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Fourth Shift's evolution Within SoftBrands' DemandStream Part 2: Challenges and User Recommendations

Written By: Predrag Jakovljevic
Published On: October 1 2002

Announcement Summary

Fourth Shift Corporation, though its manufacturing group, SoftBrands Manufacturing, has three supposedly complementary product sets tailored for mid-sized manufacturers: Fourth Shift, evolution, and DemandStream. These products are detailed in Part One. This broad product set, bundled with a reputation for quick and easy implementation, low start up and running costs, one of the speediest problem resolution in the industry and one of the highest ranking for the management of upgrades and excellent customer service should create at least cross-selling opportunity for SoftBrands to shore up its large customer base.

To that end, the company will have to more vigorously exploit its enviable worldwide geographical coverage compared to its peers (e.g., Made2Manage, Lilly Software Associates, ROI Systems, etc.), where its product has traditionally exhibited strong multi-national capabilities in terms of languages and currencies support. As a result, out of its 2,000 active customers, 600 come from Europe and 300 from the Asia and Pacific Rim region. Furthermore, erstwhile Fourth Shift was the first ERP vendor that has been certified by Chinese authorities to sell in an expanding market and with not so strong locally present competition like everywhere else.

However, the above moves should be backed up with substantial progress in developing an indirect channel to supplement the company's strong direct sales force with direct offices in 13 countries. Without it, we believe the company's growth will be insufficient and it will remain marginally profitable. This is particularly true in light of Tier 1 vendors learning the importance of resellers in the lower end of the market.

This is Part Two of a two-part analysis of recent announcements by Fourth Shift Corporation. Part One detailed the announcements and their Market Impact.

Challenges

The list of challenges does not end here either -- in addition to putting the problems of blending two former independent organizations together behind, the company is still entangled in figuring out how best to bring different technologies and industrial experiences to bear. Even if one puts the tainted parent's past and market sentiments aside, the new company is left with multiple products whose brand recognition is quite low given recent re-branding effort that may be even more impeded by SoftBrands/Fourth Shift/evolution brand confusion (not to mention the plethora of hospitality products).

Also, while the products may have their separate niches, they may in some instances be similar enough to confuse former separate Fourth Shift and evolution direct sales reps and value-added resellers (VARs) in selling the combined portfolio. The management team will have to determine a narrow range of key go-to-markets for each product, clarify the positioning, and segment and target the sales channels. It will also have to vigorously deliver an assuring message to the current customers about the support, enhancement, and migration plans for their respective products.

It is much more likely that the sales channel will face some conflict in terms of market overlaps, as well as traditional association with a certain product line regardless whether it is the best fit for a certain opportunity. Not to mention the effort of cross-training in case of direct sales/VARs willing to forsake their attachments to certain product lines. The company will have to revise its sales strategy of how to optimize the sales of two product lines with somewhat overlapping functionality and avoid a likely internal competition, while resolving the need of showing 'one face' to customers.

Segmenting the market into Unix/Oracle and Windows NT/SQL Server territories may not be very practical since deciding which product to present in a new opportunity may happen to be arbitrary. One apparent solution to this problem would be to reorganize the company into vertical business units. However, what to do in a situation where, e.g., Fourth Shift would be functionally stronger fit, but the customer is a staunch Unix/Oracle technology follower? Conversely, what to do when evolution is a good fit, but in geography which language the product currently does not support?

To mitigate the issue, SoftBrands' channel partners will largely continue to concentrate on one product or the other, at least for now, which will require a little cross-training. Further, only selected members of its direct sales teams in selected geographies will be in the position of representing both products, and these individuals will be assisted by pre-sales consultants from one product group or the other who know their products in-depth. Finally, there may be only a small area of overlap between Fourth Shift and evolution (i.e., the companies with $50 million - $100 million revenues in electronics and fabricated products segments), in which case the platform preference will be the decisive criteria.

While the idea to enable the R&D team to gain economies of scale by building common application components as commodities that can be deployed within the entire product portfolio is tempting and promising in a very long run, the flagship back-office product lines will likely remain on separate tracks for some time to come, owing to their disparate (and in some instances) proprietary technologies and respective user bases that are still using these. The technological foundation disparity of the products has also likely taken its toll by doubling the development expenses and in delivering products integration. This also complicates the tracking of third-party partnerships to compensate the products' different weak areas.

Additionally, as SoftBrands continues its focus on the ERP mid-market (companies with $10 million - $250 million in revenues), by rounding-up the functionality of its solution, the products might likely be enhanced through acquisitions in the area such as Distribution Requirements Planning (DRP) & Transportation, Plant Maintenance and enterprise asset management (EAM). Executing these initiatives with its ever-thinning resources (a modest $6 million in cash, although being debt-free is noteworthy) will be a notable challenge. Any hiccups and delays in its product development execution, possibly bundled with continued limited sales execution (that relies largely on the support & maintenance revenue stream rather than on new licenses), may put further significant strain on the company's performance and keep it in the difficult position of having to maintain tight cost controls, while executing a visionary strategy. More vigorous enticement and reactivation of over 2,000 dormant accounts and reliance on new funding could come in handy, although it may be dubious due to currently disenchanted investors for various well-known reasons.

Competition

That said, SoftBrands faces fierce competition on both fronts due to dual products. While evolution may competes with the likes of J.D. Edwards, Baan, SAP, Oracle, IFS, Intentia and QAD, Fourth Shift is more likely to come up against Epicor, Made2Manage, MAPICS, Frontstep, Scala, Microsoft Great Plains/Navision, Best Software and Syspro, most of which have had a luck of not going through the hiatus SoftBrands had been until recently. Nonetheless, the company has managed to maintain its existing customers' satisfaction level high while successfully re-inventing itself, and, as a result, it has maintained a presence within the upper echelon of manufacturing ERP vendors in certain markets. Thousands of small-to-mid-size enterprises (SMEs) need to replace their antiquated business systems, and SoftBrands appears to be developing an organization and a product set to capitalize on that market possibly even before it comes out of the current slump.

User Recommendations

SoftBrands' target market, manufacturing and distribution companies in the $10 - $250 million-a-year revenue range, which also includes regional subsidiaries of multi-national corporations, should certainly consider the company's latest value proposition, but being aware of other equivalent products.

We generally recommend including Fourth Shift in a long list of an enterprise application selection to lower-end of the mid-market (the companies with up up $100 million in revenues) repetitive, batch process, make-to-order (MTO), discrete and mixed-mode manufacturing enterprises, which have limited IT budget and conservative IT strategy, and have significant manufacturing, CRM, supply chain and collaborative B2B e-commerce requirements. Although addressing the market horizontally, the product has a high proportion of its customers in the following industries where traceability and engineering change management (ECM) are key requirements: automotive, electronics, computers, machinery, fabricated products, consumer products, batch process industries, and medical devices.

Meanwhile, evolution is more amenable for the upper-end of the above market (the companies with $50 - $250 million in revenues), serving enterprises requiring three-dimensional (3D)/attribute-based BOMs, such as textiles, food, paper, mining and pharmaceuticals. It covers make-to-order (MTO), contract based and configure-to-order (CTO) manufacturing environments.

However, due to relatively recent restructuring and fledgling channel, potential clients should conduct thorough research on available resources and reference sites of a regional SoftBrands office or an affiliate service provider. Existing SoftBrands customers should review the above-mentioned B2B enhancements with the local representative with an eye towards extending the value of existing applications. New customers evaluating SoftBrands should consider the new modules an essential part of the company's product offering and insist on reviewing them as part of their evaluation. As DemandStream is targeted at flexible lean manufacturers, involving handling of mixed-mode operations, electronic kanbans, and just in time (JIT) at the plant level, and can agnostically interface to most ERP systems, non SoftBrands' users may benefit from evaluating it on a stand-alone basis.

Existing users of earlier product releases that face stabilization should react positively to renewed company's activities, as they may benefit from querying the company's future product migration path, service & support, and/or scalability strategy, and as they may be able to negotiate favorable maintenance re-instatement contracts. As for the new added functionality through partnerships and prospective acquisitions in the future, users are advised to ask for firm assurances on the availability and future upgrades timeframes, and more detailed scope of combined product functionality.

Very detailed information about Fourth Shift 7.2 product is contained in the ERP Evaluation Center at http://www.erpevaluation.com

 
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