Tuesday, 16 June 2009

Efficiency winning out over innovation

(By Philip Carnelley – Tuesday 16th June 2009 9:00 am). Two contrasting themes from small UK software companies today.

"Product innovation support" software firm, Sopheon, will today tell its shareholders that it is finding it more difficult to close orders due to market uncertainty. Management says its pipeline remains strong, and it has a sizeable recurring revenue stream. The company, which last year reported revenues up 47% to £9.3m, has a global blue chip customer list (BASF, GM, Cadbury, Electrolux…) but this means small numbers of relatively large deals, which makes the pipeline lumpy.

In contrast, operations management software player, eg solutions, which also has its AGM today, will tell its shareholders that its pipeline is as strong as it has ever been, “with some 72% of anticipated revenues for the year to 31 January 2010 already contracted”. This is a swing in confidence from last year, when revenues fell 10% to £3.7m.

The difference in outlook is easy to understand: eg solutions offers products to improve operational efficiency to the finance sector (companies like Nationwide, Aviva and Liberty Life). Its strap-line is “spend-to-save” and it even says it guarantees improvements in operational results in short timescales.

One company is selling to the manufacturing sector and the other to finance. But the moral of the story transcends sectors. In these make-do-and-mend, batten-down-the-hatches times, the “efficiency” sales pitch is much easier to swallow. Companies take more persuading that product innovation is top of their agenda, whereas they are all crying out for operational improvement. There is a counter-argument that product innovation is exactly what they need right now to win through the recession – and beyond. Sopheon will be hoping that the counter-argument prevails – we don’t think it will, at least not for now.

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