For many years now, enterprises have grown used to buying their business applications in discrete functional packages — ERP, CRM, HCM and so on. But the result is that their business processes and data have become disjointed and dysfunctional. In today's digitally connected world, it no longer makes sense to divide up all of these functions, and enterprise application vendors are starting to notice this. This week I spoke to executives at IFS, an enterprise systems vendor that has already embraced this new approach, offering a product that cuts across the traditional boundaries. CEO Darren Roos says:
Customers don't need solutions that fit into those traditional boxes. That's not the way customers buy. They have a specific problem that is identified by a process and by an industry.
I caught up with Roos earlier this week to discuss the vendor's recent progress, and also spoke to Chief Product Officer Christian Pedersen in a separate call, in which we dug into the architecture that underpins this approach — more on that in a follow-up piece. While IFS historically has been classed as primarily an ERP vendor, it now derives more than half its revenue from EAM (Enterprise Asset Management) and Field Service Management (FSM). But neither the vendor nor its customers divide up its product set along those traditional lines. Roos says:
I think that one of the reasons that we've been so successful over the last few years, even during COVID, is the capabilities that we sell being a single solution. The customer is able to avail themselves of traditional field service capability, plus supply chain, plus projects, plus MRO, plus asset management, in a single solution, and to pick and choose the modules that they need.
As an example, Roos points to the 85% of customers buying either FSM or EAM that have also deployed its supply chain solution. He says:
Supply chain has always been considered an ERP component, but they're not buying ERP, they're buying asset management or field service management. I think it's been our ability to deploy those different components quickly and seamlessly in a single application — single UX, single database, single data model — that has really differentiated us.
The moment of service
Another consequence of this more componentized approach is that it shifts the focus away from how the technology is packaged, onto what the business is actually trying to achieve. IFS uses the concept of the 'moment of service' to encapsulate this new focal point. A moment of service can be anything from a successful service call to an on-time delivery or even simply a product that reliably and efficiently does what it's expected to do. Roos explains:
It was this idea that every customer, in order to achieve whatever it is that they're trying to do, has to orchestrate their customer, their assets and their people in order to do something. We came up with this idea of describing that something as a 'moment of service' ...
Once we got traction around that concept, that everybody related to the fact that they as a business had moments of service, even if they weren't traditional service businesses, then you could really articulate the way in which you orchestrated those three things — people assets and customer — to create those moments of service.
That's fundamentally what our technology does. It's about making sure that the combination of the assets, and the processes around your assets — or around the service, or around supply chain for that matter, or procurement processes — are orchestrated to make that special moment happen.
This 'moment of service' concept dovetails with the vendor's commitment to business value engineering during the sales process, where IFS works with customers to establish what business value they expect its software to deliver, how it will be delivered, and how to measure it. Whereas in the past, enterprise IT purchases were driven by efficiency and cost reduction goals, those buyers in today's market put much more emphasis on business goals, such as improved customer loyalty. Roos elaborates:
One thing that COVID has done is, it certainly crystallized focus on the importance of being customer-focused. I think that it's much more unusual for us nowadays to have a discussion with a customer where they're going, 'Look, we just have a cost reduction initiative.' That's much less prevalent today.
I think that everyone recognizes that, when things get really tough the way there have been over the last couple of years, it's the companies that have customer loyalty that are most likely to survive. They're the ones that are going to get their bills paid. They're the ones that are going to maintain retention. They're the ones that are going to reduce churn, where there's real customer loyalty. That matters way more than their ability to lower their price points a little bit, because that's not the key decision-making criteria.
The value engineering assessment may still identify opportunities to lower costs or improve efficiency, but these don't carry the same weight as a 'moment of service' benefit. Roos comments:
If you can reduce the time to value, you're lowering the cost, you get the benefit of both ends. But frankly, being able to, for example, get that broadband delivered faster to the customer, or solve a problem on a first-fix basis, is way more valuable.
On track for $1 billion
IFS appears to be thriving with this approach, posting 20% year-on-year growth for software revenues in its most recent quarterly results. It is comfortably on track to pass the $1 billion-mark for annual revenues when the current financial year closes at the end of December, says Roos. The company also saw a doubling in its cloud revenues and more than 80% of software revenues are now on a recurring subscription basis. Roos believes its success in recruiting net new customers, which accounts for over half of new software revenue, is in large part due to its business value approach. He says:
I think that practice, which we built pre-COVID, is putting us in in really good shape now. I think the days of just flogging software — or trying to, as some of our competitors have done, almost put a toll on customers every few years — that's not sustainable during COVID.
Growth has also been supported by a rapid expansion in the vendor's partner ecosystem in the almost four years since Roos joined as CEO. The most recent addition to the partner line-up is a new joint venture announced last month with top-tier consulting firm BearingPoint. The new business bolsters BearingPoint's own existing IFS certified resources with a number of experienced people from IFS's own in-house professional services team. The aim is to create the critical mass to be able to grow a standalone business with a pureplay focus. Roos explains:
It was about us taking a part of our existing IFS competence, splitting it off into the joint venture, and then leveraging that experience and competence to go out and recruit new people that could be cross-trained on IFS, because they had the mentors and coaches and projects for those people to learn on.
The new venture will strengthen the top tier of a multi-tier ecosystem the vendor has been building, says Roos:
In each geography now, across every industry, customers have choice around a boutique partner, somebody maybe that is local, somebody that has real industry expertise, somebody that is global and blue chip, and somebody that is slightly lower-cost and has an offshore delivery model. The idea is to be able to give customers those four choices in every geography.
It's been evident for quite a long time that the old categories of enterprise software are no longer fit for purpose. As the IT industry ponders the fate of long-established categories such as ERP, customers are already looking for better ways to join up data and processes that achieve the business results they need, rather than what's on offer from old-school IT. Midmarket vendors in particular are waking up to this trend, recognizing that their customers don't have the resources to build their own patchwork quilt of best-of-breed applications. These businesses need flexible platforms that will integrate data and processes across their entire operations, and which are able to integrate with other applications so that they can be rapidly deployed where they're most needed rather than having to plan a wholesale rip-and-replace.
IFS has woken up to this trend and its platform now seems to be gaining ground, as its growth figures attest. But there's more to it than the technology platform — which I'll drill into in my follow-up article on the mechanics of building an integrated system that's deployable in stages. As IFS approaches the $1 billion revenue mark, building a solid ecosystem of partners has been essential — vendors that try to keep all their professional services in-house at that scale rarely do well. The other factor to applaud is the commitment to business value engineering, coupled with the focus on that 'moment of service'. My own take on this is what I call the XaaS Effect — recognizing that customers buy technology for the outcomes it enables, and that if you don't focus on that you're letting them down. No one in history ever really aspired to owning a software application per se — the technology is merely a means to an end, and vendors should have the humility to acknowledge that.