IFS CEO - ERP customers expect us to deliver an integrated future, not best-of-breed data hassles

After ERP players IFS and Acumatica announced a very intriguing non-merger in June 2019, which Brian Sommer and I analyzed early on, we've been wondering: what comes next?

Yes, EQT partners now owns both IFS and Acumatica, but: how will these ERP firms bring benefits back to their two (very different) customer bases?

Given that so many full-fledged ERP mergers bring questionable benefits to customers, it's a question worth asking. At the annual Acumatica Analyst Summit and R2 Launch Event, we got the first clues, including:

• An Acumatica demo preview for analysts, showing how their own Field Service ERP Edition is being enhanced by IFS' route planning and scheduling functionality.
• Acumatica is further expanding its development operations, with some new hires to be located at a major IFS development center in Sri Lanka.
• The presence of IFS leaders, including IFS CEO Darren Roos, at the Acumatica event. I expect the same will happen in reverse at IFS' upcoming IFS World user conference in Boston.

With Roos now a year and a half into his tenure at IFS, it was an opportune time to get his own report card. I found Roos in good spirits. As he told me:

You can't argue with the fact that we're winning more deals than we're losing. We're growing our license revenue year to date, to nearly 50 percent up year on year. Nobody else's cloud licensing revenue is up by that magnitude.

Roos credits a transparent, and - yes he said it -  "simplified" approach to ERP for growth in the $500 million+ ERP market IFS plays in:

What we're experiencing points towards the fact there are customers that are saying, "We'll go for the simplification of what may, in some cases, a compromise on functionality for HR and procurement and CRM. But I can go live in six months, and it all works together."

Will customers compromise on functionality for integration?

Roos' comments point to critical shifts in the ERP marketplace that he and I debated. Here's where we agree: I see functionality compromises finally happening, as customers get used to the regular updates SaaS software provides. But: I don't see customers compromising on a good user experience in ERP anymore. What say you, Mr. Roos? 

Your observation is right. They won't compromise on that. No one's going to continue to use old applications. The cost is too high. Customers want ease of deployment; they want ease of use, and they want lower total cost of ownership.

If you think about your line of business applications, CRM, HR, etc. when we redesigned our UX, we did them first. Unlike our competitors who have not redesigned the whole UX, our end of year release, now, is the new UX on every screen. It's ubiquitous.

But Roos made a more provocative point. He believes customers are also willing to compromise on functionality due to their best-of-breed integration pain:

I saw John Donahoe from ServiceNow doing a chat a couple of weeks ago. I highlight this because it's a validation of what I'm hearing also: customers are in this interesting kind of paradox where they recognize the value that best-of-breed applications are giving them, but they're increasingly frustrated by the way in which the complexity of integrating them is the customer's problem.

He sees a best-of-breed crapshow:

If you're an enterprise customer, and you've decided that you want to go best of breed for CRM, and you buy your Salesforce, and you want to go best-of-breed procurement and you go buy Coupa or Ariba, and you buy your best-of-breed HR, and you go to Workday or whatever it is that you buy, and then you're left with the sh*t-show of having to put all of this together. That's exactly what I see.

Strong words, against the grain of many. Roos says this best-of-breed/integration backlash is fueling IFS:

I think what's happening now is that customers are starting to make some compromises on the best-of-breed side and saying, "Look, it really needs to be easier. The things that matter to me are: how quickly can I deploy this, so that I start to derive value? How easy is it to own?"

And how should we define ease of ownership?

When I say "How easy is it to own," it's a combination of: is it difficult to get my users trained up on it, which is really a UX thing. How complex is it to keep maintained? That's maybe a little bit more relevant in the on-prem world, but equally where people are customizing large cloud applications. They still have the issue of which upgrades do they take, and how do they keep it upgraded? Then the third thing is a big focus on total cost of ownership. How do I keep my costs low?

Ease of deployment, ease of ownership and total cost of ownership are becoming a lot more relevant. In this highly fragmented, heterogeneous, best-of-breed application world, customers are not getting those things.

Roos gives his IFS report card

Yep, that's a juicy debate, one that should spark plenty of rebuttals, and, hopefully, customer proof points on all sides. But how about that year and a half Roos report card?

I think that from a business execution perspective, we've done really well. If you look at the analysts' report on what the ERP market is growing at, we're growing three times faster than the ERP market as a whole. Clearly from that element of the report card, I think we're doing really well. The total revenue now is growing just over 20 percent a year. License and cloud bookings are up 50 percent year on year, year to date.

Roos is also pleased that the IFS FSM (Field Service Management) solution is growing even faster than IFS ERP. It's also providing a foothold into an ERP sales discussion. Okay, that's the good aspect of the report card, but where do grades need to improve? What still needs work?

I think we've got a lot of work to do - and I don't think I'll ever be happy with this - our value proposition is just that we really want to be the easiest ERP company to do business with. Whether I like it or not, there will always be more that we can do to help our customers.

One thing we can look forward to at IFS World is: hearing more about IFS' own push to run their entire business solely on IFS applications (with a handful of exceptions like Marketo, Workplace by Facebook for collaboration, outsourced payroll, etc.). I told Roos that customers will want to hear that story, warts and all.

If you'd asked me this question before we did our project, I probably would have said "We're doing great on all fronts." But what I recognize is that there's a lot more that we can do around data migration, around process discovery, around best practices for ERP deployment.

Even though it was my technology, and we did it ourselves, and we had the ultimate executive sponsorship and ownership and desire from the organization, there was still pain in some areas... It should have been easier.

My take

I don't believe a good ERP project is ever easy. I expect that type of unvarnished success story will be welcomed by customers at IFS World. Roos also says, by way of preview, that each session this year will have a customer as a presenter or co-presenter - including his own keynote. He promises customer stories addressing operational IoT and automation in action.

Our Phil Wainewright will be on the ground. Two things I am looking forward to hearing about from Phil: first, IFS' progress on the partner community. Last year, Roos acknowledged they had a lot of work to do rebuilding partner morale, and the ecosystem as a whole. He says there is significant progress there.

I'm sure Phil will also want to comment on IFS' cloud architecture and deployment approaches. I already know that the IFS tech leadership has a sophisticated grasp of next-gen cloud architecture, including micro-services, cloud service composition, and SaaS characteristics like one-to-many-upgrades, central patch management, and robust, backward-compatible APIs.

However: IFS continues to offer a range of deployment options, including on-premise and hosted cloud (on Azure). That's not too different from Acumatica, though Acumatica is multi-tenant SaaS whereas IFS pushes back on the notion of multi-tenancy, arguing that what is more important are the capabilities multi-tenancy can deliver (such as automatic patching and updates across instances).

It makes no sense to be a multi-tenant purist anymore. Even on diginomica, we've largely avoided flogging this since Phil Wainewright's definitive multi-instance/multi-tenant post in 2013. I'm willing to concede that on-premise deployments can, in theory, offer many of the same capabilities as cloud applications. But: there is a huge danger on-prem in deviating off standard configuration. And, typically, you are also deprived of the much faster rhythm of SaaS-based software updates.

This is an important issue for IFS when you consider that a sizeable chunk of their customers still choose on-premise (about 30 percent of IFS customers opt for the hosted cloud, whereas the vast majority of Acumatica's new customers, most of which are in the midmarket segment, do opt for Acumatica cloud SaaS). Part of Roos' rebuttal to my position is this: he doesn't believe the other large enterprise ERP players offer a better cloud ERP proposition.

He may be onto something there, given that the best "true SaaS" ERP architecture examples, including Acumatica, are in the midmarket or lower, with the possible exception of Workday, IF you accept an ERP definition without manufacturing. At any rate, IFS and Workday are not going after the same ERP business.

Roos definitely agrees that on-premise customers can get into customization trouble. His team is determined to help customers avoid that predicament. That's a story to watch. If customers fall behind in releases, they become mired in technical debt, struggle with integration, and question the entire ERP value proposition. Roos says tough love is called for here:

What we're very clear on is that "You cannot get the evergreen capabilities if you highly customize the application." That is very clear.

Roos says they are pro-actively advising on-prem customers on how to transition to "vanilla" industry configurations - and stay there:

What you have to be able to do, you have to enable a certain level of configuration. Customers being able to add fields, add capabilities, add new processes in a way that is non-disruptive so that you can upgrade them seamlessly.

In other words, it's a configuration, not a customization or modification. There's a big responsibility on us and we take that very seriously, to provide as much flexibility in the native application as possible, so that they can go ahead and do what they need to do to make it work for them - without making customizations.

Building an extensible "abstraction layer," another principle of modern software, applies here:

The second thing is that you also have to provide an abstraction layer in which they can do the customization, so that again, it's not intrusive on the core application.

Roos says they drink their no-customizations Kool-Aid: IFS' own internal ERP instance has only six modifications. Another thing Roos plans to do: increase the regularity of on-prem software updates:

Unlike most on-prem vendors with a two or three year release cycle, we're going to move to a bi-annual.

As for best-of-breed versus functionality compromises, Roos and I differ a bit. I believe that the reason many customers will continue to favor cloud best-of-breed is precisely for the superior UX that the successful best-of-breed players will, by definition provide (otherwise they will lose their best-of-breed cloud mantle and fade). I also believe that proper cloud-to-cloud integration, while hardly easy, is at least an order of magnitude easier than stitching on-prem products together.

That said, if IFS is growing based on that integration appeal, that tells us something. Where Roos and I do agree is that more integration responsibilities should be assumed by the vendors. If so-called best-of-breed products continue to lay too much of the integration effort at the feet of customers, we can expect customers to fuel the growth rates of vendors like IFS that don't mind being the "one throat to choke" in the slightest.

Here's where I think integration will really favor IFS: the combination of FSM, ERP and EAM in asset-intensive industries. If you want to visibility into IoT devices, or if you want to shift to a "servitized" business model, having these three areas as separate data silos will prove a daunting digital challenge. With an integrated offering across all three, IFS has a good answer to that. Let's see what we learn next month in Boston.