System Software Associates, Inc.

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System Software Associates, Inc.

500 West Madison
Chicago, Illinois 60661
U.S.A.
(312) 641-2900
Fax: (312) 641-3737

Public Company
Incorporated: 1981
Employees: 1,700
Sales: $263.4 million
Stock Exchanges: NASDAQ
SICs: 7372 Prepackaged Software; 7379 Computer Related Services, Nec; 3577 Computer Peripheral Equipment, Nee

System Software Associates, Inc. (SSA) is one of the world’s leading providers of software for industrial businesses. It is the single largest supplier of software for the AS/400 line of minicomputers manufactured by IBM. The flexibility of SSA’s software products allows them to be reconfigured to meet specific customer and business demands in any industry. The company maintains its global presence through offices and business affiliates in 67 countries, while support for clients is provided by a network of over 5,000 professionals.

SSA’s core product line is the Business Planning and Control System (BPCS), a group of integrated software products for industry that includes applications for manufacturing, distribution, and financial operations. The company is also a leader in computer-aided systems engineering (CASE) technology. Its AS/SET line uses CASE technology to allow clients to build their own applications. Electronic Data Interchange (EDI), which enables businesses to communicate electronically with trading partners, is another area in which SSA has developed advanced products. The company’s Main/Tracker line automates maintenance, safety inspection, and warranty tracking, and is the leading maintenance management system in the world.

SSA sprouted from a humble home business into a major international player in less than a decade. The company was founded in 1981 by Roger E. Covey. At age 26, Covey was already experienced in selling software manufacturing systems, having previously worked for Chicago, Illinois-based Professional Computer Resources, Inc. For mid-sized manufacturing concerns, he noted a need for an integrated software product that could handle every stage of operations, from raw materials to the distribution of finished goods. Convinced that he could develop such a product, Covey launched his own firm, initially running it from his mother’s dining room table. With his first three employees, Covey developed SSA’s Business Planning and Control System (BPCS), which ran on the IBM System/34 computer. BPCS was essentially an umbrella product for about 20 applications modules, each compatible with the others, which enabled customers to easily adapt the system for their own requirements. The company’s first customer was Best Chairs, a chair manufacturer based in southern Indiana.

The key to the company’s early growth was its unique distribution system. Covey had determined that selling through retail channels made it difficult to find customers, while selling though a direct sales force and providing extensive servicing made it difficult to turn a profit. Therefore, SSA instead developed a network of local affiliates, trained by SSA, that would sell, install, and service the products for a commission. This enabled the company to expand at an impressive rate while keeping its overhead costs low. Within a year, SSA was big enough to move to a new location in Chicago’s loop.

Early on, Covey and his employees decided to concentrate on improving the company’s specialty, integrated software packages for industry, rather than search for ways to diversify its product line. By 1984, SSA had sales of $3.9 million. And SSA continued to grow rapidly through the mid 1980s by continuing to cater to medium-sized companies, which often needed to expand their computer system capacities and software capabilities without adding programming personnel to their payrolls.

In 1986, SSA began to expand by acquiring smaller companies, first acquiring Syncrocom, Inc. for about $540,000. SSA went public in February 1987. Its stock, which was initially offered at $ 13 a share, was hovering around $20 within a few months. The proceeds from the offering were used to finance the acquisitions of three of its affiliated companies by the end of 1987: Outlook, Inc., ASE Services, Inc., and portions of the Australian-based EDP Pty. Limited.

SSA’s scope was international by 1987. The company had 40 affiliates in 25 countries, and half of its sales were generated outside the United States. Its customer list had reached 1,500 and was dominated by companies with annual sales between $5 million and $300 million. Of SSA’s $31 million in sales for 1987, about 22 percent were on software for financial operations. Manufacturing and distribution applications each accounted for about half of the remaining share. For the year, sales increased 92 percent, and the company’s net income jumped 88 percent to $3.3 million.

In 1988, IBM introduced a new mid-sized computer, the AS/400 (also known as Silverlake). Companies that had been taxing their System/36 and System/38 computers eagerly awaited the appearance of the new minicomputer, and SSA was among the handful of companies ready and waiting with software for the new system. Despite fierce competition from a group of companies that included IBM, Chicago’s Pansophic Systems, and Arthur Andersen, SSA was able to carve out a sizable chunk of the new software market for itself. On the strength of its new BPCS/400 system (essentially the old BPCS revamped for the AS/400), SSA was able to nearly double its net income to $5.9 million on sales of $61.5 million in 1988. That year, it was ranked number 23 on Inc. magazine’s list of the 100 fastest-growing small public companies. SSA was also ranked number 25 on the list of 100 Best Small Companies published by Business Week.

By 1989, SSA had nearly 400 employees and over 4,000 customers in 30 countries. The company was producing software in eight languages, including Chinese, Japanese, French, German, and Italian. Twenty-six integrated software products were being offered by this time, ranging in price from $50,000 to $500,000, depending on the size of the computer on which the applications were to run. SSA’s network of affiliates had grown to 52 by the middle of 1989, penetrating nearly every major market in the world. Although competition remained tough, particularly IBM’s improved integrated software package, the market for integrated software for medium-sized companies remained somewhat under-penetrated, and SSA was able to sustain its rapid growth rate through the year. For 1989, the company’s sales made another jump, to $95 million, with net income reaching $11.1 million.

SSA was able to continue its remarkable growth into the beginning of the 1990s. In 1990, the company recorded net income of $16.4 million on sales of $124.2 million. That year, SSA launched SSA Mid Atlantic, Inc., a 50-50 joint venture with its New Jersey-based affiliate Software Plus, Inc. The company entered another joint venture the following year with the stockholders of Solid Beheer B.V., a Dutch company. Later in 1991, SSA founder Covey resigned as company president and CEO to pursue an academic career. He remained on the board of directors as vice chairman, and kept his 30 percent stake in the company. The void left hy Covey’s resignation was filled by Larry J. Ford, an IBM vice-president in charge of marketing the AS/400. Ford, who had been with IBM for 28 years, assumed the posts of president, chairman, and chief executive of SSA.

Under Ford, SSA continued to prosper. Increasing emphasis was placed on the company’s CASE products, which assist clients in adapting software for their own purposes as business conditions change. By 1991, SSA had over 4,000 customers, more than half of them overseas. The company’s net income finally began to level off during that year, although sales continued to climb, reaching $146 million.

SSA’s growth jumped back into high gear in 1992. By the middle of the year, the company’s CASE tool, AS/Set, was bringing in about 10 percent of its revenue. SSA continued to benefit from the trend in business away from the use of large mainframes toward the use of minicomputers such as the AS/400. The acquisition of two overseas companies helped spur growth in 1992. Comat Services Pte. Ltd. was purchased through the company’s SSA Asia Pty. Ltd. subsidiary, and SSA acquired an Italian affiliate, CSA Sistemi Software, renaming it SSA Italia. For 1992, SSA’s revenue shot up to nearly $229 million, with profits of $26.6 million.

By 1993, SSA software was being translated into 20 languages. The company continued to expand its global network, strengthening its operations in Asia, Africa, Scandinavia, Eastern Europe, the Middle East, and Latin America. In February 1993, the company launched a new joint venture with DAT GmbH, a German affiliate. SSA acquired Elke Corporation, a maker of maintenance tracking software, in August.

Although the company’s network of affiliates continued to work well in keeping marketing and servicing costs down, it became apparent that this system was not particularly well-suited for its large, multinational clients, which were left in the position of working with different affiliates at different locations. SSA began to enhance its own support staff to improve its service to those clients. SSA’s net income slipped to $23.4 million for 1993, on sales of $263.4 million.

Through the end of 1993 and into 1994, SSA focused its attention on a new strategy for supporting open-system client server computing environments. Using its CASE technology, SSA began offering more flexible software than was previously available. The company’s new version of its flagship BPCS series was called BPCS/AS (for “advanced solution”). BPCS/AS consists of over 40 integrated applications, which can be easily manipulated to keep up with rapid changes taking place in both the hardware on which they are run and the business climates in which they are used. The company announced that its new client/server application products could be run on Unix-based systems as well as on the AS/400.

In a relatively short period of time, SSA has maneuvered itself into a dominant position in its niche market. Whether the company can sustain its tremendous growth record remains to be seen. If its management continues to make the kinds of decisions it has made in the past, such as its early commitment to CASE technology and its early jump onto the AS/400 bandwagon, SSA’s chances for continued growth will certainly be enhanced.

Principal Subsidiaries:

SSA Services Pty. Ltd. (Australia); System Software Associates Ltd. (England); System Software Associates Co., Ltd. (Japan); System Software Associates Asia Pte. Ltd. (Singapore); System Software Associates Caribbean, Inc. (Puerto Rico); System Software Associates Nederland B.V. (Netherlands); System Software Associates, New Zealand Ltd.; General Business Solutions S.A. (Spain); Comat Services Pte. Ltd.; System Software Associates Italia (Italy).