J.D. Edwards & Company History

Address:

8055 E. Tufts Avenue, Suite 1331
Denver, Colorado 80237
U.S.A.

Telephone: (303) 488-4000
Fax: (303) 488-4880

Private Company
Founded: 1977
Employees: 1,900
Sales: $240.6 million
SICs: 7372 Prepackaged Software

Company History:

J.D. Edwards & Company is a leading global designer of software for midrange computers. Its software is used by those involved with distribution, manufacturing, finances, human resources management, construction, public services, and other industries. In 1995 J.D. Edwards was supporting branch offices in Europe and Asia and shipping its software throughout the world. The company achieved consistent growth by researching and developing top-performing software applications.

The name J.D. Edwards was derived from the names of the company's three founders: Jack Thompson, Dan Gregory, and Ed McVaney. Before forming J.D. Edwards on February 1, 1977, in Denver, Colorado, all three men were working at the accounting and consulting firm of Alexander Grant and Company (Grant Thornton & Co.). The three had been working as consultants and accountants for several years before deciding to quit and form their own company. Together they shared a wealth of top-level accounting and computer expertise that they hoped could be parlayed into a successful accounting software company. The partners' main goal when they launched the venture was to produce standardized software applications that actually worked in a predictable and reliable way, making users more effective at their jobs.

Heading the group from the start was 36-year-old McVaney, whose wife had coined the J.D. Edwards name. He had earned his bachelor's degree in mechanical engineering from the University of Nebraska in 1964 before receiving his masters degree in business administration in 1966 from Rutgers University in New Jersey. His first job after college was as an operations research engineer and an electronic data processor specialist in the Bell system, where he worked while he was earning his MBA. In 1966 he accepted a position as a consultant in manufacturing and electronic data processing for Peat, Marwick and Mitchell. He worked there until moving to Grant Thornton & Co. in 1970, where he became the partner in charge of data processing and consulting services. Among other skills, McVaney became intimately familiar with IBM's midrange computers, which are smaller than mainframes but more powerful than personal computers.

McVaney, Gregory, and Thompson started out in a small office with a copy machine as their only piece of equipment. "The copy machine was my first big decision," McVaney recalled in the June 10, 1992, Denver Post. "We decided to be bold and go for the $105 a month." They borrowed $10,000 to cover the cost of the copier and other miscellaneous expenses, and set about designing software tailored to the accounting and financial tasks with which they were familiar. While McVaney handled much of the management and marketing, Jack Thompson acted as the company's technical force. Meanwhile, Gregory wore a number of hats and eventually became known as the company's premier firefighter and the creator of the training department.

J.D. Edwards started out designing software for IBM small and medium-sized computers, particularly the IBM 34 minicomputer. During its first year in business, the fledgling company generated about $200,000 in revenues. To add more technical expertise to their staff, the three partners merged with another tiny software firm. From the start, the founders agreed that a large portion of their cash flow should be reinvested in research and development. As a result, the company was able to produce a number of successful business applications during the late 1970s and early 1980s, and sales and profits steadily increased.

IBM eventually discontinued its 34 system, largely because of objections from dissatisfied users. It replaced it with the 36 and 38 systems. At the same time, competing midrange computer manufacturers like Sun Microsystems were jumping into the market with their own advanced machines. J.D. Edwards made a pivotal strategic decision to stick with IBM and gear all of its applications for the 36 and 38 systems. "The question [among software companies] was which way IBM would go with new technologies in the mid-range market," McVaney said in the January 1990 Colorado Business. "At the time, what we did looked very chancy. We bet all our marbles that the 46-bit System 38 ... would be the winning technology, and we were right." The System/38 became one of the dominant entries in its class and was a leading midrange platform for several years.

In betting on the System/38, J.D. Edwards redesigned every one of its applications in 1983 to be compatible with the System/38 platform. That meant that the company had to ensure that three million lines of code conformed to the standard. During that effort, Edward's technical staff pioneered the 'Clone' method for software development and design. In essence, Edward's Clone technique eliminated much of the labor involved with programming. Traditionally, Edwards and its competitors relied on programmers to write their new applications by taking several hours to compile each program line individually. One drawback of the conventional method was that each program or chunk of code bore the imprint of its writer. Under the system Edwards developed, 90 percent of a given program could be written with the aid of 'the Clone,' which was a computer-generated technique of standardizing code and eliminating quirks of individual programmers. The net result of the new software development method was that Edwards' productivity doubled. Importantly, the consistency of the company's applications increased and debugging became a much easier and faster task. Thus, the overall quality of Edward's programs were enhanced. During the mid-1980s Edwards would use the Clone to develop an array of specialized programs for a broad range of industries and tasks. The company built up a strong position in the oil and gas industry, for example, but was also selling its innovative accounting and financial applications to industries ranging from publishing to construction.

McVaney and fellow managers seemed to have made the right decision in focusing on the IBM System/38 in 1983: Sales growth was, indeed, brisk. However, IBM began to lose its edge in the midrange computer segment in the mid-1990s. At the time, the personal computer market was taking off and IBM was scrambling to assert itself both in that segment and in its traditional mainframe business. Meanwhile, it lagged in midrange technology, and competitors began chipping away at IBM's market share. To keep up with the competition, IBM started working on a next-generation System/38 called the AS400.

J.D. Edwards, like many other software companies, started investing early to have software ready for the AS400 when it was finally introduced. To the dismay of Edwards' staff, IBM almost decided to cede its market share in the midrange market and simply eliminate the entire AS400 project. As late as 1985, by which time Edwards' had dumped a whopping $23 million into AS400-related research and development, IBM was weighing its options. Disaster loomed. Fortunately for Edwards, IBM decided to complete the development of the AS400. As a result, by the time IBM introduced the technology a few years later, Edwards was among the companies most prepared to take advantage of the new market.

Even before the AS400 was introduced, J.D. Edwards was ringing up big profits from its cutting-edge applications for the System/38. By 1984 the firm was employing 60 people. Sales shot up 63 percent in that year before leaping another 50 percent in 1985, by which time J.D. Edward's work force had more than doubled to 130. "We are now in the position of having clients beating down our door," said Edwards's marketing manager Howie Miller in the March 24, 1986, Rocky Mountain Business Journal. To keep up with spiraling demand, Edwards expanded its sales offices to include nine cities by late 1986. Its revenue base made it one of the four top companies in the midrange applications industry. Edwards was gaining on those competitors, though, and its widely diversified client base gave it a strong edge against any downturns that might affect an individual market.

Edwards posted big gains throughout the late 1980s. New applications for the System/38 drove growth until 1988, when the AS400 was finally introduced. Edwards was able to hit the ground running when sales of the AS400 started taking off. Importantly, McVaney was surprised to find huge growth opportunities overseas. J.D. Edwards had dabbled with cross-border sales in the mid-1980s and found a willing market. In 1988, therefore, McVaney launched an aggressive international expansion program. Sales, particularly in Europe, exploded. By 1990 international sales were generating roughly 20 percent of the company's $77 million revenue base--a rise from just $38 million in 1989. Edwards opened an office in Belgium to serve Europe, a branch in Florida as its Latin America headquarters, and another office in Singapore to serve Asia.

Another big growth area for Edwards beginning in the late 1980s was the manufacturing industry. Although the company served a wide array of markets, it had postponed entering the giant manufacturing sector, which was considered among the largest (and most competitive) arenas in the midrange application market. Success in that industry helped the company to more than double sales in 1990 before pushing revenues to a lofty $130 million in 1991. Going into 1992, Edwards was the largest producers of IBM midrange software in the world and the 30th largest software designer in the entire United States. By then, its work force had swelled to an army of more than 1,000, only about half of which were employed at the company's Denver headquarters. What's more, the company had attained its status virtually debt free and without ever having gone public. Amazingly, the company had grown at an average rate of 60 percent a year since its inception in 1977.

Besides focusing on the IBM lines, part of the key to Edwards's success in the late 1980s and early 1990s was its research and marketing strategies. The company continued to direct a high 22 percent of its revenue stream into research and development of new products. In addition, rather than chasing after the really big fish, Edwards focused on what McVaney referred to as "the middle American business community." That group basically encompassed companies with $50 million or more in sales, which generally were still too small to have their own software development departments; Edwards customer base did, however, include General Motors, Kodak, and other large corporations. As the number of clients increased, so did the number of industries and specific applications. By the early 1990s J.D. Edwards was developing software solutions for industries ranging from health care, real estate, and government to food service, air travel, and finance. Most of the applications addressed various accounting, payroll, purchasing, and project-management tasks.

Among the biggest surprises for McVaney and fellow executives was the amount of international demand for Edwards's applications. By 1992 a full 32 percent of the company's sales were coming from overseas, and that percentage was quickly climbing. "People ask me if I envisioned we would have gotten this big, and I answer 'yes,"' McVaney said in the June 10, 1992, Denver Post. "But international sales have been astounding. That's humbling to me." By 1992 Edwards was selling its software packages translated into Dutch, Danish, Portuguese, Japanese, and Arabic, among other languages, and the company had opened offices in London, Brussels, France, Germany, and Australia. Other offices were scheduled to open in Asia and South America, as intimated above, as well as in other European countries.

J.D. Edwards sustained its stunning growth rate during 1993 and 1994. Sales grew to a fat $197 million in 1993 before bulging to $241 million during 1994. The company had maintained an average annual growth rate of about 54 percent since 1977. Evidencing its ongoing commitment to technological leadership, J.D. Edwards completed the development in 1994 of WorldVision, which was a PC-based software product designed to operate in the popular Windows software environment. The program was created to provide a more user-friendly, Windows-type environment for AS400 applications that would demand less training and make the applications easier to use. The company also released a new product geared for the emerging electronic commerce industry. J.D. Edward's sales continued to surge in the first six months of 1995 as its work force ballooned to 1,800. The company, which was still privately owned and debt free in mid-1995, expected to employ 2,000 people worldwide by the end of the year.

J.D. Edwards & Company History

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