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Siskel and Ebert on i2

On 4/15, our Short Take about Greg Brady said, "Sanjiv needs to develop a new style for the company, one that emphasizes delivery, efficient operations, profit, and smaller deals." At i2's recent Planet, Sanjiv did exactly that. (No, we're neither prescient nor influential; it's just obvious.) Nevertheless, we both left Planet unsatisfied.

Are we too demanding? Probably. But I think there's also a reason for our uneasiness. We both believe that just cleaning up operations will not be enough.

From there, the diagnoses and the remedies diverge. Both Brian and I have cogent positions. So we're taking a cue from the late, lamented Siskel and Ebert and letting you be the judge.

Siskel (Brian Sommer)

This was a disappointing conference - no news of substance - lots of mea culpas. I am concerned about the management team's ability to lead crucial change at this juncture:

I expected, but didn't get the following:

  • Answers as to how red ink will be stemmed
  • A product vision that goes beyond just fixing problems
  • Clues as to how they're improving employee morale

The corporation seems exclusively focused on internal matters when external competitors (e.g., ERP vendors) are beating them in the PR and vaporware race.

Thankfully, they have a large customer base to mine and customers who appeared relatively pleased. (This is in contrast to the press reports that focus on their few big blowups. Most folks at the conference were surprisingly content).

i2's challenges are:

  • Time (not a lot of it to spare. Must fix things now, not later.) The one-month delay in crafting a post-Greg strategy is not a good omen!
  • The transformational nature of their product line. The market currently favors products that are sold to one buyer, implemented very quickly, and, deliver immediate value. Value Chain Management is something that takes the CEO, CIO and other execs to sign off on. While i2 people repeated the line that they will sell pieces and add-ons for the near future, the marketing messages and offerings may not be in sync.
  • Overcoming negative PR. Prior deals (e.g., Nike, Kmart) will continue to haunt them. They need a lot of positive, success-oriented PR fast.
  • Everyone sees them as a manufacturing solution and not a broad based play. The ERP players will continue to paint them into this space and prevent them from getting market share beyond manufacturing. Worse, the speakers and i2 (and prior PR) focus on manufacturing clients, too. This only perpetuates the stereotype.
  • And, of course, new sales. Revenues need to go up quick. Will the re-organization impede new sales and new customer acquisitions? I'm not betting on a big sales bump.

Ebert (David Dobrin)

I agree that time is the enemy and that the organizational changes aren't sure to produce enough change quickly. But I'm not worried about the size of the space (manufacturing is a big one) or PR. PR issues are remediable, if you have something to PR about.

The ERP vendors, too, are a phantom. They have been going after i2 for some time, and they have yet to put out a comparable product set. (Any appearance of comparability in either sales or product set is due largely to Power Point and accounting tricks.)

In fact, if you just looked at the numbers, you'd think the ERP vendors were in trouble, not i2.

Let's assume that ultimately software vendors get paid in proportion to the value they deliver. i2's market cap is $1.4 billion. SAP's is 33.4 billion. That means that the market believes that SAP can deliver 23 times the value that i2 can deliver over, say, the expected life of the company (or five years).

Does that really make sense? Over the last three years, i2 claims to have delivered $26 billion in value on $2.7 billion in sales. To even match that claim, SAP would have to claim that they delivered $180 billion in value on their $18.7 billion in sales, or $30 million per customer. 23 times that claimed value in the next 5 years, would be..., well, we're talking GNPs.

Clearly, something is out of whack, and it's not just Sanjiv's claims. Here's what I think the problem is. i2's software and business can deliver value in the range that Sanjiv claims, but the delivery is uncertain.

Take two similar companies that buy Factory Planner, a package that has been mature for several years now. One company succeeds brilliantly, as Caterpillar did. Another is a horror story. Same software, same issues, vastly different results. This happens a lot. Why do I worry? a) i2 doesn't know why and b) they get punished severely when it does. (It is much, much worse than a failed GL.)

The valuation reflects this. It is the valuation of a company that is delivering chemotherapy, but promising cures.

Unless i2 can vastly improve the reliability of its product offerings, it won't be able to justify a higher valuation. And I don't think this is a matter of smaller deals and better customer service. though these promised improvements will help. I think i2 needs to figure out how to get more control over the success of its customers. In all probability, this means a different service/software mix, better customer qualification, etc. But it may also require them to redesign what they go to market with.

I have talked to several i2 observers and executives off the record, and all I can say is that these observations do not fail to resonate.

Time is the enemy for i2, because they only have so much time to address this issue, before people give up on them. If they just do what they said at the conference, it will not be enough. Even if they are doing more, I'm not sure it will work. Though I certainly hope it does.

Other Short Takes include:

May 15, 2002
i2 Becomes Me Too. i2 Promises Reform. The Right Reform? Enough?

May 1, 2002
Ariba Tests the Atmosphere. Landing on the world of Spend Management.

April 26, 2002
Baan Limps Along. Baan is not dead. But it's not bursting with life.

For other Short Takes, see our archive.