When Jackson Laboratory completes the implementation of its new enterprise resource planning (ERP) system in April, you can be sure that CFO Lee Wilbur will be a happy man. The genetics research institution, in Bar Harbor, Maine, began the effort more than two years ago, and, along the way, the $97 million, 1,200-person lab has experienced both success and frustration. The stability of the software — in this case Oracle Corp.'s new, Webcentric 11i suite of products — posed an issue, as did the availability of a new order-management module that the laboratory decided was worth waiting for.
One aspect of the implementation, however, wasn't an issue at all, despite the fact that the company's CFO led the ERP project. Wilbur and his colleagues wasted little time evaluating the capabilities of Oracle's financial software — the general ledger, accounts payable, and related functions that are typically described as the "core" of most ERP packages. "The financials were very similar among all the companies we considered," says Wilbur. "Oracle did offer a grants-accounting module, which no one else we looked at did, but that was the only difference we noticed." For more on the Jackson Labs ERP implementation, read "Of Men and Mice."
ERP software is so complex that it may come as a relief to prospective buyers that some aspect of the package is virtually a commodity. Analysts say that because the core financials are typically among the first modules an ERP vendor develops, they are usually robust and mature, with each vendor tweaking its own products to match improvements made by others. "Vendors won't admit it," says one analyst, "but they really don't devote many resources to the core financials." In fact, the Web sites of many vendors barely mention their core financials at all, preferring to devote maximum verbiage to customer relationship management (CRM), business intelligence, and other technologies that represent growth markets.
Dennis Byron, an analyst at IDC, says those applications will help ERP sales grow at a compounded annual rate of 13 to 14 percent through 2006, outpacing the low-single-digit growth of IT budgets overall. "But very little of that growth will come from financial applications," he says, although treasury management, business intelligence, and profit-optimization applications will see relatively strong sales.
Where does that leave companies that are in the market for the core financial applications offered by ERP vendors or vendors that specialize in accounting software? Buying decisions will be based less on the capabilities of the products themselves, analysts say, and more on the capabilities, viability, and suitability of the vendor(s) in question. "The needs of the finance department," says Byron, "remain a key driver for ERP sales, along with the needs of the manufacturing side. But since there are only so many ways you can do a general ledger or an accounts payable application, a feature-for-feature comparison usually doesn't make sense."
Instead, analysts say companies should find a vendor that's a good fit based on its vertical industry expertise, underlying architecture, licensing terms, product direction, and financial health. But other factors can also intrude. As companies grow through mergers and acquisitions, they often find themselves relying on a host of different ERP systems. Standardizing on one brings a certain order to potential chaos, but can be expensive and disruptive. Flowserve Corp., a Dallas-based manufacturer of flow-control equipment, has made nine acquisitions since the mid-1990s, and has taken a hard look at the ERP issues that have resulted. Its solution: quasi-standardization. "We're trying to limit the number of vendors to four," says CFO Renée Hornbaker, but, she says, "if we were to acquire a company running another major ERP system, would we change it over? Probably not. The internal time and resources needed to do that are prohibitive."
Another emerging trend that may shape buying decisions is the move to what AMR Research analyst John Hagerty calls the financial supply chain, a term that describes the flow of cash between organizations. "CFOs want more efficiency, and they want to accelerate cash flow," says Hagerty. Adopting a financial supply-chain model allows them to do that, because it provides a window into what trading partners are doing. "Instead of waiting for a check to show up, for example," he says, "you could look into your partner's systems and see if an invoice had been approved, and when, so you'd know when you'd have the money."
Right now, a handful of specialty players are leading the way (Hagerty cites TradeCard, Aceva Technologies, BillingZone, Xign, edocs, Clareon, and others), but ERP vendors are taking notice — SAP announced plans for this arena in December, a move Hagerty expects will galvanize the other players. That may mean some important changes will be made to core financial applications in the months and years ahead.
Below we offer snapshots of some of the major vendors of ERP and integrated accounting applications vendors. This collective portrait of broadly focused companies with at least $200 million in annual revenue shows the trends most likely to influence buying decisions in 2002 and beyond.
If Best Software doesn't sound as familiar as most of the other companies included on these pages, there's a reason: until last December, it was known as Sage Software. The name change is part of a strategy for this U.K. firm to significantly advance its presence in the U.S. market. With more than $630 million in revenue last year, Best is also now the parent company of Peachtree Software, giving it a major presence among small and midsize companies. The goal for 2002, according to David Butler, president and CEO of the company's midmarket accounting division, is to become more of a "one-stop shop," extending its offerings from core financials to human resources, E-commerce, and other areas so as to become a complete ERP player. Butler also says that with fewer first-time ERP customers available, providing a smooth transition from a prospect's current ERP implementation to a Best product is a priority.
Dedicated to midmarket companies, Epicor sounds a theme common to most ERP players today, that of "collaborative commerce." Epicor moved early to adopt Microsoft's .NET architecture and is redesigning its product family to work in a "Web services" environment. John Hiraoka, Epicor's senior vice president of marketing and business development, says the aim is to provide customers with "agility and lower total cost of ownership." Epicor has also embraced portal and business intelligence technologies as part of its grand plan to provide better supply-chain visibility and greater collaboration among supply-chain partners. The company says that its rollout of rearchitected products will follow in lockstep with Microsoft's shipping of Visual Studio .NET and the .NET Framework, expected this quarter.
Geac is in the midst of a rebuilding period, trying to reverse what president and CEO Paul Birch dubs "a downward spiral in which every stakeholder group was mad at us." To right itself, Birch says Geac will be careful about future acquisitions (its 1999 purchase of U.K. company JBA Holdings Plc proved disastrous, with the company paying far too high a price) and will eschew "the latest and greatest" technology in favor of "robust core functionality." Geac derives about 70 percent of its revenue from core accounting software, but Birch admits that this is a mature market and growth will come mainly from CRM, business intelligence, and other newer technologies. Self-service and E-commerce applications top the company's priority list.
Intentia is a Swedish company with serious designs on the U.S. market. Last year the company consolidated its U.S. operations under the Intentia name. Its flagship Movex product line has been divided into six broad product areas built around the concept of E-business collaboration, a trend on which Intentia has essentially bet the farm. Last year was rough for Intentia from a stock market perspective, although that's true for most of the companies in this sector. Its shares lost two-thirds of their value before beginning a fourth-quarter recovery. Going forward, the company will stress the ease of integration between its modules and will expand its product offerings once its cash flow and profitability targets are met.
This division of software giant Computer Associates International Inc. dubs itself an "E-business applications" company, but it might better say an "E-business integration" company. Its core product, BizWorks, provides a superstructure for many types of applications, allowing companies to tie together not only their own systems but also those of suppliers and customers. InterBiz does offer financial, logistics, banking, and other applications that make it a viable ERP contender, particularly in the midmarket, but it can also lay claim to being an enterprise application integration (EAI) company or, as one analyst puts it, an enterprise business integration (EBI) company. In October, InterBiz announced a new Premium Service plan that acts as a sort of insurance policy, mitigating the expenses associated with migration and maintenance.
Its fourth-quarter acquisition of YOUcentric Inc. gave J.D. Edwards the requisite CRM arrow for its quiver, and the company wasted no time revamping the product to mirror the look and feel of its OneWorld Web-based collaborative applications family. The company also struck a notable deal with the Parson Group to provide integration and optimization services to customers. The goal, says David Packer, J.D. Edwards's vice president and general manager, is to help customers achieve faster ROI, certain to be a mantra for all software companies in 2002. The company is improving its technology with that same goal in mind; for example, the "Profitable-to-Promise" feature in its latest Advanced Planning module lets salespeople weigh the financial impact of orders while on the phone with customers.
Continuing its focus on service industries, Lawson acquired Account4 Inc., a leading maker of professional services automation (PSA) software in June, and expanded its offerings in this area at year's end. Privately held for the first 26 years of its existence, the company went public in December. Although its product offerings are as broad as those of most other ERP vendors, Lawson keeps its pitch securely in the finance department's sweet spot, emphasizing efficient operations and better decision-making rather than razzle-dazzle, enterprise-transforming technology. The company does most of its business in financial services, health care, retail, professional services, public sector, and related vertical markets.
Microsoft Great Plains
Ten months after the acquisition that shook the accounting software world, Great Plains is fast moving from a dominant midmarket accounting software company to a full-fledged ERP force. A partnership with Logility has allowed it to expand into supply-chain management; its purchase of PWA continues to bear fruit in the human resources arena; and, most important, its embrace of .NET and other Microsoft technologies allows for smooth growth, from entry-level applications to enterprise suites as client needs change. That was underscored last year when Microsoft Great Plains introduced Small Business Manager, an integrated suite aimed at small businesses that should provide easy step-up to robust products such as the e-Enterprise accounting applications. In 2002, the company will offer greater global functionality for clients that do business in multiple countries.
Another European company (headquartered in Copenhagen) with big ambitions but little name recognition in the United States, Navision stands out from the crowd in at least one respect: it doesn't sell direct. Rather, it relies on a network of value-added resellers, a model common among midtier accounting software companies but rare at the high end. Rick Burtt, Navision's director of business development, says "it's not the software alone that makes a company stand out, but its partner network, which can tailor the technology to a customer's needs." Navision targets small and midsize companies, and has a close working relationship with Microsoft. A partnership with Siebel allows the company to integrate accounting information in its financial applications with Siebel's CRM and E-commerce offerings.
Don't expect Oracle to back away from its "we saved billions with our own software" marketing message. Despite criticisms that this claim has been distorted, Steve Miranda, vice president of development for financial applications at the $10.9 billion company, says that this year Oracle will continue to stress ROI and will offer more details about how exactly it's saving so much money. A key part of that will no doubt be its concept of moving to a "single instance" of its software, allowing it, for example, to stash all manner of multilingual, multicurrency information in a single database, which can vastly simplify information retrieval and analysis. Oracle will also have a lot to say about "Information Out," a concept that relies on customizable portals to facilitate number crunching and other business-intelligence chores. Miranda says, however, that customization in the big-picture sense, long the bane of both ERP vendors and their customers, will become far less common. "Much of the work we're doing on the newest version [11i] of our applications," he says, "is aimed squarely at allowing it to meet customer needs out of the box."
It's fitting that a graph of PeopleSoft's stock price during the past three years resembles a huge grin, because the company has plenty to smile about. Ailing in 1999, today PeopleSoft is faring far better thanks to cost controls and focused growth, including some smart acquisitions and a push into global markets. (Some investors, though, are raising questions about its relationship with its R&D subsidiary.) Ram Gupta, the company's executive vice president of products and technology, says that PeopleSoft differentiates itself in part by offering "forward-looking financials" that embrace customer and supplier data and that embed analytic capabilities to foster greater business intelligence. While agreeing with most of his counterparts that core financial applications are mature, he says customers should recall how many early efforts to create E-commerce portals failed because "the assumption was that if you captured a transaction, the rest was easy. Now we know that if core applications aren't truly Web-enabled, the full vision of E-business won't materialize."
"Beyond Budgeting" is one new technology initiative at SAP, which recently enhanced its mySAP Financials product family to help customers move beyond annual cycles and fixed budgets and toward continuous, inclusive planning and more-flexible decision-making. The company acquired EBPP (electronic bill presentment and payment) technology from PayNet International AG at the end of 2001 as part of a broader strategy to extend financial processes beyond the walls of a customer's enterprise. Kraig Haberer, director of product marketing for mySAP Financials, says the company is putting significant resources into "management cockpit" applications such as balanced scorecard and corporate performance management. "We see a movement back to basics on the part of our customers," he says. "Fiscal strategy drives everything today, so financial information systems are getting lots of attention."