a market noted for its turbulence, the ongoing turnaround success of IFS,
a global enterprise applications supplier, has gone somewhat unnoticed.
IFS was the fastest growing enterprise resource planning (ERP) supplier
in the mid-to-late 1990s. But the early 2000s marked a severely painful
period for the vendor, including losses peaking at about $85 million (USD)
on revenues of about $313 million (USD) for 2002. The IFS turnaround is
impressive, and its management attributes the success to its more focused
sales strategy, increased organizational efficiencies, and continued emphasis
on a selected, manageable number of vertical industries. For more information
on IFS' background, see Enterprise
Applications Vendor Reverses Fortunes—But Will Perseverance and Agility Be Enough?
Two of the series Enterprise Applications Vendor Reverses Fortunes—But
Will Perseverance and Agility Be Enough?
In addition to focusing on profitability and positive cash flow, during its stabilization phase IFS started paying attention to balanced growth (through more reliance on market penetration and product enhancements via strategic partnerships), whereby the product development costs were tied to new sales. To that end, product marketing also started targeting global industry niches such as automotive importer and supplier management (as sub-segments of the much wider automotive vertical), rather than having each country or region pursuing its own target markets. More than half of product development has since been industry-specific, of which half was aimed at manufacturing, about one third at service industries, and the rest at asset-intensive industries.
The consolidation phase has thus brought about pragmatic product developments: the latest product release (IFS
Applications 7), which was conceived during this phase (and launched on time in early 2006), required about a quarter of the development effort to "future proof" the product. Furthermore, at the IFS
World Conference 2005, the vendor announced the seventh generation of its component-based application suite, which should bring industry focus and productivity to the next level by including innovations in application design, an intuitive graphical
user interface (GUI), and information visualization. Based on the IFS SOCA mentioned in Part
One of this series, the product aims at offering increased flexibility, enabling
companies to continuously revise and improve processes as well as reshape applications
as processes change.
A new role-based user interface has been rolled out across the product to enable hyperlinked and much easier navigation. One example of the new GUI use is within a new application in the IFS Applications 7 suite, MaxOEE (Maximum
Overall Equipment Effectiveness), which features user productivity and usability, while also including vertical industry depth. Although comparable with other enterprise
resource planning (ERP) suppliers' OEE offerings, the module will be even more impressive after being developed into a full-fledged corporate
performance management (CPM) solution.
Applications 7 continues to support a growing number of project-driven enterprises
and their need for efficient processes, by introducing a broad range of new
capabilities, such as contract lifecycle management, project-driven manufacturing,
actual costs, revision control, and project supply
chain management (SCM). Having designated this segment as one which
will drive lots of new business opportunities (especially in the construction
and utilities verticals), the IFS industry solution for project-oriented
industry (EPCI) will standardize and support user processes
in engineering, project management, purchasing, document management, financial
management, SCM, human
resources (HR), and after-sales activities. The solution also encompasses
interfaces to computer-assisted
design (CAD) software and planning systems, and includes Web-based
solutions for engineering and documentation, where a multi-disciplined Norsk
Sokkels Konkuranseposisjon (NORSOK)-based engineering register is
integrated with purchasing and delivery (NORSOK being the body that oversees
the competitive standing of the Norwegian offshore sector). In addition,
the potential for extensive use of portals simplifies cooperation with
suppliers in global delivery projects, since portals should allow fast
access to information from the total industry solution. IFS has many years
of experience as a partner to project-oriented companies, having more than
300 customers with project-based activities. For more on project-oriented
requirements and software, see Project-oriented
Software: Many Choices, Many Differences.
Supporting the company's focus on seven key vertical industries, IFS also announced a number of new vertical market solutions, including workforce planning and call center management within the service and facilities management industry, which has to manage service calls from issue to resolution. These new features in IFS Applications 7 aim at enabling more efficient service processes for both independent service providers and companies providing advanced after-sales service (manufacturers of complex products, and asset- and service-intensive businesses). To that end, IFS Applications 7 includes new functionality for call centers; enhanced resource allocation and planning software; and improved mobile field service, project connection, sales contract management, and application for payment. With shorter product lifecycles, more complex products, and tougher competition from developing countries, service management has become a high priority for most companies. Chief
financial officers (CFOs), controllers, and financial managers should thus get visibility into the performance metrics of service processes using integrated service performance and financial analysis tools, while service personnel can also access sales and payment histories. Standard features of IFS Applications 7 also include collaborative customer self-service and service enterprise portals, which allow customers to enter cases and service requests, view the progress of the work, and perform follow-up activities themselves. For manufacturers that service what they sell, the suite offers support for product
lifecycle management (PLM), enabling improved collaboration between design, engineering, production, and service personnel. IFS service management customers include Dalkia, Debut
Services, First Engineering, Anticimex, Philips
Business Communication, Munters, and Kalmar
To help companies reduce the increasing complexity of global supply chains and to increase customer responsiveness while maintaining cost efficiency, IFS Applications 7 also includes new solutions for multi-site supply
chain planning (SCP), and collaboration in demand and supply networks. Many industries should benefit from a multi-site functionality which reduces risk for errors in planning, reduces lead time, and accelerates inventory turnaround. Product structures and planning from multiple site locations can be managed centrally to improve the efficiency of goods handling. However, supply
chain execution (SCE) capabilities, particularly warehouse management, remain fairly basic, and allow preparation of shipment documents and packaging to go on in parallel with the manufacturing of the products, and reduces time from call-off to delivery due to more efficient internal handling.
Reinforcing the company's aforementioned position as the vendor committed to standards and technology co-existence, IFS Applications 7 includes support for the latest J2EE and Microsoft
.NET-based technologies, such as IBM WebSphere 6, Oracle
AS 10g, and JBoss 4.0. The Java portal standard (JSR 168) is also supported, allowing companies to access and use IFS Applications directly from within the IBM WebSphere Portal.
At the conference, IFS unveiled Project
Attila, a collaborative effort with Microsoft to develop smart clients for faster and easier access of IFS business applications from within Microsoft
Office products. This is an initiative to enable better-informed business decisions resembling Project
Mendocino (recently commercially renamed into Duet)
pioneered by Microsoft with SAP. See
Major Vendors Adapting to User Requirements. Like Duet, Attila should
increase efficiency for information workers who use Microsoft Office as their
primary working environment, allowing them to browse and update enterprise data
directly within Office programs. The initial release of Attila, which includes
reporting, budgeting, and financial planning modules integrated in Microsoft
Excel, is scheduled to be available for select customers in the second half of
Most companies use Microsoft Excel in their budgeting and financial planning processes. With Attila, department managers and other workers involved with budgeting and planning should be able to retrieve, review, and update budget data directly through the familiar Excel interface. While working in Excel, they will benefit from the centralized storage, distribution, and revision handling provided by IFS Applications. The reporting module will make all business data stored in IFS Applications instantly available for processing and analysis in Excel, with the full security and access control of IFS Applications. Subsequent releases of Attila will include modules that integrate Microsoft
Outlook with the workforce management and document management components of IFS Applications.
Attila will leverage the openness of the IFS component-based architecture, Microsoft .NET, and the upcoming Microsoft
Visual Studio 2005, to provide a completely standards-based integration between the two applications, which will supposedly not require any additional setup or management. IFS and Microsoft have a history of cooperation, since more than half of IFS customers run IFS Applications on Microsoft Windows, while many IFS customers use other Microsoft products, such as BizTalk
Server and Exchange, integrated with IFS Applications.
Harnessing and Nurturing Partners and Customers
Incidentally, given the agnostic approach and partner-friendly nature of IFS, the vendor has in particular been more aggressively moving forward with a partnership strategy to further grow its business outside Europe (which is still its main breadwinning market, with the domestic Swedish market contributing about 15 percent of total revenues). To that end, while until only a few years ago IFS sold and implemented directly, in recent months partners have become responsible for one third of new license sales, with partners contributing 23 percent of total revenues in 2005. The main IFS hardware partners remain IBM and Hewlett-Packard (HP), while its main software platform and middleware partners are IBM, Oracle, Microsoft, and Sun Microsystems. As for software development and reselling, IFS partners fall into the following three categories:
partners, such as BAE Systems, General Dynamics, and Lockheed
aerospace and defense (A&D), which have been useful resellers, after first being highly experienced users. To some customer-partners, such as BAE Systems, IFS has given board-level focus in co-developing the sharp vertical solution. Consequently, BAE now leverages its contacts and IFS expertise to dominate the UK government defense sector. Other high-profile partnerships include GE
Engine Service for commercial aerospace.
Software resellers, such as NEC, which primarily covers channels in Japan,
and provides assistance to the Chinese market as well, where many Japanese-owned
companies have been setting up offshore operations. Early in 2004, IFS
announced that NEC had even taken an equity position in IFS, and it now
owns 10 percent or so of IFS stock, which should entice it to more directly
invest in IFS functionality for the Asian market, and to expand IFS implementation
Systems integrators, such as Accenture, IBM Global
Services, and ATOS Origin for implementation services in opportunistic industry sub-verticals in
Likewise, the vendor plans to repeat the model of developing global and local partnerships with well-known companies in niche industries in different countries (such as ABB, IBM, Det
Norske Veritas, and so on) for expansion, while product development focuses on deepening its functionality to retain its position in its chosen markets, and also while broadening scope to capture some adjacent industries in the future. IFS also expects to offer more specialized best-of-breed solutions with the above partners, where appropriate. A perfect example is the alliance with ABB (also another equity partner) to deliver IFS
Enterprise Asset Management (EAM) solutions, which could possibly make IFS a leading EAM player in the future.
Where is IFS Now?
Nowadays, IFS has around 2,200 customers and over 750,000 users, of which over 100,000 were added in the last 24 months. Existing customers appear confident in IFS, as 56 percent are on the last two product releases—IFS
Applications 2003 and IFS Applications 2004 (with 26 and 30 percent respectively). Having seemingly turned the corner on its woes of the early 2000s, IFS has most recently embarked on a phase of sustainable growth, and to that end has appointed a new CEO, albeit this time from the UK ranks. Known for his sales and marketing execution savvy, Alastair Sorbie (who set up IFS in the UK in 1997, and who was subsequently in charge of the company's Europe,
Middle East, and Africa [EMEA] operations), took over from Michael Halln (who has done a great job of setting a sound foundation) in early 2006. In EMEA, Sorbie presided over a string of successes, and had responsibility for 70 percent of IFS revenues and 40 percent of its staff, making it the company's largest division.
In addition to sticking to the strategy of the previous phase to continue the current focus on profitability through cost reduction and license growth with more partner business, IFS has also recently increased its investment in marketing to gain proper brand recognition and differentiation in its key industry verticals. These "IFS brand enhancers" are long overdue, given the vendor's protracted "industry's best-kept secret" status, and are needed to increase license revenue growth and make best use of shareholder value, while building on the vendor's rich history, identity, and employee pride. To the end of brand building, IFS has recently undertaken many new media campaigns (both in print and online—in the first half of 2006 it has already doubled media impressions over the whole of 2005) and significantly increased press
release (PR) activities (both through dedicating its own staff and hiring the LEWIS
PR agency for a consistent global message to the market).
For the future, the ongoing restructuring, which especially started in EMEA operations in 2005, will continue—transferring some responsibilities to other parts of the globe (in other words, back-office corporate functions like finance and administration and partner support will continue to be managed from Sweden, while front-office functions like sales and marketing are being increasingly moved to the UK and US), and readying the company for sustainable growth and support of its customers. IFS has announced organizational changes which will build on its SOA prowess—making its product development more agile and market-focused. Namely, IFS is merging the products organization and the industry and marketing teams under one leadership structure to increase agility in bringing the right products to market at the right time. Furthermore, IFS is creating a business development team to investigate innovative go-to-market strategies (with high-profile partners and customers to develop "fringe" functionality atop the IFS foundation layer and peddle the solutions afterwards) and business models, while internally IFS is also consolidating its corporate support functions.
After a few years of constant workforce shedding, IFS increased headcount in 2005 because it took control of subsidiaries in India (IFS recently bought its partner's share in India
JV to turn it into a full subsidiary) and increased its direct presence in South Africa (with the focus on telecommunications and utilities), and it still has a strong interest in partnering (for example, with black empowerment concerns in South Africa such as Motswedi
Technology Group). Emerging markets for IFS are China, India, Libya, Russia, Turkey, and Ukraine. While IFS Middle East has lately been the most profitable region, half of Asia-Pacific revenue is from China, where IFS is very strong in utility industries and has contracts with several top Chinese power plants, including Three
Gorges. Another partnership in China is through a joint venture with Beijing
IFS UFSoft. The vendor hopes to play a more important role in China, especially with local Chinese customers, and the product's flexibility should allow it to cope with the changing and demanding Chinese market.
The new CEO believes that different regions require different sales approaches and "personal touches" (whether sold directly or via a business partner network that currently has over forty distributors), and IFS thus emphasizes its global capabilities via a single-version global product. It also emphasizes its global implementation capabilities via its decent services and support network (with six support centers in China, Poland, Sri Lanka, Sweden, the UK, and the US, and with R&D centers including Germany, Norway, Poland, Sri Lanka, Sweden, the UK, and the US). Indeed, the structure of the business applications mid-market to date has been based on contesting vendors' ability to serve specific areas—whether geographical or vertical. Historically, customers have bought from renowned regional suppliers with the (often justified) belief that their software would be more attuned to local needs, and better supported locally. However, the globalization of the supply chain of even the most modest of these prospective customers (whereby they might design products in west Europe or in North America but manufacture them in the Far East, Africa, or eastern Europe and then distribute around the world) means that locally focused packages are becoming decreasingly relevant.
Moreover, IFS wants to keep a single product focus, as opposed to many of its ever-merging competitors that have to subsequently manage several product lines across multiple industries. Its users are distributed across seven key vertical sectors: A&D, automotive, high tech, industrial manufacturing, process industries, construction and facilities management, and utilities and telecommunications. The IFS Applications suite, available in twenty-three languages, provides extended ERP functionality, including SCM; EAM; maintenance,
repair, and overhaul (MRO); PLM; customer relationship management (CRM); and CPM capabilities.
Nimble, Vertical, and Partner-Friendly
Based on its recent financial performance, it appears that the former ultra-high-growth vendor has now turned the corner on its troubles, and is now moving out of consolidation and into growth again, although this time in a much more moderate way. IFS is seeing the most growth in Europe, North America, and Asia (in most of the regions where it had been struggling), but the ongoing uptake is due to a back-to-basics sales campaign alongside better co-operation on international deals—both intra-company and with partners. Furthermore, while manufacturing broadly remains IFS' bread and butter, construction, defense, and the project markets are the company's key growth opportunities, as seen in the recent product enhancements.
For example, IFS Applications 7 was designed to give defense suppliers a competitive edge with enhanced capabilities for lean manufacturing, project management, and contract management:
- more accurate monitoring of contracts with advanced contract management created specifically for the complex needs of defense manufacturers
- better supplier management and traceability with project inventory, including full project pegging and borrow/payback features developed for the defense manufacturing environment
- improved costing of replacement inventories with loan/payback functionality
- flexible mixed-mode costing that enables defense manufacturers either to run their entire business on an actual cost basis, or to simultaneously run their commercial business on a standard cost basis while using actual costing on the government side
- improved financial capabilities, enabling defense manufacturers not only to progress bill their customers, but also to perform periodic revenue recognition on long-term projects in which project billing may not be occurring
- fully integrated material
review board (MRB) and quality control functionality that provides a closed-loop system for quality control
The IFS strategy going forward is to gain leadership (or one of the top few positions) in selected industry verticals, such as A&D. As for success in this market, the vendor was almost a non-entity till 2002, but now has enterprise-wide agreements with the UK Ministry
of Defense (MoD). IFS
Defense now contributes one third of total UK revenue, while IFS has a nearly 30 percent market share in the European A&D industry. Some recent wins in the US also bode well, having followed the UK team's recipe for the US Department
of Defense (DoD), and the vendor is pursuing defense across the Middle East, Far East, and Asia. IFS Applications includes functionality that meets the demanding requirements of the armed forces, such as fully integrated MRO, performance-based
logistics (PBL), project management, fleet management, SCM, and other components that are devised to ensure asset visibility, sustainment, and availability—three key objectives in managing weapons systems for optimal combat readiness. IFS also provides an industry-specific solution for defense manufacturers that helps companies manage the design, manufacturing, and ongoing spare parts logistics and maintenance support of complex products throughout the product lifecycle. IFS customers within the A&D industry include the British and Norwegian defense organizations, as well as the Eurofighter consortium. Commercial MRO shops and operators include Finnair, Bristow Helicopters, Aero-Dienst
GmbH, Hawker Pacific, and Jet Turbine Services. In addition, IFS provides solutions to original
equipment manufacturers (OEMs) such as General Dynamics, Lockheed Martin, BAE Systems, Saab Aerosystems, and GE Aircraft Engines.
This is in a sharp contrast to its previous practice of letting its sales folks opportunistically chase almost any opportunity, owing to the well-rounded product's seemingly good fit for many potential industries. Nowadays, the intent is rather to continue to make deep industry partnerships which add industry value for customers, such as those with BAE Systems and NEC.