Originally published at Technology Evaluations Center

This is Part Three of a four-part note.

Part One defines EAM and CMMS.

Part Two discusses integration concerns.

Part Three and Four began the analysis of two major vendors.

Additional Analysis of IFS and Intentia

Whether due to the same geographic origin or not, one can notice many similarities between Intentia (XSSE: INT B) and IFS AB (XSSE: IFS), in addition to a few differences. Having both been Swedish companies, both exude the domain expert knowledge within the industries of their focus, and both vendors have been congenial and disinclined to exaggerate their capabilities. On the down side, however, these traits are drawbacks in other more flamboyant, marketing-rich markets outside Scandinavia, particularly in the United States, where these vendors occasionally have been regarded as somewhat unexciting or reserved.

Having traditionally done implementations via their product delivery organization, IFS and Intentia have also long exhibited a focus on product quality and customer satisfaction that manifests into a lasting relationship with each client. Both IFS and Intentia boast long lists of delighted customer references as a display of their high level of confidence in their successful implementations and subsequent after-sales life cycle and upgrades.

While with the exception of some regional pockets, many may not have necessarily heard of Intentia’s or IFS’s good reputations outside Europe. Nonetheless the vendors have impressive backgrounds. Founded in 1984 and now Scandinavia’s largest software company, Intentia is established in some forty countries with nearly 3,000 employees and 3,500 customers worldwide. Intentia’s annual net revenues for 2003 were $363 million (USD), based on the average exchange rates for the period. IFS was founded a year earlier, in 1983, and it currently has a global presence serving forty-five countries with over 2,600 employees and 2,500 customers worldwide. Its annual net revenue for 2003 was $290 million (in USD), based on the average exchange rates for the period. However, based on the currency exchange rate (which is how revenue is typically reported making it more comparable with previous years results), the vendor reported $323 million (USD).

As for the industry focus, Intentia is a major player in selected industry verticals such as food and beverage; fashion; automotive; paper; steel; maintenance; service and repair; and wholesale and distribution. In addition to these, the 2004 focus for its EAM solution will include power generation; primary chemicals; third party outsourced maintenance providers; metals processing; ports; and airports. On its hand, IFS targets automotive suppliers; aviation and defense (A&D); energy and utilities; high-tech, industrial manufacturers (general engineer-to-order [ETO]/make-to-order [MTO] manufacturers); infrastructure and facilities management; batch process industries; rail and transit; and telecommunications. The common thread throughout these is complex, multisite engineering and manufacturing, bundled with a specialization in the more asset-intensive industries, particularly for the maintenance repair operating supplies (MRO) services management.

However, after a strong performance throughout the 1990’s, both vendors suffered a sudden stall in total revenues growth upon entering into the new century (see figures 1 and 3). This was due, in part, to the soft market after the Y2K over-hyped phenomenon and followed by the global economic downturn. This brings us to some differences between the two vendors. For example, Intentia had an IBM-based platform centric approach in its Movex software until 1999, when it released a multi-platform version of Movex which was written in Java and included an optional web interface. For more detail, see our article Intentia's Movex for Food and Beverage: Gaining a Foothold in North America. Also, Intentia remains the larger and possibly a functionally better vendor of the two (in terms of multinational financials/consolidation, budgeting, HR/payroll, distribution/transportation, marketing campaigns, and other capabilities). However, at the same time, it is somewhat stodgier and only recently started to open up to the concept of selling into multi-vendor environments.

Figure 1

Figure 2

Conversely, back in 1994, IFS began a development project to transfer its flagship IFS Applications suite to object-oriented technology. The project was completed in 1997 with the launch of the IFS Applications 1998 product suite. The IFS’ business concept has since focused on increasing the freedom of action and competitiveness of companies by enabling customers to either apply IFS solutions as a complete enterprise system, or as a complement to other vendors’ applications within a specific part of the business process.

IFS Strategy

For over a decade, the cornerstone of IFS’ strategy has thus revolved around its component-based architecture and vertical market focus, which thereby became part of its identity and a key ingredient in its ability to deliver an even deeper vertical industry functionality.

While specific astute modules within the IFS Applications Suite have contributed to IFS’ success within certain verticals, one thing that IFS has long had going for it is its product architecture, which is highly component- and standards-based. Also recognizing its scalability limitation, in addition to the rigidity of its erstwhile two-tier client/server architecture, IFS first embarked on creating an n-tier product architecture in the mid-1990s. This n-tier product architecture separates presentation, business logic, and data storage layers, and also render IFS independent from the Oracle development tools and the use of stored procedures in the Oracle database. IFS Applications 2001 was heralded as a fully Internet-enabled and componentized five-tier architecture suite (with the data source, business entities, business activities, business processes, and presentation layers). It covered most of the traditional horizontal ERP functionality via a mandatory IFS Foundation layer, on top of which one can build in a pick-and-mix-type functional module stacks that are needed to satisfy needs of more specific businesses. These have been built through the company's own research and development (R&D) and through some of its acquisitions. Both endeavors use the industry’s commonly accepted standards.

By splitting functionality across over sixty independent modules and by having a five-tiered, object-oriented logical product architecture, which separates the presentation layer from business process, and the business process from the underlying required business logic, database access, and the database itself, IFS demonstrates a possibly unique epitome of flexibility, both in terms of product adaptability to defined (and ever-changing) business processes and the ability to "cherry pick" required modules.

As they see fit, companies can select modules to co-exist with other legacy applications and databases, or select modules to simply avoid the "big bang" monolithic approach to enterprise application implementation—a practice that has long since been overcome. They can add components at their leisure and pace, which allows for user adaptation to the new tools and allows companies to begin receiving return on investment (ROI) quickly by staging their implementation scope in order of criticality. Built-in extensible markup language (XML) support and the external availability of all internal application programming interface's (API) mean that integration between IFS components and other companies' software should be a reasonable endeavor. For more details, see IFS To Be At Customers' (Web) Service.

Furthermore, owing to the component architecture, customers can, for example, even install the latest version of a certain IFS component while still using an older version of IFS Applications. Therefore, IFS’ foray into web services has much credibility, since the company has likely dealt with the pieces of the concept before the latest industry buzzword has been coined. Namely, using web services objects, IFS Applications components are driven by business processes, which by the nature of encapsulation (i.e., making functionality known only by the interface it exposes), bode well for the ongoing product’s instance agility.

Hence, in today's market where IT budgets remain extremely tight, IFS has a potential of offering customers highly specific modules to immediately address their specific pain points. Moreover, since the component architecture has been further enhanced within IFS Applications 2004 with Java 2 Enterprise Edition (J2EE) interface (dubbed IFS Service Oriented Component Architecture), and thereby further bases IFS’ modules on open standards, they should more readily be integrated into a company's existing IT ecosystem.

Challenges to Both Vendors

Looking ahead, both vendors are moving to web services and composite applications. IFS’ first composite application has recently been developed with partner ABB for process and energy industries and is currently available. On the other hand, having moved from the IBM iServer confinement, Intentia nowadays offer a much wider choice of platforms to the user, whereas IFS remains confined to Oracle database, which limits opportunities in the lower-end of the market. While the IFS Web/Applications/Connect server is ready to run on Microsoft SQL Server in the laboratory, given that some of the application logic has been migrated to be database independent (which should include the IBM DB2 database as well), there is still a lot to do before everything has been migrated and ready for commercial use. Given IFS’ ongoing R&D investment scrutiny, that work will not likely be completed in the foreseeable future.

Namely, although not unlike other ERP and SCM software vendors, Intentia and IFS need to string together several quarters of profitability to restore consumer confidence and long-term stability, which is yet to happen (see figure 2 and 4). Recent reports have, however, indicated that both vendors have lately had many bitter pills to swallow in their attempt to stem the tide of poor consumer confidence in order to increase revenues and return to profitability, while, at the same time, developing the internal infrastructure to increase and measure efficiency and reduce costs.

Figure 3

Figure 4

 Cost cutting, layoffs, certain divestitures, and so on have lately been associated with these two mid-market vendors that not that long ago seemed to have been getting everything right—technically, functionally, and geographically. Their mixed blessing performance—the delivery of new exciting product features on one side while being plagued with losses and an eroding financial situation on the other—have been the main theme for last couple of years. Nonetheless, both have had to shift their emphasis from an astronomic high growth and an entrepreneurial spirit of previous years to its current focus on profit.

The vendors have realized and addressed the seriousness of their protracted poor financial performances by focusing on the following: profitability and positive cash flow, balanced growth by relying on strategic partnerships for growth and product enhancements, and product development costs tied to new sales. Still, flawless execution and repeat delivery of profits and positive cash flow are yet to happen.

Also, both vendors have lately tightened their respective ownership shares as to preempt any hostile bid activity similar to what was launched against PeopleSoft by Oracle. Because Intentia’s challenges and consequent moves have been analyzed at more length in our earlier article series entitled Intentia's Movex for Food and Beverage: Gaining a Foothold in North America, we will focus more on the IFS’s current state of affairs. To that end, IFS might be showing some signs of recovery during the last couple of quarters (see figure 4), given that despite such a tough market, IFS was able to announce that it continues to gain traction with 158 new customers in 2003, of which 32 contracts were valued at over $1 million (USD). The company continues to improve internal operations and is generating positive cash flow, something it has struggled with in the not so distant past.

Several vertical markets and partnerships are contributing to this growth. In North America, IFS is seeing particular success in the A&D industries, where it has been leveraging the broad and deep solution in EAM and MRO. While IFS has been well-known for providing ERP applications to medium-to-large organizations that make complex, highly engineered products with project-based manufacturing processes and asset intensive operations, it has long tried to crack the US A&D industry across all company sizes. It has apparently achieved some success in that regard, by setting up these partnerships: BAE Systems-IFS, for the global defense sector and GE Engine Service for commercial aerospace.

IFS seems to have cemented its position in the market since setting up a joint venture with BAE Systems over two years ago and declaring A&D as one of its key target markets. IFS has been successfully developing functionality specifically for the sector with some of its principal customers, such as BAE Systems. As a result, IFS’ customers in the sector also now include Lockheed Martin, General Dynamics, Saab Bofors Dynamics, Saab Aerospace, GE Aircraft Engines, and so on. Products that have been the result of the endeavor include integrated project tracking and product data management (PDM) capabilities, which, when combined with other IFS Applications modules, work well with government regulatory requirements in the sector. They also fit well with the requirement to manage assembly design; manufacturing and ongoing spare parts logistics; and MRO support of complex products throughout their life cycle.

Likewise, IFS plans to expand by repeating the model of developing global and local partnerships with well-known companies in niche industries in different countries (such as ABB, IBM, Beijing IFS UFSoft, Det Norske Veritas, etc.), while product development focuses on deepening its functionality to retain IFS’ position in its chosen markets, while broadening its scope to capture more industries in the future. IFS also expects to offer more specialized best-of-breed solutions with the aforementioned partners, where appropriate. A perfect example would be the alliance with ABB to deliver IFS Enterprise Asset Management (EAM) solutions, which could possibly render IFS a leading EAM player in the future. Other partnerships and alliances have reportedly developed as well, resulting in greater market penetration and an increase in the number of prospects. In other words, 8 percent of license revenue was derived from partnerships and alliances.

In its outlook for the rest of the year, IFS expects continued cost containment rationalization and to that end, product development will be sharply focused on refining functionality, particularly within specific industry segments that are of strategic interest for IFS and its premium partners.

The problem has been that the company had invested heavily in product development to deliver more than sixty modules, including localization for many countries. Having done so, it had suddenly ended up with too much a burden, given it did not required the same level of staffing for future development. Thus, lately IFS has seriously reduced its Sweden-based R&D team as part of an intensive cost-cutting exercise to save several dozens of millions of dollars per year. An increasing amount of its R&D activity has since been created in Sri Lanka, where it currently has approximately 300 employees, and where it can gain a five-to-one increase in labor for the same amount that it costs in Sweden. This has reportedly reduced IFS’ R&D expenditures by 21 percent for 2003 while not really affecting its capacity. One should expect similar moves from Intentia, given it has recently axed 10 percent of its worldwide workforce under the influence of the very recent investor Symphony Technology Group, which will likely prompt Intentia for more gutsy moves than it has been prepared to do in the past.

This is Part Three of a four-part note.

Part One defines EAM and CMMS.

Part Two discusses integration concerns.

Part Three and Four began the analysis of two major vendors.