Interview with Joe Cowan

SH: My first question is, as one of the pioneers who helped create the supply chain technology market space, how do you think the market has changed?

JC: I actually come at this thing from a different perspective. I'm not a supply chain expert. If you look at my background, it is a lot of markets in software. So I looked at Manugistics from the standpoint of a very strategic person with a strong set of operating skills who knows what it takes to create a really good software company. However, many customers will tell you that we're not a software company, even though that's what we're perceived to be, and that's what the market thinks we are. Now let me tell you what I think is going on in the marketplace, and where I think we are headed.

When I look at the history of the market place, back to the early days, I think Manugistics did a very good job solving some very complex problems at a time when the customers didn't really understand those problems. The Business Week people ask me, "Tell me what Manugistics is all about." Now, these are people who are writing for an audience that may not fully understand supply chain, and my description of Manugistics was that we're a bunch of mathematicians and scientists who know how to take massive amounts of data, predict the future, and put an execution plan in place to get it done. And that's really what we are. I think when Manugistics came on the scene and started doing that, most of the customers didn't understand it. And we added real value; we didn't just sell software. We sold a lot of knowledge along with that software to really know how to apply it. We were really focused in some select markets, so we had the deep domain knowledge about those markets that we went into.

The market changed in the late 1990s. Many software companies walked in to clients back then, did a little bit of listening to hear what the customer said his problems were, then went back and told him all these great things that could be done for him, and made all these glorious promises. Back then the market took on a different face. You get away from the real value you were adding, and you play the future game of making a lot of promises. A lot of software companies have done that. The "dot-com bubble" gave us the opportunity to do that. And you saw a lot of it. To be frank, I think this entire supply chain space got caught up in that. Then all of a sudden the market realized, "We're not getting any real value out of this. They are not delivering on all the things they said their software would do."

SH: I guess you could say that many of us were affected by "irrational exuberance."

JC: I guess a lot of us did! And another problem that I think attributed to this was the whole Y2K issue. So we ended up with a lot of problems in an industry where we bought a lot of stuff we didn't need and a lot of stuff we didn't get value out of. Now the problem with this is that if I'm a CEO in that organization, and I've spent all this money and I look down and say, "Where's my results?" If I don't see results, then what am I going to do? I'm going to put the brakes on and not go buy a lot more software until we figure out how to use what we've got on the shelf over here. So I think these are the phases that the market has gone through.

If you look at it from that standpoint, now you're at the point in the market where you have to deliver real value. Now, we've got another little fact that's come into play in the marketplace where you've got the ERP players who say, "We can do it too." And they do have a certain degree of knowledge. They have been able to gain enough knowledge where they can go play the game and pretend that they know enough and they say, "Well, just buy everything from us. Integration is the issue and we solve it because you're buying it all from one vendor." So that's added another dimension to the marketplace.

What I'm seeing from Manugistics' perspective is that (and here's the key) we can't be a software company, because if Manugistics tries to be a software company, we play in the hands of the SAP, because SAP is a software company. And they are going to sell their ERP software, and they're going to sell supply chain software, and they're going to sell CRM software. And you know what? They are not going to really help that customer get the real value out of it. Somebody else is going to have to be that knowledge broker that gets the real value and results out of the software. But I think customers want results. If you look at this entire learning cycle we've gone through, we know that customers really want results.

Honesty and integrity are needed back in the software market. That's our foundation, because when we walk in and make promises and commitments to our customers, we've got to deliver on them. They've got to understand that we can deliver on them. So the approach that I'm taking, and what I believe the market is looking for, is a company that can truly come in and be a partner with them and have them add value to their business. I won't use the term value-based selling, instead I'll use the term value-based results—that's the approach we're taking from a business standpoint.

SH: What are you doing different as the new CEO to deliver value-based results?

JC: First, we needed focus. So I came into Manugistics, and I looked at the fact that we were trying to go everywhere. Anybody who had a dollar, we were going to chase. And because we were a software company, we were hooked on license revenue. Just like an addict, we had to have it. All software companies do. And that's a trap you get into, so you go chase it everywhere and anywhere. That's the wrong answer, because now you're spreading yourself out too thin to where you can't deliver the real results, the real value.

So, my belief is that the way for that to succeed, and the way that we differentiate ourselves from SAP and even i2, is not to be a software company, but to be a solutions-based company that's focused on adding real value to our customers. Again, value-based results.

Now, how do we do this? Instead of having a sales organization that goes and sells everywhere, we have business units that focus in select markets where we truly have a competitive advantage. So we can walk into our customers and we can talk about what is the real benefit of Manugistics. But it's not just me selling software; it's having the total ability to deliver that value. So that's the approach we're taking. I can't do it in a lot of industries. I have to go back to what I really know. We know consumer goods (CG), and we know it better than anyone else. There is a set of characteristics across several of these industries that we really look for, for example: they have complex distribution, they primarily sell through retail, there's a consumer somewhere who is going to consume those goods. We've got the proven results, we've got the right products, and we understand the vision of where that market needs to go. So you add that knowledge we have, and we really can go sell the value in that industry. Another example is retail. We've got the knowledge there. Maybe we need to build a little bit more, but we'll provide the knowledge and solutions you need to run the retail supply chain. We are also domain experts selling in the government vertical. These three will be our prime focus areas from a supply chain standpoint. And each of these verticals, by the way, are perfect candidates for our deep and proven Transportation solutions. Finally, I should mention that we are very focused on using our strong revenue management products to once again be leaders in the travel, transportation, and hospitality vertical.

SH: If customers want a business outcome and not just technology, this sounds like common sense

JC: Well it is common sense, but then sometimes common sense is not that common!

SH: Speaking of common sense, most technology vendors, especially in supply chain, who intimately interact with their customers, know that their customers don't look at them as a software company— they look at them as problem solvers. But while your recurring theme here, "We are not a software company," is a very bold statement, that's a disconnect with Wall Street

JC: Yes, and that's our problem too. Being a software company, you're measured against license revenue, the high growth, high margin stuff. But to create differentiation as a software company—from SAP or any other competitor—I have to truly add value to my customers!! And, if I'm delivering that value and the market is big enough, then there is an opportunity for me to continue to grow. If I do it and manage the business correctly, if I'm a good manager and I manage the assets I have wisely, then I will generate profits, and the market will like me in the long-term. Because ultimately I'm building a long-term healthy company that investors can depend on, that my customers or partners can have confidence in, and that has a real value in the market place. That's what Wall Street really wants. That's what my partners really want. That's what I'm trying to build, and it's not something I can do short-term. It's something that takes a long-term view, and it takes real focus, real management, and you have to know where you're going, and you truly have to be that expert to drive forward. Manugistics came from that, it was our heritage, we lost it, and now we're getting it back.

Now, another interesting contrast: There are a couple of things that I talk about, and let me emphasize the reason I talk about those. I tell our sales people, "Here's how to determine if we are going after the right kind of customer: You look at the organizational structure in that customer, and see if the supply chain is being talked about in the board room. It doesn't always have to be in the board room, but it has to be very close to the board room. Is supply chain viewed in that organization at a high enough level where they know it is a part of their core competency?" And you heard this during the presentation from The Limited at our enVISION 2005 conference. Because if they understand that, it means we should go after them, because with our knowledge, our capabilities, and our products, we can communicate and relate to those people and they will get the message. They'll understand what Manugistics can provide.

SH: At ChainLink, we've done several executive workshops to help connect supply chain to the CEO's agenda—that, and making sure the rest of the executive team and the organization is aligned behind the strategy is critical to the transformation. And our research supports this idea that there is a difference in between the companies where supply chain is a board room discussion versus where it really isn't.

JC: Yes, now let me tell you another point related to customers not getting the value out of their supply chain solutions today. Here's what I contend that's going on. I use the term static versus dynamic to describe this issue. We did a study of several of our customers and prospects who said they weren't getting the value out of their supply chain solutions. While the customers did manage to reduce inventory and make improvements, the problem when we went in and initially sold them was the same problem they were having today.

I started scratching my head and said, "What's going on?" And then I started thinking about the supply chain, and the problem is that the supply chain is not static. When they bought that solution and they put it in, their supply chain was operating a certain way. If you think about what's transitioned over the last three to five years and think about the fact that those supply chains are not domestic suppliers, they're going offshore and extending that. So how can you run it the same way? One customer told me that every year they turn over 20 percent new products and every four or five years they completely turn all the products. That is a dynamic supply chain. Everything is changing. That means that you have to be tuning that supply chain. You really have to be focused on the changes in it. These companies don't need to go buy software; they need a partner who's going to engage long-term with them to make sure their supply chain stays tuned for the changes within the organization.

Now let's come back to an SAP versus a Manugistics. SAP sells ERP systems. They are static. A financial system, unless you change the tax logs, basically doesn't change. An HR system doesn't change. You put it in, you add people, you take away people, but it's still the same system. A CRM system basically doesn't change. You don't have to tune those systems as your organization changes. With supply chain you do. So I contend that those companies don't know how to deal with a dynamic solution.

SH: Even though you said you weren't a supply chain expert, I can see that you understand the macro trends of enterprise software market and you're clearly refocusing your direction on that basis. Can you point to three things that you're doing differently today that exemplify how this new direction is going to manifest itself?

JC: Well, one thing we're doing differently is that we have these business units where we have sales, presales, and our consultants, and bound them tightly into that business unit; and the specific business units are consumer goods, retail, government, and travel/transportation/hospitality, where we sell our revenue management solutions. So we've taken the knowledge within the company and we've put it under the leadership of a person whose business objective is to go after that industry and grow it. So that's one prime example of a change that we've made in the organization that shows where we're going.

SH: So you're aligning your customer interface around those segments?

JC: It's more than just the customer interface—we've actually changed (and this may seem trivial to you, but it shows a change) our compensation plans so that the sales people get credit for maintenance, they get credit for services, and they get credit for software, where in the past they only got credit for software. So now we're truly serious about selling the total solution.

Now another good thing that we're doing is eliminating risk in our customers' engagements. There's a risk factor with these customers anytime they implement software of any type. And part of the problem in the past is that the industry has thrown all the risk onto the customer. You [the customer] go buy all the software up front, you go engage with a consultant, you spend a lot of consulting dollars, and then somewhere down the road, after you've invested millions, hopefully you'll get a result. That's a pretty tough model to swallow. I've actually had my developers spending a lot of time with my service people understanding what we do in an implementation to help drive cost down. Now see, this is where I'm different from the rest of the world. I'm trying to figure out how to add the best value to my customer. I want to deliver it to them at the lowest cost I can. So I'm focused on trying to reduce the services—dollars and hours I spend—because I'm going to make those people more efficient in terms of what I'm doing. The lifecycle cost—why should a customer have to spend as much when they upgrade as they did when they put it in?

SH: What you're saying is that you're trying to anticipate the total cost of ownership and actually minimize the risk. And ChainLink encourages our vendor clients to become more disciplined in that, because in the past, vendors have taken too many liberties with customers to actually give them control over the total cost of ownership.

JC: But these are all examples, and you can see inside the companies (that are our clients) the very things we're doing that prove we're not just talking a game, because you can talk any game you want. You know, honesty and integrity are the foundations of how I do business. In the organization in terms of my people, we have that common thread of honesty and integrity in our relationships with each other, and we have that honesty and integrity with our partners. If I tell someone we'll deliver on it, we will deliver. It's a different way of doing business.

SH: At the end of the day, it's your customers who have to step up to the plate and validate that.

JC: I think you see here at the enVISION 2005 event that they are validating that, because you see an excitement among our customers. You know, they want us to succeed. We're coming back in line with where the company grew up. I said that we're going to focus on adding that value. To add value, we don't have to do large deals in which we recognize software revenue up front. Consequently, if a customer wants me to engage with them in a different way, I'm willing to go in and I'd be happy to say, "I'll do the services, I'll sell you the solution, and you pay me x dollars a month. And oh, by the way, if you want me to base it on performance, I'll be happy to sell you a system based on results." I'm willing to change my business models to do business the way that makes sense for our customers because we're going to focus on delivering real value. If I deliver real value, I'm going to win.

SH: Let me ask a question about delivery architecture. We think in the multi-enterprise supply chain, a choice of delivery architectures is important since the enabler should ideally be a hosted solution between the collaborating partners. What are your plans around offering a choice of delivery architecture?

JC: Well, if you look at what we're doing in development, we've spent $150 million developing Manugistics Internet architecture. So we've basically got all of our core products on this new architecture, which now offers us a lot flexibility and capability to meet the market need that you described.

SH: Do you intend to offer hosted types of solutions for certain?

JC: We already offer hosted solutions today. You know, a couple of different models. Sometimes folks want us to host as they're ramping up, more in sort of a trial period, and once they understand how they're going to interact with the software, then they move over to their site. Other times they want us to host because they don't want to invest in the infrastructure. So we already offer hosting models today, and I think you're going to see that expanding more in the mid-market. There's definitely going to be more of that capability that they're going to want to have, but every single solution that we've had, we have hosted a number of customers.

SH: Well, it sounds like you've found the soul of the company.

JC: Let me tell you folks, if I can't believe in this company, I can't be the leader of this company. I've got to believe in it, and that's where it all starts from. We have to have good, solid management. I think we've got the right people in the right slots. We're continuing to fill key slots, but I feel very comfortable about the team and the future of this company.

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ChainLink Research is a bold new supply chain research organization dedicated to helping executives improve business performance and competitiveness.