Interview with Michael McGrath, CEO, i2 Technologies

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SH: As one of the pioneers in supply chain management, how do you think the supply chain space has changed?

MM: First of all, after having closely worked with Sanjiv Sidhu (i2's founder) for the last four to five months, I don't consider myself anywhere near the pioneer in supply chain that Sanjiv is. He's the one who really should be considered the pioneer, and not just for i2 but the supply chain space in general, and deserves all the credit for that.

As for myself, I can't talk too much about the past, but I can give you my views on how it's evolved and where it's going. The big thing we see here in terms of major change is what Sanjiv has been preaching for the last couple of years. We see it's different and we've been referring to it as the next generation of supply chain management. We see this as something that's going to transform how supply chains are managed, and will transform the supply chain management industry, whether it's services or software.

SH: Can you tell me more about your next-generation supply chain initiative?

MM: i2's next generation supply chain management is built around the concepts of closed-loop supply chain, around not just the ability to drive supply from just the demand plan, but where you are continuously adjusting not just to planned demand but the actual demand that is coming in—which includes concepts like demand shaping that companies like Dell and Payless talked about at our user conference. It's also about extending the visibility into the supply chain further back and further forward from the customer's customer to the supplier's supplier. So it's a whole new perspective to supply chain management and we are into the first couple of years of that new generation, and the education processes are taking place and the early adopters are having some successes with this, and that's the inflection point where we are at, and we expect a major thrust over the next two to three years around this new generation capability.

SH: And how do you see this translating into a product strategy?

MM: The product strategy is fundamentally built around a couple of concepts or themes here. One is the idea of solutions instead of application software. So i2 is rolling out a whole new series of solutions that provide predefined integration, the underlying applications necessary to support the customized workflows, best-practice process definitions, etc., so that a company can take a solution like Sales & Operations Management, customize it to their needs, and have a fully developed solution ready to implement. And we have a number of similar solutions we'll be launching in the next month or two. But it is a different approach for us going to market with solutions rather than application products and we are well positioned to provide those solutions.

We believe that it is these types of solutions that are key to enabling the closed-loop processes of the next generation because the nature of this is not simply driving data from one application to another. It is about a closed loop, and it involves a whole new approach to the underlying software as well as the processes and policies. The i2 Agile Business Platform' that we also announced at Planet (i2 User Conference) has the functionality and the capability to do things like Master Data Management and the functions to do closed-loop operations like Plan, Do, Check, Act, and things like visibility. That's the general direction we are going from our product strategy for this next generation, and it's a very different strategy from how we sold application software in the late 90s.

SH: Do you see a need to get more crisp about your solutions approach since the term "solutions" is quite overused? Let's face it, everyone talks solutions and writes contracts for products

MM: You're right, and I don't disagree with that. There's been some interesting research done and articles written around the notion of solutions which make you realize how much you have to go beyond just bundling software and services together, which is one of the early stages of a solutions approach. One of the things we are working on is being able to articulate more clearly as to what we mean in terms of i2 solutions versus what others have been calling a solution, and we have a much deeper definition of solution.

Today a lot of people, including us, talk about providing solutions when what we really do is show up at a customer and take out a blank piece of paper (and working with the partner) and say, "we can do this or we can do that" where the configuration of that solution actually takes place at the customer location, and frequently as part of the cost of doing that customer implementation. In contrast, with a predefined solution, all that integration such as services with the software, training with software, software with software, etc., has already taken place prior to approaching the customer. That's one of the big differences, and we are in the process of rolling this out and we expect to articulate and describe this better by the end of summer when we will have launched our first set of solutions. The other key difference is pricing—the pricing we envision for solutions is different from application software.

To really make this happen, there is an enormous amount to do in terms of defining the elements in bringing this to market. In reality, there has to be a new organization structure to do this; there has to be new commission structures for selling them; there is a need for new marketing and messaging around solutions; and there are literally hundreds of things that have to change to bring these to market. It's not that simple. Which is why in the past, people played more lip service to it than substance. So we are working on it and hope to have this ready and launched by end of Q3 [Note—i2 announced its new organizational structure on July 14, 2005].

SH: Given your background as one of the founders of PRTM, let's talk about services in terms of domain expertise. We've gotten to the point where most customers can't differentiate between competing application software products, since they all claim to have the same features and functions, and services seem like the next frontier for differentiation—and that comes down to domain expertise. What are your thoughts here?

MM: If we can step back a little, one of the things that I'd like to point to is the concept of generations of management practice. I don't know if you've read any of the books I've written, but I've always been a big believer of that on product development, product strategy, and supply chain. So every new generation of management practice (almost always) is also related to a new generation of software that supports that management practice. So for the sake of simplicity, the new generation of SCM requires a new generation of domain expertise, a new generation of services, and a new generation of software. And so, the generations of management practices go through product lifecycles like any other product.

For example, when MRP first came out, companies that had software for MRP were really hot, and consultants who could actually implement MRP and had the domain expertise of MRP for different industries were in big demand. Of course, what happens is after a while, say a decade or so, those concepts become mature, and it's hard to be a thought leader on old thoughts—it's much easier to be a thought leader on new things. After MRP, supply chain came around along with the APS approach to optimization. And now that we are in a new generation, which is different from the i2 of the past generation that had solutions like Demand Planner and Factory Planner, you find the phenomena that the capabilities have been commoditized. But if you look at the new generation of SCM, there you find that domain expertise becomes much more critical, and as i2 goes forward here, we are focusing much more of our attention on domain expertise, because that's where the customer focus has shifted in terms of selecting a solution. So we see ourselves as the thought leader in the next generation of SCM along with the domain expertise in a space that is rapidly evolving—and that is going to become the basis of competition.

So, in the early phase of a new generation, the thought leaders have enormous advantage. In the later phases, as products get mature, then the differentiation shifts to features, pricing, ease of implementation, integration to SAP, etc., which is a commodity-type decision. But we are moving away from that and into the next generation with our product strategy.

SH: I understand the strategy, but I want to drill down a little bit more on services. In supply chain, i2 blazed some new trails by talking about delivering results, which meant that you already knew the importance of services to delivering on that strategy. From ChainLink's perspective, we believe that there is a shift in perspective when talking about products vs. services. From what we have observed, the product mentality can be summed up as "when all I have is a hammer, I see a world full of nails." But services tend to be very context-specific, which translates to focusing on market segments or verticals where you can demonstrate that deep domain expertise. So what are the core verticals for i2?

MM: I agree with what you're saying and you will see i2 become much more focused around specific industries. We are traditionally strong in High Tech. We've also done well in Retail, and this is an industry where we are continuing to do better. Consumer Goods and Consumer Electronics is another category where the concepts around the new generation of supply chain are relevant. And then we have other industries with strong customer presence such as Automotive, Industrial, and Aerospace, as well as specific process areas like Metals. So that's where we have done well, and we expect to expand into new industries as well.

SH: In terms of management, you are the new leader brought in from the outside, what are three things that you are doing different from your predecessor?

MM: Just three? (chuckling)

SH: Ok. Top three?

MM: Well, some of these become somewhat general when summarized at that level. But first, I want to be careful in the distinction between myself and my predecessor, Sanjiv. It's not about my style versus his style. We have made some significant changes in direction with the company, but he's been working closely with me all the way on this, and I don't want to characterize this as a difference between him and me.

For me, the fundamental priority has been for i2 to be financially stable, and to have stable and profitable growth from that point on. So we've done a lot of things to get to a point where we are profitable, have positive cash flow, and where we have managed the issues such as outstanding debt, etc. where our customers have the confidence that we are going to be around for the next decade and continue to support them. If you can't get beyond that point, then little else matters—and that has been a major thrust for us in the last three to four months, and we'll continue to stay focused on that over the next couple of quarters. And you'll see that as a big difference between what we are doing and what some of our direct competitors are doing.

The other major thrust is the shift in the product strategy to focus on the next generation of supply chain management, and leveraging the i2 Agile Business Platform as a key enabler of that strategy.

The third is something we already touched on, which is increased focus on industries and a deeper penetration on that front by leveraging our domain expertise.

So each of these three major thrusts has many elements below. But that's the essence of it.

SH: Nineteen of the Top twenty-five supply chains (per AMR's ranking) are i2 customers, which is an impressive statistic. However, what are you doing to increase adoption of your solutions within the mainstream, or specifically the mid-market' customers who aren't on the leading edge of the supply chain technology? Let's face it—Microsoft Excel is still the most prevalent supply chain "application"—and I seriously doubt that any user is going to give it up anytime soon. What's your strategy here?

MM: I think there isn't a central answer to that. If you look at the i2 Agile Business Platform, Excel is a fundamental application that works well for planning, and I agree it's not going away. In fact, Excel is going to be used more and more as a source of data, as well as a sub-application. In some cases it serves as the primary user interface, but is better integrated into the broader supply chain solution. So we are not "fighting Excel" in that regard.

And how we approach the SME market is a function of segmentation. It is different from several perspectives—the economic models are very different. You have companies where supply chain isn't critical to their business success (this is the case for some large companies too), so it is a different market segment. But in the end, I believe getting to a prepackaged, predefined solution is a first step to making SCM accessible for smaller companies. Otherwise it becomes too expensive and too complicated.

SH: One of the factors that ChainLink looks at is what we are calling "Delivery Architecture"—which is a way to describe hosted models as a means to take SCM solutions to a broader market. It's more than addressing affordability—it helps reduce time-to-value. And for enabling collaborative processes, there is a strong case to be made that it is the right delivery model, We've already seen this in transportation management.

MM: Right. It's true that transportation management is a good example of hosted applications. But I think it's harder to draw that comparison to the other extreme—say for example, Dell running its worldwide factory re-planning every two hours isn't a good hosted solution. At some point it becomes mission-critical, and at some point the company becomes the hub in between suppliers and customers, as opposed to both customers and suppliers sharing a hub in the transportation example. I think it varies, and where a hosted solution makes sense, customers will go with that alternative.

SH: We are certainly seeing more options for the customer via these alternate delivery models, and I agree that it depends on the process. But what are i2's plans for addressing this?

MM: It is certainly something we do, and we can consider doing even more of. But we don't have any bias against that, and we'll need to go where the market opportunity is on that. I don't think it's the critical part of our strategy, but it's an alternative delivery mechanism.

SH: Well, let's give some real-world context to this delivery architecture question: In high tech, how would you see your destiny compared to say, an E2open? Do you see yourself competing or coexisting there?

MM: It could be both. They have a different model than we have. They have some successes and limitations. I'm not sure if we'd characterize them as a competitor since they don't show up on our radar that much.

SH: What is i2—without question—really good at?

MM: We still are the domain experts in supply chain management. So if you have a difficult supply chain project or opportunity or problem, we are the company that's THE best in supply chain. We have been and we will continue to be.

SH: Great. Last question—what is the most common misperception of i2?

MM: Probably that we're struggling financially and that we may not be viable. The company has been through a few years in being put in that position to be thought of that way—and that's a perception that's hard to shake off. But we are making changes and increasingly pointing to the facts to show that is indeed a misperception. It takes time—several months, and quarter after quarter of establishing a financial track record for others to judge for themselves. It's not something you can turn around in thirty days. Of course, there are specific things you can turn around in thirty days, but the effects of this aren't usually seen for a while. My biggest frustration is the misconception, because I see the company as it is today and I see where it's going, yet others are looking at the company as it's been for the last three years, We will start to show that we are viable over the next couple of quarters.

SH: Thanks for your time, Mike.

This article is from Parallax View, ChainLink Research's on-line magazine, read by over 150,000 supply chain and IT professionals each month. Thought-provoking and actionable articles from ChainLink's analysts, top industry executives, researchers, and fellow practitioners. To view the entire magazine, click here.

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