Delisted by the NASDAQ and having suffered numerous rounds of layoffs, it wasn’t even clear that i2, a supply chain management technology company with annual revenue of $337 million, would survive. Customers weren’t sure about buying its products because they didn’t know if the company would be around to support them. Employees were shaken by the layoffs, the company was losing money and debt was piling up.
But McGrath, who was on the board of directors, couldn’t walk away from a company that he knew could be great again. The board had repeatedly offered him the job as head of the company, and after a futile six-month search for a new CEO, he decided to tackle the job himself.
The company had several things going for it, and those pluses told McGrath he could not only make the company profitable again but grow it.
“Some of the best and brightest people in the world work at i2,” McGrath says. “I am continually impressed by the employees there and their dedication. They are absolutely brilliant.”
Another plus was the passion of its customers for i2’s products.
“They’ve had great results and seen great benefits,” says McGrath. “They weren’t just content, they were passionate.
“The third thing was the technology. i2 had invested about a billion dollars in developing some of the most advanced software technology for supply chain management and related areas. It had a lot going for it. The challenge was to harness those advantages into building a very successful company.”
On his first day on the job in February 2005, he laid out his three objectives at a companywide meeting: Achieve financial stability, strengthen the management foundation of the company and reignite the company’s growth.
“When you are making an abrupt change like this, it is very, very, very complex,” McGrath says. “But you have to have a simplifying theme or direction. You have to be able to state it clearly. You have to stay on message so people won’t get confused or frustrated.
“When you are in a leadership role and you are trying to get a lot of people whether they are customers or investors or employees to follow you through some difficult thing, you have to make it very clear and simple and be consistent. That builds their confidence, then, that those things were the important things, and we are really achieving them.”
Achieving financial stability
To make the company financially stable, McGrath first and foremost had to cut expenses. As he saw it, the company was very top-heavy, and he needed to eliminate jobs. There were about 120 executive-level presidents and vice presidents earning high salaries stemming from the company’s late 1990s-boom days. He told employees that he would be cutting jobs disproportionately at the top, and that helped him earn their respect.
“I promised them two things: This would be the last cut we make,” McGrath says. “The second thing was I promised them that the cuts would come disproportionately from the highest levels of management and the highest-paid people. I kept track as we did the cuts of the top 75 paid people in the company, who were all executives, and I cut 50 percent of those. ... They heard me say it, and then I actually did it.
“For years, people had been at the company saying the problem we have is too many vice presidents and too many highly paid people. So I did something about it.”
The remaining employees were then willing to make other adjustments to expenses as a result. McGrath changed the company’s travel practices, taking a closer look at meetings with clients and its own internal meetings. For example, in the past, i2 had sometimes flown as many as 10 people to a client location for a one-hour meeting, which wasn’t always necessary. Now, whenever possible, internal meetings will be done by teleconference, and client meetings are more closely examined to make sure that everyone going is necessary.
McGrath also cut back on cell phones, which the company had purchased for every employee. And he ended some telecommuting relationships for some employees who worked within 30 minutes’ driving time of offices. McGrath says those telecommuting relationships were expensive, because the company paid for things such as high-speed Internet service and some equipment. Consulting contracts were cut, too.
All told, the company realized some $100 million in annual savings as a result of the cuts.
And in June 2005, McGrath sold off two divisions that weren’t aligned with the company’s core business to generate $50 million in cash.
Building toward growth
With the company stabilized, McGrath turned his sights toward growth.
For i2 to grow, it had to keep its existing customers and attract new ones. The key to doing both would be advertising its upgraded financial status.
Its annual i2 Planet event, which hosts customers and partners at a resort location to present the company’s newest products, has been one of the ways it has promoted its stable financial status.
McGrath also has the company printing a new magazine, Supply Chain Leader, that includes information presented in an engaging, readable style for customers and clients.
“It establishes leadership and generates a lot of leads for the sales force,” McGrath says.
McGrath also changed the organization of the sales force and the company’s sales approach. Previously, i2 had sales representatives divided up by geography. Now, they are divided by type of industry. That change has been in place for more than a year and has helped employees increase the depth of their knowledge of products.
He’s also changed how the company finds potential salespeople. McGrath says it’s easier to train a technical person to sell than it is to teach a salesperson the technical aspects of its products, so he began hiring people with technical savvy to handle sales. McGrath says the company’s reliance on people with a sales background but no technical expertise was one reason it had such a high travel budget: A tech person always had to go along to answer questions about the product.
“It is a common mistake, particularly in the bubble years and the last few years,” McGrath says. “People still do that. It’s inefficient and very expensive. That’s how you end up with unhappy customers. A sales guy in that situation would tend to say things that he doesn’t know what he’s talking about.”
All the moves McGrath made paid off when the company was relisted on the NASDAQ, boosting morale among employees and helping it gain better financial footing.
“Getting relisted was a major step,” McGrath says. “We had a big employee event” to celebrate.
In 2004, i2 posted a loss from continuing operations of $4.8 million. Under McGrath’s leadership, income from continuing operations in 2005 was $43.5 million.
Going forward, McGrath is leading the company into what he calls new generation supply chain management. He sees it as a way to go forward, encouraging more growth and establishing the company as the leader in its field. With i2 finally stable, he doesn’t spend as much time answering questions about whether it is viable, instead talking about what the company has to offer.
“We’ve got everything stable, but we’re also building on top of that stability again,” McGrath says. “We are in a very strong position now.”
How to reach: i2, (469) 357-1000 or www.i2.com