Comshare Inc.

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Comshare Inc.

555 Briarwood Circle
Ann Arbor, Michigan 48108
U.S.A.
(800) 922-7979
Fax: (734) 769-6943
Web site: http://www.comshare.com

Public Company
Incorporated: 1966 as Corn-Share Inc.
Employees: 600
Sales: $92.83 million (1997)
Stock Exchanges: NASDAQ
SICs: 7372 Prepackaged Software

Comshare Inc. is a developer and marketer of client/server and Web-based software designed specifically for analytic applications for business. Comshare’s market-leading software includes applications that can perform budgeting, financial analysis and reporting, performance measurement, and retail strategic merchandise management tasks. The second-largest computer company in Michigan, Comshare began in 1966 as a spin-off of a University of Michigan project that provided computer timesharing to engineers. Through time the company’s products have mirrored the evolution of the computer industry, moving from timesharing to mainframe applications, PCs, local area networks and Web-based software.

Company Origins in 1966

Comshare, originally spelled Corn-Share, was founded in 1966 by six employees of the University of Michigan computer center. The young entrepreneurs had combined experience in engineering, computer science, management, and finance and together hoped to establish the first computer utility in the Midwest. With microcomputers only a distant dream, technological visionaries of the 1960s foresaw a world driven by giant mainframe computers in central locations which users would tap into through remote keyboards, as well as a telecommunications network which people could use to run their homes and businesses. The founders of Comshare shared this vision and were determined to be at the heart of this new computerized world. With original funding from the Weyerhauser lumber family, Comshare developed a proprietary system to facilitate timesharing functions and manage the huge amount of data that was handled by the company’s mainframes.

Comshare went public in 1968 when optimism about the future of computer technology saw the company’s stock price doubling in only two weeks to $50 a share. Despite the company’s conviction that timesharing on mainframes would become a staple of life in the last quarter of the century, Comshare’s early customer base consisted mostly of computer literate engineers who needed the data management and analytic computation functions of the company’s computers. After only four years in business, however, this customer base collapsed as the recession of the early 1970s hit particularly hard in the technological industries that employed Comshare’s clients. With engineers flipping burgers instead of equations, Comshare’s losses began to match their total revenues and share price plummeted to the $2 range. The company had to find a new market for their computer services.

Into the Business Market in the 1970s

Although mainframe computers had been purchased and used by large companies since the 1960s, it was in the 1970s that smaller companies began to look for computer solutions to their data management problems. Comshare realized that the company’s mainframe database technology could be applied to decision-making for business analysts and managers and that timesharing could provide an inexpensive solution for smaller companies. In the early 1970s Comshare began to target their product to business executives who needed graphic and statistical analysis of complex data. The company’s Commander II timesharing software system was developed during this period with the business market in mind. The company also expanded its computer capacity with the use of newer, more powerful computers and company engineered telecommunications systems hardware.

By the mid-1970s the company had returned to profitability, earning about $1 million on sales of $13 million in 1976. By the end of the 1970s sales had climbed to $78 million although net income failed to keep pace, hovering at about $4 million for most of the last half of the decade. With its new success in marketing timesharing to the business world, Comshare began to reach out to an international business market. A system of agents, joint ventures, and licensing created offices or affiliated companies in Canada, Europe, and Japan. The company also made its first acquisition during this period with the 1979 purchase of the Chicago-based Computer Research Company, one of the leading suppliers of large scale computer services.

Transition to Software in the 1980s

Despite the relative success of Comshare’s timesharing business, by 1980 it became clear to company executives that with the drastic lowering in hardware prices for mainframes and the advent of affordable personal computers, timesharing was destined to become obsolete. The company, under the direction of CEO Richard Crandall, made the decision to convert the expertise they had developed with timesharing software into the creation of data analysis software for mainframes and PCs. “We needed to make sure that we were there when the software market coalesced,” Wallace Wrathall, Comshare’s chief financial officer through the 1980s, said in a 1995 interview with Management Accounting. “We put together a five-year plan basically and said, ’We’re going to make a transition. It’s going to take us five years to do that’,” he noted.

The transition was a difficult one. In the early 1980s Comshare derived 98 percent of its revenues from timesharing and only two percent from packaged software. To turn that ratio around would require a complete revamping of the company’s operations, including a significant downsizing of its employee base. In 1980 the company employed 1,400 workers, a figure that would drop to 780 some six years later. Comshare’s first step in the reorganization process was to look to expand the company’s range of services to a variety of potential markets. To that end the company was divided into five specialty groups each targeted to a specific market and each with the mission of designing, developing, marketing, and supporting specific services for that market. The groups included: Profiles—for human resource management; Parsec—for corporate money management; 4.1.1.—for telephone companies; Compass—for certified public accountants; and Trust Services—for banks.

The costs of Comshare’s restructuring began to be reflected on the balance sheet in the mid-1980s as revenues couldn’t keep up with the expenses involved in new product development. By 1985, sales had dropped to $62 million, the company recorded a net loss of almost $5 million and share price plummeted from $20 to $3. “We had to take the long-term view and let earnings suffer short-term. We were betting the company,” Wrathall told Corporate Detroit Magazine.

Comshare’s emergence from this transitional period was achieved primarily by the development of the company’s decision support system software, System W, and its promotion through an alliance with IBM. System W offered multidimensional modelling, consolidation, data manipulation, forecasting, what-if analysis, ad hoc inquiry, and reporting. It became the primary engine behind the company’s Commander EIS (Executive Information System). Commander EIS, was designed to help executives extract information from the abundant data that most companies stored in their computer systems. The System W/Commander EIS software provided a collection of applications that sought to mimic the daily information activities of the executive. By the late 1980s five modules had been developed: Briefing Book, a collection of reports from sources throughout the organization; News wire, a news tracking program tied to the Dow Jones News/Retrieval service; Execu-View, a nontechnical way of windowing through corporate information; Redi-Mail, a front-end to IBM’s electronic mail system; and Reminder, an electronic tickler file.

The System W/Commander EIS system, which used the IBM operating system for mainframe computers, became the center of a marketing agreement whereby IBM would recommend Comshare’s System W and Micro W decision support system software for use in IBM information centers and would include Comshare’s EIS product in the computing package that IBM offered to business customers. Of all of the services that Comshare sought to develop in the early 1980s, System W and its Commander EIS applications were the only products to achieve a major success, and Comshare was quick to make this system the center of their software development plans. By the end of the decade the company had become the leader in the estimated $89 million Executive Information Systems market. Sales which had declined in the mid-1980s, began to rise once again, and by 1990 the company had record net income of almost $7 million on sales of $103 million. It appeared that Comshare had successfully made the transition from timesharing, which now made up only a small percentage of sales and would be discontinued entirely in 1992, to software development.

Company Perspectives:

Comshare’s approach goes well beyond just providing world-class application software. We are a full-service vendor and have developed a comprehensive service infrastructure to help customers maximize their information technology investment. Customer Helpline Services, implementation services, and training programs are provided through Comshare’s worldwide network of offices and appointed agents. Two hundred consultants each with product and industry expertise, work closely with customers to ensure smooth implementation and optimal business results. These are all elements of what we refer to as our “whole product” approach—our commitment to deliver value to our customers.

Up and Down in the 1990s

Although Comshare entered the 1990s with analysts predicting further growth for the Michigan company, by 1991 net income had dropped to $4.4 million and then plummeted to a net loss of $11 million the following year. Share price, which had climbed back to $20 since its nadir in the mid-1980s, collapsed by 75 percent almost overnight. Ironically, it was Comshare’s close relationship with IBM, an alliance that had brought rich rewards in the 1980s, that was partly responsible for the company’s problems in the 1990s. The battle between IBM and Microsoft for control of the world’s computer operating systems which had begun in the late 1980s, was decided in Microsoft’s favour in the early 1990s as Microsoft Windows became the operating system of choice for most PC users. “Comshare bet on IBM at that time,” Wallace Wrathall, who was appointed CEO of the company in 1994, told Management Accounting. He continued, “In hindsight we wish we hadn’t, but we were one of the many that bet on IBM…. Windows became the force for the GUI [graphical user interface], and we didn’t have it.”

To make matters worse for the struggling company, the demise of mainframe-based computing in favor of Local Area Networks (LAN) and client-server technology, which had been predicted by analysts for years but had failed to materialize, suddenly hit in the early 1990s, catching Comshare without a viable LAN product. “You never thought it wasn’t going to happen. You thought it was going to be a slow transition,” Wrathall said of the networking explosion of 1991 in an interview in Corporate Detroit Magazine, adding “the market changed so fast, we were behind. We were doing marketing. Focus groups told us we were doing the right thing. Six months later we weren’t.”

Comshare scrambled to revamp their software to accommodate client-server and LAN technology, but the transition was not an easy one. Applications needed to be completely redesigned for distributed operation, and the company’s in-house development team had difficulty responding to the new market demands quickly. Sales continued to fall, dropping to $96 million in fiscal 1994. Wallace Wrathall, who had been the company’s chief financial officer since the 1970s, was named CEO in 1994. Wrathall immediately undertook a reorganization program that would see the number of employees cut from 862 in 1993 to 640 by the end of the year. Even more significantly, for the first time Comshare began looking to outside sources for their software development needs. In early 1994, Comshare signed an agreement whereby California-based Arbor Software’s Esspace on-line analytical processor would become the engine behind Comshare’s new software vehicle, Commander EIS 4.0. Wrathall felt that this outsourcing would enable Comshare to respond more quickly to the dynamic computer software market.

Commander EIS 4.0, was a Microsoft Windows compatible application designed to work on desktop and client/server platforms. In addition to improvements in the services previously provided by the company’s EIS products, the new software offered a robot-like function called Detect and Alert which, based on a set of rules provided by the client, could circle a company’s databases and automatically report inconsistencies or problems in the form of a daily electronic newspaper.

By 1995 Comshare’s sales had climbed back up to $108 million and it appeared that Wrathall’s reorganization was a success. By mid-1996, the company’s stock price was at an all-time high of $32 and sales had neared $120 million. But Comshare’s roller-coaster performance wasn’t over. In July 1996 a routine audit of the company’s U.K. sales office revealed what management would call a “revenue-recognition problem.” It appeared that the U.K. sales force, without the knowledge of the home office, were signing licensing agreements for software so they could get the sales on the books in one quarter and then allowing the client to return the product in the following quarter. Following the news of the scandal, stock price was cut in half overnight, and some stockholders initiated a classaction lawsuit claiming that the company should have known about the problem. Wrathall moved quickly to fire the U.K. management team, but stockholder confidence remained shaky.

To make matters worse, Arbor Software, the provider of the primary engine behind Comshare’s EIS system, sued the company, alleging underpayment of software royalties. Comshare countersued, but while the case was in mediation clients could obtain the software from either company, creating a chaotic market. In fiscal 1996 Comshare recorded a net loss of almost $10 million, to be followed by a devastating loss of $17 million the following year.

Under pressure from the board Wallace Wrathall announced his retirement in August 1997 and the vice-president of product development, Dennis Ganster, was appointed to replace him. Ganster moved to restore shareholder confidence by solving cash-flow problems and improving sales force productivity. Comshare’s EIS analytic applications including Comshare BudgetPLUS, Comshare FDC, and Comshare Decision were joined by Arthur Enterprise Suite, a merchandise planning, allocation, and analysis application for the retail industry. As the company reached the end of the 1990s, the computer industry was once again undergoing a major shift in direction with the explosion of the internet. This time Comshare appeared prepared for the transition with the development of Web-enabled decision support software. Given the extremely dynamic nature of the computer industry, it remained to be seen whether Comshare could retain its leading position in the analytic applications market.