IFS Unleashed - shaping up to fit the servitization needs of asset-centric industries
- Asset servitization meets XaaS at last week's IFS Unleased conference. The vendor's market-led strategy challenges conventional tech industry wisdom.
The Silicon Valley model of technology marketing is where a vendor first develops some innovative technology and then finds a market where that innovation fulfils a need — the classic product-market fit promulgated by tech luminary and investor Marc Andreessen. But attending last week's IFS Unleashed conference, it became clear to me that not every technology company works that way. IFS is an enterprise software vendor that started out by identifying a market and since then has constantly evolved its product to fit the needs of that market. Turning the classic formula on its head, its philosophy is market-product fit.
The market in question is asset-centric industries, and in examining the needs of that market, IFS has come to some unique assumptions, and has harnessed technology accordingly. You can take this all the way back to the company's origin story in the early 1980s, when its founders camped in a tent next to the site of its first customer, a nuclear power station. But it's taken some particularly interesting turns in the past few years, coincidentally aligning IFS with modern software industry trends including composable applications and Everything-as-a-Service (XaaS) — but always driven by customers, not tech.
Composable ERP, EAM and FSM
Take composable applications, for example. Industry analysts tend to classify the IFS Cloud offering according to traditional enterprise application segments — Enterprise Resource Planning (ERP), Enterprise Asset Management (EAM), Field Service Management (FSM), and so on. IFS goes along with this insofar as it's happy to be rated a leader in segments such as EAM and FSM. But under the hood, IFS creates all of these categories out of modular components that run on a containerized infrastructure, either on Microsoft Azure or as a remotely supported configuration on the customer's own servers. Rather than buying discrete apps, customers buy a collection of components that best suits their specific needs. Darren Roos, IFS CEO, explains:
When we are engaged with the customer, we don't think of the breadth of IFS Cloud as three solutions ... There could be a philosophical discussion about whether any specific module belongs in ERP, FSM or EAM. That's a philosophical discussion we don't have to have. When we engage with the customer, we understand the specific use case that they have, we then build the solution that they need with the modules that are required from all three and then that's what we sell ...
I think something like 86% of our FSM deals have EAM components in them. Nearly every EAM and FSM deal that we have has ERP components. If you take something like order management, or transportation management, or warehouse management ... every FSM deal needs them, but those are ERP components. They sit on the same platform, and therefore, it's very easy for us to put that in the solution.
I've called this composable, but note that it's still IFS — increasingly aided by its growing ecosystem of partners — that puts the solution together for the customer, with a consistent UI and a single underlying data model as part of the proposition. This is not a pick-and-mix bundle of headless/serverless functions from different vendors along the lines espoused by the likes of the MACH Alliance. It's more akin to the declarative application model that Salesforce President David Schmaier recently outlined to me. The core application is assembled ready to go, with industry-specific capabilities already built in, but it remains configurable and extensible to the customer's more specialized requirements.
By the way, last week's event coincided with the release of plenty more industry-specific functions as part of the October 2022 release of IFS Cloud, ranging from cash planning for the construction industry, to tracking and accounting for shared use of assets across different operating companies, to connecting shopfloor devices into a Manufacturing Execution System, through support for the use of mobile devices to take LIDAR-based measurements in the field, and much more. But the vendor's secret sauce is how it puts all the pieces together for each individual customer. Roos again:
When you think about how do we create value, the software is a small part of it. We have to understand the industry, we have to understand the value drivers. We have to be able to make our solution work in that environment from an integration and cohabitation perspective with all of their heterogeneous application landscape.
The difficulty for tech industry analysts is how do you shoehorn all of this into an overall technology vision? My colleague Brian Sommer grumbles that he "tried, many, many times at the show to get Roos and other executives to share with me insights into future technical innovations or directions" without success. But that's not how IFS rolls. The vendor introduces new technology only to the extent that it furthers the achievement of customer goals. Even market-leading technology, such as its highly regarded Project Scheduling Optimization engine, is a response to customer needs. This feels anomalous because we've become so used to vendors setting out a technology vision they want customers to follow, whether it's cloud computing, in-memory data, machine learning or the metaverse, long before the tech has any established track record of creating business value. It simply doesn't compute when a CEO like Roos comes along and says:
It was very deliberate that we followed our customers. If you go back to what I said in 2018 when I joined, at the very first IFS World conference, I said that we will go where our customers want us to go. We will go where our customers feel that there is opportunity for us, what works.
Asset servitization vs SaaS-derived XaaS
This is even more starkly illustrated in the vendor's commitment to servitization within its customer base. This was a recurring theme throughout the conference, from analyst Ray Wang's keynote, where he persuaded the audience that signing up for a Toast-as-a-Service contract is a much smarter proposition than simply buying a new toaster, to customer stories from the likes of aero engine maker Rolls-Royce, marine paint manufacturer Jotun, and packaging group Tetrapak, each of whom have converted physical products into pay-by-results service propositions (I'll dig into these stories more in a later article).
I found these stories intriguing because I've written extensively about the evolution of the Everything-as-a-Service (XaaS) model, but looking at it from its roots in the SaaS industry, where software vendors first learned to servitize their products as a consequence of moving them to the cloud. I've argued that their experience provides a template for applying the XaaS model of customer engagement to every product, service and experience in a digitally connected world. The customer-centric, outcome-based ethos that I describe at the heart of this model has much in common with the 'Moment of Service' concept outlined in the book Roos just published at the Unleashed event, and which Brian Sommer wrote about at length earlier today.
But these IFS customers haven't followed that SaaS-derived XaaS template. They've arrived at digitally enabled servitization by their own, independent route. Rolls-Royce first introduced its XaaS model of selling what it calls 'power as a service' in 2002, at a time when the SaaS industry was so nascent that the term 'SaaS' hadn't even been invented yet. Jotun decided to start selling efficient ship hulls — as an outcome of applying its paint — in 2012. IFS supports these customers in their XaaS endeavors by providing the digital tools to manage and service those assets, but interestingly it doesn't provide any of the additional paraphenalia that we've seen supporting the XaaS model in the SaaS industry, such as subscription management and revenue recognition, or customer success playbooks and KPIs. As Brian Sommer notes in his article, I did suggest to Roos that this might be something IFS should look into, but he believes its strengths lie in its existing offerings. He explains:
You need to think of the core of it. That servitization model is about an asset, and it's about awareness of the assets and the servicing of the assets. What you're referencing is the billing, the financial automation of it. I don't care if they want to go buy a billing engine for that, that's okay. We may go into that in the future, but I have no plans for it at the moment.
But for that outcome-based model to work, as we demonstrated with the customers that we have on stage, as you said, you have to do the fundamentals of understanding the assets, having the asset performance management, having the enterprise asset management and the servicing of that asset.
We're so used to product-centric, technology-led vendors in the enterprise software industry that a company like IFS is hard to categorize. But its more customer-centric, market-led model certainly seems to be working well — Roos shared business metrics that show it's performing exceptionally well on the crucial measures of both growth and margin. This approach may be underrated, but it doesn't necessarily follow that it's substandard. The conventional wisdom in Silicon Valley doesn't always translate successfully into the wider world. The one thing that stands out for me having spoken to numerous customers is the level of trust and loyalty — those relationships are solid.
I think there's an argument to be made that the company could do more to get out in front of its customers in showing the way on solutions for subscription billing and customer success automation. The counter-argument is that it has its hands full already providing the functionality its customers need in those key areas of ERP, EAM and FSM across its target industries, at the same time as continuing to shepherd an extensive on-premise installed base towards its IFS Cloud platform. According to this argument, there will be plenty of time to expand into those other areas, as customers demand more support in their servitization journeys.
Meanwhile, those customer stories provide valuable new insights into the spread of servitization and the XaaS model that I'll be exploring in some follow-up articles in the next week or two.