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‘We’re shifting the centre of gravity of the business to the cloud’: Q&A with JDA Software

CBR talks to Hamish Brewer, CEO of supply chain management giant JDA Software, about immediacy, natural disasters and moving to cloud computing

By Steve Evans

Hamish Brewer, JDA Software

Can we start with a brief background on the company?
The predecessor to JDA Software inc. was a Canadian business and then Jim Armstrong established a business in the US in 1985, that’s the company we are today. When I first joined JDA the Canadian business was still independent. When we went public in 1996 we re-acquired them so there was just one JDA globally.

That was when we as a company established our acquisition strategy that we’ve pretty much followed since then. It’s not rocket science; we looked at our customers and at what other software packages they’re using with our products and looked at buying them to build out a broader footprint so our customers didn’t have to deal with dozens of different package vendors.

Up until 2000 we were 100% retail focused, but then we really shifted. We knew with a single focus we were not going to be able to solve the problems we wanted to solve. We needed to shift our thinking from being a retail software company to being a supply chain company. Now it’s about a 50/50 split between retail and suppliers.

And what are the big trends you are seeing in the supply chain space right now?
From a business perspective I would say the biggest event, which I still think is on the horizon but hasn’t really hit us yet, is multi-channel. It exists today but the full impact has not yet been felt across retailing and manufacturing. The consumer has only really just started to get used to the idea that they are in charge. They have the information. They have the choice. They can demand the service and the pricing they want. They are empowered, informed and enabled with technology.

The old saying if you’re happy you tell three friends and if you’re unhappy you tell ten… that’s just been multiplied by at least ten.

So how will this hit JDA?
We think of it as an opportunity. Successful execution of a true multi-channel strategy – where online and brick and mortar presence are really integrated – is only attainable with some sophisticated technology weaving it all together. It all has to be connected. However the fundamental integration with the online experience with the in-store experience for most companies is simply not there yet.

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I guess a lot of this is tied in with trends such as mobile and social and the immediacy of the way the world works. Is that an issue?
Historically, manufacturers and retailers were entirely focused around the product. I think what we are seeing now is a shift away from that towards true customer centricity. The focus is on the consumer much more than the product.

The underpinning all of this is social media, smartphone technology and iPads and so on. This technology is being weaved into people’s day to day life and it is changing how people think about how they shop, buy, interact with friends and businesses and it’s redefining a lot of what we consider day to day life.

Have you noticed your customers saying they need that immediacy? And does that mean you’ve had to change your products to cope?
To some degree, yes, we are evolving our products around speed and agility. The challenges our customers have today is the lead time getting a product to the shelf. They need to accelerate their go-to-market strategy but also their responsiveness to changes. There is huge volatility in the market and an increased emphasis on speed. It’s a very stressful time for businesses.

With products like Apple’s iPad going from the factory to the hands of the consumer in no time at all, that must put pressure on the system.
In consumer products you have product lifecycles that look more like high fashion. That whole industry has become totally fixated on speed and responsiveness. We don’t deal with Apple, they do a lot of that themselves, but we do deal with their competitors – Samsung, Lenovo, Dell and so on. They use us to manage their flow of products.

This period of turbulence is going to produce winners and losers – those that get that seamless integration between offline and online will be the winners.

And the volatility in the market you mention comes from disasters such as the Thailand floods and the Japan earthquake?
You’ve got disruptive issues like that and they create the need for a completely different level of response planning if you’re going to maintain supplies. But also you’ve got other issues like if you’ve got a three month lead time and 10% price swings on a daily basis, how do you plan your margins?

All these things require manufacturers to raise their game in terms of comprehensive and predictive planning and response management. And that is where technology like ours comes into play. You cannot do it with spreadsheets and emails.

So specifically what did you have to do with clients that were caught up in the Thai floods and the resulting hard drive manufacturing disruption?
The issue there was the lack of alternative supply; many people just didn’t have a plan B. I think people are now focused on that and are using our technology to solve those issues. We have tools that help with strategic planning and alternative sources of supply and understand the cost implementations of switching manufacturer.

What’s your cloud strategy at the moment?
Today the majority of our business is still on-premise but we announced this year at our User Conference that we were going to be shifting the business over the next few years to cloud. We started a programme three years ago to develop our capabilities to provide our products as a service. That transformation isn’t something that can be done by flipping a switch.

So we’ve spent time looking at our strategy and what works and what doesn’t. We’ve built up our cloud business to about 100 customers during that three years, out of about 6,000 customers. But that’s partly because we’ve been formulating that strategy.

We’ve now decided that we’re going to go to market via our cloud platform as the primary channel, as opposed to an option add-on or alternative. We’re shifting the centre of gravity of the business that way and over the next couple of years I think we’ll see more and more of our customers adopting cloud computing.

The last three years have taught us there are benefits to our customers. We can substantially reduce the time to implement the platform and we were able to deliver a significantly better quality of service to our customers.

The big prize for us is the big shift we can deliver our customers away from: implement a product, use it for five years and then eventually go through the expense of upgrading it. Frankly in enterprise software these days the upgrades can be almost as much as the original implementation. That business model is completely out of sync with what’s happening in commercial environments.

And what about changes in terms of licensing and so on?
Everyone focuses on subscription pricing as the primary issue, but I see it as a secondary one. How you buy the IP to me is a financial calculation: Do you want expense? Do you want capital? I think the notion that cloud equals subscription is a bad notion and I wouldn’t be surprised if in a few years you see people buying capital licenses for cloud-delivered solutions. If you’ve got cash and a solid balance sheet it’s a better deal for you as a customer if you buy a capital license and write it off. The flexibility is not the primary issue here; it’s the expense.

Was there a strong demand from your customers for cloud computing?
No. If you think about it, we’re kind of in the same category as ERP. We’re mission-critical. If our system stops working, you stop shipping products, so people are very risk averse when it comes to the technology we provide.

Three years ago we were in the mode of convincing people to consider it. Now that’s shifted to people being open to it but still needing to be convinced, and in three years I think it’ll be how people want to buy.

In terms of competition you’re up against the likes of Oracle and SAP. Why should a customer consider JDA instead?
They both have supply chain modules as part of their offering so the question for customers is whether to go for it as part of an ERP platform or from a specialist, like us. I would be surprised if either of them claimed to have a superior offering to ours.

If the customer’s supply chain needs are fairly simple then going with the ERP module is probably good enough. If it’s complex, they need what we’ve got. If you do have a complex supply chain getting it right is worth a fortune. We regularly take 20% to 30% of working capital out of people’s balance sheets, so it’s a massive return on investment.

How is JDA’s performance holding up in Europe giving the economy?
It’s surprisingly good, considering the economic situation. We grew more than 20% in Europe in total last year and license revenue more than doubled.

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