Parametric Technology Corp.Waltham, Mass.

Dec. 21, 2004

In high-tech marketing the basic challenge still resides in the question: "Who will make your product obsolete?" It's a question that Parametric Technology Corp. (PTC) understands very well. When the software company was formed in 1985, its strategy was to deliver strikingly new capability and performance in the design-engineering marketplace, and the competition is still trying to catch up. Its Pro/ENGINEER software commercialized advanced concepts of designing with 3-D solid models that had been on engineering-department wish lists at least since the early 1980s. For example, users of Pro/ENGINEER can define how different parts of a design relate to each other so that changes to one affect another. That way, changing the size of a bolt would automatically change the size of the bolt hole. Pro/ENGINEER extends that advantage among all its modules, which span the key tasks in the design through manufacturing process. If a model changes anywhere in the development process, from drafting to NC tooling, everyone on the design team will know about it, because each representation of the part is updated automatically -- a process called full associativity. The software is feature-based, which lets engineers work with actual building blocks of a design -- such as shell, chamfer, rib, and round -- not complex mathematics. Engineers can change shapes, expand features, and modify dimensions with a keystroke. Not only does this remove tedium from the design process, but users report that the design-engineering software can reduce costs, improve quality and accuracy, and slash development time by 50% or more. This approach to mechanical design is the brain child of Samuel Geisberg, who was once professor of mathematics at the University of Leningrad. Arriving in the U.S. in 1974, Dr. Geisberg first put his skills to work at two CAD/CAM companies -- first Computervision and then Applicon -- before deciding in 1985 to form PTC. He is now chairman and executive vice president. His basic premise in forming the new company was that traditional CAD/CAM systems were too rigid and inflexible. "They hindered engineers by making it difficult to interact and make changes," he says. Dr. Geisberg believes that the CAD/CAM system should allow the engineer to indulge creativity. "The goal is to create a system that would be flexible enough to encourage the engineer to easily consider a variety of designs. And the cost of making design changes ought to be as close to zero as possible. In addition, the traditional CAD/CAM software of the time unrealistically restricted low-cost changes to only the very front end of the design-engineering process." Through its power of associativity, the software was -- and is -- perfectly positioned to benefit from the developing emphasis on concurrent engineering. Groups of engineers can simultaneously process a design on the different modules of Pro/ENGINEER, confident that any changes that would be made would automatically ripple through all affected aspects of the system. As formidable as PTC's suite of 28 Pro/ENGINEER modules are in today's CAD/CAM marketplace, the competition in 1985 did not see the product for the technological "Trojan horse" that it was, admits Steven C. Walske, president and CEO. Initially, the traditional CAD/CAM companies regarded the software as a conceptual design tool that let engineers do things that couldn't be done before. In some instances, they would even team with PTC, packaging Pro/ENGINEER as a front-end conceptual design tool. In that scenario, once the 3-D model of the product was completed in PRO/ENGINEER, it was to be handed off to a traditional CAD/CAM system. "What they didn't realize was that the fundamental architecture of our system incorporated everything that was needed to develop a complete mechanical design automation environment," says Mr. Walske. At first, PTC elected to gather momentum and build the business by positioning Pro/ENGINEER as a conceptual design tool. "Actually, in the early days we went on joint sales calls with some of the traditional CAD/ CAM companies," explains Louis J. Volpe, senior vice president, marketing and operations. "They saw themselves playing a game of one-upsmanship with their competitors by including us in their sales proposals. That abruptly stopped in 1989 when we came out with our drafting modules." At that point, the strategy of PTC's competitors shifted. "They would present the CAD/CAM purchase decision as one so strategic that it should be made only with an old-line CAD/CAM vendor," Mr. Volpe says. "At that time it was not so much a technology sell as one of credibility, as in "Would you commit your CAD/CAM investment to a company that may not be around long enough to capitalize on its technology?" Mr. Volpe admits the need for developing credibility was one of the reasons why PTC went public as early as it did. That happened in 1989 when the company had announced a net income of $2.2 million on revenues of $11 million. With nothing less than a 79% increase in any of the year-to-year quarters, revenues grew from $25.4 million for fiscal 1990 to $44.7 million for 1991 and $86.7 million for 1992. Credibility is obviously no longer a marketing problem for PTC. While worldwide revenues of the industry have slowed substantially from the 15.1% annual growth rate of 1992, PTC's revenues for fiscal 1993 (ended Sept. 30) have reached $163.1 million, an increase of 88%. Net income increased 104% to $42.9 million compared with $21.1 million for fiscal 1992. PTC's customer base grew 60% in 1993 from just fewer than 2,000 companies to nearly 3,200, says Mr. Walske. With its winning combination of market opportunity, technology, and management execution, is it possible that PTC can do no wrong? "Parametric's challenge is to avoid making mistakes, especially in product quality, pricing, technical direction, and customer satisfaction," says Charles M. Foundyller, president, Daratech Inc., Cambridge, Mass., market-researchers. "Looking ahead, the company's immediate future will probably be more influenced by its own actions than the actions of its competitors."

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