The Demise of the Tier 1 ERP Solutions

Introduction

Prior to 1997 or so, large enterprise organizations had little choice but to purchase Tier 1 ERP class products (such as SAP, Oracle Financials, Baan, and PeopleSoft) to meet their accounting needs. These solutions frequently cost the companies tens of millions of dollars and often took years to implement. Up until then, only Tier 1 products offered the complete mix of enterprise class features such as:

• Enterprise Class Financial Applications
• High-end Databases (such as Oracle, IBM’s DB/2, and Microsoft’s SQL Server)
• Logistics & Supply Chain Solutions
• Human Resource (HR) Solutions
• E-Commerce Solutions
• Workflow
• Customer Relationship Management (CRM) Solutions
• Industry Specific Solutions

Large enterprise organizations that needed a complete enterprise solution wrote enormous checks well into the tens of millions of dollars and beyond to purchase and implement these ERP solutions. For these larger companies, the only realistic alternative was to develop their own in-house software solution – an approach that most often doomed from the start and is sure to result in madness. During this ERP era, the tier 1 products and their consultants flourished  - banking billions of dollars. However, those ERP glory days are all but gone. Today, it seems that only the ignorant are investing in these bloated, over-priced, complex solutions.

Since 1997, many mid-range and high-end accounting software products (such as eEnterprise, Axpata, Attain, MAS 500, and others) have evolved to the point that they represent better solutions that the traditional Tier 1 products. Specifically, these products have migrated to the same robust databases used by the Tier 1 products; they have implemented global financial features such as multi currency, consolidations, and foreign languages; they have added supply chain, CRM, e-commerce and human resource functionality; they have industry specific solutions such as manufacturing, distribution, hospitality, government, health care, etc. Today’s high-end products are not only equal to the task, but they are also better designed, easier to use, more customizable, and cost far less – sometimes as much as 90% less than their tier 1 counterparts.

To be fair, a small gap still exists between Tier 1 products and the high-end challengers – mostly in the area of employee workflow – but even that gap is closing fast. However even this gap has become too small to justifying spending millions of additional dollars on a Tier 1 solution.

Example Case Study

As a case in point, consider Microsoft’s Axapta product: 

• Axapta is Feature Rich - Microsoft Axapta has developed a reputation for being extremely powerful with a deep set of features. For example, we compared more than 700 inventory and manufacturing features for 150 top ERP and accounting software products using the Accounting Library tool and found that Axapta is rated as the number one product, edging out other powerful Tier 1 ERP products such as SAP (by a margin of 99% to 94%), PeopleSoft (by a margin of 99% to 93%); and JD Edwards (by a margin of 99% to 83%). Partial results of this test are shown in the screen below.  

Simply put, Axapta has extensive features. For example, the warehouse module allows you to set up multiple warehouses, including the number of aisles in each warehouse; the number of shelves on each isle; the height, depth, and width of each self, picking and buffer locations; out-bound and in-bound docks, etc. Axapta also asks the user to define all forklifts including the forklift's function such as whether it is equipped to move pallets, pipes or other materials. Users can even schedule blocking causes where it is known in advance that a particular aisle will be blocked temporarily for various reasons such as restocking. All of these factors are then used by Axapta to recommend exactly where products should be stored, what order items should be picked, when items should be picked, etc. It is very impressive, not to mention complex.

• Axpata is Very Fast - Axapta is an extremely fast product. In October 2001, a test conducted by Compaq and Oracle showed that Axapta set new records for transaction processing. In this test, more than 315,000 sales orders were processed in just one hour by 3.600 simultaneous users. Wow.

• Axapta is Low Cost - Even though Axapta has the power and functionality of a Tier 1 ERP product, it is priced very reasonably. A typical 10-user implementation of Axapta will generally price out at $80,000 to $120,000 for the software, and approximately $150,000 for a 50-user implementation. The typical consulting fees for Axapta are typically one and half times the cost of the software. This is a great price considering Axapta is equivalent to, or more powerful than other Tier 1 ERP systems which typically cost millions, and often  tens of millions, of dollars.

• Axapta is Very Customization - Like it's sister product Navision Attain, Axapta is highly customizable - even more so than Attain. Axapta has a unique feature in which newly created customized fields can be assigned to a category, and with this assignment, the newly created field then shows up automatically throughout the Axapta product on the appropriate user screens. Many top products now allow the user to add new data fields, however the user must then visit each data input screen (user form) to insert and position the new field. Axapta has no such requirement for editing data input screens which makes the product even faster to customize. That's really cool.

• Multiple Databases - Axapta can be deployed on either the Microsoft SQL Sever or Oracle databases. This translates to high-end scalability.

• World-Wide Features - Each implementation of Axapta includes all features from around the world. If for some reason you wanted to enable the Spanish version of the order entry module or Euro multi-currency capabilities in Axapta, you need only type in the correct registration key. The Spanish version is already loaded on all Axapta installations and ready to go.

• All-in-One Product - 100% of the Axapta product has been developed in house and written with the Axapta tools. Many other products have been pieced together when the vendors purchase third part add on products. For example, the MAS 500 product line has incorporated the Hi-Tech add-on module as it's manufacturing solution. Epicor contains similar integrations. This does not mean that Axapta's method is necessarily better, but I think that it is easy to see how this approach could result in a more consistent look and feel and tighter integration. 

• Foreign Language and Foreign Currency – Axapta is a widely deployed product around the world. Because Axapta is deployed in so many countries, the product has developed excellent multi-currency and foreign language capabilities. By contrast, many accounting software products developed in the United States either do not include foreign currency and foreign language capabilities, or they add them later as an after-thought. 

Other High-end Products

Axpata is not the only product that has risen to challenge the Tier 1 solutions. MAS 500 is one of the finest applications you will encounter in the market today and it’s underlying technology strategy makes it an odds of favorite for the years to come. Great Plains eEnterprise is already a world class product – but it’s rewrite based on Microsoft’s .NET platform will raise the bar for entire industry. The Solomon IV product line is perhaps the finest collection of business practical solutions you will find anywhere. ACCPAC’s Corporate series product packs the best e-commerce solution on the planet coupled with a host of industry specific solutions. Attain is a personal favorite of mine with all the horses including customization, speed, reliability, deep features, etc. Exact’s Macola ES product has been completely re-engineered and deployed as a CRM/resource centric application inspired by SAP’s foundation. All of these products now run on high-end databases. All of these products now offer stellar CRM solutions. All of these products offer supply chain, HR, e-commerce solutions either directly, or through strategic business partnerships.

Move over “JBOPS”, the “MANAGE” products are eating your lunch. (MAS 500, AXAPTA, NAVISION, ACCPAC, GREAT PLAINS, EPICOR)

This article is in progress, more to come including:

Description of the ERP class features

The mass exodus of ERP consultants

ERP’s attempts to reinvent themselves

Analogy to IBM Main frame/AS/400 Big Iron era

Conclusion

1. Heavy Financials Applications – An enterprise class product will include all of the typical financial applications that you might expect from a high-end accounting product and more. For example most enterprise class products also include fixed assets tracking, global features such as multi-language and multi-currency, investment management, treasury management, and strong consolidation and roll up capabilities, including consolidations with automatic eliminating entries. These products will also provide powerful allocation capabilities – including allocations across multiple companies. For example, a check for the monthly utilities expense might be written off one company bank account to cover all ten of the sister companies operating in that building. In this case, a single transaction is entered in one company, and the offsetting amounts due from the other nine companies are automatically posted.

2. High-End Database – An Enterprise class product will operate on top of a high-end database such as Oracle 9i, Microsoft SQL Server 2000, IBM’s DB/2, etc. In general, these database products will have the capacity to handle tens of thousands of transactions per day, and the functionality to operate in a distributed environment with many remote locations tied together.

3. Logistics/Supply Chain - An enterprise class product will include a sophisticated supply chain solution that allows companies to link electronically up stream to your suppliers as well as down stream to your customers. This solution will typically include Electronic Data Interchange (EDI) functionality, XML and XBRL functionality, and other supply chain logic such as automatic price checking against your key vendors or through sophisticated trading exchanges.  

4. Human Resources – An enterprise class solution typically has strong human resource capabilities including a personnel management system to manage available positions and post internal resumes, organizational management applications to produce organizational charts, support for 401K and pension plans including employee self-service capabilities for moving funds from one investment to another, the ability to schedule and track employee training, tracking of sick time and vacation time, etc.

5. E-Commerce – An enterprise class solution also provides for an e-commerce solution in which products can be sold electronically to other companies (B2B) or to consumers (B2C). This functionality is actually closely related to the supply chain solution, but is usually implemented in a much different manner with a more versatile look and feel. This solution also allows various parties to securely view information via the web. For examples, enterprise solutions typically allow managers to securely access financial information, employees to securely access payroll and investment data, vendors to securely access vendor data, and customers to securely access order and history data.

6. WorkFlow – An enterprise class solution will incorporate workflow capabilities that allow employee’s to requisition products internally, with the requests flowing electronically to the proper supervisors for approval. Workflow also incorporates time and billing data entry as well as expense report data entry. This solution also documents the persons entering each transaction into the system including time and date stamps. These systems will also typically accommodate substitute employees, routing the appropriate transactions to the proper substitutes as necessary, including the proper name, date and time stamp for that substitute, and later routing the transactions to the original employee once they return to work. Work flow also includes the ability to attach scanned in documents, spreadsheets, notes, pictures, movies, HTML pages, or other documents to any order, item, PO, employee, vendor, or transaction. In this manner, the system not only provides powerful capabilities to efficiently store this important information in a paperless environment, but it makes that information instantly available throughout the organization – even on the opposite side of the world if necessary.

7. Customer Relationship Management (CRM) – An enterprise class product will provide a CRM solution, sometimes referred to as the Front Office Solution. These applications are used by the sales staff to manage prospects, opportunities and customers, to check balances, inventory levels, to provide sales quotes, to enter sales orders, to update customer information, etc. Today these systems go much further by using sophisticated techniques to deem observations about customer behavior and satisfaction to help companies better serve their customers.

8. Customization – All enterprise class solutions allow the end users and consultants to customize the product, to tailor it to specific needs of the customer. Accordingly, these products will typically provide a wide range of industry standard tools and techniques to allow the user to customize the data input screens, the reports and the forms generated by the system. For example, many systems allow the user to use Visual Basic to modify the dialog boxes, adding tabs and fields as needed. Other techniques include providing a set of blank user definable fields that are already established and set up in the database, and await the end user to provide an adequate field name to capture a virtually any data imaginable.
   
   
9. Industry Specific Solutions – Finally, enterprise class solutions usually offer a variety of industry specific solutions such as manufacturing, governmental accounting, banking, hospitals, insurance, telecommunications, utilities, etc. These solutions will vary widely, but all enterprise class products have a several industry specific solutions in their arsenal.

In general, most of the mid-range products fall short in several of these categories.

Evaluating Enterprise Class Products

When evaluating entry-level and mid-range accounting system, users have a tendency to concentrate on the product features on a module-by-module basis. Oddly, this is less important when evaluating enterprise class products for the simple reason that most enterprise class products have the lion’s share of the features. The differentiators thus become other criteria – namely the underlying technology, the breath of enterprise solutions mentioned above, and the resellers. Often we see enterprise class customers start their selection process by focusing first on their company’s established technology platform. For example, Oracle shops will typically concentrate their search on Oracle based solutions while SQL server shops typically concentrate their search on SQL Server based solutions. The hardware comes into play as well as UNIX based companies will target different solutions than IBM AS/400 based companies or COMPAQ Proliant-based companies.

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