Struggling supply chain software pioneer i2 Inc. can be revived through a continuing emphasis on cost cutting and a return to the company's roots of offering consulting and implementation services as well as supply chain software, says newly-named CEO Michael McGrath.
"Some people believe the problems of i2 are fatal," McGrath told an audience of customers, partners and employees at the company's annual Planet conference in Phoenix. "I have to tell you that these problems are not fatal. I would not be here if they were."
Speaking 10 weeks after taking the CEO reins from i2 founder Sanjiv Sidhu, McGrath acknowledged that the company's first priority is to achieve financial stability. i2 made positive strides in its most recently-reported third quarter financial results, increasing revenues by 6% and cutting operating expenses by more than $15 million by, among other things, reducing the number of i2 employees by 15%.
Still, McGrath faces challenges assuring i2's financial future. For one thing, McGrath said, the company faces a $316 million debt payment at the end of 2006. i2 has only $275 million in cash on hand.
McGrath, in an interview with Managing Automation, said his plan for the company is to continue to reduce operating costs while migrating to a business model that will deliver measurable supply chain improvement results to customers in as little as four to six months, which the company will accomplish through a combination of technology and services.
i2's recently-announced Agile Business Platform, a services-oriented architecture, will enable customers to more easily buy and deploy "a solution at a time," McGrath said.
i2 will also increase its emphasis on providing consulting and other services along with software. This, said McGrath, will help speed successful deployments and reduce i2's cost of selling, since i2 consultants can bill for their time. McGrath predicted that, like i2, many software companies will need to revert to what he called "consultative selling."
"Today, customers don't realize this, most of what they're paying for is the cost of having the software sold to them," said McGrath. "You end up with an equation that doesn't make sense. The best software companies spend 50 cents to sell one dollar in software licenses. The worst spend two dollars to sell one dollar worth of software licenses."
McGrath acknowledged that, in order to beef up consulting services, i2 will need to bring in consultants with more rich vertical industry knowledge. Some customers have begun to question whether, given i2's prolonged financial difficulties, the company has the resources to retain and add skilled consultants while also developing the next generation of supply chain management software.
"i2 has lost or laid off consultants who understood our business," said Bernard Philis, APS project director at telecommunications equipment manufacturer Alcatel (Paris). "Some of those who are left understand i2's product in great detail, but they don't necessarily understand our business."
McGrath acknowledged that i2's cuts may have gone too far. "[Customers] may feel the person they knew is gone, and that's a loss," said McGrath. "But I don't think it will diminish our ability to service our customers. Frankly, we may have cut some people we shouldn't have. And that will happen. But my style is to act quickly on these things and, if we make mistakes, fix them, not study them for a year."
McGrath added that i2 will not come up short on research and development resources, particularly if it can become more efficient. "We have an opportunity at i2 to be a lot more productive with our R&D," McGrath said. "We waste a lot of R&D ... chasing features in products that may be better implemented in workflows."
This article was repurposed from the July 2005 issue of Managing Automation magazine.