A Small Enterprise Resource Planning Vendor: The Vision and the Challenges

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This note concerns the vision of Jeeves Information Systems AB (JIS), and the challenges ahead, in addition to the ones covered in previous notes: Competition From a Small Vendor; Jeeves—Thriving Organically As a Humble Servant; The Formula for Product Success: Focus on Flexibility and Cooperation; and Getting It Right: Product, Quality, Timing, and Price.

This is Part Four of the series Jeeves—Thriving Organically as a Humble Servant.

Taking the Long-term View

Simply put, the company's long-term objective is to establish enough power to create and control its own future. To that end, Jeeves collaborates very closely with experienced and skilled partners, and it is important that partners and customers perceive Jeeves as their top choice amongst a plethora of available business systems. The company has achieved this status in Sweden, and sees the possibility of further cementing its position in Europe, apparently not at the expense of its earnings. Jeeves recently declared its ambition to become one of Europe's leading business systems providers, in maintaining a minimum annual growth of 25 percent, with a minimum operating margin of 10 percent. Growth is a vital sign of success in this sector, which as a whole is stagnating; demonstrating a combination of growth and profitability for over a dozen quarters makes Jeeves stand out from the crowd.

The model of reaching the market through partners has apparently been working well, and is an important explanation for the company's expansion and positive earnings performance. Accordingly, Jeeves not only is sticking to its strategy, but also looking ahead. It plans to start up in a significant number of new markets each year, and to create market growth with focused initiatives. Jeeves chooses markets and partners in line with the company's product position and prioritized market segments. Identification of new markets is based on a business plan which runs for three-year periods; but longer-term plans are also taken into account. When a market is selected, basic localization is effected, whereby the nominal product is translated to the relevant language, and adaptations to local conditions are made. All this can be done through a partner, and normally partner qualification is prepared once the need for a localized product is demonstrated.

For partnership, there are stringent requirements, mainly regarding competence, size, and business concept. After a partnership agreement is completed, training and support are supplied in the start-up phase, but after a few installations have been performed, the partner is deemed to be self-sufficient. After this phase, the vendor helps mostly with marketing support. For product development, Jeeves partners have collectively devoted an undisclosed amount, which is invested in projects, based on market and customer needs. The latter includes the development needs Jeeves learns about through the support process; Jeeves regularly surveys the quality of its product by performing surveys of partners and customers every other year at least. These surveys also measure customer satisfaction, with respect to the product, and with respect to Jeeves as a company. The vendor also has a quality council, with members from the company's major partners.

Partner Strategy Advantages

Jeeves cites several advantages of its partner strategy, starting with a lower business risk for both parties: while partners may resize according to cyclical market needs, Jeeves's extensive customer base implies a stable revenue base through maintenance and upgrades. Further, specialization is maximized at every level, since partners often have specific industry skills and deep domain knowledge in various business processes, which in turn provides qualified feedback input for Jeeves's product development. These partners are selected industry specialists who can tailor Jeeves Enterprise to fit virtually every customer's need. Over 80 percent of the partners have more than 5 years of experience with the product, which in theory means that customers gain expert advice and support. Some expect to see growth amongst business services providers (BSPs) that combine software with market- or vertical-specific business process intellectual property and services, further increasing user choices, and enabling improved business efficiencies.

In general, it is probable that the growth of component-based service-oriented architecture (SOA) will generally bolster joint venture application development between vendors and their resellers. By adding assemble as an alternative, Web services and SOA will probably change the traditional "build versus buy" debate and application decision: sometimes, both software and service providers (partners) will join forces with innovative early-adopter customers to develop process-focused templates, often with an industry-specific flavor (see Buy, Build, or Somewhere Between and Build versus Buy—A Long Term Decision). With limited research and development (R&D) resources and even fewer time resources for bringing new products and services to market, almost every vendor is leveraging offshore development resources. However, this does not necessarily address the concurrent time-to-market and innovation issues, whereas owning a solution built atop the vendor's own software by an early-adopting savvy customer or partner does both.

Thus, since the work is shared intelligently with about sixty trusted partners in twenty countries, Jeeves can focus its resources on cost-effective product development, in order to add functionality that leads to a lower TCO for the customer. This focus, along with the system's structure, makes Jeeves one of the world's most functional business systems in terms of incurred product development time. In relative terms, Jeeves spends four times more on R&D than its main competitors (that is, approximately half of total revenues; about half of its workforce are developers). Still, although employing only about 90 mostly all-rounder people, Jeeves can claim nearly 400 professional co-workers in the Jeeves ecosystem, if one includes partner staffers. This virtual workforce, which is a lean advantage in itself, can give the false impression (to those who misunderstand its business model), that Jeeves is small and insignificant. However, given that direct contact with customers is important for understanding their situations and needs, in 2002 Jeeves acquired their former partner Reveny System AB, thereby opening a direct channel to customers (Reveny, acting in a subsidiary role, deploys operations which encompass direct support and consulting services). This direct channel, along with Jeeves's traditionally close collaboration with its other partners, implies sustained complementary prospects of capturing market needs. Jeeves wants to enhance the structure of partnerships to facilitate new partner start-ups and to enhance the motivation of its existing partners for developing their business around Jeeves Enterprise.

Direction of Future Development

Jeeves intends to develop its product in at least two directions. On one hand, product localization (according to the needs of prioritized markets) and partner collaboration for vertical solutions will continue. On the other hand, Jeeves pledges to make its product even more flexible, with widened offerings of native functions, further deepening of certain existing functions, continued investment in Internet technologies, and freer choice of hardware, operating systems, and databases.

Another trend which has influenced product development lately is the increasing demand for a more versatile product which contains additional functionality besides the core of the business system. Thus, as mentioned earlier in this series, in 2004 HRM Software was acquired, enabling Jeeves to offer more complete integrated human resources (HR) functionality as an add-on to interested clients. HRM Software was founded in 2000, and has since developed the HRM web-based system for staff and workforce planning, and for incentives management. The system includes functionality for organization administration, scheduling/staffing, time, incentives, recruiting, competence, and incentives revision. Its customers are midsized and large Swedish companies within both the private and public sector.

As for other major product partnerships, in addition to Tacton, Jeeves has successfully partnered with Tekki, a Sweden-based provider of security compliance modules to enterprise applications vendors; Mercur, a supplier of similar systems for budgeting, forecasting, and following up (within the business control realm); and Inobiz, for more complex and versatile Internet integration capabilities.

For starters, the trend and growth for business systems lies within extended enterprise resource planning (ERP) application areas, and Jeeves will thus have to strengthen its offering in systems for product lifecycle management (PLM), enterprise asset management (EAM), sales tax management, and business intelligence (BI), to name a few. In addition to bearing the costs of doing this, Jeeves will have to conduct these activities carefully with partners. In other words, partners will have to be in a position to know whether to develop their own solutions atop Jeeves Enterprise, or to wait for the vendor to do so (internally or via an acquisition).

Bundled with this is the need for perspicacious communication of Jeeves's and partners' vertical expertise, and their markets. To date, this information is unclear, judging by the vendor's catalogs and its partners' web sites. It is simply generic and horizontally-biased to say that the install base is in manufacturing, distribution, or service industries—a cry far from saying, for example, that partner x in region y has established expertise in perishable food manufacturing and retail distribution, say, or in heavy duty air compressor servicing.

Again, Jeeves will have to overcome challenges that are mainly of perception—that is, if there is even any perception of Jeeves at all. The vendor will have to build much more recognition and market share within its targeted markets, possibly by advertising in publications focused on and related to particular industries. Recent successes should be publicized. The same holds for explaining the adequacy of its technology strategy for its target market. Furthermore, Jeeves is still admittedly largely dependent on the highly contested and limited opportunity market in Sweden, which has long represented more than 80 percent of its customer base. While non-Swedish markets are growing for Jeeves, many are not yet large enough to offset any major slowdown in the Swedish business (the Swedish portion of the customer base is now down to 73 percent).

Size can be a decisive factor in many selections, and in recent years the organic growth of Jeeves has been faster than the market. But its need to acquire Reveny in July 2002 and Microcraft in March 2005 might be interpreted as an indication of Jeeves's organic growth slowdown. Those takeovers were principally aimed at increasing the customer base, granting access to a wider market segment in Sweden, and strengthening the product offering in all markets. Yet, this mix of direct and indirect models might cause some consternation amongst the partners, and fears that their businesses may be cannibalized down the track. Thus, to be successful at this new approach to partnering, and to make it a repeatable business strategy, the vendor will have to better articulate development and deployment plans and norms for existing and potential developer-partners, with a flexible and equitable licensing or purchase approach for the partners. Also, Jeeves will have to further strengthen their distribution network, including a sales force adept at the focused "solution sale" for highly targeted segments.

On the other hand, recent successes will draw the wrath of numerous competitors, who will now keep Jeeves on their radar screen. They will certainly try to instill fear, uncertainly and doubt (FUD) into the mind of prospective users, not only regarding Jeeves's size, but also regarding its "overly liberal" approach to system modifications. Namely, they might contend that, in situations where modifications to Jeeves Enterprise are necessary, the solution might result in a significantly higher total cost of ownership (TCO) over time. This logic is based on the idea that it is generally costly to make initial modifications to the package, and expensive to maintain them during the entire life of the system, despite the impressive Jeeves approach to controlling costs. Indeed, some less avant-garde or more regimented environments may still prefer other vendors' packaged "best practices" (which have more imposed control and rigidity), rather than embark on the flexibility that might lead to chaos in less-disciplined environments.

Last but not least, some prospective customers outside Sweden (and particularly outside Europe) might be unimpressed with Jeeves's budding reference sites of peer enterprises in their region. The lack of presence in the Asian Pacific and African regions means many missed opportunities, especially in light of the fact that many companies (even among Jeeves's existing manufacturing customers) are likely outsourcing their operations or starting up new plants in these remote, labor-cheap regions.

User Recommendations

Prospective customers in Jeeves's target markets should evaluate Jeeves Enterprise, especially if they are in the current geographies that the vendor covers. Factors to consider include evaluating whether they would also benefit from the vendor's inherent broad extended enterprise resource planning (ERP) footprint and decent scalability (up to several hundred users). Prospective customers should always insist on a contractual time frame for delivery of a solution, and seek reference sites (preferably in their vertical market space) which have been successful with the product suite. Customers outside Jeeves's successful geographies may certainly want to exercise due diligence and check its regional support before making a decision.

The enterprises which will find Jeeves Enterprise functionality the most appealing are probably technologically savvy companies which are competitively differentiated by unique business processes, and which want to avoid expensive upgrades. Jeeves Enterprise is a modern, flexible business system, responding to ever-faster flows of information and changes. With it, customers can even mimic other systems, thus lowering resistance to a change of business system. As long as users do not change the standard procedures, Jeeves provides an upgrade guarantee that users do not have to reprogram anything when upgrading to later versions.

Existing Jeeves customers share the common feature of medium size and the desire to have a business system that is modifiable according to their business, rather than the reverse. The desire to have something more than an off-the-shelf system has meant that in many cases, customers choose Jeeves after being disappointed with other, often better-known enterprise systems that need significant "feed-and-care" resources for adapting the system (if not for merely operating it). Potential local competitors or system integrators and consulting firms with vertical savvy and leadership in some local markets, that are in need of an advanced underlying "organic" ERP product platform, might want to look at Jeeves for the potential of mutually beneficial partnerships down the track.

This concludes the series Jeeves—Thriving Organically as a Humble Servant.