Compuware Corporation Business Information, Profile, and History

Company Perspectives:

Compuware will be the best worldwide provider of quality software products and services designed to increase productivity. We will continue to create practical solutions that meet our customers' needs and surpass their expectations. We will provide an environment for our employees where excellence is encouraged and rewarded and where diversity is promoted at all levels of the company.

History of Compuware Corporation

Compuware Corporation is one of the largest software developers in the world, serving some 3,000 corporate clients by developing, marketing, and supporting systems software products that help maximize efficiency and contain costs, among other things. From more than 100 offices in 45 countries, Compuware focuses on information technology (IT) solutions for a wide variety of clients including Ford Motor Co., Blue Cross/Blue Shield, Safeway, and PacifiCorp. Compuware counts among its clients some 90 percent of the Fortune 100 companies, and it strives to serve all clients according to its defining principles: the customer, service, excellence, integrity, diversity, diligence, and creativity.

Early Years

Compuware was established in 1973 by three cofounders: Peter Karmanos, Thomas Thewes, and Allen B. Cutting. According to a Detroit News report, Karmanos, Thewes, and Cutting pooled $9,000 to establish the company. Their original mission statement was: "We will help people do things with computers."

The first office occupied by the fledgling company was located in Southfield, Michigan. Originally, clients came to Compuware for data processing professional services and help with computer installations. In addition, Compuware offered "programmers for hire" to provide additional manpower for specific client projects or to create solutions to particular needs. Unlike other companies specializing in software and computer services for a specific industry, Compuware differentiated itself from competing companies by its emphasis on diverse applications of mainframe computer technology. Karmanos, quoted in the company's 20th anniversary publication, stated: "We were there to help them solve computer problems. ... We were a resource--a technology resource--to help our customers work smarter and be more productive."

Compuware continued in its original role as a provider of data processing professional services until 1977 when the company entered the software market with a fault diagnosis tool called Abend-AID. The name Abend-AID was derived from the term abnormal end, which referred to unexpected system errors or failures. These types of problems were often caused by faults in computer programs, changes in system environments, or other errors or failures.

Prior to the availability of Abend-AID, computer programmers confronted with abnormal end situations were required to use manual techniques to test and debug programs. The process involved preparing trial transactions through lengthy procedures such as manually creating experimental entries, writing special test programs, and reviewing program logic. Compuware called this process "tedious, time consuming, and error-prone." The Abend-AID program worked automatically. It intercepted system error messages during actual program execution. This enabled programmers to pinpoint precise error locations and identify the cause of the failure. Abend-AID also offered recommendations for necessary corrections.

Because mainframe computers were critical to business operations, time spent correcting problems often had a significant effect on a company's ability to conduct business. Quick remedies helped reduce the amount of downtime associated with computer problems and helped reduce programmer manpower costs. Abend-AID's success in the marketplace enabled Compuware to become established as a major force in the industry.

A New Focus on Software in the 1980s

Following the introduction of Abend-AID, Compuware organized a products division to sell Abend-AID and other software packages. Although the company continued to provide services, the percentage of total revenue generated by the services division grew smaller as sales from the products division increased. The company's offerings focused on integrated systems software products designed to improve programmer productivity through program testing, data manipulation, interactive debugging, and fault diagnosis.

Interactive analysis and debugging products were tools to help programmers identify and correct errors in software by evaluating the quality of a program's code and logic. They worked by enabling a programmer to use either test or production data and progress through a program one statement or statement group at a time. Whenever an error was detected, the programmer could stop and make an immediate correction. Using this process, programs could be tested one step at a time until they were free from errors. The first software package in the interactive analysis and debugging product line, MBX Xpediter/TSO, was introduced in 1979. In 1983 Xpediter earned Compuware its first International Computer Program (ICP) award, granted in recognition of $1 million in sales.

File and data management software packages were used to automate test data preparation, thereby insuring the integrity of the data manipulated by programs. Compuware launched its line of file and data management products in 1983. The first offering in the line, File-AID, was originally sold under an exclusive marketing arrangement with another company, but rights to the program were purchased by Compuware in 1992. Using File-AID, programmers had immediate and direct access to the data necessary to conduct tests and analyze production work. Although early File-AID products were designed for IBM and IBM-compatible mainframe computers only, subsequent File-AID products were designed for other types of computers.

CICS-dBUG-AID, designed for use with IBM's CICS (Customer Information Control System) was introduced in 1985. The following year, Compuware introduced MVS PLAYBACK, the company's first product in its automated testing line. PLAYBACK simulated an online systems environment that helped computer technicians execute transactions and check data created by manipulation. PLAYBACK streamlined testing procedures by reproducing a real-time environment without requiring that network users staff terminals or even that the communications network be active. Products in the PLAYBACK family offered five phases of testing: the ability to test a single program from a single terminal; the ability to test a single program from more than one terminal; the ability to test the integration of more than one program; the ability to test a program's proficiency at varying production volumes; and the ability to confirm that programming changes made no unexpected consequences in other areas. Subsequent products in the PLAYBACK line permitted the creation of training sessions for network users.

Compuware entered a phase of rapid growth during the second half of the 1980s. In 1987 Inc. magazine ranked Compuware among the fastest growing privately held companies in the United States. Its premier product, Abend-AID, received an ICP $100 million award, and IBM recognized Compuware as a business partner-authorized application specialist. In addition, Compuware expanded its global presence. Following a decision to operate in Europe through wholly owned subsidiaries, Compuware acquired European companies that had been distributing its software products in England, France, Italy, Spain, and West Germany.

To accommodate its expansion, Compuware announced a decision to build new headquarters in 1987. The $20 million facility, located in Farmington Hills, Michigan, provided 165,000 square feet of space in addition to a 4,000-square-foot satellite facility in Southfield, Michigan. When Compuware moved in, it employed 746 people and expected to increase its staff to 995 within a year. The company's annual compound growth rate for the previous five years stood at 34 percent. Software products accounted for 65 percent of revenues; professional data processing services contributed 30 percent; the remaining sales were generated from software developed for specific markets and from educational resources. As the 1980s ended, Compuware broke the $100 million mark in total annual revenue.

Going Public and Further Growth in the Early 1990s

The 1990s brought an increased interest in expansion and growth through acquisition. For example, in 1991 Compuware merged with Centura Software in a move aimed at strengthening its interactive analysis and debugging product offerings. Compuware also increased the attention given to smaller computers. Although the company historically had focused on the sale of mainframe programming software, it released a version of File-AID able to test and edit mainframe data files on personal computers (PCs). File-AID/PC enabled program developers to move blocks of data from mainframes to PCs where they could be scrutinized, copied, edited, modified, or printed. The technology provided a means for discovering programming flaws in a quick manner.

Other new products introduced in 1991 included DBA-XPERT for DB2 (a database management program) and Pathvu/2 (an OS/2 version of a previously released interactive analysis and debugging product). Like its mainframe counterpart, Pathvu/2 provided programmers working with COBOL an automated analysis and documentation tool to evaluate the structure of the programming code. To show what was happening within a program and to document missing elements in the code structure, Pathvu/2 created a graphic display of the program's organization. Compuware reported total revenues of $141.8 million in 1991.

In 1992 Compuware established Compuware Japan Corporation. Compuware Japan's main office was in Tokyo, and company officials hoped to add a branch in Osaka. Compuware Japan planned to focus on adapting existing products for Japanese programmers using Fujitsu and Hitachi hardware in addition to IBM mainframe equipment. The following year, Compuware further expanded its presence abroad with the establishment of Compuware Corporation Do Brasil. Brazil was estimated to be the fifth largest IBM mainframe market in the world. Compuware's move followed a policy change relaxing government-imposed import restrictions on computers and software. Company officials expected the Brazilian subsidiary to be well positioned to serve the emerging Latin American market.

Compuware's initial public offering of common stock occurred in 1992. The stock was offered at $22 per share and 5.5 million shares were sold by the company. Net proceeds (after underwriting discount and other expenses) totaled $111.5 million. In addition, existing shareholders sold 3.9 million shares of common stock.

Despite the successful stock offering, 1992 also marked the first year since Compuware's inception that the company failed to earn a profit, when it reported a net loss totaled at $23.8 million. According to a published statement, the lack of profitability was attributed to special pretax charges of $52.6 million related to expenses surrounding its acquisition of XA Systems Corporation. XA Systems software products were classified primarily as file and data management tools.

In a move designed to augment its fault diagnosis product line, Compuware purchased the Eyewitness product line from Landmark Systems Corporation in 1993. The acquisition increased Compuware's product line to 27 software products. As of March 1993, Compuware had licensed more than 41,000 copies of its products to more than 5,700 customers around the world. Software license fees and maintenance fees produced 74 percent of the company's total revenues. The remaining 26 percent was generated from professional services.

Compuware's Professional Services Division operated branches in seven locations: Baltimore, Maryland; Columbus, Ohio; Colorado Springs, Colorado; Lansing, Michigan; Toronto, Canada; Detroit, Michigan; and Washington, D.C. Most of the revenue generated from the services division was received from business application programming services. Business application programming services were those in which Compuware's programmers wrote original software to perform a particular function. Other services division operations included analyzing business problems and using computer techniques to overcome them; providing conversion services to organizations switching from one type of computer environment to another; systems planning, a service involved in identifying business objectives and information requirements to make recommendations for hardware and software; and consulting. Although revenues earned by the services division typically carried lower profit margins than did revenues earned by the products division, Compuware stated that it remained committed to providing services to its customers.

Despite its growth and expansion, Compuware's executives insisted that the company's basic mission remained unchanged: to help people do things with computers. They acknowledged, however, that the processing power of computers had changed vastly during the company's 20 years in business.

One significant change within the industry was the expanding presence of PCs. Some industry analysts had criticized Compuware's emphasis on mainframe computer technology. In response, Compuware noted that the 36,000 mainframe computers in operation were running "mission-critical systems" applications that were not suited to PC technology. These included credit card authorization services, airline reservations, and online banking. According to Compuware's data, only 13 percent of mainframe computer operators used software to diagnose faults. Even less used software for debugging, file and data management, and automated testing. Compuware's own analysts felt a sufficient base existed for expansion in the mainframe market.

Nevertheless, in 1993 Compuware turned its attention to the PC arena with its acquisition of EcoSystems Software, Inc. The EcoSystems product line included programs designed to be used in PC networks. The PC market differed significantly from the mainframe market because of the wide variety of computer hardware manufacturers and operating systems employed. Two new products were added to the EcoSystem line during the second quarter of 1994 to help network clients schedule batch jobs and better manage database environments.

In early 1994 Compuware acquired Uniface Holding B.V. in a stock trade worth $268 million. Uniface, based in Amsterdam, Netherlands, was a supplier of client-server (network) application and development software. According to Crain's Detroit Business, industry watchers expected the acquisition to provide Compuware with a strong presence in the PC market at a time when its mainframe software licensing was still growing at a rate of about 30 percent. The acquisition also was expected to give Uniface a greater presence in the North American market. Two additional acquisitions in 1994 were Computer People Unlimited, Inc. and Meta Technologies, Inc., both information technology service firms. Compuware also purchased several product lines from other companies, including Advanced Programming Techniques Ltd.'s Oliver and Simon interactive analysis and debugging software. An indication of Compuware founder Peter Karmanos's growing wealth was his 1994 purchase of the Hartford Whalers, a National Hockey League team, which he later moved to North Carolina and renamed the Hurricanes.

In the fall of 1995 Compuware acquired CoroNet Systems of Los Altos, California, a maker of networked applications management software, and renamed the company's product EcoNet. That purchase was followed quickly by several more, including Icons GmbH of Germany, Technalysis Corp. of Minneapolis, Direct Technology Ltd. of England, and Adams & Reynolds, Inc. of Cleveland. Direct Technology made software testing products; the others were computer service firms. Compuware was increasingly offering products and services that addressed the "Y2K" computer software problem, and revenues from this business segment were growing rapidly as the magnitude of the problem became known. Annual revenues for fiscal 1996 hit a peak of $614 million. Compuware's overall growth had slowed, however, due in part to the lackluster showing of Uniface, and the company reorganized its structure during the year.

In 1997 Compuware purchased Vine Systems, a London, England-based consulting firm, and NuMega Technologies, Inc., of New Hampshire, which provided debugging services and products to Windows software developers. The following March the company acquired UnderWare, Inc., a Boston software defect tracking tools maker. Additional Y2K products also were being introduced by the company during this period. Sales topped $1 billion for the first time in fiscal 1998, with services accounting for nearly two-fifths of Compuware's revenues.

The company had been growing by leaps and bounds, but was still in the same Farmington Hills, Michigan, headquarters it had occupied for more than a decade. Karmanos was seeking a new home, and the nearby city of Detroit was bending over backward to lure him to its underused downtown. In early 1999 an agreement was reached for the company to move there. Two new buildings were to be constructed at a cost of $1.2 billion. To lure Compuware downtown, the city had agreed to purchase software and services from the company and provide it with huge financial incentives, including cutting the city's business tax. In April Compuware announced record sales of $1.64 billion for the fiscal year with net income of $350 million.

The company's acquisitions continued in the summer of 1999 with the purchase of Data Processing Resources Corp. of Irvine, California. The $450 million deal would give Compuware 3,400 more employees and greatly broaden the company's service business. Compuware's profits had been growing faster than its revenues, leading Business Week magazine to rank it number six on its 1999 list of 50 top-performing companies.

Beginning its second quarter-century in business, Compuware could boast of sales to most of the Fortune 100 companies and a 97 percent customer renewal rate. The company was making acquisitions at a rapid clip both to broaden its product line and to boost its presence in the service business. The Y2K problem was providing the company with a temporary surge in income, but it seemed certain that Compuware would be around long after the dust had settled on that particular issue.

2000 and Beyond

The 21st century brought new challenges to Compuware, above and beyond the soon-forgotten Y2K scenario. In 2002, the company embarked on a costly lawsuit against IBM, claiming that IBM had stolen a proprietary software source code. Compuware's external legal fees related to the lawsuit against IBM increased each year, costing the company $12.5 million in 2002, $34.6 million in 2003, and $45 million in 2004.

Such large legal fees, in fact, contributed to Compuserve's restructuring initiative, beginning in late 2002. The company's work force was cut by 1,600. Restructuring efforts also included a focus on acquisition in order to, according to CEO Karmanos, "fill in product and service gaps." Toward that end, Compuware acquired Changepoint Corporation, a project performance management software supplier, for $100 million, and Covisint LLC, an online automotive entity, for $7 million.

Despite burgeoning legal fees and restructuring, Compuware leadership purposefully avoided offshore outsourcing strategies. Instead, the company planned to develop better products and provide better service, according to CEO Karmanos. Said Karmanos, "I'm not interested in supplemental staffing, I'm not interested in being the cheapest supplier. I'm interested in delivering high-value technology solutions and building a company on that foundation." Karmanos suggested that offering more value to customers was key in battling offshore companies.

Meanwhile, Compuware continued to explore ways to offer additional value to customers, to function more efficiently, and to partner with the community. In 2003, the company moved to its new Detroit headquarters, a base for over 4,000 workers which united the company's southeastern Michigan workers and enhanced operations efficiency. Compuware had gained a new client during this time in the Detroit Public Schools, and was recognized for its efforts in saving the school system over $3 million and helping it accomplish technology goals set years prior.

Principal Subsidiaries: Compuware Ltd. (United Kingdom); Covisint LLC.

Principal Competitors: Computer Associates International Inc.; International Business Machines Corporation; Electronic Data Systems Corporation; BMC Software Inc.

Chronology

• Key Dates:
• 1973: Three suburban Detroit friends start a company offering computer programming and set-up services.
• 1977: Company introduces its first software product.
• 1978: Company expands geographically with an office to serve Baltimore and Washington, D.C.
• 1987: New headquarters in the Detroit suburb of Farmington Hills are constructed.
• 1992: Compuware goes public.
• 1998: Revenues surpass the $1 billion mark.
• 2003: A new, one million square-foot headquarters facility in downtown Detroit is completed.