Winners / Selection Rationale

Pro-Ship Incorporated

2017 17th Porter Prize Winner Development and sales of packaged software for fixed assets management
Pro-Ship has created the packaged software market for fixed assets management, and has sustained its leadership position by targeting large companies that manage complex fixed assets. By undertaking in-house all aspects of the operations (everything from product development to introduction and maintenance services), Pro-Ship achieves superior usability for customers as it pursues business operations centered on packaged software.
../../data/img__2017_03_p.jpgGeneral features of the fixed assets management software

Fixed assets management software is used for financial accounting, the payment of taxes, and business management. Financial accounting is subject to changes in the institutional accounting standards, such as J-GAAP and IFRS. J-GAAP has experienced frequent changes--recent examples from the last ten years include the introduction of asset-impairment accounting in 2005, a new lease accounting standard in 2008, accounting for asset retirement obligations in 2010, and prospective amortization in 2011. Those companies that switch to IFRS will need to change the fixed assets management system. The payment of taxes is subject to changes in national and local taxes. In 2007, the national tax abolished the residual value for fixed assets and changed the rules of amortization in 2007 (a 250% declining balance method from 2007 to 2012; a 200% declining method from 2012 onward). The depreciable assets tax in the local tax code requires conformity with the local tax portal system--eLTAX. Finally, management accounting began putting greater emphasis on return on assets (ROA) analysis and the transparency of financial reporting, in response to the Ito Report and the Stewardship Code in 2014 and the Corporate Governance Code in 2015. Moreover, there could be mutual effects between different areas such as changes in the reporting of tax effects under tax-effect accounting. Developers of fixed assets management software must understand the mutual effects and reflect them in the software. It is not easy to update the software in time for the introduction of changes in institutional accounting standards while maintaining compatibility with integrated business process management systems, such as enterprise resource planning (ERP) packages.

Pro-Ship is the leader in fixed assets management software, with more than 4,500 Japanese companies on its client list.

Unique Value Proposition

Pro-Ship's target customers are large corporations. The company develops packaged software for fixed assets management and provides its customers with introduction services. The company does not target small and medium-sized companies, which far exceed large corporations in terms of the actual number of companies. Pro-ship does not expand the scope of business beyond fixed assets management.

For most companies, fixed assets management software does not increase sales. In a sense, it is quite an inconspicuous product. Still, it requires highly specialized expertise, considerable effort, and a substantial financial investment to develop software that can respond to the changes in institutional accounting standards mentioned above.

The size of the market for fixed assets software is much smaller than the market for ERP software. Many people in the software industry believed that it would be impossible to develop a business focused entirely on fixed assets management software. At the same time, fixed assets management software has a high barrier to entry, as it requires specialized knowledge and frequent upgrades.

Pro-Ship's target customers are large, publicly listed companies and their group companies. These companies tend to have extensive fixed assets and operational issues proportional to the amount of fixed assets. These large companies have a need for sophisticated services that require a high degree of specialization. Also, large companies are able to pay for high value-added services supported by a high level of specialization. In contrast, small and medium-sized companies tend to consider Pro-Ship's products to be too expensive, with an excessively high level of quality.

Pro-Ship enables large companies and their group companies to manage the fixed assets of various business units and overseas subsidiaries with one packaged software. More and more companies want one unified system that can be used group-wide to accelerate the settlement of consolidated accounts and tighten internal control. Pro-Ship's product ProPlus can satisfy this need for a unified system. ProPlus incorporates as a standard feature an amortization calculator, which can be used for filing tax forms in 24 countries. As of April 2017, ProPlus was being used by 113 companies in 17 countries. (The majority of these overseas companies are subsidiaries of Japanese companies.) Competitors focus on the development of industry-specific packages (called "industry templates") for industries like the financial, medical, and automotive industries, with the aim of covering various market segments. For this reason, competitors are unable to provide comprehensive services (i.e. product development, introduction, and maintenance services) like Pro-Ship can.

Although ProPlus is a packaged software, it is updated frequently to respond to changes in institutional accounting standards. It is also customized to meet the client's specific needs. That is to say, clients benefit from the efficiency of packaged software for the needs shared by large companies, while also taking advantage of ProPlus' responsiveness to changes in accounting standards and the option for customization. ERP software, which covers broad operational areas, does not offer such advantages. Pro-Ship undertakes both on-premises installation (the packaged software is installed on the client's servers and network equipment) as well as cloud-based installation (the application is installed in the cloud, which clients can access and use through the Internet).

Pro-Ship charges for licensing fees and introduction fees depending on the number of users and the amount of fixed assets at the client company. This pricing system charges larger companies with a larger amount of fixes assets higher fees, because these are the clients who benefit most. In addition, the company always concludes maintenance contracts with clients, and Pro-Ship is able to turn its business transactions with these new clients into contracts for recurring services. On top of this, the company ensures the value of the long-term validity of its products by maintaining responsiveness to accounting and tax system changes, achieved through the provision of intimate maintenance services. As a result, leading companies in most industries use ProPlus. The cutting-edge needs of these good customers serve as a management resource for Pro-Ship, fueling software development and contributing to the acquisition and maintenance of specialized expertise. Such expertise makes it difficult for competitors to challenge Pro-Ship's dominant position in the market.

Unique Value Chain

Pro-Ship, by maintaining a clear focus on fixed assets management, outcompetes rivals with its ability to provide a quicker and more precise response to the client company's rapidly changing needs. By continually ensuring its client companies' ability to respond to change, Pro-Ship provides a long-term value that does not depreciate. The value chain that supports this value proposition is unique because Pro-Ship conducts in-house the core activities of product development, software introduction services, and maintenance services. The outsourcing of business activities is a common practice in the software industry, and internalizing these activities is sometimes more expensive than outsourcing them. However, by internalizing the entire value chain, Pro-Ship creates a feedback loop, which helps it to gather feedback from the market and incorporate changes in its products and services in a timely manner.

Marketing (Identify the latest market needs and gather information regarding possible upcoming changes to institutional tax and accounting standards)
Pro-Ship's customer base consists largely of the leading companies from every industry and every business field, companies that require sophisticated solutions and have specific needs pertaining to fixed assets management. As part of its efforts to identify customers' needs, Pro-Ship collects information about business requirements, computer system requirements, and any developments regarding changes to institutional accounting standards in Japan and other countries. Client companies provide feedback to Pro-Ship, and expect that their needs will be incorporated into the standard features of the company's packaged software and standard services, ultimately producing beneficial results for their own companies. They do not hesitate to provide feedback because, as leading companies, they put value on contributing to other companies through the sharing of their needs and know-how. Such input from leading companies is a unique asset for Pro-Ship (one that would be difficult for competitors to obtain) and one that differentiates it from other companies.

Pro-Ship uses two routes for understanding customer needs. One consists of routine activities, and the other involves a quick-response route. The routine activity route includes listening to customer feedback during business interactions; sampling a few companies and arranging client visits to conduct interviews afterward; and sending surveys by direct mail. This feedback is confirmed by conducting comprehensive surveys during User Group meetings, convened several times a year. As for the quick-response route, Pro-Ship calls for a meeting with the client company's CEO and directors when a company employee, during the course of providing introduction or maintenance services, notices the same "customer need" three or more times. Together they decide if the issue in question should be resolved in future products and services.

Product development
Superior packaged software is designed by drawing on a thorough understanding of the client's business operations. Products must allow for scalability and maintenance. Through its over 40 years' of experience developing packaged software, Pro-Ship has created a proprietary product development process and product framework. In addition to improving the operational functions, Pro-Ship builds into its packaged software a variety of mechanisms (such as redundancies to ensure the efficiency of its introduction services, and a system for collecting the log information required for maintenance services) based on expertise gained through in-house product development, introduction and maintenance services.

Pro-Ship's policy toward technology is to select mature technologies rather than adopt the latest technology. With mature technologies, it is easier for a company to: (1) achieve and maintain the high quality of its products; and (2) attract a sufficient number of individuals with technical expertise (specifically, mid-career software engineers). This is especially true for Pro-Ship's partner software companies.

Pro-Ship upgrades ProPlus three to five times a year in order to respond to changes in tax accounting systems or to enhance functionality. The definition of specifications and the choice of development priorities are centralized in a specialized unit at headquarters. As a result, the company can leverage its broad knowledge, noticing, for example, that it can respond to Hong Kong's tax system without much investment if it combines the specifications for Indonesia's tax system for the declining balance method of amortization with the tax treatment for special depreciation under Malaysia's tax system. Applying such knowledge would be difficult if a company had made the decision to localize the definitions of specifications and product development on a country-by-country basis.

Introduction services
Pro-Ship's customers are large companies that require complicated solutions for fixed assets management and IT systems. Although 80% of the customers use the standard ProPlus product, 20% of these customers require additional development for customization. In order to respond to this need for customization, employees engaged in introduction services must be knowledgeable about business operations, IT systems, and the scalability of ProPlus. Although customers pay additional development costs for customization, Pro-Ship retains the intellectual property rights for the newly developed software. This enables Pro-Ship to utilize the know-how it has gained through customization. The company will not accept a client's order if that client does not agree to allow Pro-Ship to retain the intellectual property rights. This is an unusual practice in the software industry, where the intellectual property that results from development undertaken for customization is usually transferred to the client or an intermediary.

In order to ensure high-quality introduction services, Pro-Ship defines the output for each step of the introduction process (i.e. "documentation and coding standards" and "standards for collecting evidence for testing"). These standards are applied to all introduction projects. Meeting these standards is a milestone for moving the project from the introduction phase to the customer support department, which handles maintenance services. The data recorded in accordance with introduction work procedures upon completion of introduction services helps staff members respond more efficiently to inquiries in the maintenance phase. This approach to the introduction method not only enables the company to achieve high quality, but also facilitates the career development of personnel. At Pro-Ship, engineers with a three-year tenure at the company can lead introduction projects. The industry average is about five years to achieve the same level. The introduction method is revised as needed.

Sales
Pro-Ship's sales activities focus on potential customers who have demonstrated interest by responding to advertisements or attending seminars. To these potential customers, Pro-Ship provides detailed explanations while demonstrating the software using actual equipment at an early stage. The company determines whether the packaged software matches the customer's needs, and drafts proposals that sometimes include additional development work for customization. Although it is the norm within the industry for engineers to accompany the sales staff and provide detailed explanations of product and proposals, Pro-Ship has its sales staff conduct demonstrations and explain proposals in most cases. Sales staff who can respond promptly to questions with detailed explanations and make reference to past projects involving other client companies demonstrates Pro-Ship's high level of specialization and reinforces its brand image as a company with a high degree of expertise.

Maintenance services
Maintenance services are provided to ensure stable operation by customers. These services include responding to inquiries, making software upgrades to accommodate system changes, and conducting an analysis of usage.

Pro-Ship develops a database of the inquiries that customers have made and the answers. By utilizing this database and the support provided by its own system for customer relationship management, the company can respond to 99.7% of inquiries with a preliminary answer within one hour. In the industry, there are cases in which packaged software makers respond to inquiries, while intermediaries answer inquiries for the customized components because they handled the introduction services. This makes the problem-solving process longer and more complicated. Pro-Ship manages a customer database that covers both packaged software and customized components, and undertakes generation management for each client company. This system enables Pro-Ship to respond promptly to customer inquiries.

Pro-Ship always wants to be the first in the industry to release new modules for upgrading the company's software whenever any changes are introduced to institutional accounting standards.

ProPlus keeps a record of the access log and operational log information for maintenance purposes. Through the statistical analysis of this data, Pro-Ship can propose ways to improve system usage regarding issues of which customers may be unaware. Pro-Ship does not wait for customer requests--it proactively makes proposals through its maintenance service, which increases the usage value of its packaged software.

Procurement
Pro-Ship experiences fluctuations in demand. There tends to be a large volume of introduction projects ahead of the implementation of tax and accounting system reforms. Pro-Ship's employees lead the introduction projects, with the employees of the company's business partners participating in some capacity. In the busiest season, business partners' employees comprise more than 40% of the introduction team. In order to ensure quality, Pro-Ship selects business partners who agree with Pro-Ship's strategy, possess a high level of technical expertise, and will contribute their specialized expertise. Partner companies join the projects, forming teams with their own employees. Teams are made up of more experienced members and less experienced members. This enables the less experienced members to upgrade their expertise and helps reduce costs. Pro-Ship has been working with the same partner companies for 10 or 20 years.

Human resources management
Pro-Ship gives employees in their early stages opportunities to accelerate their career development. Because the development and sale of packaged software is done in-house, employees with the necessary capabilities can take part in introduction projects for large companies, regardless of their length of employment at Pro-Ship.

Pro-Ship aims to create an organization in which management policies and strategies are shared with employees. Amid a healthy level of stress, there is a competitive environment inside the company, with employees learning from one another while experiencing growth, confident in the knowledge that they are contributing to the organization. In order to evaluate the contributions of the individuals who participate in projects, Pro-Ship conducts employee performance reviews. Each and every person, from the CEO to front line employees, are assigned to a position for one year. Eager to make sure that the right person is in the right position at the right time, Pro-Ship will have bosses and their subordinates switch places in some departments every year.

With the aim of continually ensuring that its talented staff members have satisfying work, Pro-Ship offers stratified education training, internal study meetings, and individual meetings with the CEO. The company employs a specialist system, encourages the observation of "No Overtime" days, and recognizes the performance of employees and teams by naming monthly MVPs and giving project awards. In addition, Pro-Ship defines its skill standards and operational process standards to improve productivity.

General management
Pro-Ship manages license fee income, maintenance fee income, and the project cost rate as key performance indicators (KPI) to improving the efficiency of operations. At the right time, Pro-Ship shares these performance indicators with employees to commence new PDCA (plan, do, check, act) cycles.

Fit among Activities

Pro-Ship puts the highest priority on continuously demonstrating a high level of specialized expertise in the area of fixed assets management. This strategic goal is realized by targeting the kind of sophisticated solutions required by large companies, and by providing a comprehensive package of services, comprised of product development, introduction and maintenance services. These three are Pro-Ship's core strategic choices.

In order to continually demonstrate a high level of specialized expertise in the area of fixed assets management, Pro-Ship chose not to develop ERP software. Instead, this focus on fixed assets management has enabled Pro-Ship to optimize all of its operations, and has made it possible for the company to develop a specialty and respond promptly to changes in institutional accounting and tax standards. Other companies that develop ERP software allocate attention and effort to ensuring the integrity of the software. This would result in an organizational structure and business processes that are very different from Pro-Ship's. In order to continually demonstrate its high level of specialized expertise in the area of fixed assets management, Pro-Ship has released a new product that features a responsiveness to changes in the accounting system, marking a first in the industry. The centralization of product development activities at the headquarters and the collection of market information at every touchpoint helps the company to achieve the earliest possible release of a new product. The demonstration of a high level of specialized expertise is not possible without people who possess specialized knowledge. In order to develop people who possess a deep understanding of the clients' business operations and IT technology, Pro-Ship has selected a human resources management system that: (1) utilizes performance-based evaluations; (2) puts a priority on making sure that the right person is in the right place at the right time; (3) gives employees one-year work assignments; and (4) encourages engineers with short tenures at the company to quickly develop their skills and expertise.

In order to respond to the needs of large companies, Pro-Ship keeps up with changes. The company collects market information at every touchpoint; provides comprehensive services (i.e., product development, introduction, and maintenance services); undertakes sophisticated customization development; and frequently upgrades its standard systems and services. The decision to target large companies makes sense because such companies have a willingness to invest in IT systems. Also, the package software's adoption by these companies has had a positive impact on the company's new customer acquisition.

Through the provision of comprehensive services (specifically, product development, introduction, and maintenance services), Pro-Ship can collect market information at every touchpoint and maintain its responsiveness to changes in the operating environment. Thus, Pro-Ship can continually demonstrate a high level of specialized expertise in the area of fixed assets management, and can respond to the needs of large companies. The provision of comprehensive services that cover product development, introduction, and maintenance include high-level development for customization and the application of know-how developed through customization of the company's packaged software, which is possible because Pro-Ship retains the intellectual property rights for its programs, and takes a proactive approach to maintenance services. These activities are supported by having one person in charge of all processes, from introduction to maintenance services; centralizing product development at the headquarters; and establishing long-term relationships with partner companies. (Please refer to Pro-Ship Incorporated's activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Focuses on the fixed assets management system for large companies. Pro-Ship has differentiated its fixed assets management system from accounting systems by highlighting the difference in the speeds at which these systems can respond to changes in market needs. By uncoupling the fixed assets management system from the other systems, Pro-Ship has been able to specialize in fixed assets management.
  • ProPlus is the only fixed assets management system that can be used by multinational companies uniformly across their global operations. The majority of accounting systems and production management systems have achieved a unified system for the company's global operations. With regard to systems for fixed assets management, most multinational corporations have installed separate local packages out of the belief that systems integration is difficult because "different countries have different tax systems." Pro-Ship has selected 24 countries, taking into account the needs of Japanese multinational companies, and has developed features that correspond to the requirements of the tax systems of these countries.
  • Employs a unique introduction method. Pro-Ship conducts several hundred introduction projects every year which utilize a proprietary method that is revised periodically according to necessity. Under this method, employees with less tenure at the company lead introduction projects. This approach helps Pro-Ship to quickly upgrade the skills and expertise of its engineers while simultaneously stabilizing the quality of operations.
  • Utilizes a unique pricing scheme. When determining the price it will charge its clients, Pro-Ship takes into account the number of users as well as the amount of fixed assets in the client company's possession. This practice of taking into account the amount of fixed assets when setting the price is unique to Pro-Ship.

Trade-offs

  • Does not develop an integrated software like ERP.
  • Does not target small and medium-sized companies.
  • Does not outsource introduction services to an intermediary.

Consistency of Strategy over Time

In 1980, Pro-Ship entered the market for fixed assets management software by introducing FASPAC-I. Since then, Pro-Ship has stayed loyal its original strategy choices: (1) develop in-house fixed assets management software; and (2) undertake direct sales to the target customer--large companies.

Pro-Ship was founded in 1969 as a consulting company. As clients moved toward the computerization of operations, Pro-Ship began offering customized development services for IT systems in 1971. Observing the growing popularity of packaged software in the U.S., a leading market for IT systems, the company released its first packaged software--accounting system software--in 1978. The company had planned to offer a lineup of products: packaged software for accounting, funds management, and fixed assets management. However, Pro-Ship found that the fixed assets management packaged software it introduced in 1981 quickly attracted customers. Although customized development was popular among Japanese companies, Pro-Ship was able to persuade customers that packaged software would be good enough for fixed assets management because there was not much difference among companies in business processing operations, which must conform to tax laws. As the fixed assets management software grew to become the company's strongest-selling product, Pro-Ship redirected the majority of its resources to that product.

Pro-Ship selected large companies as the target customer because only large companies could afford to own general-purpose computers, which cost between several hundred million yen and several billion yen in the 1980s. For this reason, not only Pro-Ship but also the majority of software developers targeted large companies in the 1980s. However, the 1990s saw the downsizing of hardware and the open-sourcing of technologies. Against this backdrop, a market for packaged software for small and medium-sized enterprises (SMEs) was formed. Software developers moved their target to the SME segment. Despite this trend, Pro-Ship has repeatedly chosen not to change its target customer, and has instead maintained its focus on large companies.

Pro-Ship introduced a new product brand, ProPlus, and released the ProPlus Fixed Assets Suite in 1995. This product marks a major shift in skills, because the company switched over to personal computer-based technology for its software, as did many other industry players. The emergence of the packaged software market for SMEs accelerated the influx of new rivals into the market for packaged software development. In the process, packaged software gained broad market recognition. As the number of companies installing ProPlus reached 300, Pro-Ship started being approached with offers from competitors seeking an alliance or partnership with the company. In the industry, whispers could be heard about "informal collaborations" and "quarreling while shaking hands" as competitors discussed the possibility of becoming collaborators. However, Pro-Ship remained firm in its decision to keep the development, introduction and maintenance activities in-house, rather than collaborate with competitors.

As the year 2000 approached, many large Japanese companies began using ERP packaged software like SAP and Oracle (developed by overseas players). Once these companies learned that the fixed assets management components of the ERP packaged software did not meet the needs of Japanese customers, overseas ERP venders approached Pro-Ship about working with them. Pro-Ship provided the standardized interface for Oracle's ERP, so that Oracle Japan could introduce ProPlus to its clients. Still, even under this arrangement, Pro-Ship formed contracts directly with customers, retaining the company's brand name, and had its own staff provide introduction services. Thus, Pro-Ship was able to maintain the core of its strategy. Similar arrangements have been made with other major ERP venders, so that Pro-Ship's fixed assets management system can work well with any accounting system the client may choose.

After 2005, many changes were made to the institutional accounting and tax standards for fixed assets management. Pro-Ship received even more proposals from other companies. Leading system integrators asked Pro-Ship to provide a fixed assets management component for its ERP software, to be supplied on an OEM basis. A large consulting firm offered to provide a sales channel, with an eye toward a capital tie-up. A package vender who targets SMEs proposed the mutual sharing of customers, an arrangement that would allow the package vender to gain access to the large company segment while enabling Pro-Ship to enter the SME segment. Pro-Ship accepted none of these offers.

Pro-Ship's strategy has always maintained a focus on large companies and fixed assets management, and the company has been continually demonstrating its high level of specialized expertise, developed by undertaking direct sales of its products and services for the entire course of its history.

Profitability

Both the five-year average return on invested capital and return on sales exceed the industry average by a wide margin. (Profitability analysis was conducted by PwC Japan.)

Activity System Map

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