The uneven quality and the widely varying capabilities of mid-market applications can make assessing a system extremely difficult. For many customers, the buying process averages six months and, in some cases, it has taken two or three years.
But technical function is only a small part of their problem: the price, the stability of the provider, the flexibility of a package and the quality of the reseller are all key.
Research by analyst group AMR has shown that features such as Java or browser support, or the use of component-based architectures, are welcomed, but only as part of a gradual, evolutionary plan – and new features must not cost more. Customers frequently say that a bigger priority is getting their own processes, and those of their customers, in better order.
None of these issues, however, is expected to prove a deterrent to the midrange buying frenzy that is expected over the next several years. Those that install integrated midrange business applications, that do not pay too much and that implement them well, can expect to reap substantial benefits through the streamlining and automation of their business processes.
Midrange buyers have several advantages over the larger enterprises with whom they both compete and partner: applications specifically engineered to meet the needs of SMEs are usually much cheaper than those intended for the really large enterprises.
According to recent research, buying and implementing a ‘tier two’ system from a mid-market software specialist such as Scala can cost between EU2,000 and EU8,000 per seat over three years. This compares to between EU15,000 and EU30,000 for a high-end system from a ‘tier one’ vendor such as SAP.
Prices may fall still further during 2003 as larger applications companies – and in particular, Microsoft – attempt to squeeze incumbent or smaller software suppliers.
Maintenance, support and implementation can also be cheaper for mid-market customers. As at the high end, much of the cost associated with rolling an application relates to installation, configuration, training and customisation. In fact, says Simon Edwards, UK and Ireland country manager for Microsoft Business Solutions, there is “not much difference in actual license costs” between high-end and mid-market applications.
Implementation is different: the roll-out of a mid-market application will cost somewhere between one and three times more than the actual licence. At the high end, this ratio ranges from 1:3 to 1:8.
Suppliers are usually willing to negotiate payment terms, too. “We are prepared to work on a one-to-one basis with each customer to sort out how and when it suits them to pay, according to their individual cash flow issues,” says Graeme Cooksley, executive vice president at applications software company SSA Global Technologies (SSA GT). “There is always an opportunity to negotiate, especially with the software market how it is at present,” he says.
Customers should ask for price lock-ins when negotiating contracts, advises Jennifer Chew, an analyst at IT research company Forrester Research. “Take advantage of vendors’ never-ending quest to close a deal by asking for price lock-ins at today’s prices for future software purchases.”
That way, customers can buy the software when they need it at the lowest price, without reopening lengthy negotiations,” she says. Mid-market application company Exact Software regularly offers this option to customers, she points out.
Service and support
For customers of mid-market applications, a successful deployment is typically dependent on the help of a third party. This is because mid-market applications are typically sold through resellers.
“A good partner is critical. I didn’t appreciate how important it was until we started working with them,” said Crawford Fisher, manager of a successful Navision implementation at his company, Steel Alloy in praise of reseller Alpha Landsteinar. In particular, it was their willingness to “twist and bend” the package to suit Steel Alloy’s needs to most impressed him.
But not every company wishes to purchase software through a third party. When construction and engineering company Arup, which has revenues of some $400 million a year, bought a package from software company JD Edwards in 2000, it wanted to use JD Edwards’ own consulting services. “We’ve used third parties in the past, and things have gone wrong,” explains Andrew Klimaytys, systems manager at Arup. “When that happens, you often find that you are too removed from the vendor for them to take much responsibility for the problem.”
ERP giant SAP is risking its reputation this year by introducing a new low-end package, Business One, for companies with less than 250 employees. It has signed up 19 resellers to date. Tim Osman, head of small and medium-sized businesses at SAP UK says that “We have a brand to protect,” and that if a reseller is unable to honour an obligation to the customer, SAP UK will find another partner or sort out the problem itself.
Regardless of such assurances, many organisations are understandably wary of dealing with small, specialist companies that they may not have done business with in the past. According to Cooksley at SSA, there are two issues for customers to consider: the financial viability of the partner and its ability to provide solid references from existing customers. “Ask, if possible, to speak to reference customers in the same industry as your company and check that the budget given for that project was no more than 10% larger or smaller than your budget. Above all, check that the partner delivered on everything it promised to do.”
Peter Knight, a project manager at Open Business Solutions, a third-party implementer of mid-range Mapics manufacturing software, adds the following advice: “Make sure you are absolutely confident that the partner has an in-depth understanding of the product. Don’t take their word for it – insist upon a detailed demonstration of the product, following a detailed needs analysis.”
Implementation partners are frequently able to offer vertical market skills and other tools, such as rapid development techniques. According to Edwards of Microsoft, the company’s most successful Great Plains and Navision implementation partners are “the ones that have developed new functions and features to add to our products that make them a closer fit for our customers’ needs.”
FunctionSophistication of function often tops the checklist of buyers, but it is generally the first casualty in the mission to implement an easy-to-use system quickly and cheaply.
This is no bad thing, according to Dwight Klappich, an analyst at The Meta Group. “Although mid-market companies share many of the same challenges as larger organisations, it is simplistic to assume that mid-market companies are just smaller versions of large companies, needing and benefiting from the same applications.” In fact, he says, there is often a diminishing return on automation, where the cost and effort to automate a process is greater than the potential business benefit.
However, many organisations – especially manufacturing companies in sectors such as food and beverages or pharmaceuticals – will require specialist functions in order to comply with regulations specific to their industry.
Diametrics Medical UK, a manufacturer of health care equipment, is one example. It purchased a manufacturing system from specialist software company Mapics, because the system offered a range of specialised functions that closely support medical equipment manufacturing. As the UK subsidiary of a US-based company, Diametrics Medical must comply with UK legislation and US Food and Drug Administration requirements. “The Mapics system has all the facilities and features we want,” says Peter Albrighton, operations director and financial director of Diametrics Medical.
Another important consideration: Few mid-market companies have the IT resources to manage applications in-house without assistance – and when they face support issues, they need fast response times.
For these reasons, says Cooksley of SSA, between 60% and 70% of the company’s customers opt to run its software on IBM’s mid-range proprietary iSeries system, formerly branded the AS/400. “It’s the ideal system for SMEs. It is mature, robust, modern and hugely reliable,” he says. (SSA, a long time developer on the machine, tends to encourage its customers in this direction).
Most mid-market applications companies (including SSA) offer products that run on Microsoft’s Windows, as most potential customers have staff with skills in this area. “Navision and Great Plains were both applications companies that focused primarily on offering top-of-the-range applications for Microsoft environments. That’s why we bought them,” explains Edwards of Microsoft.
Microsoft, along with other suppliers of Windows products, will increasingly use the .Net environment in order to make applications easier to implement, customise and manage.
“We know that mid-market companies can benefit from the applications approaches that are used by larger companies – and that they would take those approaches if they could afford to,” says Edwards. Increasingly, it seems, they can.