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ERP vendor IFS has played in the shadows of industry giants SAP, Oracle and Microsoft, but the company is trying to challenge for a spot in the top tier.
IFS reported a rise of 32% in overall license revenue for 2019 over the previous year. Every region and every line of business delivered double-digit growth during every quarter of 2019, the company reported. IFS's field service management business grew 51%, and aerospace and defense business grew by 38% in 2019. Overall cloud and SaaS revenue increased 56% for 2019.
IFS, based in Linköping, Sweden, develops ERP systems that incorporate functions for five specific industry segments: aerospace and defense; manufacturing; telecom, energy, and utilities; engineering and construction; and services.
This industry specificity of IFS ERP enables the systems to be deployed faster and enhances usability, leading to a quicker delivery of value and lower overall total cost of ownership, said Darren Roos, IFS CEO.
"There are two reasons why it's faster," Roos said. "One is that our solutions are tailored for the industries in which they operate -- not a broad ERP that's made to do everything for everyone. The second thing is that we focus on enabling customers to reduce complexity, to go live faster and realize value faster."
This quicker pace for return on value positions IFS ERP to take on more established ERP vendors, Roos said, particularly the traditional market leader SAP, which is facing issues in moving its large customer base from legacy systems to the advanced S/4HANA system. SAP had set a deadline of 2025 to move customers to S/4HANA, but has recently delayed that until 2027, a move that Roos said is still unrealistic and not in the best interests of customers.
Consider the alternatives
Indeed, Roos has been making a strong pitch to SAP customers considering an S/4HANA migration: They should take the time to consider alternatives like IFS ERP, he said. An S/4HANA migration could be potentially problematic because it's not an upgrade, but an ERP reimplementation that requires customers to switch to the SAP HANA in-memory database. Roos sees SAP's S/4HANA deadline strategy as a weakness that IFS could capitalize on.
The same could also be said for Oracle customers that are still running JD Edwards legacy systems, or Infor customers running on legacy Baan or Lawson systems, Roos said.
Cloud moves not easy for any ERP vendor
As much as it wants to distinguish itself from SAP, IFS faces some similar challenges. The vast majority of legacy customers -- irrespective of the vendor -- are running ERP on premises, and the transition to modern systems often means moving to the cloud. Getting customers to make the move is a difficult task for all vendors -- including IFS.
This is especially true for manufacturing-oriented ERP systems, said Andrew MacMillen, research analyst at Nucleus Research.
Andrew MacMillen Research analyst, Nucleus Research
"The challenge that both IFS and SAP face in verticals like manufacturing or aerospace and defense is that it's difficult -- if not impossible -- to fully transition deployments to the cloud, given security requirements. For example, if you're making nuclear submarines or fighter aircraft, there are national security requirements they just have to fulfill," MacMillen said. "The cloud can play a role as far as being a hybrid deployment, but it won't ever entirely replace on-premises deployments, which is why I think IFS keeps license revenue as one of the top-level performance indicators in its reports."
For the right customers, however, IFS and other niche ERP vendors do have the ability to challenge disaffected SAP customers, MacMillen said.
"IFS is in a category of less recognizable names that may poach customers who may feel they're backed into a corner with SAP," he said. "Players such as IFS can deliver the same if not better value because of their focus on specific industries."
Looking for innovation partners
All ERP vendors are looking at peeling off some of the SAP ECC installed base, but they'll have to meet customers' requirements for innovation and digital transformation, said Joshua Greenbaum, principal at Enterprise Applications Consulting.
Most customers on SAP's legacy ECC have two major issues, Greenbaum said. One is maintaining core back office systems and the other is applications like supply chain or CRM that are ripe for digital transformation. Back office systems are less at risk for replacement because they're the backbone of business and customers are reluctant to change if they don't have to. SAP may be vulnerable on the innovation side, however, he said.
"SAP customers are asking who's the best to go with as an innovation partner, and that's the issue that they have to confront on a regular basis in the competitive market against an Oracle or even an IFS, even though I don't think that IFS is that big of a player in the SAP market," Greenbaum said. "All of these companies are struggling with how to do digital transformation within their constraints of time and budget, so there's a lot that's up for grabs now in terms of how companies accomplish that."