I2 CEO Aims For Profitability

Within the next few weeks, Michael McGrath, the newly appointed CEO and president of troubled supply-chain software maker i2 Technologies Inc., will reveal details of how he plans to return the company to profitability.

I2 ended its seven-month CEO search last month when the company's board hired McGrath to replace i2 founder Sanjiv Sidhu, who will remain chairman but step down as CEO. McGrath joined the i2 board in August. He's co-founder of technology management consulting firm Pittiglio Rabin Todd & McGrath Inc. McGrath has also worked for Price Waterhouse, Texas Instruments, and McCormack & Dodge as one of the early contributors to the packaged application software industry.

In 2000, i2 Technologies' sales broke $1 billion as the company sold supply-chain and business-to-business marketplace software. In 2004, i2's revenue was $389.3 million, down from $494.9 million in 2003. McGrath recently spoke with InformationWeek senior editor George V. Hulme.

InformationWeek: What are some trends you see in supply chains and supply-chain technology?

McGrath: Supply chains are going through another generational change. One is the closed-loop supply chain. A closed-loop supply chain is when you are able to get feedback on the effectiveness of your supply chain much more quickly. It enables companies to go from the concepts of the '90s of trying to develop the optimal supply-chain plan. Now people realize that they can't plan. The current thinking is that you do a plan and then you replan on a regular basis because you are getting feedback as to how that plan is actually working in the environment.

InformationWeek: What are your plans for making supply-chain management easier for your customers?

McGrath: What we do--and what we need to do more of--is to provide the complete supply-chain solution. What customers are looking for today in enterprise software is different than what they where looking for five years ago. Today, they're looking for complete solutions. They want somebody who can come in and provide the software and who understands the software. They want a company who can customize the software to fit their needs, who can integrate the software with their other applications, and who can provide the best-in-class management practices to change their processes to get the most out of their software or change the software to fit their best-in-practice process they want to follow.

InformationWeek: How are your customers currently implementing your supply-chain software?

McGrath: They are focused on bite-sized, or manageable projects, rather than trying to do everything all at once. Supply chains are very complex, and even the bite-sized projects are very, very complex. For example, one of our customers is an auto manufacturer. We've done projects with them over the years. One involved vehicle [production] sequencing. They needed to know the optimal sequence for the vehicles that they put through their manufacturing plants worldwide, based on the demand profile that was coming in. They have 41 plants in the U.S. and one plant in Europe, and they build 5 million cars a year. They wanted one worldwide standard for synchronizing car manufacturing. Something like that is one focused area on their supply chain. An initiative like that takes several years to complete and has a dramatic impact.

We've also worked with this auto manufacturer on creating a standard parts library. They have 200,000 parts they use in their production process. And they have 15,000 people using that parts library to get the most reuse [of parts] when they design new cars and upgrade existing cars. When they use the same components it has a tremendous benefit for them. Even when you are looking at improving a discrete process like parts reuse, the scale of these projects are still very big.

InformationWeek: How does i2 help its customers with the scale and complexity of implementing a supply-chain initiative?

McGrath: You want to get all of these things integrated together. It's like building a city where you have to build one piece at a time but everything fits together. What we do is work closely with our customers to build these solutions and partner with them to get them results. The change from previous years is an emphasis on faster benefits and results. That's something we are emphasizing even more here, with manageable solutions.

That's one of the biggest changes with the enterprise software market. When you look back to the boom times, a lot of bad practices were created back then. Companies would buy $80 million worth of software, but what they didn't realize was that it would take them a decade to implement it. And [some enterprise software vendors] built business models around selling big license deals rather than delivering results to customers. That happened to a large extent at i2 also, and what we are going through now is the final steps to get back to being the business we were in the mid- to late '90s and not to be the business we were during those bubble years. For us to make these changes is good for everybody. This is still a good business, a successful business with lots of opportunity.

InformationWeek: What are your plans for getting i2 to profitability?

McGrath: We set some primary objectives when I became CEO. We said that we would get back to profitability right away. And we felt we had to re-earn the respect of our investors. Being profitable is also critical to our customers. They're buying enterprise solutions from us, and they want to make sure that we are around to support them forever. If we are losing money, it certainly puts some doubt out there. And, certainly, our employees feel down about working for a company that hasn't made money in a long time. So the priority is to quickly return to profitability. When I became CEO three weeks ago, I said that we would have announced our plans for that in 30 to 45 days.

Also, we are getting back to our core by getting results for our customers and being an efficient company. My view is that there is a great opportunity for a software company to be the most efficient in the industry. If you are the most efficient at developing and selling software, and the most efficient at delivering results through consulting services, then you can be very successful. There are opportunities in every industry for a company that has the highest productivity. That's what I'm aiming for. We want to take i2 from being a not very efficient company to being the most productive and efficient company.

The first step will be the resizing of the company. Then we want to refocus our products and our strategy. We have a broad set of products, and we want to focus on being more productive and position the company better in the marketplace.

InformationWeek: The supply-chain marketplace has changed, with broader ERP companies moving into a market historically dominated by specialized software makers like i2. Is there still room for supply-chain vendors who aim to build best-of-breed software?

McGrath: I think there is. On the technology side, there is a lot happening with middleware tools and the ability to make it easy to integrate applications. We have a very exciting application, Master Data Management, which sits on top of other ERP apps or anything, like spreadsheets, and identifies all of the critical data. It enables us to virtually manage and extract data from anywhere on a real-time bases from the source data. This makes integration a lot easier. Also, other apps like SAP and the platform development they're currently doing, along with some other apps, will enable us within a year to 18 months to drop in our application right into those platforms, or "middleware," if you will.

InformationWeek: In many areas of the software market the trend seems to be toward greater integration of applications, rather than new applications being developed. Do you see the same trend in supply chain?

McGrath: Those two trends play together in our industry. In our industry, when you integrate them together, you now have new functionality. So it's not just integration to save maintenance or operating costs, but the integration provides a whole new set of capabilities such as the closed-loop supply-chain system. For instance, when you take your demand forecast along with real-time feedback from the orders coming in, and those orders are coming in on an SAP system for example, you can then instantaneously run them against your forecast through some of the i2 applications. It's then that you can begin to see trends down to the hour in how orders are flowing in and make quick adjustments. It is integration that makes that closed-loop supply chain possible.