Last week, Industrial and Financial Systems (IFS), the 35-year old Swedish-born software company best known for its mid-market ERP product, held its annual user and partner conference in Atlanta. About 1,400 people from aerospace and defense, industrial equipment, and other manufacturing companies attended the three-day conference, whose theme was “Connect to What’s Next?”.
It turned out to be an apt title. As is usual at software industry user and partner group conferences, IFS formally announced a raft of new and updated products for its users, including version 10 of its flagship ERP product that IFS says is getting 500 functional updates including a new user experience called Aurena https://bit.ly/2HMRRtF. But perhaps the most newsworthy development, and the most important for IFS itself, was the arrival of Darren Roos, who was named IFS’s new chief executive officer in March.
Roos, who was born in South Africa and served most recently as president of software giant SAP’s Cloud ERP business, wasted little time in saying what is going to be next for IFS. In a series of one-on-one conversations and meetings with industry analysts and press as well as a main stage question-and-answer session on the first day of the conference, Roos began outlining a strategy that is designed to enable IFS to get beyond its mid-market roots and appeal to larger companies as well as a broad internal reorganization to create what Roos described as a “common operating model” for what has been a highly decentralized IFS.
The backdrop to these intended changes can be traced, at least in part, to the purchase of IFS in 2016 by the equity investment company EQT. After an executive search to replace long-time CEO Alastair Sorbie, who retired, EQT recruited Roos, who is based in London, for what is his first job as a CEO.
Roos says he really didn’t know much about IFS when he was contacted but the hiring process was concluded in just a couple of weeks’ time. What Roos says immediately impressed him about IFS was the company’s customer-centricity and the quality of both its software and how it is implemented at customer sites, two competencies that he re-committed IFS to in his Q&A session with customers on the first day of the conference.
But Roos clearly wants to do more. Throughout its history, IFS has been known as an ERP player for small and mid-size companies. It had net revenues of SKr 4,217 million in 2017 (about $500 million), up 15% in constant currency from the prior year; has 3,500 employees; 10,000 customers; and a network of 350 partners. IFS’s market focus has been around a select group of vertical industry segments – aviation and defense; energy and utilities; engineering, construction, and infrastructure; high tech manufacturing; industrial manufacturing; asset intensive companies; oil and gas; process manufacturing; and service providers.
In 2016, IFS was acquired by EQT, a private equity group in Sweden. Since that time, IFS, with the backing of EQT, has made five acquisitions, including WorkWave, a cloud-based software-as-a-service provider for the field service, last-mile delivery, and logistics industries. Roos says he “wasn’t given any marching orders” at the time of his hiring, but he does say that he was encouraged to do more acquisitions as well as to better integrate the ones that have been done.
Roos says that IFS can grow 15% organically each year without acquisitions, but he thinks that IFS’s growth opportunity is much larger than that. Being able to appeal to larger companies than it traditionally has as well as organizing differently internally and with its partner eco-system are two of the keys to this strategy, he said at the conference.
In terms of target company size, Roos says that IFS’s focus, currently on companies from $250 million to $1 billion in size, should be expanded to include organizations between $500 million and $5 billion in revenue. “Who we have as a typical customer and where I want to go is not the same thing,” Roos said. He’ll continue to focus on IFS’s traditional vertical market segments and perhaps even go further into them. “We still have to figure out how far to go in micro verticals,” he said. IFS also has some customers in the retail space, but this segment will be de-emphasized in terms of developing deep new functionality for the products used, he said.
And with regard to any plans for geographic expansion, particularly in fast growing markets such as China and India, the new IFS CEO says that he has to be careful where he picks his shots and how he goes to market.
“We have a tiny presence in China and India now,” he says. “Looking at SAP and Oracle in those markets, I don’t see how we could make a dent. The only option for me is to focus on markets where I have critical mass.” Those regions, however, might lend themselves to a distribution strategy, he hinted.
With regard to how IFS is structured internally, Roos says the development and implementation of a common operating model for the company is essential to moving upstream in the market as well as better leveraging its partner eco-system.
Right now, he said, IFS’s eight regional areas operate “very autonomously”, a model that has resulted in customers and partners having to deal with what he termed are the “complexities of IFS” including different approaches to deployments. “A partner has to deal with eight different regions,” Roos said.
He said he will undertake a “major organizational restructuring” of IFS shortly, and one that will include new executive roles such as a leader for its cloud strategy and new head of operations in China.
In addition to these moves, his priorities during the next year are getting more customers on the cloud, a “bolder vision around service management”, and to be “far more open” with eco-system partners. To strengthen its cloud position, Roos says one option would be to acquire another ERP company “to get cloud DNA.”
And he acknowledges that IFS is going to be in for a period of significant change. “It’s going to be different,” Roos said. “It’s change. There will be a different engagement model that will require some change management.”