There are plenty of stories about large organisations investing
millions in e-business systems and small firms punching above their
weight thanks to a small, but well-targeted investment in Internet
technology. But what are medium-sized companies up to?
Mid-market enterprises are finding it difficult to join the
e-commerce party. A lack of applications targeted at this
burgeoning sector, genuine fear about price pressures from online
reverse auctions, and a need to integrate existing systems are
placing increasing pressure on small IT departments.
Martin Atherton, an analyst at Datamonitor, says expenditure "is
skewed towards continued investment in customer management and
resource planning systems. The mid-market appears less concerned
about tight integration. The outstanding question is assessing the
extent to which vendors are supporting this part of the market. We
just don't know at this time."
Colin Billinge, European marketing director for GE eXchange
Services, says that GEXS is concentrating on extending EDI
(electronic data interchange) and EDI/XML (Extensible Markup
Language) initiatives: "We're sticking to our knitting," he says,
adding that supplier enablement is being funded by large hub
operators. This is in sharp contrast to last year when there was a
clear emphasis on midrange supplier enablement at customers such as
Sainsbury's and Iceland. It seems the mid-market faces special
problems.
Product incompatibility
Denbigh Pottery, a well-known
manufacturer of quality tableware, is typical of enterprises with
customer profiles that, on the face of it, are not well suited to
e-commerce. "We're not convinced our products lend themselves to
web channels, and in any event we would run the risk of bringing
ourselves into competition with our high-street retail outlets. We
don't want to go down that route," says Mark Allcock, Denbigh's IT
manager.
Allcock reports that despite the attention focused on retail
initiatives that streamline the supply chain, his customers are
"still feeling their way," indicating a less than enthusiastic take
up in new technology. This has a knock-on effect for companies like
Denbigh where IT investments are closely scrutinised by the
hands-on management.
Instead, Denbigh is taking small steps that provide access to
overseas markets. "We are taking a measured, step-by-step
approach," says Allcock. He recognises that there are many facets
to the problem of transforming a business to the new economy and is
currently focused on integrating Denbigh's Oracle applications
investment as a first step in preparation for e-commerce-style
development.
"We are not dismissing e-commerce. We are keeping an open mind and
are prepared to examine those opportunities where we believe there
is genuine business value," says Allcock.
Dean Styger, finance director at Talacre Beach Caravans, a £20m
revenue-static caravan operation, describes a different set of
problems. Although Talacre operates at the top end of its chosen
market and would like to integrate with suppliers, it is, according
to Styger, "a pretty conservative bunch" in a highly fragmented
market.
At the customer end, Styger would like to make use of gate security
systems to gather user activity as part of an ongoing effort to
better understand customer behaviour and so develop new services.
But the systems were never designed for that purpose and changing
them would be a major, risk-laden expense.
In one sense, Denbigh and Talacre are reflections of a dilemma
faced by the mid-market. They have seen failure, recognise that
value can be derived, but see e-commerce as complex. Overall,
however, mid-market enterprises are concerned that their position
in the value chain makes it difficult for them to correctly assess
technology bets of this kind. But it is not all bad news.
Some enterprises have found that point solutions are providing the
kind of return on investment that encourages further investment.
This was one conclusion in a recent report from Beth Barling, an
analyst at AMR Research, following a study of 203 European
businesses. In other cases, clever use of high-end applications as
a platform for servicing mid-range enterprises - unable to justify
the seven figure price tickets often associated with e-commerce -
are providing some relief.
Elsewhere, existing mid-range application vendors are working hard
to deliver 'out of the box' functionality that extends existing
investments in useful ways. A few enterprises have acted boldly,
proving that well-researched investments can pay dividends in
remarkable circumstances.
Crisis management
Foot and mouth disease has created
disaster conditions across industries that derive a living from the
countryside. But Greg Pickers, chief financial officer at YHA
Adventure Shops, views it as an opportunity. The disease put large
parts of the British countryside under quarantine, leaving the
£700m-a-year outdoor-pursuits segment of the leisure industry in
crisis.
Shops usually stock up in the run up to Easter, in expectation of
making strong seasonal sales. Pickers says his business could have
been severely affected by closure in affected parts of the country,
however, the company recognised that customers would choose other
holiday alternatives. "People following outdoor pursuits switched
to taking holidays abroad but still needed to buy the kind of goods
we offer," he says.
YHA used its new mysap.com retail systems to efficiently distribute
stock where demand was greatest. "We could not have done that
without the fulfilment capabilities," he says. The net effect is
that YHA Adventure Shops' revenue is likely to increase rather than
be slashed. But YHA Adventure Shops is unusual for an enterprise
firmly rooted in the midrange.
The investment was large and brave. At £850,000 the Sap solution
represents close to 5% of YHA's £16m annual revenue. This is an
extraordinarily high commitment to IT that provides incremental
value from extensions that tie order management and fulfilment to
multi-channel retailing.
"With only 22 shops, many of which are in remote areas, we need to
find new ways of reaching our customers," says Pickers. This
compares sharply with the received wisdom that mid-market
enterprises are neither willing nor able to make significant IT
investments that will carry them into the electronic era.
Time and again, companies say their hesitancy derives from
industry-specific factors. In Talacre's case, fragmentation is a
clear problem, yet YHA - which operates under similar market
conditions - has found ways of meeting that challenge, albeit
limited to sell-side operations. YHA experimented with
vendor-managed inventory on the supply side but it failed. Instead
it is trying sale or return contracts with its suppliers.
Analysts concur that enterprises need to get their internal systems
working together before it is worth contemplating e-commerce
ventures. And then, the spectre of supplier and customer
integration is raised. Tibco, which has carved out a reputation in
large-scale telecommunications, financial services and utilities,
recognises its big-ticket products are not necessarily suited to
the midrange.
"We have taken elements from the broad range of functionality so
that integrators can quickly develop vertical market solutions and
so reduce the cost," says Fred Meyer, Tibco's chief marketing
strategist.
Intermediary providers
Much depends on the extent to
which Microsoft is able to make its .Net initiative stick.
Microsoft's Richard Hamblen says it is addressing vertical markets
in an effort to make integration simpler: "Tackling vertical
markets is the way to focus on what matters to business interests,"
he says. But enterprises that have invested in midrange products
may be better placed than they think.
One alternative that may yet solve the cost and complexity issue is
the use of intermediary providers to undertake point application
solutions. ServusB2B has used Ariba's platform as the basis for
what it terms 'business support' procurement. Phillip Russell,
managing director at ServusB2B, describes the service as outsourced
procurement: "It has tremendous application in the mid-market.
Costs of procurement are proportionally much higher than for larger
companies. We can step in and demonstrate real savings today."
Russell is careful to point out that ServusB2B's implementation
required wrapping Ariba with many services and included key
partners, such as Croner and RightNow, to ensure the offering is
attractive to both buyers and sellers: "The way suppliers have been
treated has been disgraceful. Where's the service? Where are the
customers?" he says. Russell claims ServusB2B has addressed this
issue, drawing on 12 years' experience in facilities
management.
Midrange application vendors like Scala, Epicor and Pivotal are all
extending their core capabilities to include e-commerce. Scala
takes a strong vertical market focus, using a 'surround' strategy
to enterprises that have satellite businesses. David Topping,
Scala's European marketing director says: "Large organisations with
small subsidiaries face the same issues of cost and suitability as
the independent mid-range customer. We are filling that gap in
pharmaceuticals for instance."
Epicor's EMEA marketing director, Paul Farrell, says midrange
customers want fast-track implementations from vendors that can
offer extended suites of application functionality. "Many people
wrongly think it is the large vendors that have it all. That just
isn't true," he says.
Pivotal is taking a different tack. It has embraced Microsoft's
.Net vision, seeing the future in agile applications that are
delivered as Web services. "We talk about the demand chain and the
assembly of applications that can be used by any browser-aware
device. That has important long-term appeal," says Kirk Herrington,
Pivotal's chief technology officer.
It is clear the mid-market landscape is in varying stages of
technology adoption. Convincing decision makers that e-commerce
delivers value remains a hard sell, but vendors prepared to
identify business issues are succeeding. Industry specific problems
do, in some cases, contribute to a delay in taking up new
technology and the need for cost-effective integration is only just
being addressed. But once these issues are resolved then we should
see a much faster uptake of e-commerce solutions.
The Bottom Line
Midrange enterprises are in various
stages of readiness for e-business. High end vendor Sap provides a
full solution but at a price. Others are working on using
Microsoft's .Net initiative to provide new functionality and
connectivity. But full-blown solutions are some way off. Watch out
for the Basda eBIZ-XML initiative.
Midrange technology providers
Navision -
www.navision.com
SAP (through systems integrator partners) -
www.sap.com
Exchequer -
www.exchequer.com
ServusB2B -
www.servusb2b.com
Scala -
www.scala.com
Epicor -
www.epicor.com
Pivotal -
www.pivotal.com
Lawson -
www.lawson.com
Onyx -
www.onyx.com
Microsoft -
www.microsoft.com
Basda (eBIZ XML information) -
www.basda.org