ROI Systems Defies The Odds Through Delighted Customers Part Two: Market Impact




Market Impact

Recently, ROI Systems, Inc. (www.roisystems.com), a privately held provider of extended ERP software systems, with its headquarters in Minneapolis, MN, reported profitability for the year 2002. ROI's revenue and number of employees reportedly grew over 6%, while a significant increase in profitability (i.e., a whopping 212% net profit growth) was achieved over 2001. The company also reported record software sales in December 2002, making the last quarter of 2002 the best sales quarter in ROI Systems' history. New site licenses for the company's flagship MANAGE 2000 extended-ERP software suite have combined with service revenues to continue the company's 24-year history of sustained growth through fiscal year 2002, which ended December 31. Being privately held, the company does not publish a breakdown of its revenue figures.

Love thy customer' would be the ROI Systems' open secret of success. The company, founded in 1978, has a strong history of working closely with its long-time customers, whose needs have mostly driven the vendor's corporate and product strategy. Trustworthy', credibility, integrity', delivery on promises' and so on would have been other key tenets of ROI Systems' corporate strategy, with continually positive results going far back. While no more detailed numbers are publicly available, we believe that the company has long been consistently profitable. It also has a tendency to reinvest generously in itself. Its offering's functional breadth and depth is the result of the vendor's unrelenting commitment to R&D, where ROI typically spends 20% or more of total revenue, which is well above our assessment of the industry average of 14%.

Although ROI Systems might be sometimes considered as a conservatively risk averse, its deliberate decision making style for the past quarter of a century of its operation have kept it profitable, debt-free, and without any restructuring and disruptions. That is in a sharp contrast with the IT industry trends where flash in the pan' competitors and their killer' applications and hype have often been the name of the game. The company is owned by four of its executives, and it has never sought venture capital. While it also has a significant credit line, it has never borrowed money, which may sound astonishing during this era of the investment capital scarcity cash-strapped vendors, and the market's disgust with Enron and WorldCom fraud scandals.

This is Part Two of a three-part note.

Part One detailed recent announcements.

Part Three will discuss Strengths, Challenges and make User Recommendations.

Securing the Customer Base

Thus, its very delighted customer base has become much more to the vendor than a pool of excellent references. Namely, without any unusual, fine print' contractual terms, ROI's typical days of sales outstanding (DSO) figure is at most the half of the industry average (i.e. 50 vs. 100 days), which indicates happy customers gladly paying their dues. Key to ROI's customer satisfaction success could likely lie in the fact that it has hardly ever launched any product enhancement and support directions that would eventually leave any of its customers in the dead-end street or feeling blackmailed. Instead, for more than two decades, ROI Systems has stuck to its core competencies rather than impetuously venturing into uncharted territory with dubious benefits for its customers.

The company has never abandoned its discrete manufacturing ERP roots even during the Internet infatuation days of the late 90s when anything associated with core ERP was considered outmoded. This does not imply that the company has not enhanced its product in the meantime therefore earning the extended ERP' connotation. By adhering to an incremental, performance proven approach, ROI Systems has managed to deliver strong discrete manufacturing functionality for a gamut of industries (e.g., electronics, industrial machinery, fabricated metals, medical products, transportation product suppliers, durable consumer goods, etc.) and immaculate customer support.

Thus, ROI has largely ensured that its customers had no reason to change the vendor. Furthermore, while this steadfast approach might have been at the expense of slower-than-market growth during the halcyon 1990s, that is not the case any more. A 6% organic total revenue growth, whereby new license revenue growth was at enviable 14.5% in 2002, and ~30 new accounts in the year, cannot easily be touted by the mightiest competitors, let alone by the peers. Rather than being on the defensive to protect its customer base from openly aggressive competitors, ROI has instead replaced solutions at disillusioned customer sites from nearly every ERP competitor (see Baan Defectors - Is This Only Tip of an Iceberg?).

Manage 2000

As a result of incremental new technology enhancements, its sole product, called MANAGE 2000, today provides applications for production, planning, engineering, finance, sales order management, supply chain management (SCM), customer relationship management (CRM), field service, supplier relationship management (SRM), collaboration, human resources (HR) and business intelligence (BI), which is far beyond the traditional realm of ERP and what most of midsize manufacturers need now and in a foreseeable future. It runs on Microsoft Windows 2000 and UNIX platforms and integrates more than 45 applications for the above-mentioned functional areas.

MANAGE 2000 includes a very solid product configurator that enables prompt communication and decision making between front-office and back-office, and which is quite abreast of the exacting needs of leading product configurator solutions in the market (see CRM For Complex Manufacturers Revolves Around Configuration Software). The product also addresses well multi-plant (multiple facilities) functions such as enterprise-wide visibility and access to information for process consolidation and adjustments to suit changing business requirements (e.g., a new acquired division). It also handles repetitive manufacturing requirements well through backflushing the ability to automatically reconcile inventory and make paperless transactions right after the products have been built.

The advanced planning & scheduling (APS) capability with support for both infinite and finite capacity planning, as well as hard allocation in a lot-controlled regulated environment that requires strict product genealogy are also cited as strong features by many customers. Further, ROI Systems was one of the first mid-market vendors to have an integrated external service management capability in a market that has increasingly been focused on customer management, and well before the term CRM was coined per se.

ROI also began delivering the pieces of decision support/Executive Information System (EIS)/business intelligence (BI) functionality (via partnership with Cognos for its PowerPlay reporting and Impromptu On-Line Analytical Processing (OLAP) tools), again, long before most of its mid-market peers. The product also has its own, albeit basic, HR and Payroll modules and interfaces to more powerful third-party HR/Payroll systems, while transportation (e.g., truck scheduling and shipping interfaces to UPS, FedEx, Airborne Express and other shipping systems) and sales force automation (SFA) capabilities have also recently been bolstered.

ROI's approach has always been to offer proven but not necessarily leading-edge product technology, which has allowed the vendor to provide its customers with easy migration paths to updated technology. Another technological advantage for ROI was its early ability to run MANAGE 2000 on Microsoft Windows platform, which has been the major choice of its customers (over 90% of install base). Also, for its target market, the product scales very effectively as it may be required over time. The best example that ROI will not adopt new technology until it is confident that its customers can migrate relatively painlessly to a new technological platform could be its use of the IBM UniData nested relational database management system (RDBMS), and Unibasic development tool - which, although not leading edge, are not drawbacks in ROI's target market, where the database and tool are still not the order winners. However, it is a much easier database to administer, albeit not as functionally robust as popular relational databases like Microsoft SQL Server. Again, the customers' convenience has taken precedence over the opportunity that a trendier database could bring.

MANAGE 2000 also offers fax, e-mail & EDI, workflow management based on event/condition/action (ECA) architecture, automated data input (ADI) and shop floor data collection. Workflow software automates the process of moving information or tasks from one person to another for action while following prescribed procedures (e.g., deliver any document via e-mail, and issue warnings on exceptions). MANAGE 2000 allows users to relatively easily configure a workflow process, but it also includes off-the-shelf processes to workflow-enable accounts receivable (AR), accounts payable (AP), costing, credit management, customer service, product data management (PDM), purchasing, general ledger (GL), and manufacturing planning processes, among others.

Automated messaging, alerts, reminders, monitors, and interactive communication systems are used to remove the possible causes of friction within business processes, and thereby accelerate information movement and decision making. MANAGE 2000's ECA subsystem coordinates activities within a particular process, since transactions from key areas, such as entering a customer service request may be designated as events that trigger actions, while other transactions may be subject to intervening conditions, such as exceeding acceptable response time to resolve a problem to determine if actions are indeed necessary. The use of integrated e-mail, fax, and program-to-program message generation manages information flow and prompts various people, e.g., a service manager, sales rep, or possibly a customer for action.

The product architecture is being transformed to be compliant with the Microsoft .NET strategy, uses XML, HTML, Microsoft's Visual Studio .NET IDE (Integrated Development Environment), Internet Information Server (IIS) and active server pages (ASP) technologies and is ODBC (Open Database Connectivity) compliant, which provides for integration with applications such as Microsoft Office, computer aided design (CAD), import/export, and MES (Manufacturing Execution Systems) software products. The n-tier product architecture has also been adopted for some time, which keeps the product abreast of contemporary technical requirements for web-enablement and interconnectivity. In response to the imperative of providing both power and casual users with access to the information that they need, ROI Systems has also been working on enhanced workflow and collaboration, leveraging XML, and the development of Enterprise Knowledge Portals for access to customer, supplier, engineering, inventory, production, and help-desk information. Access to most parts of the system is actually now through the portals, while ROI is also working on a major .NET expansion to the CRM portion of its suite. Additional effort is going into adding greater depth to the portals, and converting all internal communication within the system to XML, including all programming interfaces and exits to the outside for import and export of data.

Focus on Quick Response Manufacturing (QRM)

A key to keeping its target mid-market customers pleased has been ROI's focus on delivering discrete manufacturing functionality with many good manufacturing practices in mind. ROI Systems has to that end long attempted to provide the holistic, enterprise wide lead-time reduction approach, it refers to as the quick response manufacturing (QRM) concept and which lends itself well to almost any manufacturing environment. For that purpose, it has harnessed ERP, as a medium that should accelerate information through the entire enterprise and should provide instant access to information when it is needed and to those who need it.

Engineering change order (ECO) control, vendor managed inventory (VMI), mobile configure to order (CTO) facility, available to promise (ATP) calculations, sales consignments/point of use (POU)/drop shipment inventory techniques, flow manufacturing concepts, repetitive order groups (ROG) planning/scheduling, master production rate-based scheduling (MPRS), distribution requirements planning (DRP), preventive plant maintenance scheduling, product change collaboration (PCC) (a joint offering with Agile Software), EDI and electronic funds transfer (EFT), and manufacturing lead-time (MLT) management/monitoring are numerous examples of QRM practices that ROI Systems has instilled pervasively throughout all of its MANAGE 2000 modules.

Strategy

For the reason of its suitability to most of the needs of midsize discrete manufacturing, the vendor has recently made some strategic decisions. One would be to not pursue at this stage any deeper vertical industry focus per se, given that discrete manufacturing mid-market could be regarded as a vertical segment on its own. The vendor believes that none of its customers can afford nor are willing to opt for a best-of-breed approach. Given the above breadth of functionality that covers majority of bases in a tightly integrated manner (even including a few OEM-ed third party modules), ROI Systems believes to be well positioned for its target market. Another decision was to, starting for new customers in 2002, price its product strictly based on the number of seats (i.e., named or concurrent users), rather than on jumbled and creative pricing on purchased modules combinations. In other words, for a named price per user, customers are entitled to the entire wall-to-wall MANAGE 2000 functionality (with the only exception of barcode data acquisition and EDI modules since these often do not require as many seats as the rest of modules), including the future product enhancements and extensions.

From a license fee perspective, ROI is seemingly priced quite competitively (i.e., $5,100 per user), but it requires much less professional services investment than many competitors. ROI's focus on painless product transitions and releases for customers typically results in less-costly ongoing total cost of ownership (TCO).

A founding strategy for ROI has been to retain customers, and its moderate growth has prevented ROI from overextending its resources of 155 total employees. As a result, product releases are consistently easy to install and bulletproof from a quality perspective, while hot-line support is responsive and training is getting evermore effective. Implementation support and technical consulting services have a track record of delivering easy-going and reasonably quick implementations (typically within three to nine months, with a stellar case of one customer implementing 14 remote sites in six months).

Knowing that solution functionality is only half of the equation, ROI Systems places an equally high emphasis on implementation. To that end, the company's KnowledgePathSM methodology offers an implementation map and a set of tools to set the course that is fully documented, time-tested, delineated by steps, expectations, roles, and responsibilities for the client and ROI team (i.e., there is no over the wall' handover of the project from the sales person who would promise pies in the sky' to the customer to the implementation team that would subsequently scratch their heads), and designed with a measurable outcome for success.

Knowledge Path approach thus begins by helping customers define business and system requirements. It then builds on information about the customer's organization and its goals, business practices, business issues, and expected tangible benefits from MANAGE 2000. ROI implementation personnel then work with the manufacturer's implementation team to identify training and tailoring requirements, as well as policies and practices. Next, they develop an implementation schedule, and, once the implementation is complete, they offer support, monitor success, and listen and respond to suggestions. Customizations and modifications are discouraged, but they are often not needed due to the product's intrinsic flexibility. Out of the box, the program lets users create their own screens, tables, graphs, and download information into desktop applications like Microsoft Excel and Access. In other words, the product may look as highly customized, although it is not, given no one has even come close to touching the source code.

This concludes Part Two of a three-part note.

Part One detailed recent announcements.

Part Three will discuss Strengths, Challenges and make User Recommendations.

 
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