Part 2 of this blog topic continued to analyze IBM’s rationale behind acquiring ILOG to bolster its service oriented architecture (SOA) and business process management (BPM) platforms, in part due to the capabilities of archrival Oracle.
What About ILOG’s SCM Products?
Whether as a sort of “collateral damage” (given IBM’s foremost interest in beefing up its SOA/BPM infrastructure product) or maybe not, the acquisition also leaves IBM with the supply chain management (SCM) applications business that ILOG has recently been developing in pursuit of a more profitable custom solution strategy. This strategy was going to complement ILOG’s tried-and-true “technology & platform” strategy of providing business rules management system (BRMS), optimization engines, and visualization tools.
ILOG saw custom SCM applications as a higher-margin business promising a better opportunity for profitable growth than the stable technology tools market. To date, however, the applications division has not grown significantly. ILOG’s more recent efforts to establish itself in the SCM application market have included in-house development of custom solutions and the acquisition of LogicTools, a strategic inventory optimization and network design application vendor in 2007.
Founded in 1995 by David Simchi-Levi, professor at MIT, LogicTools has over 250 corporate customers (over 70 of which are Fortune 500 members) that benefit from its sophisticated solutions. While ILOG has since made some inroads in selling the acquired LogicTools applications, the solutions it has developed in-house have had limited success.
Although “ERP- system-agnostic” in principle, LogicTools’ SCM applications strategy has long been to fill the so-called “white spaces” within the SAP SCM suite [evaluate this product], in terms of inventory optimization (IO), supply chain network design, planning and scheduling for process manufacturing, and planning and scheduling for multi-stop transportation.
IBM has yet to unveil any plans for the ILOG SCM applications. The giant states (or merely lives in a denial) that it is not in the applications business, though it offers a few own specialized SCM applications, primarily through its consulting business. In fact, SCM products like the IBM Dynamic Inventory Optimization Solution (DIOS) and IBM Carbon Tradeoff Modeler have come into being as a result of a number of special client engagements.
Although these consulting experiences have subsequently been productized, these offerings are strictly offered as toolkits that support and facilitate IBM’s new SCM consulting engagements. These IBM SCM products’ respective numbers of installations count in dozens rather in hundreds.
In his recent blog post, Jason Busch believes that based on this and other recent software acquisitions, and its already strong services and business process outsourcing (BPO) practices, IBM is the most logical vendor to step in and acquire a spend management solution provider like Ariba (which offers a somewhat non-traditional combination of software, services and supplier network enablement).
Given that i2 Technologies has lately, prior to the JDA Software merger agreement, groomed itself into a more specialized SCM consultant for complex environments, with a possibility of offering its software tools where appropriate, I was at some stage suspecting IBM as a possible suitor. Oh well, i2 might have had much more SCM software than IBM currently needs and wants.
Is There any Logic to Keeping These Tools?
For that reason, and given no mention of the SCM products and strategy in the IBM’s merger announcement for analysts, it is difficult to predict exactly what IBM will do with ILOG’s SCM applications, such as ILOG Plant PowerOps (PPO), a solution for manufacturing planning and scheduling for process manufacturing or ILOG Transport PowerOps (TPO), a solution for shipment planning and vehicle routing for retail/consumer packaged goods (CPG) and third-party logistics (3PL) providers.
Furthermore, the ILOG LogicNet Plus XE suite tackles the strategic network design (to determine optimal number, location, and size of warehouses, plants, and production lines), multi-site production sourcing strategies, production and procurement planning, and contingency planning. Last but not least, the ILOG Supply Chain Analyst suite consists of the following modules that can be thought of as separate products:
ILOG/LogicTools’ customers cite the following reasons for selecting these tools:
All of the abovementioned SCM applications products have either the “Certified by SAP NetWeaver“ (i.e., ILOG LogicNet Plus XE) or “Powered by SAP Netweaver” designation(i.e., ILOG Inventory Analysts, ILOG PPO and ILOG TPO). Other ILOG applications such as ILOG JRules and ILOG Optimization Decision Manager (ODM) are also “Powered by SAP NetWeaver.”
Such a set of products might be as equally tempting for the new owner to continue selling and developing as to possibly curtail it. The latter would be so that IBM would not lose its focus on infrastructure, and also not get in a conflict of interest with its SCM ISV partners, like SAP, Oracle, Lawson Software or Infor. Thus, I concur with Gartner’s assertions that, post-acquisition, there are the following possible scenarios for the ILOG SCM applications:
While Maximo has not really disappeared from the EAM market, it has somewhat lost its erstwhile leadership luster, and thereby allowed much higher profiles in the market for Infor, IFS, Mincom, Ventyx or Lawson, to name some.
A friend/peer of mine, and a great SCM market connoisseur, who prefers to remain incognito, gave me his two cents worth below:
“My guess is that IBM will either wrap consulting services around ILOG SCM since IBM’s SCM practice is rather large (and since it was more of a service offering anyway) or investigate buyers and spin it off, though the list of buyers is probably pretty thin. SAP has relationships with SmartOps and Optiant, so I doubt it would want to jump in the fray. I doubt the offering is big enough to make much of an impression on Oracle.
I could see a venture capital (VC) firm getting its hooks into and merging it with something or trying to make a business around it. I doubt IBM would want to sell it to another big consulting firm, even the ones in India that might have fun with it. I’d say it is 80/20 that IBM keeps it versus spinning it off.”
This statement made me think that Manhattan Associates could be one of a few viable suitors. The vendor has been making some noise with its own IO capabilities, but I doubt these are as powerful as those of Optiant, SmartOps, LogicTools or ToolsGroup. Also, LogicTools products could be embedded within the expanding Manhattan SCOPE (Supply Chain Optimization Planning through Execution) suite on top of its Supply Chain Process Platform (SCPP).
Certainly, JDA Software already has (or will soon have) some IO capabilities via acquiring Manugistics and i2 Technologies, while Oracle has combined the capabilities of Demantra’s demand planning [evaluate this product] and Numetrix’ scheduling and strategic network optimization (SNO). To refresh your memory, Oracle got the latter product via the acquisition of PeopleSoft in 2004, who in turn acquired J.D. Edwards in 2003, who in turn acquired Numetrix in 1999.
But again, IBM will most likely give the ILOG SCM applications to its consulting division, and leverage them into toolkits given to the IBM SCM consultants to market them as reusable services. The support model will likely gradually change to a service-based (consulting know-how) offering.
It is apparent that the different ILOG products have quite different futures within IBM. ILOG business rulesmanagement system (BRMS) customers and prospects have hardly anything to worry about, since IBM should be a good custodian for the product line. IBM is likely to offer both stand-alone and embedded (within IBM WebSphere) ILOG BRMS options, but the expected availability dates are yet to be announced.
Some caveats for existing customers could still come from IBM’s BRMS partnerships with ILOG’s competitors, mentioned in Part 1 of this blog. IBM will likely evaluate its current business rule capabilities and partnerships during the next couple of years for possible replacement by ILOG’s functionality. Conversely, customers of ILOG’s channel partners, which now might end up offering the solution that competes directly with IBM, might want to ascertain the impact of the ownership change.
Also, as mentioned in Part 1, customers and prospects of ILOG’s visualization and optimization offerings do not have much reason to worry either, albeit they should keep a close eye on and seek pointers on the unfolding of those products. Like the BRMS sibling, these products are also more tool-oriented, which fits well with IBM’s business model. In its analyst presentation of the merger, IBM even stated that ILOG opens IBM to new opportunities via optimization and visualization offerings that deliver new value to customers.
Optimization technology is used to determine the best plan to achieve strategic and tactical business objectives and make decisions considering scarce resources, constraints, and preferences. These modeling tools and engines are used by both operations research professionals and independent software vendors (ISVs). As said in Part 1, ILOG’s embedded-algorithms products (for example, its CPLEX mathematical optimization solvers) are widely-deployed at more than 1,000 commercial customers and more than 500 ISV base with recurring original equipment manufacturing (OEM) revenue.
Therefore, this business is hardly made vulnerable by this merger, especially in light of the IBM Global Business Services (GBS) Center for business optimization engagement with ILOG products, and its provision of related business consulting. Along similar lines are the visualization products that are used for building interactive user interfaces (UIs) like diagrams, maps, schedules, charts, editors, and Telecom and Defense (C3I) visualization applications.
These products deliver value via the Rich Internet Applications (RIA) and Web 2.0 gadgets. To that end, ILOG Elixir for Adobe Flex platform is slated for release in early 2009. It goes without saying that this product line too has a strong ISV base and recurring revenue, since it is embedded by the marquee players like IBM, HP, Oracle, and so on.
At the end of the day, ILOG SCM application users are the least certain, and they should lay low and proceed carefully until plans are officially unveiled. The prospective customers will certainly be showered by the FDU (fear, doubt and uncertainty) propaganda of the competitors like SmartOps (that even partners with IBM), Optiant, and ToolsGroup, until IBM unequivocally clarifies its plans for these products and business units.
What are your thoughts in this regard, and your experiences with the BRMS, optimization, visualization and SCM solutions like IBM and ILOG? Again, your comments, thoughts, suggestions or individual experiences with BPM, IO, etc. are more than welcome.