What Guido Wants
One year ago, we came out with a very negative Short Take about
JD Edwards. Since then, JD Edwards has had three quarters of meeting
its numbers and profitability. This Short Take tries to explain
why. It is quite positive. So watch out.
On the surface, there was little to say about
this year's Focus. Attendance well above normal
for this sad conference season, roughly 4500. The mood was positive.
Customers are buying some, now, but, more important, also
positioning next year's
budget. The product announcements were largely cosmetic; the new
JD Edwards 5 is simply and only a repackaging of existing product.
The real news lay below the surface. First, JD Edwards seems to
have achieved a new and sustainable level of sales effectiveness.
Second, they are positioning themselves, albeit slowly, for a more
profitable relationship with their core customer base. Third, they
are still scrambling in the product department, and this scrambling
increases risk and reduces upside.
Sales effectiveness. The story is complicated, but illuminating.
Several years ago, JD Edwards brought in some crack SAP salespeople,
who were supposed to compete head-on with SAP and win. They had
developed some sales tools that showed C-level buyers what happened
to company financials if they bought JD Edwards software. The tools
were innovative and quite good, but only in the hands of the few.
The salesforce as a whole rejected the tools, either because they
didn't have the skills to use them or because they weren't any good.
Well, the crack SAP salespeople left about a year ago, and rather
than falling into desuetude, the tools suddenly started working. No one
quite knows why, but it seems to be a combination of improvements
to the tool, more effective
training, better incentives, the removal of the disliked SAP people
(whom I rather like), and better organization of the sales force.
In any case, they are having an effect.
This is one of the few places where SAP is behind JDEC. SAP is only
now putting together a similar toolset, where JDEC is in its third generation.
This improved effectiveness probably supplies 60% or more of the explanation for
JDEC's success in the last few quarters. Given the lack of competition in
the core JDEC customer base, it is likely that this will continue to be important
for at least the next three quarters.
Improved positioning.The new JD Edwards management, many
of them ex-IBM'ers seems to be benefiting so far from the Owens-Conway
effect—bring management into a fading software company, and
it will show a profit. If that were all, you could count on a fade,
as imposing cost controls, establishing budgets, and insisting that
people pay attention to goals can only do so much.
But they are also working on establishing a more sustaining relationship
with the JD Edwards customer.
This customer is
a special breed. Conservative. Lacks technical
ambition. Just wants the software to work.
Put it another way. I've noticed that in successful JD Edwards
implementations, there is a guy, call him Guido, who in another
age would have been the neighborhood bicycle mechanic. Guido
knows everything, and he makes everything work.
Guido is one of the reasons that JD Edwards is a mid-market product.
Believe me, you can get it to work in very large companies. But at a certain
point, Guido gets overwhelmed, and then the installation gets clunky, like
an out-of-tune Buick.
The Guidos were badly betrayed by the JD Edwards move to open systems, not
because they objected to Unix, but because the software was unreliable.
Now, JD Edwards is making some efforts to restore its relationship
with Guido. I was most encouraged by what Bob Dutkowsky (CEO) is
doing. He says he's met with or visited 600 customers since he took
the job—roughly six per day. He also personally answers every
complaint letter that comes into JD Edwards (and this number is
not tiny, by any means). Some of you might look askance at this
allocation of CEO time, but I think Dutkowsky (who sold JD Edwards
back in his System 38 days) may be making a canny judgement, which
will pay dividends.
JD Edwards is also making some moves to make sure that those dividends
are in cash. For several years, JD Edwards pricing policy has materially
hurt its performance relative to its competitors. It has charged a lot
of money for its base module and for a large chunk of modules. The per-user
price has been correspondingly low.
This pricing policy limits upsell and infill possibilities within
the customer base. You can't sell software they've already paid
for, but aren't using, and it's scarcely worthwhile to get them
to use it, because the extra users don't pay very much.
Starting in February, JD Edwards has changed its pricing policy for new customers,
essentially by breaking up the modules and raising the per-user price. The effect
is a two-fold price reduction. The total for all modules is somewhat less, and
the up-front cost for only the modules that people want is less. But over time,
a pay-as-you-go relationship will result in more effective utilization of the
software, and in the very long run, that will mean more software sold and more
maintenance.
Most existing customers are not affected much. They already own the core modules,
so if they move to the new system in order to get lower prices on supply chain
and CRM, there is no extra cost on what they have, unless they grow and buy
more seats.
But for new customers, the entry price is lower, and they can count on
JD Edwards coming around from time to time to help them put in new
modules, something Guido likes.
One necessary consequence of all this is that JD Edwards will increase
its percentage of service revenues. This is a good thing, something all the
application vendors will have to do.
The new positioning is not complete, and not every move in this direction
has been successful. The hot air and disingenuousness content at Focus, for instance,
was well above Guido-acceptable levels. But the direction is right.
Product still well behind. It is now standard for ERP vendors to have an
enterprise product and a set of B2B products, comprising CRM and SCM, at the
very least, but also including PLM, SRM, and some B2B technology. Unfortunately,
JD Edwards is still below standard, arguably well below. The CRM product is inferior
(comparable to SalesLogix, by most accounts); the SCM product is very, very good
in some areas, and inferior in others. The PLM and SRM are non-existent. And the
B2B is just coming up to speed.
It is clear that you don't need that much product to sell to Guido. JDEC did a survey
of its users a year or so ago, after a year of co-selling Siebel, and less than
3% had CRM packages. The demand is clearly there; the danger is that this product
falls so short of what is conventionally meant by CRM that customers will get
little value out of it. As we know, every vendor has had great trouble getting
plausibly up to speed on CRM, and unfortunately, those troubles are still ahead
for JDEC.
The SCM story is less bleak. JDEC has licensed Demantra technology for forecasting,
which fills in a hole, and it actually has a superior product in certain
areas, such as ATP and forecast harmonization. But the fit is still weak for
much of the customer base, and the standard problems for SCM remain. (SCM is difficult
to implement and hard to extract value.)
SRM was promised periodically, but never announced at the conference.
With this product set, JDEC won't be able to follow the upsell-infill
curve of enterprise vendors like SAP and PeopleSoft. For parity,
they will have to sell more new customers, at least until the product
set is developed to the point where Guido will be happy with it.
Conclusion. The key to success for JDEC is re-establishing
the relationship of trust that it once had with its customers. With
no real competition in this part of the space, it is simply up to
them to make the relationship work. Sounds like a lot of marriages
I know, with maybe the same probability of success.
See also our other recent Short Takes.
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