6. Additional earnings-related factors
6.1 Research & development
The development of new products and solutions and the enhancement of existing ones form the basis of our business expansion. We can only expand our leading product portfolio, continue to offer our customers the products and solutions they need, and therefore continue to grow profitably in the future if we continuously develop product and process innovations. This is supported by close cooperation between Sales and Marketing, Services and Research and Development (R&D).
In the fiscal year under review, investments in research and development amounted to 14.1 percent of our product revenue (2007: 14.5 percent). As of December 31, 2008 we employed 651 people in R&D, 4 percent fewer than on the previous year’s reporting date. Consequently, 18 percent of all employees at Software AG work in R&D.
From an organizational point of view, the area of Research and Development is directly assigned to the Executive Board. However, as a result of restructuring, this area has undergone significant changes. The R&D work of the two business divisions, ETS and webMethods, is now the direct responsibility of Executive Board member Dr. Peter Kürpick. Consequently, the two product lines have been brought closer together in research and development and are therefore more closely aligned at the very start of the process chain. This was one of the goals following the integration of webMethods, Inc. However, the requirements initially differ, so we will continue to pursue specific R&D strategies for the two business segments. Nevertheless, these will be more closely related to each other.
ETS focuses on application modernization
ETS operates R&D centers in a total of five locations in Germany, UK, Israel, Bulgaria and the United States, developing its product portfolio. As a result of this global positioning, we can effectively exploit cost benefits and the specific expertise of the individual countries, because each location specializes in certain products or product groups.
Our product developments are usually based directly on the needs of our customers. In order to define requirements, we regularly carry out requirement analyses and initiate product improvement and innovation processes as a result. Our actual development work therefore starts with the customer – to our mutual advantage. Currently, one focus of our development work is in the area of application modernization. We develop tools to simplify the modernization of programs for our maintenance customers. This involves integrating existing applications in new systems and therefore facilitating the use of past investments more effectively for the present and future.
In fiscal 2008, we brought numerous new products to market or began their development. These included the Event Replicator for Adabas on Open Systems, which automatically replicates Adabas data for databases and messaging systems from third-party providers on open systems platforms using SQL data format. This makes central business data available to other important operational systems. All users therefore work on the basis of complete and up-to-date data. Another development was Natural SQL Gateway, which offers users a comprehensive and standardized view of data across different applications and databases. By consolidating the access of data in a single application, this data can be optimally analyzed and used with existing Natural applications.
Other new products that will be launched in 2009 include Adabas Archiving and Optimize for ETS Infrastructure. The latter is the result of a close collaboration between ETS and webMethods in the area of research and development. The first fully integrated product from Software AG and webMethods was launched in the third quarter of 2008: CentraSite ActiveSOA, the heart of the SOA suite. The product draws together Software AG's specific strengths in SOA Governance/CentraSite and webMethods’ lifecycle management from Infravio. Customers benefit from the automation of processes, lifecycle management for IT systems, easier collaboration between different user groups and a standardized user interface.
On this basis, we will continue to work intensively on the development of innovative products and the enhancement of existing applications in 2009. This will support the ongoing expansion of ETS business. We will focus in particular on product enhancements that will provide even better integration between the ETS and webMethods product portfolios in both directions. We will also concentrate on developing new products from the integrated product portfolio.
webMethods
Highlights 2008
In 2008, webMethods R&D activities focused on creating new customer value through the seamless integration of Software AG and webMethods products while also continuing to innovate with new product introductions to meet changing customer demands. This included enhancing our BPM and SOA products as well as ensuring ease-of-use and rapid implementation capabilities for improved ROI and lower TCO. Another key R&D goal was to continue to develop tools that enable IT and business staff to collaborate, while supporting the scale necessary to support mission-critical environments.
Designer 7.2 for the webMethods Suite
webMethods Designer 7.2, released together with service pack 2 of webMethods Suite 7.1 in Q4 2008, was a significant step forward in improving ease-of-use and providing faster development cycles for creation of business processes and service-oriented architecture. Key benefits of the latest webMethods suite include:
- Unified design tooling that spans processes, services, data, people and policies across databases, applications and mainframe solutions
- Improved performance and scalability of the platform
- New features that enhance usability and support of bidirectional user interfaces, including support of Hebrew and Arabic
- Adoption of common integration and interoperability standards for integration across webMethods and ETS products
CentraSite ActiveSOA
As companies look to save money and reduce the backlog of IT projects, they turn to service-oriented architecture (SOA). However, building an SOA “right” requires the right approach, including foresight, proper tooling and an assurance that the resulting solutions will actually work. To gain this confidence, CIOs often look to registry repositories to store, manage and govern their SOA assets.
CentraSite ActiveSOA was released in December and integrated with the CentraSite Enterprise and CentraSite Governance Editions. With a rich history stemming from a partnership between Software AG and Fujitsu, the CentraSite Enterprise Edition enabled complete development lifecycle management. Originating from Infravio (a webMethods acquisition), the CentraSite Governance Edition focused on policy management. The combined ActiveSOA product capitalizes on the highly rated flexibility and extensibility of the Enterprise Edition along with the award-winning policy-based management offered by the Governance Edition. Additionally, customers benefit from market-driven features, including federation, asset lifecycle and services provisioning. This has resulted in the creation of the industry’s most comprehensive and advanced solution for SOA governance and lifecycle management.
webMethods Insight
webMethods Insight is a new product from Software AG that helps SOA architects and business application owners easily manage their SOA by quickly identifying issues with service disruption and policy enforcement - before they interrupt business performance.
Research and innovation in 2009
In 2009, we plan to continue to empower IT by creating and defining an IT infrastructure that can enable business to have more self-service. We have a laser-like focus on enabling the CIO and IT team to advance technically while achieving the demanding goals of a rapidly changing business. Recent surveys of IT and business professionals have demonstrated that the number-one priority for IT is to communicate better with the business and deliver faster business solutions. Increasingly, IT needs to ensure that its vision can be implemented quickly, using the industry’s best practices as well as the innovation essential for competitive advantage. To that end, we will give customers a head start by combining the latest technologies from virtualization, social networks and platform-as-a-service offerings.
Highlights include:
Process Frameworks
webMethods Process Frameworks are examples of proven blueprints and solutions, including the processes, services, data formats, messages and key performance indicators required to ensure business success. Delivered in conjunction with professional services implementations, webMethods Process Frameworks help customers rapidly deliver solutions instead of starting projects from scratch. This helps customers focus on the competitive advantages required by the business instead of on technology issues. In addition, Software AG has partnerships with global systems integrators to build a library of process frameworks. These pre-built frameworks provide everything required to inspire IT with the amazing possibilities that await as they use their existing investment to build new composite business solutions.
Business self-service and virtual IT
We continue to focus on solutions that align business and IT, while also turning our attention to enabling IT to establish a governed infrastructure that allows business users to design, create and deliver their own solutions on top of this infrastructure. Two critical components of this strategy will be announced throughout 2009: (1) a new product called webMethods Align and (2) “Virtual IT” features throughout the webMethods Suite that provide easy-to-deploy, highly distributable, virtualized runtimes.
At most companies today, it is difficult to align all stakeholders to collaborate on strategic decisions about improving the business. webMethods Align promises to enable the collaboration around process design, bringing together people to work across the company, and even reaching out to business partners, to ensure that business processes are optimized and made more customer-oriented.
webMethods Align brings together business and IT for one purpose, to drive faster business improvement. To that end, webMethods Align will greatly shorten the turn-around time on analysis, definition and improvement of business processes by facilitating:
discovery of existing processes – knowledge of which may be unstructured and distributed throughout the organization
definition of process and service-oriented projects to ensure they meet the expectations of the business
process governance by establishing and enforcing standards, ownership structures, roles and ideal points for optimization.
Built as a collaborative Web-based discovery platform, webMethods Align enables business people of all skill levels to join together in the search for better ways to optimize business operations.
Virtual IT includes a series of features focused on providing runtime governance over existing services. These can include highly distributable runtimes supported by dynamic installation, central administration and deployment of software, solutions and configuration data, along with the ability to spin-up virtual machines on demand. By providing a unified approach that spans the lifecycle of software projects, these features enable IT to establish a set of best practices across an infrastructure. Over time, IT can watch these features grow dynamically as the business grows, while still assuring the right set of security, policies and governance.
Optimization and predictive monitoring
The business activity monitoring and reporting capabilities available with the webMethods Suite will be extended to Adabas and Natural installations, delivering powerful visibility opportunities to thousands of existing Software AG customers. These in-demand BAM features will provide effective monitoring and reporting capabilities for Adabas and Natural implementations while providing a process-oriented approach across all Adabas/Natural installations.
webMethods R&D locations/staff (December 2008)
| HQ Darmstadt | 59 |
| USA (San Jose, Seattle, Denver, Reston) | 127 |
| India (Bangalore, Chennai) | 169 |
| Bulgaria (Sofia) | 44 |
CentraSite Community goes from strength to strength
The CentraSite Community is an award-winning initiative developed in mid-2006 between Fujitsu and Software AG. The community helps bring customers and partners together to advance the implementation of SOA environments, with ready-made integrations between the different partner technologies. This community is based on CentraSite, and is marketed and developed by Fujitsu and Software AG cooperatively. Partner companies are headquartered in over 12 different countries around the world.
During 2008, the community saw further integrations developed in areas such as Enterprise Architecture (QualiWare) and Testing (GreenHat Software), with several more targeted for 2009. The successful collaborations between Software AG and eight other companies were highlighted in a special paper, “The CentraSite Community: Fast-tracking SOA Governance Using Best-of-Breed Solutions.”
The third Software AG SOA Governance Summit was held in Stockholm, Sweden in September 2008. Building on the success of previous years, it featured nearly 200 participants from 14 countries. One key moment at the summit was the global announcement of CentraSite ActiveSOA, the latest Software AG SOA Governance product. One major development given favorable feedback by industry analysts was the launch of SOALink, a new interoperability framework which gives specific details on how customers and partners can integrate CentraSite with other technologies. For those wishing to find out more about CentraSite, Software AG also launched the CentraSite Developer Community, which contains many useful articles, demos, product news updates and discussion forums.
6.2 Customers & sales
All employees of Software AG around the world base their work on the principle of total customer orientation. We win large, important orders because we are close to the customer and do everything to understand our customers and their needs. We want to continue to do this in the future, because satisfied customers are the basis for our continued profitable growth. At year end, our Sales and Marketing departments accounted for 703 employees – nearly 20 percent of all Software AG employees.
Expanded global market presence
We further expanded our global presence in fiscal 2008. This is one of the cornerstones of our corporate strategy. For that reason, we are increasing our presence in new markets with high growth potential: Asia, the Middle East, Eastern Europe and Latin America. Our business in Japan, which we have been building for about two years, is developing very positively. We want to expand here in the future, strengthening our webMethods business in particular. Our direct entry into the Brazilian market has thus far remained a singular success story. We established direct distribution there at the beginning of 2008 and within the first few months, we gained many well-known new customers and major orders (refer to the Summary of Business Trends). Thus, we were able to significantly exceed our own revenue forecasts in Brazil for the full year.
Realignment of sales divisions to further increase efficiency
In April 2008, two members of the Executive Board with different regional jurisdiction became responsible for the sales organizations of the two business lines. The aim was to increase sales efficiency and in particular accelerate the global revenue growth of the webMethods division, which previously was focused mainly on the United States. By keeping the sales areas separate under uniform management at the Executive Board level, the sales specialization for the different business divisions was preserved. At the same time, however, we were able to merge distribution into a standard, customer-oriented market strategy, with the primary aim of winning major projects from existing and new customers in the market for service-oriented architecture software (see Organization section). This closer collaboration can also be seen in the Research and Development department, leading to stronger cross-selling effects for both business lines.
Trade shows and forums as key marketing tools
Participating in and organizing trade fairs, forums and other events is a good opportunity for Software AG to meet existing and prospective customers and to present our new technologies to the general public. In addition, events such as CeBIT provide us with extensive coverage in the business and technology press. At CeBIT 2008, we spoke with more than 450 business customers and welcomed 70 government representatives and politicians from 50 countries, including the German Chancellor. Other important events for Software AG during the past fiscal year were the Business Innovation Forum in Darmstadt, Germany; Innovation World in Florida; and the SOA Governance Summit in Stockholm, Sweden.
A Software AG study provided insight into the field of SOA: The majority of the companies surveyed consider SOA governance to be a crucial component of a lasting SOA implementation. More than 90 percent of the companies surveyed have at least begun planning an SOA.
New customers won
The aforementioned activities enabled us to gain numerous prominent new customers as well as follow-up orders in the fiscal year under review. Furthermore, Software AG received the largest individual order in its corporate history in fiscal year 2008. The Global Support group also contributes to high customer satisfaction and even greater customer loyalty. It is available to Software AG customers throughout the world, seven days a week, 24 hours a day. The group troubleshoots any problems customers might have and solves them as quickly as possible while working closely with our development teams and customers.
6.3 Partners
Global and regional partnerships contributed significantly to the company’s success in 2008. Industry expertise and our partners’ service offerings combined with Software AG’s product portfolio ensure the business success of many customers’ SOA/BPM projects. In 2009, Software AG will further intensify its collaboration with partners, in particular in the area of common industry solutions, in order to support existing and potential customers in dealing quickly and efficiently with their industry-specific issues.
Joint development of new frameworks
One of Software AG’s most important international partners is Accenture. Our partnership with this successful international consulting firm led to three major deals within twelve months. For these solutions we worked together to develop a software platform (framework) for financial institutions that includes the entire webMethods suite and guarantees secure data exchange for banks. This framework can then be offered to any other bank in the world.
Further intensification of partnerships
One of Software AG’s highest priorities in 2009 is to intensify its relationship with key partners in the fields of banking, manufacturing and public administration. About half our revenue in recent years has come from these vertical markets. Moreover, we plan to work together to develop additional process frameworks that combine our partners’ expertise with Software AG technology for specific business applications. These market-oriented solutions, for such applications as improving insurance companies’ claims processing or operating call centers, can be marketed either by the partners themselves or the Software AG sales team.
6.4 Employees
Number of employees
The number of employees increased by one percent in the past year. As of December 31, 2008, Software AG employed 3,526 persons worldwide, compared to 3,479 employees as of the 2007 reporting date. Of that number, 772 persons were employed in Germany (2007: 760), and 691 in the U.S. (2007: 731). As in the previous year, 78 percent of our employees worked outside of Germany at year end.
HEADCOUNT BY FUNCTIONAL AREAS
Dec. 31, 2008 | Dec. 31, 2007 | Change in % | |
Sales & Marketing | 703 | 755 | -7 |
Maintenance & Service | 1.634 | 1.545 | +6 |
Research & Development | 651 | 676 | -4 |
Management & Administration | 538 | 503 | +7 |
| Total | 3.526 | 3.479 | +1 |
Focal points of Human Resources activities in 2008
A major focal point of our Human Resources activities in 2008 was the creation of a standard IT infrastructure for the Human Resources department. We are using a standard system to create uniform structures and policies in Germany, the U.S., Switzerland and Canada. In addition, the introduction of a homogeneous global incentive system guarantees that all employees are offered attractive benefits in line with the market for their respective countries. Along with the amount of the salary, these include such benefits as health insurance. A third related point is that globally standardized job descriptions and career paths should form the basis for a systematic Human Resources policy throughout the Group.
Training and continuing education are a priority for us
Another constant focus of our Human Resources activities is the continuing education and qualification of our employees. Our Corporate University, started in 2005, conveys the message that learning and training are of strategic importance to Software AG. The Corporate University’s qualification program is geared towards all employees around the world, and its core task is ensuring the qualifications of all target groups by customizing the training to Software AG’s vision, values and strategy.
Our continuing education offerings include training sessions in the field of social skills, special programs for global management development and foreign language courses. In addition, the fields of technology, sales and marketing continue to play a crucial role. The Corporate University also bears responsibility for the development of training materials for customer training sessions and certifications, thereby contributing to stronger customer relationships.
The Learning Management System – begun as a pilot project in October 2007 – was launched globally for all departments in 2008. It is an electronic learning platform that manages all Corporate University content, such as training documents for traditional continuing education offerings and seminars conducted by a trainer, and also documents for e-learning courses. In 2008, more than 7,000 e-learning courses were completed, proving the growing significance and high degree of enthusiasm for this type of offering. Furthermore, in the past year more than 2,000 employees attended 185 seminars, and 350 certifications for Software AG products were issued.
Human Resources development programs expanded
After the successful conclusion of the first international High Potentials Program in 2007, the program was begun again in the second half of 2008. The High Potentials Program is geared toward Software AG employees from all departments with a diverse professional background who display outstanding performance and should actively support the Company's growth in the coming years. We also offer various other development programs in the fields of leadership and project management.
An assessment center conducted a management audit of about 100 executives from the Global Leadership Team last year with the objective of assessing each manager’s potential and then creating an individual development plan. Consequently, a program for managers will be conducted in 2009 along with individual training measures focusing on such topics as innovation and change management.
In many countries, including the Unites States, we have introduced an electronic appraisal tool that we developed with the objective of assessing employees’ competence in a standardized fashion and then being able to access this data electronically. This is intended to contribute to greater transparency in the assessment of employee potential, as well as be another component in the harmonization and standardization of Human Resources work.
University Relations
The intense competition for new graduates in the IT industry makes close contact with universities increasingly important. Today's graduates are the IT managers of the future and will therefore be our customers of tomorrow. Particularly when there is a shortage of skilled labor, it is important to take suitable actions early to support young talent for our own needs and the needs of our customers. Thus, it is of great strategic importance for any software company’s future success to establish long-term and trusting relationships with colleges and universities.
Since early 2007, Software AG has had a globally oriented University Relations department. In 2008, the department was further expanded at an international level. The crux of the University Relations program is to put Software AG products into colleges and universities around the world free of charge for teaching and research purposes. In connection with this, we offer IT and business students an opportunity to get to know us through guest lectures, corporate visits and events. We offer internships and jobs for students, as well as providing support for master’s and bachelor’s theses. During their university education, interested students are given the opportunity to gain practical and reality-based experience in fully equipped and predefined projects. The students work on topics covered by our product range, such as SOA, BPM, mainframe technology and application modernization. So far, more than 90 software packages have been delivered to universities for student projects. In the meantime, we are in direct contact with more than 200 departments at more than 100 universities.
Idea management strengthened
During the past fiscal year, we continued our innovation program "Innogize" (innovation and energize), which began in 2007 and is part of the Corporate Culture department. Using Innogize as the basis, we want to establish a globally engaging culture of innovation at Software AG. The program was developed using our own software and contains standardized processes as well as an innovation campaign, which are valid across all regions, countries and departments. The goal is to collect, manage, implement and honor innovative ideas associated with any areas of our business. Employees from all departments and countries took advantage of the program last year. The suggestions that made their way into the “idea database” dealt with product improvements, ideas for workflow process optimization and solutions contributing to cost savings. In addition, some good ideas were implemented: For example, company videos were posted on the online video platform YouTube as a way to improve the Company’s communication with the public.
Corporate Culture – an important component of responsible Human Resources work
As a result of our first global employee survey in 2005, we developed corporate values that were officially introduced in January 2007. Innovation, trust, responsibility, open communication and a winning spirit form the cornerstones of the corporate culture that act as a foundation for the special working environment at Software AG. The Corporate Culture Workshops begun in 2007 continued last year as well. Work/life balance is an important topic that developed from these workshops dealing with responsibility to employees. Therefore, one of our pilot projects in Germany was to start a family-friendly program with a wide variety of offerings aimed at all phases of life – from laundry service to consultation on childcare and dependent care. An additional example is the new health program for employees in the United Kingdom, which established “fitness days” and offered discounted health-club memberships.
Employee survey
To investigate employee satisfaction at Software AG, the Human Resources department conducted a second global employee survey in October 2008, and we were able to draw clear conclusions on our leadership culture and employee satisfaction. We were particularly pleased by the high level of attachment employees reported to the Company and their appreciation for their jobs within the Company.
Software AG – an attractive employer
Software AG took part in university job fairs in Germany and Spain for the first time in 2008, with the objective of improving our name recognition and popularity with students. We hope to rank well in relevant surveys of university graduates this year as a result of these activities.
Some examples of Software AG’s attractiveness as an employer in 2008 include winning the Investors in People Award in the United Kingdom and Software AG Bulgaria’s Human Resources directors´s 2008 commendation as the country’s Top Human Resources Manager in 2008.
Outlook
We will continue the above-described Human Resources policy in the coming fiscal year. In light of the troubled market environment around the world, we are focusing all our efforts on guiding the Company through the crisis with lean structures. In so doing, Software AG’s declared Human Resources policy is to retain jobs. We will continue to concentrate on Human Resources development and qualification as well as on creating standardized conditions for Human Resources activities. In this context, we will install the appraisal tool described above worldwide. In addition, we will use the results of the employee survey to develop measures that contribute to better company management, thereby further increasing our employees’ motivation, loyalty and productivity.
6.5 Corporate social responsibility
As Europe’s fourth-largest software company and one of the biggest IT companies in the world, we have a special corporate social responsibility to technological innovation, our customers, our employees and society. To us, responsible action means being a successful company, which includes making our customers successful, researching and developing our own solutions, developing employees with the company, benefiting society and maintaining exemplary values and social standards in day-to-day business activity. It is especially important in this regard that our business model be based on sustainability.
Concrete examples of our responsibility toward our employees are our work/life balance and family-friendly company programs, as well as the Corporate University. An example of our outward responsibility is our commitment to education and innovation. Thus, as part of our University Relations program initiated in 2007, we provide colleges and universities with free software licenses, and we are cofounders of the regional Rhine-Main-Neckar corporate software cluster.
