Writing the rules Featured

8:42am EDT February 24, 2005
There are two types of readers, Thomas Nies says, dividing those who start and finish one book -- reading from cover to cover, beginning to end -- and those who start one selection, only to be tempted by another title, another author, another topic.

Some read just one book. Others digest several simultaneously.

There are single-serving thinkers and multicourse minds.

As president and CEO of Cincom, a Cincinnati-based $100-million commercial software conglomerate, Nies likes to digest many books at once so the information from all of them can mingle in his brain.

"I am a voracious reader," says the 40-year technology veteran, rattling off titles of three books in progress: "The World of Nations" and "The Narcissist," by Christopher Lasch, and "The Seekers: The Story of a Man's Continuing Quest to Understand His World," by Daniel Boorstin. "I like to read several books concurrently so I can assimilate ideas."

Nies adopts a similar strategy when commanding Cincom, which, despite a series of software market misfortunes, has posted record calendar years since 2001. Even in hard times, the company grew in size by 50 percent and marked 20 percent revenue increases each year. And after 19 years of more than $100 million in revenue, Nies' company, which builds, sells and supports software for commercial giants including BMW and Citibank, is positioned to expand even more, five years after the technology boom and bust.

"I constantly read and study because the demands are great today," Nies says.

He also designs operations decisions based on his archive of software knowledge. Nies' customer-driven product approach is no mistake; for mid-sized software firms that focus on the "soft side" of software -- customer demands, product value, ease in implementation and return on investment -- the pot is generous.

"Software is right at the heart of all advanced societies," Nies says.

Slimming down, getting smart

Customers didn't flinch when their technology tabs skyrocketed before Y2K. Implementation fees for millennium compliance cost companies up to 12 times the price of initial software license fees but people spent with frantic enthusiasm, Nies says.

"Tens of billions of dollars of additional capital was floating in the industry during that euphoric period that Alan Greenspan called irrational exuberance," Nies says..

But when the bubble popped, Y2K passed and companies were rewired with updated systems, price tolerance dropped.

"Customers are not willing to throw away money anymore," Nies says. "They are more demanding of buying rationally and, in addition to that, they also recognize that there is significant excess supply in the software industry and that supply is far greater than demand."

This realization shook the pricing baton from the hands of software companies and passed the power to customers.

"Customers no longer allow vendors to control the buying cycle," Nies says, revealing the crux of Cincom's value proposition -- its secret growth weapon. "They demand better deals, so to speak. They want more for less."

This meant skimming fat from the operation - identifying areas in which customers were compensating in cost for inefficient or unnecessary processes. Essentially, the scale-down effort resulted in removing implementation costs -- fees customers pay when they must adapt software to meet their specific business requirements. Most software packages are standard. Once purchased, the provider tweaks the program to run according to the customer's corporate setup; those implementation costs can increase software package prices tenfold.

"Our goal was to slash the waste out of customer implementation and support, and we have done that," Nies says. "That now gives us a value proposition radically different and better than our competitors."

In other words, Cincom "got smart" and introduced a software product that listens to customers. Smart Software is standard, yet personalized; customers elect software requirements, and Cincom delivers a product modeled from its package.

"The software takes the intelligence customers provide -- their wants and needs -- and we deliver to them something very close to their specific requirements without massive implementation costs to modify the software," Nies says. "Cincom offers value to customers by subtracting the human capital required for software implementation and eliminating the need for companies to alter their business models to accommodate software setup."

Risky business

Nies wasn't completely confident that his model would rake in revenue, but trusting his instincts about consumer trends toward value and price-driven buying, he learned that doing the right thing for customers can pay off handsomely.

"With any plan, there is a vision," he says. "You hope it is good and correct, and you have to make sure you aren't falling in love with your own ideas."

Substantial risk accompanied Nies' decision to cut out implementation costs and trade that revenue for a customer value proposition that he hoped companies would embrace.

"We saw attraction from customers, and our investment in new ideas is behind us," he says.

The company's lean operations approach and subsequent software introduction, which mimics the idea of "more for less," is paying off. Customers like the price -- several times lower than competitors' packages -- and once they're hooked, they stay loyal, Nies says. Trust and technology have resulted in repeat customers and initiated word-of-mouth sales.

The company he launched in 1968 with a card table and a dream has turned over its share of wild cards, generating over its lifetime more than $3 billion in revenue -- $5 million for every dollar invested. And the game's not over; Cincom will add 100 employees this year.

"We have a system and a value proposition that customers like, and now we have to find ways to link that to as many people as we can, and that takes more staff," Nies says. "No company adds an extra cost today unless it is well justified, and we are not unlike any other company. We only add costs if we need to support a significant demand."

That said, Nies presents a financial snapshot of Cincom's earnings per share, which have increased tenfold since 2001.

"We probably have the highest rate of return on investment capital in the industry of any of the top 10-percent companies," Nies says, adding that while Cincom averages more than 80 percent ROI, the largest competitors average less than 10 percent, and very few software companies earn more than 20 percent ROI.

But Nies isn't concerned about the others.

"If we continue to give customers more of what they want at a lesser cost, we don't have to worry about the competition," he says. "There are enough customers out there who want this value proposition that we won't have to worry about competition for a long time."

CinCommunity

Acquisitions force Darwinism on the industry, not a bad proposition when shaving 40 percent to 50 percent capacity from large companies leaves more room for mid-sized firms such as Cincom.. But Nies is leaving this type of expansion to conglomerates. Rather than buying revenue to grow, he prefers to invest in technology.

"The best way for some companies to grow is to buy revenues, so they purchase other companies," Nies says, referring to the boom years. "Now they have to justify the economic cost, so they will cut large numbers of staff to rationalize the excessive price they paid to buy the revenues."

Nies' approach focuses on nurturing Cincom's core - its staff and technology -- and growing organically. "That is not to say there won't be an acquisition here or there," he says. "We are always looking for additional technology, but we are not trying to buy revenue growth. We buy technology and use technology to grow our company organically."

This means investing in employees.

"I have spent almost 40 years trying to help people learn how to be more productive, capable and able so they can better serve Cincom," Nies says. "But as they become more productive, they not only serve Cincom but they become economically more valuable to us and can earn higher compensation levels."

Rewarding employees with earnings hikes is just one example of "Giving Forward" -- a central component of Cincom's culture. Nies' tags the concept CinCommunity, accenting unity.

"People want more enjoyment, more opportunity, more compensation, a better life," he explains. "Our objective is to help people receive more by helping others get more."

This philosophy returns to customers. Offering companies the best software packages eventually will turn profit for Cincom, earnings for employees and satisfaction for all.

"We share the wealth we create with our people," Nies says.

Besides, sharing the pot keeps employees planted at Cincom. High retention marks are proof that people-minded policies matter to workers. Nearly 25 percent of the company's staff members are 15-year-plus veterans, contradicting the high-turnover industry norm, Nies says.

"Retaining people is a very large part of the value equation," he says. "It makes very little sense to help people learn and develop their capabilities, only to see them leave your organization."

Meanwhile, as Cincom bolsters its human core to handle increasing demands, Nies considers ways to preserve his nest egg. Now that the company is stretching beyond its modest capacity and reaching for greater returns, how will he avoid producing a "watered down version of what we are," Nies wonders?

Teaching, training, developing and investing in employees will feed a recurring cycle that breeds enriched, loyal employees, he hopes.

"We reinforce our ideas and goals, and we quickly try to give people as much responsibility as they can cope with," Nies says. "We actually give them more so they grow up to the responsibility.

"I've spent 40 years trying to help people learn," he adds, peeling off his president layer to reveal the professor - the avid reader, the curious student. "I don't know if I ever taught anyone anything, but I try to create an environment where employees can learn and succeed."

Nies listens to employees -- and they help him tremendously. He listens to customers, who signal to him their demands for software and service. He listens to peers, and he watches their successes and challenges. Then, he acts on his instincts.

"I think everyone in every pursuit has to begin with the end in mind," he says. "What is the end we want to accomplish? We must keep ourselves fixed on that end and not deviate from that.

"I think one has to make sure those ends are worthwhile, and that they will stimulate what is best in people, and that people believe in these ends and strive for them. It is important to set these goals and include every stakeholder in the endeavor."

Success is measurable for Nies, who says efficiency and effectiveness weed out software companies that surge forward and those that disappear.

"We help our customers grow their businesses faster and more profitably with far less upfront investment, much less risk and much greater and quicker ROI," he says. "Simple rule. But it has worked so well for 36 years, why change now?"

How to reach: Cincom, (800) 2CINCOM or www.cincom.com