& Financial Systems, IFS AB is an internationally established provider of an
extended enterprise resource planning (ERP) software package for medium-to-large
sized companies. It covers manufacturing, supply chain management, financials,
maintenance management, human resources, engineering, and front office. Founded
in 1983, with headquarters in Linkoping, Sweden, IFS AB is the world's fastest-growing
ERP vendor, with $155 million in revenue in 1998 (96% revenue growth compared
to 1997). The Company has a history of remarkable growth, with an average of
52% annual growth over the last five years. During its early years, IFS built
up specific expertise in relational database technology, and linked this with
the knowledge of preventive maintenance, which it had acquired in connection
with assignments in the nuclear power industry. This resulted in the development
of IFS Maintenance, the first software product of IFS, which was launched in
1986. In 1990, the Company released the first version of its flagship product,
IFS Applications. In 1993, IFS released its first product with a graphical user
interface (GUI), and in 1994, IFS began a development project to transfer IFS
Applications to object-oriented technology. The project was completed in 1997,
with the launch of the IFS Applications '98 product suite. IFS Free Enterprise
is the collective name for its tools and methods that are used to support installations,
including IFS Business Modeler and IFS Applications Implementation Methodology
(AIM). The IFS business concept is to increase the freedom of action and competitiveness
of companies by enabling customers to either apply IFS solutions as a complete
ERP system, or as a complement to other vendors' ERP systems within a specific
part of the business process. Soon after its inception and success in the Swedish
market, IFS branched out into Europe in 1991, and began selling in the USA in
1995. In 1996, the Company acquired Avalon Software of Tucson, AZ, a big step
in its US market penetration. In 1999, IFS went on a buying spree by acquiring
the majority of shares of Exactium Ltd., the Israeli front office software components
manufacturer; EMS Inc., the American ERP and Manufacturing Execution System
(MES) systems supplier; and Diamo Dataaktiebolag, the Swedish sales force automation
implementation, and support of IFS Applications are performed through an international
organization of wholly owned and jointly owned companies, as well as through
a network of distributors in 34 countries. In fact, IFS derives 60% of its revenue
from the international market outside of Sweden. By the end of 1998, the Company
had more than 2,400 customers. IFS AB is a public company and currently trades
on Stockholm Stock Exchange.
was one of the first ERP vendors to incorporate concepts of component technology,
Internet and e-Commerce, and a high-level of integration with both its own
and other vendors' components, all providing for flexibility, modularity
and ongoing post-implementation system agility and incremental deployment.
Furthermore, the Company supports most of the IT industry-accepted middleware
standards and is well poised for future technological developments and requirements.
with componentization of its suite, IFS has also developed the functionality
depth and breath of its product. IFS Applications encompasses both Front
Office, Supply Chain Management, and E-Commerce functionality, in addition
to conventional ERP modules. Moreover, the future incorporation of EMS's
MES functionality will provide the Company with an almost "one-stop shop"
IFS has exhibited a very strong long-term and recent track record (it is
currently the fastest-growing ERP vendor, as can be seen on Fig. 1 - IFS
AB - Annual Results Chart) and has a corporate culture that emphasizes individual
initiative and creativity and fosters low employee turnover.
has a focus on product quality and customer satisfaction, manifested in
a lasting relationship with each client. As a display of a high level of
self-confidence in its fast and successful implementations and subsequent
upgrades, the Company introduced the unique practice of offering 50% of
license cost deferral until successful project signoff. IFS also maintains
the tradition of not officially releasing products until several customers
have used them in live production settings.
order to maintain its strong growth, particularly in terms of its global
service and support execution, the Company will have to continue with service
provider acquisitions. This may lead to both financial indigestion and poor
management effectiveness. Low profit margins in fiscal 1998 and fluctuating
quarterly performances in 1999 (See Fig. 2 - IFS AB - Quarterly Results
Chart) will not be looked upon favorably by discerning non-European investors.
This could be an impediment in providing equity for the channel acquisitions
needed to continue strong growth and increase its global market presence.
low brand awareness and an undeveloped channel outside of the European market,
particularly in North America (IFS currently has no presence in Canada)
and Asia, which contribute only 9% and 2% of IFS's license revenues respectively.
IFS's product portfolio, assembled through a number of recent acquisitions
(See Vendor Summary) may see delays and costs resulting from resolving integration
modules, like Payroll, and more comprehensive Customer Relationship Management
and Business Intelligence modules, are not available at this stage and require
an interface to 3rd-party software. Moreover, a lack of support for the
IBM AS/400 platform, as well Oracle database support only, substantially
narrow user architecture choices.
a highly competitive environment, we predict that IFS will reach $500 million
in revenues within the next 4 years (60% probability), assuming its successful
expansion in the North American market and in the Asian market.
the next 3 years, 25% of total IFS revenues will come from the North American
market (60% probability). At the same time, more than 70% of the current
EMS's ERP system users will decide to switch to IFS Applications (65% probability).
expand its North American presence, both by opening new offices and developing
new affiliate partnerships, and step up its marketing campaign in the North
American market. Consider acquiring or partnering with affiliates of struggling
competitors, e.g. SSA and Baan, or acquiring software companies with outdated
products but with strong and experienced implementation teams (the EMS acquisition
would be a good example to follow).
management efficiency within the existing acquisition-inflated organization.
The revenue per employee of approximately $0.09 million is one of the lowest
within the industry (See Fig. 3 - ERP Vendors' Sales Revenue per Employee),
as well as the service revenue per service employee of $0.105 million (See
Fig. 4 - ERP Vendors' Service Revenue per Service Employee). Furthermore,
the service & support employees as a percentage of the total number of employees
are exorbitant 58%, compared to the industry average of 44%.
Expedite the availability of Payroll, CRM, and BI functionality, and deliver
deeper industry-specific solutions (e.g. Engineering and Projects solution
could be segmented into Aviation, Heavy Machinery, Shipbuilding, etc.).
QAD Inc. would be a good example of a successful company in this regard.
- Explore other
joint research and investment opportunities in order to financially strengthen
the Company and expand its distribution channel. A good example is the arrangement
IFS has made with NEC Corporation in Japan to jointly develop kanban functionality
for IFS manufacturing applications.
We generally recommend including IFS in a long list of an enterprise application
selection to mid-market and low end tier 1 companies (with $50M-$1B in revenue)
within the following industries: Energy, Engineer-to-Order and Project delivery,
Forest Segments, Automotive, Service Management, and Transportation.
IFS should be included on a short list in any selection within the following
industries: Aviation, Engineer-to-Order and Project delivery, Service Management,
and Transportation, on the condition that Payroll module is not of primary
significance to the customer.
While IFS service and support is very strong overall, its industry focus
and implementation execution can vary significantly by geographic region.
Therefore, potential clients should conduct preliminary research on industry
expertise and reference sites of a regional IFS office or an affiliate service
provider when IFS is included in the selection process.