The experts all agree: the next phase of ebusiness will be bigger than the last. New systems and processes will improve efficiency and agility, reduce costs and lead times, and drive up profits.
In this environment, systems will seamlessly communicate across whole ecosystems and supply chains, from buyer back through to raw material provider. In this world, partners will easily and flexibly collaborate, sharing not
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In practice: Cosalt International/IFS
The experience of Cosalt International, a £30 million supplier of safety equipment for seafarers, demonstrates just how difficult it can be to find the right supplier of midrange business software.
When it first began looking, back in 1997, it sent out 80 invitations to tender and received 15 bids – not one of which was right, says IT manager Jason Belcher. “None made us think, ‘yes, that’s it’.”
Three years later, after Y2K millennium bug worries had died down, it started the process again. This time, a cold call from a salesman brought in a new player – IFS, the Swedish ERP software supplier, which ultimately won a £750,000 contract over short-listed rivals Intentia, Oracle and SAP.
This time, Cosalt was convinced it had found the right supplier early on. A key issue: it wanted an integrated system enabling sales staff to manage customer records and access stock, manufacturing and financial data. Although this sounds like a routine requirement for an ERP system, many were not able to do this.
Cosalt also needed a system that was both flexible and scalable, so that it could handle planned expansion. Its business is spread over 18 locations, all linked together by BT private circuits, and involves many processes that some systems can’t support. For example, it is both a manufacturer and a reseller; it services a lot of equipment annually; it both sells and hires equipment out. “IFS has a lot of breadth,” says Belcher. Although the system can support Internet browsers, Cosalt preferred to install Citrix servers and run the native applications screens on ‘thin clients’ over the network.
Other factors: Cosalt liked the IFS staff, who showed a good understanding of the business, were from a stable but not dominant company, and had a “non-hierarchical, informal yet professional culture”.
IFS went live at Cosalt in June, and is still being rolled out. But the benefits are already clear, even if they are difficult to quantify. Belcher says staff now have ‘one view’ of the company, of the pipeline, and of what people are doing. The burden of administration has been reduced and so has customer service – although this may be due to other initiatives.
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just data, but integrating their business processes. Wherever they are in the chain, or in the world, managers, employees and trusted partners will all participate at will and with ease.
Taken individually, none of the technical components of this vision is either futuristic or impractical. Nor are the concepts unfamiliar to most executives. They have filled the pages of the business press since the turn of the millennium and perhaps before.
Yet even the biggest and the most technically advanced companies are still a long way from realising the vision of the integrated, agile, next generation ebusiness. Too many partners are involved, and there are too many complex new technologies to be introduced, for there to be complete implementation.
This is especially true of most small and mid-sized businesses. With few exceptions, these companies – those below the £200 million sales mark – tend to spend cautiously on IT, buying proven technology for clearly defined reasons. And that conservatism has been true, too, of many of their business system suppliers; competency and stability has always trumped innovation, and few have so far re-engineered their products in the way that the high end suppliers have been doing in the past three to five years.
But all that is set to change: mid-tier companies can no longer afford to lag behind the larger companies in terms of technology, partly because the potential benefits of the latest technology are so great, and partly because ebusiness is essentially collaborative. That means the smaller companies are being required to invest along with the larger.
At the same time, suppliers of midrange systems have realised that the market is set for a major technology refresh, and are adapting and updating their products accordingly. Now is not the time for a supplier to be caught with a product that is behind the times.
Middle market, middle road
Midrange business suites are often described as ERP (enterprise resource planning) systems – but the term is a misnomer. Most systems are neither enterprise-wide, nor are they used much for planning. In many cases, the only resources they accurately track is money.
Most systems are based primarily on the financial system, and around this core accounting system – which is usually comprehensive and multi-modular – may be added many other applications – a personnel system, some kind of production or manufacturing system, and possibly some specialist vertical market applications. All of these applications are linked together and are based on one relational database, an integrated design that is a great advance over the disparate, semi-bespoke and incommunicative applications ‘suites’ that were still prevalent in the early 1990s.
Such systems have proved reliable and popular, but they only do half the job. Communication with other applications, for example, is often non-existent or difficult. Many companies use contact management or customer relationship management (CRM) systems, but are not able to share database applications or link transactions. And B2B communication (with outside organisations) usually requires bespoke links or EDI (electronic data interchange), a format that is fast being replaced by XML.
At the same time, the development or integration of new applications is often difficult and expensive. Most mid-tier systems are proprietary; requiring knowledge of specialist programming tools, database structures or interfaces before major changes can be made. That means that for the customer,
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Microsoft, SAP, plan revolutions
Microsoft hasn’t made too much of it so far, but its costly acquisition of Great Plains and Navision, two suppliers of mid-market business software, were the first steps of a long-term plan to re-write the shape and scope of the mid-market business application.
At the same time, German software giant SAP has some similar plans for its ERP products – a strategy that will include all of its mySAP products, including the All-in-One fast track package for SMEs, although not necessarily its Business One low-end product.
The technology strategy of both companies has been led by the visions of their leaders – Bill Gates and Hasso Plattner. Both have a product roadmap that embraces the advanced concepts of component-based, object-oriented development, with components, processes or whole ‘frameworks’ integrated together using web services technology and an integration server or backbone.
Somewhere around 2005, the Microsoft Business Solutions group will launch its ‘next generation’ software product – and if the reality lives up to the promise, it will be the most flexible and powerful software package ever developed for mid-market businesses.
The next generation package will combine ‘modules’ or collections of business processes in code – such as a sales ledger – with entities that can be plugged in. For example, these might be an ‘account’ object, or a ‘transaction’ object.
The package – if that is how to describe it – will be built entirely using Microsoft’s .NET framework, which will be used to integrate the components together and to communicate with outside components, probably using XML (web services).
Microsoft will then engage the market in two ways. Some customers or resellers will take the whole suite, but others will take parts of it and use the tools and components to develop specialist systems. The approach is likely to encourage heavy development and customisation around a common set of tools and standards.
“It’s not yet clear what the sales model will look like. You will be able to choose at what level you build on,” said Andy Smith, global production planning director for Microsoft Business Solutions.
SAP has recently incorporated an application server/integration engine, called NetWeaver, at the core of its mySAP ERP package. It is also in the process of opening up the interfaces to all the modular components of its ERP suite, so that developers can interact with them using web services or open ABAP (an SAP language) code.
In both cases, the ERP suite effectively becomes a business platform, providing a framework in which large, pre-packaged components can be easily inter-linked or enhanced with others, whether they are large or small, new or old.
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process changes are often minimal and have to be carefully planned. For the supplier, a sale often amounts to a decade long sinecure.
Internet-readiness is a further issue. In the late 1990s, no software supplier could ignore the Internet. Yet, coming so soon after the need to adopt client/server architectures, and to address the millennium bug, most midrange vendors took only limited measures. Support for Internet thin clients, for example, can be achieved using Citrix or X terminal software, without the need to redesign interfaces to support browsers.
Many suppliers, in fact, found that when they did push ahead with new developments, customers were wary. “[Our supplier] IFS demonstrated web access to us. But we wanted speed,” said Jason Belcher, IT manager of mid-tier company Cosalt, which offered to install five Citrix servers instead.
Similarly, of the dozens of new e-marketplaces set up to enable organisations to trade electronically with each other, only a handful are now surviving. The entrepreneurs who set them up complained that potential customers failed to invest the time, the skills and, where necessary, the technology, to make them viable.
This is not surprising. Recent research from AMR found that “the latest technology buzzwords do not always tempt midsize organisations. They do not look to implement technology for technology’s sake, but rather to support business requirements.”
Wall-to-wall and beyond
The conservatism of the midrange customer may be justified: mid-sized companies have, on the whole, suffered far fewer business suite implementation problems than their larger counterparts, even if their returns have been stready rather than dramatic.
But no-one doubts that the technology base is changing. Scott Diesen, the chief technology officer of infrastructure software provider BEA, puts it this way: the HTTP revolution, which characterises the Internet revolution so far, and which has largely involved machine to people communication over a network, will be dwarfed by the XML revolution – machine-to-machine communication via web services.
That machine-to-machine communication, however, is not merely about access to synchronised data, but also about interlinking business processes; and it won’t just involve internal or external processes, but both.
AMR Research makes the point clearly: “It’s not about ERP anymore, its about end-to-end applications and expanding beyond the four walls of the enterprise.”
All of this calls for new technology architectures. And just as the technology of high-end ERP systems is changing, becoming more open, distributed and services based, so will the midrange.
This can be seen in the technology changes outlined in the box. Changes along these lines are being adopted by many of the many suppliers. Almost all have already supplemented, or have plans to supplemnt, native client or Citrix with native browser support, and to allow XML document interchange externally.
But others are more ambitious. Microsoft and SAP (see box), for example, are planning major business and technology shifts. Others, such as Accpacc, have adopted a modern design, linking components around a web services conformant hub. PeopleSoft has a web services directory and broker for integrating external services; IFS has adopted a component based architecture.
The Gartner Group has characterised these moves as ‘ERP II’ – a move away from a tightly integrated core of modules to a loose confederation of components, some large and central, others peripheral and small.
Some customers will find this daunting or unnecessary at present. But, providing the core package is not strongly proprietary in its design, the move towards a more open, flexible, plug and play architecture is evolutionary, not revolutionary.
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The changing midrange system
The suite
Out: Several big proprietary modules based around a database, with limited choice of other applications.
In: Customers choose from dozens of loosely-coupled modules, or assemble their own using components, from a variety of core platform and niche suppliers. All the major modules of high-end ERP, such as CRM, PLM, spend management and data warehousing, as well as vertical applications, available to midrange buyers.
Web services
Out: All proprietary transport links, including EDI.
In: All systems and services will interoperate using web services standards. XML will replace EDI.
Development and customisation
Out: Non-standard and proprietary tools and structures.
In: New development and customisation will use libraries of .NET or J2EE components and services that can be plugged together and delivered using an application server. Many business process changes will not require programming skill or even detailed system knowledge.
Process integration
Out: Disjointed or non-existent process links, or rigid, hard-wired links that impede business change.
In: Integration brokers and business process management systems will integrate applications together using flexible systems, supporting workflows, security, and monitoring and recording activity.
Employee or partner access
Out: Access limited by geography, by system, time of day or skill base.
In: Interfaces to the system will be intuitive and multi-format. For example, it will be possible to come in through a mobile device, a remote web browser, a specialist system screen or via a role-based portal.
Analytics
Out: Limited capabilities, requiring separate systems and skills.
In: Real-time analytics, based on data and process flows, provide managers with an immediate view of the business.
Collaboration
Out: Proprietary links requiring legal agreement, negotiations and detailed planning.
In: Near ad-hoc collaboration, giving the ability to access systems belonging not just to immediate partners, but to their partners. In addition, there will be the ability to hold electronic meetings, share documents, send instant messages and work together on projects.
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In practice: Bookham
As one of those technology companies that rode the crest of the stock market wave from 1998 to 2001, Bookham Technology, the optical components manufacturer, has often been seen as a high-profile company with great potential, even if it is still a medium-sized business today.
This ambition, in part, helps to explain why the £35 million turnover company was keen to buy an integrated ERP system that, while moderately priced today, could scale if necessary. It also expected to make acquisitions – which it has – so needed a package that would be flexible and open enough to take in new companies.
That made it a perfect customer for SAP’s mid-market offering, All-in-One, a pre-configured out-of the-box version of the high end MySAP ERP suite. Contrary to many reports, All-in-One is not a cut-down version of MySAP, says John Barton, vice president for Information Systems at Bookham. “You have all the function available, but not all the areas are configured.”
In addition, Bookham implemented a specialist factory management system for the electronics industry, Promis from Brooks Automation. This was linked into SAP to create what Bookham calls Gems, or global enterprise management.
All together, the system cost around £2.7 million, of which £2 million was spent on the SAP system, including training and implementation.
This may seem high, but, says Barton, the returns have been “phenomenal”. The company achieved a significant reduction in scrap, increased yields, reduced cycle times, improved efficiency and reduced manual work. It is now able to close its book in two days – important for Nasdaq, on which Bookham has a listing.
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