Great Plains: Strong Channel and Microsoft focus for Dynamic(s) Growth

Vendor Summary

Great Plains Software, Inc. is a global provider of enterprise business solutions for the small-to-medium enterprises (SME) market. Great Plains offers e-business applications for financials, distribution, enterprise reporting, project accounting, e-commerce, human resources management, manufacturing, sales and marketing management, and customer service and support. Founded in 1981, with headquarters in Fargo, ND, USA, the Company is currently one of the fastest-growing ERP vendors, with $134.9 million in revenue in fiscal 1999 (57.6% revenue growth compared to 1998). Great Plains has been a leading provider of business software solutions since 1982 when it began selling its first product, Great Plains Accounting, for DOS-based and Macintosh computers. For most clients, Great Plains Accounting software was the first step in the transition from manual to computer-based accounting. In 1993, the Company released Dynamics, its product suite for small businesses in the mid-market, which comprises accounting, payroll, and human resources. In 1994, it released eEnterprise (formerly Dynamics C/S+), which is an e-business and enterprise-wide business management solution for the upper tier of the mid-market, and is optimized for Microsoft BackOffice. In 1998, Great Plains formed an alliance with Create-A-Check to offer software for check printing and bill paying. In 1998, the Company also acquired one of its VARs, ICONtrol. That provided its eEnterprise manufacturing and human resources functionality, which was previously developed by ICONtrol using Great Plains' development environment. In 1999, Great Plains acquired Match Data Systems to further expand its eEnterprise product with the addition of a project accounting solution developed specifically for the Great Plains platform.

In 1999, the Company also announced a partnership with Siebel Systems to offer Great Plains Siebel Front Office to the mid-market, and a partnership with Systems Modeling Corporation to incorporate its finite capacity scheduling module within eEnterprise. Great Plains also provides a product called Enterprise Reporting, a system for financial consolidation and group reporting, which addresses both legal and operational reporting. Great Plains' solutions are sold and implemented exclusively by a worldwide network of independent partner organizations in approximately 95 countries (approximately 16% of its revenue comes from the international market outside of North America). Great Plains Software, Inc. went public in 1997 and currently trades on NASDAQ.

Vendor Strengths

  • Great Plains has established very strong branding and penetration within the Small-to-Medium Enterprises (SME) segment of the ERP market, with a large and loyal customer base and a uniquely developed, extensive partner channel within the industry (over 1,600 knowledgeable and experienced partners).

  • The Company has been recognized within the industry for its high level of customer and partner service and its commitment to its employees. For the last three consecutive years, Great Plains has been named to the Fortune list of the "100 Best Companies to Work For in America". Low staff turnover provides for a very stable organization, while a long presence on Microsoft's platforms ensures that R&D money has been spent on enhancing product functionality in accordance with the voice of customers and/or the market trends.

  • Great Plains is very competitive in speed of implementation, feasibility of customization, total cost of ownership (TCO), and price/performance ratio. Moreover, Dynamics and eEnterprise are a very good functional fit for some industries (See User Recommendations).

  • Great Plains has exhibited very strong long-term and recent track records. The Company is currently one of the fastest-growing and most profitable ERP vendors (See Fig. 1 - Great Plains Software, Inc. - Annual Results Chart). Furthermore, its high market capitalization of approximately $1 billion (7 times higher than its revenues) makes the Company an unlikely acquisition target

Vendor Challenges

  • Great Plains currently has very low brand awareness outside of the North American market. This is mainly attributable to its late-to-market multi-currency (introduced in 1996), and Euro compliance (in 1998) product functionality. In addition, the Great Plains products are currently available only in 9 languages.

  • Great Plains has been confined to the Small-to-Medium Enterprises (SME) niche of the ERP market for the following reasons:

    • Its products are based exclusively on Microsoft's proprietary technology and integration standards, which may be a strong impediment for future scalability and/or for integration with other vendors' components.

    • The late incorporation of discrete manufacturing and human resources modules within its product portfolio (in fiscal 1999), and currently offering only a single-site capability.

  • The integration with Siebel's Front Office has been achieved only at the database level, while the end users are still presented with two different user interfaces.

Vendor Predictions

  • Despite a highly competitive environment, we predict that Great Plains will reach $400 million in revenues within the next 4 years (60% probability), based on the attractiveness of its products for Small-to-Medium Enterprises (SME), particularly for mushrooming '.com' Internet companies that do not require intricate business processes.

  • We believe that, within the next two years, the Company will have to either acquire (30% probability) or partner with (40% probability) a vendor whose products would significantly enhance its manufacturing and/or supply chain management capabilities. The potential candidates could be American Software, SSA, or QAD.

  • Within the next 3 years, 25% of Great Plains' revenues will come from outside of the North American market (60% probability). Great Plains' license revenue will continue to contribute more than 55% of its total revenue within the same period of time (70% probability).

Vendor Recommendations

  • Further expand its global presence, both by opening new offices and developing new affiliate partnerships. Consider acquiring or partnering with affiliates of faltering competitors, e.g. SSA, Epicor, Baan, and MAPICS.

  • Conduct further ongoing cost scrutiny and identify opportunities for further cost reduction. The sales & marketing headcount, measured as a percentage of the total number of employees, is 26%, and is higher than the industry benchmark of 23%, while the sales revenue per S&MA employee of $428,000 is one of the lowest (See Fig. 4). These figures are unexpected for a company that sells through its strong affiliate channel, and MAPICS would be the perfect example of a success in this regard.

  • Remain committed to the introduction of new product features/enhancements (e.g. multi-site and process manufacturing capabilities, a wider choice of international languages) and to enhancing Business Intelligence offerings, possibly through strategic product alliances with competitors.

User Recommendations

  • We generally recommend including Great Plains in a long list of an enterprise application selection to small and mid-market companies (with $1M-$250M in revenue) within various industries (See Great Plains Software, Inc. - Product Information/Industry Focus).

  • Great Plains should be included on any package selection short list within the SME market where electronic business and financial modules are the main pillars of an enterprise application.

  • Any organization evaluating Great Plains should consider existing functionality only, and, in the case of final selection, should negotiate incorporation of new applications components now at negotiated license fees, in expectation of Great Plains' increase in new product introductions. Users should also negotiate possible future server uplift charges, in anticipation of either the incorporation of new product components or expansion to other sites.

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