The market for packaged business application software continues its strong growth and we have seen enormous pressures to replace systems coming from increasing globalisation and the year 2000 problem,” says Chris Gant, lead partner in package implementation at KPMG Management Consulting. “At the same time, organisations want these systems to enable cost reduction, improve customer service and provide better management information.” Organisations are still tending to select a solution from the larger vendors, such as SAP, PeopleSoft, Oracle, Baan and JD Edwards. “They have a track record of delivery, so companies expose themselves to less risk,” says Gant. “This is encouraging consolidation in the market, such as Baan buying Coda and the merger in the associated area of management reporting between Arbor and Essbase.” A series of partnerships is developing between the packaged application vendors and providers of on-line analytical processing (OLAP) products, such as Cognos PowerPlay, Arbor Essbase, Hyperion OLAP and Applix TM1. This represents a division of duties between transaction processing, which the accounting systems have always been strong at, and financial management, at which they have always been much weaker. Data is transferred into the OLAP tool, which provides a single solution for planning, budgeting, forecasting, financial consolidation, reporting, analysis, activity-based costing and modelling. “Partnerships between the vendors of accounting systems and OLAP products are important,” says David Garrett, a principal consultant at KPMG Management Consulting. “Our clients want both products, but only want to deal with the accounting systems vendor.” Baan’s purchase of Coda, a “best-of-breed” accounting package, suggests a decline in the approach to systems implementation that takes the best module available for each area of the business, irrespective of vendor. Since the arrival of SAP’s R/3 product, organisations have been attracted by the option of selecting all packages from the same vendor. “An integrated solution has the advantage that the customer only has to deal with one vendor,” explains Garrett. “The modules all have the same look and feel, run on the same platform and are already fully integrated, making it easier to share information throughout the company. However, many of the packages are not as integrated at the database level as the vendor might suggest.” A problem with the integrated approach is that upgrading the software can require all modules in all parts of the company to be upgraded, whether users in each area of the organisation need the upgrade or not. The vendors have reacted by committing to breaking their modules into smaller components. “These should be easier to integrate with other software, but we haven’t seen much progress yet,” comments Garrett. One of the perceived problems with the larger, more complex products is that they can take too long to implement. The vendors have reacted to this by producing “vanilla” versions, with basic functionality already built to enable rapid implementation. It is still too early to assess whether this approach is effective, but Gant remains cautious: “It is a knee-jerk reaction to reducing implementation costs without thinking about the business benefits that may be foregone subsequently. The cost of implementation should not be used as an excuse to avoid re-engineering business processes that would make the organisation more competitive.” Nevertheless, this approach can work if the pre-built software is adapted to a specific industry. For instance, KPMG developed pre-configured Oracle applications in the US, called “R2I”, that have already proved their ability to generate a rapid return on investment. At the time of writing, its UK release was imminent. Despite the attractive benefits Internet technology offers, it is not being widely used as part of accounting systems in the UK. “The Internet extensions demonstrate well when people select a system,” says Gant. “However, other priorities, such as implementing year 2000 compliance, causes them to be deferred to phase two of the implementation. Nevertheless, it will be an important area over the next few years.” Microsoft’s Windows NT Server operating system is taking over from the various versions of Unix as the most popular platform for packaged applications. Similarly, Microsoft’s SQL Server is proving a popular choice for the underlying database. “We are seeing Windows NT and SQL Server specified on almost every bid document we see,” says Garrett. As a result of their fast growth, the larger vendors are still under pressure to maintain quality standards and improve their customer service. As a result, many of the top suppliers are changing the remuneration structure of their staff to reflect customer service and are only bidding where they have the best chance of success. “Because organisations are facing a wide variety of pressures to replace their software, especially in response to the year 2000 problem, they have no time for long tendering processes that involve surveying the entire market,” says Gant. “Instead, they are using fast-track selection processes which evaluate a limited number of vendors in greater depth.” ERP: THE MARKET LEADERS SAP Strengths SAP’s R/3 product remains the clear leader in the large corporate market and is dominant in some industries, such as manufacturing. The company is maintaining its high growth rates and is very profitable. Because it is strong financially, it can make large investments in product development. It is still the most functionally rich integrated enterprise resource planning (ERP) product available, so there are relatively few things it can’t do. It also has the advantage of being “best of breed” in some areas. The company is shedding its image as a manufacturing-only package and is developing industry-specific solutions for several key sectors. ORACLE Strengths Oracle is a major software player and its client/server database is the market leader. It is also a leading player in its own right in the business applications market. Oracle’s size and financial muscle mean that it is able to make substantial investments in product development. KPMG has seen a lot of clients upgrading to version 10.7 to achieve year 2000 compliance, but adoption of version 11.0 was slow at the time of writing, having only just been released. Oracle’s business applications are complemented by sophisticated reporting tools, such as Oracle Financial Analyser, which is based on its multidimensional Express OLAP database. Oracle is also a major player in the electronic commerce arena and also has a large consulting organisation. PEOPLESOFT Strengths PeopleSoft is consistently the fastest growing supplier in the market and has doubled in size in each of the last eight years. Its human resources product has long been the market leader and its financials product is also functionally rich and easy to use, with attractive features such as integrated process maps and multiple reporting tools. PeopleSoft has developed vertical market applications into other areas, such as treasury management and performance management. The company has always taken great customer satisfaction seriously and one of its key marketing messages is that the vast majority of its customers would chose PeopleSoft again if given the choice. PeopleSoft recently acquired Intrepid, a retail solution which will strengthen their supply chain offering, and TriMark Technologies, a leader in software solutions for the insurance market. Weaknesses SAP is trying to get away from R/3’s image of being highly priced, requiring long implementation times and having a heavy reliance on third party consultants. Nevertheless, it is still perceived as expensive. Although the modules are highly integrated, this can sometimes lead to a lack of flexibility, with changes in one area affecting another. This means that the configuration has to be designed very carefully at the outset, otherwise it can be difficult to make subsequent changes. R/3 can only be re-engineered once, giving rise to the comment that it “moulds like putty, but sets like concrete.” Weaknesses Oracle’s applications, especially its financials, have a reputation for not being as functionally rich or as easy to use as its main competitors. Its “set of books” concept can be difficult to implement for multinationals, if they have operations that are subject to different financial rules in some countries. Oracle Financials used to be weak on multi-currency, although version 10.7 has improved this functionality. There is a perception that Oracle’s applications are more suitable for middle-tier organisations than major enterprises. Weaknesses Although strong in human resources in the UK, its financials product is still trying to establish a UK user base, although it has made significant progress. The company also had to redesign its products as part of its move from fat-client architecture to the thin-client approach required for use with Internet technology. Version 7 is a three-tier client server, so the fat-client weakness has been resolved. The company is still trying to establish itself in Europe, especially in sales support and customer service. For this reason it has been selective about which clients it will accept, as it tries to engineer a successful track record. Its applications were developed for the North American market and did not become fully international until version 7.5. This means that it has only recently become poised to establish itself in Europe and its success in international markets will depend on the ability of version 7.5 to deliver on its promises. They have still to achieve referenceability in manufacturing and distribution in Europe, so they can’t yet claim to be a true ERP vendor. ERP: THE MARKET LEADERS (CONT’D) JD EDWARDS Strengths JD Edwards is a large ERP vendor that became financially strong through establishing itself in the AS/400 mid-range market, where it is still one of the leaders. Its newest product, OneWorld, has a very exciting network configurable architecture. It has excellent functionality, especially in financials, and has an advanced look and feel. KPMG has recently implemented it at a large media company, which is the product’s only reference site in the UK. The company has signed a number of new deals since then and KPMG has expanded its practice from the six consultants who carried out that first implementation to a group of 60 dedicated implementation consultants. BAAN Strengths Baan has become particularly strong in the discrete manufacturing sector as a result of winning a $148m deal with Boeing from SAP. The system is very flexible and its integrated tools result in rapid implementation times, an area where the competition is only just catching up. When it has integrated Coda Financials, which is an excellent product, it will strengthen Baan, whose own financials have long been perceived as a weakness. Weaknesses JD Edwards has left its entrance into the client/server market with OneWorld very late. It continues to be perceived by the market as an AS/400 vendor and has worked hard to change this image. However, it is overcoming this hurdle and establishing itself as a major player in the large corporate market. This is despite its predominantly mid-range background and limited track record in large corporate implementations. Weaknesses Baan’s heritage is that of a specialist applications developer and ideas company. However, its explosive growth has stretched its support capabilities, which have been patchy in areas such as account management. Support for multiple site operation has been weak and was due for improvement, but KPMG has not seen much activity in this area in the last year. Enquiries about obtaining The KPMG Financial Software Directory 1998 should be addressed to: Jean Wilmot, KPMG Management Consulting, 8 Salisbury Square, London EC4Y 8BB e-mail: email@example.com The full directory contains a number of articles on financial software, including the impact of Emu on the packaged application market and the importance of alliances between consultants and software vendors. The full tables also include a wealth of information on pan-European software packages, increased detail on package functionality and system requirements and additional packages for mainframe systems and non-accounting packages.
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