One Year Later at Deltek: More of the Same (And Then Some More) – Part I

Time and again during my decade or so of covering the enterprise applications market as an industry analyst I have witnessed what difference a year can make. And boy, would 2008 be such a year!

A year ago or so, I concluded an in-depth four-part series on Deltek (NASDAQ: PROJ), whose executives were recently happy to tell me that 2008 was not that terrible a year for the company. Quite the contrary, Deltek feels comfortable as a company even in these troubled economic times.

This comfort persists because the company’s balance sheet is remarkably healthy, and even with software license revenues less than the company expected in the last reported fiscal quarter (Q3 2008), Deltek remains profitable and generates cash. Maintenance renewal rates remain high, and profit margins have remained strong across the business.

The other reason Deltek feels comfortable is because it is one of the best-positioned enterprise software companies to weather this economy from a vertical industry focus perspective. Government contracting investment is going at full speed ahead because the budgets that were set during the Bush administration will be spent in 2009. It won’t be until 2010 and beyond that the vendor might feel major effects from the changing US administration, and the changes it expects to see are positive for the company as well.

Ready for Both “Old” and “New” Deals

Namely, government spending will likely increase on President Obama’s watch, and even if he invests more in domestic projects than in defense, there will still be contractors that need well-tuned project accounting software to remain compliant with a growing set of stringent requirements.

All in all, Deltek’s GovCon line of business (which stands for government contractors; more details on Deltek’s major product lines will come later) should be strong. Sales of Deltek GCS Premier [evaluate this product] and Deltek Costpoint [evaluate this product] were strong last quarter and are expected to remain so going forward.

The Deltek EPM (Enterprise Project Management) suite [evaluate this product set] led by earned value management (EVM) applications Deltek Cobra and Deltek MPM (recently acquired from Planview) should also be a big seller given the expected strong government spending. In this tight environment, the US government has increased the number of auditors looking into programs’ performances making the EPM suite even more important in this day and age.

On the professional services side, where Deltek Vision [evaluate this product] is the flagship solution, there is certainly some near-term weakness, and we could see that reflected in Deltek’s license revenue numbers. The blessing in disguise might be that the weakness should be a postponement of certain deals rather than their cancellation.

Some Architecture, Engineering & Construction (A/E/C) and associated consulting firms are a bit conservative at the moment and are not investing in their businesses in the near-term until they see how the credit markets shake out. However, these companies need software and will be buyers in the future.

Within the A/E/C customer base, Deltek fortunately has minimal exposure to the embattled residential real-estate market as well. Many of Deltek’s A/E/C customers design things like roads, bridges, and hospitals; i.e. infrastructure projects that tend not to be de-prioritized even in tough times. Indeed, if Obama comes through on his promise to invest in the crumbling US infrastructure because he believes it is in need of a major overhaul (which it is!), Deltek seems to be well positioned to support those A/E/C firms that will no doubt get pulled into helping with those major programs across the US.

Thus, Deltek gladly joins Agresso, Meridian Systems, and Skire in their belief that this new “New Deal” of sorts should drive a lot of new business for project-based software companies. And, since Deltek is an established US-based company with a large presence across the US (in terms of sales offices and reseller partners, especially within the “DC beltway”), I’d expect it to fare even better than, say, Agresso in its core vertical markets as the new “New Deal” takes shape.

Furthermore, Deltek made no dramatic cost-cutting statements as did many other vendors. The company has never been about making earth-shattering moves in either direction, but rather remaining on the course of measured growth and profitability, and on protecting its market share in the project-based industry segments. Deltek has always run a lean operation and that seems to be serving it well in the “stick to your knitting” times that we are in right now.

Latest News from Each of Deltek’s Lines of Business

During the Deltek Insight 2008 annual user conference in May 2008, the vendor made a number of product-related announcements. Hardly anything there was jawdropping, but then again, Deltek is not about making tectonic moves. The challenges, as mentioned in my abovementioned blog series still exist, especially with the soft A/E/C market (which represents a sizable proportion of Deltek’s revenues).

On the other hand, the vendor can counter this market softness with growth opportunities including penetrating existing verticals, cross-selling and up-selling in existing accounts, expanding its product portfolio, entering new project-based vertical market segments (like management consulting, business consulting, and IT service consulting), and international expansion. One thing is for sure: Deltek remains committed to its products’ enhancements and is prudently keeping abreast of the technical developments.

Professional Services Market

The current Deltek Vision 5.1 product release focuses largely on business performance management (BPM) and localization capabilities. It features Microsoft SQL Server Analysis Services (SSAS) online analytic processing (OLAP) cubes for Microsoft Excel-based analytics, the ability to produce global and local financial statements, and mobile customer relationship management (CRM) capabilities. Currently, the most important new development in the Vision world was the Consulting Edition that Deltek released around the time of the Insight 2008 conference.

Using the core Vision engine as a base, the edition was a configured version of the software that resonated with the consulting market right out of the box. The offering included features like an emphasis on resource management reporting (i.e., employee-centric metrics like utilization or quarterly revenue per partner), renamed fields to consulting-specific terminology (e.g., “engagements” versus “projects,” “solutions” and “offerings” versus “regions” and “offices,” “industries” versus “business units,” or “methodologies” versus “project tasks”), and functionality enhancements for important areas like Human Capital Management (HCM).

Deltek offers quite a bit of HCM functionality in the current release of Deltek Vision, especially around resource management (i.e., staff management, salary history, and human resource [HR] reporting), career development, performance management (i.e. employee performance reviews), employee recruitment and on-boarding workflows, report generation for metrics like equal employment opportunity (EEO) reports, and recruitment. If the product doesn’t offer what a customer needs, the customer can always use the Vision Xtend framework (to be explained shortly) to build the desired functionality through user-defined fields.

As for future developments, while the Consulting Edition really helped to jumpstart Deltek’s focus on the consulting market (the vendor has always had clients therein, but this release showed a formal committment to the market), the most important initiative in the Vision world is the upcoming release of Deltek Vision 6.0. The product is slated for release around the March/April 2009 timeframe, and promises a number of important improvements that are hoped to really push Vision in a new direction along the technology, usability, and globalization lines. Two of the most notable enhancements are:

1. Globalization improvements such as the automation of complex multinational tax calculations, localized reporting to meet international financial reporting standards (IFRS), and building a more secure environment for intercompany and multicurrency transactions. There will be support for multiple languages, while Microsoft SQL Server Reporting Services (SSRS) will be used for standard reporting (in previous versions reporting was provided via the partnership with Actuate Corporation). Thus, Vision 6.0 will set the stage for Deltek’s much needed international expansion efforts when the time is right; and
2. Microsoft Smart Client and .NET Framework improvements that should change the usability paradigm of the application (including Silverlight). Users will have much more flexibility to configure how they want to view application data through smart grids, integration with Microsoft Office Communicator , and interactive dashboards. Perhaps most importantly, the improvements make it even easier for partners to build on top of Vision and/or build extensions to it.

These capabilities might mean that Deltek Vision can become (should traditionally conservative Deltek choose to fully embrace this avant-garde strategy), a platform that others can build around. This would be similar to what Salesforce.com (through its AppeXchange directory that is built on the Force.com on-demand platform) and NetSuite’s SuiteFlex on-demand platform offer (of course, with the difference of Deltek Vision being a traditional on-premise platform).

The idea behind the “Smart Grids” feature is to empower the user as much as possible to take advantage of the vast data that resides inside the system. While Vision users have always been able to view data record by record or in tables, Smart Grids leverage Microsoft Smart Client technology (Deltek has reached the highest tier of Microsoft partners and is closely tied with the giant) to filter a grid of data in any manner required, and to directly export the filtered data to Excel for further analysis. The prior pedestrian way of getting information to Excel was to go into a report within Vision and then export to Excel from the list report.

Using Management Software to Tackle Your Greenhouse Gas Emissions: Which Scope Are You Talking About?

“Clearly there will be winners and losers in the transition to a low-carbon economy, and investors should be concerned about companies who are not able to provide the information they require.” – Carbon Disclosure Project Global 500 Report 2008 (also known as CDP6)

To today’s enterprises, greenhouse gas (GHG) emission—amongst various sustainability issues—is one of the highest priorities. Some companies, as I have seen, have set up strategies to address GHG emission issues. At the operational level, companies are modifying accounting systems to report GHG emissions and to accommodate carbon trading; implementing energy management systems to reduce energy consumption; and optimizing supply chain management systems to increase transportation efficiency— to name just a few approaches.

Looking at all the activities that companies are conducting, one thing is certain: management software can help. However, since GHG emission is a complicated issue and the application of software in this area is still quite new, a clear picture that shows the connection between enterprise software and GHG emission has yet to be established.

Recently, I started working on a project about how enterprise software can help tackle environmental issues. I started to feel that the three GHG emission scopes might be a simple way to comb through the various initiatives of using management software in tackling GHG emission. If you are not familiar with the emission scopes, chapter 4 of The Greenhouse Gas Protocol will help you understand them better.

Scope 1: Direct GHG Emissions

“Direct GHG emissions occur from sources that are owned or controlled by the company.”1

Scope 1 emissions can be measured but are more often calculated upon the generation of GHG. The reduction of emissions relies on various technologies, amongst which management software is just a slice of the pie. However, the bottom line is this: before actually reducing emissions, knowing the current emission data is critical to a company, and should be handled by an emission reporting system (or functionality) if you think that spreadsheets and e-mails won’t meet your requirements.

The accuracy of emission reporting relies on both the accuracy of the calculation mechanism, and the effectiveness and efficiency of the reporting process. In fact, as I have learned from a process manufacturer, a well-designed reporting process automated by an enterprise resource planning (ERP) system not only helps generate accurate emission figures, but also raises internal awareness of GHG emissions and reduces emissions caused by human factors in the operation.

There are many other areas that management software can help in scope 1. For example, by using a supply chain optimization system, a company can redesign its supply chain in order to reduce fuel consumption in company-owned or -controlled vehicles, resulting in fewer GHG emissions.

Scope 2: Electricity Indirect GHG Emissions

“Companies report the emissions from the generation of purchased electricity that is consumed in its owned or controlled equipment or operations as scope 2.”2

By definition, scope 2 is not as complicated as the other two. To reduce scope 2 emissions, a company can either switch to lower GHG-emission electricity, reduce electricity consumption, or both. “For many companies, purchased electricity represents one of the largest sources of GHG emissions and the most significant opportunity to reduce these emissions.”3

There are software solutions available on the market to help companies manage energy consumption. These solutions cover more than electricity, and thus should be able to help for both scope 1 and scope 2 emissions. Examples are SAP Energy Management solution and Tririga Real Estate Environmental Sustainability (TREES).

Scope 3: Other indirect GHG emissions

“Other indirect emissions that you cause but that are not from emission sources that you own, e.g. emissions from your supply chain or from business travel on commercial airlines.”4

Although scope 3 is optional, a substantial portion of companies reported their scope 3 emissions in the past two years’ CDP reports (CDP5 and CDP6). The landscape of scope 3 emissions is more complicated than those of the other two scopes, and the reporting practices of scope 3 emissions are still immature. The reasons:

* there are a large variety of scope 3 emission sources (including production of purchased materials, product use, outsourced activities, waste disposal, employee business travel, and more)
* companies have low emission transparency on those activities that they don’t fully control.

However, I believe that companies can expect more innovative software solutions to come to the market. For instance, according to SAP, its Green 2.0 program is pursuing research partnership on communicating emission data to consumers at the retail level. “The general objective of this potential partnership is to investigate the possibility of a dynamic carbon emission label which addresses all of the variable emissions for an individual product.”5

I hope the realization of the three scopes of GHG emissions will help companies like yours form a clearer vision when looking for help from management software. However, it doesn’t mean that companies should shop software exclusively for each scope. In fact, many software solutions are able to tackle different scopes in a unified system.

For example, the design-for-less-carbon-emission feature that companies may find within a PLM solution in the future should be able to address all the three scopes by developing production processes with less direct emission (scope 1), consuming less purchased electricity (scope 2), and substituting with low-emission purchased materials (scope 3). Nevertheless, with the different scopes in mind, companies may be able to prioritize their GHG emission initiatives more easily and as such locate the right software solutions quicker.

Apr 22 The Changing PLM User Landscape

Product lifecycle management (PLM) originated decades ago in the discrete manufacturing area, and for quite a long period of time remained mainly as a solution for the upscale market in industries such as aerospace and automotive. However, recently PLM has become more approachable for smaller-sized businesses in more industries. It is not difficult to have this impression when you see increasing versions of PLM solutions targeting small and medium business (SMB) and mushrooming solutions such as PLM for consumer packaged goods (CPG), PLM for fashion, PLM for retail, and so on.

On the user side, based on statistics from TEC’s PLM Evaluation Center, it seems that users are willing to take the same direction – compared with 2007, more smaller-sized business users are considering PLM in 2008. At the same time, more potential users are from industries that traditional PLM doesn’t fit well.

Every day, various users come to TEC’s Evaluation Centers seeking information to support their software selection. Each year, in the PLM Evaluation Center, there are thousands of organizations submitting information about their PLM initiatives and receiving selection suggestions. Analyzing these PLM initiatives leads to many interesting findings. “The PLM user landscape is changing” is one of them. I’ll explain two factors that are highly related to the changes in the PLM field I mentioned above.

The Share of Small Business Users Is Increasing

The number of employees is chosen to represent the size of the business recorded in the PLM Evaluation Center. Although all categories have positive count changes (figure 1), the first category – “fewer than 200 employees” occupies almost a half of the whole, and its 5 percent share growth (figure 2) shows that small organizations (those with fewer than 200 employees) are significantly increasing their considerations of PLM.

Fugure 1: Year-over-year initiative count change.

Figure 2: Shares of number of employees

More PLM Initiatives Come from ‘Unlikely’ Industries

Although the main industries in 2007 remain in the same positions in 2008, most of them show share decreases (figure 3). In total, the top 5 industries account for 39.9 percent of initiatives from all industries in 2007 and 38.1 percent in 2008. The 1.8 percent decrease seems small but considering that the sample sizes are several thousands per year, I feel that it represents a trend.

Figure 3: Shares of the top 5 industries

On the other hand, some industries that are seemingly unlikely to adopt PLM show increasing interests in this methodology (figure 4). Although service providers, financial institutions, and real estate all occupy small slices of the whole pie, their share increases are significant. I wonder whether users from these ‘unlikely’ industries will be able to find suitable PLM solutions to meet their business requirements at the moment. At least these users show the needs of managing the lifecycle of their products, which may not have a traditional bill of materials (BOM) structure, or even not be tangible goods.

Figure 4: Shares of the fastest growing industries

Conclusion

So, it is not just an impression that PLM is getting more popular in the SMB sector and in more industries. It is also a trend indicated by statistics from the organizations who are considering PLM. Actually, there is a lot more we can do with the data from TEC’s various Evaluation Centers. Currently, a study is underway to examine users’ business objectives and functionality requirements of their PLM implementations based on further verified PLM initiative information from the PLM Evaluation Center. I hope you will enjoy the forthcoming reports on this study.

The User’s Undying Quest for Exploring and Discovering Info – Part 1

SAP AG and Endeca Technologies might not appear to have much in common at first glance, other than occasional partnering in some joint opportunities, and perhaps that SAP Ventures owns a piece of privately held Endeca. In the world of home appliances, SAP would be analogous to a tried-and-true refrigerator, but with the most advanced features in the market, such as a built-in TV set.

Such an appliance stores important food (i.e., data and transactions) and provides some important basic information and entertainment (i.e., news reports) to nearly 90,000 customers in over 120 countries. Indeed, SAP is the world’s leading provider of business software, offering enterprise applications and services to companies of all sizes and in more than 25 industries for nearly four decades.

By the same token, the much smaller and younger Endeca would be analogous to a cool smartphone that gives users information and entertainment at the speed of light (or thought, or the speed of computing). The snazzy gadget will not only provide results but also suggest possibilities that users might not be aware of (or that they never thought of) before seeking some information.

Interestingly, Endeca derives its name from the German word “entdecken,” which means “to discover” (perhaps another common thread with SAP). Seriously speaking, Endeca offers innovative information access software that helps people explore, analyze, and understand complex and constantly changing information, guiding them to often unexpected insights and better decisions.

The Endeca Information Access Platform (IAP), built around a new class of access-optimized semi-structured database, powers applications that combine the simplicity of searching and browsing with the analytical power of business intelligence (BI). Since the company’s inception in 1999 in Cambridge, Massachusetts (US), over 600 leading global organizations including ABN AMRO, Boeing, Cox Newspapers, the (US) Defense Intelligence Agency, ESPN, Barnes & Nobles, Dell, Ford Motor Company, Hyatt, IBM, John Deere, The Library of Congress, Texas Instruments, and Walmart.com have been relying on Endeca’s platform.

The Tale of Two Events (with Similar Messages)

In mid-2009, these two quite different vendors (in terms of stature and target audience) had their own separate user conferences. Still, those two events revolved around similar themes. I attended Endeca Discover 2009 in person, since it took place in my neck of woods (Boston).

Endeca’s early start was with information discovery projects in the public sector (the less we know, the better), and while today the vendor also targets manufacturers and distributors (as can be seen from the abovementioned representative client roster), the lion’s share of Endeca customers are online retailers and the Internet media & publishers. The Endeca Discover conference is traditionally focused towards those electronic commerce-oriented companies.

Against the backdrop of a dour economic situation everywhere, this love-fest event was contrarily buzzing with fervent activity and interest from existing and prospective customers. I even overheard some of Endeca’s professional services staffers commenting amongst themselves during the break: “if this attendance is an epitome of recession (or even depression), then how are we going to be able to deliver mushrooming projects when the economy improves?” Although privately held, the company is not that tight-lipped about its rapidly growing revenues, which are reportedly estimated at over US$ 100 million.

Endeca has pioneered a new software category that enables users to not only easily find what they are looking for, but also to discover insights, information, and relationships across data they never knew existed along the way. There will be a separate series of in-depth articles on Endeca and its platform, but for now it suffices to say that Endeca’s “secret sauce” is its proprietary semi-structured database called MDEX (meta-relational index engine).

A Quick Taste of Endeca’s Secret Sauce

The semi-structured model helps overcome the drawbacks of traditional rigid overarching relational schemas that are too limited to handle diverse (structured and unstructured) and ever-changing data. On the other hand, OLAP (online analytical processing) cubes might be able to overcome relational databases’ inability to provide near instantaneous analysis and display of large amounts of data, but they are still not able to accommodate ever growing number of new (perhaps esoteric) data attributes or dimensions (e.g., “find all basketball point-guards that played in Europe during high school”).

The MDEX engine handles such requirements with relative ease via an extensible markup language (XML)-like data model of self-describing objects. Endeca ITL (information transformation layer) plays the extract, transform, load (ETL) role of importing data from disparate data sources. These data objects can come from multiple sources, such as structured content (e.g., a content management system [CMS], databases, etc.) and unstructured content (text documents and user-generated content [UGC] such as blogs, wikis, podcasts, multimedia files, etc.).

In addition, the software must be able to access rapidly changing data such as ESPN sports scores, news feeds, or an online store’s new items in catalogs and all products’ availability (stock situation). One of Endeca’s landmark (and trademark) capabilities that MDEX enables is Guided Navigation™ or the ability of the search engine to not only return results, but also the options to further select subsets within these results. The user might not even be aware that these options and relations exist.

Endeca is not based on the “rocket science” of some overly complex optimization algorithms. Neither is the platform trying to invent data based on, say, predictive analytics. According to the “you can’t make cheese out of chalk” adage, if some combination of data attributes is not yet available, that is fine, and Endeca will not try to create results that do not exist just to impress and possibly mislead the user.

Conversely, if some relationships between data and related indexes exist, Endeca will return both the results and further suggestions (while breadcrumb trails are kept updated), and choices will either expand or narrow depending on the path that the user selects in a point-and-click manner. Simple as that, or, in other words: WYSIWYG (what you see is what you get). If you know how to order movies over Netflix or select channels on a JetBlue flight, you are ready to use Endeca.

For instance, NFL aficionados might search the ESPN portal for “Tom Brady” and will get about 6,000 records as possible results. But on the left side, the site will offer search refinements, such as by type (i.e., stories, audio, photo, video), by date (i.e., last 7 days, last 30 days, last 365 days, etc.), by team, by columnist, etc. Each option will show in brackets the number of related records (further potential results that match the current search criteria).

For more informed sports fans (or even fanatics), ESPN administrators might use the page builder tool to create landing pages or topic pages. Namely, instead of the list of possible search results, the user is rather directed to a specially designed page for the query, i.e., the page dedicated to Tom Brady (the future Hall of Fame quarterback) or to the New England Patriots.

Small wonder then that Endeca’s online media customers (i.e., newspapers and magazines, professional knowledge providers, cable and TV, libraries, bookstores and publishers, etc.) rave about real results. I’ve repeatedly heard about the examples of fivefold increase in Web traffic, 20 percent increase in page views (PVs), 15 percent increase in subscription renewals, 15 percent increase in search click-through rates (CTRs), and so on and so forth.

The New Fundamentals for the Future

The Endeca Discover 2009 conference started with an enlightening and spirited keynote from Paul Sonderegger, Endeca’s chief strategy officer. Entitled “The New Fundamentals for the Future,” the keynote produced a number of eye-opening facts, starting with the fact that 56 percent of US household wealth is in real estate and stocks assets. Thus, on average, since mid-2007, US household wealth has been severely undermined by over 20 percent.

But these worried and broke ordinary folks are not exactly helpless, since they are at least “wired.” The bestseller book “Groundswell” by Forrester analysts Charlene Li and Josh Bernoff defines “groundswell” as follows:

“A social trend in which people use technologies to get the things they need from each other, rather than from traditional institutions like corporations.”

For most brick-and-mortar retailers, there have been notable decreases in same-store sales, year over year, for the first three months in 2009. According to the listing of reported monthly same-store sales at About.com and Endeca’s research, there were 66 percent, 63 percent, and 71 percent of stores reporting decreases in January, February, and March of 2009 respectively (over a year ago).

Similar negative trends have been seen in the predicted US advertising spans. Namely, the initial Carat’s prediction from August 2008 was a 3.1 percent growth in advertising; then the forecast was sharply revised in March 2009 to a 9.8 percent decline. Along similar lines, ZenithOptimedia predicted a 2.6 percent in June 2008, and revised the forecast to a 6.2 percent decline in December 2008.

However, both online retail sales and advertising spend continue to grow. Given the abovementioned groundswell effect of connected and informed consumers that can easily pass a verdict and disseminate news of any product or brand, there are the three new fundamentals for the future that every retailer, manufacturer, and software vendor has to keep in mind.

The first is the atomization of user experience. Namely, according to the Long Tail theory, companies will compete on ever-smaller and more specific product footprints and capabilities to satisfy ever-smaller niches, and all in a plug-and-play manner. Think of Apple iPhone OS applications.

Certainly, some of these are seemingly frivolous or ridiculous like the slew of fart applications or those that follow girlfriends’ menstrual cycles (and moods). There was even a despicable and eventually condemned and discontinued baby shaker application. On the other hand, there are some neat and useful applications like Shazam that lets the iPhone users identify music tracks from the radio, find them on iTunes Store and buy them from there, and share the tags with friends.

The second core principle revolves around innovations to facilitate IT operations. To that end, one should expect even more use of the concepts like virtualization, cloud computing, and service-oriented architecture (SOA).

Last but not least, there is the BT or “business technology” core principle coined by Forrester. Namely, BT denotes a pervasive technology use by casual users and end users, increasingly managed outside the direct control of IT departments. In other words, like in the abovementioned groundswell phenomenon, ordinary folks vie to “control their own destiny,” and require the use of technology with minimal (if not even zero) training. The recent post on the Forrester Blog for the CIO site says:

A Tale of a Few Good SCM Players – Part 3

Manhattan Associates from its inception in 1990 throughout the mid-2000s. During this time, Manhattan was the epitome of a well-managed supply chain management (SCM) software company in terms of market share, growth, profitability, and its products’ capabilities. Indeed, the company set the industry standard for the supply chain execution (SCE) space and was the envy of its competitors.

But lately, the two competitors that had long looked at Manhattan from behind, RedPrairie Corporation and JDA Software, have been posting much more upbeat news in terms of growth in contrast to Manhattan’s declining revenues. Part 2 analyzed some possible reasons behind that occurrence and focused on RedPrairie’s emergence.

Part 3 of this blog post series will analyze the current market dynamics in the retail sector, and try to explain the ongoing resurgence of JDA Software.

The current tough economic environment has created an urgent call to action at virtually every enterprise. To that end, long-standing previously tolerated inefficiencies must now be addressed without any further delay, and capital budgeting is being diverted from stores (in terms of expanding real estate) to properly harnessing IT in the retail sector. Retailers’ survival and readiness to take advantage of market opportunities depends on their ability to adapt to leveraging reduced working capital to still produce increased profit margins and reduced lost sale opportunities.

For the above reasons, retailers have almost zero interest in long, expensive, and difficult implementations of enterprise applications suites. Focused, smaller, and easier to implement solutions from application providers are the wave of the future. This approach minimizes exposure and allows for quick wins that provide immediate return on investment (ROI). For more information on the current state of affairs in the sector, see TEC’s recent article “Retailers, Consumers, and the Recession: Weathering the Storm.”

What Do Retailers Need (and Want)?

Capabilities that can be implemented relatively easily and that retailers need to succeed nowadays are as follows:

* one synchronized view of demand
* market-driven product assortment management
* flexible pricing and promotion management
* global multi-modal (intermodal) transportation and logistics management
* optimized supply networks
* integrated store-level planning and execution (that propagates all the way to suppliers)
* internal and external collaboration
* global supply chain visibility
* advanced sales and operations planning (S&OP) or integrated business planning (IBP)

By quickly leveraging most of the above capabilities, retailers can hope for increases in sales and margins, reduction in inventory, improvement in forecast accuracy, improvement in asset utilization, reduction in freight costs, and so on and so forth. One of the key success factors is to ensure that these solutions, while loosely coupled, can still tie back into a broader SCM vision and platform that that enables changes to business processes and takes advantage of changes.

What’s behind JDA’s Renaissance?

This brings us to JDA Software, which posted a record year in 2008, had record quarters in 2009, and continues to invest in integrating its portfolio of solutions. JDA has been around since the 1970s, and, prior to the mega-merger with Manugistics in 2006, had been acquiring a number of smaller firms in the retail space over the past decade, including the following:

* Arthur Retail in 1998 for advanced merchandize planning and allocation
* Intactix in 2000 for retail space planning and management
* Zapotec in 2001 for trade allowance and marketing expense management
* E3 Corporation in 2001 for warehouse, store, and vendor managed replenishment and inventory optimization (IO)
* NeoVista in 2001 for retail data mining
* J-Commerce in 2002 for Java-based point-of-sale (POS) capabilities
* Engage in 2003 for advertising, marketing and promotions (AMP) capabilities
* Vista in 2003 for data synchronization, Web-based collaborative commerce, and supplier trade promotion management
* Timera for workforce management in 2004

But for a long time, the acquisitive company remained obscure within the mid-market retail sector and was not forthcoming about its strategy with regards to tying together its diverse portfolio of solutions. Neither did the company have a plausible strategy for developing a scalable platform that would attract the largest global retailers. For more details, see TEC’s six-part series from 2004, “JDA Portfolio: For the Retail Industry.”

Well, what difference a few years and one good major acquisition can make. It strikes me that former Manugistics and JDA would be another combination of two vendors that were not that recognized on their own, but got much better together (the other example could be the merger of Lawson and Intentia in 2005). So, what did they give to each other, or what were they both lacking on their own and end up getting in this combination?

The Manugistics Factor

JDA was a leader in its respective target retail segments before the acquisition of Manugistics. Likewise, Manugistics was a leader in its respective niches, while (granted) the company had backed off on investments in several of these areas (e.g., complex discrete manufacturing) prior to its sale to JDA. Immediately before being acquired by JDA, Manugistics had re-branded itself around consumer packaged goods (CPG) manufacturers and retailers, and I still think that was a wise strategy.

The two vertical sectors have symbiotic relationships and need to solve similar SCM problems. In my mind, what the combination of JDA and Manugistics did is the following:

* Create great opportunities to reinvigorate the Manugistics base through JDA’s commitment and investment;
* Leverage the solid and highly scalable Manugistics architecture as the go-forward platform for JDA;
* Expand JDA’s ability to address the end-to-end supply chain from retailer all the way back through the manufacturer/supplier, and
* Provide the combined market leadership and leverage–opening up greater retail sector leverage and opportunity for Manugistics and a greater manufacturing sector opportunity and leverage for JDA.

With JDA and Manugistics there was also a lot of serendipity. The sluggish economy gave a boost to leveraging supply chain systems for efficiency while it somewhat “poisoned” the sale of merchandising systems. But JDA also gave instant credibility in retail to Manugistics, where the vendor needed it. Also very important was the emergence of hybrid retailer manufacturers (so called “Act Vertical” retailers) as a separate market that can now be best served by JDA.

The fact that I attended JDA’s FOCUS user conference this year for the very first time might also speak to improvements that I believe the combined company has lately made in its brand, industry analyst relations, and thought leadership positioning. Sure, JDA will have to further improve the effective communication of its message throughout the market and press, but the difference from the “old” JDA is quite noticeable.

In fact, JDA Software today boasts nearly US$400 million in revenue and a true global presence, with over 5,800 customers in 60 countries and over 1,750 employees around the globe. So, what changed at JDA after the Manugistics assimilation?

For one, there is a new value proposition for both retailers and their suppliers and the company has a stable customer base (i.e., with a balanced mix and diversity). There has also been accelerated product innovation and improved scalability through the former Manugistics platform, now called JDA Enterprise Architecture (JEA).

Porting all JDA products onto JEA is still a major work in progress, but a major accomplishment is that JDA Transportation Management 7.5.x version is now built on JEA. The new workflow engine and availability of Web services for improved integration and process automation were some of the major drivers for the upgrade projects at some existing customer sites.

These enhancements have also led to some customers implementing features like the Freight Order Management (formerly Delivery Manager) module for managing and monitoring inbound shipments. Some of other biggest product development projects underway at JDA include a replenishment workbench and an assortment manager that ties together planning analysis, data management, price and promotion management, advanced inventory IO, and demand management.

Moreover, JDA has lately established success amid tier-one companies, and has transformed its sales and marketing accordingly. One of the best indications of any software company growth is license revenue growth. License growth is an indication of market penetration, overall solution strength in targeted markets, and it drives recurring maintenance revenue, which in turn creates tremendous business stability. Software license growth is also an indicator of related services revenues.

Looking at somewhat slowed service revenue growth rates, JDA believes that this is not the correct metric from a services perspective, i.e., decreases in services revenue per customer is not necessarily a bad indicator. Namely, several goals could have actually driven a recent reduction in services revenues. For one, JDA claims to always strive to have its solutions implemented more easily, quickly, and cost-effectively.

Additionally JDA has expanded its Center of Excellence (COE) in India, which allows JDA to offer its blended expertise at even more competitive (lower) rates. Finally, today the vendor has an improved ecosystem of JDA certified partners that are participating in customer implementations along with the direct JDA teams.

Beyond these major research and development (R&D) initiatives, the company’s number-one strategic initiative is offering more managed services for its customers across the globe. JDA’s Managed Services encompasses four specific areas: hardware and software administration, advanced customer support, optimization services, and help desk/transition services. This approach can help retailers and manufacturers improve supply chain efficiencies, strengthen IT operations, and integrate customer service offerings.

More on the Reasons for JDA’s Success (Against the Odds)

Actually, due to my no-longer-youthful age, I have been through economic downturns before (granted, not to the extent that the global economy is currently facing), but each time software solution providers that drove quantifiable business improvements with true ROI-based value proposition (and that had “hungry” people that could really sell and were willing to work hard) had little trouble growing their business.

Retailers and manufacturers are buying necessary business software capabilities even in these tough times. For example, some JDA modules remain so important to people’s business that recently an automotive manufacturer’s sole project that got funding in 4Q08 for 2009 was for a JDA product. In this case, ironically, the time to close the deal (i.e., to get it through the procurement and legal departments) was actually reduced, because normally a dozen or so parallel projects were not approved by the Board this time–and the only deal they needed to work on for approval was JDA’s.

As some more insight, out of about 70 new projects in the last record quarter for JDA, about 40 were for the Intactix store space planning and assortment planning system (selling like hot cakes these days, given that store managers have decision-making power, and that the store’s efficiency is critical) while the rest was shared amid store workforce scheduling and parts of the JDA Enterprise Planning suite.

I think JDA’s remarks on the importance of ROI justification to IT budget decision-makers are also relevant for RedPrairie and Manhattan. For its part, RedPrairie has worked hard over the past few years developing an internal tool and consulting practice that enables its teams to go into prospects’ operations and show with their own numbers where RedPrairie solutions can save them costs and generate the greatest ROI.

The vendor’s teams have also used this with existing customers to demonstrate where adding addition capabilities can extend the value and ROI of their RedPrairie investment. Along similar lines is MORE or Manhattan’s Optimized Roadmap to Excellence program.

But the gist of the matter is that JDA and RedPrairie are able to support more SCM roles with their solution portfolios than Manhattan. JDA especially is making inroads in manufacturing along with retail, while, as mentioned in Part 2, RedPrairie is also supporting retail store planning, logistics, warehouse, assembly line sequencing, etc.

Part 4 of this blog series will conclude with some attempted predictions about what’s in store (no pun intended) for all three SCM vendors. In the meantime, your comments and feedback with regard to the opinions and assertions expressed thus far are welcome. What are your experiences with any of the vendors and their SCM solutions mentioned in this post?