A Lesson In Self Reliance


ISVs knew where to turn during the downturn--to themselves


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Developing and marketing their own brand of software has paved the road to success for a significant slice of companies on this year's VARBusiness 500 list. Each brings something unique to the table. There's Siemens Medical Solutions, which last year derived 15 percent of its nearly $10 billion in revenue by selling a bevy of software to automate health-care facilities. You also have Ceridian, which built its fortunes on a lineup of horizontal human-resources applications that the company increasingly delivers as a service to its customers. And ISV SolidWorks has built up business as a pure-play ISV, selling its 3D rendering and design applications exclusively through channel partners and eschewing upgrade sales in favor of offering a subscription service for new releases and tech support.

Many of these companies, including ERP applications vendor QAD, are global in scale and conduct at least a portion of their development work offshore. SolidWorks, for instance, has partnered with an India-based development firm for nine years, not as a way to reduce costs or farm out more trivial development tasks like bug fixes, says company CEO John McEleney, but rather to play a pivotal role architecting its applications at a high level.

"The type of applications we have are dependent on a unique developer skillset. People need to know geometry and graphics," says McEleney, whose $160 million company in Concord, Mass., operates as an independent subsidiary of Dassault Systemes. "We hire where we can find the talent, whether it's England, Los Angeles or India."

It's that type of creative thinking and flexible business model that has propelled software firms forward in spite of a down economy. Let's take a deeper look at several of those companies, each willing to share their insights into building and selling software-development solutions.

Starting Over

For Siegfried Bocionek, this year marks the final steps in Siemens Medical Solutions' most significant software project in decades. As COO and CTO of the IT division of Siemens Medical Solutions, Bocionek has been presiding over a complete rewriting of the company's flagship applications for the health-care industry. The next-generation health-information system, dubbed Soarian, is expected to debut widely in 2005, although some modules are now in the hands of nearly 20 large customers. The software is highlighted by a new workflow engine that will automate and integrate processes such as patient scheduling, billing-order entry and patient records across multiple application modules and systems.

"This is a replacement from the ground up," says Bocionek, who is directly responsible for 1,400 employees who are working exclusively on the development of Soarian.

When finished, Soarian will take the place of 20-year-old Siemens proprietary software that runs on mainframes or VMS systems. The new software is Web-based and distributed, and while it was developed on Windows and SQL Server, it is portable and will run on myriad platforms, including Linux, Oracle, Unix and mainframes.

Soarian's Web-browser accessibility fits particularly well in the health-care industry, where doctors, nurses, administrators and other employees tend to be mobile and not tethered to a desktop all day, Bocionek notes. These types of applications are in dire need as well. The health-care industry—and physicians specifically—have lagged behind other verticals in their adoption of software solutions that increase efficiency by eliminating paper and data entry and cut down on prescription errors because of illegible handwriting, he says.

With the new system, Siemens is putting tools in the hands of doctors, such as physician order-entry applications, that will make their jobs easier, in addition to increasing patient safety, Bocionek says.

"The biggest productivity gain could be seen among doctors. We just need to get them to use [the software]," he says.

Transitioning to an entirely new technology has been a huge challenge internally for Siemens Medical Solutions as well. It has meant re-educating developers to go from Cobol programming to Windows and Java, and retraining the services force charged with selling and implementing the solutions.

To succeed in a vertical like health care, companies such as Siemens Medical Solutions are constantly anticipating the next big need that software can address, such as automated order entry and bar-coding of medications. Bocionek says he is confident that his company's huge installed base and track record in the industry will bode well for Soarian's sales. He will be jockeying against several other major health-care software companies, including McKesson and Keane, which also offers an automated order-entry system that brings clinicians—not clerks—directly into the process to increase patient safety.

Hosting Takes Off

Chances are you've seen a paycheck with the Ceridian name stamped on it. Like rival Automatic Data Processing, the $1.25 billion Minneapolis software company markets a ubiquitous portfolio of applications for human resources, payroll, tax

filing, benefits administration, employee time and attendance, and recruiting.

What's driving its success today? A shift in delivery models. Four years ago, the company made the strategic decision to begin offering its software as a service, hosted in its own data centers. And while traditional packaged sales still comprise a major chunk of Ceridian's business, the hosted service is capturing 70 percent of new customers, says David Peterson, director of marketing strategy at Ceridian.

"We create the software and run our own hosting environments because there is a need to control the software. It's key to making this model successful," says Peterson, who describes Ceridian today as a "business service provider."

The kinds of applications Ceridian develops are ripe for the hosted model. Payroll—while mission-critical to every business—isn't a core competency for most companies. It's one of those functions that many CEOs are willing to farm out. "They don't want to be the best in the business in HR," Peterson says. "It's a by-product."

After ironing out some initial networking-level kinks around latency and connection speeds, Ceridian has arrived at a business model that enables the company to profit from hosting, Peterson says. Its data-center approach is multitenant, which means that a single instance of its applications can be run for multiple customers. This gives Ceridian the scale it needs to make money. This method restricts the amount of customization that can be accommodated, which can be a deal-breaker for some customers. However, Peterson says that Ceridian's applications typically satisfy 80 percent or more of its target customers' needs. And the software is not completely inflexible; it's designed to be configurable for individual clients, if need be. If enough clients request the same type of customization, Ceridian will often productize that version of the software as a new application to sell.

In the end, Peterson says, "it's a cost-benefit analysis in terms of customization. If you customize for every 100-employee company, that gets very difficult to sustain as a business model."

The one-to-many approach is working well thus far. From a financial standpoint, it has helped that Ceridian attracted several very large hosting customers early on that provide a steady stream of recurring revenue to fuel the hosted business. On the technology front, the company is busy addressing integration issues. Historically, it has been desirable, yet difficult and clunky, to tie a set of hosted apps into a customer's internal systems. It's a problem often cited as a major drawback to the hosted software model. Yet today, Ceridian is facilitating this process by taking advantage of XML, SOAP and other open-standards interfaces to make its applications available to other systems. These interface technologies, Peterson says, are making hosting "much more viable" than in past years.

Software And Services

QAD is a 23-year-old software company that has maintained a laser-like focus on its core applications niche: manufacturing. Or, to be more specific, QAD targets subsets of manufacturing verticals, mainly suppliers in such arenas as tier-one automotive parts, food and beverage, and certain consumer packaged goods.

The $231 million company develops applications to streamline and speed its customers' supply chains, in addition to helping many smaller suppliers comply with supply-chain integration mandates handed down from their large manufacturing customers, such as a Wal-Mart, for example. In most verticals, a change at the manufacturer can take six weeks to filter down to the lowest link on the supply chain and then back up. QAD's software tries to get that time frame down to six hours.

"A typical supply chain is seven layers long and all over the globe," says Murray Ray, executive vice president of global services at QAD, based in Carpinteria, Calif. "The idea is to provide planning services and capabilities in our applications to work across multiple enterprises."

One of the biggest factors in QAD's success as an ISV is its emphasis on having both a strong internal services organization and a channel of partners, according to Ray. The services group he heads focuses on QAD's largest multinational customers, providing business-process assessments and other consulting services, in addition to traditional software implementation, integration and support. QAD then blankets the vast majority of its 5,200 customers—most of them in the midmarket—with partners.

The strategy appears to be paying off. Last year, QAD put up its best financial numbers since going public in 1997, Murray says. Of its total revenue, 30 percent came from new software-license sales, 50 percent from maintenance and support, and 21 percent from services. Meanwhile, Meta Group last year ranked QAD in front of ERP software vendors Lawson, Oracle, PeopleSoft and SAP in terms of ROI, fastest time to implement and lowest total cost of ownership.

Murray says his biggest challenge and greatest reward today lies in addressing globalization in QAD's products and services. QAD tries to get in at the ground level with manufacturing firms to install their applications when those customers first build new plants or relocate operations, he says.

Part of the strategy is to be experts in various geographies so that QAD can help customers orient their IT systems to regulations or compliance needs. In general, QAD also tunes its software so that it meets specific mandates, such as a new international standards of operations for auto-industry suppliers called MMOG, or allows customers to more easily satisfy edicts from large manufacturers to invest resources in hooking into a Web-based B2B hub, for example.

"We have a role to proactively understand future demands on suppliers and to have our product capabilities match them ahead of time," Ray says. "For customers, it's a question of business survival."

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