J.D. Edwards - A Collaboration Thought Leader Or A Disguised ERP Follower? Part 2: Evaluating J.D. Edwards

J.D. Edwards - A Collaboration Thought Leader Or A Disguised ERP Follower?

Part 2: Evaluating J.D. Edwards
P.J. Jakovljevic - November 9, 2000

Executive Summary

J.D. Edwards & Company is a leading global provider of enterprise business software applications for distribution, finance, human resources, manufacturing, customer service and supply chain management.

Like most of its peers, J.D. Edwards is hoping to rebound by focusing on Internet collaboration and extended-ERP applications. The company has also differentiated itself from competitors by embedding Enterprise Application Integration (EAI) into its OneWorld product. While J.D. Edwards' move into the EAI arena is indisputably risky, we commend its determination to bite the bullet and include integration systems into the core product offering. However, we also believe that managing this large application portfolio, much of which involves partnering or extensive integration and customization, will be cumbersome.

This note presents in two parts a current evaluation of J.D. Edwards, examining its history, products, and marketing strategy, with specific recommendations for both J.D. Edwards and companies in the market for its products. Part 1 gave an overview of the history and strategy of the company.

Part 2: Evaluating J.D. Edwards

  • Vendor Strengths
  • Vendor Challenges
  • Vendor Predictions
  • Vendor Recommendations
  • User Recommendations

Corporate and Product profiles are included with both parts.


Vendor Strengths

Mid-Market Brand Recognition: By originally focusing on the AS/400 platform and delivering a functionally rich and mature WorldSoftware product, J.D. Edwards has established a leading global position in the medium and lower-end top-tier segments of the ERP market. That is manifested in a large AS/400 customer base (over 4000 worldwide), a developed direct sales force and indirect channel, and a reputation for good service and honest treatment of customers. It resulted in a strong long-term track record until 18 months ago, with a likelihood of sustained revenue owing to a potential migration to the more advanced OneWorld product and to new product offerings beyond the core ERP functionality.

Advanced Product Architecture and Migration Strategy: Contrary to many of its AS/400 competitors that have expanded their products to other popular OS platforms with limited success (some of them even alienating or leaving their customers stranded), J.D. Edwards has delivered a migration strategy for its customers to move as painlessly as possible to its advanced OneWorld software.

The OneWorld product provides above-average horizontal ERP functionality for the back office and is based on state-of-the-art technology. It features Configurable Network Computing (CNC) architecture, with an ability to dynamically change the physical applications architecture (heterogeneous platform environment) while the system is in operation. Although the company is still entrenched in the mid-market, it has notably improved the scalability issues it had with its AS/400 WorldSoftware and, therefore, we also consider J.D. Edwards an appropriate candidate for larger organizations.

EAI-Based Web-Collaboration Strategy: The company has also embedded Enterprise Application Integration (EAI) into its OneWorld product and differentiated itself from competitors by doing so. The idea - to spare customers from investing in 3rd-party EAI products to link disparate best-of-breed systems together - is certainly attractive.

The company is supplying ready-made software connectors for transmitting Web data directly in the back of other disparate applications. It will provide a single point of interface to all of OneWorld's and supported third-party applications. As a result, the offering includes application integration sockets to enable users to plug their third-party packages into OneWorld, and a new version of the company's Process Integration (XPI) engine, which provides it with a messaging framework. XPI enables third-party applications to communicate with OneWorld packages by integrating the different business process workflows on which they are based. The packages can then swap information using an eXtensible Markup Language (XML)-based data transport mechanism.

We believe this is a more sophisticated approach than the traditional EAI one given that most other vendors only enable users to integrate third-party packages by providing them with application programming interfaces (APIs) that they need to further code.

While J.D. Edwards' move into the EAI arena is indisputably risky, we commend its determination to bite the bullet and include integration systems into the core product offering. Some of its competitors, who are still convinced that they can deliver most of the necessary functionality themselves, may find themselves seriously lagging once they finally realize the need for interconnectivity and EAI. E-commerce trends are by nature very dynamic, and no single vendor can provide all required components. Even the market leader, SAP, had to abandon its 'one-stop-shopping' product strategy. Native integration is becoming less of an issue, particularly in the higher end of the market. Acquiring the best products at an acceptable price to meet an e-business strategy is the major issue.

Furthermore, J.D. Edwards has also solidified its presence in the supply chain planning space with the completion of integrating Numetrix with its OneWorld ERP suite and re-branding it as Advanced Planning. We believe it has a potential of becoming a strong foundation for building upon the necessary components of inter-enterprise collaboration, order fulfillment, and digital marketplaces.

Strategic Partnerships: Besides congeniality towards customers, J.D. Edwards has also gained a reputation for true partnership commitment. Its ActivEra product suite is the result of industry leaders forming alliances to deliver a full range of best-of-breed Internet based solutions. J.D. Edwards recognizes these partnerships are essential. It has made a strong commitment to only two EAI vendors, webMethods and Netfish. The company will be much more in control of the arrangements by licensing source code, which is by far more efficient and reliable than liaising with a slew of vendors that provide similar integration systems. From hosting and infrastructure to joint development initiatives, continued true strategic alliances will contribute to the company's success.

Vendor Challenges

Poor Financial Performance: The transition to client/server and network-centric systems that the company began several years ago has been more difficult than expected. Since November 1998, J.D. Edwards has posted many quarterly losses totaling to approximately $64 million (See Figures 1 & 2). While the 56% increase in license revenue in Q3 2000 seems encouraging, the rest of J.D. Edwards' situation remains lackluster. Its income could become so constrained as to be insufficient for any further broadening of its product offerings through R&D or acquisition. We believe the above-mentioned restructuring moves have been aimed at adjusting the company's significantly higher number of general & administrative employees (15 % of the total number of employees) to the industry benchmark of 11%. The wariness to tackle this sensitive issue was one of the major management flaws in 1999.

Figure 1.

Figure 2.

Dubious and Risky EAI Strategy: While we approve of J.D. Edwards' move to position itself as an ERP vendor to persuade enterprises to extend their activities into e-collaboration in a more flexible manner, we also believe that managing this large application portfolio, much of which involves partnering or extensive integration and customization, will be cumbersome despite its highly marketed flexible EAI product strategy.

While the best-of-breed approach can have its merits, we believe it consistently leads to additional integration costs and complicates service & support arrangements. Interfaces between components like ERP, CRM and/or e-business usually require significant tailoring. This can be a barrier to future changes as further revising already modified code is notoriously time consuming, costly, and risky.

Furthermore, the EAI market is currently a nascent and fragmented one, burdened with difficulties. The caveats also speak to the complex nature of EAI software and the power struggles that are currently taking place in the market. There are indications of the existence of more than several dozen dialects of XML. Keeping track of these will be gut-wrenching work and J.D. Edwards will need to ensure it can provide enough technical resources for the job.

In addition to all apparent and hidden difficulties of integrating disparate products, the cost of this strategy is growing. Although J.D. Edwards' license sales notably increased over the year the cost of the myriad third-party licenses that it has to purchase to provide end-to-end solution is eating heavily into the bottom line. As mentioned earlier, ten alliances have been announced since September 1999. Of these, at least seven deal with functional areas that are included as standard not only by larger rivals like Oracle and SAP, but also by mid-market competitors like Great Plains, Symix Systems, MAPICS, and IFS AB. J.D. Edwards' heavy reliance on other vendor's software contradicts its aggressive positioning around flexibility. Customers may find this somewhat disconcerting.

Product Immaturity and Integration Work-In-Progress: The ActivEra product portfolio, achieved through a number of above-mentioned acquisitions and alliances, is still a work-in-progress. There are also indications of the products having different "look-and-feel" across the range. The number of recent acquisitions and alliances has created the clutter of many different applications that still require true integration, for which completion is expected only during the first half of 2001.

While the company's product migration strategy has been technologically successful, this has not been the case regarding the product functionality. In the last 18 months, J.D. Edwards spent a hefty amount of its R&D expenses on resolving quality inconsistencies, missed functionality, poor performance, and Web-enablement of its OneWorld flagship product. To further rub salt in the wound, the company had to acknowledge the existence of notable quality problems associated with these endeavors. WorldSoftware's and OneWorld ERP's products functionalities have yet to converge, which has prompted long-time users to either run both products in a co-existing mode or to postpone the migration to OneWorld indefinitely. To that end, webMethods has recently released a connector to Internet exchanges for WorldSoftware users. J.D. Edwards will, therefore, have to prolong its two-pronged product strategy, which will 1) require duplication of R&D, sales and service resources, and 2) further defer revenue from its contemplated user base migration to a new product.

Having known of the company's quality difficulties with earlier releases of OneWorld, as well as having witnessed the recent staff attrition, the market may, with good reason, have serious reservations regarding the company's capabilities to successfully deliver and support its new, significantly more intricate product set. Furthermore, its direct sales force, indirect channel and parts of its operations in Europe, Latin America and Asia, where its service & support has not been as good as in North America, will have to undergo a serious education and training drill.

Bland Marketing Effort in the Past and Low Mind Share in the High End of the Market: J.D. Edwards has not traditionally been a proponent of aggressive and slick marketing, which has recently allowed Oracle and SAP to make inroads into its historically strong mid-market turf. On the other hand, owing to its late expansion into the UNIX and Windows NT worlds, and since its product portfolio is still questionably scalable for mega-user environments (2000 users and more), the company is still struggling for recognition beyond its own customer base and is often overlooked in discussions of top-tier enterprise applications vendors. Ironically, its 'freedom to choose' message would most likely strike chords with some more aggressive CIOs of larger global companies, who would be unwilling to get locked into the inflexible, proprietary technology that for example Oracle's value proposition seems to inherently offer.


Vendor Predictions

Fiscal 2000 and 2001 will be challenging. We predict moderate annual revenue growth (15-30%), on par with its peers. While overthrowing PeopleSoft from third position in the enterprise applications market is not a likely scenario within the next three years (30% probability), J.D. Edwards will retain its position as the number four applications vendor during the same period of time (70% probability).

No major acquisitions are expected in the foreseeable future (80% probability). Instead, the focus will be on integrating the recently acquired and partnered applications, as well as on expanding its own product functionality and offering new vertical industry solutions (see Vendor Recommendations). Another focus will be on strategic alliances with renowned VAR and ASP companies in order to penetrate the Small-to-Medium Enterprises (SME) market via outsourcing offerings. However, within the next 18 months, the company might acquire (60% probability) some of its smaller integrating partners in order to beef up its own recently dwindled consulting resources.

Within the next four years, more than 40% of J.D Edwards' revenues will come from outside of the US market (70% probability), with the license revenue contributing more than 35% of its total revenue within the same period of time (60% probability). AS/400 products will constitute 50% of the user base within the next five years (60% probability). At the same time 30% of total software revenue will be generated through indirect channel distribution (60% probability).

Vendor Recommendations

J.D. Edwards should use its direct sales force to expand business in its existing customer base by upgrading older versions of software and by offering enterprise applications such as Front-Office, Business Intelligence, Supply Chain, and E-Commerce beyond its core ERP solutions. It should also develop new Vertical Industry-Specific products. To clear the deck, the company should promptly attend to the resolution of any remaining system instability and missing functionality issues that early users of OneWorld software have experienced.

The company should also expand further into the SME market, particularly into the lower-end that is still out of reach of Tier 1 ERP vendors, by offering the Genesis Channel program (for enterprises with less than $100 million in revenue, available only on AS/400), either by leveraging its strong indirect channel network or through its JDe.sourcing option.

The company should remain committed to timely new product introductions (e.g., supply chain execution and project module) and to new industry solution offerings (e.g., communications, paper and wood, etc.), as well as to enhancing e-Commerce offerings (e.g., on-line auctions functionality). These endeavors are very ambitious and the current R&D workforce percentage of 18% of total workforce (See Figure 3) should be increased to at least the industry average level of 25%.

Figure 3.

J.D. Edwards should also consider having notably different marketing approaches for the higher end of the market and for its smaller and mid-market fragments, given the different requirements and mindset of decision makers in these respective niches. As noted earlier, the 'freedom to choose' message will most likely strike chords with some more aggressive CIOs of larger global companies, who would be unwilling to get locked into the inflexible, proprietary technology of one particular vendor. The increase in new licenses within the higher-end of the market seems to speak in that regard.

On the other hand, the company will have to provide more out-of-box integration for the small-to-medium enterprises (SME) market. These CIOs are very likely to get disconcerted by the prospect of having to deal with a dozen disparate interfaced applications and may rather consider a solution that requires only a couple of critical bolt-on applications. Therefore, it will be very important that J.D. Edwards urgently completes seamless integration of Siebel and Ariba components with the OneWorld suite. Both approaches should, nevertheless, be backed up with much more vigorous marketing and market awareness creation than has been done so far. It is also needless to say that the execution will have to be flawless because the leeway for making mistakes has rapidly been shrinking; this may possibly be the last 'make-or-break' opportunity for J.D. Edwards.

J.D. Edwards also has to be careful how it manages its alliances with "big stars" like Siebel and Ariba. In most of its key relationships the partner seems to be more influential and currently has a stronger brand and a number of other partnerships with renowned vendors (some being J.D. Edwards' competitors). J.D. Edwards could therefore find it a challenge keeping control of its own destiny; the strategy gives the company less control of its own business.

User Recommendations

Existing J.D. Edwards' customers should certainly consider the entire ActivEra offering (including OneWorld ERP product), but avoid selecting it without looking at what the other vendors have to offer. We recommend identifying your clear e-business strategy and conducting thorough comparison-shopping, at least for the sake of developing negotiation leverage. Contact a J.D. Edwards sales representative for more information on OneWorld Xe release to request a list of recent customers, and ask them about the product. Understand what functionality you're interested in and investigate what the company can offer. Identify the requirements and related costs to upgrade your systems to support the added functionality. Be wary of pre-selling efforts and focus on the current release version. Existing users of WorldSoftware product may want to inquire about J.D. Edwards' future product support and/or migration strategy. Beware of the potentially hidden cost of a migration.

As for potential customers, we generally recommend including J.D. Edwards in an enterprise application selection long list for mid-market and low-end Tier 1 companies (with $100M-$2B in revenue). Organizations whose requirements fall within the scope of the standard ERP and SCM offering, where manufacturing, logistics and financial modules are main pillars of an enterprise application, would benefit from considering J.D. Edwards. One should bear in mind the company's proven fair treatment of customers as well as its expertise within some industries like automotive, consumer packaged goods, electronics, manufacturing & distribution. Nonetheless, if a complementary product beyond core ERP and SCM (e.g., CRM, e-Commerce, BI, etc.) is of a critical importance, users should think carefully about the possible EAI implications and may benefit from considering competitors' value propositions too.

Remotely hosted Internet solutions may offer cost effective applications to small or mid-sized organizations. Small to medium enterprises with less than $100 million in revenues, which are AS/400 shops, which are assemble-to-order (ATO), make-to-stock (MTS) and less complex manufacturers will benefit from evaluating Genesis program. Consider all options. Most importantly identify what needs are "must have" requirements and a timeline for additional components. Once identified, comparison-shop and use the related information to negotiate the best price for the solution.

Customers interested in the company's assistance in connecting them to digital market places (Internet exchanges) should have answers to the following questions, at least: What methodology does (or will) the company use? Will J.D. Edwards map customers' schemas (typically pertinent to a certain industry) to those of the marketplace?

As with all new releases, users should employ a critical approach in their evaluation of OneWorld and require all potential vendors to demonstrate specific business processes. Though demonstrations do not guarantee a trouble-free implementation, they can go a long way toward helping users understand how the software might behave in their environments. Future clients are also advised to request the company's written commitment to promised functionality, length of implementation, and seamless future upgrades, particularly for recently announced partnered offerings.

The following are only some of the issues associated with EAI that users should be aware of: different security systems and keys, package interfaces that do not provide the information in a preferred format, systems may operate in different time zones and be geographically dispersed, scalability, performance, disaster recovery and contingence planning. Users for whose solutions J.D. Edwards partnered with other EAI vendors may benefit from informing themselves what the company plans for future service & support are and what would be the ramifications of switching or not to its above-mentioned strategic EAI partners.

Improved technological integration is seldom guaranteed by joint marketing arrangements, and only comes after the arrangement yields considerable implementation experience. Therefore, users are advised to ensure that J.D. Edwards is the main contractor that will assume overall accountability for the project. Failing to do so may result with customers being caught in a middle of contractors' recriminations and finger pointing when things start to go awry. The company's readiness to provide a number of reference sites within the industry of interest, where the installation of its partnership-enhanced product has gone without major glitches, would additionally alleviate existing anxieties among users.


This concludes a two-part technology note evaluating J.D Edwards. For an overview of the history and strategy of J.D. Edwards see Part 1.

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