PERHAPS NO AEC SOFTWARE COMPANY has been so curious and exciting to watch evolve as the Nemetschek Group, a Germany holding company that emerged from engineer Georg Nemetschek’s original company behind ALLPLAN, first introduced at version 1.0, in 1984. ALLPLAN would actually spin out as the first software subsidiary in 1988, but ten years later Nemetschek would make three acquisitions in Frilo, Glaser and Crem Solutions. A year later, Maxon would be partially acquired, and an IPO of Nemetschek takes place. So then, at the turn of the millennium, the German holding company acquired US-based Vectorworks, followed by Hungary-based Graphisoft and SCIA of Belgium in 2006.
Fast forward over a decade, and today the Nemetschek Group (as it is known) has several more subsidiaries including market share leaders in specific AEC software sectors like Bluebeam in the US construction market and Solibri in its narrow but important BIM model market.
When Nemetschek recently announced a new strategic reorganization, this author felt it necessary to talk to Patrik Heider, spokesman of the executive board and CFOO, about what is happening behind the scenes. The company’s new divisional structure is based around the AEC industry’s three primary stages of the creation and use of buildings—design, build and occupy (manage)—and is set to continue to propel growth behind one of the largest and fastest growing AEC software companies in the world.
The following interview article breaks into three parts (or themes in Capital Markets, Strategy and Future Direction)—with analytical intermissions, in which context and open inquiry add meaning and suggestive correlation to larger market directions. Let’s get started.
The Capital Market Theme
(Anthony Frausto-Robledo) You announced last month a new three-division structure at the executive board level around Design, Build and Manage segments. How will the new divisional structure change the way the daughter companies interact with each other strategically?
(Patrik Heider) As I always state to the capital market and overall to all stakeholders, we often get the question asked if there is a bottleneck of growth, and what my standard answer is there will be no roadmap of growth coming from the parent company if we don’t go through an organization development as well. So that is precisely what we have done: we have streamlined the organization more towards ‘divisions’ and what we have as a result is we are much more business and customer focused and more efficient regarding financial and regulatory topics when it comes to the parent company.
So it’s important to note that we didn’t do this new reorganization simply because of the investor market; we did it to get to the next stage of growth.
So the brand leads, the CEOs, they will report to clear leadership structure on the Design segment, along with the other new structural divisions (Build and Manage) and I as CFOO will focus on financial and operational topics and be the spokesman for the stakeholders. So in terms of corporate governance, of leadership, of commitment, we are much more efficient now and more market and business-oriented than before. So that is the idea of this new divisional structure in general.
So are you saying that before this organizational structure there may have been some confusion, perhaps, on the part of investors to understand the company overall in terms of how these brands were working together?
I wouldn’t say from the investors’ side there was confusion; there was always a clear picture. We had Sean [Flaherty] as the strategic officer, myself as the financial and operations officer, and Viktor was part-time in there as well—we all had brand responsibilities. So it’s important to note that we didn’t do this new reorganization simply because of the investor market; we did it to get to the next stage of growth.
So that is the general idea behind it as well—not because of confusion but because you can always do better, in a company, to organize and develop yourself.
So in terms of this “next stage of growth” and the ability to always do better, how will this new divisional structure help the Nemetschek Group in terms of revenue and profit goals?
We set the core competence of each manager in a much more efficient way, to their development tasks and responsibilities. Take me, for example; I’m the one leading the company’s transformation from a 500 million euros a year company, towards a one billion euros a year company. So what does that mean? It means we need to have professional and efficient structures for growth. And I have my core competencies in the corporate and financial sector as well as the operational sector. Of course, this is not supposed to mean that I did not manage the brands well, but we have so many other talented and professional people at the Nemetschek Group. Take Viktor for example. He is a recognized and accepted leader in AEC software when it comes to the design segment markets. He was the leader of Graphisoft and responsible for the company’s success and strong growth. Now he can give that total competence to the whole set of Design segment brands.
The same is true for Jon Elliott in the Build segment and Koen Matthijs in the Manage segment. So what we have done is reframed and re-focused the core competencies of each relevant leader, to their market area expertise. And this is the new formulation in organization structure from which we can do better.
Intermission 1 — Context Around Financial Values, Growth, Hype Cycles
It is essential to provide some context for what “better” can mean in terms of financial performance for software companies this large in the AEC industry. The larger the company, the more difficult it can be to move the needle in the positive double-digit growth direction. Especially if these large companies have products or brands located at various points along the adoption cycle. Remember that the Gartner Hype Cycle finishes at what is known as the “Plateau of Productivity” where high-growth adoption begins, where just 20-30% of the potential audience has adopted the innovation. (see image) How many companies in the Nemetschek Group, for example, are behind or in front of this phase? Software innovation adoption in the Build segment, or what is sometimes called “contech” (short for construction tech) is a newer phase of software growth, with higher year-over-year percentage values possible.
As we will see in a moment below, Nemetschek’s “Build” segment has enjoyed upwards of 30% year-over-year revenue growth in the recent past. Bluebeam has been the “bull” (to use Wall Street language) in the brands. It is not surprising to see some of Nemetschek’s large-cap competition (eg: Autodesk, Trimble, Bentley, Hexagon) entering acquisitions in the construction software segment or to diversify into “buildings” or into “infrastructure” as the AEC segment, which includes both, is soon to overtake the manufacturing CAD space as a whole, in total value, according to recently reported experts.
next page: The Strategy Theme