IFS To Be At Customers' (Web) Service

IFS To Be At Customers' (Web) Service
P.J. Jakovljevic - July 2, 2002

Event Summary

At the end of May, IFS AB (XSSE:IFS), a Sweden-based global mid-market enterprise applications vendor, announced that its latest product release, IFS Applications 2002, which was launched at the beginning of the year under the slogan "Packaged for Payback", includes full support for XML-based Web services as one more way to offer to its customers significant cost and time savings without disrupting operational systems. To that end, IFS Applications 2002 includes the latest version of the IFS Connect integration framework, which provides uniform XML-based integration of all business processes and offers a platform-independent architecture that supports XML-based collaboration between companies as well as a web server solution based on the J2EE Java Servlet standard.

Reportedly, EDI transactions, business documents, reports, event notifications, and business services are all available as XML interfaces each with its own XSD (XML Schema Definition) descriptions detailing its use. IFS Connect can either be used as a stand-alone, handling tasks such as message transformation and enveloping, or with other integration products, as support for Microsoft BizTalk Server and IBM WebSphere MQ is provided as standard functionality.

IFS Applications 2002 features a number of other technology and functional enhancements, such as a refined component architecture, which should allow step-by step-implementations for rapid return on investment (ROI), and a number of new industry-related components and features, such as:

  • Enhancements that should cut costs, including supply chain planning (SCP) capabilities which could reduce order cycle times by as much as 50%

  • Solutions for expanding into new business opportunities, including new customer relationship management (CRM) functions for increasing sales of aftermarket products and services

  • Above-mentioned packaged XML interfaces and out-of-the-box support for SOAP, IBM MQ-series, and Microsoft BizTalk Server

  • Numerous other features for achieving faster implementation and ROI, including advanced web-based training capabilities

This is Part One of a two-part analysis of the Market Impact of recent IFS announcements. Part Two will continue the Market Impact and make User Recommendations.


The announcement follows the May 14 report of bittersweet results for the first quarter of fiscal 2002 amidst a non-relenting gloom within the market. Total revenues during the first quarter increased by a slim 2% to $72 million, compared with $70 million for the first quarter of 2001 (See Figure 1). However, adjusting for divestments of TCM operations and the subsidiary, Intercim, in 2001, total revenues for comparable units focusing on IFS Applications rose by 7%, while the top 10 global vendors of business applications supposedly reported an average drop of 2% in sales. Moreover, license sales were up 12% to $29 million, compared with $26 million in the first quarter of 2001, which might indicate IFS Applications software continues to win market share.

Figure 1.

Revenue derived from IFS Applications increased by 24% when comparative figures for the first quarter of 2001 were adjusted for sales of other software in operations divested during 2001. On the other hand, license revenue for the 10 largest business applications vendors reportedly decreased by 18% during the first quarter of 2002. Furthermore, IFS North America reported net earnings of ~$1.5 million and has meanwhile become IFS' significant market with ~33% of total license revenues, achieving thereby 29% increase in license revenue while a majority of its US-based peers reported close to 25% dip in new licenses.

Although the cash flow from current operations improved by $2 million, it was still a negative $3 million, leaving the company with modest liquid assets of only ~$6 million. After net financial items, IFS also reported a loss of $6.6 million, compared with a loss of $7.4 million for the same period in 2001, although the company reported a slight net profit owing to exercising tax credit option. Further actions are being implemented to increase sales and reduce costs, as the earlier measures to reduce costs and improve cash flow have admittedly yet to produce satisfactory results (indirect costs per employee increased by 9%) and will be intensified and scrutinized during the remainder of the year.

In its outlook for the rest of the year, IFS expects continued cost containment rationalization coupled with further, although tamed, growth to result in improved earnings for the rest of 2002. To that end, the product development will be more sharply focused on refining functionality, particularly within specific vertical industry segments that are of strategic interest for IFS and its premium partners.

For example, highly focused development efforts are being made in the aviation and defense sectors in collaboration with BAE SYSTEMS-IFS and GE Engine Services to further expand the product offering. Other partnerships and alliances have reportedly developed as well, resulting in greater market penetration and an increase in the number of prospects. In other words, 16% of license revenue was derived from partnerships and alliances, compared with 6% for the first quarter of 2001.

The total number of employees at the end of the period was 3,221, compared with 3,556 during the first quarter of 2001. Consequently, sales per employee rose by 13% to $22,000, compared with $20,000 during the corresponding period in 2001. The company expects the market for business applications to recover during 2002, especially during the second half of the year, and itself to grow by 5 15%, meaning faster than the market, but at a slower pace than during previous years. With the long hoped recovery in the market, IFS believes it can increase revenue within its existing organization, and achieve positive earnings for 2002.

Market Impact

IFS has a mixed mixed blessing performance a growth and the delivery of new exciting product features on one side, with losses that have decreased due to cost-containment programs and the fact that the infrastructure for growth is already in place. Still, IFS' results and product footprint should indicate that it is possible to spar with the bigger, more resourceful players provided you have an attuned approach. It may, therefore, be very simplistic to narrow the future battle for the mid-market down only to a duel (and the ultimate victory of one side) between the likes of SAP (on the higher end) and of Microsoft (coming from the lower end of the market), as the likes of J.D. Edwards, Intentia, Baan, Frontstep, Epicor, and QAD to name only some out of several dozens notable players, have still much to offer and to give these powerhouse aspirants run for their money.

Nonetheless, IFS has had to shift its emphasis from an astronomic high growth and an entrepreneurial spirit of previous years to its current focus on profit. The company has realized and addressed the seriousness of its protracted poor financial performance, by focusing on profitability/positive cash flow, balanced growth through more reliance on growth and product enhancements through strategic partnerships, and product development costs tied to new sales. Still, flawless execution and delivery of positive cash flow are yet to happen.

One should still expect better financial performance in the future given the curbing of R&D expense and increased fiscal discipline, with a modest growth worldwide owing to IFS' expertise in particular vertical niches. Additionally, while the company's revenues have been predominantly new business oriented so far, its now well-established growing installed base should provide healthy maintenance revenues in the future. The company has likely already incurred a vast majority of the cost of investment in all its technology, functionality and international expansion feats, and it should now be poised to become one of the more prominent and stable players in the worldwide enterprise applications market.


IFS had first invested in the advanced product technology foundations (up until 1998) and thereafter into a simultaneous expansion in the vertical functionality and worldwide coverage, which had been winning it increased market share especially against competitors whose product technology has meanwhile become quite outmoded. Recognizing also its scalability limitation, in addition to the rigidity of its erstwhile two-tier client/server architecture, IFS embarked first in the mid 90s on creating an n-tier' product architecture that would separate presentation, business logic and data storage layers, and also render IFS independent from the Oracle tools and the use of stored procedures in the Oracle RDBMS.

Also, by initially using the Rational Rose tool as an object repository, and subsequently by delivering its own component generator, IFS has meanwhile converted all its functionality into bite-size components. Customers now receive the IFS object and component library and the ability to also create their own components within the context of the IFS Applications. The company also provides its quality and distribution system (QDS), which provides the ability to manage the IFS Applications version control, but also the version control of the customer's implementation project and/or its modifications of the product.

During the early 2000s till today, IFS has still been investing heavily in product development to complete the new versions of its business applications, IFS Applications 2001 & 2002, which should keep the company abreast (if not ahead) of the latest market trends.

First, IFS Applications 2001 was heralded as the fully Internet-enabled and componentized five tier architecture suite (with the Data Source, Business Entities, Business Activities, Business Processes, and Presentation layers), covering most of traditional horizontal ERP functionality via a mandatory IFS Foundation layer, on top of which one can build in a pick & mix' manner functional module stacks needed to satisfy needs of more specific businesses. These have been built out through the company's own R&D and/or some acquisitions, both endeavors using the industry commonly accepted standards.

IFS reported over 500 functional enhancements over the IFS Applications 2000 version, as the 2001 release majored on the multiple configurable personalized web portals and its extensive toolbox for utilizing intranets and extranets. The product featured considerable pragmatic use of web technologies both for real time communication and event-based processing (via IFS Event Server) and for application presentation. The system has also been built out further in terms of SCM functionality and visibility and demand planning, as well as specialized vertical functionality, for example, lean/flow manufacturing traits for the automotive sector.

In late 2000, when the product was launched, the hot items' were new e-procurement, CRM, flow manufacturing, portal, and wireless capabilities. Furthermore, at the beginning of 2001, IFS announced an enhanced advanced planning & scheduling (APS) system featuring new Web-based "portlets" to provide improved demand forecasting visibility across the supply chain. Later in the year, it launched its new eMarkets solution that should provide support for both private and public exchanges (marketplaces). Last but not least, the company announced IFS Engage, a portal-based packaged solution aimed at helping medium-size manufacturers to foray into collaborative commerce. IFS Engage helps manufacturers relatively quickly extend their existing ERP applications into e-Business, e-CRM, and extended SCM in a manageable, incremental fashion. The first modules available through IFS Engage were CRM, collaborative planning, vendor-managed inventory (VMI), collaborative project management, and subcontracting, with many others envisioned for the future.

IFS Applications 2002

While IFS Applications 2002 might not have that many functional enhancements like its predecessor, it will substantially add to all the above with an expanded foundation layer, cross-business functional layer and module stacks, as well as with CRM and SCM functional extensions and portal technology. For instance, top line executive information systems (EIS) available to date indicates ~150 'efficiency drivers'/key performance indicators (KPI's) through its portals and collaborative processing, while there is also a smoother integration through IFS Connect and an 'e-learning' initiative for the users.

IFS, by splitting functionality across over 60 independent modules, and by having a five-tiered object-oriented logical product architecture, which separates presentation layer from business process from the underlying required business logic, database access, and the database itself, demonstrates possibly a unique epitome of flexibility, both in terms of product adaptability to defined (and ever-changing) business processes, as well as the ability to "cherry pick" required modules.

Companies can, as they see fit, select modules to co-exist with other, legacy applications and databases, or simply to avoid the "big bang," monolithic approach to enterprise application implementation that has long been overcome as a practice. They can add components at their leisure and pace, which allows for user adaptation to the new tools, and for the companies to begin receiving ROI quickly by staging their implementation scope in order of criticality. Built-in XML support and the external availability of all internal API's mean integration between IFS components and other companies' software is a reasonable endeavor.

Owing to the component architecture, customers can, e.g., install the latest version of the IFS Connect component even while still using an older version of IFS Applications. Therefore, IFS' foray into Web Services has much credibility, since the company has likely dealt with the pieces of the concept before the latest industry buzzword has been coined. Namely, using Web Services objects, IFS Applications components are driven by business processes, which, by the nature of encapsulation (i.e., making functionality known only by the interface it exposes), bode well for the ongoing product's instance agility.

This concludes Part One of a two-part analysis of recent IFS announcements. Part Two will continue the discussion of the Market Impact and make User Recommendations.

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