Getting Respect at TI's Software Business

It's not easy to be a $250 million software company with 1,400 employees worldwide, and be omitted from annual lists of top software providers from trade publications such as Information Week or Software Magazine. But that is the position Texas Instruments finds itself in -- despite undisputed success. Since TI launched its software business in 1987, the software unit has had a compound annual growth rate of more than 30 percent.

Historically, the business has grown between 30- and 40 percent. That's no small feat for a company in a market segment known as CASE, for computer-aided software engineering. Whereas companies such as Fran Tarkenton's Knowledgware stumbled badly in that market, TI has survived, revamping its products from mainframe-only to designing applications for far-flung networks of PCs, workstations and servers. It is Microsoft's main partner in creating a software development capability for networks running Microsoft operating systems and applications.

The firm is also crossing t's and dotting i's for an agreement to add its software to the government's most ambitious software development project, the Pentagon's I-CASE procurement -- which the company originally lost with partner EDS.

In charge of this business is Dr. Robert McLendon who has been at the helm of TI's software unit for six months. He joined TI in 1966 as a systems engineering analyst, and has held a variety of technical managerial positions since. WT recently caught up with McLendon to ask him about his plans.

WT: How big is TI's software business, relative to independent software companies?

McLENDON: On the recent ranking of software companies in Information Week, we would have been 27th on that list. If you just look at revenues, [that would be] about the size of Intuit. We're not treated separately because we're a business unit of Texas Instruments, and so we don't get listed on there.

WT: Do you see that as a downside that you don't get to be recognized as the independent software business that you are?

McLENDON: Some of our sales force would say that it is. There's probably a marketing benefit to being on that list. But there's an upside benefit to being part of an incredible company such as TI.

Our defense group has been very successful in the federal marketplace. It's the only defense company ever to win the Malcolm Baldrige National Quality Award. So that carries with it a pretty strong and positive reputation.

WT: How are you organized within Texas Instruments?

McLENDON: We are an independent profit and loss center. We decided several years ago not to be a holding company, but to try to create synergy between our businesses. You ask people what they know about TI, the most frequent answer is they build calculators. It turns out that the calculator business is not much bigger than the software business. It's about $300 million. Maybe we can get to [the point] someday when people say, "What do you know about TI? It's the software business." Better than half our revenues come from semiconductors. So the financial community focuses on us as a semiconductor company. We're trying to position the company as an electronics and information solutions company. We've had a number of sessions with different financial analysts, technical analysts. I think they're starting to understand that. We've put major emphasis on electronic equipment, computers and printers, our software business. You'll see ads coming out here in the near future, in the Wall Street Journal and Fortune, that will point out that TI's in the software business, as part of our repositioning corporatewide.

WT: What exactly is the synergy between semiconductors and software at TI?

McLENDON: It's profound. Software runs our semiconductor factories. We're one of the leading users of information systems in the way we run our business. We won Information Week's Top 500 Award for the last two years as the top user of information technology in the electronics industry. It is embedded in the products that we sell. Our defense products have software embedded inside of them. So it's embedded in our products, it runs our factories, it runs our businesses and we sell it as a product. And we concentrated on it as a core competency. Having a software business like this provides a foundation and a home for that core competency.

WT: You've been in this job for six months?

McLENDON: Before this job, I was CIO at TI for about 18 months, then I took the job of president of the software business in December 1994.

Before that I had about 25 years at TI in the defense business -- as a systems engineer, a business manager, division manager, strategy manager. I worked on different bombs and missiles, all of which have substantial software content, either in the product or in the manufacturing equipment. So I've built up a pretty strong background of understanding software and software development.

WT: What were the problems you saw when you came to your current position?

McLENDON: The biggest problem that I immediately encountered as CIO at TI was that we were not able to provision information systems to the businesses of TI as fast as they needed them -- by a long shot. About four or five months into the job of CIO, our corporate comptroller came to me and said, "Bob, I've been working on this business reengineering project to reengineer the financial close process. We need to close our books faster so that we can report our quarterly results faster. We've got a good plan, we've got the new process laid out, here are the milestones we're going through. Here in the middle is a milestone of about two weeks just to modify our ledger system so that we can close them on a weekly basis instead of a monthly basis."

Seems like an easy thing to do? He was well into it when he came to see me. It took us about four months to get him a quote. And the quote said [we could change the ledger system] in three years and $25 million. Moreover, as I spent 18 months in that job, I found that every CIO I talked to and every company I went to had the same issues. The No. 1 problem is the ability to change information systems, or provision new ones, as fast as the business and government agencies need them. TI's software helps solve that problem.

WT: What is your mix of software product sales and services?

McLENDON: We do about 38 percent in consulting, 62 percent is software product and maintenance.

WT: Do you see that ratio changing?

McLENDON: I expect that it will. We're in a bubble right now with the transition to client/server. There is an insatiable demand for consulting services. I think it's a bubble, though. It will go up and come down. We have tried to be very careful about how fast we add services. Our strategy is to provide consulting services aligned with our product. We're not a full up systems integrator type of provider. We'll partner with that kind of company. [But for now,] we're adding [consultants] as fast as we can find and train people on our products.

WT: If you are in the business of providing tools for customers to build and design their own applications. Once they have those tools, and they work, why would they need to come back to you for more tools?

McLENDON: Why do you go to Home Depot every Saturday? International Data Corp. projects the application tools market is growing at 16 percent. It has been growing at that rate for a long time. The total market goes from the high end, tools that you can use to build large applications for hundreds or thousands of users and hundreds of developers, down to the low end where you use Visual Basic to build something for your desktop and maybe your buddies. There's stuff all in between.

Parts of that space in between are pretty new, emerging markets. Powerbuilder recently moved into the space that would be just slightly above Visual Basic but substantially below our IEF Composer tool. There's a whole space between Powerbuilder and our Composer tool that people are just beginning to move into. It's our strategy to move into that space also, where you would be building applications for a few hundred users and probably tens of developers. For today and the foreseeable future, the application tools market is a pretty attractive place to be.

WT: How do you envision the database companies playing in your market?

McLENDON: Oracle is probably the most competitive with us. We're compatible with a large range of databases also -- unlike Powersoft, which has just been bought by Sybase, which ties them into one. Oracle has a high-end tool and they often package it with their database. That makes them a tough competitor.

WT: What did Knowledgware do wrong?

McLENDON: Probably hiring Fran Tarkenton. I'm not real smart about their product. They're not even a competitor for us anymore, they kind of faded away. Whenever we did go head-to-head with them, we beat them every time. From a performance standpoint, their product was probably deficient.

WT: How big is the federal segment?

McLENDON: It's about 18 percent. It's our most rapidly growing segment. We break the market into four areas. We have Americas, Europe, Asia-Pacific and Federal. We broke the federal off four years ago. It's gone from nothing to 18 percent of our business.

WT: Do you use the word CASE anymore?

McLENDON: We try not to. We're still a computer-aided software engineering tool. As a matter fact, you could call everything in the application development tool space that. But CASE has kind of been associated with mainframes. We're much more than that now. From a marketing positioning, we find it advantageous not to highlight the adjective CASE. In our ads we de-emphasize that.