Project-oriented versus Generic GL-oriented ERP/Accounting Systems

The unique business needs of project-oriented organizations, when addressed by large ERP vendors that offer general-purpose enterprise software, require heavy customization in order to work. On the other hand, when project-oriented organizations turn to small off-the-shelf project-management solutions, these solutions are soon outgrown by the user company. These organizations are looking for systems to support the project manager, who is responsible for sharing and tracking the revenue, expense, and profitability of a project. Most enterprise-wide business systems sold by software vendors are general purpose in design and without significant tweaking, they do not address many of the unique requirements of businesses engaged primarily in providing products and services under project-specific contracts and engagements.

Project-oriented organizations have many project-specific business and accounting requirements including the need to track costs and profitability on a project-by-project basis, to provide timely project information to managers and customers, and to submit accurate and detailed bills/invoices, often in compliance with complex industry-specific and regulatory requirements. Yet, traditional generic GL-oriented accounting systems have not been designed with project phases, work breakdowns or detailed time capturing in mind, and thus, they can merely report how much has been spent or collected, but not why a certain project is losing or winning money.

Not many enterprise products will support the following project-based processes: job costing, managing the sub-contactor, financial reporting, managing the workforce, process time and expense, winning new business, purchasing goods and services, managing the project, and building to order. If these high-level processes sound too ordinary, then digging to a level deeper might reveal their true intricacy and attention to detail such as employee time, billing rates, budgeting, collections, or project proposals, which are supported by only a few vendors.

For example, the job costing process can be broken down into the following steps: setup project work breakdown structure (WBS), pay suppliers, pay employees, accrue purchase orders, allocate indirect costs, calculate estimated time to completion, calculate contract ceilings, compute revenue, bill customer, and report the project status. The process time and expense cycle would have the following steps: create project, create project workforce, enter timesheets by project, enter labor adjustments, enter travel expenses, apply project business rules, approve time and expenses, pay expenses and payroll, bill expenses and payroll, revenue recognition, and project status reports (PSRs), which are used for period reporting on a project/task/phase level, and which can be regarded as the financial statement for the project.

The managing-the-project process would feature the following detailed steps: create opportunity plan, establish detailed scope of services, create project plan with work breakdown structure (WBS), establish task schedules, search and add resources to plan, establish budget at resource level, add consultant and expenses to project plan, add direct costs for plan, establish profit performance, save baseline budget, monitor time and expense costs, monitor schedule projected profit and revenue, and submit the project deliverables and closeout project. A build-to-order process would involve ERP materials management functionality through support for the following steps: customer demand, bills of materials (BOM)/routings, engineering change notice (ECN), materials requirement planning (MRP), capacity planning, purchase requisition/order, receiving and quality assurance, fill inventory, issue manufacturing orders, final subassembly and finished goods, customer delivery, billing, revenue recognition, and PSR.

Dealing with Government Contracts

Furthermore, many project-oriented organizations provide products and services under government contracts, and project accounting for these organizations often requires the use of sophisticated methodologies for allocating and computing project costs and revenues. There are many different types of contracts governments use and within each of those there are dozens or more variations, whereby each variation will drive its own type of billings, revenue recognition and requirements for reporting back to the government customer.
The US government requires its contractors to collect and allocate costs in certain ways; for example, according to the Defense Contract Audit Agency (DCAA) rules, labor costs must be recorded daily. Also, a contractor is required to keep track of several contracts simultaneously, meeting the rules for different types of contracts and being consistent in accounting for a number of indirect costs. According to the Small Business Administration Pro-NET sourcing service database, there are tens of thousands of small and minority-owned companies that are doing business with the federal government. With the new emphasis on improving homeland security and expanding anti-terrorism operations around the world, many of these firms will likely experience significantly greater demand for their services and grow rapidly over the next several years.

Expanding Market

Additionally, service business application software systems are expanding as a result of a number of economic trends. Service organizations traditionally have utilized project accounting more than manufacturing firms due to the need to customize services for each client and to properly allocate the associated revenues and costs. Therefore, as the shift from a manufacturing-based economy to a service-based economy continues, the market for project-oriented organizations is expanding. Furthermore, the trend towards outsourcing an increasing range of activities broadens the market for project-oriented organizations as both customers and vendors need to track the costs associated with their projects.

Finally, many organizations with significant internal development activities can benefit from the use of project accounting systems to closely monitor progress and costs. Also, although somewhat conversely, more progressive firms may even try to boost their marketing, advertising, and PR expenditures in order to gain more project contracts during the market contraction, where for example, a proposal automation capability can come in handy. While project management and resource planning software applications help service organizations deliver within a budget, in the long term, these organizations need to win a new stream of projects or customers, which involves pre-sales customer relationship management (CRM), marketing and proposal management, and post-sales elements like travel and expense (T&E) management.

As the number and type of project-oriented and professional service organizations increases, such businesses are demanding increasingly sophisticated tools to address their core information and accounting needs, including project accounting, employee time collection, project budgeting, project reporting, CRM, sales force automation (SFA), and proposal generation. At the same time, these organizations are recognizing that because most aspects of their businesses revolve around their customer project relationships, they can achieve efficiencies in a number of project accounting and core back-office business functions. These accounting and business functions such as general ledger, accounts payable, accounts receivable, materials management, and human resources, are supported through the use of software applications designed to address the special needs of project-oriented organizations. Like other businesses, project-oriented and professional services organizations are also demanding solutions that allow them to combine their business software applications into a single integrated, enterprise-wide system.

Time is of the essence for any business that bills for its services rather than sells a physical product, but the concept can be particularly tricky for design/construction firms that may need billing at different rates depending on, for example, project phase, task, client type, or escalation clause. At the same time, the industry is quite fragmented, with legions of specialist contractors, and it also has a long tradition of technophobia.

IFS Continues Its Reinvention through Pruning

Recently, Industrial and Financial Systems (IFS) (XSSE: IFS), a Swedish extended enterprise applications supplier with sales in 45 countries, over $330 million (USD) in revenues in 2003, and with more than 350,000 users worldwide, announced the following:

* In early January, following the agreement with Uniativa Ltda, which acquired the entire business and 100 percent of the stock in Industrial and Financial Systems do Brasil Ltda on December 31, 2004, that partners will be solely responsible for the sale and distribution of IFS Applications in Brazil.

* In mid December, IFS Sverige AB, IFS' Swedish subsidiary, announced that it sold its payroll software to Personec, and the two companies have entered into a collaboration agreement.

* In November, IFS announced it would collaborate with Bentley Systems, Inc. (www.bentley.com). Bentley, which has its headquarters in the US, will thereby acquire IFS' esoteric computer-aided design (CAD) applications for process, electrical, piping, and instrumentation design. As part of the acquisition, Bentley pledges to assume responsibility for IFS' maintenance and support services for more than 100 accounts, primarily in Sweden and Norway, which employ IFS' CAD applications. The agreement with Bentley is expected to have a positive impact on IFS' earnings totaling approximately 6 million SAK (approximately $800,000) in 2004 and 2005.

Further, the deals with Bentley and Personec, which are also in tune with the above inclination to leverage partners discussed in Part Two, would not be the first of a sort for IFS. Namely, the vendor initially expanded into the customer relationship management (CRM) arena by acquiring former Israel-based CRM vendor Exactium for its product configuration module in the late 1990s. The subsequent sell-off move to Pivotal in 2000 (see What is IFS Up To in the CRM Arena?!) represented IFS tacitly conceding that it had gone beyond its means with its too ambitious product scope and geographic expansion at the time.

Also in the late 1990s, IFS purchased a US-based enterprise resource management (ERP) vendor Effective Management Systems (EMS), hoping to convert its customer base from the maturing Time-Critical Manufacturing (TCM) product to its own enterprise applications, and consequently gain a quick US beachhead. However, customer satisfaction with TCM was very high and, therefore, customer loyalty made it difficult to move customers off TCM. With the majority of the TCM customers reluctant to transition, IFS then heavy-heartedly agreed to sell the TCM product line in November 2001. Thus, the current WorkWise organization was formed comprised of former EMS staff and has since been focused solely on the TCM product line and its customer base (for more information, see A User Centric WorkWise Customer Conference).

With the CAD and payroll applications too, after careful soul searching, IFS' management decided to stay focused on its core competencies, instead of extending painstaking efforts to develop peripheral applications for a small fraction of customers in Scandinavia, where the payback would be highly unlikely. By selling these applications, IFS may not only control potential damage but also "kill two birds with one stone" by 1) leveraging Bentley's and Personec's commitment to a true partnership and product integration to boost both parties' license sales, while streamlining its own operations; and 2) obtaining some equity, however little, as to improve its balance sheet.

For instance, although a differentiating trait might have been tempting (i.e., no other ERP vendor would ever have native CAD applications for piping design or so), the IFS' CAD customer base was too small for the vendor to justify developing own CAD applications in the long term, and it did not have enough specialists outside the Nordic region to effectively sell and support CAD applications globally. This would be possibly the best proof that IFS is getting rid of its erstwhile "not invented here" attitude.

Although through the IFS Plant Design set of CAD modules, once data is entered into the common database, it immediately becomes available to the other IFS Applications modules (whereby, e.g., as a result, information can be recycled, remain consistent and updated, and never has to be entered twice; also, the CAD modules provide designers with a drawing tool for process and instrumentation design, while predefined forms and convenient look-up functionality are further examples of features that benefit all design disciplines), the product has nonetheless had more of a distracting effect to IFS. Not to mention the confusion to prospective customers who could be intrigued by the CAD modules, but who could not exactly understand its functions and relations to other extended-ERP modules, only to hear from the IFS' staffers not to even consider it unless they are from the pulp and paper vertical in Scandinavia or so.

The above analysis of IFS' change of mindset brings us to the fact that the enterprise software is now a mature market where the grow-at-all-costs strategies of the ebullient 1990s simply do not work any longer. Namely, the stock market of the 1990s saw brand new accounts as a key metric when valuing application software companies, which drove these to a business model designed to win new accounts that were seen as the primary source of revenue by most. For both the investor and vendor, this "new accounts at all cost" was the right business model.

But times have drastically changed, as the market penetration is so high that only a few new account opportunities exist. Moreover, economic uncertainty has tightened the purse strings of most prospective user companies so that selling new systems is much more difficult. Therefore, more successful application vendors of late are focusing on their install base as their primary source of revenue while cutting cost to provide profitability. Many, like Bentley and Personec, are even vying for existing dissatisfied customers of competitors. The result is a drastic change in their business model. Namely, the old business model of "new accounts at all cost" must now morph in to a "love the customer" model, whereby the strategic goal remains focusing more resources on servicing existing customers than on attracting new ones. These have typically been made with three objectives in mind:

1) align the organizational structure with current characteristics of the market (i.e., produce a more tightly focused target market and results-based new account sales and marketing operations; and maintain emphasis solely in sensible product and services development while protecting existing technology investment);

2) improve stability of operations and the staying power of company (i.e., achieve profitable growth, financial strength, access to capital, and operational excellence; and maintain consistent profitability, and positive cash flow as a result), and

3) increase the focus on adding value primarily to existing customers (i.e. institute redefined product management and development priorities; focus on enriching software ownership experience rather than software buying experience; and continue with vertical and niche product enhancements, albeit with focus on quality rather than speed, product performance and stability, depth of functionality, and customer needs).

Nevertheless, many vendors are still focused and spending most of their resources on acquiring new customers instead of delivering real value to the customers they already have. As a result, the overall software industry has very low levels of customer satisfaction and financial performance. Nonetheless, most vendors will tout that they are both new account and customer oriented, and some might have struck this balance. But, the vast majority have still been worshipping at the former Wall Street ideal of new accounts for so long that the reality is, they still have a mostly "new accounts" business model. In this culture, sales, marketing, support and implementation teams are oriented towards selling and installing new accounts, whereas in a "love thy customer" culture, the same departments are required but the skill sets and attitudes can be very different.

Therefore, any willing vendor's change of the skill sets and attitudes is byy no means easy; these two different strategies each require a different mentality. Further, if unsuccessful, the existing customer will likely suffer the consequences of less experienced, less knowledgeable people. For instance, in a "new accounts" culture, the majority of service personnel are trained and equipped to install new accounts, whereby they are very good at taking a customer from nothing (green-field) to being implemented. In an "existing customer" culture, however, the service personnel work to enhance the value of the software already installed. While some of the skills and knowledge are the same, the enhancing objective requires greater experience, and knowledge and people skills.
The identical (or similar at least) people issue exists within the vendor's sales team, and particularly within the support department. Namely, when a new account initially implements, the support staffers get lots of relatively easy calls for help. Once installed, the quantity of calls drops but the difficulty of the question increases. Thus, of all departments, software support may be the one that most needs in-depth product knowledge.

Business practices must change too, since installed customers are more interested in services than products. Installed customers have excellent knowledge of the pluses and minuses of being a customer and expect to interact with the vendor in a way that enhances the pluses and fixes the minuses. Therefore, they often want more flexibility, such as even an indefinite support of older releases (see Support for Old Releases-Good for the User but Is It Good for the Vendor?) and a plethora of options or "a la carte" support services.

In this down economy, one must also realize that in the enterprise applications business, people are an enormous cost. If the vendor wants to reduce expenses, one apparent way is to cut headcount, but it really muddles the management of two conflicting objectives—to change the mix of skill sets and the need to reduce headcount.

If one is to judge IFS by a number of its recent new account wins, increasingly through recently recruited resellers (some of which are former J.D. Edwards' defectors), it appears that IFS is still driven by new accounts. That remains an expensive business model, with an uncertain payback in the near term, whereby exploiting the existing install base of over 3,500 customers worldwide could have a more profound effect on both IFS' top and bottom line. That is to say, satisfied customers tend to be more amenable to many additional ways for the vendor to add value (which translates into new license and service and support revenues) to the customer in an effort to maintain the long-term relationship, such as enhancements, extensions, refresh or upgrade services, etc.

One could be reminded of SSA Global, Infor Global Solutions, MAPICS, Epicor, Sage/Best Software, Geac, etc., where the strategy of taking a deep breath and reflecting upon how to proactively better serve existing customers, and gradually building upon that with a combined organic growth and growth via acquisitions, seems to be a recipe for success these days. The enterprise applications market is indisputably a mature and fairly saturated field, and all players must accordingly adjust their investment strategies from those of the emerging and growing market in the 1990s. That means painstakingly finding a perfect balance between cultivating the install base versus the zeal for hitching brand new customers.

Employee Training in a Recession

As organizations reassess their staffing levels, many employees are being asked to do more with less. Aside from reducing headcount, many organizations are cutting back on employee-related expenses, even if they can provide long-term benefits. Examples include application training and travel to user groups in which employees can network and exchange best practices. This article discusses the increased importance, benefits, and risks related to employee training in a recession with respect to enterprise systems.

Growing Organization Risks

While understandable and often imperative for the continued survival of an organization, the aforementioned cutbacks promote a vicious cycle of increased organizational risk:

* Organizations reduce or eliminate formal training and informal opportunities for users to learn how to better utilize enterprise systems.
* This solidifies many users' bad habits and suboptimal processing methods.
* At the same time, organizations trim staff, resulting in more work among fewer employees. This means even less time for cross-pollination where employees are trained in multiple jobs.

Organizational risk is compounded if key employees leave the organization and, as is often the case, user documentation is lacking. For example, incumbents may scramble to figure out how Alex ran regular interfaces, Neil matched invoices, Julian filed tax reports with the government, and Nancy created database backups. If Alex, Neil, Julian, and Nancy are no longer with their organizations, then they are, in all likelihood, unable or unwilling to assist their former employers in the event that their help is needed.

Often, the best case scenario is that jobs performed by ex-employees are partially understood by their replacements. Nonetheless, this may very well result in increased risk of error, financial irregularities, expensive engagements with external consultants, or some other highly undesirable outcome. In the extreme, a single employee's departure may result in a missed payroll, an eventual government audit, or security breaches.

Opportunities and Benefits

Organizations with tight budgets may not need to reduce headcount at present. There is a fundamental tension between lean staffing levels and organizational bench strength. Lack of widespread end user application and technical knowledge is dangerous in the event that a key employee decides to walk. Yes, even in these economic times some employees voluntarily leave their jobs for whatever reason.

To this end, organizations should consider expanding employee training, not cutting back. Whether employees are being cross-trained in different functions or learning new technologies altogether, the benefits of training can more than offset their costs. First and foremost, training mitigates the risk of key employee turnover. Second, the mid- or long-term savings of training may more than pay for itself. Two super users with substantial skills and a global perspective may be able to do the work of three or four limited end users, especially if they are skilled in different automation methods. Finally, while hardly tantamount to reassuring nervous employees about their employment futures, training can send a strong message to attendees: the organization wants you to develop your skills. And the message becomes "despite current economic challenges, we are committed to growing our employees' skills and abilities." This attitude may reduce the likelihood of voluntary employee attrition.
Once the organization has decided to move forward with training, it has a fundamental decision to make. Where will the class be held?

Organizations that want to build internal expertise in new applications have two choices: They can either send their employees to public or private training classes. Public classes typically take place at vendors' offices or at vendor-approved locations. These classes cost in the neighborhood of $500 per day per student. Many organizations in different stages of an implementation send users to public classes to learn how their systems work in a generic sense. In other words, a payroll manager should not go to a public class intent on learning how to set up and process payroll at her company, although she should walk away with more than a few ideas from the class. Because payroll personnel from other organizations attend public courses, the instructor will discuss the payroll application in general terms.

For public classes, clients travel to vendor sites, sometimes incurring significant travel costs. To the extent that client end users are out of the office, they should be able to focus exclusively on the class and the applications being taught. From a technical perspective, vendors should have sufficient computer terminals and training data areas. In other words, clients need no organizational IT involvement to attend a public class, nor do they necessarily need to bring laptops with the applications already on them.

Private classes are very different than public ones, both in terms of costs and content. For one, it's not uncommon for a vendor to charge upwards of $3,000 or more per day for a customized class at the client's site, because vendors know that client end users will not have to incur travel costs. Thus, from a strict cost standpoint, a private class with more than six people will probably be cost-effective for the organization. As for content, instructors will typically customize agendas specifically for each client. In a private payroll class, for example, the payroll manager can ask many specific questions related to her company's payroll setup and processing.

While, it may be less expensive for clients to host private classes in which trainers come to them, understand that employees attending private classes are in the office. Crises or emergencies can take them away from the class, reducing overall learning. Also, from a technical perspective, the trainer is not going to bring laptops configured with the software and training data areas. Consequently, the amount of IT involvement is much greater than that of a public class. The organization that brings in an instructor at $3,000 per day should ensure well before trainer's arrival that its hardware and software are "up to snuff". Nothing inhibits a class and frustrates all concerned more than "buggy" software and the lack of a proper training data area. The last thing that a client's management wants from a public class is a disaffected end user base.

Outside of a formal class (whether public or private), independent learning has become more populate. Recent advents such as web-based training (WBT) have become increasingly popular. While the cost savings are obvious and the convenience factor is high, remember that employees at their desks are often distracted by daily calls, e-mails, and old-fashioned door knocking. Consequently, the cost of a public course can sometimes be justified by the additional learning that tends to take place in an isolated environment.

Considerations and Caveats

Training for training's sake is fruitless. Organizations need to ensure that their training investments will result in tangible benefits. Users may learn a robust new technology over the course of a three day class. However, this certainly does not equate to mastering it or deploying it in the organization, even for highly motivated and skilled attendees.
Consider two examples. Boris attends a class on Cognos PowerPlay, a robust business intelligence (BI) tool. Patty attends a class on Crystal, a powerful reporting application. Boris and Patty are both highly skilled users who have long expressed to their managers a desire to learn more about each application. During and after their classes, they are excited about the new features and possibilities now available to them. Both are excited to begin using their new toys in their jobs.

This is where the similarities end. Boris simply has no time to use PowerPlay. Building cubes of data takes time and he is simply swamped with his daily responsibilities. While he finds half hour increments every two weeks or so to play around, the phone invariably rings and he forgets much of what he has learned. His excitement for—and knowledge of—the product wanes and PowerPlay never gains traction in the organization.

On the other hand, Patty immediately begins writing Crystal Reports and distributing them to others throughout the organization. She builds on the knowledge and excitement from class and joins online discussion groups promoting best practices. She is able to "kick the tires" on new reports and experiment with different ways of extracting, manipulating, and presenting her organization's data to her internal clients. As a result of her efforts, many users have freed up additional bandwidth; they no longer have to manually compile reports from disparate sources of information. Now, reports arrive via e-mail as attachments with no further manipulation of the data required. Patty's employer saves thousands of dollars in overtime and now has access to accurate and actionable business information. In this case everybody wins: Patty gains valuable skills that will help her be more productive. For its part, the organization will recognize a significant return on investment (ROI) on the course and might even unearth new knowledge through data mining.

Conclusion

The benefits of employee training cannot be viewed in isolation or in a vacuum; they must be considered within the context of the real world. The organization that sends an overworked, overwhelmed end user to class is wasting its money. Forget the fact that the attendee's mind may be back at work throughout the class. Knowing what an application can do—but ultimately not having the time to play around with it at work—will result in attendees not utilizing their newly acquired skills and knowledge. Ultimately, neither the user nor the organization will reap the benefits from the class. Even if the user returns to the application six months or a year later, it is highly unlikely that she or he will remember.

While there are no guarantees that an employee will use a new technology in his or her job after class (much less effectively), organizations can take steps to maximize the chances of this happening. Ensuring that employees have the time to use new technologies is essential. Holding those employees accountable to deploying them via annual objectives and performance reviews can also ensure that employers actually benefit from their training investment. Along with potentially reduced risk from key employee turnover and greater internal system knowledge, application training can be a wise investment for an organization even in a tough economic environment.

IFS Continues Its Reinvention Through Pruning

Recently, Industrial and Financial Systems (IFS) (XSSE: IFS), a Swedish extended enterprise applications supplier with sales in 45 countries, over $330 million USD) in revenues in 2003, and with more than 350,000 users worldwide, announced the following:

* In early January that, following the agreement with Uniativa Ltda (which acquired the entire business and 100 percent of the stock in Industrial and Financial Systems do Brasil Ltda on December 31, 2004) partners will be solely responsible for the sale and distribution of IFS Applications in Brazil.

* In mid-December, IFS Sverige AB, IFS' Swedish subsidiary, announced that it has sold its payroll software to Personec, and the two companies have entered into a collaboration agreement.

* In November, IFS announced it would collaborate with Bentley Systems, Inc. (www.bentley.com). Bentley, which has its headquarters in the US, will thereby acquire IFS' esoteric computer-aided design (CAD) applications for process, electrical, piping, and instrumentation design. As part of the acquisition, Bentley pledges to assume responsibility for IFS' maintenance and support services for more than 100 accounts, primarily in Sweden and Norway, which employ IFS' CAD applications. The agreement with Bentley is expected to have a positive impact on IFS' earnings totaling approximately 6 million SAK (approximately $800,000 USD) in 2004 and 2005.

This would be yet another small step in the right direction for IFS on its long and winding road to straighten up its ship, focus ever more solely on its core competencies (i.e., enterprise application components used in manufacturing, supply chain management [SCM], customer relationship management [CRM], service provision, financials, product development, maintenance, and human resource [HR] administration) and return to a consistent profitability track.

IFS has long realized the need to string together several quarters of profitability to quell market rumors, restore consumer confidence and long-term stability. However, this is yet to happen, albeit the vendor has lately swallowed many bitter pills in the attempt to stem the tide and concurrently increase revenues and return to profitability, while also developing the internal infrastructure to measure and increase efficiency and reduce costs. Cost cutting, layoffs, certain organizational restructuring and so on have consequently been associated lately with the prominent upper mid-market vendor that not that long ago seemed to have been getting everything right—technically, functionally and, to a degree, geographically.

In fact, IFS could be an object case of how a great product (in terms of functionality scope and technological foundation) and knowledgeable employees are only part of the wholesale success in the finicky enterprise resource planning (ERP) market. Namely, back in 1994, IFS began a development project to transfer its flagship IFS Applications suite to object-oriented technology, which was completed in 1997, with the launch of the IFS Applications 1998 product suite. The IFS' business concept has since been to increase the "freedom of action" and competitiveness of user companies by enabling customers to either apply IFS solutions as a complete enterprise system, or as a complement to other vendors' applications within a specific part of the business process.

For over a decade, the cornerstone of IFS' strategy has thus revolved around its proverbial component-based architecture and moderate vertical market focus, becoming thereby part of its identity and a key ingredient in being able to deliver even deeper vertical industry functionality going forward. Recognizing also its scalability limitation, in addition to the rigidity of its erstwhile two-tier client/server architecture, IFS embarked also in the mid 1990s on creating an "n-tier" product architecture that would separate presentation, bussiness logic, and data storage layers, and also render IFS independent from the Oracle development tools and the use of stored procedures in the Oracle database.
IFS Applications 2001 was consequently heralded as the fully Internet-enabled and componentized five-tier architecture suite, covering most of traditional horizontal ERP functionality via a mandatory IFS Foundation layer, on top of which one can build in a "pick and mix" manner functional modules needed to satisfy needs of more specific businesses. The architecture, recently dubbed Foundation One, also allows new technologies and components to be relatively easily swapped in and out of the technology stack without causing major distraction to the install base, and it also fosters an easier way for interfacing or integrating with other system. One should note, though, that the above notable feats have been built out through the company's own hefty research and development (R&D) investment or some modest acquisitions.

Also, IFS' functionality has been split across over 60 independent modules, which are actually, coarser objects or components, which can supposedly be implemented and upgraded separately from one another. Companies can, at their own convenient pace, select modules to co-exist with other legacy applications and databases, or simply to avoid the "big bang," monolithic implementation approach that has increasingly being avoided as an unwieldy practice (for more information, see The 'Joy' of Enterprise Systems Implementations). Built-in extensible markup language (XML) messaging support and the external availability of all internal application programming interface (API) imply integration between IFS components and other companies' software should be a reasonable endeavor. This layer of messaging via XML and Web services could in fact allow so-called "composite applications" to be assembled and deployed from multiple vendors. For more details, see IFS to Be At Customers' (Web) Service.

Further, owing to the component architecture, customers can, for example, install the latest version of a certain IFS component even while still using an older version of IFS Applications. And since the component architecture has been further enhanced within IFS Applications 2004 with Java 2 Enterprise Edition (J2EE) interface (dubbed IFS Service Oriented Component Architecture [SOCA]), thereby further basing IFS' modules on open, commonly accepted standards, they should more readily be integrated into a company's existing IT ecosystem.

IFS tries to differentiate from many other mighty or not vendors that try to confine user companies to a particular proprietary technology, such as Oracle or Microsoft-centric, given these two giants own the entire technology stack (layers) from database, via middleware and development tools, to applications (including even business intelligence [BI]). In this regard, IFS may somewhat be in tune with PeopleSoft (well, before the Oracle's acquisition), Intentia and SSA Global's approach of leveraging IBM's more open technology, but it also resembles SAP's NetWeaver technology approach, although certain elements of SAP's platform, such as SAP Web Application Server (SAP Web AS) and ABAP/4 language, are proprietary to SAP. On the contrary, IFS uses completely openly available tools and technologies, as illustrated by its intentions to offer a choice of several J2EE-based application servers such as IBM WebSphere, Oracle Application Server 10g, BEA Systems' WebLogic, Sun ONE and even Jboss, an open source application server (although the certifications for some of these are still in progress).
Yet, the IFS' protracted mixed blessing performance—the delivery of new exciting product features on one side, with plaguing losses and eroding financial situation on the other hand—has unfortunately been the main theme for the last few years. Thus, the vendor had to shift the emphasis from an astronomic high growth of the ebullient late 1990s and an entrepreneurial spirit and "can do everything" attitude of previous years to its current focus on reaching forever evasive profits. Going forward, IFS conversely expects continued cost containment rationalization and to that end, the product development will be more sharply focused on refining functionality, particularly within specific industry segments that are of strategic interest for IFS and its premium partners. The vendor has plans to further develop its solutions to cater more deeply to specific vertical markets, and the future direction for the vendor should be to focus on functionality in terms of finding out within which verticals it has thus far had success and why, and to target them even more deeply.

The problem has been that the company had invested heavily in product development to deliver more than sixty modules, including localization for many countries. Having done so, the company suddenly ended up with too much of a burden, given it no longer required the same level of staffing for further development. Thus, IFS has lately seriously reduced its Sweden-based and well remunerated R&D team as part of an intensive cost-cutting exercise to save several dozens of millions per year. An increasing amount of its R&D activity has since been created in Sri Lanka, where it currently has approximately 300 employees, and where it can reportedly gain a five-to-one increase in manpower for the same amount that it costs in Sweden. This has reportedly reduced the R&D expenditures by over 20 percent for 2003 while not really affecting the capacity.

In addition to focusing on profitability and positive cash flow, IFS has been paying attention to balanced growth through more reliance on growth and product enhancements through strategic partnerships, and product development costs tied to new sales. IFS has particularly been more aggressively moving forward with a partnership strategy to further grow its business outside Europe. To date it has tackled vertical markets in various regions (and even countries like China through a joint venture with Beijing IFS UFSoft) where the barriers to entry are reasonably low. It has also been working with NEC in Japan for several years to establish its presence in Japan and to also indirectly penetrate the Chinese market, where many Japanese-owned companies have been setting up offshore operations. Early in 2004, IFS announced that NEC has even taken an equity position in IFS and it now owns 10 percent or so of IFS' stock, which should entice it to more directly invest in IFS functionality for the Asian market and expand IFS' implementation capabilities therein.

Likewise, the vendor plans to repeat the model of developing global and local partnerships with well-known companies in niche industries in different countries (e.g., ABB, IBM, Det Norske Veritas, etc.) for expansion, while product development focuses on deepening its functionality to retain its position in its chosen markets, and while broadening scope to capture some adjacent industries in the future. It has apparently achieved some success in that regard, by setting up high-profile partnerships, such as BAE Systems-IFS, for the global defense sector, and GE Engine Service for commercial aerospace.

IFS also expects to offer more specialized best-of-breed solutions, with the above partners, where appropriate. The perfect example would be the alliance with ABB (who is also another equity partner) to deliver IFS Enterprise Asset Management (EAM) solutions, which could possibly render IFS a leading EAM player in the future. Other partnerships and alliances have reportedly developed as well, resulting in greater market penetration and an increase in the number of prospects, with a result of nearly 10 percent of license revenue in 2003 being derived from partnerships and alliances.

IFS Continues Its Reinvention Through Pruning

Divestitures of non-core products and services, which have apparently worked well for vendors like Epicor Software Corporation or Ross Systems (see Way to Go, Ross Systems! and Latest Development on Epicor's Trying the Divestiture Tack), seem to be getting accepted by others too. Recently, Industrial and Financial Systems (IFS) (XSSE: IFS), a Swedish extended enterprise applications supplier with sales in 45 countries, over $330 million (USD) in revenues in 2003, and more than 350,000 users worldwide, announced the following:

* In early January that, following the agreement with Uniativa Ltda, which acquired the entire business and 100 percent of the stock in Industrial and Financial Systems do Brasil Ltda on December 31, 2004, partners will be solely responsible for the sale and distribution of IFS Applications in Brazil. In line with its strategy of operating to a greater extent via partners, IFS had previously transferred a substantial part of its business in Latin America to distributors. According to the vendor, within the near future, partners will hence operate all IFS' business in Latin America, while the vendor pledges to continue to fully support its 100 customers in the region. Moreover, it will provide its partners with localization support, methodology, tools, and specialists from its global industry teams. Otherwise, the transactions will have a negligible effect on IFS' cash flow and earnings.

* In mid December, IFS Sverige AB, IFS' Swedish subsidiary, announced that it has sold its payroll software to Personec, and the two companies have entered into a collaboration agreement. Personec, the largest supplier of human resource (HR) management and payroll administration software, consulting services, and outsourcing services in the Nordic region, is jointly owned by TietoEnator and Nordic Capital, and has more than 800 experts in Finland, Sweden, Norway, and Denmark, and 15,000 in the private and public sectors. The aim of the collaboration is to enable IFS and Personec to offer new and existing customers a better product. To that end, Personec will acquire the right of ownership of IFS' payroll software for the Swedish market and will assume responsibility for product development, consulting services, and support, while IFS Sverige will continue to sell the payroll component as part of IFS Applications.

* In November, IFS announced it would collaborate with Bentley Systems, Inc. (www.bentley.com), one of the world's leading providers of software for the lifecycle of the world's infrastructure, which offers a comprehensive portfolio for the building, plant, civil, and geospatial vertical markets like architecture, engineering, construction (AEC) and operations, and with 2003 revenues reaching $260 million (USD). Bentley, which has its headquarters in the US, will thereby acquire IFS' esoteric computer-aided design (CAD) applications for process, electrical, piping, and instrumentation design. As part of the acquisition, Bentley pledges to assume responsibility for IFS' maintenance and support services for more than 100 accounts, primarily in Sweden and Norway, which employ IFS' CAD applications. The agreement with Bentley is expected to have a positive impact on IFS' earnings totaling approximately 6 million SKr (approximately $800,000 USD) in 2004 and 2005.

The vendors believe the collaboration means that IFS customers, approximately 120, who are using IFS' payroll software will be given access to additional competence and a broader product offering for payroll and HR management. Most of these customers use the payroll component as part of a comprehensive enterprise application planning (ERP) solution from IFS, and IFS' annual revenue in the area has been approximately 40 million SKr (approximately $5.3 million USD). In connection with the acquisition, 45 of IFS staff will transfer to Personec.

As indicated earlier on, Personec has a leading position in HR management in the Nordic region, with approximately 27 percent of all employees in the region receiving their salaries via the company's payroll software. The acquisition of IFS' payroll component for the Swedish market is part of Personec's strategy of strong growth in the Nordic market, part of which includes collaborating with ERP vendors. The vendor believes the acquisition will increase its market share in the Nordic region to 29 percent. Further, according to the vendor, HR management and payroll management are extremely culture-specific, given that legislation, collective agreements, regulations, and traditions vary greatly between different countries and are in a constant state of change, which makes it too complex for any software company to conduct its own development. Therefore, this is a significant step in Personec's strategy of achieving growth by partnering with ERP vendors and offering expertise in payroll management.

The collaboration with Personec is expected to have a positive effect of 25 million SKr (approximately $3.3 million USD) on IFS earnings and of 42 million SKr ($5.6 million) on cash flow during 2004, while capitalized development expenditure totaling 18 million SKr (approximately $2.4 million) for IFS' payroll component has been written down in connection with the sale. The additional purchase price, based on sales, will reportedly be paid during 2005 and 2006.
Users of IFS' CAD applications operate mainly in the pulp & paper and power generation industries. The CAD applications are integrated with IFS Applications, which the users employ mainly for asset maintenance and spare parts logistics. IFS users will reportedly be offered the opportunity to change their existing CAD systems to solutions from Bentley while retaining the tight integration with IFS Applications. The agreement with IFS will provide Bentley with a large Swedish user base in these industries as a complement to its existing users in the region, among which is the Swedish National Rail Administration.

For IFS, on the other hand, the agreement means that it will collaborate with Bentley worldwide to market and sell IFS Applications to asset-intensive companies. With more than 22,000 accounts, Bentley has a strong market position in the design, engineering, construction, operation, service, and maintenance of capital-intensive operations, which include, among others, process plants and utilities, as well as water and waste treatment plants, railways, and airports. Because IFS also prioritizes these segments, the companies believe that they complement each other and can combine to offer users a more comprehensive solution.

On its side, Bentley recently launched the "You Deserve Better" upgrade program and Web site for potential disgruntled AutoCAD users facing forced retirement of their AutoCAD 2000i and AutoCAD LT 2000i software products by Bentley's archrival Autodesk (for more info on Autodesk, see Autodesk to Bring Microsoft Business Solutions Closer to PLM). As to benefit from its nemesis' predicament, Bentley has devised a survey on its Web site, and will use the survey responses to tailor its upgrade program, which will supposedly include special program pricing and services, to the needs of these AutoCAD users.

The upgrade program's product offerings are based on Bentley products including MicroStation-based product functionality, native support of DWG (a file extension for AutoCAD Drawing Database and Drafix Drawings), DGN (a file extension for MicroStation Graphics) and portable document file (PDF) file formats, and upgrade services. For example, PDF Composer lets users fairly easily package all of their AEC drawings, including MicroStation and AutoCAD files, into a single PDF document, whereby the interactive PDFs make it possible to quickly navigate through an AEC project using hyperlinks, bookmarks, and pages to access information.

After January 15, 2005, Autodesk reportedly states on its Web site that it will no longer sell upgrades or cross-grades from any AutoCAD 2000i-based products or Autodesk Inventor Series 6. Additionally, Autodesk will no longer provide technical support, apart from existing maintenance patches that are downloadable from www.autodesk.com.

On the IFS' side, on December 30, the vendor announced that structural changes, including cost containment actions, and divestments and changes in international subsidiaries and operations, are expected to charge IFS earnings with 98 million SKr (approximately $13 million), net, for the fourth quarter of 2004. Namely, provisions and write-downs are expected to amount to 130 million SKr (approximately $17.3 million), while the positive effects, primarily resulting from divesting payroll applications and CAD software for the Swedish market, will amount to 32 million SKr (approximately $4.3 million).

Lose the Starry-Eyes, Analyze:

There is a client for every ERP solution, but how do you identify the vendor that considers your company as its ideal candidate? Different vendors target different industries, markets, and specialize in certain areas more than others. While it is good to identify vendors that work within your industry (Refer to the Industry Focus column of the TechnologyEvaluation.com Vendor Showcase), it is also important to review the products that support a similar set of functionality to your company's requirements. To this end, TEC prepares a page of graphs for each company in the vendor showcase. The graphs specify the ideal candidate for each vendor based on the vendor's strongest areas. By reviewing these graphs and then using TEC's ERP Evaluation Center's WebTESS tool, you can determine how closely the functionality your organization requires, aligns with an ERP vendor's ideal candidate.

For each high-level criterion in the TEC ERP Evaluation Center's knowledge base, there are four graphs. The first two graphs are baseline graphs. In the baseline graphs TEC normalizes all criteria to an equal relevance, which allows you to see how a vendor's product scores on its own merit, without regard to any one module taking precedence over another. By checking the vendor's results against a normalized baseline, you clearly see the modules and functionality on which the vendor puts the most emphasis.

The second set of graphs is prioritized according to groups of criteria. TEC adjusts the baseline in these graphs so that it corresponds to each vendor's focus. The prioritized graphs make the vendor's strengths stand out against its weaknesses. A group of criteria increases or decreases its contribution to the vendor's scores according to the type of support the vendor provides.

When you go through the graphs for a vendor, notice that in each set of graphs (the baseline pair and the prioritized pair) there is a global priority bar graph and a contribution analysis spider graph. You can look at the global priority graph and by glancing at the height of its bars, see the criteria that are the vendor's greatest strengths. By comparing the baseline graphs to the contribution analyses you will see what the vendor supports in relation to a benchmark of the criterion's optimal contribution.
You may look at the ideal candidate pages for several different vendors, see one that seems to match very closely with your requirements and suppose this vendor's solution is aimed at your type of company. Be aware of the perspective from which you consider the criteria; let's consider Relevant Business Systems.

The first thing we see looking at Relevant's ideal candidate profile is the overall global priority baseline (Figure 1). This graph shows the functionality under consideration for the Relevant product where each of its factors have an equal priority. In other words, if the Financials, Human Resources (HR), Manufacturing Resources, Inventory Management, Purchasing Management, Sales Management, and Product Technology groups were all just as important to your company, Relevant's modules would satisfy the requirements in each criteria according to its contribution analysis graph below (Figure

Figure 1.

Figure 2.

The graphs in figures one and two are useful primarily as a way of seeing the raw results of what Relevant's solutions support.

To get a better idea of the top-supported areas in Relevant's product, you should look to the prioritized graphs (Figures 3 and 4).

Figure 3.

Figure 4.

Figure 4 shows that we adjusted the comparison benchmark to make it follow a path similar to Relevant's strengths and weaknesses. The prioritized global priorities bar graph (Figure 3) shows that Relevant's strongest point is Manufacturing Management, while its weakest area is human resources. Using only these graphs for an ideal Relevant customer, and the data available in the ERP Evaluation Center's knowledge base, we can determine a lot about the areas for which Relevant's systems are most suited.

Microsoft .NET-managed Code Enablement: Examples and Challenges

Developing and deploying a Web service-connected information technology (IT) architecture is no small task. To that end, the Microsoft .NET Framework provides what a business might need: smart clients, servers to host Web services, the development tools and applications to create and use them, and a global network of over 35,000 Microsoft Certified Partner organizations to provide help for users.

Part Four of the series Subtle (or Not-so-subtle) Nuances of Microsoft .NET Enablement.

For a general discussion of the evolution of system architecture, see Architecture Evolution: From Mainframes to Service-oriented Architecture. For a definition of how the Microsoft .NET environment addresses the situation, see Subtle (or Not-so-subtle) Nuances of Microsoft .NET Enablement.

Example One: Intuitive Manufacturing Systems

The first example of a .NET-managed product is Intuitive Manufacturing Systems, a Kirkland, Washington (US)-based provider of extended enterprise resource planning (ERP) solutions for small and midsize discrete manufacturers (Intuitive Manufacturing Systems Shows Maturity in Adolescent Age). The company was recently acquired by ravenous (lately, anyway) fellow mid-market vendor Made2Manage Systems (see Made2Manage Systems One Year After: Reenergized and Growing). Intuitive's .NET technological prowess was cited as one of major attraction points, given that most of Made2Manage's ERP product lines were (at best) somewhere between the .NET-compatible and .NET-enabled evolutionary steps at the time.

Intuitive recently announced the milestone release of Intuitive ERP 8.0, which represents the completion of a major rewrite of Intuitive ERP functionality using .NET-managed code, which started a few years ago. With this release, all major manufacturing processes have been converted to the new architecture. Additionally, several areas of new functionality are now offered in Intuitive ERP 8.0, including new engineering change order (ECO) processes to support new product introduction (NPI) as well as engineering change requests (ECR) to facilitate getting improved product to market faster.

There are also approved supplier tools designed sppecifically for the growing contract manufacturing industry, which replace the commonly used but inefficient and mistake-prone spreadsheets. Last but not least, to support the demand-driven supply chain, material and capacity requirements planning runs now typically take minutes, eliminating those traditional long planning runs, and thus allowing on-demand planning. Version 8.0 was available to new customers in May 2006, and existing customers will be able to upgrade to Version 8.1, (scheduled for late 2006), when the migration tools should be available.

One should note that Web services are created naturally as a by-product of .NET-managed software, although they are also created naturally as a by-product of the Progress OpenEdge .NET support in, for example, Epicor Vantage (which has not been completely rewritten in pure .NET-managed code). To that end, Intuitive has componentized the business logic into granular .NET objects, whereby all transactions occur in extensible markup language (XML). This means, for one thing, that at Intuitive a Web service is different than elsewhere: many other mid-market vendors have chosen to add "wrappers" to whole legacy applications (such as customer resource management [CRM] or purchasing) , and advertise the ability of these applications to run on an ERP backbone as a composite application or service-oriented architecture (SOA). Some market research surveys show that although this may play well to complex and diverse tier one environments, the concept will not necessarily be embraced by mid-market manufacturers with more homogenous software platforms. Instead, Intuitive has worked hard to split up its applications into usable pieces of functionality that make business sense.

In fact, Web services is simply a "neat" technology until it is actually used. Applying this concept to the demand-driven supply chain, a real-world example of a granular business application is the available-to-promise (ATP) or capable-to-promise (CTP) Web service available in Intuitive ERP 8.0. To make it even more valuable, an Intuitive ERP user will be able to provide key customers with access to the ATP and CTP Web services through Microsoft Office Outlook (with the upcoming release of Microsoft Office 2007) for what-if planning scenarios, thus providing practical supply chain collaboration in real time. Supply chain partners will be able to make decisions quickly based on delivery dates and quantities from current production or stock (using ATP) and from new production plans (using CTP) without having to wait for a return call or e-mail.

Furthermore, the source of a transaction remains transparent in the innovative Intuitive Framework. In other words, whether the transaction comes from Intuitive ERP users who are interactively entering it on their computer, or from the outside world (as a Web service), the framework uses a single set of business logic. This should eliminate the gamut of problems that traditionally exist in other applications, where duplicate sets of code are required for different sources of transaction requests and data. Web services technology is still fairly young, and not as robust as it needs to be to fulfill its promise, and .NET-managed makes it easier to write, deploy, and consume Web services. Unfortunately, many of the other huge benefits of the .NET-managed environment (such as coherence of an integrated environment) are getting drowned out in all the ongoing hype surrounding Web services and SOA.

Another provider of an ERP solution that uses .NET Framework-based SOA and .NET-managed code is Andover, Massachusetts (US)-based Visibility Corporation. Since 1980, its suite VISIBILITY has been used by about 150 manufacturers of engineered products, and by other companies with project-oriented concerns. Now in its seventh generation, with the product dubbed VISIBILITY.net, the company elected to forego the use of wrappers to deliver .NET Framework-based functionality. To that end, the vendor has invested the last four years performing a complete conversion of the core client/server-based application to make use of a pure .NET-managed code architecture enabled via the use of Web services and Active Server Page (ASP).NET forms. The approach used here has provided clients with a true zero-footprint client for deployment, where no component other than a browser is required on the client workstation.

The benefits of the approach used in the VISIBILITY.net application are multiple, including a significant reduction in the amount of code required to deliver the more than 1,000 new distinct functions; a reported threefold to fourfold increase in transaction performance and associated scalability; and a reduction in the cost of deployment and management, as the application can be run by any client capable of running Microsoft Internet Explorer (IE) v5.5 SP2 or later as its browser. By abstracting the application model to make use of managed code and Web services, which distinctly deploy the form, business logic, and data connection layers, Visibility has reportedly gained ability in affecting database independence, improved run time performance, and application extensibility in relation to other applications which make use of a well-formed SOA.

Example Three: Epicor for Service Enterprises

The last example of a Microsoft-only stack product containing pure .NET-managed code and "militantly" componentized Web services, is Epicor for Service Enterprises, a brand new enterprise service automation (ESA) solution. This product aims at providing a single source for managing and automating most aspects of the project-focused organization. The product is written completely in .NET-managed code, and on the very latest Microsoft .NET Framework 2.0, Microsoft SQL Server 2005, VS.NET 2005, and Web services. To be precise, the latest version (8.1.1), which became generally available just a few weeks ago, runs on SQL Server 2005, .NET Framework 1.1 and VS.NET 2003. Certification for the move to .NET 2.0 and VS.NET 2005 is in progress, and is expected to become available in the next few months along with Microsoft Project 2007 support as part of Epicor's commitment to support the latest Microsoft stack at all times. In any case, this application did take several years to write from scratch (the initial release was in June 2003, and currently has more than 70 customers and 25,000 seats) and, contrary to its brethren within Epicor, is limited to only Microsoft technology because of the approach—but it also has the benefits of .NET as mentioned above.

Furthermore, the product is backed up by the Epicor Internet Component Environment (ICE), which is a standards-based framework written with Microsoft VS.NET and running on top of the Microsoft .NET Framework. It offers an application development environment (customization and extensibility tools for assembly, deployment, execution, and maintenance of applications) with a feature-rich (albeit thin client) user interface (UI), and pure web access to clients. Using Web services for nearly all application logic, Epicor ICE provides a detachable and vastly configurable UI that is simple to deploy and easy to maintain.