelers that make deployments faster and less expensive and greater integration with common desktop applications.
The Future of Data Management
DE: Where will the data management segment of the PLM market go in the future? Will the big ERP and CAD companies dominate? Do you see any place for smaller, independent firms offering only data management?
Miller: Where will it go? It’s continuing to evolve. The market has matured a bit, and what you see is that core data management capabilities have become much more robust, with continual expansion of what’s included within the core. PLM vendors are expanding their offerings to include capabilities that are useful to particular industry sectors, for example, formulation management for food and beverage companies. The vendors are also expanding functionality that is useful across many industries with capabilities like strategic sourcing, requirements management, or portfolio management.
|Ed Miller, CIMdata|
< < PLM vendors are … expanding functionality that is useful across many industries with capabilities like strategic sourcing, requirements management, or portfolio management.
— Ed Miller, CIMdata
Regarding your question about the ERP suppliers, they will play a major role but won’t dominate. The major CAD suppliers have expanded their solutions into broad PLM offerings and will continue to play a major role as well. In addition, there are certainly market niches where a number of other suppliers have established a key position. For instance, Prodica (recently acquired by Agile Software) is a small firm that is focused specifically on the food and beverage industry and has been well received. There are many other examples of successful PLM suppliers that are not behemoth companies.
Wolfe: There are a variety of product data management (PDM) applications. Some systems manage CAD files generated by a particular CAD system. These PDM systems fall naturally in the domain of CAD companies. There are other data-management applications such as change management, bill of material management, and configuration management that have less to do with CAD. These PDM applications would more naturally fall within the sphere of the ERP companies because they feed data to MRP systems. Unfortunately, neither the ERP companies nor the CAD companies are doing a good job with enterprise PDM software, so there is room for independent firms — even open-source firms — to innovate.
|L. Stephen Wolfe, PE|
> > Neither the ERP companies nor the CAD companies are doing a good job with enterprise PDM software, so there is room for independent firms — even open-source firms — to innovate.
— L. Stephen Wolfe, PE
Farinacci: More and more across industry verticals, it is the software and electronics components of product content that drive innovation and dominate product development efforts. Managing and coordinating all of this product information and the related business processes across engineering disciplines to accelerate product launches and drive profitable growth is becoming core to product data management. Additionally, as more companies design and manufacture products globally and outsource more, this increases requirements for secure collaboration and intellectual property management — not just of MCAD models but of the entire product record.
CAD companies are mainly focused on and proven in managing their own CAD tool data, and mechanical design is becoming much less important compared to software and electronics in many vertical industries. ERP companies are weak in domain expertise and collaborative capabilities in engineering. We believe a CAD-agnostic focus and heritage in electronics and distributed IP management provides the best approach for customers in addressing these challenges.
Gable: ERP systems obviously provide significant value to companies for automating repetitive processes typical of operations and accounting. However, PLM focuses on business processes that are not transactional in nature. A PLM system involves tools and business processes that are more innovative in nature, which cannot be automated. Therefore, I suspect that ERP vendors will continue to struggle in expanding their offerings to include PLM.
|Jonathan Gable, Dassault Systèmes|
< < Many companies build products with high electrical and mechanical content, and no software vendor exists serving both of these CAD markets, it is very important for the leading PLM vendors to support an open data-management strategy.
— Jonathan Gable, Dassault Systemes
Within the PLM space, few vendors focusing only on data management have thrived. The most successful vendors have also offered CAD tools for creating the product data. However, given that many companies build products with high electrical and mechanical content, and no software vendor exists serving both of these CAD markets, it is very important for the leading PLM vendors to support an open data-management strategy.
Carrelli: We believe the big ERP companies cannot dominate this space because they typically store only BOMs for manufacturing execution and business processing. Due to their architectures they will be ineffective in managing the highly iterative nature associated with early phases of product development. They will also have difficulty storing the complex and complete product knowledge that is accumulated throughout the product lifecycle due to the diversity and richness of this information.
Saitz: Globalization and the increasing prevalence of teaming with partners to take on key product development responsibilities has simultaneously helped and hindered product development practitioners. With these dynamics comes the need to securely control product data originating from numerous sources, while enabling the effective execution of key processes such as detail design, change and configuration management, new product introduction, manufacturing process management, and technical publications.
Point solution vendors cannot deliver the complete set of capabilities required to optimize these cross-functional and cross-organizational processes. Extending ERP also poses significant problems in PLM because product development is a highly collaborative process that requires advanced configuration-management capabilities and the ability to manage a wide variety of content over the product’s life. ERP companies are far away from having the expertise in product development to offer these types of critical capabilities.
> > I believe data management will become more and more mainstream within organizations.
— Jim Doxey
Doxey: I believe data management will become more and more mainstream within organizations. For instance, many start-up companies postpone purchasing ERP software until they grow in size and require something more than a simple accounting package. In place of ERP, they spend the budget on PLM/PDM solutions to reduce time-to-market and manage design configurations. Over time however, the lower cost solutions implemented to manage a few designers typically don’t scale to handle a worldwide enterprise as these companies grow and mature. At some time, companies have to re-evaluate their internal processes and grow the applications.
Nancy Rouse-Talley is a freelance writer who focuses on technology subjects, including product lifecycle management, computer-aided design, and engineering. You can send Rouse-Talley your thoughts on this article through e-mail by clicking here. Please reference “PLM Rountable, Part 2” in your message.
Our panel of independent consultants and representatives of vendor companies includes:
Ed Miller, president of CIMdata and an internationally recognized authority on PLM. He is a frequent keynote speaker at conferences and seminars around the world on trends, directions, strategies, methods, and technology issues.
Robin Saitz, vice president, solutions marketing for PTC, provider of Windchill content and process-management software as well as Pro/Engineer MCAD, Arbortext publishing, and MatchCAD engineering-calculation software.
Jonathan Gable, vice president of product management for Dassault Systèmes ENOVIA MatrixOne brand. MatrixOne was purchased by Dassault last year.
L. Stephen Wolfe, PE, an engineering management consultant focusing on CAD/CAM, CAE, and product data management. He formerly was publisher of Computer Aided Design Report and Product Data Management Report.
Chris Farinacci, senior vice president of marketing at Agile Software, a publicly traded PLM vendor with a track record of providing PLM solutions to the high tech & electronics, life sciences, consumer packaged goods, automotive, aerospace and defense, and industrial equipment industries.
Bill Carrelli, vice president of strategic marketing for UGS (recently purchased by Siemens). The company’s data-management approach focuses on capturing product knowledge such as CAD product structures, bills of material, options, and variants.
Jim Doxey has worked for as a consultant for several CAD/PLM vendors and as a user of the technology for 22 years. He’s been involved in PLM implementations with companies including Boeing, Philips Medical, Buell Motorcycles, Extreme Networks, and LeapFrog Toys. In addition, he is the co-inventor of Activault for managing SolidWorks files. He is currently working with a large semiconductor manufacturer in Silicon Valley.
Note: To contact Jim Doxey, send your comments via e-mail by clicking here. Please reference “Attention Jim Doxey” in your message.