J.D. Edwards On The Mend; This Time Might Be For Real Part 2: Market Impact

Event Summary

The following recent announcements by, J.D. Edwards & Company (NASDAQ: JDEC), indicate that J.D. Edwards has been putting it's house in order, expanding its offerings, and executing an aggressive sales strategy, and improving its cash situation at a critical time.

The announcements include:

  • Advanced Planning 4.0

  • Financial results for fourth quarter and fiscal year 2001 (ended in October 2001) 

  • Completed acquisition of YOUcentric

  • CRM version 1.1

This is Part Two of a three-part Event Note on recent developments at J.D. Edwards. Part One detailed the announcements. Part Three will continue the Market Impact and make User Recommendations.

Market Impact

J.D. Edwards continues to disseminate mixed blessing signals to the market, although this time the positive news might be getting the slight upper hand. The company's revenue slump remains disconcerting in spite of recent license revenue invigoration (See Figure 1 & 2), while there has still been a lingering bitter taste owing to past frequent business model changes, soul searching, and staff departures/layoffs.

Perception is a Challenge

Many eyebrows may be also raised by the company's continued need to leverage the 'magic' of financial accounting (e.g., tax adjustments and write-offs) as means to embellish the income statement. While J.D. Edwards does not follow the fatal accounting steps that for example former Baan management had attempted (i.e., to report fictitious revenue), some may still find slight resemblance and perceive it as desperate move. There is indeed nothing alchemic in J.D. Edwards' reporting - the profit and positive cash flow did not come from organic revenue growth, but in part through for example the change in the balance sheet where the company assets have been reduced by almost $300 million over the last year.

The company, therefore, faces the challenge of overcoming the perception of internal trouble and the difficulty of regaining confidence. When prospects sense troubling news about some vendor, they tend to consider moving to other, more stable providers. The market has in fact been crowded with strong vendors vying for the piece of J.D. Edwards' target market.

Nevertheless, the situation should not be seen as completely gloomy. One may regard the above as an example of a business cutting its coat according to its cloth. It may also appear that J.D. Edwards had started to put its house in order well before the tragic events of September 11, as it has actually seen some improvement in its license revenue (even excluding the revenue related to its CRM product) during the period that has been painful for the vast majority. The fact remains that the company's cash situation has improved by $60 million to $232 million in total, which matters tremendously during these difficult economic times, with a number of cash starved vendors ceasing their existence. Should the 'pent-up demand' continue, one might expect to see continuing performance improvements as well.

Product Functionality Scope Expansion

Particularly encouraging, however, is the fact that the company has recently been talking much more about the product functionality scope expansion than the product architecture 'superiority'. In its attempt to shed the image of mere a traditional ERP vendor, J.D. Edwards had initially focused on e-collaboration and extended-ERP applications, albeit with much of the functionality coming from numerous third parties. The company had instead tried to differentiate itself from competitors by embedding Enterprise Application Integration (EAI) into its OneWorld Xe product through its eXtended Process Integration (XPI) integration layer. XPI is an eXtensible Markup Language (XML)-based interoperability engine and architecture that handles data, process, and workflow integration between enterprises. Although J.D. Edwards' move into the EAI and the product openness arenas has been recently vindicated by SAP's endorsement of product openness (see SAP Opens The 'Miss Congeniality' Contest) and even Oracle's surprising interconnectivity strategy twist (see Oracle Makes A U-Turn At The "All Things To All People" Exit), and although the XPIs seems to have proven their concept, the company has so far struggled without widening the breadth of its natively provided applications.

The crucial driver of its license revenue revival has been J.D. Edwards' client base's adoption of its strong native extended-ERP functionality such as supply chain planning, collaboration and execution. The fact that approximately 80% of Q4 2001 revenues came from the install base proves that these modules have recently been the major order winners.

A small-to-medium enterprise simply wants to manufacture and deliver a product in a most efficient way and by utilizing minimal necessary resources. Therefore, smaller companies consider planning and execution as one process. J.D. Edwards has resolved many pieces of the puzzle by delivering or planning to deliver soon the real-time XPI-based integration of all the components of its Advanced Planning Solution (APS) (e.g., Strategic Network Optimization, Demand Planning, Order Promising, Production & Distribution Planning) and OneWorld with event-driven product architecture. By providing the above noteworthy functionality pieces such as order promising, consensus forecasting for make-to-order (MTO) industries (where the pure statistical forecasting based on historical data does not suffice), multi-site pegging, and supply chain event management (SCEM), J.D. Edwards joins the pack of SCM leaders.

Collaborative Commerce CRM Strategy

Another potential revenue driver should be the company's acquired CRM product, as the move puts quite a substance in J.D. Edwards' long confused and wandering CRM strategy. J.D. Edwards' delivered Collaborative Commerce CRM product set brings together ERP, APS, and Supplier Relationship Management (SRM) functions such as delivery, billing, order promising and collaboration with traditional CRM functions, which should enable a customer-oriented, collaborative B2B solution for optimizing a company's planning, marketing, sales, order fulfillment, delivery, and service operations.

Therefore, as the whole is always better than the sum of the parts, J.D. Edwards' APS product's functionality should be bolstered by the integration of CRM, as it will also be able to also include prospective orders into planning (in addition to the actual ones), or it should likewise be able to optimize spare parts inventories for field service. Furthermore, sales force automation (SFA) has been a hot item in the mid-market, and J.D. Edwards' own survey shows that its customers are keen on purchasing an SFA solution. YOUcentric's YOUrelate product has indeed one of the best SFA modules for the market segment.

Nevertheless, the acquisition bears its challenges too. The major one is that YOUcentric has had only a handful of customers that have integrated their new SFA software to an ERP system including J.D. Edwards' one, whereas other CRM modules have yet to create a live reference. To be fair, J.D. Edwards, on its hand, has long offered parts of CRM functionality such as configurator and store front, and it has acquired several dozens of customers, but these facts have not been publicized so as not to jeopardize the former premier relationship with Siebel.

As the YOUcentric offering is rather a CRM development platform than a well-defined CRM product, it may not have a major immediate appeal to customers that prefer the off-the-shelf product. Therefore, it will take some time for the complete architectural products' alignment beyond the mere integration at portal level as to have an overall market appeal and consecutive impact to J.D. Edwards' top line, despite the products compatible architectures, data mapping technology and therefore potentially expedient integration.

Also, there is currently only one major business process level integration - SFA to Sales Order Processing (which entails many lower level integration points such as to accounting, inventory management, and credit control), while the other process integrations like to Demand Planning, Contact Center, and Configurator should be expected in 2002. There has almost not been articulated industry-specific CRM functionality as well.

This concludes Part Two of a three-part Event Note on recent developments at J.D. Edwards. Part One detailed the announcements. Part Three will continue discussing the Market Impact and make User Recommendations.

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