Size does matter for Philip Crawford, i2’s vice president of EMEA. He joined the supply chain management specialist last year at a time when the company was coming to terms with a shift in the market. The post dot com slowdown was kicking in and recessionary pressures were coming into play. As such the scale of the kind of orders that i2 and its contemporaries were used to pulling in was altering.
Crawford has famously refered to this as becoming used to chasing rabbits after traditionally hunting elephants. It’s a trend that appears likely to continue. “We had growth of 7 per cent in revenue terms, but the number of orders rose by 23 per cent,” he told CRM Forum this week. “So the conclusion you draw from that is that there are more orders coming in, but that the size of those orders is smaller than before. In EMEA the average deal size has dipped below the $1 million and in fact that’s pretty much the case globally now as well.”
It’s all part of a wider reappraisal of how companies are buying applications. Gone – for now at least – are the big bang implementations where everything was put in place at once to be replaced by a tactical approach were components are rolled out bit by bit and put to the ROI test before advancing further.
That inevitably has an impact on i2’s financial performance. In January, the company posted a pro-forma operating loss of $34.7 million against a profit for $44 million for the fourth quarter of 2000. Revenues year on year fell from $378 million to $194 million. But Crawford remains upbeat, buoyed perhaps by suggestions from analyst firms that the SCM sector is likely to be more robust than the CRM space in the coming months.
“As a standalone application, it can be argued that CRM doesn’t actually add a lot to a company,” he says. “There’s not a lot of point in being able to know exactly what it is that your customer wants from you, if you can’t then manage the inventory to be able to deliver it to them. Really the biggest complaint from customers about any company is about its inability to deliver goods and services. CRM is a bit nebulous in some respects. It can help you to relate to your customers, but SCM enables you to be able to tell that customer exactly when he or she can expect to receive their order.
“The ROI requirements of companies have changed. If you go to a company and say that it will be 2 years before it will see an ROI in their applications investment, then that company is not going to be interested.
“One of the biggest costs for any company is managing inventory and supply chain. Most companies tackle this by over stocking, but even so there’s always the problem that something will have too much demand and the company won’t be able to provide it. If you can avoid such problems, then that is a major contribution to the bottom line and the efficiency of the company. At the moment there’s a new Lea and Perrins sauce on the market, which as become amazingly popular, but when you go into Tesco or Sainsbury, you can’t find any on the shelves. The supermarkets know that their customers want to buy it, but they can’t keep it coming through to put it out for sale.”
Crawford also reckons that the prospects for i2 have been helped by the enthusiasm shown by SAP in recent months for the SCM space. “ERP is creaking at the seams,” he argues,” so SAP and the ERP companies are looking for extensions to their market space. But what’s happening is that we’re moving from supply chain planning to supply chain execution which is where we have strength. Supply chain execution operates at a speed at which ERP and MRP cannot compete. How is the ERP space performing? Well, I’ve heard of companies claiming that they’re seeing a 60 per cent growth in business, but that’s more likely to be 6 per cent…if they’re lucky!”
Crawford has recently appointed his former Oracle colleague Andy Bailey to the post of EMEA marketing director, a role which will see Bailey acting as a conduit for greater European involvement in the development of products. “When we were at Oracle, decisions would come down from on high,” recalls Crawford. “For example, we had a highly successful tools business in the UK with a special division dedicated to them. Then it was decided that tools were no longer quite as important and as such they became part of a wider portfolio in the salesperson’s bag. Then I get a call from [CEO] Larry Ellison asking what’s happened to the tools revenue, which has fallen off because they’re no longer being sold as dedicated products.
“There was in other words a huge level of push when bringing products to market. What’s different at i2 is that we’re asked about what customers want, what we think we can sell in the market, and that gets fed into the product development process. One of the things that Andy Bailey will be doing is providing a European voice in that process so that the products will reflect and meet the needs of our marketplace.”
Having that European voice at a US corporate level is important as Crawford is pessimistic about the chances of seeing a European or a UK software industry emerging in the near future. This year alone has seen UK firms Cedar Group, Sage and InterX all get into trouble. Ironically Crawford spent a brief period at InterX before abruptly quitting over disagreements with the board over sales policy.
He remains discrete for now on the troubled circumstances that led to his sudden departure after a high profile appointment months earlier. But he does offer the observation that one of the lessons from InterX is that it’s not as easy to break into the software market as perhaps some individuals might have assumed. Beyond that, he appears content to wait for more details to emerge and vindicate his stance.
But he is more forthcoming on the poor prospects for a UK software industry as a whole, arguing that companies hit their geographic boundaries far earlier than they do in the US. When that happens, the alternatives are to head for the US or to Europe. One means entering a market where customers check at once for a Nasdaq listing before buying, the other means moving into a multi-nation market. “People talk about moving to Europe, but my first question is where is Europe?,” he asks. “It’s not a country, it’s lots of countries. So you need to set up in France and Germany and so on. You need offices and people and infrastructure for all of the countries and that adds costs.”
The conclusion can only be that the US continues to dominate the software industry. For European customers, it’s important then that such companies continue to ensure that they have strong European operations. Retrenchment to the US and the imposition of global marketing and sales policies are not helpful. If Crawford has his way, that will not be the case at i2.