Intentia CEO set on surviving ERP vendor consolidation

Intentia CEO set on surviving ERP vendor consolidation

Intentia, a Swedish-based enterprise resource planning (ERP) company, has its sights set on being one of four ERP vendors who will continue to perform well, despite not being among the top 10 vendors listed in a recent IDC report. Vendor consolidation is expected to reduce the number of ERP players. However, Intentia claims an average annual growth rate of 44 per cent for the last five years, driven by its ERP offering, Movex. IDG's Tao Ai Lei caught up with Bjorn Algkvist, CEO of Intentia International, at the company's head officeIDG: How would you describe Intentia as an organisation?

Algkvist: We are a $US10 to $US20 billion company in terms of licence revenue. A lot of companies are doing extremely well, as ERP is one of fastest growing markets in IT.

Business is getting more complex, and more international. This has resulted in pressures in terms of time to market, and the need to reduce lead-time. The ERP market has a yearly growth of 20 to 30 per cent. However, there is a shortage of implementation capacity, and applications need to be combined with services.

That is the big difference between ERP (vendors) and Microsoft - we have to take care of the customers, and combine licences and services. Hence, with the bottleneck for growth, it is easy to make copies of software, but complicated to get people on board, to train, motivate, and manage them.

From a financial point of view, growth costs affect the operating margin, because of the delay in getting people on board before they get profitable. We see an extreme shortage of resources that has affected most ERP vendors, and we have to balance growth and customer satisfaction.

What are the driving forces behind the consolidation of the ERP market?

We are starting to see an ERP consolidation, a shake-up in market. SAP, Baan, J.D. Edwards, and Intentia will probably be the key vendors, with another 10 to 15 vendors doing very well. However, some 50 ERP vendors will disappear.

For Oracle, where are they coming from? They are in the middleware market, and are completely different from applications. They have a very strong brand name, customer contacts, and aggressive customer sales force. But they don't know how to develop. Customers buy because they like the Oracle middleware, and Oracle Financials. They are not growing within Oracle, and it is not possible to merge their applications because they bought (the) technology, and releases are financially painful.

PeopleSoft is great in terms of customers, but is a US preserve. Everything is great with that company, but they are not an ERP shop. They try to position themselves as ERP, but are in human resources. They made an acquisition of Red Pepper, with a full ERP installation. But they don't have enough customers and products to be positioned as an ERP vendor.

PeopleSoft may be in the insurance and banking industry, but they are very US-based, and don't have the distribution, sales and implementation organisation that is mature enough. They can sell human resource to tier one companies, because they can take a salesman from the US, and fly to a country just for a $US5 million deal for a 30,000 person company.

How does Intentia position itself?

We target the second-tier market, not the Fortune 500 companies. We want to position ourselves as a second-tier market player, targeting companies with up to 10,000 employees, and like to manage projects of a decent size.

A typical $US1 million project would be made up of $US300,000 licence revenue, and $US500,000 in implementation costs.

We are strong in Europe, but late into the US and Asia-Pacific markets. We have 100 projects in Asia-Pacific this year, and expect to grow 200 per cent. Asia-Pacific contributes 7 per cent of our licence revenue.

For the first time this year, we have an established operation in the United States, and have made big investments to get into the US market. We have been in Japan for two years, and are investing heavily there. We are making big losses, but are prepared to invest quite heavily in the coming years.

What are your key strategies for growth?

We will continue with product development, as we don't see a generic ERP system for all industries. In the future, we aim to have products fulfill individual needs, as they have more specific product requirements. We are also embarking on an extended ERP strategy. A lot will change, with a merging of ERP and supply chain management, like Manugistics and i2 have merged into one market. We see e-business today as a separate application, but e-business features will be integrated as part of future applications that we are focusing on.

Also, we are working on new technology, like Java technologies, which we will display in a worldwide tour on March 1999.

What part does Asia play in Intentia's plans?

We have a call centre for support in Australia and the research and development centre in Sweden. We want to establish R&D operations somewhere else, whether in Japan, or ASEAN countries.

Asia will be important in the long term, even with its financial problems. Europe will have tremendous problems, because of competition from Asia. We think that Asia will become an extremely important market.

Are tier-one vendors posing a threat to mid-market vendors like Intentia, with their latest offerings targeted at the mid-market?

It is not that easy. We are going upstream, going from first tier to second tier. The profits are so much higher from first-tier companies. Mid-market customers can provide $US300,000, compared to $US3 million for tier-one customers, with the same cost of sales.

SAP has established costs which can be very difficult to manage, such as the middle management. Where are they to put their focus, big accounts or small accounts, sales, services, product requirement, implementation, people, methodology, or distribution services?

First-tier companies are used to trying for large projects and sometimes failing. For a second-tier company, we can't afford it.

What about customer relationship management?

New concepts and terms are always appearing, such as supply chain. Front-office applications, in general, are not a new product. We see it as a broader version of what we call ERP. We already have a customer relationship management application.

Human resources is part of ERP, and as part of ERP's development, we will be adding more products into ERP. For instance, SAP R/3 and J.D. Edwards have increased the business scope and number of alliances around ERP. ERP acts as the core, with different alliances added.

Companies providing supply chain management, or involved in the order fulfilment process, are not a different product from ERP. They have in common, the need to get data and to get access to more consolidated data.

In the future for Movex, we see more Web-based features. We are starting to see new projects now. We think that e-business will become an integrated part of ERP.

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