IFS – A STORIED ERP COMPANY TRANSFORMS

CHIEF EXECUTIVE OF GLOBAL ERP FIRM IFS DARREN ROOS HAS TRANSFORMED THE COMPANY BY UNIFYING ITS CORE AND CHANGING THE WAY IT SELLS ITS AWARD-WINNING SOFTWARE PRODUCTS

Since his arrival at IFS just over a year ago, Darren Roos has pivoted the company from a fragmented collection of locations and regional selling strategies into a single harmonised firm. Already, the impact of that change is being seen across the business. In 2018, IFS revenue, without acquisitions, grew at 22% compared to 15% annually in the decade preceding (including acquisitions).

He is forecasting that 2019 will be an even bigger year now that the transformation is underway. Echelon discussed with him IFS’ extraordinary transformation and how it’s leveraging technology to change the industry.

Since you took over as chief executive, what about the global economy most concerns you?
During the whole of 2018, I was mostly based on an airplane, meeting customers all over the world. As I spoke with them, I realised that we have an economic and socio-economic landscape unlike any we have recently seen. The pace of change is accelerating: you’ve got complexity with BREXIT, complexity with trade wars between the US and China, and industries that are reinventing themselves at a pace unlike anything ever seen before.

That makes for a very confusing world. Many global chief executives are challenged to forecast what’s coming next. It’s important today to have a very deep understanding of your business, understand how your staff feel, have a very intimate relationship with your customer, and not allow yourself to be disintermediated.

That’s where ERP (enterprise resource planning) comes in. We provide customers with that visibility. Having good systems that give you more comprehensive oversight, can be implemented quickly, and are able to stay apace with the level of change is key.

Companies that resist this change, and have systems that don’t incorporate AI, don’t leverage augmented reality, blockchain, digital technology etc, operate at their own peril. You must have technology that allows businesses to be nimble and leverage these capabilities, rather than making big, disruptive upgrades.

In the past, you would’ve needed to do an implementation, which would have taken four or five years, and gone live with a version that was five years old. Then you would’ve been staring down the barrel of an enormous disruptive upgrade. Nobody can afford that anymore. The world has changed significantly in terms of what’s available to customers.

Every CEO I talk to is thinking about the kind of competition they will face in the future and the reality is that that competition is likely to be non-traditional.

It’s vital to have a situation where you understand your supply chain, where your raw materials and goods come from, at what price, how a trade war in China is potentially going to impact prices, the way in which you can flex your business model to provide a different price point to your customers.

How does the right ERP make a difference in your customers’ business?
I was talking to a customer in Nebraska, USA, that manufactures steel lamp posts. The price of steel shot up 40% last year due to US steel tariffs. But thanks to the visibility they had into raw material costs with our ERP system, they were able to emerge unscathed from an unpredicted situation. If they did not have a good ERP solution that enabled them to have end-to-end visibility of their business, they may not have survived.

Every CEO thinks about the kind of competition they will face in the future, and the reality is that it is likely to be non-traditional

As chief executive of a large tech company, what are the things that occupy your mind about the future?
First, you have these macro topics that should be occupying everyone’s mind, and then micro topics. At IFS, we have two main topics.

First, we have great customers and great technology, but we need to grow our profile. Our brand has historically been an incredibly well-kept secret. Our customers consistently rank us as the number one ERP vendor in the world. So, I want to ensure that more customers are aware that we exist.

Internally, we talk about our business as being “for the challengers”. In any industry, there are always two players that dominate the industry. Then you have challengers fighting for those positions. They’re the ones innovating, the ones that thrive in change, the ones that are challenging the status quo, and the customers we want. They’re the companies prepared to take a chance on the less conventional option, which is IFS.

A second challenge is fulfilling the demands that we have from our customers in support of that growth. So there’s a huge opportunity for partners to come in and help to fulfil that demand for implementation. So, the second big challenge is about building an ecosystem of partners so our customers have choices when it comes to deploying.

As someone who’s worked as an executive for the largest ERP vendor in the world, SAP, I know the space better than most others, and I absolutely know for a fact that IFS should be in the top tier. If somebody’s going out and buying an ERP solution, IFS should be on their evaluation list, especially in our core industries.

It looks like you fundamentally changed the business model?
There’s two reasons why IFS was not well known. One is that we were a very fragmented business. This model worked for IFS in the past, but wouldn’t sustain business growth that we must achieve now and in the future. You had eight different regions and each region had its own go-to-market model, its own pricing model, different focuses in terms of industry segments in addition to varying sizes and scopes of customer profiles. Because it was fragmented, you didn’t have a single set of industries and a single go-to-market model, so it was very difficult for people to form a picture of who IFS was.

Challenge one has been to pull the business together so we have one operating model. So what a customer experiences in Singapore or Japan or United States is exactly the same. We have the same offering, focus on the same industries and the same marketing messaging – it’s all harmonised. That’s been the first thing we’ve done and that work was completed in 2018. I think that’s why today we’re probably better known than twelve months ago.

The second thing comes back to challenges we have within our ecosystem. We have about 3,800 staff around the world. They are passionate about IFS and are multipliers of the brand. Still, we are comparatively smaller than our competition. SAP, for instance, has 90,000 staff, which is around 30 times more than us. In addition, SAP also has an ecosystem of thousands of partners who have millions of staff. So, in reality, their ecosystem has millions of
people.

IFS has capitalised on Sri Lanka’s talent. We have 60 percent of our global development in Sri Lanka. I see this increasing over time

A customer looking for an ERP solution turns to their network of advisors or professional services companies, and asks, ‘whom should they talk to?’ Then the millions of multipliers of SAP kick in and say, ‘okay, you should talk to SAP.’ Because IFS has a very small ecosystem, and historically we did not embrace partners, we don’t have those multipliers.

Those are the two big challenges. Aligning us to make sure we have a single message, a single brand identity, and then building an ecosystem that will serve our customers and become multipliers of the IFS story are our immediate tasks.

By doing these two things you are somewhat replicating the model of SAP, Oracle or Microsoft, and your other competitors. How do you then differentiate as a much smaller company?
While their brands are better known, what they stand for today is simply not what customers are looking for. They don’t want large, complex, and expensive deployments. They’re looking to go live faster, stay current on the latest technologies, and a lower total cost of ownership.

Building an ecosystem and making sure we have brand multipliers that can deliver the technology to our customers is a prerequisite. Around 60% of our R&D is in Sri Lanka, and from that perspective, we’re focused on making it as easy and as least disruptive as possible for our customers to adopt the technology.

In terms of the products, how can you capitalise on this market position?
We are very focused on the industries that we operate in. The big players – SAP, Oracle and Microsoft – are what I would call horizontal ERP providers. They provide single ERP solutions that address lots of different customers. The technology is configured and customised to address those customers’ requirements.

In contrast, we are focused on customers that make and service things. Broadly speaking, assets-intensive industries are our bread and butter, and the nature of the processes that our technology supports means that we’re able to go live faster, as the implementation process is quicker. This is a critical differentiator for us.

In industries such as construction, mining, and oil and gas, their processes are very complex. Because of the nature of their businesses, implementing a traditionally horizontal ERP is very complex. We bring an ERP to market that is vertically focused, so by definition, it is quicker and fit to purpose. We’ve invested in modernising the stack so our customers are getting the latest and greatest technology from an architecture perspective. Most of our peers have had the same technology for decades. They may have rebranded it and changed the database, but it’s still the same old technology and that has certain technical constraints.

We have a very modern and current architectural stack, but with the depth of functionality that the big vendors claim to have. It gives our customers the flexibility to deploy on premises or in the cloud. It gives them the flexibility to make configurations and changes to the application without disrupting the native code. This means that they can achieve upgrades in the future without having to disrupt the customisations that they’ve already made. These are capabilities that every ERP will have in the future, but we have them today.

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Sri Lanka is playing a part in this “modernisation of the stack”. Tell us about what’s happening here.
In Sri Lanka, what I’ve found is that you have a solid education system. There’s a load of great talent that you can draw into the business. Also the socioeconomic infrastructure is great. What we’re able to do is to bring young, hungry people into the business who naturally want to work hard and are innovative – characteristics that are not easy to find. It’s been an incredibly exciting discovery for me.

In terms of what we do here, we have 60 percent of our global development in Sri Lanka. I see this increasing over time. The reason why it’s 60 percent is that we’ve made acquisitions over time and we have some developments in other countries as a result of those acquisitions. Even in those acquisitions, we’re now in the process of planning how we move more development into Sri Lanka.

IFS has capitalised on Sri Lanka’s talent. When I came on, we had less than 1,000 people here. By the end of this year, we’ll have 1,300 people in Sri Lanka, and this will grow to 1,600 in a couple of years.

I spoke about the very fragmented model we had in the past. One of the most fragmented was our global support offering. Support spread across different parts of the world meant that the level of support quality was inconsistent, because one area might have invested heavily in support while others might have not.

Now, we have a global support offering, and more than 60% of that is here in Sri Lanka. This enables us to offer customer support for anyone in the world at any time. Direct access to a professional who has an intimate understanding of the version the customer is on, the module, etc. is now easily accessible within our 24/7 system.

We also support our customers in implementation. Furthermore, we have a global consulting organisation here, and again, these are people who have been involved with lots of projects across different countries, modules and versions, and they’re able to support customers across all our offerings. This includes upgrades and implementing new technologies.

IFS has undergone an immense transformation. In your career, have you ever transformed a business at this scale?
When I got here, I realised that there was a huge job to do. In my career, I’ve faced challenges where I didn’t know what to do, so I had to figure out a solution.

In this situation, however, I knew exactly what to do. I felt like my career had groomed me to get to this point. In the last year, I can’t think of a single problem I faced where I didn’t go, ‘yup, I’ve faced that before so I know exactly how to address it’. What’s important to realise is that you have 3,800 women and men who want to be really successful and who are incredibly proud of the business they’re in. So making sure we approached this transition in a way that they were excited about, that they didn’t feel I was being critical of what they’d done in the past, was an important ingredient for success.

My intuition told me this business had a good foundation and had all the makings of being a great business. The focus in the past year has been taking it from good to great. That’s not difficult when you have people who are passionate about what they’re doing.

What were some challenges you faced in this transition, and how did you tackle them?
It always comes down to people. One challenge was that you had a small portion of legacy employees who really believed in the old model. Many of them were very senior people and they clung onto the way we’ve historically done things. There was a lot of skepticism about the changes that I wanted to make. It wasn’t like I came in and then people said ‘actually,  we’ve thought that was a good idea all along.’ So there was disagreement about how to move forward and as a result, those people are no longer with us. We needed to replace them with people committed to the change. Now, you can’t argue with the results.

In the past year, since we’ve made these changes, even though it was the year of transition, we grew 22% and 100% organically with no acquisitions. Our profitability increased 27% year on year. We feel 2019 is going to be even better than 2018. So in my mind, there’s no question that the changes were the right ones. So that was the big thing – overcoming some of the institutional resistance and inertia.

Sri Lanka is central to the future of IFS. Building an ecosystem of partners is an important part of the road ahead, so M&A is very much on the cards

How did shareholders react to these changes?
Whenever there’s a change in CEO, shareholders feel they need to gain confidence that the person they’ve hired is the right person. I had a good start with solid numbers in the first few quarters I was here. So their confidence grew from there. IFS is owned by a private equity firm. They’ve really backed me to be successful and have been supportive of everything that I’ve suggested. I’ve been able to reward their trust. While there was always caution in the beginning about the level of change we were creating, in their eyes, what was important was that I had thought through the implications of the changes that I was making. Since we had a robust plan for how we would affect the change and the right calibre of leadership to take people on the journey with us, it has worked out nicely.

How is tech poised to disrupt business as we know it?
The reality is that I don’t think any of us can perceive the level of disruption technology will bring. What’s interesting is that people are overthinking it. For example, the idea that we won’t need lawyers in the same manner as we did in the past – since bots can assist in writing – is a perfect example of this underlying fear of how technology will change how society operates. Legal professionals’ roles will evolve and the best ones will stay up-to-date with the pace of technological change as it relates to AI to ensure they remain relevant and competitive.

Can you give us an example of current, real-world application?
I was with a customer yesterday, who was using AI to do their bank reconciliations. This is a very simple level of AI, or machine learning. What we are focused on is to find real-world, practical ways in which we can enhance the applications that we provide for our customers. It’s not about how we replace people but more about how we enhance the jobs that people are doing with data enrichment. What sort of data can we aggregate to provide insight for a specific decision-maker. It can be for someone handling accounts payable to the CEO.

We’re looking to change a couple of dynamics. One is to change from static reporting to dynamic reporting, which we call contextual analytics. If you’re on an accounts payable screen, the application will serve up data that is relevant to the job that you’re doing in real time so that you can work more efficiently. So if you have overdue tasks, the system prioritizes them.

We have a labs team where we do a lot of our innovation. A lot of the work around digital twins, AI, blockchain and 80% of our labs capability is here in Sri Lanka.

What fueled growth over the past year? Did existing customers grow or did new customers come onboard?
Both. The focus that we have on how we go to market has definitely enabled us to cross-sell and up-sell to existing customers. But when I joined IFS, they were already very adept in going out and winning new customers. That’s important in any growing business. If you’re relying solely on existing customers, that is a dying business.

In 2018, 52% of our license revenue came from net new customers, whereas for our peers, that would be less than 20%. For 2019, the ballpark is for 72% of licensing revenue from new customers. So the trajectory is really strong. It’s a validation of what I say about technology and the positioning. If we can consistently win deals against SAP, Oracle and Microsoft, like we do, that tells a story of there being an underlying quality that our customers see.

What’s on the agenda for 2019?
Year one was about transformation and year two is about growth, both organic and inorganic. From an M&A perspective, we still have to look at potential targets because getting to a greater size is important in getting people to understand who we are.

So in terms of that multiplying effect, finding acquisitions that can add people to IFS, but also an ecosystem of partners is an important part of how we should go ahead. So M&A is now very much on the cards, and in 2019, we will close a few deals.