Revival or survival: i2 at a watershed

After i2's annual user conference in 2004, commentators highlighted several factors that gave them some optimism about the future of the supply chain management (SCM) software company. Despite its precipitous fall from grace following the dot-com crash, they were encouraged by i2's keen focus on the SCM requirements of its blue-chip customers (companies such as British American Tobacco, Unilever, Lego, Argos, Louis Vuitton and 900 others); by the prospect that it could finally settle charges of accounting irregularities brought by Wall Street regulators; and by its recapitalisation with $122 million in new investment.

The pioneer of SCM, which had lost its momentum in 2001 and 2002 as deal sizes tumbled, ERP vendors encroached on its territory and B2B marketplaces failed, seemed set for a return to stability.

A year on, some of that optimism is looking a little premature as the company continues to struggle to re-establish a growth profile and any hint of profitability. First its revenues for 2004 were down 21% to $389 million as new licence sales shrunk to just $59 million – accounting for only 15% of revenues. And although the performance in the first quarter of 2005 was considerably better, showing a 6% increase to $88 million, this was largely attributable to a one-off payment from a single customer, Shell, after the resolution of a contract dispute.

Acknowledging the pain of its climb back, the company's founder and long-time CEO Sanjiv Sidhu stepped down in February and handed the reins to Mike McGrath, an i2 board member and renowned SCM consultant who came out of retirement to take on the role as interim – but axe-wielding – CEO.

He has acted quickly and aggressively to try to turn around the company's fortunes. Within 30 days of his appointment he had cut i2's workforce of 2,000 by 15% and promised to take $30 million out of quarterly expenditure.

Delivering the opening address at the i2 user conference in May, McGrath swept aside any questions about i2's viability while acknowledging past mistakes. He also highlighted a stream of new products that will provide the foundation for what he termed the next generation ‘closed-loop supply chain'.

Leading the charge will be Agile Business Platform, a service-oriented architecture based on its existing MDM and SCOS products. The key aspect will be much easier integration with other enterprise systems – most importantly SAP. Many of its biggest customers applaud that move towards an SOA, but the company still needs to convince them they need a best-of-breed option rather than to source their SCM from ERP vendors such as Oracle and SAP.

Analysts are supportive of the view. "For those business processes that provide competitive advantage, users don't want to be handcuffed by only being able to use SAP," says Dwight Klappich of research group Gartner. Of the many facets of a broad ERP suite, SCM technology is perhaps most blunted by its inclusion as part of a suite, he argues. To be a differentiator, SCM must be, by definition, fine-tuned to individual businesses.

That, plus a greater emphasis on integration and vertical market requirements, could ensure i2 is not just a survivor but again a market definer.

Certainly Gartner's Klappich thinks so. Its vision – and the architecture underlying it – is "way ahead" of rivals, he says. Now it has to show it has the staying power to execute on that vision.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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