PTC is hosting an investor day today at which it is describing the new organizational structure that was teased on its recent earning call and explaining how this better reflects changes PTC sees in the marketplace.
CEO Jim Heppelmann kicked things off by saying that he and his team did a “no holds barred” analysis of the company to try to answer a question that has been vexing investors for years: Given PTC’s strong growth, why don’t the company have peer-comparable operating margins? [PTC’s has typically been in the teens, while peer companies have margins in the 20%-25% range; this translates directly to profitability.]
The team discovered that “it costs too much to sell and service [our products] – both with too much service and the low net margin in services.” They decided that the root cause of these inefficiencies was that “solutions are brought out and then finished in field. The technology platform is very flexible, but that leads to a longer selling process because each is in essence a new installation that needs validation.”
Mr. Heppelmann said that PTC is changing its offerings to be more concrete and discrete, “more ready to go so that selling and services is unlocking the value as opposed to creating value.” He likens what PTC is now trying to do as a “move from an engineer-to-order to configure-to-order model.”
Among much marketing-speak was a lot of concrete information about PTC aims to achieve this. First was a description of how PTC’s business currently lines up. Mr. Heppelmann sees PTC as being in 5 businesses, solving interconnected problems:
• Design tools (about $600 million in revenue, growing at 5%-8%)
• Application Lifecycle Market (MKS Integrity), about $90 million, 15-20% growth
• Supply Chain Management (SCM) $50m, 15-20% growth — optimizing, rather than executing
• Service Lifecycle Management (Arbortext, SLM) $90m, 15-20%
• Enterprise coordination (PLM) $500 million, 10-15% growth
Tying these 5 businesses together is “Product Intelligence”, characterized by Mr. Heppelmann as “the special sauce that makes these 5 business interconnected – it describes digitally how all of these businesses are connected and operate as one when useful in selling.” Too, the Product Intelligence layer “ensures that decisions made in one process are understood in others in a truly integrated technology environment.”
This is actually not a radical, new departure for PTC. PTC has actually been progressing towards this since 2005, with the acquisitions of Mathcad, Aptavis, Polyplan and Arbortext in 2005, and each new capability since.
Going forward, PTC’s key solution offering will be:
• PLM, for global platforms, development, quality, offerings
• MCAD, for workgroup design, enterprise design, enabling a model-based enterprise
• ALM, for software systems lifecycle management and systems engineering
• SCM, for supply chain risk and compliance, component/material/supplier management, sourcing & cost management and manufacturing planning
• Sales & Service, for requirements management, service information, service parts, warranty management, call center and field service
To make this all happen, PTC has reorganized into 5 business segments that can tightly focus on what’s unique in their niches: who is customer,what problems are they having, what does PTC offer, who are competitors and so on. Serving the business segments are the “functions; there will be a single sales team, one services organization and one R&D group to uphold the common architecture goal. This
new org is in place and PTC is starting to measure and drive efficiencies going forward. The leaders include many recognizable PTC names:
Segment leads (note that two leads each have two segments):
Justin Teague, MCAD
Bill Berutti, SLM, ALM
Brian Shepherd, PLM & SCM
Bob Ranaldi, Sales
Marc Diouane, Global Services
Rob Gremley, Prod Dev & Corp Marketing
Tony DiBona, Maintenance
Barry Cohen, Strategy, HR, Tech Support
Each of the leads is now going over the details of his bailiwick’s unique offering, challenges and opportunities. The general theme is that PTC has the team in place, with the necessary resources, products and expertise, to grow the businesses at the levels projected.
For investors, this new strategy should provide better internal transparency and cost management; for PTC its “big picture” solution strategy will make it more obvious what it offers to the market and how successful each offering is. I will be most interested to see how users react — when will they see something truly new in terms of the offerings or with whom they interact?
Hours of presentations to go — I’ll update if warranted.