Executive Briefings

2007 Year-End Wrap-Up: Big Software Vendor Strategies

Enterprise application and automation software providers spent 2006 battling for manufacturing mindshare. Two years later, the real battle is ready to begin. We held out hope for 2007, perhaps foolishly, as vendors touted real-time adaptive digital-manufacturing operations management visions (a mouthful for them, and us), only to pull back the curtain and find nothing there. Maybe 2008 will be the year of content. With that in mind, here's a review of what the movers and shakers in the manufacturing operations software applications arena did in 2007, along with some speculation about what 2008 might hold.

2007: Big ERP vendors step more deeply into manufacturing: 2007 marked three consecutive years of heightened awareness and ramped up spending on manufacturing operations software. This change in buying behavior hasn't been lost on vendors serving the space, and after a decade of lean times (and we're not talking TPS), software providers are once again funneling resources into acquisitions and product R&D, accelerating their efforts to capture the opportunity that today's market represents.

2007 marked a continued tug of war between dominant ERP providers Oracle and SAP, and automaton providers GE Fanuc, Invensys, Rockwell Automation, and Siemens. We anticipate the tug of war to intensify during the upcoming year, despite the marketing relationships, certified partnerships, and joint composite application development arrangements.

At the top end of the market, Oracle and SAP have continued to execute product strategies aimed not only at capturing a slice of the enterprise manufacturing operations software budget, but also at establishing footprints within the plants. Manufacturing continues to compete for first place as the most strategically important ERP investment category, our recent "Enterprise ERP Spending Report, 2007-2008" showed.

From a vendor perspective, the spending plans are just the beginning. This year's manufacturing operations software spending survey of more than 400 companies found roughly a third of them operating between 25 and 100 facilities, with the mean number of plants at 32 for the United States and 23 for Europe. The largest companies by revenue (those with revenues greater than $5B) operate in excess of 100 facilities.

Each of these facilities represents potential incremental opportunities for user license revenue if the ERP providers can get their user interfaces on the shop floor.

SAP has been by far the most visible in its approach to the shop-floor user, aggressively marketing xMII and xLPO, entering a reseller agreement with long-time shop-floor partner Visiprise, and preparing to get the Perfect Plant initiative into full swing.

Having said that, keep an eye on Oracle in the coming year as it continues to progress the Manufacturing Transaction Hub unveiled at this year's Open World. We hinted in "Market Outlook: Manufacturing Master Data Management--The Time Is Now" that Oracle's prowess in the data management arena--not to mention its installed base in manufacturing--presents it with a number of unique opportunities in manufacturing master data management (MDM), as well as in operations intelligence.

In manufacturing operations intelligence, we're seeing architectures that use SAP's xMII as the visualization layer increasingly featured in Oracle databases as core architectural elements. Can a commercial Oracle response to xMII be far behind? Oracle manufacturing users want to know.

ERP vendors were acquisitive this year. Of the acquisitions made, proposed, and executed, two bids in particular are guaranteed to affect the manufacturing operations software landscape in the coming year.

Oracle's acquisition of PLM vendor Agile. Process industry manufacturers that use Prodika (Prodika was acquired by Agile in 2006) for formulation and collaborative product design processes should be relieved by the renewed prospect of product development attention under Oracle ownership.

Not only will Oracle OPM users benefit from an easy to use, highly configurable front-end addition to their platform, but we're also seeing an industry-wide move toward closer coupling between the systems that create general recipes (typically the formulation system) and the manufacturing facilities themselves.

By the way, this includes the manufacturing QA labs. We fielded a number of inquiries in 3Q07 related to transferring ingredient attributes and specifications from the formulation system directly to the laboratory information management system (LIMS). This is an interesting evolution being explored by manufacturing and R&D users, and one for which Prodika--oops, Oracle Agile PLM for Process--is well suited.

As an aside, we've got a number of clients that not only rely on this product as the system of record for ingredient and attribute data, but that are also pushing Oracle to extend the application to add the detailed asset data needed to fully define a site-level recipe. Could this be a step toward digital manufacturing for the batch process arena? Stay tuned.

SAP's bid for Business Objects from a manufacturing operations software perspective, Business Objects is an interesting acquisition target for SAP. Not only does SAP acquire market share in the BI and performance management arena, but it acquires a piece of IP that many Microsoft-based manufacturing execution systems vendors have been embedding in their products for years, namely Crystal Reports and, more recently, Crystal Xcelsius, Crystal's live dashboard.

While it's too early to speculate, we have to wonder whether SAP will use Xcelsius' SharePoint-compatible dashboard to establish a foothold in the plant operations reporting and visualization arena, which is heavily dominated today, and likely to remain so, by Microsoft.

But what about SAP's xMII? Didn't we already purchase visualization? That's ok, we're confused as well. That said, it's possible to envision a scenario where SAP's Business Objects provides analytics that are based on an Oracle plant-level operational data store via a SharePoint Portal to various levels of business users, inside and outside the plant, while using xMII at the corporate level for network visibility and coordination.

Big automation vendors get their assets in gear: Automation providers have been circling around the manufacturing operations software arena for five years now, with not much to show for their efforts. That said, we remain cautiously optimistic that developments set into motion the past two years will begin to pay off for vendors in 2008, either in terms of software market share or mindshare. A brief rundown of notable acquisitions that took place during the 2007 calendar year is as follows:

Invensys, which has been investing heavily in its Archestra application integration and development framework including the acquisition of Cimnet, is clearly moving to accelerate the rate at which it can deliver packaged functionality to the market.

Rockwell Automation has been quietly acquiring core technology in addition to beefing up its delivery and services in target industries and geographies. For recent commentary on Rockwell Automation's move to enhance its products in the process industries Rockwell Automation is also distinguishing itself from its automation peers through strategic technology and marketing relationships with Cisco and IBM, not to mention its technology partnership with historian provider OSIsoft. Last but not least, as we were drafting this article, Rockwell Automation went public with news about its relationship with product data management (PDM) and product lifecycle management (PLM) provider Dassault Systemes. The two companies plan to work together aggressively to deliver design-through-manufacturing capabilities to the automotive industry.

Siemens AG wins the big spender award for 2007 with its acquisition of PLM vendor UGS. The acquisition, which finalized earlier this year, positions Siemens as the first software provider hailing from the automation and controls realm to tout integrated design-through-manufacturing software for discrete manufacturing.

As an end note to the acquisition rundown, GE Fanuc sat the year out, taking time to reprioritize and refocus its internal software development activities, as well as its delivery strategy. Prior acquisitions of Mountain Systems and Intellution have served this vendor well for a number of years, giving it a significant early edge over its peers. However, based on its competitor's current levels of investment activity, GE Fanuc is in danger of ceding the early-mover advantage created by those acquisitions. On this count, we look forward to 2008 proving us wrong.

2008 promises to be an interesting year for this group of vendors. With ERP providers extending their reach into automation vendor turf, we expect to see major pushback. Siemens' acquisition of UGS, when viewed as a blocking move, will keep ERP providers that have been eyeing the PLM space temporarily at bay. Other blocking maneuvers might include segments of the supply chain arena, warehouse management, detailed manufacturing scheduling, and finally, manufacturing execution systems, an embattled space that continues to be hotly contested by ERP, automation, and best-of-breed software providers.

What do you think--are we drinking too much eggnog? Between acquisitions, partnerships, and product developments, 2007 has set the stage for a shakeup of the manufacturing operations software arena.
http://www.amrresearch.com

Enterprise application and automation software providers spent 2006 battling for manufacturing mindshare. Two years later, the real battle is ready to begin. We held out hope for 2007, perhaps foolishly, as vendors touted real-time adaptive digital-manufacturing operations management visions (a mouthful for them, and us), only to pull back the curtain and find nothing there. Maybe 2008 will be the year of content. With that in mind, here's a review of what the movers and shakers in the manufacturing operations software applications arena did in 2007, along with some speculation about what 2008 might hold.

2007: Big ERP vendors step more deeply into manufacturing: 2007 marked three consecutive years of heightened awareness and ramped up spending on manufacturing operations software. This change in buying behavior hasn't been lost on vendors serving the space, and after a decade of lean times (and we're not talking TPS), software providers are once again funneling resources into acquisitions and product R&D, accelerating their efforts to capture the opportunity that today's market represents.

2007 marked a continued tug of war between dominant ERP providers Oracle and SAP, and automaton providers GE Fanuc, Invensys, Rockwell Automation, and Siemens. We anticipate the tug of war to intensify during the upcoming year, despite the marketing relationships, certified partnerships, and joint composite application development arrangements.

At the top end of the market, Oracle and SAP have continued to execute product strategies aimed not only at capturing a slice of the enterprise manufacturing operations software budget, but also at establishing footprints within the plants. Manufacturing continues to compete for first place as the most strategically important ERP investment category, our recent "Enterprise ERP Spending Report, 2007-2008" showed.

From a vendor perspective, the spending plans are just the beginning. This year's manufacturing operations software spending survey of more than 400 companies found roughly a third of them operating between 25 and 100 facilities, with the mean number of plants at 32 for the United States and 23 for Europe. The largest companies by revenue (those with revenues greater than $5B) operate in excess of 100 facilities.

Each of these facilities represents potential incremental opportunities for user license revenue if the ERP providers can get their user interfaces on the shop floor.

SAP has been by far the most visible in its approach to the shop-floor user, aggressively marketing xMII and xLPO, entering a reseller agreement with long-time shop-floor partner Visiprise, and preparing to get the Perfect Plant initiative into full swing.

Having said that, keep an eye on Oracle in the coming year as it continues to progress the Manufacturing Transaction Hub unveiled at this year's Open World. We hinted in "Market Outlook: Manufacturing Master Data Management--The Time Is Now" that Oracle's prowess in the data management arena--not to mention its installed base in manufacturing--presents it with a number of unique opportunities in manufacturing master data management (MDM), as well as in operations intelligence.

In manufacturing operations intelligence, we're seeing architectures that use SAP's xMII as the visualization layer increasingly featured in Oracle databases as core architectural elements. Can a commercial Oracle response to xMII be far behind? Oracle manufacturing users want to know.

ERP vendors were acquisitive this year. Of the acquisitions made, proposed, and executed, two bids in particular are guaranteed to affect the manufacturing operations software landscape in the coming year.

Oracle's acquisition of PLM vendor Agile. Process industry manufacturers that use Prodika (Prodika was acquired by Agile in 2006) for formulation and collaborative product design processes should be relieved by the renewed prospect of product development attention under Oracle ownership.

Not only will Oracle OPM users benefit from an easy to use, highly configurable front-end addition to their platform, but we're also seeing an industry-wide move toward closer coupling between the systems that create general recipes (typically the formulation system) and the manufacturing facilities themselves.

By the way, this includes the manufacturing QA labs. We fielded a number of inquiries in 3Q07 related to transferring ingredient attributes and specifications from the formulation system directly to the laboratory information management system (LIMS). This is an interesting evolution being explored by manufacturing and R&D users, and one for which Prodika--oops, Oracle Agile PLM for Process--is well suited.

As an aside, we've got a number of clients that not only rely on this product as the system of record for ingredient and attribute data, but that are also pushing Oracle to extend the application to add the detailed asset data needed to fully define a site-level recipe. Could this be a step toward digital manufacturing for the batch process arena? Stay tuned.

SAP's bid for Business Objects from a manufacturing operations software perspective, Business Objects is an interesting acquisition target for SAP. Not only does SAP acquire market share in the BI and performance management arena, but it acquires a piece of IP that many Microsoft-based manufacturing execution systems vendors have been embedding in their products for years, namely Crystal Reports and, more recently, Crystal Xcelsius, Crystal's live dashboard.

While it's too early to speculate, we have to wonder whether SAP will use Xcelsius' SharePoint-compatible dashboard to establish a foothold in the plant operations reporting and visualization arena, which is heavily dominated today, and likely to remain so, by Microsoft.

But what about SAP's xMII? Didn't we already purchase visualization? That's ok, we're confused as well. That said, it's possible to envision a scenario where SAP's Business Objects provides analytics that are based on an Oracle plant-level operational data store via a SharePoint Portal to various levels of business users, inside and outside the plant, while using xMII at the corporate level for network visibility and coordination.

Big automation vendors get their assets in gear: Automation providers have been circling around the manufacturing operations software arena for five years now, with not much to show for their efforts. That said, we remain cautiously optimistic that developments set into motion the past two years will begin to pay off for vendors in 2008, either in terms of software market share or mindshare. A brief rundown of notable acquisitions that took place during the 2007 calendar year is as follows:

Invensys, which has been investing heavily in its Archestra application integration and development framework including the acquisition of Cimnet, is clearly moving to accelerate the rate at which it can deliver packaged functionality to the market.

Rockwell Automation has been quietly acquiring core technology in addition to beefing up its delivery and services in target industries and geographies. For recent commentary on Rockwell Automation's move to enhance its products in the process industries Rockwell Automation is also distinguishing itself from its automation peers through strategic technology and marketing relationships with Cisco and IBM, not to mention its technology partnership with historian provider OSIsoft. Last but not least, as we were drafting this article, Rockwell Automation went public with news about its relationship with product data management (PDM) and product lifecycle management (PLM) provider Dassault Systemes. The two companies plan to work together aggressively to deliver design-through-manufacturing capabilities to the automotive industry.

Siemens AG wins the big spender award for 2007 with its acquisition of PLM vendor UGS. The acquisition, which finalized earlier this year, positions Siemens as the first software provider hailing from the automation and controls realm to tout integrated design-through-manufacturing software for discrete manufacturing.

As an end note to the acquisition rundown, GE Fanuc sat the year out, taking time to reprioritize and refocus its internal software development activities, as well as its delivery strategy. Prior acquisitions of Mountain Systems and Intellution have served this vendor well for a number of years, giving it a significant early edge over its peers. However, based on its competitor's current levels of investment activity, GE Fanuc is in danger of ceding the early-mover advantage created by those acquisitions. On this count, we look forward to 2008 proving us wrong.

2008 promises to be an interesting year for this group of vendors. With ERP providers extending their reach into automation vendor turf, we expect to see major pushback. Siemens' acquisition of UGS, when viewed as a blocking move, will keep ERP providers that have been eyeing the PLM space temporarily at bay. Other blocking maneuvers might include segments of the supply chain arena, warehouse management, detailed manufacturing scheduling, and finally, manufacturing execution systems, an embattled space that continues to be hotly contested by ERP, automation, and best-of-breed software providers.

What do you think--are we drinking too much eggnog? Between acquisitions, partnerships, and product developments, 2007 has set the stage for a shakeup of the manufacturing operations software arena.
http://www.amrresearch.com