Interview: Rick Allen – ‘We had a tough period’.

He may have shouldered the blame, but video never did quite kill the radio star. Technological development as murderer didn’t start with video, of course, nor will it end with him. Think of television itself.

Or to take a more current example – enterprise resource planning.

Only hindsight will tell whether ERP will be killed by SEM, CRM or any of the other expensive, acronym-heavy solutions peddled by software companies in recent years. But there is little doubt that the ERP experience has left many companies that bought solutions at best suspicious of the next fad, at worst wanting to follow video down the murderous route and kill the sales force that sold the product.

Like other leading ERP vendors SAP and Oracle in recent times, JD Edwards has gone down the road of a very public display of contrition. But this being a US software company, it wasn’t all hair shirts and self-flagellation at the company’s annual user conference in Denver this summer, a stone’s throw from the company’s HQ.

Executives like chief operating officer Hank Bonde and chairman Ed McVaney bounded on and off stage in a whirlwind of enthusiasm not dissimilar to the manner made famous recently by Microsoft chief Steve Ballmer (you remember his whooping ‘I love this company’ speech).

Nevertheless it is clear the ERP industry is one that feels that it should apologise for overpromising and under-delivering.

As the circus troupe JD Edwards had hired to lend glamour to the launch of a new product suite threw somersaults above the heads of several hundred existing and prospective clients gathered in the Denver conference centre, chief financial officer Rick Allen must have felt that the worst was over for the company.

In recent years the ERP industry has been through the mill. And Allen, quietly spoken and thoughtful, is honest enough to admit that it has been tough for JD Edwards too.

‘Certainly we had a difficult period in 1999 with Y2K and that extended into the first two quarters of 2000 so we used cash during that period,’ he says. ‘We were much like all our competitors in a very difficult selling environment. People were really locking down their applications and unwilling to implement new applications so that they were comfortable they would make it through Y2K. It was the worst year in the history of application software.’

Since then the picture has been mixed. ‘We really had two years last year,’ he adds. ‘The first half we had the Y2K hangover and the second half was terrific. But this year software has been soft.’

Allen says it has not been a local problem. ‘It’s not a product issue at all,’ he insists. ‘There’s a macro factor out there for a start – the US economy. Our principal focus is manufacturing and distribution companies: they are primary sources of our prospects and customers.

‘Given the state of the US economy people are starting to slow down that was certainly apparent. But we also did some restructuring in terms of our worldwide organisation and that frankly puts a little bit of nervousness into our employee base and that affected our software sales with a negative impact.

But that’s all behind us now. People are very focused.’

Talking to Allen, it’s easy to get the impression that he is the company’s anchor. For such a sales and marketing driven company that’s no bad thing: Allen, you would imagine, provides the benchmarks that other executives would expect the sales force to beat.

Responsible for directing all finance and administration activities, he has been CFO since January 1990 and senior vice president of finance and administration since November 1997.

He also served as JD Edwards’ controller from 1985 to 1990. Prior to joining the vendor, he was controller for Luff Exploration Company for three years 1982 to 1985 and a senior accountant with Coopers & Lybrand from 1979 to 1982.

JD Edwards calls its post-ERP solution ‘collaborative commerce’ and this year announced it would be looking to grow its business with a OneWorld product tailored for mid-market companies. Like everyone, JD Edwards wants a bite of the upper-end of the SME market.

Allen is positive about the future and the company expects to announce good fourth-quarter results in a little more than a fortnight’s time.

The third and fourth quarters are traditionally good for JD Edwards with sales boosted by the summer user conference.

‘We are focusing in rather than trying to be everything to everybody, everywhere all of the time,’ according to Allen. ‘We’re saying, “this is where our primary focus is going to be” so it gives us an opportunity not only to retain market share, but also to grow it. Over time these programmes and this focus starts to pay off and there’s an opportunity to grow at or above the industry growth rates.’

JD Edwards has spent much of the year arguing it is not for sale. Allen doesn’t rule out acquisitions though the company would ask a series of questions before ruling out a partnership or developing its own solutions, always its preferred option. ‘Do we have the expertise and the bandwidth or expertise to make a product? That would be our bias frankly if those two are in place. But you never have enough bandwidth or expertise.

‘So then you look at “should I partner because I absolutely need a time-to-market advantage?” Then you would look at the technology, and you would ask whether you really need to control it. If that’s not the case, then you can partner. If the answer to the question is “I need to control the technology and I need a time-to-market advantage” only then you are probably down the acquisition route.

‘And cash is a very good thing to have on those occasions. But you can also do stock transactions. One of the areas we need to get back on track is the consistency element of consistent profitable growth and that will have an impact on our share price and then and then it makes stock transactions easier to do.’

Allen certainly sees the possibility of consolidation in the industry, recognising it is tough for all but the big boys ‘like JD Edwards, like SAP like Oracle’. He adds: ‘Day in, day out new software companies are born but it’s tough to be a big software company these days and it’s tough getting to that level. There aren’t many examples of that happening in the last five years.’

The last couple of years has of course seen the boom and bust cycle of the dotcom era – or dotbomb, as Allen prefers to call it. He says the phenomenon is far from unique and cites a local example.

‘Denver used to be a big oil and gas town. And in the early 80s, with the price of oil in the US at $40 a barrel, there were people getting into that business who had some odd ideas. But they were not disciplined business people, and the same thing happened,’ he says.

‘When the price went down they were no longer insulated from the practical problems of running a business. With the dotcoms the good companies made it. But some relied on the constant fusion of venture capital that would hide all their sins as long as it kept coming. Once that was turned off it was a question of “how much cash do I have and what’s my burn rate?

That determines how long I’m going to be alive”.’

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Somewhat unusually for a CFO, Rick Allen also plays a key role in winning business for JD Edwards.

‘I can’t think of many industries where the CFO of the operational organisation really plays an important role in the development cycle of the product,’ he says. ‘I actually started out as a client and I’ve implemented the product as a client numerous times.’

‘Sometimes it’s important to have a CFO-CFO relationship to kick the tyres and know what the company is all about.

‘Again it’s a little unique to be a software company, but we use our own products and benefit from those products. We can demonstrate the value, feature and function if that’s what the prospect desires.’

Allen sees differences between a US CFO and his UK equivalent, particularly in the level of attention devoted to the share price.

‘If you let it, it would affect how you run your daily operations as well as your psyche. You would be schizophrenic with one personality in the mornings and one in the afternoon. That’s not how I allow the market to influence me. You must have consistent profitable growth and on a day-to-day basis your stock price is going to fluctuate but in the long-term – and in the medium-term for that matter – markets are generally right and they will work those that deliver consistent profitable growth.

He warms to the theme. ‘When we meet or exceed expectations in terms of revenue and profit numbers we are rewarded and our stock price goes up,’ he says flatly. ‘When we miss, which we have done occasionally, we are punished. And you’re punished far more than you are rewarded when you miss.

‘My guess would be in the US there is probably more short-term pressure in the US on short-term stock performance and I don’t think that is necessarily a helpful or a healthy situation but it is what it is. And you don’t let that determine your personality on a daily basis.’

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