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The Magazine

Issue 12

We speak to the key decision-makers looking to steer their businesses through these choppy economic waters.

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Spencer Green
Chairman, GDS International

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25 May 2011

Exposing the myth of top-tier ERP solutions: bigger is not better, just more expensive

C ompanies can save up to 75 percent and get better satisfaction and benefits for their investment by choosing a 2nd-tier business software solution.

In these challenging economic times, companies are being especially cautious about how they invest their hard-earned money – as well they should be. Yet, despite the current climate, investing in ERP software is a sensible step many companies consider worth taking. Good business software can streamline processes, increase transparency and reduce costs, contributing to overall profitability when businesses need it most. However, when cash flow is constrained, companies need more than ever to feel confident that they will be getting an optimal return on their investment, and that their ERP software will make fast, critical and lasting improvements to their business’s efficiency. This is a time when taking a scrutinizing look at the available options is a potentially life-saving measure, and in doing so many firms may be surprised by what they discover.

The lure of the big names
When deciding which software solution to implement, companies will almost certainly first take a look at the so-called “1st-tier” market leaders, such as SAP or Oracle. For decades, these giants have been promising businesses large and comprehensive solutions for an equally voluminous cost. While the investment required to implement one of these top-tier solutions may be daunting, the temptation will be great to go with a “trusted” name, simply because the provider is perceived as the safer choice. This decision may be made in the minds of the company’s top management even before the request for proposal and negotiating process gets under way – it may only be a question of which top provider to choose, not whether to choose one.

Yet there are also other options in the form of so-called “2nd-tier” providers, such as Exact Software, that specialize in ERP solutions for small to mid-sized enterprises and the small to mid-sized subsidiaries of larger companies. Many of these providers have been around for just as long as the big names – Exact Software celebrates its 25th anniversary this year – and have much to offer in the form of experience, cost-efficiency, cost-benefit ratio, local support combined with global presence, and sophisticated solutions. These solutions can be cheaper, implemented more quickly and better suit a company’s needs without weighing it down with unnecessary bulk. They are standardized, integrated and flexible in the sense that they can complement a big-name solution implemented at headquarters by enabling the fast deployment to worldwide subsidiaries, or they can themselves act as a 1st-tier solution, delivering a complete ERP system at a fraction of the price.

So why do firms automatically gravitate toward the big players? At a time when every cent counts, what comes to light is that it is paradoxical to intuitively base this multi-million-dollar decision on image trust and brand name recognition. Instead, it can literally save you millions and yield better results to put common belief aside and base your decision on common sense.

In nearly every regard: 2nd-tier is smarter
The advantages of a 2nd-tier supplier are manifold, ranging from lower implementation costs to a faster return on a smaller investment. The following points outline the ways in which 2nd-tier vendors like Exact Software compare favorably with the top-tier market leaders:
•  Significantly lower implementation cost
•  Shorter implementation period
•  Ability to complement a 1st-tier solution being used at headquarters
•  Faster deployment
•  Ideal for SMBs or SMB subsidiaries of large groups
•  Frequently higher customer satisfaction
•  Excellent integration
•  Global presence combined with local support
•  Understanding of the SMB mindset

Conducting a survey of 670 enterprise resource planning software users in the US and Europe in 2008, the Panorama Consulting Group (“2008 ERP Report, Part II – Comparing Leading Tier I and Tier ERP Solutions”) found that 2nd-tier solutions generally delivered higher satisfaction than the top players in the market, but cost significantly less. The sample in the Panorama Consulting Group study mirrored Gartner’s assessment of market share distribution for the sector, with over 70 percent of respondents using 1st-tier products such as SAP, Oracle or Microsoft, and 23 percent using 2nd-tier solutions, among them Exact Software. The respondents in the study were based in the US, Europe, Australia and India.

Examining the costs of implementation, Panorama Consulting Group found up to 13 million dollars separating leading top-tier solutions from their 2nd-tier counterparts – in other words, potential savings of 75 percent. With respect to average implementation time, 2nd-tier solutions consistently required less time to go live than 1st-tier solutions. Yet how did the “underdogs” fare in the areas of benefits realization and customer satisfaction? Panorama Consulting Group found the 2nd-tier solutions generally performed better, delivering a 10 percent higher employee satisfaction level at 77 percent compared to the overall average of 67 percent – and all for a significantly lower investment.

Results like these raise the question all companies should be asking, particularly in these volatile economic times: Why pay substantially more for the same or worse performance, longer implementation times, ill-fitting bulk and a solution that does not optimally improve your business processes? The surprising “bigger picture” is that bigger is not necessarily better, just more expensive, and that 2nd-tier solutions such as Exact Software can outperform their larger competitors without requiring anywhere near the sizable investment of the big brands.

Choosing the right ERP solution: a highly influential decision
Carefully gathering information and assessing your needs is a key step toward making the right ERP software investment. At the outset, multinational companies have several basic options, which range from doing nothing to implementing one of the top-tier providers.  While doing nothing cuts the costs of implementing new IT, such inactivity can cloak much higher costs resulting from inefficient processes. At the same time, as discussed above, implementing a 1st-tier ERP application at all subsidiaries in an organization is a pricy option. In between we find the option of implementing a 2nd-tier application at subsidiaries or throughout the entire company. Generally easier for users and the IT department to master, 2nd-tier solutions such as Exact Globe are designed to be deployed in small and mid-sized businesses. They often contain extensive functionality to enable the consolidation of data into a 1st-tier ERP solution at head office level, and can be just as effective as their larger competitors.

In addition to helping organizations achieve subsidiary transparency, 2nd-tier solutions can assist companies by lowering costs of ownership due to long-term economies of scale. By rolling out the same standard solution to the entire organization within a short implementation period, such solutions can help companies manage their subsidiaries across many countries, languages, currencies, cultures and legislations. In a study carried out in 2006, IDC points toward the dangers of companies losing control over subsidiaries: “Failure to monitor, govern, and control subsidiaries can cause inefficiencies in the value chain due to poor coordination and planning and even in the worst case, threaten the future of the entire corporation.” This is where 2nd-tier solutions prove their mettle, as they can help companies gain control more quickly at a lower cost.

An example of 2nd-tier prowess: Exact Software
Founded 25 years ago, Exact Software has grown in much the way its customers have grown. Starting small and growing steadily, the multinational software provider headquartered in the Netherlands now operates a network of subsidiaries in more than 40 countries worldwide, providing support to customers in over 125 countries. Specializing in small to mid-sized firms, as well as the small to mid-sized subsidiaries of multinational corporations, Exact has a close understanding of what these businesses require. Its self-owned subsidiary network offers global, standardized business software combined with localized support that is designed to mirror the needs of international companies, adapting to their size.

Because Exact consciously pursues a global strategy to provide small to medium-sized international companies with one standardized business software solution, it also lowers cost of ownership. Exact’s solutions enable companies to roll out the same, standard solution to the entire organization within a much shorter implementation period, thereby reducing the number of different ERP solutions a business uses, reducing ownership costs due to long-term economies of scale.

Exact’s main products are full-suite, front and back office business solutions, Exact Globe and Exact Synergy, which integrate all business areas to provide real-time enterprise resource planning, high information quality and streamlined processes for all of a company’s stakeholders. Fully integrated and aimed at the needs of SMBs, these solutions provide valuable agility, local compliance and reduced risk through easy-to-use software and minimized investment. Their goal is to empower companies to seize local opportunities while maintaining overall global control.

2nd-tier ERP clients speak out
In its 2006 study, IDC interviewed four multinationals that all chose business applications from Exact Software:  Stork N.V. in the Netherlands, the Heraeus Group in Germany, PADI Americas, Inc. in the USA, and a global manufacturer in Germany. The four companies were representative of mid-sized (PADI) and large (Stork, Heraeus and the global manufacturer) multinationals with deployments across Europe and other continents. They all faced the challenges that many companies are increasingly confronted with today: coping with complexity, moving operations to low cost countries, gaining real-time visibility into local subsidiaries, achieving regulatory compliance and undergoing organizational changes, such as mergers and acquisitions.

The interviews with key decision-makers in these four companies revealed that most of them chose Exact Software for two main reasons: Exact´s local presence in the countries of their subsidiaries, and Exact's focus on small and mid-sized businesses. They used Exact’s solutions to cluster their individual subsidiaries into larger reporting units, usually in order to achieve a global service capability. Looking back on the results of their implementations, all of the companies were able to cite direct business benefits, such as higher return on sales, quicker period ends and more accurate inventory management as a result of Exact’s solutions. However, the most important benefits were of a key strategic business nature. They said that Exact enabled them to gain transparency of the operations of their subsidiaries, while helping them better service their customers globally.

According to IDC, the choices of these companies reflect the future requirements of ERP software. These requirements center around four key points: real-time insights that provide corporate level controllers with overviews, allowing them to drill down to individual transactions; dynamic consolidation that allows new information to be extracted without involving local IT staff; zero local IT footprint, with multinationals increasingly consolidating servers and databases to serve local offices remotely, thereby reducing total IT costs; and shared data between front and back-office, improving customer service with front-office applications that extend data outside the back-office realm.

Thus, in addition to delivering a better cost-benefit ratio compared to bulkier, more expensive market players, 2nd-tier ERP solutions like Exact Software also seem to be responding attentively and flexibly to future business software needs.

Challenging the myth
It is high time to dispel the myth of top-tier supremacy. Instead, what works best is what fits your company best. It pays – and can save you millions – to take a closer look at what 2nd-tier solutions have to offer and avoid making intuitive decisions based on who is market leader. Studies like the one conducted by the Panorama Consulting Group show that ERP projects which are properly planned prove most successful, and that satisfaction has a lot to do with the fit of a solution. In this regard, at a significantly lower cost, 2nd-tier solutions like those offered by Exact Software can provide greater flexibility, shorter implementation times, faster return on investment and performance that is optimized to your company’s needs, along with the benefits of local support and global presence.

Your choice of business software should boil down to common sense, not common myth. Particularly when the economy is challenging and it is essential to cut costs without sacrificing the benefits of transparency, the “less” you pay can provide the “more” that helps you rise to the challenge.

Contact details:
Exact EMEA B.V.
Poortweg 6, 2612 PA Delft, The Netherlands
T: +31 (0) 15 215 1552
F: +31 (0) 15 262 3845
E: [email protected]