J.D. Edwards' QUEST To End Its String Of Pyrrhic Victories Part 2: The Implications

Part 2: The Implications
P.J. Jakovljevic - July 5, 2001

Event Summary 

During this year's FOCUS conference, which ran from June 11 - 14, J.D. Edwards & Company (NASDAQ: JDEC), one of the leading providers of enterprise applications, demonstrated a somewhat more galvanized strategy than the one it initiated and less successfully executed during the last year (for more information, see J.D. Edwards Chooses Freedom to Choose EAI), with its renewed mid-enterprise focus and commitment to deliver customer-driven solutions. At FOCUS, J. D. Edwards gathered its QUEST User Group, over 8,500 customers from around the world and partners that include IBM, Sun, Andersen, Accenture, Compaq, Ariba and nearly 100 other technology and consulting companies. However, the event attracted much less attention and glitz compared to those organized at almost the same time by PeopleSoft and SAP, which might also serve as an indication of the current moods within the vendors' teams.

A small enterprise does not care much for trendy IT buzzwords - it simply wants to manufacture and deliver a product in a most efficient way and by utilizing minimal necessary resources. J.D. Edwards has resolved many pieces of the puzzle by delivering the real-time integration of APS and OneWorld with an event-driven product architecture.

The partnership with IBM should be mutually beneficial and should simplify the life for resellers and buyers.

As a summary, the new initiatives and the profitability are steps in the right direction, but the market will have a close eye on new license sales. Not many will feel comfortable to strike a long-term partnership with a vendor that has a new product set but declining sales growth. The time allowance may be running out for J.D. Edwards to turn around its business given the competition flying from all directions.

About this Article: This note is a two-part note, the first part discussed the news from the J.D. Edwards conference. This part discusses the Market Impact of this news and how it affects Users.

Market Impact 

If one is to judge by profits without taking into consideration the nature thereof, J.D. Edwards situation might not look that dim. Nonetheless, while a return to profitability is desirable and a step in the right direction, it takes much more to convince the market that the vendor is on a full recovery trail. Cost cutting and frequently recurring restructuring, as means to regain profitability, can only be a temporary solution, and will likely be perceived by the market as desperate moves. Given its main competitors' license revenues have mostly grown in the recent past, J.D. Edwards' decline indicates that it must have done something wrong in that regard. Other vendors' upbeat results indicate that enterprises are still funding projects and continuing with e-business strategies despite the uncertain times, although in a more discerning manner.

To that end, J.D. Edwards has focused on Internet collaboration and provision of extended-ERP applications, but much of them coming from third parties. The company has made an attempt to alleviate the inherent integration intricacy by embedding Enterprise Application Integration (EAI) into its OneWorld Xe product through its XPI integration layer though. The idea - to spare customers from investing in third-party EAI products to link disparate best-of-breed systems together - is attractive, but mostly to more agile and risk-taking companies, which number has recently been rapidly dwindling.

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 then require further coding. However, betting its fate on XPI, which "any-to-any" integration capability could enable companies to collaborate with multiple business partners by linking their disparate systems and applications, has yet to generate a sizable traction. The complexity still hovers over potential customers' minds and may likely deter them to venture into it during the current slow economical times.

Even McVaney frankly admits that the concept is ahead of the time and the promise of a quick (two-hour) set-up for collaborative commerce with "any business, anywhere" is not yet guaranteed in any contract its company has closed. It will, however, serve as the guiding principle behind J.D. Edwards' continued development in this area, which will be the long haul. Although the increased focus on the mid-market seems justifiable, the company will have to make every effort not to overwhelm the prospects with complex, obscure terminology and/or technology (e.g., Xe, XPI or XBPs).

Further, while J.D. Edwards' move into the EAI and the product openness arenas is getting the endorsement even by SAP's recently announced interconnectivity strategy, the company must also continue to widen the breadth of its natively provided applications. The crucial driver of its license revenue revival, will be J.D. Edwards' client base's adoption of its strong native extended-ERP functionality such as supply chain planning, collaboration and execution, and warehouse management, which have recently often been the order winners. A small enterprise does not care much for trendy IT buzzwords - it simply wants to manufacture and deliver a product in a most efficient way and by utilizing minimal necessary resources. J.D. Edwards has resolved many pieces of the puzzle by delivering the real-time integration of APS and OneWorld with an event-driven product architecture.

The Challenge of Partnerships 

The other pieces have yet to be resolved though, while its competitors have worked diligently over the past few years to develop strong products in ERP-adjacent areas like CRM, business intelligence and e-procurement, J.D. Edwards relied on partnerships to deliver these. To add salt in the wound, the alliances with Ariba and Siebel Systems have been less of a success so far, which is intriguing given successful partnerships Siebel has shown in case of Microsoft Great Plains, Lawson Software and Navision. While well-defined partnership agreements may work well once established and although J.D. Edwards is recognized for its congenial approach towards customers and partners, managing the large application portfolio, much of which involves massive integration and customization, is intricate and a challenge in itself. To that end, many prospective clients, especially in the small-to-mid-market, have apparently been deterred from the complexities of multiple-vendors solution in favor of vendors that can offer close to a turnkey solution.

The success of Siebel's partnership with other mid-market vendors probably lies in the fact that these vendors have opted for a direct integration of products as opposed to a middleware option that scares the smaller customers. In addition to that, these smaller vendors sell almost only through an indirect channel of partners certified by Siebel, whereas there has been a likely competition between Siebel's and J.D. Edwards' direct sales forces, on top of the scarcity of consulting and support staff that is well versed in both products and the EAI technology.

Still, J.D. Edwards has no choice but to remain focused on pursuing the premier partnerships, since it is quite late in a day for developing its own CRM or e-commerce functionality. These alliances will nonetheless have to be revised, the most likely along the above-speculated guidelines. Thus, the challenge will be to establish an indirect channel and to maintain the roster of available direct service and support staff that will be proficient in the applications in question and in XPI/XPB integration. Therefore, J. D. Edwards, more than its direct competitors, will have to prove that it has the means to support its customers in the future. The execution, particularly the service and support will have to be immaculate. In that regard, it is a positive sign that J.D. Edwards has created an apparently more efficient services organization, which is now significantly more centralized and consolidated.

A Key Partnership 

But the possible home run for J.D. Edwards in addressing the mid-market needs could be its expanded partnership with IBM. J.D. Edwards' predicament has long been the almost complete attention on release quality of its flagship OneWorld application suite, while not having the fresh idea for its large World customer base, particularly those not willing to abandon the IBM iServer (formerly AS/400) platform.

The new implementations and/or migrations from its older World software release has been a daunting experience for many users, especially for early adopters from 1999. J.D. Edwards patched and upgraded its way through the process, which took considerable time and human resources and most likely prevented the company from delivering its native functionality beyond ERP.

The partnership with IBM should be mutually beneficial and should simplify the life for resellers and buyers. IBM is interested in reviving its iServer product line, which has suffered significant territory losses due to Windows NT expansion despite its merits (performance and total cost of ownership (TCO)); whereas J.D. Edwards gets IBM's endorsement and the affirmation in relation to its fierce AS/400 counterparts (MAPICS, Intentia, SSA GT, Infinium, American Software, etc.).

As a summary, the new initiatives and the profitability are steps in the right direction, but the market will have a close eye on new license sales. Not many will feel comfortable to strike a long-term partnership with a vendor that has a new product set but declining sales growth. The time allowance may be running out for J.D. Edwards to turn around its business given the competition flying from all directions.

User Recommendations 

Potential and current J.D. Edwards' users should not overly dwell on its viability and the future. The company remains a major applications vendor and will continue to deliver exciting products. More important will be how well its global sales, service and support forces can demonstrate the touted collaboration benefits to the prospect or customer.

Existing J.D. Edwards' customers should certainly consider the new offering bearing in mind the immaturity of recently released products, and the fact that the company's strategy is still a moving target. One would be hard pressed to justify not including J.D. Edwards on at least an initial long list of vendors in a global manufacturing and distribution enterprise applications selection.

Evaluate J.D. Edwards if you are a mid-market or a low-end Tier 1 enterprise (with $100M-$2B in revenue) and if your requirements fall within the scope of the traditional ERP and SCM offering, with manufacturing, logistics and financial modules as main pillars of an enterprise application. One should also bear in mind the company's expertise within some industries like automotive, consumer packaged goods (CPG), electronics, manufacturing & distribution.

Nonetheless, if CRM or e-Procurement are of a critical importance and immediate need, question the company's currently available offering and consider competitors' value propositions too. J.D. Edwards' value proposition also comes for rapid change environments that value system flexibility and openness and/or have data scattered over several different systems/platforms, and the need to integrate those into a single solution. Also, the company may have a value proposition for mid-size enterprises that wish to leverage their ERP investments into B2B collaboration and participation in both private and public vertical Internet Exchanges (Marketplaces).

More comprehensive recommendations for both current and potential J.D. Edwards' users can be found in J.D. Edwards - A Collaboration Thought Leader Or A Disguised ERP Follower? Part 2: Evaluating J.D. Edwards.