Markets, Y. Genovese, C. Eschinger, R. Anderson, B. Zrimsek Research Note 14 March 2003 Vendor Viability Concerns Growing in the ERP II Midmarket Some vendors show vision and focus, but there's no clear leader in the 1Q03 ERP II Discrete-Manufacturing, Midmarket Magic Quadrant. Enterprises should assess players for survivability and industry focus in poor market conditions. Core Topic ERP II, Supply Chain & Manufacturing: ERP II Strategies, Applications and Technologies Key Issue How will ERP II vendors and markets evolve? The 1Q03 Enterprise Resource Planning (ERP) II Discrete- Manufacturing, Midmarket Magic Quadrant (see Figure 1) reflects downward movement in most vendors' vertical positions amid growing viability concerns that will ultimately affect their ability to attract new customer revenue. Some vendors continue to show the ability to deliver against a technology or vertical vision and, therefore, have moved right on the horizontal axis. Most vendors that serve the ERP II discrete-manufacturing midmarket continue to struggle amid negative economic conditions, leaving an opportunity for larger vendors such as SAP and Oracle to encroach on their territory. Larger vendors with similar core functionality are creating marketing and sales programs that enable them to replicate the hands-on, "one throat to choke," lower-priced options that attract midmarket users. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
Figure 1 The ERP II Discrete-Manufacturing, Midmarket Magic Quadrant 1Q03 Challengers Leaders Ability to Execute Mapics XA Mapics Point.Man Microsoft Axapta Intentia SSA Global Technologies Mapics Frontstep Niche Players QAD Invensys/ Baan SAP J.D. Edwards Industrial & Financial Systems Oracle PeopleSoft Visionaries Completeness of Vision As of March 2003 Source: Gartner Research (March 2003) User concerns ultimately affecting decisions are focused on the vendors' financial viability, depth and breadth of industry focus, and ability to support the global needs of the enterprise. Current revenue sources primarily coming from the installed base have not been enough to enable midmarket vendors to invest in technology, marketing and product enhancements across a broad range of verticals. Vendors that do not narrow their focus will be challenged to "keep up" with new technologies and functionality for their users. This will be particularly true of vendors (such as SSA Global Technologies, Mapics and Agilisys) that have recently acquired other companies and find themselves supporting multiple technology platforms, architectures and product lines, while putting consolidation initiatives in place. Vendors that emerge from consolidation activity will have larger revenue sources, but this may not change other viability factors, such as functionality that meets industry standards and technology to support heterogeneous application environments. The Leaders Based on Gartner's criteria, this market has no leaders at this time. Leaders would exhibit a large, global installed base, 14 March 2003 2
segmented to serve the functional needs of many vertical industries, with technologies to enable business process connectivity outside the enterprise. The Challengers QAD: The company's large installed base is segmented across a few vertical industries (including industrial, medical instrumentation and automotive). QAD has recently increased marketing activities to reach vertical-specific targets, and the vendor is reaping benefits in "mind share" and customer acquisitions. In addition, QAD's broad geographic coverage and partnerships with regional midmarket service enterprises strengthen its overall deployment capabilities. Its efforts to augment technology with WebSphere and Java will help customers that are concerned with QAD products' dependence on Progress Software. Enterprises in automotive, medical instrumentation, and industrial industries that are not opposed to a Progress-Software-based product should consider QAD. The Visionaries J.D. Edwards (JDE): Although JDE has moved out of the Leaders quadrant, it remains high in our Visionaries quadrant because of its large global installed base and its multiplatform capabilities (including AS/400, NT and Unix). JDE moved from the Leaders quadrants because economic conditions and the lack of an industry segmentation strategy affected its new account acquisition. In 2002, the company announced the next release of its J.D. Edwards 5 product, which is the first release to begin true componentization and separation from the World product architectures. An increase in JDE's marketing activity in more process-focused manufacturing industries, such as consumer packaged goods (CPG) and asset-intensive markets, bodes well for the company, but it also serves to confuse customers about its level of commitment to the discretemanufacturing market. Enterprises should continue to evaluate JDE as a viable solution, but must carefully evaluate the vendor for functionality specific to their most-important industry segments and business requirements. Industrial & Financial Systems (IFS): With a component-based technology, continued growth as a global vendor and depth of functionality for complex discrete-manufacturing enterprises, IFS shows visionary strength. The company continues to grow new account revenue (approximately 10 percent growth in FY02 over FY01) in a tough economic climate. A big plus for IFS customers is the lower total cost of ownership (TCO) after the initial implementation. Because IFS is a componentized product, no "big upgrade" is required, and users can deploy functionality on 14 March 2003 3
an "as is" basis. However, questions regarding viability continue to surface with the announcement of missed profit targets at the end of 2002. IFS has taken cost-containment actions that include moving a major development location from Sweden to Sri Lanka, which should have little effect on its ability to execute, because of its componentized product base. Because IFS operates somewhat autonomously at the country level, users considering a global implementation of IFS products must ensure country focus in their specific industries. PeopleSoft: PeopleSoft has established a midmarket business unit with separate sales and implementation team methodologies appropriate for midsize customers providing a suite-based, turnkey solution at a fixed price. Product functionality is suitable for many noncomplex industrial manufacturing environments. Although PeopleSoft has begun to change its perception as a financial- and HR-oriented vendor, its momentum in the midmarket continues to be inhibited by the broader market perception that PeopleSoft sells components, which is not compelling for potential midsize enterprise customers. In addition, PeopleSoft lacks a consistent global strategy in the discrete-manufacturing midmarket. Midsize industrial manufacturing users in the United States should consider PeopleSoft midmarket solutions carefully, evaluating user deployments in similar industry segments. Oracle: Its "one-stop shopping" approach to sales and implementation and its continued push to deliver functional breadth and depth for this market cause Oracle's positioning in the Visionaries quadrant. Examples of recent Oracle announcements aimed at midmarket users include a special small and midsize business (SMB) program in Europe, hosted applications support and, most recently, the E-Business Suite Subscription Edition, a new application service provider (ASP) offering. However, users that evaluate the product will find risks (including product complexity) and global penetration and local support should also be considered when making an Oracle decision. Midmarket users that perceive themselves as growing quickly to become enterprise-class users and those that have already made a commitment to Oracle's supporting technology stack should consider Oracle in this market. SAP: Although most of its installed based is regionally focused in Europe (primarily in Germany), SAP has one of the largest midmarket installed bases, and its industry strategy should be attractive to midmarket users. SAP's promises of Business One and the new industry-focused mysap All-in-One delivery model have confused product branding efforts. Users still aren't convinced the All-in-One solution delivered through external service providers (ESPs) will be less costly and less complicated 14 March 2003 4
than the traditional SAP implementation. The ESPs that help sell and implement All-in-One have tailored the application implementation from industry knowledge and prior customer experience. This results in a product implementation cycle that is focused on the user environment and is generally less complex than typical R/3 or mysap implementations. Midsize enterprises considering an SAP solution should check implemented references of both the ESP and SAP for proof of industry focus and cost justification. The Niche Players Microsoft Axapta: Microsoft Business Solutions Axapta MBS Axapta, changed from Navision Axapta has garnered increased interest from midsize enterprises, as well as their larger counterparts. The MBS Axapta product has the potential to scale upmarket (to meet the requirements of enterprises of $250 million or more in revenue), and its out-of-the-box functionality is suitable for industrial-based, plant-level manufacturing enterprises. Extensions to the product to fit more-complex manufacturing environments are encouraged by MBS Axapta's indirect sales and implementation channel, which also represents MBS Axapta's biggest challenge. Although most of the channel partners are local and tend to be less costly, users must carefully evaluate the viability of a channel partner, especially its ability to support product implementation and ongoing maintenance of extended functionality. Intentia: Intentia's move from the Challengers quadrant to the Niche Players quadrant is the result of its lack of a global installed base of users that remain largely AS/400-centric. Product functionality exhibits some functionality suitable for complex manufacturing environments (such as configuration management), but is more focused on noncomplex, distributionoriented environments. Although the company introduced its Java version in 1999, there are only 51 sites live. Intentia reports that most new sales are on the Java version, with a large percentage still opting to deploy the AS/400 as the primary platform. User focus on the financial stability of vendors in this market and a lack of presence in the United States continue to hamper Intentia's growth as a global solution. Enterprises that require an AS/400-based product and are focused on noncomplex manufacturing should consider Intentia. Mapics: Mapics now has three products in the Niche Players quadrant, each serving different markets and database platforms (including DB2, Oracle and Microsoft). With the Frontstep acquisition finalized, Mapics' ability to maintain a multiproduct strategy remains in question. Just as Frontstep announced the availability of its.net-based solution (SyteLine 7), it also 14 March 2003 5
announced its proposed acquisition by Mapics. With this acquisition, Mapics now owns three separate code bases focused on discrete manufacturing that span four technology platforms (that is, iseries, Oracle, Progress and Windows NT). By YE03, Mapics will announce the end of the Point.Man family of products, because the Frontstep solution has more-suitable functionality and technology (0.8 probability). The functionally of the two products remaining is suitable for industrial (Mapics XA) and "to order" manufacturing bases (Frontstep). Users not inclined to AS/400 (Mapics XA) or the risks associated with a new technology (Frontstep's Syteline 7 and.net) should focus their evaluations on the Syteline 6 product line. Invensys/Baan: Baan's ability to attract new customers continues to be inhibited by the questionable viability of its parent company, Invensys, as well as its own inability to move current users from Baan IV to the latest release of Baan V. The talk about Gemini, Baan's next release, increases the risk of customer attrition, because these users will find themselves two major product releases behind. With a Baan IV desupport date of YE09, users have time to consider staying with Baan or implementing a new solution. Baan needs more than a few consecutive positive financial reports to turn its current "mind share" to positive. Users of Baan IV or earlier releases should move to Baan IVc4 to maximize support, while taking advantage of the long-term support window to evaluate migration to Baan V, Gemini or an alternative solution. As Baan's development resources move toward Gemini initiatives leaving Baan V as an "orphaned" release Baan V customers should explore alternatives. SSA Global Technologies: SSA's BPCS product has a large following in the batch process industries, which include such segments as chemicals and foods and beverages. The BPCS installed base is primarily made up of midmarket enterprises and some divisions of larger enterprises that use BPCS as their ERP product of choice. Although the most-recent release of BPCS supports 21 CFR Part 11 functionality, there are not yet customer references. To extend its core transactional ERP product, SSA has developed strategic partnerships in such areas as CRM and supply chain management (SCM). SSA's long-term vision is to become a larger vendor through an acquisition strategy. To date, this strategy has added primarily AS/400-specific vendors, such as Infinium and the former PRMS product (acquired from Computer Associates International). SSA plans to leverage these investments through the connectivity of 14 March 2003 6
critical components (such as international financials from Infinium) to the BPCS product. Enterprises considering BPCS should investigate BPCS's long-term commitment to their specific vertical segments by evaluating the functional and technical requirements and matching them with the BPCS development plan. Acronym Key ASP Application service provider CPG Consumer packaged goods ERP Enterprise resource planning ESP External service provider SCM Supply chain management SMB Small and midsize business TCO Totalcostofownership Bottom Line: As midsize enterprises consider strategies and vendors associated with the discrete-manufacturing market, they are faced with issues of financial viability, as well as the vendors' ability to serve their long-term functionality and technology requirements. Although there are compelling reasons to consider larger, more-viable vendors, they may lack proven capabilities to understand and provide the low-cost, high-support, feature-rich and rapid-implementation requirements of midmarket users. Midmarket users lured by larger vendors that have designed special implementation programs with special pricing should also consider product complexity, global availability of local resources and long-term maintenance, as well as referenceable sites of their size and in their industry. 14 March 2003 7