Meeting the challenge

25 February 2006

Mid-size companies need sophisticated applications to support their businesses, but must deploy them using far fewer resources than larger organisations.

According to at least one executive board member of software giant SAP, there is no such thing as a small or medium-sized business (SMB). "It's absurd. The term was merely created by analysts and companies who want to categorise businesses for their own referential purposes. Nobody starts a company one morning and says: 'I want to be an SMB,'" Leo Apotheker told business leaders at a recent executive conference.

Many analysts are inclined to agree with him. "He's got a point. Of the 23,000 SAP users worldwide, 53% would be classified as SMBs," says Nigel Montgomery of IT market research company AMR.That figure is instructive: it clearly shows that so-called mid-sized businesses not only face the same challenges as their larger counterparts, but also that, in some cases, they are implementing the same IT systems as their larger counterparts in order to tackle those issues.

Case study: Wright Health Group

The problem

In 2000, dental supplies company Wright Health Group decided it was time to join the Internet revolution and develop a transactional web site. But at the time, it was hamstrung by its reliance on a Unix-based, green-screen enterprise resource planning system that was incapable of linking back-office function to a web interface. "We'd had the system for 10 years. It was a great system, but great for 10 years ago," says Wendy Wilson, IT manager at Wright Health.

The organisation has 200 employees and supplies 7,500 dentists across the UK with a range of nearly 70,000 dental products. On average, it makes 600 sales a day and has revenues in the region of £25 million a year. Because it operates in a highly competitive market, where customers can easily switch suppliers, Wright Health was keen to provide a low-cost distribution channel, making an online transactional system very attractive. "We also wanted an integrated system that was going to be capable of doing the human resources, payroll, accounts and reporting,' says Wilson.

The solution

Having tendered for a replacement ERP system, Wright Health opted for a pre-integrated version of SAP's business suite, SAP All-in-One. The SAP system was purchased in 2002 and implemented over the course of six months.

The implementation was accompanied by a hardware refresh, but most time was spent on data migration, says Wright. It had to shift 7,500 live customer records, 70,000 product descriptions, as well as master data relating to its full sales records from the old system to the new one.

Because the new system involved a shift away from green screens, Wright Health trained its 100 users on PC technology in advance of the roll out, increasing their familiarity with the SAP user interface. "We had to invest the time because it was quite a shift for the users," says Wright.

The benefits

As well supporting online orders, which has enabled Wright to provide a reliable next-day dispatch service, the system allows sales staff to run queries and reports on the data it contains, keeping them informed of buying patterns and customer preferences, says Wright.

Another major benefit has been dramatic improvements in the supply chain. Wright Health is now able to fulfil around 98% of orders immediately, through having the correct products in stock, while ensuring that stock levels are streamlined to reduce warehouse costs. "This has had a good knock-on effect, not only for the business, but also our customers," says Wilson.

However, many others face very real budget and time limits that influence their decisions in buying the application software that will support processes such as financial accounting, manufacturing, supply chain management, human resources and customer relationship management.

So while the terms 'SMB' and 'mid-sized business' may seem artificial, they do provide a useful way to categorise organisations that have certain requirements from their IT systems. It may be easier to think of them as 'resource constrained organisations', says Brian Prentice of analyst company the Meta Group. These businesses are "bound not so much by a similar set of needs, but rather, by a similar set of constraints," he says.

Pre-packaged apps

SAP itself recognises this issue: it has business software specifically targeted at the mid-market. It now even offers pre-packaged 'bundles' of software, hardware and consulting services to reduce integration work for businesses with limited IT skills available.

And SAP is not alone. A multitude of vendors are claiming to deliver software that specifically meets the needs of the mid-market, including Oracle, PeopleSoft, Microsoft, Sage and Coda.

According to analyst company Gartner, much of the function offered by the various packages available is broadly comparable. In a 2004 report into enterprise resource planning (ERP) applications in North America, it notes: "Most core ERP systems offer little differentiation from one to the other." The real distinction, say Gartner analysts, lies in the application's tailoring to suit vertical markets and the ease with which it can link into third-party software.

That is particularly important for SMBs. According to industry estimates, buying software specifically designed for a vertical market can reduce implementation and customisation costs by as much as 85%. With Gartner reckoning that most mid-market buyers look for some form of payback within the first 12 months after 'go live', it is easy to see why vertical products are attractive. But there can be huge differences in what vendors mean by a vertical-specific product: to some, it is simply a re-badged version of standard software. Those considering purchases need to verify the software's designer has built in deep industry knowledge.

Gartner also notes that the majority of mid-sized enterprises have some form of ERP system in place; most of these, however, consist of stove-piped, unconnected business applications that have been implemented over a number of years by different departments in a piecemeal manner. That has created a need to build many integration links between them so they can share data.

Since most businesses can expect that they will be using their ERP systems for 10 years at the minimum, removing at least some of that integration burden should be a priority.

In particular, they should be grilling prospective vendors over their support for standards-based forms of integration, and especially web services, which promise to remove much of the time and costs associated with getting disparate systems to 'talk' to each other.

Survival of the fittest

Another factor that influences purchase decisions is the financial viability and long-term future of the vendor. Microsoft's entry into the business application market was announced in 2002 with its acquisitions of Great Plains and Navision. These purchases sparked a flurry of consolidation: Epicor bought up Scala; Sage acquired ACCPAC; CedAr acquired OpenAccounts. Most otably, PeopleSoft snapped up JD Edwards then became a target for a hostile takeover by Oracle.

Providing any kind of forecast of the long-term viability of suppliers continues to be a dicey affair: Microsoft dallied with the notion of buying SAP, according to reports that emerged after the discussions collapsed. If that kind of deal can be on the table without the story being leaked by a loose-tongued executive or picked up by a reporter, then no vendor has a guaranteed future. Consolidation is likely to be a fact of life among the applications suppliers for some time.

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