Main content

Turning over stones - PTC CEO Neil Barua on taking a fresh look at operational efficiencies as the selling environment remains tough

Stuart Lauchlan Profile picture for user slauchlan May 3, 2024
Summary:
Drilling down on PLM and SLM as focus areas for PTC.

PTC Barua
Neil Barua

PTC just turned in some solid revenue growth numbers, but the company isn’t seeing much improvement in the macro-economic climate, according to CEO Neil Barua. 

Q2 revenues came in at $603 million, up 11% year-on-year. Annualized Recurring Revenues (ARR) were $2.088 billion, up 11% year-on-year.

Barua, who took over as CEO on 14 February, stated: 

I don't see right now any change in the selling environment. It's been tough going for at least six quarters now here at PTC, that didn't change in Q2 despite having solid results. So, the team continues to deliver despite a challenging selling environment. We look at every metric, GDP, PMIs, you name it. We have not seen a change yet given some maybe positivity, they have not turned into a trend.

I will say from a broad base outside of industries, outside of specific industries, the point that I think we're trying to articulate is the challenging selling environment really is punctuated in the larger deals. So, these are the large digital transformation deals that are seven or eight-figure…That continues to be challenged, the same [way] it's been for the last six-plus quarters around the large yield in getting those projects to be the key priority by which you could get the signed PO and begin implementation. That's the area we continue to work through. To be clear, we continue to do well around securing those, but those are the areas by which the challenge in the selling environment really impacts us the most. And I don't see that changing right now in the current environment.

Focus

Still in the early days of his leadership at PTC, Barua said he is “turning over stones” to look at internal operational efficiencies and guide investment priorities: 

During my transition period before taking over as CEO, I spent time listening to employees, digging into our product strategy, speaking with customers and partners to understand their needs and how we address them. As a result of the time I spent on this, I feel good about our product portfolio and strategy, which guides our five focus areas. You should expect to see a continued emphasis on focusing our resources in the areas that create the greatest customer value and where we have a right to win.

I've also started to focus on our operations. I began to examine where we excel and have room for improvement. As you know, PTC has been on a multi-year journey to improve efficiencies. But my early observations are that PTC will benefit from a fresh look at innovative ways to continue to drive operational improvements.

He explained:

The investments we make are aligned to the market environment and our five focus areas to ensure appropriate resource allocations towards the areas that create the greatest customer value. As an example, we are currently in the process of rebalancing resources, primarily in R&D, away from creating new standalone IoT and AR applications to instead support PLM, ALM, and SLM growth. While these are not huge movements of people and there will not be a restructuring charge associated with this, it is an example of how we plan to put a greater focus on driving our priorities more effectively.

As a reminder, our five focus areas include: number one, PLM, which is driven primarily by our Windchill product; number two, ALM, which is driven by our Codebeamer product; number three, SLM, which is primarily driven by ServiceMax; number four, CAD, which is driven primarily by Creo; and lastly, number five, our continued focus on SaaS.

PLM 

Barua drilled down on two of those focuses to make his point, beginning with PLM - Product Lifecycle Management: 

PLM systems tend to be highly-configured, really sticky, and our mission-critical system of record for our customers. This is software that historically had the function of helping CAD engineers keep track of their CAD files. Part of the reason PTC's growth has been so solid over the last few years is because PLM systems have grown in importance at product companies. Today's products are more complex, typically with embedded electronics and software, and even the mechanical components are now more complex.

To drive revenue growth, product companies have become increasingly focused on producing more variants of their products, mixing certain hardware configurations with other software configurations, while at the same time compressing the time it takes to get new products to market. That's a tall order. Simply put, product companies that offer multiple configurations of their products face a diversity at-scale challenge. And sooner or later, it becomes clear to these companies that having an advanced PLM system is a strategic necessity. In general, manufacturing companies have a long way to go in terms of their digital transformation journeys. 

When a product company gets really serious about optimizing in automating their workflows, we tend to see large PLM expansion projects. This creates a step-function increase in ARR as customers expand their Windchill deployments in terms of both seats and functionality.

He cited the example of a medical equipment company with over $5 billion of annual revenue and 20,000 employees as a case in point: 

Getting new products to market faster is a top business priority for them. As a first step, they standardized on Windchill within R&D across all their business divisions and harmonized their engineering practices related to product changes and configuration management. By doing this, they established a solid engineering foundation that ensures the traceability work performed and updates made for both productivity gains and also to remain compliant with regulations.

Before standardizing on Windchill, this customer did not have an authoritative source of truth for their product data. So, whenever they ran into conflicting product data in their systems, they lost a lot of time figuring out why that happened and what to do about it. While the first step for this customer was expanding Windchill within R&D, they also want to accelerate their new product introduction timelines. To do this, they needed to drive earlier collaboration around new products across other operational functions outside of R&D. 

To accomplish this goal, they decided to leverage their Windchill system as a backbone for enterprise-wide collaboration around product data and they expanded their Windchill deployment to teams including manufacturing, supply chain, quality, regulatory compliance, and marketing. For example, providing the supply chain team with relevant product data earlier in the process enables any issues around component availability or component pricing to be identified earlier resulting in less need for products to be redesigned or reworked later.

SLM 

Barua’s second focus point was Service Lifecycle Management (SLM) as represented by his alma mater, ServiceMax: 

Our customers are not only facing complexity challenges, competitive pressures have also increased. Globalization has forced companies to be more efficient if they want to remain competitive. They are looking for new steady sources of top-line growth and margin expansion. In order to drive scalable service revenue, expanding their focus with digital tools on their services operations is key. 

He pointed to the example of an elevator company to illustrate his point: 

After struggling with disparate disconnected systems that got in the way of providing good service to their customers, they decided to embark on a complete service transformation to improve both the growth and profitability of their services business.

In the future, when their service technicians go into the field to service an elevator, they will know using the ServiceMax application about the specific elevator so they bring the right parts to the worksite. They will know the service history and have service instructions for that specific elevator. And of course, they'll be scheduled and routed efficiently to the job site. Furthermore, the elevator business is highly regulated and the ServiceMax application will ease the regulatory compliance burden by having traceable records of the work performed during service calls. 

My take

I'm turning over lots of stones and we'll look at everything to usher in a new phase of focus and effectiveness across the entire company.

A solid performance in a difficult economic climate, as Barua notes. We look forward to seeing what emerges from under the stones in the coming months as a ‘new’ PTC takes shape. 

Image credit - PTC

Disclosure - At time of writing, ServiceMax is a premier partner of diginomica.

Loading
A grey colored placeholder image