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Its a Monday afternoon in Manhattan. Ed McVaney is sitting in his hotel suite, snacking on milk and cookies, and answering questions from a reporter hes never met before.
Its a bittersweet moment for McVaney. A year has passed since he was named CEO of J.D. Edwards—for the second time in his career. McVaney knows the $1 billion ERP pioneer has stumbled in recent years, losing a combined $54.7 million in 1999 and 2000.
Loyal allies like Accenture, Andersen (formerly Arthur Andersen) and IBM continue to rave about J.D. Edwards e-business software, but sales havent lived up to expectations.
Naturally, McVaney has a recovery plan. He has spent the last 12 months tweaking J.D. Edwards executive ranks, revamping the companys marketing and financial teams, refining partnerships, and pushing into new markets like collaborative commerce. (Collaborative commerce allows buyers and sellers to broker deals directly over the Internet without a third-party trading partner.)
Now, McVaney is looking for a senior VP to overhaul J.D. Edwards consulting practice. “We made too many people rich, and we got stagnant and fat,” he concedes. “We had an extreme lack of financial discipline. They say the higher you go in an organization, the further away from the truth you get.”
In J.D. Edwards case, the ugly truths were weak leadership, ineffective marketing, excessive corporate spending and an idle consulting team, McVaney acknowledges.
McVaney, 61, wasnt supposed to be polishing a company at this point in his career. After co-founding J.D. Edwards in 1977 and running the company for 21 years, he handed his CEO crown to Douglas Massingill in 1998. McVaney remained chairman and hoped to work behind the scenes, but Massingills reign as CEO was short-lived.
Troubling Times Big problems surfaced in 1999, when J.D. Edwards revenue was flat and annual losses topped $39 million. Fast-growing rivals like Oracle and Siebel Systems were eating the companys lunch. Massingill resigned in April 2000 and J.D. Edwards board put McVaney back in charge.
“I think a lot of people are happy that Ed [McVaney] came back,” says Mitchell Simon, a business consulting partner at Andersen. “J.D. Edwards corporate team was out of touch with its field experts. Ed is doing a good job reestablishing those lines of communication.”
McVaney defers credit to J.D. Edwards more recent recruits. “Weve brought in an outstanding COO who is very disciplined,” he says. “And weve brought in the most professional marketing executive weve ever had. Marketing has been J.D. Edwards classic weakness.”
The new recruits are COO Hank Bonde and senior VP/chief marketing officer Les Wyatt. Both executives joined the company in February. Bonde is a veteran of BellSouth Cellular, IBM and Tachyon. Wyatt, meanwhile, most recently oversaw worldwide marketing for Harbinger Corp., an e-commerce software provider. He also spent 17 years at Texas Instruments, managing various marketing initiatives.
Another strategic hire is imminent. J.D. Edwards has retained an executive search firm to find a senior VP who can rebuild the companys consulting organization. McVaney declines to discuss candidates by name but says his shortlist includes “down-to-earth, bread-and-butter J.D. Edwards experts.” The hire will most likely be “a Big Five kind of person,” he adds.
Once hired, the fresh recruit faces an uphill battle. J.D. Edwards services revenue fell 9 percent to $135 million in its most recent quarter. In stark contrast, Siebel Systems services revenue grew 113 percent to $216 million during the same period.
Some of J.D. Edwards partners have noticed the problems. “J.D. Edwards consulting practice is probably in a state of chaos,” says Andersens Simon. “Its a big problem.”
McVaney doesnt argue that point. “Weve made a mess out of our consulting business,” he admits. “Our utilization rates are very low. Im too embarrassed to tell you what they are. In a way, we neutered our consulting practice. We really need to rebuild that. We think it makes sense to have a lot of big, strong consulting partners. But we need a strong consulting operation, too.”
Sources say the mystery hire will work closely with Cathie Frazzini, director of worldwide strategic alliances and, to some extent, Dee Kellogg, director of ASP solutions. The trio must carefully manage customer engagements that span multiple consulting firms and/or service providers.
“We will work to develop the right skill sets [internally] without duplicating our partners skills sets,” says Frazzini, a 10-year veteran at the company.
Open Arms Consulting relationships are critical to J.D. Edwards rebuilding effort. Two prime examples: J.D. Edwards and Deloitte & Touche together are targeting the high-tech electronics vertical. A similar deal with Accenture will attack the consumer packaged goods vertical, says Frazzini.
Juergen Kuebler, director of global strategic sales at J.D. Edwards, recently met with the Big Five consultancies in Europe to discuss a new sales methodology, dubbed Total Value Management (TVM).
J.D. Edwards claims that TVM identifies weak links in a customers supply chain. The methodology can be used to analyze product inventory levels, operating income, revenue growth and other supply-chain variables.
Naturally, J.D. Edwards is more than happy to correct any weak links with its supply-chain software and related>> consulting services. Roughly 2,500 field personnel at J.D. Edwards have received TVM training since November.
TVM sounds too good to be true, but sources at Bayer and Coca-Cola confirm that the methodology has helped each company to strengthen its supply chain.
Partners also are upbeat about J.D. Edwards XPI (eXtended process integration) technology. XPI uses a component-based message broker to integrate multiple back-end applications.
Using XPI, customers can build any-to-any online exchanges that include applications from multiple vendors, J.D. Edwards claims.
“XPI is too new for the average [customer] to know about, but Ive worked with the guys who are developing it and XPI looks pretty good,” says Andersens Simon. “I think it may be gaining some traction in the marketplace.”
Alliances with second-tier partners—known as market influencers—also remain critical to J.D. Edwards recovery plan. Here, the company works with the likes of MarchFirst, DigiTerra and Experio.
An alliance with MarchFirst isnt exactly a safe strategy these days, considering MarchFirsts financial problems. However, Frazzini politely insists that J.D. Edwards relationship with the struggling consultancy remains strong.
Hopeful Hosts Service providers represent another key group of allies. J.D. Edwards doesnt host applications on its own because of profit-margin concerns, but the company has partnered with ASPs since 1997. Those deals are starting to pay dividends. ASPs now influence 15 percent of J.D. Edwards revenue, either through product recommendations, sales leads or recurring revenue, McVaney says.
Recent ASP partners include Virtual ESI in Charlotte, N.C. The company targets the architectural, engineering, construction and services industries. Early customers include Future Beef Operations, which uses hosted services to automate its supply chain.
Similarly, J.D. Edwards is working with Delinea Corp., an ASP aggregator, to host vertical-market applications. Says Tom Guercio, director of business development at Delinea: “We looked at Oracle and J.D. Edwards for one of our customers, Koch Industries, and J.D. Edwards solution best met the customers need.”
Guercio speaks highly of the J.D. Edwards relationship but says theres plenty of room for improvement. “The first year of our partnership was very successful, but we have greater aspirations,” he says. “We have to do a better job educating J.D. Edwards about our strengths. The burden is more on us than them.”
Additional ASPs are banging on J.D. Edwards door. Kellogg says she received about 30 partner applications last month but accepted only one.
“Were not into the mania of partnering with everyone,” Kellogg explains. “We perform a lot of due diligence to make sure that a potential partner has a sound business model, sound management, a customer support structure and solid financial backing that will fund operations for at least two years. Consolidation has started, and I want to make sure our ASP partners are the ones left standing—or at least the majority of them are.”
On the software front, J.D. Edwards is reallocating its strategic bets. The company once supported four major application servers: BEA Systems WebLogic, IBMs WebSphere, Microsofts Commerce Server and Suns iPlanet. However, J.D. Edwards recently switched from WebLogic to WebSphere as its preferred application server, and support for iPlanet within J.D. Edwards appears to be waning.
“Longer term, I wouldnt rule out a partnership with BEA, but weve always had a strong relationship with IBM,” says Andrew Moore, director of collaborative solutions at J.D. Edwards. “We found that WebSphere scales better. In iPlanets case, the product wasnt completely there.”
The iPlanet partnership “really didnt work out, and I cant tell you why,” says McVaney. “Its kind of disappointing. We love Sun.”
Heir Apparent? As we conclude our interview with McVaney, its clear that hes upbeat about the companys long-term business prospects. Near term, hes most concerned about the continuing economic slowdown and fixing J.D. Edwards consulting practice.
Publicly, McVaney says he is committed to running J.D. Edwards for the long haul. But privately, sources say COO Bonde may be in line for the CEO spot.
“If Bonde gets a handle on their day-to-day operations, he could be the heir to the throne,” says one executive recruiter who specializes in the software industry.
McVaney downplays such speculation. “[Retirement] may happen, but thats not in the cards right now,” he says. “I dont have a great ego commitment to be the CEO of J.D. Edwards. Ill pretty much go along with what the board says. But Im real comfortable, and I know what Im doing. Its not the right time now [to step down]. When it is the right time, Ill know.”
In the meantime, the turnaround effort remains a work in progress.