Middle of the Road

There are plenty of stories about large organisations investing millions in e-business systems and small firms punching above...

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

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