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.