i2 fires 300, struggles to refocus

New CEO Mike McGrath says he was given a mandate by i2's board to "resize and refocus" the company. McGrath has started the effort by announcing a 15% cut in headcount, or 300 heads. He also indicated that additional expense reductions are coming.

So, why is i2 still struggling? i2, along with Manugistics, were leaders in point solutions for supply chain management. But when major vendors such as SAP and Oracle developed their own supply chain functionality, the need for such point solutions diminished. There's still a market for best of breed supply chain management solutions, especially in companies that have not standardized on a major ERP platform. But there are fewer and fewer of such companies today, especially at the high end. That's i2's first problem.

i2's second problem is the complexity of its products, which are designed to optimize production and distribution schedules around constraints in key resources. In other words, i2's products are an elegant solution looking for a very specific problem. When your problem fits an i2 product, you may see great results. But in most companies, the problems are not so elegant.

In most companies, problems in supply chain planning are not primarily due to the lack of sophisticated scheduling algorithms. Rather they are due to incomplete or inaccurate data, poorly defined ordering and fulfillment processes, and perverse incentives that encourage one function to optimize its performance at the expense of the whole organization. These are organizational problems, not technical problems. Therefore, they can't be fixed with software.

In my opinion, i2 would be best served by turning itself into a niche professional services firm. Its mission should be to help clients optimize their supply chain, whether or not it means selling them software. Software would be only one part of a complete solution that includes consulting to address the organizational problems that prevent companies from improving their supply chain performance. In a February interview with Computerworld, McGrath indicated that i2 planned to make its consulting services "more robust," but he didn't give any details apart from "working with consulting partners."

If i2 cannot make this transition by itself, then its best path might be to sell out to a professional services firm.

There's more on i2's resizing in i2's press release.

Update. A previous employee of i2 called me with additional insight into i2's problems. First, i2's struggle today can be traced to its origins in the supplier side of the supply chain, providing technology to optimizing the push from raw material suppliers to customers. In the years since, however, it has become clear that the best way to optimize a supply chain is by starting with the demand side: a demand-pull approach. Therefore, i2's basic perspective on supply chain planning is less attractive today.

The second problem is the diversity of i2's product offerings, which are poorly integrated, if at all. In its heyday, i2 acquired a number of point solutions, such as Aspect Development, for which it paid a whopping $9.2 billion in 2000. This diversity of products looks good on paper, but there are not enough synergies between them to allow i2 to really sell them as an integrated suite.

My source indicates that it would not be easy for i2 to make the transition to professional services. Over the past few years, i2 has lost many of its consultants, who are now working for other vendors, various system integrators, or working on their own. Some of the best people, who stuck with i2, were now let go in this latest round of cuts this week. So, there's not a lot of bench strength at i2 to make a serious push into professional services. This leaves partnering as its main alternative. However, many of the systems integrators and professional services firms that formerly partnered with i2 are no longer on board. Therefore, the professional services strategy that I proposed is not a simple solution.

According to my source, it's a mystery why some consulting firm or systems integrator has not yet snatched up i2 for a song. It still could happen.

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