Back Through The Middle And Around Again
According to International Data Corp. (IDC; Framingham, Mass) analysts, almost all themajor ERP vendors are stretching well beyond the Fortune 1000 and have either launched orannounced marketing campaigns that strategically target mid-sized companies. That'sbecause Enterprise Resource Planning (ERP) software solutions, once synonymous with thelarge enterprises, are coming to the middle market. "The ERP marketplace in theglobal 500 has become saturated," explains Frank McGorman, channels manager for HP'sInternet and application systems division. That means opportunities for HP resellers,system integrators and ERP vendors who can fulfill their needs.
As you might expect, there's also a sizable amount of money to be made. IDC estimatesthat the worldwide ERP consulting and integration services market is expected to expand ata compound annual growth rate of 17%, while the client-server segment will grow by morethan 25% annually over the next five years. "The ERP vendors want to continue thatrevenue growth, so they are viewing the mid-market as a large market opportunity,"says McGorman.
When Bigger Isn't Better
"The large system integrators that I deal with are [targeting the mid-market]also, because the Global 500 is saturated with the integrator services as well,"notes McGorman. And the Y2K Bug, which has been responsible for a slow-down in hardwaresales, hasn't hurt sales in the ERP market either. In fact, it helped by creating anexcuse to buy ERP solutions.
"One of the challenges is to get through the year 2000," says Mike Janis, CEOof JGI Inc. (Rochelle Park, N.J.), integrator and HP reseller. "In '96, '97 and theearly part of '98, there was an artificial spike in demand for ERP as the solution toreplace Y2K (as well as replace legacy, non-year-2000-compliant custom applications) grew.If they didn't remediate, they would go out and buy a new system. It's why vendors likeBaan, PeopleSoft and J.D. Edwards have slowed down a bit. We all [caught] part of the waveand we're experiencing a little downturn because that artificial spike in demand is overnow."
Nevertheless, the expectations of IT managers and users are rising as additionalbusiness advantages (supply-chain management and e-commerce, for example) come to light."We see a growing need for e-commerce/e-business solutions as they relate to thebackbone ERP system," Janis says. "We see a broader interest in supply-chainsoftware and front-office software."
Because much of the dynamic growth in the ERP space is now coming from mid-sizedcompanies, their different needs have created a significant shift. "The middle marketbuyer would like the solution provider to do most [of the work]," says Janis."The upper-tier buyer still has the staff to select best-of-breed and amalgamate allof those things. There's got to be value-add; people will not just purchase for the sakeof purchasing. They will not buy the prettiest product anymore, they're going to buy theproduct or the service that's going to give them the quickest return on investment."
Minimal In The Middle
Allen Byers, manager of application consulting for Strategic Technologies Inc. (Cary,N.C.), an HP reseller that works with manufacturing and distribution companies with annualrevenues under $250 million, sees the unique needs of middle-market firms refocusing ERPproviders, resellers and integrators. "In most [of our] cases, we see a minimal ITstaff. And [they] are coming off of a wide variety of legacy environments. As they moveforward into an HP environment, often times there's a lot of skills transfer required tolet them move into this. Two key value-added components are training and outsourcing.
"We work with people all the way from demonstrating the software to help themunderstand the business processes and how it fits in all the way to doing remote databasemonitoring to have them actually maintain the database," Byers explains. "A lotof the companies that may only have one database administrator (DBA) have no backupvacation recovery plan, so we provide real-time, 24 hours-a-day database monitoring tohave people keep their on-hand staffing cost down."
"Part of our strategy is to rely on, not only complementary software partners, butinfrastructure partners. And to focus on those partners, so that we reap the most benefitsfrom them," says Charlie Allieri, program manager for Chicago-based System SoftwareAssociates' (SSA) eBPCS enterprise product suite.
According to Paul de Janosi, a partner at Benchmarking Partners, Inc. (Cambridge,Mass.), when companies move to an intelligent ERP solution, there are usually three keyphases:
- Internal integration
- Supply-chain optimization
"The first phase, the internal integration phase, is a way to break down thefunctional barriers and improve the processes to allow electronic information to be passedback and forth. The second phase, the supply- chain optimization phase, goes beyond theirtraditional Electronic Data Interchange (EDI) connections to now share information withsuppliers and customers.
"And the third area is what we call the collaboration phase where people aredeploying much more concentrated usage of e-commerce tools and the Internet and other sortof infrastructure-related things and actually redefining how their businesses areinteracting with their customers and suppliers and the ultimate consumers."
Consequently, those kinds of customer epiphanies and involvement have erupted into anemerging trend in the mid-market ERP market: the blurring of some of the lines thattraditionally have separated resellers, integrators and ERP vendors. While largeenterprises often opt for a "best of breed" information technology (IT)strategy, mid-sized companies seek out comprehensive solutions. As a result, the conceptof providing "value-add" has become imperative for resellers, integrators andERP firms.
Consequently, companies targeting the ERP market have mapped out strategies to addressthose user needs. "Specifically for the mid-range companies that we are selling into,they require a completely integrated solution," says Peter Lopes, vice president,Psipenta USA, an ERP vendor that targets manufacturing organizations that manufacturelarge, highly engineered products such as subways. "They do not want to buy piecesanymore. They want to have all of the components fully integrated into one solution andprovided by one vendor if at all possible. And that is what we are delivering to thismarketplace: including the sourcing side from the supply chain on purchasing and managingoutside contractors to the project management, the configuration, the product datamanagement, that is required for this kind of environment."
Psipenta USA, which recently opened a North American headquarters in Westwood, Mass. isnot an HP reseller. However, "HP hardware is very prevalent in this environment,especially among our UNIX users today," Lopes says. "It's becoming more so inthe NT side. There's already a preference to that hardware platform. What happens today iswe sell directly to our customers, we allow them to choose the hardware they want; but wesay we run best on certain hardware. And one of those is on HP."
No Small Parts
SSA's decision last summer to focus exclusively on HP reflects a strategic shift forthe firm that will have a significant impact on its enerprise business. "It's a hugepart of our strategy," Allieri says. "We look at them as almost being a part ofSSA. [Also], we were supporting other platforms on which we did not have a tremendousamount of installed base. So, it didn't make sense for us.
"What has further strengthened our relationship with them has been our decision tofocus exclusively on HP for our UNIX platforms and our future NT platform, which should bereleased this summer," says Allieri. "Not only have [SSA's] resources beenbetter focused and therefore we've been able to release faster to the marketplace betterperforming and better quality product, but also HP's interest and therefore participationwith us has increased as well and has further been able to help us in delivering productsfaster than we'd expected. The NT product is an absolute example of that."
In the future, value-added ERP solutions are likely to become important even formid-sized firms, particularly as they look to move more and more applications to the Web."The mid-market can't afford the ERP solutions that SAP rolls out. They're not goingto do a $10 million SAP implementation," HP's McGorman says. "So what the SAPsand [other] enterprise vendors are doing is creating lower priced packages and theintegrators are working with them to create practices around those packages that generatea repeatable solution."
From McGorman's point of view, there are several different components of supporting theefforts of ERP providers and integrators who are targeting mid-market companies. "Atthe highest level, we work with the ISV partners to make sure that their packages run onour platform and that they run very well. Next, we have people taking those packages andcreating a value chain for specific segments of the manufacturing market."
"We have tremendous demand, even from smaller companies in the mid-sized range tobe able to put their products and services out into the supply chain and take advantage ofthe Web technologies that are available today to drive out all of the non-value-addedactivity within the organization," Byers says.
"The ability to put product catalogs and incorporate their order cycles out totheir customer base and the ability to get away from the complications of EDI and othermeans of transmitting data to suppliers: We see that the Web is being adoptedsignificantly even in the small, middle-market companies."
--Susan Aluise is a technology writer with the Washington News Bureau(Washington, D.C.).