According to Software AG CEO Karl-Heinz Streibich, the webMethods deal in some ways amounted to a reverse acquisition. During the due diligence leading up to closure of the deal, Software AG decided to adopt webMethods’ organizational structure, transitioning its business units from regional to product-based entities.
At webMethods Integration World this week, we sat down with Streibich for about a half hour to learn about his strategy for joining two almost equivalent-size organizations with radically different cultures.
On one side was an organization with a careful, deliberate, Germanic culture; on the other, a more typically fast-moving company of the North American mold. At the time of the deal, memories of the dissolution of DaimlerChrysler remained quite fresh.
“DaimlerChrysler failed because the human execution failed,” Streibich said, noting that when you conduct game-changing deals such as the webMethods buy, you cannot afford to sugar coat reality when communicating to staff.
Of course, we’ve heard similar lines about honesty and transparency from top executives before. But what made us take Streibich more seriously was that he seemed unusually candid for a senior executive, to the point of admitting a brief case of nerves when the opening slides to his conference keynote earlier in the day malfunctioned. From our experience, top executives typically don't admit vulnerability unless they are under subpoena.
Streibich maintained that conducting such a large-scale merger, and especially one with cultural barriers, made it absolutely critical for senior management to be “crystal clear” and “objective” when identifying best practices. In other words, don't simply default to what otherwise looks obvious.
“You have to suppress your instincts about cultural separation,” he said, admitting that doing so goes against human nature. In this case, it meant not only changing plans, but changing the organization of the larger entity to adapt to its sibling.
The original script was that Software AG would absorb the modest webMethods field presence in Europe, and vice versa. On closer inspection, Streibich discovered that such a reorg would disrupt sales relationships, especially given the highly contrasting product lines involved: legacy transaction systems vs. SOA and BPM.
He added that such reorgs should be conducted and driven by stakeholders rather than disinterested third parties, so those impacted would own the change rather than have it imposed on them. And when merging two similar sized entities, Streibich said that the management team should be “balanced” to maintain trust with the acquired organization.
The webMethods deals represented the second go round for Software AG, not only in conducting a major acquisition, but also in jumpstarting its North American business. Previously, it spun off Saga Software as its North American distributor in the early 1990s when it was in need of cash. Once divested, Saga began developing an adapter-based integration business, and both entities subsequently went public.
But by 2000 the relationship soured. According to Software AG, Saga began promoting its own offerings at Software AG’s expense. But as the entity faltered, Software AG bought back the operation early 2001 for $360 million. The Saga name has since been appropriated by a Russian IT outsourcing firm.
The Saga Software saga predated Streibich’s watch, which began in 2003 when he was recruited from Deutsche Telecom to turnaround the company, whose revenues were stagnating. Upon joining, Streibich discovered to little surprise that the entire company’s mindset was Adabas, th product on which the company was founded.
”We had integration products but it was not politically correct at the time to say that,” he said. Ironically, prior to his watch, the company divested the Saga adapters to BEA and Iona.
By now the rationale for the webMethods deal is well-known: Having stabilized its legacy business, Software AG needed to catalyze the integration middleware business. Having transitioned from its own EAI and B2B legacy, webMethods was beginning to ramp up its BPM offerings, but the company’s staying power was in doubt given its modest size, lack of cash cushion, and the challenge of navigating a consolidating market.
The early numbers have vindicated the acquisition. webMethods, whose BPM business was stalled before takeoff prior to the acquisition, more than doubled over the previous year during the first full quarter under webMethods. Software AG has retained the webMethods name as the brand for its SOA product line.
One of the justifications for the acquisition is the potential to cross-sell webMethods to the 2500-strong Software AG customer base. In its presentations, Software AG lays out the proposition that large customers with legacy systems are not about to ditch them. Instead, they require integration tools to compose processes and applications from logic that is already there. And according to Streibich, incentives, cross-training, and go-to-market programs are in place to start generating those cross-sales.
But let’s not forget one thing: Software AG also faces the challenge of cross-selling new webMethods SOA offerings to webMethods’ own 1500-strong base. That’s because webMethods is not just some recent SOA startup, but a 10-year old company that faced a legacy of its own. Among random conversations that we had with customers at the conference, most are still working from the original EAI and B2B servers and are just beginning to wonder about where SOA could fit in.
Given that webMethods business unit head David Mitchell himself admitted that the BPM product only matured within the past year or so, it’s not surprising that Software AG also faces a relatively untapped SOA market on the webMethods side as well.
Today, webMethods’ management team remains in place, and CEO David Mitchell, who was retained to run the business, was subsequently invited to join the board. According to Streibich, that also wasn't part of the original plan.
