Inforte, a Chicago-based systems integrator, has managed to thrive in spite of a market recession that kicked most former competitors to the curb. While revenue has declined, the company has repeatedly met Wall Street expectations and kept a positive cash flow. The public integrator's stock closed trading Jan. 30 at $10 per share--a respectable amount considering its once high-flying competitor, New York-based Razorfish, is clinging to life at 15 cents per share. Meanwhile, Scient was still trading below $1 per share, even following its merger with iXL.
Philip Bligh, founder and CEO of Inforte, spoke with CRN Section Editor Marie Lingblom last week about how his company has outperformed most of its peers, and where it is focused in 2002.
CRN: During the recent earnings call, you spoke about demand chain management as a new operational strategy and "the future of how companies should be run."
BLIGH: INFORTE ON THE RIGHT TRACK
Inforte has managed to thrive in spite of a recession that kicked most of its former competitors to the curb.
Bligh: It's something we've been working on pretty intensely for the past year or so. There really hasn't been a coherent strategy of how to integrate together things like ERP, supply chain management and CRM from a business perspective. For instance, the biggest reason why CRM gets criticism is that it's too focused on the sales force and not enough on making sure that demand information gets integrated into the finance department, and the inventory department or the risk management department or the loan-processing department or the claims-processing department.
CRM is extremely important to demand information. It should also be integrated into the rest of the value chain. We've found forecasting, in general, in the Fortune 500 is very poor. Improving forecasting makes a huge difference in the ability of a company to plan capital, resources and be able to respond to fluctuations in demand. We feel demand chain management brings all of those things [ERP, supply chain management and CRM together.
CRN: What's the DCM (demand chain management) Index?
Bligh: We've created a DCM Index that tracks a company's ability to synchronize revenue and costs. We've graded all of the major companies. When revenue goes up, the best companies tend to be able to move costs quickly in synch because it costs more to fulfill that revenue. But you don't tend to find costs stayed where they were last quarter, and then, potentially, companies are not able to fulfill customer demand. That happened during the high-growth period. The best companies are able to respond to demand and costs tend to reflect that by moving up in synch with revenue.
Conversely, when demand declines, like it has in the past year or so, you often see companies' costs continue to rise or stay high in terms of resources, capital inventory, because they didn't see the downturn in time. The best companies are the ones that when declines happen in revenue they can bring down costs quickly and in line. When we go to our clients and say, 'Here's your DCM Index and here's how synchronized you are across your value chain,' then it becomes obvious to them they don't capture demand information and don't integrate it with their supply chain or ERP. Otherwise, the DCM Index would be a heck of a lot better than it is. We are working now with a major computer company, major software company and major consumer product company.
CRN: It's been about a year since you opened an office in London, and you recently signed a new contract with U.K.-based RAC Motoring. How are things going in Europe, in general?
Bligh: It's doing really well, and [the London office represents about 20 percent of the business. So they've really gotten off to a fast start. RAC Motoring is the equivalent of what AAA is over here. So they are a big company. They are starting with some CRM work and then going along the demand chain.
The bubble of technology spending in Europe in 1999 wasn't as dramatic. So, in general, it's a bit less dramatic in terms of the growth and decline. We are not seeing as rapid a decline, although I think there is some risk the economy could decline further. Right now, though, it's holding up pretty well and actually showing growth. In the future, we will open offices where it makes sense--Germany and France almost certainly.
CRN: You seem to be relatively more forthcoming in your approach during earnings calls with analysts, especially when compared to other companies in your market. What's behind your approach?
Bligh: We are very synchronized from a demand perspective, and we've spent a lot of time over a lot of years building very sophisticated forecasting systems. So we have a better view of what's coming in the three- to six-month time frame than, I think, our competitors do. Fundamentally, we don't believe in the model of Scient, iXL and Razorfish, which was very, very rapid growth without concern for the bottom line. We never really bought into that.
We just believe investors get disappointed when they hear surprises and bad news. We figure when we have a situation where we have to lower guidance there's not going to be a mass sell-off because we've been telling people very openly for the past two quarters what has been going on.
Most companies want to limit what Wall Street knows because they figure if Wall Street saw the warts they'd cut them off. At the end of 2000, we told Wall Street there was going to be a pretty severe slowdown because that's what our forecast was telling us, so we lowered our guidance. As a result, the first six months [in 2001, our stock prices were lower than all of our competitors' because they thought it was a specific issue with our company. Then when it turned out to be what we said, they realized that 'Oh, these guys are just being open.' Since then, the stock price has been at premium to all of our competitors.
CRN: You formed this company in 1993 and have been able to hold your ground during a significant shake-up and in a still uncertain economy. Has the company performed the way you hoped?
Bligh: I'm not really satisfied with where we are now. I think that there's going to be a shakeout pretty soon with companies going out of business because of operational issues. I do think in the future there's going to be a few very big global players. I think the other payers, in order to be profitable and viable, do have to have a specific focus they're bringing to the customer. Otherwise, they're going to be pretty low-marginal players. We don't want to be a marginal player. We want to be a brand leader. Although we've got a lot of experience in CRM and supply chain management, we don't yet have the brand leadership position that I want. There has to be an effort, a push, to reach that brand leadership, and we won't be happy until we reach that level or until we get revenue back on the growth track.