On Jan. 25, 2007, Siemens AG President and CEO Klaus Kleinfeld addressed shareholders during the company's annual financial meeting. He opened his remarks by outlining the grim details of a bribery scandal that would send shockwaves throughout the organization. But, perhaps more surprising, was the announcement that Siemens would acquire UGS, the Dallas-based maker of CAD/CAM and product lifecycle management software.

Word of the scandal and the planned acquisition spread around the globe as fast as the World Wide Web could carry it, and when UGS employees heard the juxtaposition of these two news items, their initial excitement about the impending deal turned to uncertainty.

"We were all, like, you've got to be kidding," said a UGS insider. "The timing of the announcements made many of us feel like the deal might not come together."

The $3.5 billion deal did indeed come together in May 2007, but not without much speculation and critical commentary from industry analysts. Criticism arose not because of the scandal, but because the acquisition strategy seemed implausible to many people, both inside and outside of the company.

Everyone knew that UGS, now called Siemens PLM Software — which before the acquisition was owned by three private equity firms — was ready either to go public or be purchased. But when news surfaced internally that it would be an acquisition by a German company with a name starting with "S," everyone assumed it would be SAP, a software company.

Why was Siemens, with a core competency in industrial hardware, buying UGS, a software company with more than $1 billion in debt and a product line that appeared not to fit anywhere into the Siemens portfolio? And how would the German giant assimilate this independent American entity amid culture differences specifically related to management style? More important, what was this digital factory vision that Anton S. Huber, CEO of Siemens Industry Automation Division, spoke so passionately about?

Explaining the thinking behind Siemens' move, Huber says the biggest pain point for manufacturers is the ability to manufacture products in a timely and cost-effective manner. Tying PLM and simulation tools together with industrial automation control architectures — which is the cornerstone of the digital factory concept — will let manufacturers unify virtual and physical domains and get a product to market in half the usual time, he says.

Acquiring UGS was critical, Huber says, as it not only added the PLM and modeling technology required to marry the virtual with reality, but it also brought in software engineering expertise, thereby equipping Siemens with all the pieces it needed to connect the digital factory dots.

"We think we have all of the ingredients to [deliver] this to the industry the fastest," Huber says. "And the competition will follow."

To some extent, he is being proven right. The first sign came in December 2007, when Rockwell Automation and Delmia, a division of Dassault Systèmes, outlined a technology partnership based on an object-oriented database that provides a bidirectional information exchange between a digital design and the control architecture. Both Rockwell and Dassault have said the relationship is not exclusive and they will seek out similar partnerships.