Software Advice Articles» Manufacturing Articles, News & Best Practices Guides | Manufacturing Software Advice Blog

Oracle Mergers & Acquisitions: Who’s Next?

Stephen Jannise — Tue, 03 Aug 2010 17:24:16 +0000

Beginning in late 2004 with its acquisition of PeopleSoft, Oracle initiated an acquisition campaign that has brought over forty companies into the Oracle fold. During that time, Oracle has made five multi-billion dollar acquisitions – about one per year – all of which have made for big news in the enterprise software market.

With the Sun Microsystems deal closed, we thought it would be fun to guess who might be next on Oracle’s M&A agenda.

In the post that follows, we attempt to make a few educated guesses on Oracle’s next move based on the criteria they employed in their past acquisitions. We also want to hear from you. What company do you think will be Oracle’s next target? Be sure to take our survey and express your opinions.

Before we go any further, let’s put this all in context by looking at a graphical illustration of Oracle’s recent M&A activity.

Our diagram includes all acquisitions since the PeopleSoft deal. However, for this post, we will focus only on the blockbuster deals: bold moves involving multi-billion valuations. Those are more interesting.

Oracle’s M&A Strategy
At the highest level, the motivations behind Oracle’s largest acquisitions appear to be the following:

Grow market share leadership in key enterprise markets;
Expand profitability by consolidating high-margin support revenue; and,
Increase strategic relevance by offering a complete technology stack.

Each of Oracle’s five blockbuster deals met these requirements. Peoplesoft, Siebel and Hyperion all bolstered Oracle’s market share position in the applications market while contributing captive customer bases that pay highly profitable support fees. BEA Systems was particularly strategic given its leadership in the middleware market – an increasingly critical part of the Oracle strategy given the need to integrate so many applications. Finally, Sun Microsystems brought recurring support revenue but was most interesting because it demonstrated Oracle’s willingness to move into a major new layer of the stack – servers and storage (including hardware).

Oracle’s Criteria for Acquisition Targets
Oracle’s bold move to acquire Sun Microsystems and enter the server and storage market makes our attempt to prognosticate all the more fun. We can now consider deals that fall just outside of Oracle’s traditional enterprise software markets and even consider new layers of the stack.

At the same time, we need to apply a framework to our analysis that keeps our ideas from getting too radical. Toward that end, we identified the following five target criteria that we think Oracle will stick to in any blockbuster deal:

A large customer base with substantial recurring support revenue;
A leadership position in an enterprise technology market;
Relevance to Oracle’s integrated technology stack strategy;
An accretive pro forma combination, assuming cost synergies; and,
A valuation that represents up to 20% of Oracle’s valuation, no more.

How We Built Our Target List
With these criteria in mind, we built a long list of enterprise technology vendors that trade at multi-billion valuations (note: we did not limit ourselves to software). We then took a fast cut at eliminating the behemoths that are too big for Oracle to swallow: Cisco, HP, IBM, Microsoft and SAP.

As ideas bubbled up, we found a need to bucket them into different categories. Some are logical ideas that meet all of our criteria and make sense. Others are a little more out there, but provide interesting food for thought. Of course, anything is possible. Here goes…

Fairly Straightforward Ideas
These are all targets that fit within existing Oracle markets and don’t seem like radical ideas to us.

Teradata. This data warehousing and business intelligence (BI) play would check a lot of boxes, augmenting Oracle’s strength in databases and BI. Moreover, Teradata brings strength in key verticals. At 21x P/E, the price might work.
Informatica. Another data warehousing play, Informatica would complement Oracle’s leadership in database and business intelligence. While the deal would be bite-sized, Oracle would have to eliminate a lot of costs to make it acretive.
TIBCO. Like the BEA Systems deal, TIBCO would bring the benefit of adding a middleware market leader while also bolstering the Fusion story. With a P/E of 34x, this is another deal where Oracle would have to cut costs deeply.

Messy, But Potentially Profitable
These “roll-ups” have been engineered for profitability by savvy investors, but they add execution risk given disparate code bases, etc.

Computer Associates. Computer Associates was a consolidator long before Oracle ramped up its M&A efforts. Of course, that history comes with some messy situations along the way. The deal could work financially given CA’s modest valuation at 14x earnings, but might not be worth the stress or integration.
Sungard. This very large applications vendor and its various business units bring leadership positions in a range of vertical markets. The company was taken private a few years ago by savvy private equity investors, so an exit event is likely just over the horizon. However, Sungard brings a large services organization that might not be Oracle’s thing.
Infor. Infor is another major applications consolidator backed by smart private equity. The company is similar to Oracle in that its M&A strategy is engineered for healthy profits; however, Oracle may not be willing to take on such substantial integration challenges in the applications layer.

Bold Moves into the Network Layer
Most people will tell us that these ideas are crazy. They are far afield from Oracle’s traditional markets and too expensive. We agree, but stranger deals have happened (e.g. eBay/Skype).

Research in Motion. This one is far fetched, but given the massive popularity of mobile applications, we had to throw it in. RIM has the strongest enterprise presence of the various mobile players, so it would be an ideal target. The valuation metrics might be doable, but the size may be hard to digest.
Juniper Networks. An acquisition of Juniper would be a bold move into the network layer of the stack. If Oracle wants to play in that market, Juniper is the strongest target (Cisco is too big, too expensive). Of course, Juniper isn’t cheap and cost synergies would be hard to come by given limited overlap.
F5 Networks. If Oracle wants to strengthen its application delivery and data center story, F5 would be an interesting step. The company’s application delivery and networking systems would provide a growth vehicle in the networking layer.
Brocade. Like F5, Brocade would be a strong addition to Oracle’s data center and enterprise campus network offerings. However, like Juniper, Brocade is not the cheapest option listed here, as it currently sits at a 29x P/E

Pricey Buys in Hot Markets

VMware. It’s tough to come up with a financial scenario where this deal gets done, but its fun to think about. VMware is benefiting phenomenally from the growth of the virtualization market it pioneered. This would be another huge boost to Oracle’s data center offerings.
EMC. This data storage behemoth would be a huge addition to Oracle’s presence in the servers and storage layer of the stack. We think Oracle would love to own this market leader, but it may well be too big and too expensive at a 29x P/E.
Salesforce.com. An acquisition of Salesforce has been rumored before, but the success of this SaaS leader may have put it out of reach. Salesforce would catapult Oracle to on-demand leadership, but it comes at a steep price. Oracle would be more likely to wait until Salesforce stumbles some day.
Allscripts. The healthcare market is hot as providers adopt electronic health records (EHRs) to meet government requirements. Allscripts is the biggest player in the EHR market and is a consolidator itself. Its recent move to acquire Eclipsys, as well as its rich valuation, might take Allscripts off the table.

Well, we put our best ideas out there, so now its your turn. Take our survey below and let us know what you think of our ideas. Or, use the comments section below to write in your own ideas. Be sure to explain your rationale for each.

View Survey

A Plain English Guide to Modern Manufacturing Methods

Stephen Jannise — Fri, 16 Jul 2010 14:14:46 +0000

Methods of manufacturing – and the manufacturing software that enable them – have changed a great deal since the Ford assembly line, shifting from the rigid, push-oriented production principles of the early 20th century to more flexible, pull principles. If you find yourself wondering what a pull principle is, you’ve come to the right place.

Put simply, assembly line manufacturers historically pushed mass production ahead based on estimates of future demand, which often resulted in wasted effort and resources when customers failed to produce the estimated demand. Modern companies can’t afford this kind of waste, so they wait for actual demand to pull production forward, manufacturing products when they’ve been requested by customers or when the previous batch of products has sold out.

Consider this analogy. By trying to guess potential demand, manufacturers often found themselves in the same situation as someone carrying an umbrella on a sunny day because the forecast predicted rain: extra effort for no reason. Modern manufacturers prefer to stick their head out the window and check for rain before grabbing their umbrella, so to speak, limiting waste and maximizing efficiency.

Unfortunately, understanding the many complex strategies behind these new manufacturing methods can be as difficult as predicting the weather, as they have brought along with them a series of three-letter acronyms that dominate jargon-filled conversations about current manufacturing trends, like JIT, TPM, QRM, and JIS. These letters don’t exactly help to explain the basic ideas behind pull-production manufacturing, which actually make a lot of sense when spoken in plain English. So for the next installment in our “plain english guide” series, we’ve decided to break down the key concepts of lean manufacturing, Six Sigma and flexible manufacturing. While we couldn’t cover every concept – a Google search for “lean manufacturing glossary” should satisfy most pedants – we have reviewed the important terms. Leave a comment below if there are others you’d like us to explain. Let’s get started.

Basically, modern manufacturing methods boil down to three key concepts:

Reduce waste - reduce the amount of materials, capacity and manpower wasted in the process by producing just enough product to meet current demand
Maintain quality – devise more effective manufacturing methods in order to continue making quality products despite strict reductions of waste
Accelerate production – decrease the amount of time needed to manufacture product, making up for the lack of surplus

Reduce Waste
If this first concept sounds like the motto of the recycling movement, it’s because manufacturing, like so many other industries these days, is basing its methods on efforts to avoid waste. Earlier manufacturing methods allowed for waste and an excessive consumption of supplies in order to meet their goals of mass production, but the re-branding of modern manufacturing goes by a new name: lean manufacturing.

Lean manufacturing describes the method used to achieve all three of the aforementioned concepts; in theory, a lean manufacturer would have the right supplies arrive at the right place at the right time in the right amount to create only the products that are necessary to meet demand. A number of concepts, defined in the table below, are influential in meeting this goal.

Concept	Description
Just-in-Time (JIT)	The concept of JIT basically suggests that any inventory is waste. JIT manufacturers buy just enough supplies to keep the process moving and schedule them to arrive at the factory “just in time” for them to be used in production.
Kanban	When supplies are running low, factories can have an automatic request for new supplies sent to their suppliers. These alerts have traditionally been called Kanban, and they are now often computerized.
Just-in-Sequence (JIS)	This is the most extreme example of JIT. Supplies arrive at the factory at the exact moment they are needed within the manufacturing sequence, which means production may come to a standstill if the supplies are just a few minutes late.
Total Productive Maintenance (TPM)	To avoid stopping production, some factories wait until the end of the day to repair minor issues with their machines. But TPM suggests that manufacturers will benefit in the long run by repairing the machines immediately and avoiding deterioration in the future.
Quick Response Manufacturing (QRM)	QRM is focused on making the time period between a customer’s request for a product and the final delivery of that product as brief as possible.
Cellular Manufacturing	This concept separates the factory floor into different sections (cells). Machines are placed in a certain order so that materials flow naturally toward the completion of a product.
Single-Minute Exchange of Die (SMED)	Manufacturers are always looking to reduce wasted time, even between projects. SMED focuses on changing the factory process from working on an old product to a new product as quickly as possible.

Maintain Quality
In order to manufacture a product of consistently high quality, it’s necessary for manufacturers to not only perform frequent maintenance on their equipment, but on their entire process as well. This means identifying errors or defects in the production flow and eliminating them to maximize productivity. This is where Six Sigma comes in.

The origin of the term itself is very complex. A manufacturing process is given a sigma rating based on the percentage of its product yield determined to be defect-free. A one-sigma rating designates a process with a disastrously low percentage of defect-free yield, 31%, while a six-sigma rating is reserved for processes that are nearly perfect, 99.99966% defect-free. In other words, every company wants to achieve six sigmas for all of its manufacturing processes.

To meet this goal, the Six Sigma method was created, which focuses on measuring and analyzing process data in order to find and remove defects. Whereas lean manufacturing is concerned with improving the flow between processes to reduce waste, manufacturers use Six Sigma to improve the processes themselves. The table below includes some of the concepts that make Six Sigma work.

Concept	Description
Define, Measure, Analyze, Improve, Control (DMAIC)	This Six Sigma methodology is focused on improving the basic manufacturing processes that are already in motion.
Define, Measure, Analyze, Design, Verify (DMADV)	This alternative methodology is a more anticipatory approach. Based on an analysis of customer demand, manufacturers plan ahead and try to design ways to avoid defects in the first place.
Critical to Quality (CTQ) and Quality Function Deployment (QFD)	These two concepts try to pinpoint the elements of a product that are most important to customers and translate those needs into a manufacturing strategy that focuses on getting the critical elements exactly right.
Suppliers, Inputs, Process, Outputs, Customers (SIPOC)	SIPOC is a diagrammatic tool that allows manufacturers to trace the life cycle of their products from supplier to customer and identify problem areas.
Taguchi Loss Function	If a manufacturer designs a production plan that will maximize profit and efficiency, any sudden changes or variations from that plan pose a problem. The Taguchi Loss Function suggests that production quality decreases as variation increases.

Accelerate Production
In the era of lean manufacturing, when surplus product is considered waste, the manufacturing process must work faster to make sure products are made available and demand is met. However, speeding up the process has become more difficult than ever due to an increased customer desire for customization.

In the 20th century, mass production and mass consumption went hand in hand. Assembly lines made it possible to make hundreds of thousands of the same product, and customers were entirely willing to own the exact same thing as their friends and neighbors. Now, with the advent of Internet shopping and its capacity to provide shoppers with a variety of choices, manufacturers must be prepared to adapt and change not only its products but its entire process as well.

Enter flexible manufacturing. Though manufacturers would undoubtedly prefer to continue producing standardized products at low costs, they must nevertheless make the best of their customers’ new tendencies toward individualized, unique products. These manufacturers can limit their cost increases by designing processes that adjust quickly and effectively to change. This table provides a few of the concepts that allow manufacturers to remain flexible while continuing to reduce waste and maintain quality.

Concept	Description
Machine Flexibility	This concept refers to the capacity of a factory’s machines to adapt. Can they be changed to manufacture different products? Will they allow for the slight variations in design that customization requires?
Routing Flexibility	This concept is focused on the adaptability of the manufacturing process as a whole. Does the factory have multiple machines that can complete the same task? Can they be paired with various other machines to make customized products?
Computer-aided Design (CAD) and Computer-aided Manufacturing (CAM)	Computers allow customers to customize products, and they also allow manufacturers to create those products with agreeable costs. If a factory has machine and routing flexibility, they can use CAD to design production processes and CAM to guide parts through those processes with robots and computer-controlled machines (CCM).
Computer-integrated Manufacturing (CIM)	Maybe the most important element of flexible manufacturing, CIM creates a network of computers that observe and operate the manufacturing process. With CIM, computers can monitor every step of production for defects and change the actions of a machine almost immediately, contributing to flexibility.

With customer demands shifting constantly on a global scale, manufacturers must utilize a number of strategies to maximize their profits and continue to compete. As this guide suggests, the three major goals of reducing cost, maintaining quality, and accelerating production are achieved through the combined efforts of lean manufacturing theories, Six Sigma methodologies, and flexible processes. It’s not a question of which manufacturing method is the right one, it’s a question of how to implement them all for optimum results.

What Manufacturing Won’t Go Offshore

Austin Merritt — Mon, 24 May 2010 15:13:14 +0000

Offshoring has certainly been a significant trend during the last two decades. As large manufacturers have responded to globalization and rising costs in the U.S., more and more firms have moved operations overseas. Globalization pundits tout this trend as the decline of United States manufacturing and the rise of manufacturing in emerging countries such as China, India, and Brazil. The data is certainly on their side.

Since 1980, all U.S. manufacturing has declined from

19 million employees to 14 million;
366,000 companies to 320,000; and
22% of GDP to 12%.

While some of this drop is due to consolidation of the market and improved productivity – automation, Six Sigma, lean manufacturing – an undeniable portion is due to companies shutting down U.S. operations and moving overseas. This is disconcerting for the American manufacturing sector, but not for all of its industry components. Offshoring won’t affect every manufacturing industry. To see which segments it won’t affect, let’s take a look at the cases in which offshoring is beneficial or detrimental.

Good in these cases	Bad in these cases
Products are in reliable demand, and usually commoditized (i.e., ball point pens, socks).	Companies rely on quick responses to changing demand and short lead times.
Labor comprises a high portion (40%-50%) of the cost of goods sold.	Firms are averse to or can't afford the risk of volatile exchange rates.
Inventory holding costs are low.	Production conditions and quality are tightly regulated (food, beverages, etc).
Manufacturers have less need to move finished goods quickly.	Companies have proprietary technology or processes that need to be protected.

My last point may irk fans of offshoring. While we can recognize that emerging markets have stepped up their enforcement of international IP laws in recent years, the US and Europe are historically much more stringent. Manufacturers reliant on strong patent protection (e.g., pharmaceutical firms and their blockbuster drugs) will likely keep everything close to home.

So what manufacturing won’t go offshore? I think it’s safe to argue that the following segments of the market will remain primarily domestic:

Food & beverage. These manufacturers have to deal with some of the tightest regulations in the entire industry. These regulations govern how items must be produced, shipped, packaged, sold, and recalled in the event of problems. Furthermore, they usually need to supply items to buyers quickly. Essentially, there is too little wiggle room for these companies to operate overseas. Shipping costs of rushed products from abroad would offset any cost savings gained from operating offshore anyways.
Pharmaceuticals. Comparable to their food manufacturing counterparts, pharma companies deal with strict FDA regulations that would be tough to follow overseas. And as mentioned earlier, they are often developing secretive drugs that have the potential to drive business for the next several years. They certainly want the best patent protection possible for the secrets of their next big drug.
Highly specialized, engineer-to-order firms. Engineer-to-order manufacturers typically require close collaboration with customers, specialized skills and equipment, customized (and sometimes on-site) installations, and occasionally service of products. These differentiated products are less susceptible to the forces of commoditization than products of repetitive manufacturers. This type of specialized manufacturing is especially common among aerospace, complex machinery, and capital equipment manufacturers.
Small job shops working with local buyers. While these firms might suffer the most from effects of offshoring and intense competition, they’re not likely to move overseas any time soon. Serving local buyers is key here. If I’m a small business and need a custom sign made, I’m not going to deal with the hassle of buying it overseas. I will buy local or from someone in North America I find online. This behavior will naturally limit small job shops’ ability to grow, but it will keep their businesses safe domestically.

Recognizing that certain manufacturing segments will never go offshore, I think we can expect the emergence of a few trends:

Offshoring of certain roles in the company. While some firms may be forced to keep the core manufacturing components of their businesses domestic, they may try to cut some costs by offshoring secondary processes. Customer support, research and development, and potentially sales and marketing are all departments that could move overseas while the rest of the company stays in North America.
Further consolidation and specialization. Consolidation is a natural effect of any competitive industry that is shrinking. Companies will merge and acquire others as they seek economies of scale and synergies. And for firms that are determined to stay in the U.S., they may have to develop a strong specialization to keep themselves differentiated.
Ongoing investments in software. Domestic manufacturers will continue to cut costs and refine lean manufacturing processes, and manufacturing software can be a great way to boost efficiency. We expect to see sustained demand for food manufacturing software and job shop software as these segments are not going overseas any time soon.

Take Our Survey
Like it or not, offshoring is certainly here to stay. Manufacturers determined to stay domestic may want to focus on one or more of the industry segments mentioned above. Think other types of manufacturing won’t go offshore? Share your opinion by participating in our survey. Click the link below to begin.

Service Oriented Architectures (SOAs): A Plain English Guide

Don Fornes — Fri, 21 May 2010 13:29:33 +0000

If you’ve been around the enterprise software industry the last few years, no doubt you’ve heard the term “service oriented architecture” (SOA). If you aren’t technical, it’s one of those terms that flies right over your head. That’s understandable, given that most definitions of SOA are rather dry. For example:

A paradigm for organizing and utilizing distributed capabilities that may be under the control of different ownership domains. It provides a uniform means to offer, discover, interact with and use capabilities to produce desired effects consistent with measurable preconditions and expectations. (OASIS)

Further complicating the topic is a dictionary-sized list of related technical acronyms such as SOAP, XML, CORBA, DCOM, .NET, J2EE, REST, BPEL and WS-CDL. The list goes on…

Allow me to try a more colloquial definition of SOA:

A new and better way to get a bunch of different software programs to work together so people can do things that require information from each of those systems.

We can also simplify the concept through an analogy: think of SOA as the information technology (IT) equivalent of managing a large, diverse workforce. To get stuff done in a big organization, you need to:

carefully define your goals and what constitutes success;
draw on the unique talents and knowledge of each individual;
get people to speak the same language and work together as a team; and,
measure where things stand and whether success is achieved.

SOA does all that for IT. It catalogs what systems are in place and what they can do (e.g. what data they own). It specifies a common language that they can all use to communicate, even if this common language is not each system’s “native tongue.” With those components in place, the organization can build new applications or processes that make use of the multi-system integration. Finally, a SOA coordinates and monitors the processes that span these systems.

Keep in mind that SOA is not a specific piece of technology. It’s really a strategy or model for how you go about achieving what I described above. Yes, there are many new technologies or standards (like .Net, J2EE, SOAP and XML) that play a critical role in SOA. SOA has also spawned hundreds of new software products that deliver various components of the SOA vision. And yes, there are many big IT companies that promote SOA a lot (IBM, Oracle and SAP come to mind). But SOA itself is an intangible strategy, just like Balanced Scorecard, Six Sigma and Total Quality Management are organizational management strategies.

But integrating software systems is nothing new, you say. True.

What’s new about SOA is that it’s now much easier to integrate systems. Moreover, SOA goes beyond just passing data back and forth. It actually manages and monitors complex processes that require multiple systems to work together in real-time (i.e., really quickly). It also defines standards for writing the next generation of systems so that the SOA vision is easier to achieve as the IT landscape evolves.

SOA has a lot to do with the World Wide Web. In fact, “web services” is a form of SOA, or arguably, a synonym. It refers to multiple Web applications communicating over the Internet, or local network, to share data and processes. Online travel websites like Kayak or Orbitz are a great example of web service integration. They don’t own the reservation data and they don’t do the actual booking on their system.

Instead, they offer easy-to-use websites that manage incredibly complex processes behind the scenes by acting as “web service consumers.” That is, they pull data and execute transactions from numerous other systems that are owned by airlines, rental car agencies and hotels that are acting as “web services providers.” Those behind-the-scenes systems act as web services to the Orbitz or Kayak websites.

Now that we’ve covered the high-level idea of SOA, let’s drill down into some of the specific concepts and terminology you will come across in any discussion of SOA. Our table below is a glossary of sorts for SOA.

Concept or Term	Description and Analogy
Loosely coupled	Loosely coupled refers to the idea that services within an SOA can provide that service to multiple applications, not just one specific application. This is similar to a workforce where employees work with different teams or departments, depending on what needs to get done. They are not restricted to working for one boss or one department.
Metadata	Metadata is data that describes all of the services within the IT environment so that programmers or applications know where to go to find a service and how to make a request of that service. It is similar to a really detailed company directory that lists each employee, their skill set, their responsibilities and their contact information.
Call	A call is a request from one system to another to perform a service. The system making the request is a service consumer, while the service fulfilling the request is a service provider. This is like one employee calling another employee on the phone and asking for a piece of information or asking for a specific task to be completed.
Orchestration	Typically performed by a programmer upfront, orchestration refers to the act of coordinating all of the various services so that they come together to deliver an application. It is like a senior manager that explains the goal, what each employee needs to be doing to achieve that goal and ensures that the project is completed successfully.
WSDL	Web Services Description Layer (WSDL) is an emerging metadata standard for describing what each service does. Think of it as a language for describing all of the roles and responsibilities within an organization. While we can use English to describe employee roles in the workplace, computer systems require their own language to describe each service's role.
XML	Extensible Markup Language (XML) is the de facto standard for communication between services within an SOA. XML has been adapted or extended for numerous industries and functions. Just like highly specialized employees have their own esoteric, structured variation of English (i.e., medical doctors speaking med-speak), XML is the language of services.
SOAP	Simple Object Access Protocol (SOAP) is a protocol for how services communicate. It is difficult, in this plain English guide, to draw distinctions between XML, SOAP, metadata, etc. as they work toward the same goals, and are closely related. Let's just say that while XML is the language of web services, SOAP is like a guide to grammar, punctuation and usage.
.Net / J2EE	J2EE and .Net are two widely used, and competing, programming frameworks (programming languages and related technologies) for building applications within an SOA. .NET is Microsoft's framework and J2EE is supported by Microsoft's traditional competitors (e.g. IBM, Oracle, SAP). Both are mature, effective and work together just fine, despite their backgrounds.
Encapsulation	Encapsulation refers to a layer of translation on top of older, proprietary components within an enterprise environment. It's as if you have an excellent, highly skilled employee in Tokyo, but she only speaks Japanese. Rather than replace her or teach her English, you hire a translator and start working together right away.
Abstraction	Abstraction refers to the SOA ideal of letting each service provider perform its function and produce its output without sharing the gory details with its service consumer. It is similar to employees having an arms-length relationship where they stick to business and get stuff done, rather than talking their co-workers through every detail of their tasks or personal life.
Reusability	One of the goals of SOA is to make application development easier and easier over time. Toward that end, you want each service - new or existing - to be reusable in the future. It is similar to seeking to retain your best employees to leverage their skills over and over again on many different projects throughout their careers.
Compositability	Compositability means that services can be joined together to create bigger services that perform more sophisticated applications. That combination can then serve as a service itself. This is similar to building a great team of employees where the whole is greater than the sum of the parts. You would be inclined to put that team on new projects again and again.
Autonomy	Autonomy means that each service does what it does best in the manner it sees fit. You want to take advantage of the service's output, not dig into how the service accomplished what it did. If you do dig into how each service does what it does, you lose the SOA ideal of simplicity. It's a lot like letting your best employees do what they do best rather than micromanaging them.
Optimization	Optimization means that high performing services are better than low-performing services. It's kind of "no duh!" However, since SOA is a model or strategy, it is important to include this concept. It's just like hiring a team; you want to hire the best-of-the-best because they will perform many, many times better than average employees and at only a slightly higher cost.
Discoverability	Discoverability means that you make each web services' function and accessibility obvious so that programmers and applications can understand what they do, and use them. It goes back to metadata and WSDL, which is how services are discovered. Again, it's like having a detailed company directory that details each employee, their skills, and contact information.
Relevance	Relevance means that a service has to be a useful and meaningful service or no one is going to use it. This is another "no duh" concept, like optimization. However, it's an important part of SOA best practices. Consider a redundant employee, Jan, who is an excellent key punch operator. She may be a great person, but her skill set is no longer useful to the organization.

Is SOA for Real?
SOA sounds great, right? Yes, when implemented properly the vision of SOA can be realized and provide tremendous value. However, like all things IT, there is nothing easy about executing on the SOA model. It takes a disciplined IT department and substantial investment to make SOA work.

And now a slightly cynical definition of SOA:

A new three-letter acronym to describe incremental improvements to existing software development techniques, allowing systems to perhaps interoperate more effectively. Also used by highly acquisitive software companies to tell an optimistic story about how they’ll get their acquired products to work together.

SOA non-believers will often paint this new model as IT dreaming or clever marketing. To some extent they would be right, because SOA has become a popular buzzword tossed around by many software vendors. Moreover, SOA remains in its early stages and there are still concerns about:

systems running slower because of multiple layers of translation;
the challenge of getting disparate systems to share the context of their requests; and,
nascent standards that do not yet provide adequate security and reliability.

There is certainly reason to consider all of these issues. However, SOA is supported by a huge industry filled with developers that want to see its vision realized. Even if SOA is not a magic bullet, there is tremendous value to working toward the SOA vision and achieving just some of its ideals. The model holds great promise and provides a roadmap for moving beyond historical IT integration and development challenges. We like it.

2010 Manufacturing Software State of the Industry Roundtable – Part Two

Houston Neal — Thu, 06 May 2010 19:11:42 +0000

This is the second installment in our Expert Roundtable Series covering the state of the manufacturing software industry. In part one, we reported buying activity, spending patterns by business size and industry, and primary motivations behind current buying activity. Here in part two we’ll review activity in the software as a service (SaaS) market, how vendors are adjusting prices to compensate for the economy, how offshoring influences spending and whether manufacturers are implementing integrated enterprise resource planning (ERP) systems or best-of-breed applications. First, we’d like to introduce our experts.

About the Experts
Jonathan Gross is Vice President at Pemeco, an independent and impartial IT advisory firm. He provides the following services: IT-business alignment, systems selection and systems implementation. He is an IT/ERP columnist for Manufacturing AUTOMATION, an expert at Focus Research and a blogger at IT-Toolbox.

Ned Lilly co-founded xTuple, originally called OpenMFG, in October 2001, with the aim of bringing open source and ERP software together to solve the unmet needs of small to midsized manufacturers. Before that he was a co-founder of Great Bridge, an early attempt to build a business around the PostgreSQL open source database. PostgreSQL is the core technology that xTuple uses today. Ned is also well known for his ERP Graveyard blog.

Nancy Phillippi is the senior sales consultant at Custom Information Services (CIS). She has 13 years experience in helping Process Manufacturers, Distributors and companies that have complex accounting or manufacturing processes. You can read her articles on manufacturing on the CIS website or on the ERP Software Blog.

Randy Smith is the CEO and co-founder of Vicinity Manufacturing. Vicinity was founded in 2002 with the goal of building a manufacturing system written specifically for formula-based manufacturers.

Manufacturing Software Trend Summary

Software as a Service
Manufacturing ERP Software Pricing
Integration Across Plants and Supply Chain
Best-of-Breed Applications
Integrated ERP Suites

Software as a Service (SaaS) Solutions Popular Among Small and Medium Enterprises
SaaS solutions are gaining momentum, especially among small- and medium-sized enterprises (SMEs). The primary driver is the low barrier to implementation. Many resource-constrained SMEs do not have the same level of IT sophistication or infrastructure that their larger counterparts do.

Jonathan Gross: SaaS solutions are gaining momentum, particularly among the SME segment. One of the primary drivers is the fact that end-users are not required to support and maintain the software. The provider does this work. This relieves pressure on overly stretched or unsophisticated IT departments. Another key driver is that no supporting infrastructure (databases, networks, etc.) is required. In contrast, on-premise ERP systems often require expensive supporting infrastructure.

Despite increased adoption, many buyers are still circumspect in their evaluation of SaaS. Data security, service disruption and apprehension to host critical data off-site remain the most cited reasons for incredulity.

Nancy Phillippi: Clients still want control of where their server is located and the apparent ease of access, even though this is not a real issue, just a perception. I have had some interest in this solution, however no matter how savvy the customer is, the issue of secure formulas and bill of materials is still at the forefront. The mind set will need to change to trust the SaaS model just as if the server was in their building.

Ned Lilly: It’s one option, one of many that we believe customers should have. Several of our partners offer xTuple ERP as a hosted service, and we’re experimenting ourselves with a service in the Amazon EC2 cloud. But there are still a large number of people, particularly financial people, who prefer to have the system onsite.

All things considered, we expect SaaS solutions to grow in popularity. Most SaaS shortcomings have been addressed (read “The SaaS Dilemma”), and manufacturers are increasingly embracing this deployment option.

Software Vendors Adjust Prices to Compensate for the Recession
As we noted in part one of this series, the recession created pent-up demand as many companies delayed their ERP projects. This has placed pressure on software vendors’ revenues, which has prompted many to drop their prices.

Nancy Phillippi – Vendors have reduced pricing to spur sales at the cost of profits. Product specials is the primary way vendors facilitate price reductions. Specials allow vendors to state end dates to the pricing, therefore customers do not have the mindset that this is a permanent price change.

Meanwhile, manufacturers have tighter IT budgets and are demanding more from their investments. Consequently, vendors are competing on a cost basis and are reducing both license and maintenance fees. Jonathan Gross summarizes three key ERP pricing trends:

License fees: With increased vendor competition, the vendor fight is now about market share. Over the last year and a half, vendors have slashed the prices of ERP licenses. Many are also prepared to negotiate with individual customers. In a recent case, SAP discounted its license fees by 64% to secure a particular client. Further, in a bid to reduce the up-front capital costs, some vendors are offering payment plans. Finally, many vendors now offer purchase financing.

Increased incentives: Many vendors are using various incentives to entice buyers. Common incentives include: additional training, reduced maintenance fees, and lower implementation costs.

Maintenance fees: Buyers are fed up with paying high maintenance fees, particularly since they do not believe that they are receiving corresponding value. Many vendors are prepared to negotiate lower prices given buyer dissatisfaction and the emergence of third-party competition. In our view, companies like Oracle and SAP will not be generating 90% profit margins on maintenance fee revenues for much longer.

More Manufacturers Seek Integration Across Offshore Facilities
As a growing number of manufacturers move offshore, facility and supply chain integration is becoming a greater – and often requisite – driver of ERP software acquisition. Why? Many manufacturers find it difficult to communicate with and manage offshore plants and partners.

Nancy Phillippi – Overseas plant communication can be an issue for parent companies located in the USA. Often times the ERP package the USA company is running is not offered in a localized language for the overseas company, so they will run separate systems.

Alternatively, manufacturers are acquiring modern ERP systems to electronically integrate their plants and supply chain. As Ned Lilly points out, most modern ERP systems should provide support for multiple languages and currencies.

Ned Lilly – We see a great deal of interconnection between domestic and offshore operations. Additionally, the vast majority of our customers do some portion of their sales globally as well. Any ERP system worth its salt should be multicurrency, multilingual, and support multiple tax structures out of the box.

In an interesting twist, SMEs are acquiring ERP software just to make a business case for offshoring.

Jonathan Gross – The ability to electronically administer disparate facilities has helped SMEs make the business case for offshoring. Previously, high administrative costs oftentimes offset cost-saving opportunities in developing countries. With integration, those administrative costs can be significantly reduced, making offshoring a more attractive alternative.

New ERP Buyers Seeking Integrated Suites Over Best-of-Breed Applications
The choice between implementing an integrated ERP suite or best-of-breed applications is now easier than ever. Why? The functional gaps between the two offerings have started to narrow. ERP software vendors are enhancing the functionality of their modules, adding vertical depth and acquiring best-of-breed applications into their ERP suites. As Jonathan Gross points out, “deciding between ERP and best-of-breed applications is no longer an issue that involves a balancing of clear tradeoffs.”

For this reason, we find the majority of first-time ERP software buyers are implementing integrated ERP software suites. However, best-of-breed deals are still getting done. Larger manufacturers and those with legacy ERP systems are following a piecemeal approach, adding and extending functionality as needed.

Ned Lilly – The general trend is that smaller companies tend toward one integrated system, while larger IT organizations seem to prefer best-of-breed. For core ERP functionality, we believe it’s best to stick with an integrated system. Having said that, our open source ERP has a rich API, and our customers and partners have done all kinds of integrations into separate, adjacent systems – such as ecommerce/shopping carts, EDI systems, CAD/CAM/PLM, and many more.

Jonathan Gross – From what we see, manufacturers that operate stable, legacy ERP systems are more likely to extend functionality with best-of-breed applications. However, companies seeking new ERP systems are less likely to acquire best-of-breed applications because many of today’s ERP systems are functionality-rich, industry specific solutions.

We provide a framework for making the best-of-breed versus integrated suite decision at: Best-of-Breed or Integrated Suite? 10 Questions to Consider

This concludes our 2010 report on the state of the manufacturing software industry. Please feel free to comment on the trends we describe above, or share your observations on shifts taking place in the market. And be on the lookout for future installments of our Expert Roundtable Series.

Best-of-Breed or Integrated Suite? 10 Questions to Consider

Austin Merritt — Thu, 06 May 2010 18:52:40 +0000

The best-of-breed vs. integrated suite battle has been ongoing since integrated ERP software first came on the market. In the early days, buyers were forced to choose between standalone systems that performed one function very well (e.g., accounting, production planning) or one integrated system that offered modules for each function, but with varying degrees of functional depth.

Over time, however, the functional gaps between best-of-breed offerings and integrated suites have started to narrow. Software buyers are now faced with making a more difficult and complicated decision, but one that is still just as important.

Each approach presents its own merits and potential drawbacks. Early adopters of best-of-breed systems loved that they could get a robust system to address one specific need. Advocates touted how easy they were to implement and how much more feature-rich they were relative to integrated suite offerings. On the other hand, integrated suite users enjoyed having everything in one system and not having to integrate two separate applications. Given these pros and cons, the decision to implement an integrated suite or best-of-breed system is always tough.

Our goal in this blog post is to provide a framework for making the best-of-breed versus integrated suite decision. A quick breakdown of the respective advantages and disadvantages is presented below.

While these differences are still present, the software industry has evolved to give buyers some of the best of both worlds. Over time, integrated suite ERP vendors such as SAP, Microsoft, Infor, and Epicor have built functionality for just about every industry segment and business need. The ongoing push for true service-oriented architectures (SOAs) is reducing integrated suites’ historical rigidity, making modular implementations easier, and reducing the total costs of ownership.

On the best-of-breed side, technology has advanced to make systems open and more easily integrated. Modern technologies such as .Net, J2EE, XML, and SOAP all make it easier for companies to integrate different systems. Our humble, 12-person company recently completed a simple SOAP integration with one part-time developer, for example. The recent trend towards Software as a Service (SaaS) is also helping lower upfront costs of purchasing new systems.

If you finding yourself deciding between implementing a best-of-breed application or an additional module from your existing ERP vendor, consider the following questions:

Are your needs for the new application really that specialized, or can they be met by your ERP vendor’s (potentially) broader offering? A surprising number of buyers tend to think that “our business is entirely unique.” Software vendors have been addressing those unique needs long enough that many of them have been addressed in the packaged product.
Do you really need the systems integrated, or are you OK with two standalone systems? A lot of buyers start out the research process assuming that integration is essential, when many business functions are more disparate than they think.
Does your ERP vendor offer (or come close enough to offering) what you need? As ERP vendors have built out functionality over time, many can meet more business requirements than their customers realize. If a vendor can’t meet 100% of them, it may be worthwhile to sacrifice functionality for a smoother implementation.
Do you have the IT resources necessary to perform a complete integration? While integrations are more easily performed due to the reasons mentioned above, they still require IT expertise and commitment from end users.
Are the near-term hurdles of implementing a suite or best-of-breed system justifiable for long-term business improvements, or are they prohibitive? Just like any investment, IT managers need to consider that the near-term challenges (training new staff, migrating existing data, or modifying business processes) may be worth the long-term benefits gained with the right software system.
How truly integrated is the integrated suite vendor’s offering? If the ERP vendor acquired the system, it may not be “truly” integrated. It might just be a best-of-breed system with some basic integration. If they built it themselves, it could use a different code base and therefore not be tightly integrated with the ERP suite’s older core.
Is the ERP vendor’s solution close to a best-of-breed system? Some ERP vendors have invested so much in specific applications that they achieve functional parity with best-of-breed systems.
What is the long-term viability of the best-of-breed vendor? While some best-of-breed vendors are financially and strategically viable, others may be too young and/or have too narrow of a focus to survive in a competitive industry.
Will the ERP vendor give you such a significant price discount that it offsets the sacrifice in functionality? Buyers who are looking to add a module to an existing ERP system can usually expect to pay much less than implementing a best-of-breed system. However, best-of-breed systems can sometimes cost about the same.
Does the new applications category (i.e. CRM) merit a different deployment model (i.e. SaaS) than your back-office ERP system (i.e. on-premise)? If so, implementing a best-of-breed system might make more sense. This is becoming increasingly popular for SaaS systems that require collaboration and/or remote access.

The software research and selection process is notoriously difficult. Buyers who consider the ten questions above should be well on their way to making the right front-end decision between integrated suites and best-of-breed systems. Sometimes that decision is the hardest one to make.

2010 Manufacturing Software State of the Industry Roundtable

Houston Neal — Fri, 23 Apr 2010 22:16:05 +0000

In the latest of our Expert Roundtable Series, we’re focused on the state of the manufacturing ERP software industry. March was the eighth consecutive month of economic growth in manufacturing – the fastest growth the industry has seen since July of 2004 (source). Here, our roundtable of ERP industry insiders share their observation on how this light at the end of the tunnel is impacting IT purchase and implementation activity.

We had such great responses from our peers that we decided to turn this into a two-part post. In part one we’ll report on buying activity, spending patterns by business size and industry, and the primary motivations behind current buying activity. In part two, we’ll take a look at activity in the software as a service (SaaS) market, how vendors are adjusting prices to compensate for the economy, and whether manufacturers are implementing integrated ERP systems or best-of-breed applications.

Ned Lilly co-founded xTuple, originally called OpenMFG, in October 2001, with the aim of bringing the worlds of open source and ERP software together to solve the unmet needs of small to midsized manufacturers. Before that he was a co-founder of Great Bridge, an early attempt to build a business around the PostgreSQL open source database, in 1999; PostgreSQL is the core technology for xTuple today. Ned is also well known for his ERP Graveyard blog.

Randy Smith is the CEO and co-founder of Vicinity Manufacturing. Vicinity was founded in 2002 with the focused goal to build a manufacturing system written specifically for and to serve formula-based manufacturers.

Manufacturing Software Trend Summary

Market activity
Small and medium enterprise spending
Large enterprise spending
Food, chemical and consumer packaged goods manufacturers
Aerospace, semiconductor and automotive manufacturers

Manufacturers are Starting to Invest Again
This year is already proving to be more active than 2009. Buyer interest and purchase activity is up across the industry, from large sophisticated companies to smaller companies implementing an enterprise system for the first time. The increased activity can be attributed to two primary reasons:

the 10-year anniversary of purchases made as a result of the Year 2000 (Y2K) date problem; and,
many companies are restarting buying processes that were deferred in 2009.

Leading up to the year 2000, fear of the Y2K problem drove migration from legacy manufacturing ERP systems to modern systems that used four-digit year fields. Now, ten years later, those systems are ready for replacement.

Jonathan Gross – “We are now entering an ERP acquisition sweet-spot. With the 10th anniversary of Y2K now upon us, the sun is setting on a large number of legacy ERP systems. We continue to see significant demand for ERP upgrades and replacements.”

Randy Smith – “The wave of companies that implemented around Y2K are starting to replace their systems. The apps that were available at that time are becoming out of date and new technologies are taking over. So we are seeing a number of companies that are looking more for performance increases over addressing specific functional requirements.”

Meanwhile, pent-up demand exists due to projects that were deferred in 2009.

Jonathan Gross – “In 2009, the Great Recession created pent-up demand as companies delayed their ERP projects. In 2010, improving business conditions and lower ERP costs are causing some of that pent-up demand to be released.”

Nancy Phillippi – “Pre 2009, manufacturers were purchasing industry specific software at a steady rate; no significant deviation in buying patterns. In 2009, purchases were deferred. This has changed in 2010 due to several factors, one being that the need to improve processing is still there and in fact the urgency of procuring software and hardware to reduce redundant overhead processes has increased since companies did not spend budget money in 2009. They are ready to spend.”

Large Enterprises are Extending Existing Systems
Most large manufacturing companies have already implemented an ERP system and have invested to such an extent that there is limited appetite for large replacement projects. Instead, these firms are consolidating plants onto their corporate standard ERP system and adding new application functionality.

Jonathan Gross – “Historically, many large companies implemented separate ERP systems for each of their facilities. Now, they are looking to consolidate systems and facilities. With respect to adding-on, many large companies are looking to extend their enterprise systems to the furthest reaches of their businesses. For example, many large manufacturers are now automating manufacturing operations, customer relationship management and business intelligence. With respect to manufacturing operations management, the intent is to use systems to help improve overall equipment effectiveness, process efficiency, material movements, productivity and performance.”

Meanwhile, many small and medium enterprises (SMEs) are implementing their first business-wide system. With limited budgets and technical resources, these companies are looking for quick and easy deployments; SaaS solutions are therefore popular. As Jonathan Gross points out, “these alternatives give smaller and less IT savvy companies opportunities to leverage the power of ERP without needing sophisticated internal resources.”

Finally, a range of companies are giving serious consideration to implementing open source ERP software.

Ned Lilly – “We’re definitely seeing more overall activity from the SME market than the enterprise. But, there are some interesting examples of enterprises who are making moves from tier-one ERP systems and are taking a fresh look at commercial open source ERP.”

Food, Chemical, CPG are Most Active Industries
Among process manufacturers, most purchase activity is from chemical and food manufacturers according to our experts. Randy Smith reported food as “the big one that is hot right now,” while Nancy Phillippi points to chemical manufacturers as leading the way.

Nancy Phillippi – “Chemical manufacturing and distribution seems to be the industry that has sustained the most growth through the slow economy. Chemical companies are buying or adding functionality to their existing software to improve their business software and processes which often includes server hardware, software and network services.”

Ten Steps to Selecting the Right Manufacturing Software

Download our step-by-step guide on how to select the right manufacturing software for your organization. This straightforward tutorial is the critical tool you need to stay organized and make the correct purchase decision. Read More »

Download

Among discrete manufacturers, we see activity among consumer packaged goods (CPGs), aerospace, semiconductor and automotive manufacturers. Increased ERP software adoption among CPGs is fuelled by “the need to manage global supply chains, distribution networks and targets acquired through mergers and acquisitions activity,” observes Jonathan Gross. While aerospace, semiconductor and automotive companies are “more active with upgrades, replacements and add-ons.”

Industry-Specific Functionality Tops Selection Criteria Lists
Functional requirements (as opposed to technology, services, for example) appears to be the most highly weighted ERP selection criteria. Given that every manufacturing business is unique (e.g. industry, mode), requirements continue to be very specific to the buyer. Therefore, prioritizing feature requirements is a key step in selecting the right manufacturing software.

Jonathan Gross – “Functionality is the most highly cited reason justifying an ERP purchase. There is nothing controversial about this result. Companies want to buy systems that best fit their needs. The important lesson for prospective ERP customers is that they first need to assess their business and system needs. Only then will they be able to determine best-fit ERP features and functionalities.”

Total cost of ownership (TCO) also remains high on the list of buying criteria since companies remain cost conscious. Moreover, the return on investment (ROI) case for new software is also predicated in large part on cost reduction benefits. We hear two recurring goals: reduce operating costs and increase efficiency.

Nancy Phillippi – “Reduce overhead processes. Basically do more with less resources and redundancy. Manual redundancy/date entry in processing is not only labor intensive it also is very error prone.”

Randy Smith – “Inventory control, access to cost data (varying rapid manufacturing costs) and technology shifts seem to be the big motivators.”

Finally, customization and accessibility make their way into our list of buying criteria.

Ned Lilly – “We’re seeing more interest in customers having flexibility for where and how they can run their software (e.g. onsite or off, multiple platforms such as Mac and Linux as well as Windows), and of course, whether they’re able to make changes to the software.”

Stay Tuned for Part Two
This ends part one of our “2010 Manufacturing Software State of the Industry Report.” Be sure to revisit our blog on May 1st when we publish part two. In the meantime, we’d love to hear from you. You can join the conversation by leaving a comment below.

Sage Software – A Guide to the Product Portfolio

Austin Merritt — Thu, 22 Apr 2010 00:43:40 +0000

By market share, SAP is the largest business applications software vendor. Oracle is number two. You probably knew that. Do you know the third largest applications vendor?

Sage, with 8% market share, is the third largest business applications software vendor. And in the SMB segment (companies with fewer than 500 employees), it’s the largest. Sage is a $1 billion plus company whose software products power hundreds of thousands of organizations’ mission-critical functions. However, given the evolution of this highly acquisitive company, its product portfolio and corporate background might merit some explaining. We’ll give it a try.

Sage was founded by David Goldman in 1981 in Newcastle Upon Tyne, England, and first sold estimating and accounting software for the printing industry. Like its competitors, the company grew dramatically and primarily through acquisitions. Sage focused mostly on the U.K. market until it entered the North American market in 1991 via the acquisition of DacEasy accounting software. Since then, the company has acquired over 100 software systems. Some of these acquisitions have helped the company penetrate new geographic markets or narrow verticals, while some of the acquired products have been more broad.

Sage’s more notable North American acquisitions are presented below:

YEAR	COMPANY	PRODUCT	MARKET	AMOUNT
1991	DacEasy	DacEasy	Mid-market accounting software	$15M
1998	State of the Art	MAS 90/200	Mid-market accounting software	$263M
1999	Peachtree Software	Peachtree	Small business accounting software	$145M
2000	Best Software	Abra/FAS	Human Resources Management Systems (HRMS) and fixed asset accounting software	$445M
2001	Interact Commerce	ACT!, SalesLogix	Customer Relationship Management (CRM) software	$260M
2003	Timberline Software	Timberline Office	Construction accounting and operations	$93M
2004	Accpac International	Accpac, Simply Accounting	Small business and mid-market accounting software	$110M
2006	Emdeon Practice Services	Medical Manager, Intergy	Physician practice management and Electronic Health Records (EHR) software	$565M

As a result of Sage’s numerous acquisitions, the company has several products targeting each industry and some products cutting across multiple industries. A quick overview overview of the SMB offerings in their biggest industries is presented below.

Of course, Sage has a number of other products that are used by small companies in a variety of industries – Peachtree, Simply Accounting, SageCRM, ACT!, SalesLogix, etc. For the scope of this article, we will focus on clarifying Sage’s ERP offerings in the manufacturing and distribution software industries. MAS 90/200/500, X3, Pro, and PFW are the most prevalent, so let’s take a look at each in detail.

MAS: One Size Fits Most
As can be seen in the diagram above, MAS a popular system that Sage markets to a lot of buyers. State of the Art, Inc. first developed MAS (Master Accounting Series) in the 1980′s and staked its claim in the SMB market by building out a large reseller network. Many of these resellers included CPAs who used the program and even resold it to their clients. Although many CPAs stopped reselling the system as conflicts of interest occurred, this scenario proved effective in getting MAS installed in more than 70,000 locations. Sage eventually acquired State of the Art in 1998, giving the British company a strategic position in the North American SMB market.

Out of the box, MAS is a horizontal accounting and inventory management solution. Industry-specific functionality is usually found in the over 20 add-on modules that Sage offers, including HR, CRM, e-commerce, and payroll. While it is a strong fit for wholesale distributors, manufacturers will find necessary manufacturing software modules (MRP, shop floor control, etc.) available through Sage’s extensive network of development and sales partners. MAS is usually adequate for light manufacturers, but manufacturers requiring more specific functionality will often look at Sage Pro, X3, or PFW.

Differences Between Sage MAS 90, MAS 200, and MAS 500
MAS 90 and MAS 200 offer essentially the same functionality; the primary difference is in how the system is delivered. MAS 90 is built on a Windows platform and is usually run on a single terminal or a small Windows network. Because of its b-tree file architecture, it is typically not used by organizations with more than 10 users.

MAS 200, however, is database-driven and later this year will be able to be deployed on an SQL Server. It also employs a client-server architecture. Because of this infrastructure, MAS 200 is more scalable and usually used by larger companies. MAS 500 is an entirely different beast from MAS 90 and 200. It was built from the ground up and does not share the same code base as the others. It is usually used by larger companies, although it can scale down to as few as 50 users (and even 2 in some cases).

The table below should help companies identify which MAS product might be best for them. This information is based on our research and is not official data from Sage.

	Annual Revenue	# of Employees	# of Users	Technology
MAS 90	$1M to $25M	10 to 100	Less than 10	Windows Terminal
MAS 200	$10M to $100M	10 to 500	10 to 250	Windows Server
MAS 500	$25M to $500M+	20 to 1,000+	50 to 1,000+	SQL

The “Hardcore” Manufacturing ERPs: X3, Pro, and PFW
While X3 and Sage Pro are smaller brands than MAS 90/200/500, they offer more robust manufacturing-specific functionality out of the box. Sage acquired X3 in 2005 from a French company called Adonix and, similar to Microsoft’s marketing strategy with Navision Damgaard, began offering the system in the United States. Sage X3 supports just about any manufacturer with specific features for discrete, process, make-to-order, and engineer-to-order modes of manufacturing. The web-native application is especially well-suited for international companies that need to integrate multiple locations with multi-language and multi-currency support. It is typically used by “upper-mid” SMBs with 20 to 1,000 users.

Sage Pro is a very different product from X3. It was originally part of the Accpac family of products (consisting mainly of Accpac, Accpac Pro, and Business Vision) that Sage acquired in 2004. The biggest differentiator for Sage Pro is the fact that its source code is open to end users, allowing companies to modify the source code to fit their needs. It usually requires very little customization for small companies though and is easy to integrate with other modules for warehouse management, e-commerce, HR, and CRM. It is designed primarily for small and mid-size discrete manufacturers.

Sage PFW was initially offered as BatchMaster Platinum for Windows. It is a process-specific system with features for batch tracking, formulas, inventory control, and distribution, in addition to core accounting and job costing. It was originally developed by a company called eWorkplace Solutions in the 1980s was sold to Sage in 2002.

A quick breakdown of the different Sage ERP products is presented below.

MAS 90/200/500	The most popular of Sage's ERP products
	Horizontal support for many different industries, not just manufacturing or distribution
	Scalable from small companies to enterprises
	Wide availability of add-on modules for industry-specific needs
	Huge network of resellers and development partners
Sage X3	Out-of-the box functionality for most modes of manufacturing
	Great for global, multi-language and multi-currency companies
	Highly configurable platform can operate in Windows, Linux, or Unix, with Oracle or Microsoft SQL Server databases
	Web-native and easily accessed from multiple locations
Sage Pro	Open source system
	Good for smaller companies
	Typically ready to deploy without customization
	Popular among discrete manufacturers
Sage PFW	Process-specific system supports both manufacturers and distributors
	Well-suited to small and midsize firms
	Multi-language and currency support for global operations
	Powerful reporting and backoffice management with built-in reports and add-on modules

So What Does the Future Hold for Sage ERP?
Buyers should expect these systems to stick around for quite some time as Sage has released product road maps that extend beyond 2012 for all four products. Based on Sage’s past acquisitions, we think it’s reasonable to assume that Sage will be introducing additional products to the manufacturing and distribution software industries. Sage’s largest opportunity may lie in Software-as-a-Service (SaaS). While the company does offer SaaS systems for customer relationship management, light manufacturing, project management, and other functions, it does not yet offer a complete, SaaS system for complex manufacturers. Maybe we’ll see one soon.

SAP’s SME Solutions – A Guide to the Product Portfolio

Don Fornes — Tue, 20 Apr 2010 15:08:13 +0000

Throughout its existence, SAP has been known as an enterprise-class applications vendor – one that sells only to really big companies. At the same time, SAP has attempted – through marketing, channels and development – to move “down market” into the realm of small and mid-size enterprises (SMEs). Today, that strategy has resulted in a portfolio of software solutions that might need some explaining. I’ll give it a try.

Before we dig into the SAP portfolio, it’s important to understand a few things about the SME market:

There exists a range of SMEs and one-size does not fit all. A $750 million SME has very different needs than a $10 million SME.
The smaller the SME, the less likely they are to adopt complex technology. When they do get into technology, they typically like Microsoft platforms (e.g. .Net, SQL Server).
SMEs were the first to adopt software as a service (SaaS), and that model continues to gain traction within the SME market. Any SME strategy must include a SaaS strategy.

The implications of those three points for SAP were that SAP could not just “re-package” its core SAP Business Suite – the “big company product” formerly known as R/3 – and call it an SME strategy. SAP actually tried this throughout the 1990s, but in 2002 they started on a new path toward specific solutions designed just for the SME market.

Today, the SAP solution portfolio consists of four product families, as detailed in the following table.

SAP Product	Product Description
SAP Business Suite	The "original" suite of applications for enterprise-class customers. Includes ERP, CRM, PLM, SCM and SRM. Built on the original (and evolving) ABAP/Java platform.
SAP Business All-in-One	A partially "pre-configured" version of Business Suite, offering 80% configured solutions for larger SMEs in a wide range of industries.
SAP Business One	A completely different product designed for smaller SMEs. Acquired in 2002 (through TopManage), the product is developed in Microsoft .Net technologies.
SAP Business ByDesign	A completely software as a service (SaaS) system developed by SAP and introduced in 2007. For SAP, it's an entirely new approach to software design and deployment.

SAP products by size of business, as measured by employee count

SAP products by size of business, as measured by employee count.

By far the biggest differentiator between the various SAP solutions is the size of organization for which they are designed. Of course, SAP Business Suite is designed for large organizations – those with thousands or tens of thousands of employees and likely hundreds or thousands of ERP users.

All-in-One, with its preconfigured industry solutions, is able to go further down market to serve organizations in the 500+ employee range – the high-end of the SME market.

ByDesign is targeting organizations in the 100 to 500 employee range. Over time, as ByDesign matures functionally and becomes more scalable, we expect increasingly larger organizations to adopt the ByDesign SaaS model. So, in our diagram we indicate this as moving up-market.

Finally, Business One is clearly targeted at the low-end of the SME market. It’s simplicity is a fit for organizations with fewer than 100 employees, but at least ten.

SAP Products by Application Functionality
From a functional standpoint, there is a wide variation in the capabilities of the various SAP products. Business Suite, again, is extremely full-featured. So too is Business All-in-One. Business ByDesign is not as fully featured as its on-premise siblings, but SAP is investing rapidly in developing more functionality. Finally, Business One remains a fairly simple applications suite; its primary capability is core accounting, complemented by hundreds of add-on modules offered by a network of roughly 1,200 reseller partners.

	SAP Business Suite	SAP Business All-in-One	SAP Business ByDesign	SAP Business One
Finance & Accounting
Human Resources Management
Project Management
Manufacturing Planning
Supply Chain Management
Customer Relationship Management
Analytics & Business Intelligence

SAP Products by Industry Coverage
SAP has long prided itself on offering very specific functionality for a wide range of industries. Business Suite, of course, has very deep coverage across most major industries. Business All-in-One inherits this deep industry functionality, since it shares the same code base.

Business ByDesign and Business One offer narrower coverage of industries, since they are newer solutions. SAP is still extending the core horizontal functionality of these solutions (e.g. CRM software, SCM software) and will, over time, extend the vertical industry functionality.

In the case of Business One, SAP offers a very robust set of developer tools, which allow third-party reseller partners to extend the solution to meet the needs of specific industries. Over time, we expect SAP to incorporate these add-on modules into the core Business One codebase. Microsoft has executed a similar strategy with its Microsoft Dynamics products, including Microsoft Dynamics CRM.

The table below shows the industry support of each SAP solution.

	SAP Business Suite	SAP Business All-in-One	SAP Business ByDesign	SAP Business One
Automotive
Aerospace & Defense
Banking
Chemicals
Consumer Products
Defense & Security
Engineering, Construction & Operations
Healthcare
High Education & Research
High Tech
Industrial Machinery & Components
Insurance
Life Sciences
Manufacturing, Cross Segment
Media
Mill Products
Mining
Oil & Gas
Professional Services
Public Sector
Retail
Telecommunications
Transportation & Logistics
Utilities
Wholesale Distribution

Software Deployment Options
Traditionally, SAP solutions were installed on-premise; that is, the software was installed locally at each of a customer’s facilities. From an architectural standpoint, there is software to be installed on a server (i.e. the core application functionality and the database), as well as on the client machine (i.e. each user’s computer). Some SAP applications are web-based, meaning that all software is installed on the server, while users access the application via a web browser. Regardless, any software would be installed and maintained at the customer’s facilities.

Through a network of reseller and hosting partners, SAP began to offer hosted versions of its solutions in the late 1990s and continues to offer these solutions today. Business All-in-One, specifically, is offered in both an on-premise and hosted model. Business One, however, is only offered as an on-premise solution, meaning that all software is installed at the customer’s facility.

Business ByDesign is a clear departure from SAP’s traditional on-premise model. Business ByDesign is a pure web-based solution, offered on-demand. That is, all of the software is hosted at an SAP data center and every user accesses the system through a web browser over the Internet.

Pricing and Cost of Ownership
Pricing for Business Suite and Business-All-in-One is a traditional mix of package licenses and named-user licenses. That means that a buyer will pay a certain amount to purchase the applications they need, as well as a separate license for each user who will access the system. The later licenses will vary in price based on whether a user is a power user or an infrequent user accessing reports, etc. Finally, the buyer will have to purchase a maintenance contract (typically 15% to 20% of the original license price), which will entitle them to customer support and upgrades.

While Business Suite implementations are often seven-figure investments, we believe that a Business All-in-One implementation can cost as little as $350,000, including software and services. Of course, most implementations become more complex due to customization and integration, so many will cost substantially more than $350,000. Since Business All-in-One is available on a hosted basis, SAP also offers – through its partners – subscription pricing.

SAP Business One follows a similar pricing model but costs far less. Again, the cost depends on various factors, including the number of users and the type of access each user will need. We believe that Business One implementations range from $25,000 to $250,000. The variation will be driven in large part by the number of third-party add-on modules that are purchased and how much customization and integration is performed by the channel partner.

Business ByDesign offers the most unique pricing amongst the various SAP products. A pure subscription model, Business ByDesign costs $149/user/month. There is, however, a minimum licensing requirement of 25 users, which brings the total monthly minimum subscription to $3,725 per month.

To compare Business ByDesign pricing to the other SAP solutions on an apples-to-apples basis, we can compute a net present value (NPV) of $27,416 (assuming a ten-year life for software and a 6% discount rate). Of course, that is just the lowest-level price. A company with 300 users could expect to pay the equivalent of a six-figure, up-front investment (say, ~$200,000).

Business ByDesign, by design (pun intended), is not meant to be customized intensively. Therefore, buyers can expect to invest far less in customization and integration, assuming they can make the out-of-the-box version work for their business.

Which SAP Solution is Right for You?
That’s probably not a question we can answer in a blog post, but we have lent some clarity to the portfolio. Regardless, I think it’s safe to segment buyers based on three primary criteria:

the breadth and depth of functionality required;
budget available to invest in software; and,
appreciation of, or aversion to, the SaaS model.

There is a huge difference in functional completeness between All-in-One and the other SME solutions. So, a larger SME with robust functional requirements will certainly lean toward All-in-One. Of course, that buyer will need to have a substantial budget in the hundreds of thousands of dollars, if not seven figures.

An aversion to SaaS will eliminate Business ByDesign from a short list. However, those SMEs with limited IT resources should pay close attention to the evolution of Business ByDesign. We believe that SaaS is the future of enterprise software and SAP has clearly signaled its intention to play in that next generation of computing.

The Software as a Service Dilemma

Don Fornes — Wed, 07 Apr 2010 13:09:18 +0000

Software as a Service (SaaS) presents a classic “disruptive innovation.” Of course, in 2010 that’s not new news.

What is remarkable is how closely the SaaS market’s evolution matches the definition of a disruptive technology that was described by Harvard Business School professor Clayton Christensen in The Innovator’s Dilemma (he later replaced the term with “disruptive innovation” in his subsequent book, The Innovator’s Solution). In fact, the SaaS dilemma that incumbent software vendors currently face is playing out almost page-for-page from Christensen’s books. As a result, we can use the disruptive innovation framework to gain insight into what’s to come in enterprise software.

After a decade of deriding SaaS technology as too simple, functionally incomplete and insecure, vendors such as Microsoft, Oracle, SAP and thousands of incumbent “on-premise” software vendors are now embracing SaaS. It’s an awkward embrace – one that threatens to cannibalize existing revenue steams, divert resources and eat up profits.

Of course, the innovator’s dilemma doesn’t destroy every incumbent. These incumbent market leaders are powerful, resilient innovators themselves. But for armchair quarterbacks like us, this the next five years will present a fascinating game to watch.

What is a Disruptive Innovation?
Disruptive innovation refers to new solutions – often technologies – that through a new delivery model, alternate pricing model or target market segment are able to disrupt existing competitive dynamics dramatically. For example, SaaS offers a new delivery model (i.e. hosted “in the cloud”), a new pricing model (i.e. subscription) and initially targeted smaller customers.

Initially, these disruptors target the least profitable customer segments – typically smaller or unsophisticated buyers. These are the only customers whose requirements are limited enough to accept the bare bones feature-set of the new system. Meanwhile, they appreciate the new model (i.e. it’s cheap and easy to get started). We certainly saw this in SaaS as small businesses or autonomous departments adopted customer relationship management (CRM) systems like Salesforce.com as early as 1999. For them, SaaS CRM was “good enough.”

The disruptive innovation cycle applied to SaaS.

Over time, however, disruptive innovators improve their performance and feature-set and can meet the needs of more sophisticated customers. Combine that with a little buzz around their new model (e.g. everybody’s talking about cloud computing these days), and the incumbent vendors start to take note. Of course, the incumbent still has plenty of ammunition to dismiss the new technology, since it remains functionally deficient relative to incumbent products and the most demanding customer segments (e.g. SaaS penetration into the ERP market remains limited).

I’ll posit that SaaS is now entering the penultimate – and most contentious – stage of disruption. At this point, the innovators start to gain serious momentum. Their products approach functional parity and they begin to steal substantial market share. The incumbents finally get serious about defending their traditional markets by releasing their own version of the innovation (in the case of SaaS, that means true web-based, on-demand, cloud computing, not just hosted client/server software). Unfortunately, it is often too late. Incumbents remain apprehensive about cannibalizing existing revenue and they face challenges replicating the innovation. Typically, most incumbents stagnate, decline and fade into obscurity. Only a few nimbly transition to the new model.

The innovator now becomes the incumbent and new innovators emerge. The cycle repeats.

SaaS Disruption Battles are Well Underway
Christensen mentions Salesforce.com in his second book, The Innovator’s Solution:

This company, with its inexpensive, simple, Internet-based system, is disrupting the leading providers of customer relationship management software, such as Siebel Systems.

I worked at another leading CRM vendor back when Salesforce.com was just a start-up. I remember meetings where executives derided the system as a toy. Most Salesforce.com implementations were just a half dozen users and most customers paid their subscription fees with a credit card (Gasp!). Since then, Salesforce.com has exceeded $1 billion in revenue and incumbent market-leader Siebel Systems sold out to Oracle after hitting tough times.

While Salesforce.com in the CRM market is the best example, the SaaS dilemma is playing out in numerous software markets. Gmail and Google Apps are nascent yet serious threats to Microsoft’s Outlook/Exchange and Office cash cows. We use both of the Google services extensively. NetSuite is a contender in enterprise resource planning (ERP), but hasn’t dented SAP or Oracle too badly as of yet.

Most interesting, however, is how this same battle is being waged by innovators in so many lesser followed market segments: SaaS construction project management, SaaS electronic medical records, SaaS property management, SaaS retail point of sale. The list goes on…

Most SaaS Shortcomings are Addressed
As I mentioned earlier, I believe we are entering the final stages of SaaS disruption. The SaaS model and its proponents have not defeated the incumbents, but SaaS solutions have reached functional parity to the point where incumbent derisions are starting to fall on deaf ears.

Let’s examine each of the top five objections to SaaS:

Web browsers are not interactive enough. This was true when web applications required a full page refresh to complete a transaction, but the maturation of JavaScript, AJAX, Adobe Flex and other web user interface technologies addressed this. HTML 5 will put this one to rest for good. I find my SaaS apps faster and more dependable than any on-premise app.
Hosted data is not secure enough. This one always perplexed me, since so many of us were comfortable with web banking as early as ten years ago. Few systems could be more valuable than financial transactions. Moreover, very few software buyers can afford to implement the same security infrastructure as a professional SaaS data center.
It’s not possible to integrate SaaS. This was true when few SaaS vendors had built APIs and there was no middleware for SaaS. Nowadays, API integration to SaaS applications is non-trivial, but not any more difficult than on-premise integration. I should know; we just finished a successful integration to Marketo, a SaaS marketing vendor.
You can’t customize SaaS systems. Again, this is changing. Many SaaS applications remain fairly “packaged,” but many vendors have successfully positioned this as a benefit (i.e. “adopt our best practices”). At the same time, SaaS customization tools are maturing. Salesforce.com has built an entire development environment, force.com.
Big companies want to own the software, not rent. This may be still be true in some cases, but in this economy the recurring nature of subscription payments is attractive. It also puts more of an onus on the vendor to earn their future subscription payments. I’m not convinced that this presents a concrete competitive advantage for incumbents.

Incumbents are Now Challenged to Counter SaaS
Now that SaaS vendors and incumbents are locked in a real battle – the gloves are off and incumbents are releasing their own SaaS systems – our analysis turns to the big challenges that incumbents will face. Let’s examine the five most significant characteristics of SaaS systems, and then explore why they are great for SaaS purists and a real challenge for incumbent on-premise vendors.

	Great for SaaS companies	Tough for incumbents
Browser-based	They can promote the benefits of not installing and maintaining client-side software. Plus anyone can use a web browser!	Moving to a web-based architecture is a near-complete rewrite. "Web-enabled" options are temporary, at best.
Subscription pricing	Not needing to justify a big purchase up front means fewer approvals and fewer risk-averse buyers to assuage. Also, great recurring revenue.	This is the core cannibalization issue: moving to subscription pricing will stall growth and maybe lead to revenue declines for some time.
Multi-tenant architecture	With all users on one codebase and database, changes are made in one location, but roll out globally. Also, computing resources are shared.	With thousands of installs, it's impossible to consolidate. There are incremental benefits to multi-tenancy, but the legacy customers remain.
Rapid release cycles	With changes being made to one codebase/database, releases can be rolled out weekly, even nightly. More releases = better products.	The quarterly, bi-yearly or annual release cycle is deeply ingrained in the DNA of an on-premise development organization.
Bought by business, not IT	It's far easier to sell to business units with their own budget, without the need for IT approval or budget. Faster sales cycles = growth.	IT relationships are a core advantage of incumbents. With SaaS, those relationships are less relevant - a competitive barrier is lifted.

It’s Not Over Yet – Not Even Close
Microsoft, Oracle and SAP still own the large enterprise market and the SME market. In hundreds of niche software markets, on-premise incumbents dominate. Even ten to fifteen years into the evolution of SaaS, SaaS vendors still possess minimal market share relative to incumbent vendors. While still powerful and often growing, all of these incumbents face the daunting challenge of SaaS disruption. Moreover, each of the major incumbents has started in earnest on credible SaaS offerings.

Microsoft has released Microsoft Dynamics CRM Online – the first Dynamics family application to be offered in a SaaS model. Microsoft has also released Microsoft Office Online as a counter to Google Docs.

Oracle, meanwhile, continues to grow its Oracle OnDemand solution set. While much of Oracle OnDemand consists of managed services for traditional on-premise solutions, their SaaS CRM offering (acquired through the Siebel deal) is true SaaS. So too are other solutions they acquired in recent years.

Finally, SAP’s Business ByDesign appears to be a pure SaaS, on-demand offering that is operating independently from the SAP mothership. Our own conversations with SAP employees have shown that the company is maintaining an arms-length relationship with the Business ByDesign team so that this in-house “start-up” can truly function as a nimble SaaS entity, unconstrained by SAP’s on-premise legacy.

If the disruption examples and case studies in Christensen’s book are a guide, we can expect to see a massive number of incumbent vendors stall, fade and become irrelevant over the next decade. Others will deftly navigate the transition.

In our comments section below, I’d like to start a conversation about which incumbent vendors will fade and which will transition. Please share your opinion.