The ERP industry is in transition. Companies that have legacy ERP system implementations with larger vendors like...
SAP and Oracle face decisions on costly upgrades to new versions or moving to the cloud -- or both. Many smaller ERP vendors are taking this opportunity to capitalize on this transitional period by offering systems that claim to be less costly, simpler to install and run, and more flexible than those from the mega-vendors.
One of these challengers is IFS, which is usually characterized as a tier 2 company, trailing the ERP industry leaders SAP, Oracle and Microsoft. IFS, which is based in Sweden and reports a strong customer base in North America, is focused on growth. The company reported annual revenues of more than $500 million, with an increase of 52% in Q3 2018 compared to the prior year, of which 68% stemmed from new customers.
In this Q&A, IFS CEO Darren Roos, who assumed his role in April 2018, discusses his company, the current ERP market and legacy ERP systems. Roos is an industry veteran who came to IFS from SAP, where he was president of SAP ERP Cloud.
This interview has been edited lightly for clarity and brevity.
How would you describe the current state of the ERP industry?
Darren RoosCEO, IFS
Darren Roos: There's a tremendous amount of change in the ERP industry, and what I've observed is that not all of that change is necessarily focused on what the customer wants. The mega-vendors are driven more by their investor interests rather than their customers' interests. That means they make decisions and drive the technology and business in a direction which is not always consistent with what customers want.
For example, I don't think that most customers in the manufacturing space are necessarily dying for another upgrade. They're not begging for the complexity that's being introduced into their world by their providers.
How does IFS fit into the current ERP industry?
Roos: We're easier to do business with, the application is easier and quicker to deploy, and that's what the market is looking for. There's a myth that's perpetuated by the mega-vendors that customers are begging for cloud, and I just don't buy it.
Customers want to deploy faster, they want to be on the latest release all the time and they want continuous innovation. And if you can find a way to deliver them those three traits, they're happy to do that on premises or in the cloud.
Where is IFS strongest? What industries are its biggest markets?
Roos: Our No. 1 industry is aviation and defense. [We are also] strong in industrial manufacturing spaces, construction and engineering. Where we don't play is in the service space -- financial services, retail, public sector. But anything that's product- or asset-intensive are areas where we play really well.
Where does IFS need to get stronger?
Roos: IFS has been very inwardly focused on our customers, on our technology, on our business historically, and what we've not done a good job of is working with an ecosystem of partners and leveraging those partners to get a better footprint in the market.
If you think about why SAP, Oracle and Microsoft have been successful in ERP, a huge contributor to that is the progress that they've made in building an ecosystem, both with the global offshore system integrators, as well as the boutique system integrators. That's a big focus for us now.
What markets is IFS going after? For example, is it going to target SAP organizations that may be hesitant about a migration to S/4HANA?
Roos: There are two real sweet spots for us. One is that there's still an incredible amount of legacy ERP out there -- the Baans [Infor], the [Oracle] JD Edwards, the legacy Microsofts -- and there are a lot of customers in the $1 billion to $5 billion markets that are still stuck on those systems. They're end of life, they're not being innovated on as a platform and, therefore, those customers have to go somewhere. So we're seeing a lot of uptake in our application out of that legacy ERP base.
Are a lot of those legacy ERP systems deployed in industries that IFS is already strong in, like manufacturing?
Roos: Yes, they are in industries where we are strong, that's exactly right. And the thing is, they are now looking for a solution that's pragmatic. They're looking for something that's simple to use.
Typically, [the systems are] on premises and have been there for a long time, and they're looking for something that represents a scalable and robust platform for them to go forward on, where they're not going to be forced to upgrade once a quarter or forced to adopt a completely new database, for example. They're looking for the same -- what I call sensible -- ERP approach that they've had in the past, but something that's future-proof.
Aside from legacy ERP, what's your other target market?
Roos: Whether it's SAP or Oracle, you have tens of thousands of customers in the enterprise ERP space where they've invested a tremendous amount of money in the technology. And now they're being told that they need to upgrade, despite the fact that they've just finished rolling out your system. And this is a complete reimplementation and you have to go to the cloud.
A lot of customers are saying, 'Time out. This is not OK -- you telling us that we have to chuck out the database that we have skills and experience on, and now we have to go to something that we've never worked with before. We're not OK that we spent six years implementing the current version and now you tell us that in five or six years' time, that version is going to be in end-of-support and we have to do a complete reimplementation and move again.'
They're happy to look at a cloud solution, but you have to answer the tough questions. How are you going to keep me on a current version without me having to take up somebody else's upgrade cycle? How are you going to make sure that we don't have to do 300 hours of downtime a year because we're in a data center with somebody else who's in another country where they can only do an upgrade at a specific time?
These are real challenges in the manufacturing space or in the high availability space for an oil company, for example. They're not OK with you saying. 'We're going to take you down for 24 hours over the weekend and you don't get to choose that slot.' They just want a sensible solution. They want something that leverages their relational database skills, that is functionally capable and that they can have some confidence is going to do the job for them in the next five to 10 years.
They don't have that confidence now in the mega-vendors because they recognize that the mega-vendors are being far more driven by their investors than by their customers. That's the reality, and I'm not critical of it -- I understand the dynamic -- but I think it's creating an opportunity for us.