IFS Appoints New CEO As It Transitions to Profit/Growth

(19 January 2006 by Nigel Montgomery)

Sweden-based enterprise applications and services vendor IFS has replaced existing CEO Michael Hallén with his heir apparent (to most observers), Alastair Sorbie, as the company punches through the pain barrier of profitability and looks to growth. It's a change that should sit well with employees, customers, and shareholders. Mr. Sorbie is a natural successor to the outgoing CEO. He's been with the company since 1997 and was responsible for commencing IFS operations in the UK. More recently, he accumulated responsibility for close to 70% of the company's revenue and 40% of its staff. Mr. Hallén's role, which he fulfilled well, was to reduce costs and bring IFS to profitability. The incoming CEO is much more sales focused, which will also serve the company more effectively at this stage of its evolution.

The critical factor is focus

With stronger sales-led management, IFS can begin to carve sustainable growth.

The changing of CEOs reflects IFS's desire to increase new business in its core target sectors, which include Automotive, High-Tech, Industrial Manufacturing, Process, and Aerospace and Defense (A&D). In A&D it has secured particular success in the UK in conjunction with partner BAE Systems under the name IFS Defense. IFS claims that IFS Defense now contributes one-third of IFS revenue in the UK, and it has secured a 29% market share of the European A&D industry. The new CEO will be looking to develop other similar relationships in its various geographical markets, as it has already done with IFS South Africa in 2000, focused primarily on its Telecom industry, and IFS Middle East, which has since become the most profitable region in the company.

But it is its functionality to support project-based environments that is likely to drive the most new business, particularly in industries such as Construction and Utilities, where IFS has been securing new wins in its strongest regions. The move by many industries to manage operations based on projects presents many ERP applications with a problem. Most do not handle running a business on projects, rather than products, very well. IFS, which has developed strong component-based solutions for project-based ERP, often finds some differentiation at both plant- and enterprise-level against competitors such as SAP, Oracle, Microsoft, QAD, and Intentia. IFS claims that its prospect inquiries for project-based applications has increased by 50% in the last year.

Back-office functions, such as finance/administration and partner support, will still be managed from Sweden, while all front-office functions, such as sales and marketing, are likely to switch to UK control. Of note, IFS is one of a few leading vendors to carry out much of its development in Sri Lanka. It took this step long before the current trend to low-cost development areas.

Conclusion

The key for IFS will be focus and, most importantly, having the courage to pull out of opportunities that are not core. IFS is already substantially better than most vendors in this regard. From engagements outside its core industries, it claims to win 60%-70% for those in its target market. This is high in comparison to some, but more is needed if the company is to maintain profit margins. Success for IFS will be in knowing when not to play.

Copyright © 2005 AMR Research, Inc.


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