What is the right enterprise response to an economic downturn? Most companies see it as a time to cut back on technology investment. But Darren Roos, CEO of enterprise applications vendor IFS, believes that's the wrong response. Speaking at the company's IFS Connect roadshow in Birmingham, UK, this week, he challenged the conventional wisdom, saying:
When times get tough, and you get the CFO saying we're going to take 10% of the cost base out, and all of a sudden the IT budget is down, someone's going, 'Well, we're not going to do that project.' You must do that project, now is exactly the time to do the project.
His argument is that focusing solely on efficiency and cost reduction leads enterprises to ignore the opportunities that emerge during a downturn, and which demand a more agile response. "You can't possibly efficient your way to success," he explains. He goes on:
When you come into a year, or a planning cycle, and your key word is efficiency, then you have a blind spot for those opportunities. When the message is — and this would be fairly common — 'We have to take 10% of the cost out of the IT budget' as an example, then that tends to be a very blunt instrument. Whereas I think that the agility piece, effectively means, 'We need to make savings where we can make savings, but we have to be open to the idea that there will still be opportunities.' Those opportunities won't necessarily have been there prior to the downturn.
He cites research by Boston Consulting Group that found there were 14% of companies that came out of previous downturns with improved performance, commenting:
Whenever times get tough as they are at the moment, it's inevitable that companies become quite inwardly focused, and they aren't focused necessarily on the opportunities in the way that they are when things are going well. I think that does present an opportunity ... to be in that 14%.
Roos is especially scathing of publicly listed tech companies that are downsizing solely to meet the earnings guidance they've issued prior to the onset of the economic slowdown. He says:
Everybody's cutting headcount. Why are they doing that? To hit the guidance. It's not because they deliberately weren't doing what they thought was good for their customers before. No, of course they were doing what they thought was good for their customers.
There's no way that those adjustments can be good for the customers. No way.
He contrasts this short-term view with the long-term planning IFS is able to do with its private equity owners:
As a management team ... we don't have to worry about, how do we hit next quarter, and what are the compromises that we need to make to do that? Our investors are bought into a five-year plan. We have a plan through 2028 that maps out exactly what we're doing and how we're doing it.
IFS still publishes quarterly revenue figures and expects to achieve annual revenue of $1.3 billion this year, with nearly half of that coming from the US. Although the privately-owned company doesn't have to make these numbers public, Roos believes it builds customer confidence, as he explains:
I've always felt it was important, because I think it sends a strong message to our customers, on the fact that we're growing, that they've bet on someone that is relevant ... Net revenue last quarter, in Q1, we grew nearly 40%. No one's growing at 40% if they're not relevant. I think that that's important, it's a good validation for our customers that they're betting on the right company.
Making a detailed business case
One factor that's helping IFS close deals, despite the pressures on spending that many companies are feeling, is its approach to value engineering. In the current environment, the business case for a major IT investment is inevitably going to get more scrutiny. Many vendors will talk about productivity gains and cost savings in generic terms but without specifying detailed outcomes. Rather than what Roos calls "a desktop spreadsheet exercise," the IFS approach is to run a detailed value engineering exercise that specifies where costs, risks or emissions will be reduced, or revenues will rise. He gives the example of making the case for a field service team to adopt its scheduling and optimization tool:
We [have] specific tooling applications, where we have hundreds and hundreds of companies' benchmark data. We're able to produce a detailed business case, which says 'This is how many miles less, this is how many engineers less, this is how much your emissions are going to be impacted, and here is the business case in pounds.' ...
If you're the CFO, and you've got this desktop exercise, and now you're being asked to invest 20 or 30 million into something that you don't see the cost coming out, that's vastly different to being able to say 'Unfortunately, these three people are going to be doing something else in the future, and the P&L for travel and for fuel is actually coming down. That line item in the budget is coming down and it is self-funding, and you can see the impact immediately.' That is the level of granularity that we go to, and I think that's extremely important.
Expanding into EAM
Expanding the IFS offering in Enterprise Asset Management (EAM) is an example of seizing opportunity. Two years ago, rival vendor Infor took the decision to exit the asset management market when it sold off its EAM unit to connected equipment consultancy Hexagon AB. Having researched the market as a potential bidder, IFS decided there was enough market potential to justify building out its own EAM offering. This led to its acquisition last year of Ultimo, which provides EAM as a point solution for smaller businesses, while the pre-existing IFS EAM product serves larger, more complex implementations.
Roos feels the competitive landscape in EAM is surprisingly sparse, while IFS can boast of a good fit between asset management and its other products. He says:
For me, it's amazing that there isn't more focus on this, because we're moving into an age where disconnected devices and edge computing, the importance of predictive maintenance is so relevant. The trend is for it to be more relevant, not less relevant, and yet, you don't have a ton of competition here ...
We have the number one EAM solution, the number one FSM solution, the number one scheduling and optimization engine, and actually, when you look at core ERP projects capability, we have the most evolved capability there. So if you're a telco and you're deploying a 5G network — massive project — and you need to manage those assets and service those assets, and you're doing the scheduling and optimization around maintenance and repair, who else do you go to? There's no one else to go to.
I'm amazed at how frequently when any organization is facing a drop in revenues, the first question seems to be, 'What shall we cut?' My attitude has always been, where can we find more revenue? As Roos says, if you're already running a tight ship, then any cuts you make will inevitably harm your ability to deliver. Certainly, it's always worth examining whether automation or reorganization can improve productivity, but to instantly assume that you can't make topline improvements seems prematurely defeatist. But I suppose it does require an organization that already has a growth mindset and a customer-centric culture.