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ROI Systems, Inc.: Will Slow and Steady Remain in the Race?

Written By: Predrag Jakovljevic
Published On: June 22 2000

Vendor Summary

ROI Systems, Inc. is a privately held provider of Enterprise Resource Planning (ERP) systems for the small-to-medium enterprises (SME) market. Founded in 1978, with headquarters in Minneapolis, MN, the privately held company generated $23.1 million in revenue for fiscal 1999 (6% revenue growth compared to 1998).

From its inception, ROI Systems has dedicated its resources to providing software solutions to discrete manufacturers, with particular focus on the electronics industry. Its sole product, called MANAGE 2000, automates and manages business processes across the supply chain. It runs on Windows NT, Unix, and IBM AS/400 and integrates more than 40 applications for manufacturing, planning, engineering, finance, sales, and service. MANAGE 2000 offers the following technologies: a nested relational database management system (RDBMS), fax & e-mail, EDI (Electronic Data Interchange), workflow, and automated data collection. It is ODBC (Open Database Connectivity) compliant, which provides for integration with applications such as Microsoft Office, CAD, import/export, and MES (Manufacturing Execution Systems) software products. The n-tier architecture, which was announced at the users conference in April 2000, will be incrementally added to the product beginning in the fourth quarter this year.

Vendor Trajectory and Strategy

ROI Systems is a conservative, North America-centric, discrete manufacturing small-to-medium enterprises (SME)-focused ERP vendor. Over past two decades, it has shown a commitment to deliver solid manufacturing functionality and superior customer support, with the consequence of modest growth and cautious new technology introduction. ROI sells and supports its product through its eight offices in the U.S. and business partners located throughout the world. By fiscal year end 1999, the Company had more than 600 customer sites, primarily in North America.

We expect ROI System to continue its focus on the lower-end of the ERP mid-market (companies with $5 million - $250 million in revenues), by maintaining and enhancing existing functionality of its MANAGE 2000 solution. The product will likely be enhanced through 3rd-party alliances in the contact management and marketing automation areas of Customer Relationship Management (CRM). We also expect the company to continue expanding Internet deployment that supports business-to-business (B2B) e-commerce and supply chain collaboration. Additionally, ROI systems will invest more aggressively in sales and marketing, international business expansion through distributors, and will seek to become more verticalized, concentrating on the electronics and medical devices industries.

ANALYSIS:

Vendor Strengths

  • ROI Systems has developed strong discrete manufacturing functionality for the Small-to-Medium Enterprises (SME) segment of the market. Its Product Configurator, Repetitive Manufacturing, and Field Service & Maintenance modules are recognized as among the best in the industry. Moreover, ROI began delivering business intelligence functionality and Windows NT capability before most of its direct competitors.

  • ROI is generally very competitive in speed of implementation, total cost of ownership (TCO), and price/performance ratio. Moreover, the company's modus operandi is to retain its customer base and keep it enthusiastic. It makes every effort to ensure an easy and bug free migration path when introducing new technology and/or product releases. Very impressive is the fact that all its customers are running on the latest product version release, which relieves the R&D department from the burden of maintaining old and new codes concurrently. Its product also has good scalability within its target market segment.

  • While we cannot disclose more detailed financial data due to the company being private, we can state that ROI Systems has been a stable company and has exhibited a solid long-term positive financial track record. It has possibly the lowest collection period (DSO) of all vendors in the space, less than half the industry average of 110 days. It also has a low staff turnover and has shown a serious commitment to R&D (approximately 20% of revenue reinvested), while remaining debt-free.

Vendor Challenges

  • ROI Systems is confined to discrete manufacturing markets and does not support process manufacturing. This does not provide ROI much maneuverability within an ERP market with a declining growth rate. Moreover some modules offer only basic functionality within its "native" discrete manufacturing area (e.g., job shop manufacturing, quality management, project management, and warehouse management). Further, there is no human resources module.

  • Owing to its slow growth, ROI has only a small market presence in general, reflecting insignificant brand awareness and an undeveloped channel outside of the North American market. This is further aggravated by the fact that it supports only the English language. A result may be a number of missed opportunities as companies are increasingly seeking global partners for their supply chain management requirements, despite the company's claims that it has deliberately chosen to pursue its narrow niche and is happy with its position.

  • The company's conservative and prudent R&D strategy, combined with its content in maintaining a very modest growth rate, has caused it to trail the market with respect to technological development and innovation. ROI has only recently started considering future initiatives regarding delivering customer relationship management (CRM) and e-commerce functionality, while it has seemingly been inactive regarding applications hosting and Internet exchange (marketplace) initiatives. Furthermore, its product has not been fully Web enabled and does not provide many standard interfaces to other packages. Finally, while its service & support is very good, it is not leading edge in terms of technology; support has primarily been delivered traditionally on customers' sites or over the phone. The company has, however, indicated the availability of Internet delivery in the foreseeable future.

BOTTOM LINE

Vendor Predictions

  • ROI Systems will not achieve more than 15% - 20% average annual growth rate during the next three years (70% probability), based on its limited market segment and conservative new product and technology introduction. The fact that ROI can grow at all is based on our assumption that a few thousand legacy systems within ROI's target industry are yet to be replaced.

  • We believe that, within the next 12 months, the company will have to either acquire (25% probability) or partner with (75% probability) vendors whose products would significantly enhance its customer relationship management (CRM), e-commerce (Web Storefronts, e-procurement and marketplace exchanges), and supply chain management (SCM) capabilities. The potential alliance candidates for eCRM functionality are GoldMine, Pivotal, or SalesLogix, while Adexa, WebPLAN and Synquest are candidates for a SCM alliance.

  • Within the next 3 years, more than 90% of ROI's revenues will still come from the North American market (70% probability). Due to increasing competition and visibility from its publicly traded competitors with significant resources, we believe that the company will have to decide to either go public (25% probability) or to seek additional capital (45% probability) within the next 18 months. Failing to do so (35% probability) will put ROI at a disadvantage compared to its competitors against the backdrop of its above-mentioned challenges, particularly its international presence.

Vendor Recommendations

Since its inception, ROI Systems has focused on discrete manufacturing, and has not developed any process manufacturing expertise. Current ROI focus, resources and corporate culture make functionality diversification an unnecessary option at this stage. Therefore, we recommend the following:

  • ROI Systems should promptly resolve product interconnectivity issues with other vendors' products in order to attract the divisions of large global companies. It should also expedite the full Web-enablement of its product and significantly enhance its multi-national capabilities.

  • ROI Systems should expand its visibility within the Small-to-Medium Enterprises (SME) market segment in the following ways:

    • Expand business in its existing customer baseby offering new extended ERP modules and enterprise applications. Additionally, expand business by preying on sites with failed implementations of competitors' products.

    • Further expand its global presence, both by opening new offices and developing new affiliate partnerships subject to availability of language support.

    • Deliver more new, focused and pre-configured vertical solutions (e.g., automotive, furniture, consumer goods, etc.), and offer application outsourcing to make MANAGE 2000 attractive to resource constrained smaller enterprises.

  • ROI must remain committed to new product introductions and take more decisive steps regarding extended ERP applications delivery, possibly through product alliances. We also encourage the company to consider undertaking more aggressive marketing campaigns concurrently with these developments; cut-and-dried success story articles in a couple of professional magazines seem somewhat insufficient compared to a spate of high-sounding press announcements by its main competitors.

User Recommendations

  • We generally recommend including ROI Systems in a long list of an enterprise application selection to lower-end of the mid-market companies (with $5M-$200M in revenue) and divisions of larger North American enterprises (or companies from English-speaking countries), which have limited IT budget and conservative IT strategy, and have significant discrete manufacturing requirements, while currently not needing complex CRM, supply chain and B2B e-commerce functionality.

  • ROI should be included on a short list in any selection within the SME market where configure-to-order assembly and field service modules are the main pillars of an enterprise application. The industries that would most likely benefit from using MANAGE 2000 are electronics, industrial equipment, consumer products, and medical devices.

  • Multi-national and companies looking for a broader functionality beyond traditional ERP boundaries from a single vendor may benefit from evaluating other products at this stage.

 
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