It's sometime in 1999. You're the CFO of a $75 million metals manufacturer, and you've decided it's time to implement an enterprise resource planning (ERP) system--software that automates and integrates manufacturing, distribution, finance, and human resources. Will you consider putting SAP on your short list of vendors? Or Oracle, or PeopleSoft, or Baan?
These Big Four vendors are hoping you will. Because of the success they and other ERP vendors have had selling their complex software to the Fortune 500, many of the largest deals to be had are wrapped up. As a result, the Big Four are turning more attention downstream. Middle-market companies, generously defined as those with revenues of between $50 million and $2.5 billion, constitute a tantalizing $4 billion ERP market, according to AMR Research Inc., a Boston-based consulting firm.
But middle-market companies aren't exactly waiting with open arms. Fairly or not, Big Four systems are associated with a host of evils: high prices, difficult reengineering, lengthy implementations, ruinous service-to- software cost ratios, inadequate support and training. No CFO of a midsized company is anxious to see expensive ERP consultants setting up shop in the corporate offices.
Naturally, the Big Four are anxious to dispel such worries. Ask their marketing reps about their experience with middle-market companies, and they will quickly cite reassuring numbers-- SAP says 34 percent of its 14,000-plus customers worldwide are companies with annual revenues under $200 million; PeopleSoft has more than 450 ERP customers with under $250 million in revenues; and Baan shipped more than 500 systems worldwide to companies with under $350 million in revenues in 1997. (Oracle doesn't divulge sales figures.)
Or ask them about middle-market needs, and they will respond with persuasive analysis. "We believe the midmarket is completely different" from large companies, says Ian Williams, director of product marketing for Baan Midmarket Solutions. "We used to say it was more cost conscious; now we say it's more conscious of where its business is. Computers are a necessary evil for them. They are looking to get current, not gain strategic advantage--no millennium problem, no Euro problem. They want to meet business requirements with minimum disruption." Given their small back offices, midmarket companies are averse to reengineering, adds Williams: "They can't afford to lose key people to the process."
And when you ask the Big Four why a middle- market company should prefer them to one of the many fine middle-tier ERP vendors, they recite a familiar trio of reasons: superior functionality, leading-edge technology, and, perhaps above all, scalability. No matter how large a company grows, they say, it can't outgrow their systems. On the other hand, "If you're a $50 million company and you don't plan on growth," then choose another system, says Phil Rugani, group vice president at Oracle Corp.'s General Business Division.
Better practices in a box
But can the Big Four back up their words and deliver affordable, practical ERP solutions for even a $50 million company? They are trying to do just that, through products and rapid-implementation programs aimed squarely at the middle market. (A rundown of each vendor's offering is provided below, in "Get with the Program.")
For starters, each Big Four vendor is preconfiguring (not "dumbing down," they insist) its product for different types of companies. Baan's solution for the machine- building industry, for instance, will comprise 19 functions that support the main business process, from requests for quotation to delivery and maintenance of machines. These industry-specific packages may not be specific enough for some companies, which may face difficult choices between their own best practice and the software's generic best practice. But smaller companies whose processes haven't kept up with business growth may welcome a set of best practices in a box (see "To ERP, or Not to ERP?" page 98).
Smaller doesn't necessarily mean simple. A midsized company still has complex business processes, points out Doug Sallen, vice president of business development for Baan Midmarket Solutions. From time to time, it's "going to have a weird transaction--say a quote with multiple sign-offs." Baan's ERP software can be tailored for such situations, says Sallen. Although Baan IV has more than 5,000 sessions (screens that come up), Sallen says most people use between 3 and 6 sessions to do their jobs. Unnecessary sessions are switched off; as a company grows, it can switch on functionality as needed. "This allows all of our applications environment to be available to every customer," says Sallen.
In addition to prepackaged solutions, the Big Four have introduced methodologies and software programs to enable companies to model exactly what they want the system to do before configuration. SAP, for example, says companies can model a complete R/3 system in just a couple of weeks with R/3's Business Engineer tool. Baan's tool, which it calls Dynamic Enterprise Modeling, takes this process a step further: once the software is modeled, the tool automatically configures the software.
Middle-market companies may not have the necessary infrastructure to support an ERP system, or the IT staff to assemble it. "There's a capital-cost issue for companies, especially if they haven't been into client/server," notes Jim Holincheck, an analyst at Giga Information Group. To address these needs, the Big Four are teaming with companies like Compaq Computer Co., Hewlett- Packard Co., and Microsoft to bundle their systems into complete solutions, including server hardware, middleware, operating system, and database software.
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