In Part 1 we provided an overview and some history of how the ERP market got to where it is today. We talked a lot about the ERP companies, so in Part 2 we will look a bit more at the customer issues and how these companies are addressing them.
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Today’s ERP Customer
Customers today fall into three general categories—those seeking their first solution, customers seeking a refresh/upgrade to their existing ERP, or maintenance-only customers. The first two are active in the market and are drivers of significant investment for ERP companies. In this series we are focusing on existing customers—specifically, those seeking more functionality or the newer tools. Without serious attention to those needs, defection is likely. The refresh market is dangerous, since without the right future strategy or care and finesse in maintaining the customer relationship, all bets are off for a lasting relationship. When we talk to these types of customers it continues to amaze me how many of them would consider leaving their old ‘partner,’ since ERP projects are still painful. Though the refresh market accounts for less than 50% of the install base, it is still significant. With tens of thousands in the install base, this segment cannot be ignored.
One other perspective on the customer base that has not moved is worth noting. Those customers that haven’t upgraded in several years operate at a significant business disadvantage, such as manually dealing with multi-GAAP reporting and the new regulations in industries such as pharmaceutical and food. There is no easy way to comply with new regulations. Staying put may incur a lot more challenges over time. And as those companies fall further behind vs. embracing the new technologies, the distance to recover and catch up increases.
Users expect and are getting innovation. But that does not come without patience for unraveling the old tools, for example Progress databases no longer in vogue, COBOL code, or really old versions of Microsoft. This is a journey that Epicor and Aptean have been trudging through.
A Leaner World
Today’s enterprise often has less headcount than when the original ERP was put in place. Think about it. When I (and maybe you) got ‘our ERPs’ we attended a series of training and certification classes to use the modules: one for manufacturing, one for sales, one for finance, and so one. A project leader could be away from home often for 6 weeks or more learning the system. And the IT team had to attend these plus the architectural classes and sessions to learn how to support, integrate, and append the solution.
“Today,” says Danna Nelson, Vice President ERP Product Management at Aptean (previously from Infor), “training paradigms for ERP implementations have changed. Many manufacturers don’t have time for classroom training anymore. Our goal for the future is to make the complex business processes supported in ERP as intuitive as possible to eliminate or at least vastly reduce formalized training.”
And of course, the leaner companies are less likely to send anyone to classes. Aptean provides video/YouTube demonstrations and tools that can be used at the desk. There is also online help (we wrote about this with Epicor’s University approach). Of course, a clean UI and streamlining clunky old approaches with better workflow is really where it is at. Ease of use is what reduces that need for training in the first place.
Converting for Cost
Total cost of ownership (TCO) reductions are another end-user concern. ERP providers are addressing this with their move to the latest Microsoft operating systems or cloud offerings. Charles Phillips, CEO of Infor, produced some analytic numbers demonstrating that the new environment significantly reduced the user’s TCO, even with the cost of conversions factored in.
But "that discussion is not so straightforward," cautions Nelson. The new environment may have some increased complexity. For example, she notes that often the older systems operated in a ‘one server environment.’ The new ones may require multiple servers to support all the new bells and whistles users are looking for. IT may challenge that change, wanting to know if they now have to purchase and manage it. QAD also cautions here, since customers are looking for more services and tools as part of their moving up strategy. “Cloud could cost the same or even more” if companies are transferring workloads and adding these needed capabilities. Of course, the ERP monthly cost might be more in this instance, but it offsets enterprise expenses—reducing TCO.
No Grey Hair
One more important note is the changing workforce, which is having a greater impact on the tech market each year. The evaluation team looks a bit different these days, with a new generation of decision makers—echo boomers. Their tastes in technology are significantly different, again, both a huge risk and opportunity for ERP providers. We also keep hearing from the end-user community about the impending retirement of the current workforce and the need to codify knowledge before these seasoned workers leave. The younger workers are more adaptable and braver, often the ones who are driving the change. They are force to be reckoned with and will take the risk to move on.
In the last article we talked about various incentive promotional strategies. Infor had hyped their low cost/fixed-price migration, but most of the other firms don’t offer this kind of deal. When I asked Epicor’s John Hiraoka, Executive Vice President and Chief Marketing Officer, about this type of approach, he noted that “Our customers see the value in the solution we are offering, so we don’t feel that is appropriate.”
QAD sees their goal as continuing to strive to deliver more of what customers want: the new tools, richer functionality and a desire to be known as a leader in their segment (Manufacturing). That theme rang true as we talked about the vertical strategies—being so good in an industry that defeat is unlikely, regardless of the sales ‘incentives’ competitors might toss into the ring.
Danna Nelson noted that “The real goal is to get the customer converted as soon as possible. That reduces the risk and cost to the customers of the conversion.” She also noted that as Aptean has upgraded their major ERP products, they have “tried not to touch the database.” Often, the new software impacts data structures, so moving up—doing upgrade projects—focuses a lot on database migration. Data conversions can limit the enterprise’s ability to look at history and do trending, and it also introduces risk into these conversions. (All tricky business!) QAD has what they call an Easy Onboarding methodology they built up over many years (it pays to have consistency here) which includes KPI assessments, Q-Scan, which provides alignment to the business needs and value to the technology upgrade.
QAD, Epicor and Aptean all noted in our discussions that ERP installs are so very unique that a win/win implementation is unlikely without pricing the project specific to the real effort it will take. Fair enough. Of course, ERPs still have deal making powers like throwing in software or other goodies such as reducing maintenance costs for a year or two and so on. Again, the goal is to avoid customer defections—and win deals—since over the long term that sale is critical.
What about SAP, Anyway?
There is no easy answer here. First you have to admit to yourself that change is required. SAP finally seems to have acknowledged that. Hinting at a new mid-market strategy, they put Dean Mansfield (ex- NetSuite) at the head of their SMB business unit with promises for something new (better) over the next two or three years. Specific direction was not clear at that point.1 Overall, SAP’s theme currently is simplification, no easy feat for SAP. So many confusing apps and module configurations make it hard to figure out what to buy, and complicated contracts are hard to understand.
As Aptean’s Nelson pointed out, the real challenge at the end of the day is, “How fast can customers adopt and adapt? How can ERP make it extraordinarily easy [for] transformation [to] occur?” That goal runs counter to complex module sales. In a recent meeting, SAP’s Mansfield hinted at an all new SMB product. SAP’s approach may be to build a new one, but that takes years.
The Vision Going Forward
The ERP market, in spite of challenges, continues to thrive. Questions still persist about whether there are too many products for the marketplace. There are many solutions whose sales are very limited or are non-existent and their ERP provider maintains them on behalf of the customer. And the ERP firm will admit that there are no future development plans for these types of products. All development focus is on keeping up and supporting their customers’ changing needs, but only for the chosen products.
Usability, all the current business logic needed to operate in today’s global world, and remaining up to date on regulatory and industries issues, of which there are many impacting corporations now, is the work of today’s ERP providers. Charles Phillip’s push at Infor has not only been to modernize the software but to radically change the UI, “making software beautiful,” which ERP clearly was not.
And then there’s cloud. Karl Lopker, CEO of QAD, mentioned at the QAD user conference that their cloud revenue, though about 10% of the total, is growing at about 35% a year. As we mentioned, cloud is part of the future vision for these traditional ERPs. Epicor’s cloud revenue is also around 10% with positive growth.2
Cloud alone, however, will no longer be the competitive edge in the overall market as it once was a few years ago, since just about every ERP has now implemented their cloud strategy. For manufacturing this really heightens the choices for buyers, putting more pressure on the whole market—traditional and cloud-only providers like Plex and NetSuite—for results.
Aptean’s CEO, Paul Ilse, stated in his opening keynote address at their conference, “Aptean is here to stay and grow with you. We have the right people on the team.”3 Though ERP companies have many experts, they also have had to shed some old baggage and seek more visionary and technically modern personnel. Nelson (one of those hires) stated, “What we are pursuing now at Aptean is to make transaction data more meaningful. ERP has been good at transaction management—accounting, scheduling, billing—but not a lot beyond that. We envision software that is role- and personnel-based that recognizes the user, that is socially collaborative, and doesn’t require user manuals. This is the dream we are pursuing.”
Brian Stein, CEO of SYSPRO America, has often stated that “Consistency in the product investment has kept SYSPRO growing,” something some of the other ERPs were lacking for a long time, “so we don’t suffer from the catch-up that others in the market may be experiencing. We just don’t have that issue.” SYSPRO is also one of the few ERP vendors in the market whose end-to-end solution has been built organically off of a single source system (versus acquired modules). This has led to the type of deep data integration that is facilitating faster implementations for its customers.
The technology edge and vertical expertise is critical, but how well the company cares for the customer also matters equally as much. We caution users to exercise due diligence and determine how these ERP providers are tracking on their transformation. Do not rely on consultants who have bias, since they tend to rely on only one vendor, and thus make a subjective choice. Choosing a knowledgeable consultant is part of your diligence to ensure you are getting the best you deserve. But that is another story for another time.
More to come on Moving Up…
1 Mansfield said the SMB group will build “the next generation of solutions for Small and Medium Businesses … a new business operating system … comprised of SAP-created solutions and partner-created apps.” They are not planning on replacing the existing applications, but rather will be building an alternative solution. It will be interesting to see how long that coexistence lasts. SAP executives clarified to say they wanted to give customers a choice between on premise and SaaS. -- Return to article text above 2 But I am still waiting for a more positive message from Epicor. Since the rumors of a sale, there is some talk that net new sales are impacted. -- Return to article text above 3More on Aptean’s Revival -- Return to article text above
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