Diagnosis for Change at Cincom

Diagnosis for Change at Cincom Systems

The pace and severity of technological change is forcing many enterprise software companies to completely re-evaluate their fundamental assumptions about new product development, customer relationships and service. Cincom Systems is an example of an enterprise software company which is undergoing a fundamental change to their assumptions, operating procedures, systems and processes. The intent of this analysis is to evaluate the five key drivers of Cincom Systems and then assign these factors into three scenarios of realistic, optimistic or pessimistic outcomes. Examples from other enterprise software companies will also be used throughout the analysis.

Five Key Drivers Analysis

Cincom Systems has been successful for over 40 years in the enterprise software industry due to its reliance on relationship-based solution selling to Midwestern manufacturing companies who seek out trusted advisors in financial and enterprise system development. This has afforded the company an opportunity to create a significant recurring revenue stream from annual maintenance fees paid by customers for the continued updating of applications. The five drivers combined however, in the 21st century, are gradually changing this business model.

The first of the five factors is technological, and it is the shift away from licensed software to Software as a Service (SaaS) (Campbell-Kelly, 2009). This has led to attrition of customers over time and the need for Cincom to redefine its pricing and delivery models. The second of the five factors is the continued consolidation of the enterprise software industry, with Oracle acting as the primary market consolidator, completing over 40 acquisitions in the last five years. This consolidation driver in the industry has further required Cincom to prove their financial viability by sharing their financial statements despite their being a privately help company. A third driver is the increased focus on new competitors in the highest growth sectors of the company's software business including channel management and product configuration. These competitors are forcing Cincom to further define product line extensions much more rapidly than before. A fourth driver is compliance requirements of customers, specifically to environmental compliance requirements and financial reporting. This driver has made the product development decisions of Cincom focus more on auditability and traceability, which is a product direction the company has had to gain expertise in to keep pace with customers needs. The fifth driver is the shift in enterprise software towards becoming more knowledge-based workflows and oriented more towards knowledge management (Kodama, 2006) and less about being focused on just enabling transactions as accounting systems did previously. These five drivers have completely redefined Cincom's business over the last ten years and continue to realign its development, customer service, marketing and services strategies as well.

Scenario Analysis

Taking the five drivers of technological innovation, consolidation of the enterprise software industry, increased focus of new competitors in high growth sectors, compliance requirements of customers, and the shift in software to becoming more knowledge-based, the future of Cincom Systems is highly dependent on strategic renewal (Agarwal, Helfat, 2009). Taking these five factors together and defining realistic, optimistic and pessimistic scenarios provides insights into the extent to which Cincom Systems needs to accomplish strategic renewal.

Under a realistic scenario, Cincom Systems can expect the pace of technological innovation to continually increase with SaaS-based competitors gaining market share in the key areas of CRM and channel management. The consolidation of the industry and increased focus of new competitors is under realistic scenario-based assumptions force Cincom to innovate from one product generation to the next with greater urgency. The two drivers of compliance requirements and the shift in enterprise software towards becoming more knowledge-based will also require Cincom to either acquire new companies in these areas or augment their own applications to stay current.

In an optimistic scenario, Cincom quickly moves into the SaaS market, dominating it with new technologies for compliance and knowledge-based workflows their customers need. The high growth sectors competitors are focused on attract innovation over price cutting and Cincom is able to win additional business as a result. The combined effects of this strategic transformation (Agarwal, Helfat, 2009) sees Cincom gain additional market share and revenue as a result.