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IFS Bucking the Trends - Part 1

Written By: Predrag Jakovljevic
Published On: August 26 2010



IFS is a public business software company (listed on the Stockholm Stock Exchange) founded in 1983 with headquarters in Linkoping, Sweden and with US$362 million in revenues in 2009. The company develops, supplies, and implements IFS Applications, an integrated and component-based extended enterprise resource planning (ERP) suite built on service oriented architecture (SOA) technology [evaluate this product]. The vendor has about 2,700 employees and more than 2,000 customers (with 830,000 individual users) in more than 50 countries.

In terms of a functional footprint, IFS Applications is comprised of ERP, supply chain management (SCM)customer relationship management (CRM)product lifecycle management (PLM)business intelligence (BI)/corporate performance management (CPM), enterprise asset management (EAM), maintenance, repair, and overhaul (MRO), and projects (planning, accounting, and delivery). Make no mistake, IFS will not compete as a best-of-breed SCM, CRM, PLM, or BI solution, but these capabilities are more than adequate within the extended ERP context.



The vendor remains focused on higher-growth, asset-intensive, and project-based markets, such as defense, utilities, logistics, and oil and gas. Most recently, IFS’s go-to-market strategy has been to offer solutions based on industry excellence and a component-based product suite focused on the following four core (“large grain”) processes:

  1. Manufacturing

  2. Service & Asset

  3. Project

  4. Supply Chain


Namely, IFS has found lately that structural changes in the market such as globalization, specialization, modular value chains, etc., are making it harder to label companies purely based on their industrial affiliation. It is often better to position a company in the landscape of its business processes to illustrate its actual business challenges.

Indeed, although every industry has in some sense unique challenges and traits, quite often a company in a certain industry might have much in common with a company in another industry based on the way they operate. Thus, IFS believes that any kind of company positioning (and enterprise applications to support it) must be based on a combination of core processes and industry characteristics and how they should be applied in combination with each other.

IFS’s Lifecycle (Over the Last Five Years)

Alastair Sorbie has been IFS’s CEO & President since early 2006; this period has been marked by a renewed renaissance and ebullience. Initially, the company went through a phase of cost reduction and balanced cash-flow, closely followed by a phase of operational streamlining and stable profitability. After these two cost-driven phases in 2006 and early 2007 came a phase of focused operations and good profitability in 2007 and early 2008.

The revenue-driven IFS lifecycle continued in 2008 and 2009 with a phase of focused investments (acquisitions) and a strengthened market position. In fact, 2009 was a stellar year, with the company’s performance exceeding market expectations; IFS was one of the best performing stocks on the Stockholm Stock Exchange. The company increased earnings before interest & taxes (EBIT), revenue, and cash-flow during a difficult recession.

In 2009, IFS acquired a small Scandinavian vendor MultiPlus AS for its ship maintenance capabilities and launched the IFS Retail initiative in partnership with Centric, a Dutch IT service provider with retail expertise. The latter move coincides intriguingly with the advent of Microsoft Dynamix AX for Retail.

IFS Retail followed the model of previous successful joint ventures (in terms of product development and sharing profits and risks), IFS Defence in the United Kingdom (UK) and IFS-UFIDA in China, with Centric taking a 50.1 per cent interest in the joint venture company. IFS Retail is headquartered in Linköping, Sweden, and has been using all existing IFS and Centric operations internationally.

In 2009, IFS also assumed a new visual corporate identity (in terms of logos and coloring) where everything seems different, although nothing has really changed at the company. The color purple was reportedly chosen as part of the company’s heritage, which combines the passion of the color red with the trust and reliability of the color blue. At about the same time as the re-branding program, IFS relocated investor relationship activity to London, UK, where Sorbie is based (but also a number of prominent investment analysts).

Trends Continue in 2010

Some observers might have seen the first quarter of 2010 as underwhelming (if not necessarily disappointing), but IFS shrugged the bland quarterly performance off as planned. It was a seasonally slow quarter that was impacted by the strengthening of the Swedish krona. The underlying performance was in line with an expected currency-adjusted increase in product revenue.

In fact, some good strategic sales successes in target sectors in Q1 2010 have impacted the much greater performance in Q2 2010. The recently reported quarter and first half of 2010 show significant improvements along all key performance indicators (KPI’s), thus bucking the overarching recessionary trends.

IFS continues to do well during the ongoing recession for a few reasons. Firstly, the vendor has become a proven and attractive alternative for larger organizations, who find IFS a better fit and easier to work with than the large, mega vendors (SAP and Oracle). In addition, more and more organizations in IFS’ target market space have international operations, which drives them to adopt solutions that allow them to operate their entire business on a single platform, independent of geography.

These companies need to execute quickly internationally, and the vendor can demonstrate that the IFS Applications suite is well placed to serve that need.  Add to that a reputation for service excellence, and no wonder that there is an increasing interest in the IFS solution as an alternative to the tiring “usual ERP suspects.”

Another success factor is that IFS has been targeting industry sectors that are experiencing growth. Namely, markets such as defense or oil and gas are not affected by fluctuations in the world economy as much as some other sectors.  Therefore, tough financial times can be a trigger for them to do something different with their IT solution.

Some forward-thinking companies even use the down economy as a reason to stop a slow-moving (if not even languishing) project with large software players and instead go for a more agile and incremental solution with IFS. So , the down economy can work in IFS’s favor in a couple of ways.

Furthermore, IFS’s growth is coming in capital-intensive sectors such as aerospace and defense (A&D), energy, communications, engineering, procurement, constructions, installation (EPCI), infrastructure, process industries, industrial, and capital equipment. These are all growing markets where the vendor has established impressive customer bases and deep partnerships. IFS has become even more attractive to other companies in these sectors by using its agile development process to absorb users’ requirements into its product set.

Thus, IFS can quickly and continuously increase its advantage in those sectors. IFS can do this because its technology has been open, and is not really locked into any particular technology stack as are many of its competitors. Prospective customers prefer this choice that allows them to take advantage of potential new innovations in the market.

Healthy Ratio of New vs. Old Customers

Further along the lines of bucking the trends is the fact that IFS has a high percentage of recurring revenue from sales to a growing customer base. New customers are generally buying IFS because of its functionality as it relates to their abovementioned core business processes (e.g., capital projects, manufacturing, EAM and service, etc.,) but the enhancements IFS continues to make to the user experience design are also definitely playing a part.

For example, some of the larger ERP vendors may be able to demonstrate the ability to support the functional requirements for a particular industry, but it is the complexity, and not only in terms of user experience, but also the technology and infrastructure required to deploy the solution, that give IFS the edge. On the other hand, there are many smaller vendors that may have developed a user interface (UI) that it easy to use, but they rely on partners to develop industry-specific functionality.

For established global organizations, this setup can leave uncertainty as to who supports which piece of the solution and who will continue to enhance it. So, it is really IFS' combination of providing deep functionality and a rich user experience that is proving to be a strong differentiator. As a result, IFS has added many new customers in Q2 2010.

As for IFS’s existing customers, the IFS Enterprise Explorer (IEE) UI, Enterprise Applications Search (EAS), and other enhancements to the user experience are continuing to garner strong adoption, which in turn is driving the upgrade business. New functional components, such as Eco-footprint Management, are also showing strong interest with both new and established customers.

In many instances, the adoption is driven not as much as from these customers fully utilizing the eco-footprint functionality, but rather from knowing that when regulations require it they will be ready to comply. This is much more the case in environmentally-friendly and more regulated Europe than in other regions, but is especially true for companies with global operations.

IFS is also seeing a lot of activity with global companies that are expanding into other countries, either organically or by acquisition. The component-based architecture of IFS Applications enables these companies to more quickly expand into these regions with minimal disruptions to their business.

Part 2 of this blog series will analyze what the future might hold for IFS. In the meantime, your views, comments, opinions, etc. about the outlined market trends and about IFS Applications are welcome as usual. How do you think IFS will fare against its formidable competitors in light of its espoused strategy and recent concrete moves? If you are IFS Applications users, I would appreciate it if you shared your experiences with the product and the company.
 
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