IFS capitalises on globalisation

For the past two or three years, the real battlefield in business applications software has been in the upper mid-market. As companies such as Oracle and SAP have pushed down from the high end of the enterprise resource planning (ERP) segment of business applications, and Microsoft and Sage have pushed up from the low end, the original incumbents of that so-called ‘second tier’ of ERP have been forced to re-arm and draft new tactics – or sell out.

Many have sought refuge in the arms of consolidators such as Infor and CDC Software, but a handful – Agresso, QAD, Lawson, Epicor and IFS – have forged their own way forward, some more successfully than others.Sweden’s IFS has, if anything, emerged stronger as a result of the mid-market competitive shake-up. Since the beginning of 2006, when the former head of IFS Europe, Alastair Sorbie, took over as CEO, the company has pursued an aggressive programme of globalisation and targeted verticalisation, pushing into new locations and specific industry areas, tailoring the company’s products for these and leveraging R&D skills in low-cost economies.

That was a direct response to market demands. While historically a global presence might have only been within the scope of larger vendors, “Now our customers in the second tier have very ambitious global ambitions, and we have had to follow that lead.”

Many of those new IFS customers come from the company’s increased penetration of the defence and oil and gas sectors. And some of its global expansion has been in surprising quarters. IFS has been particularly successful in Libya, where it has been active since sanctions against the Gaddafi regime were lifted. There has been success in other oil-rich countries too, says Sorbie: “The high price of oil is driving activity for us.”

Another source of success has been the demise and absorption of several competitors. Consolidation has been a boon to IFS, says Sorbie. “The acquisitions of JD Edwards [now part of Oracle] and Baan [now part of Infor] were both Christmas presents for us, especially in our sweet spots of project-based industries such as aerospace, defence and construction.”

The company has also sought to cut costs by shifting large parts of its R&D operations, support and custom development services to offshore or near-shore locations. It now has 600 staff in Sri Lanka, and also work under way in Brazil and Shanghai. For near-shore delivery, it has selected Romania as a base.

All that activity has translated into a clear turnaround. After five years of revenue decline, the company has now reported growth in its last 11 quarters, and a pace much higher than the underlying market rate of 5%.

In its closing quarter of 2007, revenues were up 11% to SKr 682 million ($102.3m), with new software licence sales up 6% and net profits of SKr 28 million ($4.2m) a radical improvement on the loss of SKr 228 ($34.2m) recorded in the same three months of 2006. Those numbers pushed annual revenue up 7% to SKr 2.36 billion ($354m), led by a 32% surge in licence sales in the EMEA region, with sales in Benelux, France and the UK particularly strong.

The flipside of that was that software sales declined by 20% organically in the Americas region, largely because of the postponement of defence contracts in the US. The region accounts for 13% of overall revenues.

But not only does Sorbie believe the European performance is sustainable, he thinks that the North American performance can be reversed. A major upgrade to the IFS suite (Applications 7.5) during the fourth quarter was the result of more than 600,000 development hours. Aside from a new ergonomic user interface design known as Aurora, IFS Applications 7.5 boasts enhanced support for global operations, including the ability to use one code base for all the major markets in the world and additional functionality for project-based companies.

Further reading

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David Cliff

David Cliff is managing director of Houghton le Spring-based Gedanken, a company specialising in coaching-based support and personal development. Cliff is an experienced trainer, manager and therapist,...

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