Erp Trend Toward Small and Medium-Sized Businesses
Erp Trend Toward Small and Medium-Sized Businesses
www.oracle.com/corporate/story.html Conversation with Shawn Plaster of Accenture in Seattle on Monday, May 23 3 Oracle Presentation, June 2004 Mid-Market Special Edition Campaign Plan: H1FY05
SMB ERP
$100M. Oracle, SAP, and Microsoft are now fiercely competing for these small and medium sized firms which are much smaller than Oracle or SAPs traditional customers. Microsoft, traditionally the dominant vendor in the corporate operating system and office software market, has had marginal success dominating the SMB market by acquiring an array of niche ERP vendors. At this point, Microsoft is trying to go upward from its smaller, desktop customer base into ERP solutions and Oracle (PeopleSoft) and SAP are trying to move down from their large package solutions toward the desktop-based business.4 In other words, they are both moving toward the gap between their two products. These large software providers are now competing head-to-head with existing smaller ERP providers. These smaller software providers have an advantage in that they are specifically designed to fulfill the needs of specific industries or functions. Example niche ERP software firms are: Everest Advanced and Cougar Mountain for retail firms; Epicor, NetSuite, MAS 200, and SYSPRO for services with project costing; and Made2Manage and M1 by B&G for light manufacturing.5 The small niche vendors have a distinct advantage since they can work closer with the implementing SMB to tailor to unique business processes. In addition, these smaller firms typically recognize their unique process as a competitive advantage that should not be sacrificed for the implementation of an ERP system. Thus, the SMBs are sometimes forced to modify their processes to the system or go with a small, niche vendor who can be more responsive to their needs.
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The SMB market may be difficult for the incumbent ERP software providers to capture for additional reasons. In addition to the standardized process adoption vs. ERP package customization conundrum SMBs must face when implementing an ERP system, other hidden costs exists for SMBs. Training, updates, and ongoing support for ERP are also proportionally larger expenses of SMB revenue versus large firms. The ERP implementation itself may also prove to be more challenging for an SMB. An SMB is less likely to have a robust IT team in house. Thus, during an ERP implementation more consultants are desired versus an implementation at a large firm. This will increase the ERP implementation percentage costs for a small or medium sized firm above that of a large firm. However, SMBs also have a limitation in that they cant afford to hire a team from large consultancies such as Accenture and therefore, are often limited to their own scarce resources and the help provided by the vendor.6 A possible alternative is hiring a short-term project manager with experience in implementations either as a former consultant or vendor. The following table provides a brief comparison among the products available to SMBs, where available. The remainder of this paper describes in more detail these ERP packages provided by SAP, Oracle and Microsoft.
Unknown 4,600 3,000 60,000 32,000 4,400 45,000 13,000 18,000 20,000
Specific to Industry Distribution, Manufacturing, Services, E-Commerce Specific to Industry Sales, Service Distribution, Manufacturing, Services Distribution, Manufacturing, Construction, Services Distribution, Manufacturing, Property Management, Services, E-Commerce Distribution, Manufacturing, ECommerce Distribution, Manufacturing, Field Service Distribution, Manufacturing Distribution, Manufacturing, Construction, Services, E-Commerce, Mail Order, Non-Profit
A recent interview with Mr. Pranay Mital, Asia Pacific Director SMB with SAP highlights many of the strategic issues facing SAP in the SMB market.
SMBs are under increasing pressure to improve data management, increase transparency and standardize processes SMBs require integrated applications in order to streamline business processes and enable growth and scalability.In a classic market life cycle stage, the SMB market largely represents the proven standard adopter or late majority of the market. These numerous companies thus require proven, stable & standard solutions that fit their propensity to invest in business applications technology SMBs in general require:1. 2. 3. 4. 5. 6. A complete offering to suit immediate business needs Stability: solid and best-of-class vendors Meeting Industry needs and changes Solution from a single source Scalable and flexible solutions Affordability matching their growth7
Mr. Mital goes on to address how SAP is responding to these trends, the needs of the SMB market and the average costs for implementing these solutions:
SAP has set for itself a goal to achieve 15% of our software revenue from the SMB segment by end of 2005. In this case of SMBs, this requires us to focus on Extensive market coverage through a network of channel partners One stop source solution industry expertise delivered through high quality channel partners Best-in-class proven business applications affordably packaged Quick time to benefit implementations [] SAP Business One costs $24,000 and mySAP All-in-One costs $117,000. The prices include hardware, software and training. There are no hidden costs. These solutions help reduce SMBs total cost of ownership.8
FROST & SULLIVAN. Movers and Shakers Interview with Mr. Pranay Mital, APAC Director - SMB, SAP. September 21, 2004. 8 Ibid
SMB ERP
SAPs website addresses the possible needs of small and medium-sized businesses. A lot of information is provided on why SMBs should be interested in the solutions SAP has to offer, which makes sense since its such an easy way for the company to reach a lot of potential customers. SMBs are not high margin companies individually, and the internet is a great way to cut down on the sales cost and time to close for deals. As mentioned above, SAP offers two solutions for SMBs: SAP Business One and mySAP All-in-One. SAP even discloses that 60% of their
implementations fit into the SMB category (a large number considering it was earlier stated that 15% of revenue comes from such clients). The category is defined in a related article sponsored by SAP done by IDC (a global market intelligence and advisory firm) the SMB category is made up of businesses with fewer than 1,000 employees.9
SAP Business One SAP Business One is targeted at companies from 10 to several hundred employees. It includes the basic CRM, manufacturing and finance components of the ERP software, the so-called critical functions. It is billed as an easy to implement, understand and upgrade solution that integrates with Microsoft Office applications. Its repeatedly referred to as an affordable solution which solves the problems of multiple systems for multiple uses (what ERP does for any business). The following is an outline of the capabilities of SAP Business One, which is implemented through business partners. Most companies have some form of application or software system that handles financials, inventory and customer data, but the added benefits in this comprehensive solution include planning, business intelligence and reporting.
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www.sap.com
SMB ERP
Looking through the demos available through SAPs website, the interfaces appear to be straightforward and robust, but not an open-the-box solution such as Microsoft Office. There would still need to be some kind of training to get an
Case in Point: NextiraOne Federal One organization that successfully used this approach is NextiraOne Federal, a systems integrator to U.S. federal government agencies. The company, which designs, sources, and installs voice and data telecommunications systems, struggled with a variety of legacy systems from prior mergers. The company needed a single, integrated solution that could handle the complex demands of managing high-end telecommunications projects while providing greater flexibility, better reporting, and enhanced data visibility throughout the organization. NextiraOne Federal saw a demonstration of the product, which proved to its financial team that SAP Business One could support the companys current and future accounting and financial systems needs. The organization recognized that the SAP Business One features were precisely what was needed to help manage the order- to- cash process accurately tracking order and sales from multiple vendors, billing contracts in a timely manner, monitoring work in progress, and accurately calculating contract profitability. Implementing SAP Business One in less than six weeks, the company was able to create a seamless path from initial quote to purchase order through 7
SMB ERP
invoices. With SAP Business One, we were able to streamline multiple solutions down to just one and simultaneously achieve much wider functionality than we had previously, says Duane Taylor, vice president of finance for NextiraOne Federal. Today, the company is able to more effectively get the information it needs from its system, creating dramatic benefits. For example, the reconciliation of financial data at the end of each fiscal period once took as much as three weeks with employees working overtime. With SAP Business One, the company generates the needed information within three regular working days. Resources in the accounts receivable department were redirected, saving more than $300,000 annually. Accounts receivable collections improved as a result of the availability of information, saving $1.5 million. In addition, soft benefits such as improved communications, better visibility, and enhanced customer responsiveness have also been noted. The net result: NextiraOne Federal received payback on its investment in just four months. (from SAP.com) mySAP All-in-One mySAP All-in-One consists of solutions which are pre-packaged and industry specific. They are versions of the mySAP Business Suite engineered for turn-key
application. These solutions are created to enable companies in the SMB range to purchase the capabilities of SAP software without any of the implementation issues associated with modifying the system. These are implemented through business partners such as BearingPoint and IBM. In addition to these solutions, SAP also describes on their website the success stories through press releases, news articles, examples and case studies for particular industries. Qualified mySAP All-in-One solutions are under development worldwide. And several of these vertical and cross-industry solutions are currently available in North America. Examples include industries such as high tech manufacturing, semiconductor manufacturing, ISP businesses, pharmaceuticals, and beverages. A recent press release outlined the partnership with SAP and Citrix:
SMB ERP
Both software vendors traditionally have focused on the enterprise market but now have joined forces to make inroads into the SMB market. The solution will allow small and midsize customers to securely access their ERP applications from the road or from their home offices, the companies said. Citrix will adopt SAP's licensing model and has priced the MetaFrame solution at $139 per named user. Business One costs $3,700 per named user.10
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Rooney, Paula. Citrix, SAP Join Forces To Target SMB Market Joint solution to be MetaFrame Presentation Server For Business One. CRN. January 17, 2005
Oracle is in the business of information how to manage it, use it, share it, and protect it. Headquartered in Redwood Shores California, Oracle has operated for over three decades and is currently the worlds largest enterprise software company with over ten billion dollars in annual revenue. The company has grown in part through organic growth and in part through acquisitions, including PeopleSoft/JD Edwards (2004), Retek (2005), and NetForce (2002). Oracle currently offers SMB solutions through both its Oracle and PeopleSoft/JD Edwards brand names with a vision to merge the solutions into a central Fusion platform.11 Their company vision places an emphasis on three principles of the InformationDriven Enterprise; to simplify, standardize, and automate. Oracle has integrated these principles into their own operations and focuses to incorporate them into the design of their software to better serve businesses worldwide. In June 2004, Oracle concluded that the enterprise segment was highly penetrated and the mid-market segments are large and growing. In FY 02/03 over 50% of application new license revenue came from companies under $1 billion. Oracles market assessment concluded that they would move to target the US mid-market segment as they believe it to hold the greatest potential for incremental growth.12 Their mid-market messaging will surround the idea of simply business. More specifically, Oracle looks to emphasize their affordability, simplicity, competitive, and growth aspects.
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Presentation by Heidi Kiemle of Oracle in Seattle on Thursday, May 12 and www.oracle.com/solutions/mid/index.html 12 Oracle Presentation, June 2004 Mid-Market Special Edition Campaign Plan: H1FY05
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The current Oracle solution emphasizes their E-Business Suite. The suite specifically focuses on core business applications to streamline key business processes (financials, purchasing, inventory management, order management, manufacturing, and sales force automation).13 To target businesses less than $100 million, Oracle offers a Special Edition package which is basically a scaled down version of their full-business suite. It claims to be affordable, easy to install, and simple to implement for a rapid and measurable return on investment. Oracle has chosen to sell this package through regional partners rather than directly through their sales representatives.14 The differentiating factor that Oracle focuses on is that they are the only package with comprehensive, built-in business intelligence. What this means to SMBs is that they will be able to manage, access, and analyze their business data very rapidly. This ability to synchronize information can give a company the ability to quickly respond to changes in the business environment. PeopleSoft/JD Edwards EnterpriseOne The current PeopleSoft/JD Edwards SMB solution is targeted at companies that have begun to outgrow their current systems. It is positioned as software to meet a companys current needs with the flexibility and adaptability to also meet needs in the future. The product line is branded under JD Edwards (EnterpriseOne Solutions, Rapid Start, and World Express). Emphasis is placed on the comprehensive industry-specific functionality, affordability of the package, and flexibility to fit into a current and changing business.
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Conversation with Keith Joslin of Hitachi Consulting in Seattle on Monday, May 16 Presentation by Heidi Kiemle of Oracle in Seattle on Thursday, May 12
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The package is a pre-integrated set of modular applications with built-in, industryspecific functionality. At this point the JD Edwards sales force continues to sell the JD Edwards product. They continue to promote the product but at some point in the next 2-3 years I predict that the sales forces of JD Edwards and Oracle will converge in anticipation of the Fusion release. Oracle Fusion Heidi Kiemle, Oracle SMB Manager, noted that there are three primary hot topics currently facing Oracle.15 These include business intelligence (BI), corporate governance (SOX), and budgeting/planning. Over the next several years Oracle aspires to focus on these hot topics in conjunction with taking the best pieces of each of their three primary software packages (Oracle, PeopleSoft, JD Edwards) to integrate into a complete Fusion package. Oracle plans to roll-out individual fusion applications by 2007 and a complete Fusion Application Suite by 2008. Oracles primary sales point surrounds this idea of how you package the product. They see the advantages of Oracle Fusion in four general categories. The first is scalability. Here they argue that with the package you will be able to implement the package and it will have the ability to grow alongside your business. Price is the second advantage. Oracle plans to package the cost of software, services, and licensing to make the option an attractive and affordable one. A third advantage is functionality. By taking the best pieces of the current software packages, Oracle argues that functionality will be a distinct advantage. By using partners on a regional level, Oracle sees the ease and effectiveness of implementation as a fourth advantage of Fusion.
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This rapid transition from stand-alone products to an integrated suite does not come without issues. Two primary disadvantages of Oracles Fusion Suite are integration and support. More specifically, Oracle is going to face some major challenges over these next few years as they look to roll-out a new package while supporting current customers.
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Microsoft Business Solutions offers a variety of ERP solutions for medium sized business entities. These solutions cover most industries and can be scaled down to any size business. Several of the software solutions are a complete ERP solution. All of the solutions offer an accounting and finance core. Many of the solutions integrate with Microsoft Office software so it is easy for new users to manage and leverage the data. In addition, Microsoft offers several solutions for certain aspects of business software solutions.16 These additional solutions include: Business Network which allows streamlining collaboration through the use of XML templates, CRM to support marketing and customer service, Enterprise Reporting or Small Business Financials which are accounting applications, Retail Management System for point of sale and retail applications, Small Business Products for e-business, and Business Contact Manager for managing customer data. Microsoft Axapta Microsoft Axapta is an ERP solution with a price range from $100k to $300k. Currently, about 4,500 firms are using this software. Microsoft provides local partners to assist with implementation of this software and ongoing support. The benefits of Axapta is its unique design one database, one toolbox, one business logic, one source code means customizations and upgrades are easy to make. In addition, maintenance costs are low.17
16 17
www.microsoft.com/BusinessSolutions/Default.aspx www.2020software.com
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Nucleus Research, a global provider of research focused on IT return on investment conducted a study on Microsoft Axapta.18 It found the following: 75 percent of customers had achieved a positive ROI from their Microsoft Axapta deployment with an average payback period of 23 months. 56 percent of Microsoft Axapta customers were able to reduce staffing costs as a result of their Microsoft Axapta deployment. 44 percent of Microsoft Axapta customers were able to reduce IT costs as a result of their Microsoft Axapta deployment. 75 percent of Microsoft Axapta customers reported improved operations and visibility as a result of their Microsoft Axapta deployment. Axapta is a multi-language, multi-currency ERP solution with core strengths in manufacturing and e-business together with strong functionality for the wholesale distribution and business services industries. By providing integrated, adaptable functionality within one open, scalable platform, Microsoft Axapta helps mid-market and companies across the globe seize opportunity and gain competitive advantage Axtapa is designed to help scale your business by providing internet functionality. This internet functionality can be used to collaborate with customers, partners, suppliers, and employees. Microsoft Axapta supports the entire business with functionality spanning manufacturing, distribution, supply chain management, project management, financial management, customer relationship management, human resource management and business analysis. It also tailors itself to local legal and accounting requirements while supporting multiple languages and currencies.
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www.microsoft.com/BusinessSolutions/Axapta/axapta_roi_report.aspx
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Microsoft Axapta Case Study:19 The vision of North Atlantic Industries (NAI) is to become the preeminent global supplier of innovative military and commercial off-the-shelf (COTS) solutions that fulfill the requirements of companies in the aerospace, industrial, and defense markets. NAI achieved a positive return on its investment in Microsoft BusinessSolutions Axapta software by reducing inventory costs, realizing direct savings in personnel costs, and increasing the productivity of employees through reduced downtime. Annual return on investment (ROI) 128% Payback period (years) 0.60 Net present value (NPV) 499,888 Average yearly cost of ownership 146,626 Microsoft Great Plains Microsoft Great Plains is an ERP solution with a price range from $20k to $250k. With a lower price range than Axapta, Great Plains is positioned to support lower midmarket firms. It provides functionality for financial management, analytics and reporting, project management, inventory and order processing, e-commerce, human resource management, customer relationship management, field service management, manufacturing, retail management, and online business services. The benefit of Great Plains is interconnected business solutions across the back office, front office and ebusiness. Great Plains provides the best overall ERP customer support available and technology leadership from Microsoft.20 Great Plains goal is to provide superior business management applications that take advantage of the latest technologies with an eye toward constant innovation and improvement, it delivers a combination of functionality, technology foundation, ability to grow and change, and service that can b benefit a medium sized business. Whether the firm is interested in e-commerce, customer relationship or supply chain management, it
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20
www.nucleusresearch.com/research/d72.pdf www.2020softare.com
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can deliver an integrated set of business applications and custom services that integrate business processes regardless of complexity. Great Plains Case Study:21 Arthur Schuman, Inc. is the largest importer of Italian and Italian-style hard grating cheeses in the United States. Founded in 1946, they operate a production facility and 20,000 square feet of warehouse in Fairfield, New Jersey and an additional 60,000 square feet of warehouse space in Edison, New Jersey. The annual return on investment for the $1.5 million implementation of Microsoft Business SolutionsGreat Plains at Arthur Schuman was 679 percent; payback was achieved in only 1.6 months. Improving their inventory turns from 3.5 to 4.5 times per year freed up over $11M in working capital. Substantial savings in order processing, inventory, picking, and customer service labor accounted for an additional $2.4M in cost avoidance. Wireless bar code scanning by Maximum Data was integrated into the system, resulting in inventory accuracy of 99 percent and savings of $500K per year. All these savings occurred while customer service and order accuracy improved. Microsoft Navision Microsoft Navision is a cost-effective and fully customizable business management solution designed to meet the specific needs of small and mid-size companies. It includes integrated functionality for financial management, supply chain collaboration, CRM, and e-commerce. The price range to implement Navision is from $3k to $100k. Currently, approximately 45,000 firms in over 130 countries are using Navision to improve efficiencies, customer services, and decision making. The benefits of Navision are its integrated financial, operations, customer, distribution, and ecommerce data into a streamlined, comprehensive solution for growing mid-sized businesses.22 Its easy to use, maintain, and very customizable. It has strong international system and is excellent for manufacturing.
21
www.microsoft.com/BusinessSolutions/casestudies/CaseStudy.aspx?CaseStudyID=14373 www.2020software.com
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Navision can be customized to meet specific business needs. Or, a firm can choose to implement a standard format. Navision Case Study:23 In 1997, Steinway & Sons implemented Microsoft Business SolutionsNavision on a Microsoft backbone. Steinway Musical Instruments and their subsidiaries are a world leader in the design, manufacture and marketing of high quality musical instruments; Steinway pianos, in particular, are legendary. Through a worldwide network of dealers, Steinway Musical Instruments' products are sold to professional, amateur, and student musicians, as well as orchestras and educational institutions. The company employs a workforce of over 2,800 and operates 13 manufacturing facilities in the United States, Europe, and Asia. Steinways home-grown accounting system couldnt keep pace with the information needs of a growing business. Steinway & Sons implemented a complete accounting and business management software solution with the ability to tie in remote locations and internet functionality. Looking back over the years since the 1997 Navision implementation, Tortora cites three primary benefits Steinway & Sons has gained from their Navision software: Reduced closing timeClosing time has been reduced from 8-10 days to 5-6 days, and Tortora believes that will be further improved after the implementation of MRP. Data reliabilitySound decisions can be made on the basis of the data, and trend analyses can be performed based on the several years of data they have collected since implementing Navision. EfficienciesNavision has provided efficiencies due to the reduction of redundant data entry and the ability to maintain a lean accounting staff; "doing more with less." Microsoft Solomon Microsoft Solomon is a quasi-ERP system designed for mid-sized firms. Solomon offers a full range of business applications. Solomons ERP solution includes financial and accounting management, project management, inventory and order management, and analytical and reporting tools. Solomon is very economical at a cost of only $3k to $10k. This solution is currently being leveraged by 13,000 firms. The
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www.microsoft.com/BusinessSolutions/casestudies/CaseStudy.aspx?CaseStudyID=14255
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benefit of Solomon is that it is written in Visual Basic and thus highly customizable.24 In addition, it has a strong international system.
Microsoft Solomon can be customized to fit the firms needs, easily integrated into current systems, and adapted over time as your needs change. Solomon is a robust, flexible solution built to meet the needs of project-centric and distribution-driven companies. Its customization and integration tools help firms adapt best practices, integrate with other systems, and serve customers better. It also boosts employee efficiency by providing real-time data access through a Web-based interface. Microsoft Solomon Case Study:25 As a roll-up of acquired companies, Aspen Marketing Services had five divisions operating independently on seven different general ledgers. They were experiencing a close of three to four weeks. When Patrick O'Rahilly became CEO, he brought with him a determination to unify the company. O'Rahilly felt a major step to a unified company was a unified accounting system, and he set an aggressive schedule to implement one. Microsoft Business SolutionsSolomon was selected for its strengths in accounting integration, inventory management, and project management. Aspen has reduced month close by 68 percent, reduced inventory by $500,000, and has improved both their management and visibility of projects. These improvements have helped the company increase profitability by 7 percent in the past year; they expect payback from their new solution in nine to 10 months.
24 25
www.2020software.com www.microsoft.com/BusinessSolutions/solomon_aspenmarketing.aspx
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The trends outlined above, and the responses by the major players in the market, illustrate the immense potential both for customers and vendors in the ERP business. The two giants in enterprise ERP, Oracle and SAP, are focusing downward to smaller companies with scaled-down versions of their products while, Microsoft is working on its strategy in combining its acquired software to create a consistent solution. What remains to be seen is the eventual penetration of these three into the markets, whether their solutions will appeal to such a large, diverse market, and whether niche players will be pushed out.
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