Looking For Software-The Expectations of Small and Medium Enterprises
Written By: Olin Thompson
Published On: October 17 2005
Many small and medium enterprises (SME) are actively looking for software. Many vendors are trying to meet their needs. However, what the SME expects to gain from software is not always what the vendor expects. SMEs must understand their needs articulate their expectations to potential vendors if they are to get what they want and need from software.
SMEs—Who Are They and What Are Their Characteristics?
Polling vendors, analysts, and consultants reveals no clear picture of who is a small versus medium versus large enterprise. One analyst firm, the Gartner Group defines the mid market as 100 to 999 employees and the small as 5 to 99 employees. One enterprise resource planning (ERP) vendor considers anything under $2 billion as the mid-market. Rather than sales volume or employees, some consultants and vendors define enterprises in terms of the characteristics of the business. These enterprises are stand-alone organizations with the power to control their own destiny, which can include some divisions of large companies. Most have operations in one country and most are run as a single business (as opposed to a company with many divisions.)
Is the SME conservative? The key word we frequently hear is "proven". The small to medium company is conservative; according to Gartner, 85% of medium and 95% of small businesses describe themselves as conservative technology adopters. Gartner reports that only 9% would be willing to take on "frontier" applications.
Are SMEs Actively Seeking Software?
David Caruso of AMR Research states, "SMEs that are not aggressively developing an effective ERP strategy will be at some disadvantage to their peers by 2006. Forward-thinking executives will consider strategic business capabilities as the drivers for ERP investment justification." Are SMEs following Caruso's advice?
Technology Evaluation Centers (TEC) assists user companies to select software. TEC is not forecasting what the market is doing; they are actively involved with companies that are currently looking for software. During the second quarter of 2005, they worked with 3,344 enterprises with 79.7% or 2665 of those enterprises having less than $500 million (USD) revenue.
Interestingly, TEC reports that a surprising 59.1% were looking for their first system with 35.1% replacing an existing system and 15.5% embarking on a project intended to integrate their existing systems. With these objectives, the SMEs need different things from their vendors than large companies.
For years, the software industry has sold the concept of competitive advantage. Each vendor claims that using its product will give an enterprise a competitive advantage. Is this what a SME is looking for? Over 65% of SMEs state their software strategy as maintaining their competitive position, not improving it.
SMEs want to have a safe, consistent business infrastructure that allows them to compete without a disadvantage. Large companies can afford to invest in ideas that may bring them a competitive advantage. They also have a large business to use to write off their mistakes and benefit from their successes. The SME does not have this luxury. SMEs also want an application platform that allows them to react to the demands placed upon them by customers, regulator, and competitors.
David Rode, President of Intentia in the US tells us, "Our customers tell us they want software that fits their specific business out of the box. They want our people to know their industry. They expect them to bring them solutions that bring value for their specific needs, from day one."
These companies are not buying software. They are buying solutions that fit their specific business, supported by people who understand that type of business. For example, Intentia focuses on two types of businesses, fashion and food and beverage. Like many vendors, Intentia has learned that they need products and people that address the needs of specific groups of customers.
SMEs should insist on proven solutions backed by proven people. These solutions must be proven in businesses "just like" theirs. To the SME, that should mean a like business, of like size, that was trying to solve similar problems. They should insist on talking to people who are in similar positions, chief finance officers with chief finance offers, logistics manager to logistics manager, information services with information services with information services, etc.
Intentia's Rode gives us his view of what the mid-market wants for services, "Mid-market companies are looking for more proactive guidance from their software partner both during the sales campaign and during the entire implementation process. They want us to show them best practices gleaned from our domain knowledge and implementation experience. They do not want to start from scratch or have us ask how they want the software to function after we have sold it to them. It is akin to going to a fine restaurant and asking the waiter what s/he recommends and they reply, 'what do you like to eat? .' It is not a legitimate answer and we are taking a much more proactive approach in introducing the best industry specific business processes to our customers."
Again, we see that intellectual capital is what counts. SMEs should insist on talking to the people who will actually be working with them during the implementation. They should also favor those vendors who have out-of-the-box solutions for their industry. For example, SAP has invested in prepackaged solution scenarios for target industries. These scenarios serve as a head start, providing prepackaged best practices for an industry.
Intentia has invested in a pre-implementation tool they call Opportunity Analyzer (OA) which it uses with the SME to guide the implementation to the quickest pay-off. OA aligns project plans with the SMEs business strategy so the highest pay-off business processes are available as early as possible.
Cost of ownership for the SME is not an interesting statistic but a key objective. In addition, surveys have shown that the life of a technology for an SME is twice the expected life in larger companies. Thus, a basic question should be, "can we afford to maintain this technology? "
The SME buyer should stay in the mainstream of technology, for example, Gartner tells us that only 19% of SME companies are using Linux, usually in a limited, non-mission critical application. Gartner also reports that less than 15% would seriously consider a hosted/outsourced solution.
For the SME, investigate the cost of ownership as part of the buying process including reference checking. Talk to information technology (IT) professionals who are using the application product and the technology platform recommended by the vendor. Learn the lessons that have learned.
End user SMEs must focus on what they expect from a software solution and vendor. Then they must base their decisions on what products and vendors have done for companies "just like them." Look for vendors who can prove they have the product, expertise and experience in companies like yours.
Vendors need to understand the conservative nature of the SME market and adjust their sales, services, and support efforts accordingly. Since proof is key to the decision making process, vendors should work hard to document their accomplishments in their chosen target markets and build relationships with existing customers that will permit these existing customers to help potential customers know the value of the vendor's solution.
About the Author
Olin Thompson is a principal of Process ERP Partners. He has over twnty years experience as an executive in the software industry. Thomspon has been called "the Father of Process ERP." He is a frequent author and an award-winning speaker on topics of gaining value from ERP, supply chain planning (SCP), e-commerce, and the impact of technology on industry.
He can be reached at Olin@ProcessERP.com.