you were fortunate enough to inherit one, most companies start out small and,
if successful, grow larger. If you are part of a small or medium-size
enterprise (SME), you already appreciate that the needs of small and medium-size
enterprises (SMEs) can be completely different from those of larger enterprises.
It is important to understand this distinction as an individual in a SME or
a vendor selling software to SMEs. For the purpose of this article, SMEs will
encompass companies with annual sales of $200 million (USD) or less and with
less than 250 employees. The differences of SMEs can be demonstrated by a short
example within the lifespan of single company.
food processing company got its start by selling vegetables from a horse-drawn
cart in the early 1920s. The popularity of the vegetables grew to where customers
began clamoring for products year-round. Thanks to a bumper crop and ingenuity,
the small company started preserving the vegetables so that they could be sold
in the fall and winter seasons. Eighty years later, the company is one of the
largest private label canning operators on the East Coast. After the first fifty
years of operation, did the company need advanced forecasting and scheduling?
Did the company need a warehouse management system? Even if the concept of enterprise
resource planning (ERP) existed back then, could the small company afford
one or support it? Probably not. The company needed basic software to help it
run its growing business with few, if any, bells and whistles. Does the company
need these tools today? To stay profitable and competitive, you better believe
moral of this true story is that the needs of SMEs are different. Understanding
the special needs of SMEs can help companies make what may be their first foray
in software acquisition successful and serve notice to vendors that special
tailoring may be needed when approaching this class of buyers. Accordingly,
this article takes a look at three characteristics of SMEs and their impact
on software acquisition and implementation. These characteristic are
there may be others, hopefully, as a user, you will be aware of potential pitfalls
in software procurement process and, as a vendor, you will be prompted to re-think
your strategies for SMEs. We will look at what you, as an SME, can do to minimize
costs and increase productivity and what a vendor can do to make the process
need more of it but usually cannot afford it.
dilemma of software and implementation support is that SMEs need it the most
but usually can afford it the least. Given this dilemma, what can an SME do?
The support can come in several ways such as making modifications, piloting
and testing the software, and training. The good news is that SMEs should require
little or no modifications and should be committed to using the software as
is, out-of-the-box. As said in other articles, including mine, this is easier
said than done but should be the going-in proposition. Well, that was easy.
scaling back the scope of the implementation. This might be accomplished by
reducing or restricting the number of locations being included in the initial
implementation. Heresy you say! The operations will continue, perhaps not as
well as could be, at all locations. While you are not completely maximizing
profits, this approach allows you get your feet wet before drowning in a sea
of software. From the learning experience during the first implementation, your
company should be more self-sufficient in the implementations at the remaining
sites. At a poultry processing company, it took nine months to bring up the
first two plants; the remaining nine plants were up and running in three months.
can also be reduced by limiting the modules being implemented. Because of the
tight integration, this can have drastic results if not managed properly and
well thought out. To be honest, it would not be my first choice but it is an
not necessarily a reduction in scope but rather a transfer of responsibilities,
application service providers (ASPs) offer another alternative for
lessening the ongoing support requirements. Updating the old service bureau
concept through the use of current day technology of the Internet and superior
network connections, ASPs represent a reasonable outsourcing model. This model
provides customers access to program applications that might be too expensive
or technically impractical to implement in-house. Traditional ERP vendors are
considering this as a supplemental and cost-effective alternative for SMEs.
While willing and able to trade custom code and custom processes for truly shared
services, SMEs must understand what services and products are to be delivered—by
whom and under what types of service level guarantees.
is another component that can cause implementation costs to explode. The easy
way to train your personnel is to enroll all of them in vendor-led, off-site
training classes. This, however, is surely not the most cost-effective approach,
particularly when you add in out-of-pocket expenses for meals, travel, and lodging.
Assuming that a day of training costs anywhere from $600$700 (USD) and training
usually requires one to two weeks, it doesn't take long for the cost of training
a modest project team to exceed $30,000 (USD). You do the math. We have not
even added in the lost productivity while your employees are attending training.
You would be mistaken if you thought that conducting on-site training will save
you money. Vendors typically charge more for such dedicated services.
most economical and effective way to approach the training issue is to adopt
the train-the-trainer philosophy. Under this approach, you send a small cadre
of project personnel to training with the explicit task that they must train
their respective teams upon return. Not only should members of this group be
subject matter experts, they also need to have an affinity for teaching and
training. Bear this in mind when forming this nucleus group.
prepared for when vendor personnel arrive on-site. Have the project assembled,
people briefed on their responsibilities, and assignments already finished.
Have documentation assembled and updated. Have legacy data pruned and updated.
Have executive management's commitment clearly defined and stated. Nothing is
more irritating for the project manager than to have high-priced vendor personnel
sitting idle while the company gets its act together. Don't get me started!
What can a vendor do regarding the support issue? The cost of support is directly
proportional to the rates of the vendor personnel assigned to the project. Typically,
the smaller the company, the less complexity involved in the implementation.
If this is true, a vendor may be able to assign junior personnel to the project
at lower billing rates without sacrificing quality. Or, the vendor may be able
to double up on assignments. Perhaps, assign a senior consultant to the project
and let this person double as the project manager. However, be wary of the client
who says, "We are plain vanilla and are going to use the software right out
the box. We won't need much help."
a vendor, you obviously need to look at the long-term relationship with the
client. Is there the realistic potential of seven to ten years of maintenance
support and future upgrades? Are more advanced tools such as advanced planning
and advanced scheduling in the offing? These factors need to be factored into
the support discussion to make the software acquisition and implementation experience
successful and profitable for all parties. Nothing helps the next sale as much
as a good reference from the last completed implementation.
normally have to acquire more functionality than they need, want, or use.
vendors develop software that tries to solve a variety of problems for a reasonably
large and diverse group of companies. The dilemma is that the requirements of
SMEs are typically on a much narrower focus and involve less complexity. For
example, most SMEs do not require multi-currency, consolidations, or inter-company
eliminations. But the software they are considering will most likely support
these functions. So what is the harm? The added complexity can cause implementations
to take longer and incur additional internal and external costs.
can SMEs do? Unfortunately, the news is not good. You can search for vendors
that service your specific market and limited needs. However, the search may
be long and fruitless. The nirvana would be for vendors to offer software with
limited and specific functionality that can grow as the company grows. Understandably,
the business model for vendors is to cater to a reasonably wide marketplace.
To do this they need to offer a feature rich environment. This is where the
money is to be made. This, however, is in direct conflict for SMEs need for
a reduced functionality.
can vendors do? The news on this front is getting better. As opportunities in
the medium and large-size enterprises (MLEs) marketplace continue to
shrink due to increased penetration, vendors are moving down the food chain
to the SMEs. We are starting to see more vendors showing interest in the SMEs
market with scaled-down version of traditionally larger ERP software (see Software
Giants Make Courting A Small Guy Their 'Business One' Priority). As
the sales become harder to mine, we should see more vendors pursue this reverse
migration path. If you can afford to be patient, SMEs may be able to obtain
the nirvana mentioned above. In the next section, we will explore a pricing
algorithm that may make this easier to deliver.
whether you use it or not, you're paying for it. Or, should you?
is similar in a lot of respects to functionality. You are paying for modules,
features, or functions that, as an SME, you may not be using. As SMEs what can
you do about it? Negotiate. Negotiate. Negotiate. There are several strategies
that, as the procurer of software and services, you can employ. First, lower
the initial cost of the software by extending the term of the maintenance contract.
Typically, vendors are willing to accept less up front if they can realize a
longer and steady revenue stream in the future. Secondly, vendors are more apt
to discount services before discounting software. This discounting can be in
the form of reduced billing rates, free training, and free days of support.
Finally, if you are in an industry that the vendor wants to explore and develop,
you may be able to enter into a joint development arrangement. As an SME, you
provide the industry expertise while the vendor supplies the resources and technology
expertise. A caveat would be that, as the SME, you must ensure that your trade
secrets or competitive advantages are not available for public consumption.
can the vendor do to minimize the pricing concern? Typically, software is priced
based on the number of seats or, in layman's terms, the maximum number of contiguous
users of the software. Seats are allocated by functional area; eight in finance;
eleven in customer service; twenty in production; and one in IT—hey, somebody
has to compute the winners of the football and soccer betting pools. By the
way, this is also an area that you can negotiate with the vendor as a future
source of revenue to further reduce the acquisition cost of the software. There
should be at least one more pricing option. This option would be based on what
you use and not what you get. Typically, enterprise software comes with switches
that can be set based on need. As the SME, you set a switch whether you want
to use multicurrency or not. You set a switch whether you are going to consolidate
financial or not. You set switch as to whether you are going to use standard
or actual costing. Based on a contractual agreement, these switches would be
set at the "factory" to limit the functionality that is available. If later
a company decides to use an unavailable function, say actual costing, a company
would have to pay to have it turned on.
argument could be made that less support would be required for SMEs who use
less functionality. While not suggesting that maintenance charges be reduced
as well, this source of ongoing revenue will help offset the reduced price of
the software. What concerns SMEs most is the initial cash outlay for the software.
Any way to reduce this outlay will be attractive to prospective customers. It
is tantamount to a mortgage on a house. You want to keep the down payment as
low as possible because, as you become successful and earn those big bucks,
the monthly mortgage payments will be become less of hardship. So to as the
SME grows and becomes more profitable, the future annual maintenance payments
will be less of a burden.
pay-as-you-go option is similar to other aspects of our lives. For example,
this option is similar to the pricing for home cable for our televisions. If
you have cable coming into your house, you already have HBO and other premium
channels streaming into your home. However, if you want to watch The Sopranos
or Sex In The City, you have to pay to have the signal unscrambled
to view these programs. In others, the functionality is already in the software
but, as an SME, you decide what you want to use or, as the cable subscriber,
you decide what you want to watch.
the pay-as-you-go pricing option would give additional credence to the gradual,
phased rollout of enhancements and the compartmentalization of future releases
of the software.
a long time vendors have been focusing on large enterprises and their needs.
You cannot argue with their business logic and savvy. Unfortunately, the requirements
can be overwhelming for SMEs both in terms of functionality and costs. Slowly
as the opportunities in the large enterprise marketplace become scarce, vendors
are aiming their marketing sights at SMEs and starting to cater to this marketplace.
While the software development or, should we say re-development, process will
take time, creative pricing could be achieved fairly quickly. Remember that
some day, with your help, SMEs will become MLEs—medium to large-size enterprises.
J. Strub has extensive experience as a manager and senior consultant
in planning and executing ERP projects for manufacturing and distribution systems
for large to medium-size companies in the retail, food and beverage, chemical,
and CPG process industries. Additionally, Strub was a consultant
and Information Systems Auditor with PricewaterhouseCoopers and an applications
development and support manager for Fortune 100 companies.
can be reached at JoeStrub@writecompanyplus.com.