Enterprise Software: Large suppliers and niche ERP
players both offer advantages for small and mid-sized businesses,
so which do you choose? We examine the options.
Chris Cook, IT director at independent healthcare group Nuffield
Hospitals, does not like nasty surprises. In fact, he will make
every effort to be sure about the long-term viability of an IT
supplier before he does business with them.
When Nuffield Hospitals invested in a suite of e-procurement,
inventory management and financial accounting applications, for
example, Cook and his team rigorously vetted prospective supplier
Lawson Software.
"We spent hours on the internet. We ran credit checks on the
company. We analysed its recent financial performance, investigated
what City and industry analysts were saying about Lawson and
ploughed through a mountain of articles from the trade and business
press," said Cook.
The results of that effort were enough to satisfy Cook that
Lawson Software was a safe bet, but Cook pointed out that there
were never any guarantees.
"Lawson's management is obviously not going to share its
long-term plans with us and, of course, it may get snapped up by a
larger company - but I am fairly satisfied that I found no early
warning signs of that happening," he said.
Cook is right to be circumspect, especially when it comes to
buying mid-market enterprise resource planning applications. Had
Nuffield Hospitals bought software from GEAC, JD Edwards, Scala,
Intentia or Marcam in the past two years, for example, it would
have seen its supplier fall victim to market consolidation and the
management of its account pass into another set of hands.
ERP suppliers can be divided into two types: the traditional
players and the software giants. According to Teresa Jones, senior
research analyst at Butler Group, both groups are looking to make
the software easier to use and deploy, in a bid to attract users
from smaller organisations.
In particular, she said they were focusing on the user interface
to reduce the learning curve for end-users. This has resulted in
packages that link more closely with standard desktop software such
as Excel and Outlook.
The difference between the larger and smaller ERP providers is
that software from smaller ERP companies is usually designed to fit
closely with a user's business requirements, while users of large
mainstream products often have to buy in external consultation to
get the best from them.
Jones said, "Smaller providers generally focus on providing
software that fits more closely with a business, while the leading
companies such as SAP and Oracle are selling business processes out
of the box."
There are numerous mid-market ERPsuppliers, including Epicor,
Infor, SSA Global, Lawson, QAD, Sage and IFS. Within this group,
there is a vast array of products to suit companies of different
sizes and with hugely varying budgets.
Many of these suppliers specialise in vertical sectors:
- QAD has many users in the automotive sector
- Lawson offers specialised packages for healthcare and retail
organisations
- Intentia, now owned by Lawson, specialises in the manufacturing
sector
- Epicor focuses on industry-specific software for retail,
manufacturing, distribution, enterprise service automation,
hospitality and pharmaceuticals
- Infor provides enterprise business software within the
manufacturing and distribution industries
- SSA Global offers ERP for manufacturing, distribution, retail,
services and public sector organisations.
Along with these, it is worth considering the ERP strategy of
the three big software companies.
Microsoft is a relative newcomer to the ERP market, but it has
quickly assembled an impressive collection of ERP software through
its acquisition of Great Plains (April 2001) and Navision (May
2002).
Until September 2005, the product lines of these two companies
were sold under the Microsoft Business Solutions banner, along with
two others: the Axapta product acquired by Navision when it bought
Damgaard in 2000, and Microsoft's own Solomon project management
suite. All four product lines have now been rebranded under a
single name, Microsoft Dynamics.
The rebranding is seen as a way to align the systems with a
single research and development roadmap, codenamed Project Green.
By 2008, the company intends to roll all four Dynamics product
lines into a single suite.
In the meantime, said Paul White, product group director in the
UK for Microsoft Dynamics, software releases from all lines will
begin to have a more unified look and feel, share contextual
business intelligence, place a greater emphasis on portals, and
offer increased integration with web services.
SAP and Oracle are the leading ERP companies, and have
historically targeted multinationals and the largest medium-sized
companies. They are now turning their attention to smaller
businesses, offering tailored versions of their software.
SAP offers SAP All-in-One, a cut-down version of the flagship
MySAP software targeted at enterprises with revenues of between
£50m and £250m. More than 600 versions of All-in-One exist, and
each has been pre-configured to meet the needs of a particular
industry.
For even smaller users, there is SAP BusinessOne, an entirely
separate and basic ERP suite for companies with fewer than 200
employees.
Oracle, meanwhile, is basing its mid-market strategy on Oracle
Special Edition, a suite of integrated financial, order management,
purchasing and inventory modules. This is aimed at companies with
100 to 500 employees and revenues of £10m to £160m. It is sold
pre-installed and pre-configured on a Linux server by Oracle's
reseller network.
Before buying ERP software, businesses should examine the areas
where they are experiencing problems. They should also ask for
proof of a supplier's track record in solving similar problems for
similar companies, said White.
"That goes equally for resellers. Mid-market companies still
have complex and sophisticated business processes that vary hugely
according to the sector they operate in. They need to know that
their implementer really understands their business," he said.
Feedback from reference customers was extremely useful to
Winston Phillips, managing director of marine equipment
manufacturer Cosalt, when he was considering ERP software from IFS
as part of a drive to improve customer service at his company.
"We visited a number of IFS customer sites and had the
opportunity to really delve into their projects. They were very
open with us about the realities of their projects, telling us
where things had gone wrong as well as where they had gone
smoothly. That gave us the rationale and the impetus we needed to
go ahead with the purchase," he said.
Another consideration is the supplier's technology vision. At
many medium-sized companies managers are looking for a solution to
specific problems they have identified in their business, said
Alistair Sorbie, UK managing director at supplier IFS. In other
words, they are not immediately concerned about in-depth
technological issues.
Nevertheless, because of the size of ERP investments, most will
bring in a member of the IT department for advice.
"At that point, there will suddenly be a lot more interest in
our use of open standards and our service oriented architecture
plans, because they now understand that these technologies will
help to future-proof the system so that they get better use out of
it, for longer," said Sorbie.
Nigel Montgomery, director European research at AMR Research,
said, "According to most sources, there are about 19 million small
and mid-size businesses in Europe that spend two-thirds of their IT
budget on software."
The number of software companies competing to take a slice of
that business puts users in a position of some power. At the very
least, it means there is almost certainly room for negotiation on
price, according to Gartner research director Jane Disbrow.
"Small and mid-size businesses may have more leverage with
suppliers than they think, especially now that so many technology
suppliers are keenly focused on their SMB strategies," she
said.
But this leverage does not necessarily lead to better price.
Russell Johns, global director of ERP solutions at supplier SSA
Global, said, "Most customers haggle, and some are very tough. In
most negotiations, the original quotation is just a starting point
that quickly gets glossed over, and few suppliers will go in to
tender at list price and stick there."
No ERP deal should be struck solely on price. Indeed, there will
come a point in most negotiations where, for the supplier, heavy
discounting means that the cost of making the sale outweighs the
benefits of acquiring that customer, and they will walk away.
There is another drawback, according to Brian Male,
vice-president of international services at Lawson Software. "If a
customer is overly focused on price, I would be seriously concerned
that they have not paid enough attention to the business benefits
they are hoping to achieve.
"I would not be confident that they were sufficiently serious
about the project - and that will make any implementation very
difficult and very risky for them," he said.
Industry analysts have predicted that, as the list of
traditional suppliers continues to shrink and the larger players
start to exert more influence, further market turbulence is
inevitable.
On the bright side, consolidation is not always a bad thing for
mid-market users, often giving them access to greater research and
development resources, deeper vertical industry expertise or better
local support in their region.
However, it can also cast shadows over future development plans
for the products that they rely on, especially where there is a
significant overlap with the acquirer's existing product portfolio.
Frequently, that means support for the product slowly dwindles and
a forced migration to a different product suite becomes
inevitable.
For most medium-sized companies, an ERP suite is a substantial
investment and is expected to serve the company for years with
minimal disruption to business operations. It is therefore hardly
surprising that buyers are now far more circumspect when it comes
to supplier and product selection.
According to Gartner, limited IT budgets, a lack of compelling
new application functionality and disappointing experiences with
previous purchases are forcing companies to extend the lifecycles
of their applications. In response, ERP suppliers have extended
maintenance and support for older products.