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When Lee Roberts joined troubled document management software vendor FileNet Inc as the company’s chief operating officer in May, it was clear he had a tough job ahead of him. The company, which had weathered the transition from a supplier of high-end, proprietary systems for imaging, processing and storing documents, to a vendor of document management software in the early 1990s, was now suffering from a lack of direction and a botched assimilation of acquired products. The troubles were apparent in the figures. For its 1996 fiscal year, the company had reported net losses of $2.6m, compared with profits a year earlier of $8.2m, on revenues which rose by 17% to $268.9m. In the first and second quarters of 1997, the picture wasn’t any better – more net losses and even accusations of insider trading. Then, in April, FileNet was compelled to start consolidating its operations. It closed its Burlington, Massachusetts engineering and marketing facilities and transferred them to its Costa Mesa, California headquarters at a cost of around $6m and with the loss of 120 jobs. On top of this, the acquisitions of document imaging software company, Watermark Software, in 1995 and document management software developer, Saros, in 1996 had left the company with an expanded portfolio of products, but one which lacked definition, operated under a bewildering range of disparate names.

Win market share

Despite these mammoth hurdles, Roberts was upbeat about the company’s long-term prospects. It’s a huge opportunity, he said on his appointment. An experienced marketeer, Roberts joined Filenet from IBM, where he had been general manager and vice president of sales and marketing of the company’s networking division. While FileNet’s CEO, Ted Smith believed in stressing the company’s technological expertise over marketing strategies – was to remain as CEO and chairman of the company. Roberts took over as president and assumed the newly-created position of chief operating officer. His influence was felt immediately. Filenet always took the attitude that it was the best vendor of document management software simply because it could build a better mousetrap, jokes Gerry Murray, research manager with market analyst firm International Data Corp (IDC). Roberts took a different tack. He set about convincing FileNet executives that it was more important to win the market share struggle than any technology battle. Ted Smith’s decision that he was no longer the right guy to take the company forward was a difficult personal decision, says Murray, but certainly it was the right one for the company.

Sleeker organization

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Six months on, it is apparent that Roberts’ gung-ho attitude and marketing expertise is starting to pay off. FileNet has been transformed into a sleeker organization with a clearly defined marketing strategy. From the first, Lee has demonstrated a real command of the situation in his efforts to refocus product direction, marketing, pricing structures and channel organization, says Murray of IDC. Roberts’ immediate priority was to straighten out the company’s confusing range of products – I want FileNet to make a clear statement of who we are and what we do, he said. To that effect, much of the company’s software is being renamed, repackaged, and consolidated under the FileNet brand. You won’t hear us talk about Saros anymore, explains Mark St Clare, FileNet’s CFO, and the Mezzanine name has also been off-loaded. his work is expected to be complete by the end of the first quarter of 1998. It is vital that FileNet makes the acquisitions of the last few years work for it, and streamlining the product line is the way to do that, says Rory Staunton, a market analyst with Strategic Partners International. The company’s product line will also receive a boost with the launch in the first quarter of 1998 of a new, internet-enabled, client-side software product, codenamed ‘Mend-ecino’, which will offer users both electronic data management and imaging workflow capability over the internet and corporate intranet. At the same time, Roberts has also concentrated on restructuring the company’s sales and marketing operations into a single global entity, in response to plummeting sales outside North America. In the first six months of fiscal 1997, international revenues fell by an alarming 28%. But, according to FileNet, the restructuring should eradicate the dilution of the company’s strategy outside of its home territory. According to St Clare, the changes which have been executed so far are already showing up in the company’s figures. For its recent third quarter, he says, FileNet exceeded Wall Street expectations and met internal targets, achieving a profit of $1.9m. Revenues remained essentially flat at $65m, but St Clare points out that, after seeing revenue drop 29% in the first quarter of 1997, even a small improvement was a welcome sign in the usually slow summer quarter. While reticent about making predictions on the company’s fourth quarter results, St Clare believes that they will also be in line with Wall Street’s predictions of revenues north of $70m. In its favor, FileNet remains the largest specialist vendor of document management and workflow software in revenue terms. There are at least 25 companies in this area who wish they had FileNet’s problems, says Staunton of Strategic Partners. The company has a number of major competitive advantages, he says – extensive functionality in multiple areas of document management, its dominant market share, and the brand recognition which the company enjoys. This view is backed up by Murray of IDC. However, there are now bigger fish circling the electronic document management market, as companies such as Microsoft and Oracle begin to recognize the enhancements that document management technologies can bring to their products.

Stray bullet

Analysts expect an onslaught. It’s going to be a real battlefield, predicts Staunton of Strategic Partners, who believes that a ‘stray bullet’ effect on document management software vendors may result as larger companies seek to incorporate document management functionality into their software. Microsoft is more than capable of taking action that could have a significant effect on the specialist vendors in the field, he says. What is more, given the relatively small size of players in this area, he contends, companies such as FileNet make prime acquisition targets for larger, more general vendors. Roberts remains undaunted, and is already making bold predictions. FileNet will be a $500m company within three years, he claims. Others, however, are less inclined to be so bold in the light of FileNet’s dramatic peaks and troughs over the past 10 years. FileNet is standing at a fork in the road, says Murray of IDC. Roberts has made some giant steps in the right direction, but he still has a marathon ahead of him.

This article first appeared in Computer Business Review.

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CBR Staff Writer

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