note concerns the launch of SAP Business One by SAP
AG (NYSE:SAP), the pairing of SAP and the Tax and Business
Services (TBS) unit of American Express, and the delivery
of 13 new mid-market solutions designed specifically for companies with $50
to $500 million in annual revenues by PeopleSoft Inc. (NASDAQ:
PSFT). For details of these announcements see Part
Still, the ride to SAP's and Oracle's SMB success will not go that smoothly, given that managing two different products may go outside of these vendors' strongholds so far.
The challenge of recruiting new partners and of getting them up to speed with new, still relatively unknown, albeit simple products, is imminent. Also, likely market confusion (not to mention channel confusion and/or conflict due to emotional ties to a certain product line) may aggravate already existing confusion about the huge flagship product portfolios. For example, while NetLedger remains separate from Oracle, the demarcation line where one company begins and the other ends is quite blurred. Also, how far the Oracle Small Business Suite will scale upward as a business grows also remains unclear. With no intermediate solution to grow into, Oracle E-Business Suite remains the only alternative, which might often be a too steep undertaking. In addition to the expenses of educating the market and its channel, one should expect higher R&D expenses and possible product delivery delays due to added new product and integration issues.
we believe the SAP Business One and NetLedger initiatives will still take a
couple years to materialize in earnest. The best near-term opportunity for SAP
and Oracle will be to sell to existing large customers for deployment in smaller
subsidiaries and divisions, since these products provide viable options for
staying with a single vendor corporate-wide. Some mid-market vendors with impressive
global reach and localized products, immaculate vertical focus and knowledgeable
channel, offering a very flexible modern product, very well attuned for local
regulatory requirements of several dozen countries and supporting well over
30 languages, such as Scala (see Scala
Shows Far More Than A Bit Of A Backbone) and Systems Union/SunSystems,
have long devised predatory strategies at the large company subsidiary market
and SAP and Oracle will need to move quickly to shore up their own installed
and Oracle customers should begin to consider SAP Business One and NetLedger
as software solutions for smaller, autonomous business units based on the integration
benefit. With the current and/or upcoming more comprehensive CRM solution, these
products will compete well against the aggressive newcomer Microsoft
SAP Business One or NetLedger will not suit manufacturers as they lack MRP (manufacturing
resource planning) and strong field service, and many other manufacturing-oriented
modules, which will again require the higher-priced and more complex mySAP All-In-One
or Oracle E-Business Suite. This might only defeat the purpose, and it might
not help much in preempting the intrusion of some competitors that specialize
in plant-level manufacturing systems (e.g., QAD, Ross,
Agilisys, SSA GT, SYSPRO,
etc.). The basic functionality will consequently need to evolve substantially
in order for these low-end versions to compete in the broader market. While
SAP is not planning to develop manufacturing functionality for SAP Business
One, it however, encourages current partners to team with SAP to create MRP
offering for smaller companies. The first manufacturing solutions from independent
software vendors (ISVs) for SAP Business One are expected towards the end of
Much other work-in-progress is still outstanding, e.g., Business One requires customized integration with third-party accounting systems, but the connectors, which would speed up the integration of those applications, are not yet available. However, SAP has already launched its SDK (software Development Kit) for all previous versions of SAP Business One (6.01, 6.02). For new version 6.2, there is a new generation SDK (including user interface functionality, and tools for accelerated development). This version is being tested by partners and is expected to be released for general use at the beginning of July.
mobile client is also currently not available in the US, and thus are traveling
salespeople still unable to remotely access the software. Again, SAP claims
a mobile client is being developed by partners to cover common remote tasks
like contact management, warehouse management and CRM capabilities. First remote
devices will be available by the end of 2003, while remote synchronization is
planned for Q1 2004. Finally, while Business One includes an embedded e-mail
server, it does not integrate with large e-mail products such as Microsoft
Exchange/Outlook and Lotus Notes. SAP is well aware
of the need for these enhancements, and integrated e-mail is also planned for
for the upper mid-market, the Tier 1 vendors' offerings remain complex applications,
and the Internet architecture and new intuitive interface can mitigate that
only so much. This perception of complexity remains ammunition that the incumbent
Tier 2 & 3 vendors will continue to exploit in order to hinder bigger brethren's
attempt to penetrate their traditional stronghold. Furthermore, not all powerful
functionality (e.g., SRM or PLM) is readily available for these pre-configured
solutions, which may be a serious drawback when competing against the solid
Tier 2 vendors which have long offered their entire suites without any disparity
between solutions for bigger and smaller customers (e.g., J.D. Edwards,
Intentia, IFS, or Epicor).
The "Accelerated Solutions" while enabling large vendors and their channel to
offer a fixed price and fixed time implementation program in modular way, may
sometimes not necessarily offer total extended-ERP functional scope but still
only a part thereof. By the time the customer puts together modules to build
a full collaborative enterprise system for a mid-market company, and then adds
up the multiple implementation time and cost, all the touted benefits might
have been annulled in some instances when incumbent mid-market vendors cover
all the bases with their well-entrenched offering.
it may still take some serious doing to produce a real magic bullet to attract
vast majority of midsize enterprises, since at this stage, many might fail to
find a compelling rationale for an SME to go for PeopleSoft or Oracle as opposed
to, e.g., Lawson, Epicor or Infinium (now part of SSA GT) in
service industries, or an army of channel-focused manufacturing-oriented smaller
ERP vendors. While fixed time and cost solutions delivered packaged from pristine
laboratories do have their appeal, SMEs are becoming increasingly savvy to ask
for more than just these implementations perceived as cookie-cutter approach.
Therefore, PeopleSoft and its peers will have to repeatedly prove it has not
taken a cookie cutter approach, as each of its solutions is preconfigured to
reduce cost and complexity, but also allows for available extensions based on
each customer's need.
This combination might make a differentiating trait, and since the vendors have also developed industry or process templates for each solution, these could keep cost, complexity and risk down. Despite the challenges, Tier 1 vendors have raised the bar in providing solutions for smaller enterprises, and Tier 2 and Tier 3 vendors should be in for a tough battle to defend their turf, especially as they are concurrently trying to expand and modernize their products with ever diminishing resources and wary prospects. SAP has stated that it intends to grow its small and midsize business from the current ~ 7% of license revenue to 15% by 2005, and that means finding and closing thousands of new customers. PeopleSoft and Oracle too are undeniably tenacious and persistent fighters able to endure the long hauls, although Microsoft, Sage ad ACCPAC would not be pushovers in that regard either.
is Part Four of a three-part note.
One detailed the Events.
Two and Three discussed the Market Impact.
Larger midsize enterprises with less than $500 million in revenue and that are looking for a functional depth in particular industries of Tier 1 vendors' focus should certainly consider these vendors' upper mid-market offerings and carefully determine their needs and implementation time framework, bearing in mind problems typical with new product releases and new partnerships' arrangements. In any case, give Tier 1 vendors a chance to prove that their partners may represent them as nimble and local enough while the vendors remain huge and global. Still, the nature of the partnerships in every particular case (i.e., the vendor's and the VAR's commitment, vertical specialization, client references) should be thoroughly investigated.
Leading application software vendors have long been keen on moving down market, but they must prove that they truly understand the needs of the target market, that they can provide adequate comprehensive support, and that their applications are both cost-effective and palatable, while still with more than adequate functionality for midsize businesses. The sophisticated functionality of Tier 1 solutions should be appealing to the upper-end mid-market customers, but this typically comes with levels of complexity and support that midsize businesses may find overwhelming. On the other hand, if a midsize business already has some complex requirements (e.g., multiple lines of business, internationally dispersed operations, etc.), it should consider the upper mid-market offerings of large market vendors as a step towards upgrading to the full suite down the track.
We are generally skeptical about bold promises of speedy, trouble-free implementations and recommend that users dig deeper and conduct detailed interviews with Tier 1 vendors and ask for sample timelines and references from past clients who have achieved quick ROI. Conversely, question other incumbent mid-market vendors in the contest to match certain elements of some large vendors' value proposition (e.g., guaranteed no extra cost for legacy data conversion).
Most vendors offer their own version of SME solutions with programs for rapid, lower-cost implementations. While vendors' endeavors in that regard are highly commendable, the "caveat emptor" approach is still applicable. Although some midsize companies would be well off with scaled-down versions of rapidly implemented, Tier 1 software applications, for many companies this may not necessarily be the best solution. Although some preconfigured solutions may provide the best of both worlds as templates lower cost and complexity and give mid-market companies a strong foundation to built upon, but there is still support for extensions based on each customer's need, still, make sure that you do not sacrifice functionality and/or customizability for the sake of a quick implementation, since that may cost you more in the long run.
Smaller organizations with less than 300 employees and less than $200 million in revenues, but especially divisions of corporations using SAP and Oracle on a corporate level, which are seeking core back-office and CRM functionality without strong manufacturing features may benefit from evaluating these vendors' SMB/SME offerings. Non-manufacturing US subsidiaries and divisions of larger enterprises that have long formed partnership with SAP and have been yearning for a SAP-centric solution should consider the SAP Business One/American Express combination. Independent small and medium enterprises with basic distribution, purchasing, opportunity management, banking and financial management requirements should evaluate SAP Business One or Oracle Small Business Suite bearing in mind the features of other established SME offerings mentioned earlier. Alternatively, small manufacturing companies and mid-market companies with more complex business processes should evaluate mySAP All-in-One, PeopleSoft Mid-Market and all other vendors' equivalent products for the upper-end of the mid-market.
We strongly recommend identifying your clear e-business strategy and conducting thorough comparison-shopping, at least for the sake of information leverage. Consider all options, particularly vigorously weighing the offerings' current and intended functionality and integration. Most importantly identify what needs are "must have" requirements and a timeline for additional components. Once identified, comparison-shop and use the related information to negotiate the best price for the solution. One should note that SAP's experience in the US and Oracle/NetLedger's expertise in the European SMB market remain quite limited at this stage. Businesses that outgrow these low-end products might have to decide in the future whether to migrate to premium-priced, upper-end solutions or switch to another vendor.
Organizations seeking a Web-based solution and out-of-box functionality with little or no customization may benefit from evaluating the hosted offering. Despite bad perceptions of largely ill-fated first generation of hosted providers, and owing to positive news some vendors like Oracle have lately gained from outsourcing, mid-market enterprises might benefit from objectively evaluating the value propositions represented in successful next-generation application service providers (ASPs). Look for the following characteristics amongst the ASP candidate providers:
Amenability to reasonable customization and interfacing to legacy systems
Service-oriented architectures (SOA), Internet-based architecture, and standards-based
Support for specific vertical industries or business processes
Hybrid services that can coexist with onsite systems
Sound policies for privacy and security
A sound track record of service-level agreement (SLA) maintenance at originally
quoted price levels and a quick ROI
financial viability and geographic coverage
The ability to track and provide key metrics for application and network availability
For mid-market companies today's dynamic business environment means the survival of the most agile and flexible. When evaluating a software application, companies often fall for a snazzy user interface or raw number-crunching power. However, a flexible system should also offer features like tools and templates, cross-reference checks, and many other parameterization utilities that provide significant system changes without changing source code. Make sure that what you select now will keep abreast of the technology changes in the future. It may sometimes be more beneficial to implement the right solution slowly than to rush the wrong one into place.
more food for your thoughts in this regard, see Fast-path
Implementations - Are They Good or Bad?, Should
You Modify an Application Product? and Standardizing
on One ERP System in a Multi-division Enterprise