Beyond Nike: i2's Software Promises Are Hard to Keep

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i2 Technologies(ITWO) says that's how investors should look at its problems with Nike(NKE). The shoemaker blamed i2's software last week for leading, at least in part, to a Nike profit warning.

i2 investors had better hope that this was, in Wall Street parlance, a one-off event, because their shares are down 39.6% since news broke about the situation.

According to analysts and other customers of i2, other problems have occurred in the past, and are likely to crop up again, because of the company's practice of overpromising results from complex software that's hard to get right in the first place. Of course, a software company that pledges more than it can deliver isn't exactly pushing the envelope within an industry that's always been based more on promise than product.

"That's true," says Karen Peterson, an analyst at industry research firm GartnerGroup. "But in some ways, because i2 is the gorilla in the supply chain management space, it almost sets them up to a different standard." (Gartner counts i2 as a client.)

As the shoe seller tells it, the software pretty much got everything backward. As a result, Nike was caught with a short supply of its hottest sellers, while cooler models sat dormant -- or discounted -- on retailers' shelves.

i2 said the problem wasn't with the software itself, but instead with how Nike implemented it. Stopping just short of blaming its customer for the foul-up, i2 conceded that it should have insisted that Nike just do it i2's way. Of course, it's hard to tell a company that's giving you millions of dollars that it can't have things its way.

"It's our belief that this is another data point where i2 has aggressively sold, but has not delivered as equally aggressively," says Lora Cecera, also an analyst at Gartner. "They're setting [customers'] expectations without a grounding in how long this is going to take, and what important steps need to be done along the way."

Katrina Roche, i2's marketing chief, says the company's sales force doesn't over-promise. But she says it does take time to achieve the savings that i2's software can generate for a company.

At IBM(IBM), for instance, Roche says i2 identified more than $5 billion in savings. To date, IBM has seen $1.4 billion, Roche says. But that doesn't mean i2 hasn't delivered, because it's an ongoing process, she says.

"Were we aggressive in setting expectations? Maybe," Roche says. "But certainly IBM is not unhappy to have achieved $1.4 billion in savings so far." Contacted this week, IBM would not confirm Roche's claim of $1.4 billion in savings.

Sometimes, though, it takes very long indeed. That's what happened at a global technology company that chose i2's software, and subsequently had a disappointing experience with it.

"You can promise a lot of things in a PowerPoint presentation, but it's different to deliver on that promise," said a systems manager at the firm, who asked that he and his company remain anonymous. "We had three or four major requirements that they could not meet at the time, but said they would be able to do for us. We have not had that delivered for us yet."

Because of those problems, the firm has decided to put off its i2 implementation so that it can get other systems in place.

"What we're finding is that we have to go back and separate our ERP [business software] system from i2, because it's slowing us down. It's been 4 1/2 years now, and it's been a problem," the manager said.

Roche says supply chain software is complex by nature, and that while the company usually doesn't have problems implementing it alongside other software, every company is different.

"Supply chain has evolved over the last 10 years, and we have moved to more packaged software," Roche says. "But every supply chain is still different, and you can't just go to the factory and flip a switch. That's not how it works."

Not all of i2's customers say the firm hasn't come through. For instance, a former manager at a consumer-goods company said i2 delivered on 75% of the promises it made, a rate he considered acceptable. He said i2 CEO Sanjiv Sidhu personally responded to problems when they came up, and that his experience with i2 was generally positive. But he also cautioned that anyone buying software has to be realistic about the inherent challenges associated with it.

"The problem is that they oversimplify the install process. It's very complex and time-consuming, and people need to realize that," said the manager, who also spoke on the condition of anonymity.

Rob McClellan, a senior project manager for e-business at TaylorMade-adidas Golf, says he has been "very impressed so far" with i2's software and customer service, though he notes that his company hasn't yet completed its implementation of the software. And he also says he had no illusions about the promises of supply chain software in general.

"Software sales guys are not my favorite people," McClellan said. "But our management had no illusions going into it. We didn't buy into all that bull -- about how it's going to revolutionize your business. We know there's value in the supply chain, and that's highly quantifiable. That's what we focus on."

Gartner's Cecera and Peterson recently wrote a report concluding that industrywide, 5% of supply chain software implementations will fail by 2002, and that companies need to be extremely diligent and realistic when considering which software to use.

Investors should be equally realistic. Even after its drop, i2's stock still trades at a rather-pricey 60 times 2001 earnings estimates.

Investors, meanwhile, will surely focus on any other customers whose expectations aren't met. i2's job, then, will be as much about setting realistic expectations as it is to sell its software.

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