A very negative article from several weeks ago:
ottawacitizen.com
Wednesday 3 June 1998
Big guns abandon Microstar
Three lured to Calian
Karyn Standen
The Ottawa Citizen
Just as it appeared to be
recovering from several years of
financial losses, Microstar
Software Ltd. may be facing one
of its greatest challenges,
following the departure last
month of three senior executives.
Services vice president Richard
Schreier, sales director John
Mertl, and Canadian consulting
group manager Ray Luoma left
the $6 million company to join
Calian Technology Ltd.
Along with former Microstar
president Shaun McEwan -- now
Calian's chief financial officer --
they'll help develop a new
technology services unit at
Calian that could pit the $80
million international technology
services consulting company
against Microstar in the growing market for electronic document management
systems.
A significant clash between Microstar founder and president Peter Jordan and his
former employees over company direction appears at the root of the executive
exodus.
Microstar currently reaps 80 per cent of its revenue from sales of electronic document
management services. Mr. Jordan said he would like to drop that amount to 60 per
cent in favor of increased product sales.
Last month, Microstar released the latest version of its Near & Far Designer software
tool that incorporates the XML computer language used in the creation and
management of electronic documents. The company does not release sales figures for
earlier versions of its product.
The goal behind Microstar's new direction, explained Mr. Jordan, is to meet what he
sees as the growing requirement by companies for so-called complete solutions that
combine products and services in addressing electronic document management
issues.
"I want to make the company a solutions company, which is more product than
service," Mr. Jordan said. "The plan we developed indicated we should change the
ratio between product and service. Everyone agreed."
Or so Mr. Jordan thought.
His former employees balked at the idea of changing the product/services sales ratio,
arguing that the market for Microstar's product was too small to support increased
sales.
As one former Microstar employee pointed out, only a few companies, such as
Gloucester's OmniMark Technologies Corp. have been successful in selling
applications based on XML or SGML (an earlier technical standard) for electronic
document management systems.
However, Mr. Jordan was quick to remind staff who runs the company.
"It's the board's decision as to where the company goes, not those individuals," Mr.
Jordan said tersely. "The board accepted the plan.
My reaction (to the employee departures) is to replace those individuals with those
who want to share the vision and move forward."
Mr. Jordan said he will assume many of the responsibilities of the departed executives
until replacements can be found.
Microstar board member Jean-Pierre Soubliere, a former SHL Systemhouse executive,
said the board sides with Mr. Jordan.
"I feel very comfortable with Microstar," he said. "If you're going to sell to large
corporations, you have to offer them solutions."
For their part, the former Microstar employees are saying little about the reasons
surrounding their departure.
"It wouldn't be wise for us (to talk) because of the possibility of litigation," explained
John Mertl. "It might be considered defamatory."
Yet a quick look at the history of Microstar's share value is a good clue as to why the
executives may have decided it wasn't worth sticking around.
After going public in 1993 at $7, the company watched its share price plummet to a
low of $1. Recently, Microstar's shares have traded around $2.
"I think (Mr. Schreier, Mr. Mertl and Mr. Luoma) could see that there's a lot of growth
potential at Calian, including in personal career development and in financial
rewards," Mr. McEwan summed up.
That was certainly the perception at Microstar in its early years before the bottom
seemed to fall out. Companies' greater dependency on computers led to a growing
demand for tools that would let them create and manage electronic documents.
With the advent of SGML (Standard Generalized Markup Language) in the mid-1980s,
business looked very promising for Microstar and its SGML product line.
Then the Internet and its standard HTML (HyperText Markup Language) arrived,
causing sweeping change in the document-management industry.
"The Web caused us a lot of grief," recalled Mr. Jordan. "There was not any
opportunity for SGML (applications) on the Web. Everything in HTML was cheap
and easy."
The company suffered through several quarters of financial losses in 1996 and 1997,
largely because it was pouring resources into research and development. In fact, it
recorded a loss of $2.5 million in fiscal 1997.
In September 1996, president Shaun McEwan resigned to join Calian. In 1997,
Microstar laid off six people as it tried to re-organize its marketing effort.
The company subsequently seemed to fall off the investment community's radar
screen. Indeed, after contacting several financial firms, the Citizen could not locate an
investment analyst that currently follows Microstar.
However, Mr. Jordan continued to bank his company's future on SGML, and his
gamble appears to be paying off.
Demand by Web users for more sophisticated applications heralded the return of
SGML, which is better equipped than HTML in performing complex tasks.
As a sign of better times at Microstar, the company yesterday posted a profit of
$121,000 on revenues of $1.6 million for its first quarter of fiscal year 1999. This marks
the company's fifth profitable quarter in a row.
And the burgeoning electronic commerce industry may turn out to be Microstar's
ticket to even greater success.
XML (eXtensible Markup Language), which is an evolving standard for the Web, is
seen to facilitate e-commerce because it allows product orders to be delivered directly
to the supplier. Microstar's Near & Far Designer software tool, used to create
electronic documents, incorporates XML.
"XML is SGML on steroids," said Mr. Jordan. "The computer can read the (purchase
order) document. Humans don't have to do that."
As a result, Mr. Jordon contends, XML-based applications can help companies lower
the cost of doing business.
Mr. Jordan said his insistence on turning Microstar into a company that combines
product and service into one offering, instead of focusing on services or product
sales, is behind the company's latest stab at prosperity.
"If we're not in both the technology and service game, we wouldn't understand the
depth of the applications that are feasible with XML," he argued.
Yet Calian Technology is also expanding its business in technology services, a broad
area that includes the management of electronic documents.
A year ago, it acquired Ottawa's HST Group, Ltd., which provided technology
consulting services. The new HST division in Calian forms the basis of an aggressive
effort by the company to develop technology services such as project management
and application design skills, in order to recruit major clients from the aerospace to
the semiconductor industry. The creation and management of electronic documents
using the XML standard is part of Calian's new division.
And armed with Microstar's former executives, Calian poses a formidable threat to the
smaller company.
"One of the practice areas the technology services division will go after is document
management. It's likely that (Calian and Microstar's) markets will intersect at some
point," said Mr. Schreier, who heads up Calian's new technology services unit.
Microstar appears to welcome the added competition.
"I don't mind having competition," observed Microstar board member Jean-Pierre
Soubliere. "That means there are clients in the market."
Yet while Mr. Jordan remains confident that his decision to turn Microstar into a
combined product and service company was the right thing to do, the question facing
the company is whether it will have the time to prove its founder correct. |
