Cincom Systems Inc.

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Cincom Systems Inc.

2300 Montana Avenue
Cincinnati, Ohio 45211
U.S.A.
(513) 662-2300
Fax: (513) 481-8332

Private Company
Incorporated: 1968 as United Computer Systems, Inc.
Employees: 1,000
Sales: $152 million (1995 est.)
SICs: 7372 Prepackaged Software

Cincom Systems, Inc. ranks among the world’s largest privately held commercial software companies. Although it wasn’t the world’s first independent producer of software, it has outlasted all its predecessors to become the oldest company of its kind. A long history of industry firsts fueled two decades of dynamic growth. From its foundation in database management systems and consulting, the firm has expanded to offer a full line of multi-platform business applications. After concentrating for most of its history on creating software for large corporate mainframe systems, Cincom sought ways to profitably target the fastgrowing small business market as sales stagnated in the early 1990s. By the mid-1990s, Cincom had 60 offices in 20 countries worldwide and offered a roster of software products including: database managers, CASE tools, business control applications, network and systems management, office automation products, and information resource management applications.

The company was founded in 1968 as United Computer Systems by three expatriates from International Business Machines (IBM). Tom Nies, Tom Richley, and Claude Bogardus had all enjoyed successful careers at IBM; Nies as one of the company’s most successful salesmen, and Richley and Bogardus as system engineers. But by the late 1960s, all three began to perceive a need for client-oriented software to complement IBM’s hardware. At this time, IBM’s computers were sold with only the most basic operating system; it was left to customers to program specific functions. Unable to convince others at IBM of the efficacy of designing and selling more useful software, Nies, Richley, and Bogardus struck out on their own.

During its first decade in business, the trio established a foundation of innovative products, inventive marketing schemes, and a unique corporate culture. With a meager $600 and a card table in Nies’ basement as its first office, United Computer Systems devised its first software application, the TOTAL database management system. When a potential client commented that TOTAL’S unimpressive package—a series of punch cards in a cardboard box—didn’t appear to justify its $20,000 price tag, Nies and company transferred it to a more impressive spool of tape. TOTAL helped such early clients as Hillenbrand Industries, American Tool, Champion Paper, and U.S. Shoe perform basic business tasks more efficiently and accurately.

Prodded in part by a lawsuit alleging trademark infringement (which was eventually thwarted), United Computer Systems changed its name to Cincom, a contraction of Cincinnati and computer. In spite of getting burned on a fixed-price contract, Cincom made a $1000 profit on $155,000 in revenues during its first year. It was a feat not many startup businesses achieve and was especially impressive in light of the young company’s powerful competitors.

Upstart Cincom and its rivals in the fledgling software industry got a break in 1969 when IBM “unbundled” its software, technical support, installation, maintenance, and training services from the costs of its computer hardware. This let clients in on the actual cost of IBM’s software, thereby giving Cincom and its competitors a price with which to compare their software and support services. Even so, marketing software separately remained a difficult proposition. In order to ease the high initial costs of software, Nies offered rental agreements, thereby reducing up-front expenses and simultaneously providing the young company with a reliable cash flow.

Nies introduced several other marketing techniques to the young software industry as well. Instead of fighting for America’s largest metropolitan markets, the company established sales offices in secondary markets with a view toward “owning” them, rather than “sharing” the major markets. Quarterly user group meetings garnered feedback from, and provided support to, Cincom’s clientele and would later become a software industry standard.

Cincom established its emphasis on research and development early on, adapting its software to multiple hardware platforms, including RCA, Honeywell, Univac Siemens, NCR, and more. The company also made all its products compatible with each other, thereby developing an entire proprietary business system. Thus, flexibility and intercompatibility became Cincom hallmarks.

In 1971, the company bought EN VIRÓN/1, a teleprocessing communication system, adding data communications capability to its database software. ENVIRON/1 had been created by Kent Salmond, another ex-IBM employee frustrated by Big Blue’s lack of software initiative. He had quit IBM in 1966 and connected with a California company called ISS. Although it was essentially a manufacturer of hardware, ISS supported Salmond’s concept of an on-line database and gave him the funds necessary to begin its development. But when ISS was acquired by Itel Corporation, the new parent sold ENVIRON/1 and its nine-member staff to Cincom for $100,000. After its completion under Cincom ownership, ENVIRON/1 became the first on-line operating system to be released independently of a hardware package. Although computer users were initially reluctant to use an operating system other than the one that came with the computer, the unique capabilities of its integrated ENVIRON/1 and TOTAL soon attracted a loyal following. Cincom became the first software company to merge database management, report writing, and data extraction with the 1972 addition of SOCRATES, an information retrieval and reportwriting system, to the its application lineup in 1972.

Cincom achieved another industry first in 1971, when it became America’s premier software company to export. The three-year-old company opened offices in Canada, Great Britain, and Brazil the following year, added a branch in Brussels in 1973, and established an International Licensee Department in 1974. Before the decade was out, the company had added subsidiaries in France, Australia, Japan, and New Zealand. Cincom’s efforts in this arena earned it the software industry’s first Presidential “E” award for exporting excellence.

After four years of working in Nies’ basement, the founding trio rented office space and began to hire employees in 1972. As president, Nies strove to cultivate a “family atmosphere” at the growing company by emphasizing such values as entrepreneurial spirit, ethical integrity, creativity, and responsibility, among a long list of other standards. Nies expected employees, known as Cincomers, to embrace a demanding work ethic exemplified by a company fight song: “Work all day, fly all night, Cincom, Cincom fight, fight, fight!” He nurtured his employees’ hard work and dedication with group social events such as the annual Cincom Prom and overseas trips; when the roster of employees grew too large for such gatherings, gifts of jewelry and dinners commemorated significant employee anniversaries and accomplishments. In 1974, the company established the Quixote Club, an honorary clique of the company’s top performers, whether administrators, marketers, salesmen, engineers, or support staff. Quixote represented the visionary “tilting at windmills” of Cincom’s formative years.

Cincom’s annual revenues had increased to $7 million by 1974 and to $28 million by 1979. Operating profits grew from about $500,000 to $10 million during that same period, in spite of (some would argue because of) Cincom’s industry-leading investments in research and development. By 1980, over twothirds of Fortune 100 companies and half of Fortune 500 companies used Cincom’s database/data communication software.

During the 1980s, Cincom encountered intense competition from rivals old and new, invested heavily in research and development, made alliances where necessary and profitable, and survived a software industry shake-out. Cincom opened its second decade in business with the 1979 launch of the MANTIS interactive application development system. MANTIS marked Cincom’s transition from batch data processing to the practically instantaneous, on-line applications that would become the norm. MANTIS also incorporated basic functions (subroutines), thereby allowing people with less programming experience to create or customize their own software applications. MANTIS also represented Cincom’s first push for interoperability, meaning that it could be run on personal computers (PCs) as well as mainframe systems.

In 1984, Tom Nies tapped Dennis Yablonski to succeed him as Cincom’s president and chief operation officer, while Nies retained the chairmanship and chief executive office. Yablonski had started at Cincom as a programmer in 1975 and advanced through the organization’s sales division. He progressed to head of U.S. sales by 1979, added international sales duties the following year, and oversaw company-wide marketing, sales, and service by 1982.

Unfortunately for Yablonski, his rise to Cincom’s highest executive ranks coincided with one of the company’s most difficult periods. The trouble began with the 1984 acquisition of Net/Master from Software Development Pty., Ltd. on a “long-term perpetual type license.” This network management system was the first application of its kind to hit the market. Cincom and Software Development had jointly effected the development of Net/Master for the IBM platform, but the partners’ interests began to diverge when it came to creating versions for other platforms. At that point, Cincom began to pursue the alternatives on its own. Within a couple of years, Net/Master was accounting for nearly 20 percent of Cincom’s annual revenues, but still hadn’t started generating a profit. That’s when Software Development decided to terminate its “perpetual” contract with Cincom, a move Cincom fought in court for 18 months.

In order to extricate itself from the dispute with Software Development without incurring further losses, Cincom orchestrated a third-party buyout of both its adversary and its license for Net/Master. In November 1989, Cincom sold its right to market the application to Systems Center for $43.5 million. At the same time, Systems Center bought Software Development for about $42 million. Cincom continued to market Net/Master into the early 1990s, but although it was critically acknowledged to be a superior product to the segment-leading program from IBM, Net/Master’s sales never took off.

Cincom used the proceeds of the divestment to retire debt, which had ballooned during this crisis. Although Cincom’s revenues had multiplied from less than $30 million in 1979 to $84.8 million in 1984 and $161 million in 1988, high research and development outlays and burgeoning operating expenses combined with the legal costs to result in back-to-back annual losses in 1985 and 1986 that negated all Cincom’s previous 16 years’ profits. The company’s admittedly slow reaction to this deepening fiscal quagmire forced it to borrow in order to stay afloat, and rising interest rates in the last half of the decade further exacerbated its difficulties.

Throughout this demanding period, Cincom also found itself increasingly beset by competitors large and small. Having awakened from its dreamy disregard for the software market, IBM’s launch of DB2 captured sales from Cincom’s own applications. Digital Equipment Corporation (DEC), Cullinet Software Corporation, Ameritech’s Applied Data Research, and Software AG also turned up the competitive heat during this period.

Yablonski resigned Cincom’s presidency in the midst of these difficulties in 1987, and Nies resumed day-to-day leadership. In an effort to rejuvenate the entrepreneurial spirit of Cincom’s early years, Nies directed the company’s 1989 reorganization into product-oriented, rather than industry-oriented, divisions. The painful aspects of Cincom’s concurrent downsizing effort were shared among all its employees, who each accepted a month of unpaid leave and deferred five percent to 15 percent of his or her annual salary. In stark contrast to the wholesale layoffs that characterized many companies’ reorganizations during this period, Cincom reduced its staffing levels through attrition.

The 1989 reorganization signaled the advent of Cincom’s third decade and the beginning of its transition to products for smaller customers. The company especially targeted the aerospace, health care, education, and science markets. Rosemary Hamilton of Computerworld characterized Cincom as a “consistent force in the software industry” that sought to become a “key player” in the 1990s. A new advertising tagline, “What we used to call competition, we’re now calling prey,” exemplified the company’s aggressive new stance. It featured a bald eagle with wings spread and talons grasping for an unseen (but presumed) victim.

Cincom’s ongoing investments in research and development, double the average software industry rate during the 1980s, resulted in spending of more than $100 million from 1979 to 1987. This massive investment culminated in the 1988 introduction of Cincom’s most extensive roster of new products and strategic affiliations to date. New applications included the MANAGE series of office automation applications; the Comprehensive Planning and Control System (CPCS); computer aided software engineering (CASE) tools; and the SUPRA family of relational databases.

Although fiscal, legal, and competitive matters undoubtedly dominated the roster of concerns during the 1980s, Cincom did not allow those issues to halt its geographic expansion. By the early 1990s, the company had established agencies in India, the Middle East, Latin America, and on the continent of Africa. By 1991, international sales contributed over 60 percent of Cincom’s annual revenues. The company’s early and strong emphasis on overseas markets proved to be one of the elements that sustained it through the 1980s shake-out in the American software industry. In fact, whereas many of Cincom’s competitors experienced declining revenues during this period—and at least one slipped into bankruptcy—Cincom’s annual sales continued to increase on the strength of international growth throughout the decade.

Cincom has flirted with going public since the mid-1980s. In 1987, in fact, Nies had announced that the company would float a $30 million to $50 million offering, but was thwarted by the October 1987 stock market crash. The leader reiterated plans to go public at some point during the 1990s, but the plan was contingent on several factors. The most important prerequisite was that Cincom employees retain a controlling interest in the firm. Nies had been providing for this eventuality by offering stock options as part of the company’s incentive program beginning in 1981. In the mid-1990s, however, lackluster fiscal performance appeared to be the primary obstacle to Cincom’s longheralded initial public offering.

The explosive revenue growth Cincom experienced in its first two decades flattened in the early 1990s, ranging from $170 million in 1992 to $ 152 million in 1995. Herb Gepner, an industry observer with Datapro Information Services Group, noted that Cincom’s heritage became a two-edged sword in the early 1990s. On one hand, Gepner told Mike Ricciuti of Datamation in 1992, Cincom’s “mainframe heritage” contributed to its “technological lead.” But at the same time, Cincom’s “reputation as a bigiron vendor” branded it as an “old-line mainframe software vendor.” Stalling sales growth seemed to indicate that Cincom’s standing with customers as well as analysts was stuck in the mainframe market. However, more aggressive marketing and more timely software introductions, combined with the company’s acknowledged technological foresight, could well spur the company to greater growth in the mid- and late-1990s.