Annual Report 2007
Strategy
The strategy of Software AG is sustained business development and we implement it systematically. Our goal of profitable growth is based on four pillars:
- Organic growth through innovation
- Geographic Expansion
- Growth through acquisitions
- Addressing new customer groups through partnerships
Our focus for 2008 will be organic growth in both business divisions, including the expansion of our market presence in Brazil.
Our vision is to continue to expand our market position as a leading, independent provider of infrastructure software in order to become the global market leader in the markets of the future SOA and BPM.
Organic growth through innovation
Software AG would like to achieve organic growth of approximately 10 percent annually in both business divisions, ETS and webMethods, through innovation, a consistent customer focus and efficient processes.
The ETS business division, with its strong sales, is our Company's mainstay. By continuously developing our products in the ETS business division, we increase the efficiency of our customers' application systems and extend the lifecycle of those systems. For customers, this means protection of their investments and accordingly an improved return on investment. By expanding our ETS business, we retain a significant part of our existing customer base.
Software AG has built up a second key area of activity in the webMethods business division, a globally leading product portfolio in integration software. The existing technological leadership in high-performance database systems will be expanded into the growth markets of SOA (including SOA Governance), Business Process Management (BPM) and Business Activity Monitoring (BAM). Independent industry analysts confirm the leading position of Software AG. The emphasis will be on the ability to develop technologies such as SOA Governance in-house.
The innovative power and accordingly the technological leadership of Software AG form the basis for our organic growth.
The purchases of 80 percent of SPL, webMethods, Inc. and a segment of the software business of Jacada (as of January 1, 2008) and their integration were the results of our M&A activities. The strategic reasons for the purchase of webMethods, Inc. included the additional product portfolio, approximately 1,000 new customers, a stronger market presence in the U.S., webMethods experience in additional industries, partnerships with system integrators and an established brand in the integration business. To preserve the value of the brand name, webMethods will be continued as a portfolio brand. By acquiring webMethods, Inc., Software AG has established a second key area of activity with strong sales much faster than would have been possible through organic growth of the former business division Crossvision.
The two business divisions of Software AG, ETS and webMethods, are now the essential key areas of activity. For that reason, a strategic decision was made in 2007 to reorganize the company from having a regional structure to a business division structure. Each business division was assigned one member of the Executive Board to be responsible for product development member of the Executive Board to be responsible for product development and one for sales. After being organized regionally in the past, sales activities were distributed to both business divisions.
The evolution of the Software industry
Software AG regards IT solutions based on SOA and BPM as a market of the future.
The prerequisites for innovation in the company are a creative working environment as well as continuing education and scientific cooperation. This is implemented in the form of an in-house Corporate University and an international university relations program. Research and development is based in five major locations in a global research and development network. The largest research and development teams are in Germany and the U.S.
In addition to innovation, efficient processes promote organic growth. They include optimization of the sales organization, in particular increasing the contract size, as well as efficient global processes in purchasing, IT, controlling and marketing.
Growth through geographic expansion
We will also achieve organic growth in the business divisions through geographic expansion. In recent years, we have expanded our business particularly in Israel, Venezuela, South Africa, Japan and Chile. We replaced our indirect sales through partners by a direct market presence, the goal of which is to increase our revenues in those markets by more strongly focusing on our product portfolio. We quadrupled our sales in South Africa and Japan, for example, after implementing a direct market presence. In markets such as South Africa, Japan or Brazil, Software AG primarily has ETS customers to whom we are also offering the new webMethods product portfolio.
Growth through acquisitions
Another strategy of Software AG is to achieve additional growth through acquisitions. Large companies acquire smaller ones that are below a critical size, thus consolidating the market. More than 900 company acquisitions took place in the area of infrastructure software in the last three years alone (Source: 451 Group/M&A Knowledge Base).
Software AG is positioned on the side of the consolidators. In 2007, we acquired three companies: the software firm SPL in Israel, the software firm webMethods, Inc. in the U.S. and segments of the software firm Jacada in Israel as of January 1, 2008. Software AG has developed a clear acquisitions policy under which the target companies should either strengthen the product portfolio (purchase of products) or increase the market presence in certain markets (purchase of customers).
New customer groups through partnerships
Another strategic orientation of Software AG concerns the partner network consisting of technology and sales partners as well as System Integrators. The development of partner networks enables Software AG to offer a comprehensive product portfolio while developing complex software solutions without increasing its own vertical integration. An example of this is the CentraSite community, a development community of more than 50 partners, who together offer a comprehensive SOA governance product portfolio. The third category of partners, the system integrators, enables Software AG to develop new customer groups in vertical industries without having to build the relevant industry know-how itself. This enables Software AG to stay lean and efficient and concentrate on its core competence of infrastructure software development while simultaneously addressing new customer groups. In 2007, the total number of partners was doubled to 120.
Continuing the success story
We already have an outstanding position in the market. In 2007, Software AG advanced to fifth place among the largest software companies in Europe. In addition, since last year we have been one of the top 25 in the software industry worldwide. The successful implementation of our corporate strategy continues Software AG's success story and will lead to an important interim result: In 2010, Software AG would like to cross the sales threshold of one billion euros and we are confident that we will succeed.
An integrated Approach to Process Innovation
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Global businesses today are forced to compete on process - as a result they require flexible, process-centric IT solutions. Unfortunately, out-of-the-box Enterprise Applications do not offer the core flexibility needed to support these kind of process-centric solutions. The question for most global organizations is, how can they adapt, transform and modernize their existing Enterprise Applications into a new generation of scalable process-centric solutions without pursuing a risky rip-and-replace strategy?
2
To achieve process-centric solutions, it is important to understand and measure what's happening within any existing processes first. Understanding your current challenges together with modelling new processes in an intuitive and easy to understand way, is the best approach for future success. It is also very important that any new processes are built within a service-oriented IT approach in order to facilitate improved process re-use, flexibility and adoption.
3
Service-Oriented Architecture (SOA) allows IT to transform existing enterprise applications into modular services, which then are used to power the individual process steps. IT's existing application infrastructure is expensive to change and maintain. By leverage this existing investment through a non-invasive service oriented approach, you gain access to critical business information without the long term cost of customization.
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This allows the IT and business user to model, create and adapt various new processes and deliver the kinds of process centric solutions continuously improve the way the business operates. With the right measurements its possible to gain efficiencies, reduce costs, and create an environment that caters to the customers needs, rather than IT's limits.
With a process-centric approach based on a service oriented foundation, we deliver on the ultimate goal: business results faster.
