The Broken Promises of Manufacturing Innovation

We received a lot of feedback, positive and negative, regarding our blog on market consolidation and manufacturing software.

It obviously struck a nerve, with strong feelings on both sides of the market consolidation and mergers issue.

The Truth about Market Consolidation

Market consolidation, with independent suppliers merging either through acquisition, partnerships or takeovers, is a business tool. Some mergers work – look at the success of the Disney and Pixar merger.

Others see a dark side to market consolidation, especially in the software and technology industry. Technology doesn’t blend easily – consider the failure of the AOL and Time Warner merger. Customer service, price point, and functionality are often sacrificed when two companies become one.

Manufacturing software mergers aren’t benefiting the industry. The results of these partnerships are often more toxic than “transformative.” Keep in mind the following as you consider a potential solution born out of a technology merger or partnership:

  • The high cost of an acquisition or merger. There is a cost to any merger – development costs for combining software systems, additional training and support expenses. Customers pay that cost with an increase in the product price or higher service charges. Suppliers spin the higher price as a “benefit” of access to additional functionality the customer didn’t want and will never use.
  • The death of innovation. Innovation fuels the manufacturing software and technology industry. Software suppliers should partner with customers to keep technology relevant. Companies that purchase new functionality, rather than innovating, put their customers at risk. Purchased capability will never be as successful or integrated as functionality built directly for the software. It’s a high-cost shortcut in product development.
  • The struggle for product support. The first victim in an acquisition or merger is product support. With the companies focused on integrating products and building a new revenue line, previous customers struggle to get the attention they need from the supplier. Even after the acquisition, there will be support questions as the new company determines how to support both older offerings and new products.

Fighting Back Against Market Consolidation

According to a recent article in the New York Times, those who bought into the promise of greater efficiency and customer benefit after business consolidation and mergers are now struggling with buyer’s remorse.

With consolidation, it is easier for companies to raise prices without risking the loss of customers and suppliers can collude on price without raising the ire of regulators. Entrepreneurs and start-up companies, the engine of innovation, find it increasingly difficult to enter a market dominated by a few businesses. When they do succeed in bringing a shot of innovation to a static product line, the company is gobbled up as an acquisition.

Business works best when there is competition. Companies should focus on developing their product to benefit customers rather than building out functionality through competitor acquisition.

If you want a manufacturing software solution fueled by innovation and internal development, rather than mergers and acquisition, look for an independent vendor with a product developed and supported in-house. They will work with you as a partner in ways larger corporations can’t. Massive software companies, stretched thin by an acquisition culture and focused on growing the revenue stream rather than a product, lack the dynamism and customer focus to work as a partner with manufacturers. They leave many of their customers burdened with high-costs, software complexity and innovation atrophy.

Want to know more, or see how a partnership culture in a manufacturing software supplier can solve problems and grow your business? Contact an Application Specialist at CIMx Software for more information.

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