Vendor Ratings, VDR Karen Peterson

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1 Vendor Ratings, Karen Peterson Research Note 13 March 2003 Vendor Rating: i2 Technologies Although i2 has the tools and the technology to be a leader in the supply chain management market, its recent financial results and the ensuing turmoil have caused Gartner to be cautious about its future. i2 Technologies Overall Rating: What You Need to Know: With some of the richest supply chain management (SCM) solutions in the market, i2 Technologies ability to solve specific complex planning problems with advanced algorithms is unequaled. Its collection of supplier relationship management (SRM) functionality is expensive for i2 to assemble; however, it is also visionary and differentiating. Its services in India to manage content, application development and model maintenance reduce overall costs, while enabling customers to augment internal resources. In the late 1990s, i2 made two critical mistakes for which it is now paying. First, it failed to react quickly to changing market dynamics. Second, it failed to deliver promised functionality in a timely manner. The company is now going through the painful process of realigning the organization with its original strategy helping the largest and smartest global enterprises achieve greater operational efficiency through SCM. At a time of increased competition and continued economic malaise, i2 must continue to execute its turnaround plan of delivering the value that it has long promised its customers. Prospects in i2 s core industries should short list i2 s solutions; however, they should also ensure that lines of communication are well-defined and designated resources are available for implementation and support. Customers that have not engaged i2 should seek clarity on the question of migration to the new platform and they need to understand the new support processes and structure. Furthermore, they should monitor i2 s ongoing financial health, because continued decline will mean further disruptions in service and could lead to i2 being acquired. Analyst Comments: After coming through the SCM decline, i2 has positioned itself as a trusted SCM advisor to large enterprises worldwide; however, we rate it a overall because of challenges in its financial situation and negative market mind share. Detailed Rating: Corporate Viability Strategy Financial Marketing Organization Initiative Rating Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Product/Services/ Technologies Product/Service Fulfillment Optimization Logistics Optimization Production Optimization Spend Optimization Revenue and Profit Optimization Additional Services Technology Integration Pricing Customer Service/ Product Support Sales/Distribution Support Services Corporate Viability: Strategy: By recognizing the consolidation of supply chain planning (SCP) components into suites in the early 1990s and the growth of business-to-business (B2B) processes later in the decade, i2 Technologies has proved itself to be a visionary. However, its vision was more complete than its execution. During this time, it managed to develop and acquire rich functionality in a number of SCM areas; however, it failed to recognize the changes that occurred in 2001 as a result of the bursting of the B2B bubble, the economic downturn and the dive of the SCP market into what Gartner calls the Trough of Disillusionment. In setting out on a path to renewal, i2 has articulated a compelling strategy. It wants to understand its customers business problems and provide unique software and services that solve those problems, including ongoing value assessments and software services. It is moving beyond merely selling software licenses to its constituents to becoming a trusted advisor (see The 2007 Business Application Vendor Landscape ). It will use its industry knowledge, international presence and service center in India to make this a reality. Although i2 is one of the most-visionary vendors in understanding the trusted advisor role, it has not yet made that transition. Layoffs and the ensuing turmoil have put the company in a precarious position, as prospects and customers alike question the long-term viability of this former giant. User concerns about viability that were originally attributed to ongoing revenue declines and lack of profitability have recently been exacerbated by an announcement that it will be re-auditing its 2000 and 2001 books to answer questions about revenue recognition. Furthermore, i2 has long been guilty of being aggressive (some say arrogant) in customer interactions, and, although it has made progress, it has not yet changed its reputation to one of collaboration, rather than merely telling customers what is best for them. Financial Stability: The SCM market has undergone significant turmoil during the past 18 months. Compounding the economic downturn was a malaise brought on by the excesses of the B2B software market. This drove SCP, which is the largest sector of the SCM market, into the Trough of Disillusionment (see The SCP Hype Cycle: Time for the Trough of Disillusionment ), causing users to question the relative added value of such solutions and plunging vendor revenue well below historic highs. Because it was the largest and fastest-growing vendor in that market, i2 was the hardest hit. It announced 4Q02 revenue of $120 million, including software revenue of $37 million. This compares to a 13 March

3 total revenue of $114.6 million and software revenue of $30.4 million in the previous quarter and revenue of $198.4 million and software revenue of $73 million in 4Q01. Although the revenue declines have stopped for now, there is not enough data available to prove that i2 has turned the corner. Furthermore, the cash drain has continued, although 4Q02 results were better than expected. To reassure users that it will be an independent entity in the long term, i2 must demonstrate consistent positive cash flow and increased revenue. Although we do not believe i2 will grow at the rate it did in 2000, users should monitor i2 s results during the next two quarters for evidence of company stabilization, making incremental buys until i2 has proven stability. Products/Services/Technologies: The i2 product line is segmented into five areas: Fulfillment Optimization: This area serves two markets the service (that is, after-market) supply chain and the distribution supply chain. Some components are more mature than others. The company s demand fulfillment solution provides some of the most-robust capable-to-promise (CTP) functionality in the market. However, its distributed order execution software has failed to meet the needs of many enterprises distributed order fulfillment requirements. In serving the needs of the service supply chain, i2 was early in recognizing a need in this area, but late to recognize its relative importance. It has now released some differentiating solutions that span planning and logistics, gaining the most traction in the complex equipment and in the airline industry. Logistics Optimization: One of the more complete solutions in the industry, i2 s transportation management system spans network optimization through execution. The company continues to enhance its capabilities by building support for multi-modal shipping and supply chain inventory visibility (SCIV). However, it has been less aggressive than some of its competitors and many best-of-breed vendors in delivering the capabilities of what Gartner calls the SCM5 (see SCM5 Will Drive the Next Wave of Supply Chain Advantage ). Production Optimization: From a product perspective, i2 s depth of optimization capabilities in this area is unparalleled. Somewhat misrepresented by its name, the solutions span demand through supply planning and collaboration (including distribution) for manufacturing industries. Its investment in vertical solutions has, in part, led to its reputation of having a confusing array of applications. It has alleviated some of this problem by assembling bundles of solutions to address each individual vertical it serves. The presence of vertical solution does not mean that every vertical is equally well-served by the i2 solution. Enterprises in mature i2 industries (such as high technology and automotive) will find a complete suite that meets most of their needs, whereas those in less-mature industries (such as process manufacturing) will merely have point solutions. Furthermore, enterprises with less-sophisticated planning departments have found i2 s depth of solution to be difficult to implement and manage. Revenue and Profit Optimization: For several years, i2 has had some of this functionality; however, the early solutions were largely standard merchandise planning for the retail industry, as opposed to true profit optimization. Its modules, which are aimed largely at the retail industry, are at varying levels of maturity, with only a few live references. However, they are equal in maturity to the revenue optimization market at large. The company is extending its functionality to meet other industries needs, including some in the high-technology industry. Spend Optimization: Spend optimization is i2 s supplier relationship management (SRM) offering. It is differentiated by its product breadth and strength in structured product data. Although i2 has good vision and differentiated applications, it has yet to bring them together to form a single integrated solution. The company s Procurement module is a stand-alone component, and it is likely to remain so during the next 18 months. Its Strategic and Product Sourcing modules offer unique functionality. Strategic Sourcing is 13 March

4 used to deliver detailed analysis of historic spend and set commodity strategies. In contrast, Product Sourcing is more focused on supporting product discovery/definition, providing engineers with large databases of supplier/part information. These solutions help identify and rate suppliers, rationalize parts and conduct obsolesce planning. They are also helpful in monitoring ongoing compliance. Combined with i2 s content management software and services, they are the most comprehensive in the market. Although customers report inconsistent service delivery, enterprises with high expenditures in materials categories should short list these products. To further rationalize its product list, i2 has segmented its solutions into those that are core (such as its demand planner) and those that are extensions (such as paper mill scheduling). Extensions are treated more like custom software and have different service and support contracts. This could be good for enterprises looking to acquire differentiating functionality, rather than building it themselves. However, they need to understand what parts of the solutions are in each designation and determine i2 s commitment for ongoing support. Additional Services The i2 services that customers may employ include three that are unique: Development Services: This involves providing additional outsourced development or customization resources. These services enable i2 to assist users in the development of add-ons or competitive differentiating features. Model Maintenance: This service enables enterprises to outsource post-go-live model changes. Although it can be used to substantially decrease post-go-live complexity, users should not underestimate the commitment to a formal change process and ongoing monitoring that is required. Product Content and Data Management: The services i2 offers range from initial data conversion and schema development to complete content management. The software solutions can be used to flexibly define and maintain content and to gather content from external service providers (ESPs). Although i2 is by far the most-comprehensive provider of content services, the services do not serve all industries equally well. The company is strong in high technology, automotive, aerospace and defense, and maintenance, repair and operations (MRO); however, overall rationalization is lacking. Enterprises that require more than one type of content should fully understand how these content repositories can interoperate. Technology Although i2 can be credited with assembling a deep portfolio of solutions, it has historically been faulted for applications that were hard to implement and operate largely because of disparate architectures and an absence of an overarching integration strategy. Beginning with release Five.Two in November 2001, i2 offered more-integrated applications that are less onerous to maintain and operate. The integration was further enhanced in release Six, which is currently in limited customer release. Although there are still a few holes in solution integration (such as Procurement with other components), i2 has taken major steps to alleviate customer pain in this area. To manage process flows among the modules, i2 has built a business process management (BPM) infrastructure, and it has also federated its disparate user interfaces (UIs) into a single application face. This will decrease ongoing complexity, but the user challenge is migrating to the new platform. Many users on earlier versions have worked around the limited integration support by developing their own 13 March

5 integration strategies or modifying the tools provided by i2. This increases the upgrade cost to a level that many have found prohibitive. The company has sought to alleviate this problem by employing its India support center to aid in migration, which appears to significantly reduce these costs. Users must carefully weigh the cost of upgrading with the overall business needs when making the upgrade decision. Furthermore, they should aggressively negotiate with i2 on upgrade costs and services. Pricing To meet market demands and respond to competitors looking to exploit its financial weakness, i2 has decreased prices. We have heard stories of i2 dramatically dropping prices to win specific deals. In this environment, users should aggressively negotiate to get the best deal possible, including add-on services, maintenance and training discounts. As in most SCM negotiations, it is best to have at least one other strong contender when negotiating discounts. Customer Service/Product Support: As part of it renewed dedication to its customers, i2 has formed a stronger alliance with its user group and has put a problem monitoring and resolution process in place. Although these steps have improved customer satisfaction, there are still situations in which i2 (mostly outside the United States) has limited account support and where communication channels (between i2 and the customer/prospect) are nonexistent. There are also consulting issues in several countries (mostly in the Asia/Pacific region) where resources have been laid off and support is to come from India, yet no support procedures have been developed and there is not uniform competency for all products. Enterprises with support issues should escalate these problems through i2 management and proactively manage resolution. Related Research and Ratings: SCP Competition in Distribution-Intensive Industries Is Stiff Discrete Manufacturers Demand More-Robust SCP in 1Q03 Options Expand in SCP for Process Manufacturers in 1Q03 The SCP Hype Cycle: Time for the Trough of Disillusionment Rating Definition: Strong Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a short list of tactical alternatives. 13 March

6 Strong Negative Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. Faces challenges in one or more areas. Customers: Understand challenges in relevant areas and begin to assemble contingency exit plans as needed. Potential customers: Note the vendor s challenges as part of due diligence. Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Acronym Key B2B BPM CTP ERP ESP MRO SCIV SCM SCP SRM UI Business-to-business Business process management Capable-to- promise Enterprise resource planning External service provider Maintenance, repair and operations Supply chain inventory visibility Supply chain management Supply chain planning Supplier relationship management User interface Core Topic Supply Chain Management - Strategies, Applications and Technologies ~ ERP II, Supply Chain & Manufacturing i2 Technologies Headquarters: Dallas, Texas Web Location: 13 March