There is a groundswell of activity in the financial software market – a trend which looks set to continue for the next 24 months – as companies that made a financial software investment in 1998 and 1999 in preparation for Y2K concerns get ready to repeat that effort in 2004 and 2005. Unsurprisingly, financial software vendors are reacting to this.
Bold moves to strengthen market position include a number of significant buy-ups, mergers, and the release of products and licensing models designed to attract more business from the ‘sweet spot’ of the financial software market.
Analysts report a steady demand for those tools supporting financial business processes, but which are not necessarily contained in financial software brands and enterprise resource planning (ERP) suites.
For this special report, MIS interviews the following for their insights on the market, trends, developments and major players in the financial management information systems (FMIS) market:
Glenn McStay, national finance support manager, New Zealand Fire Service;
Arlee Folkers, CFO, Otago District Health Board;
Shane Dermott, CFO, Pacific Retail Group;
Lyn Walker, director, Triquestra (formerly ALM Systems);
Mark Netten, IT manager, Snell Packaging and Stationery;
Mark Lines, general manager, Taxicharge;
Steve Wakefield, partner, consulting services, Deloitte;
Suri Barlett, managing director ERP solutions, Bearing Point;
Simon Bright, director, Ernst & Young;
Henry Chan and Tim Ellis, IBM Business Consulting Services.
This special report focuses on four categories of the FMIS market.
Tier One businesses (with annual revenues in excess of NZ$100 million) are opting for large and complex ERP systems from brands including PeopleSoft, Oracle, SAP and Microsoft. These businesses tend to have an internal IT team and the resources to contract or outsource project management, training and consulting if required.
Tier Two businesses (with revenues between NZ$50 million and $99 million) do not typically employ an in-house IT team – although an IT manager may be present. They are interested in systems from software vendors including Microsoft (Navision, Great Plains, Axapta) and Intentia.
Tier Three businesses (with revenues between NZ$10 million and $49 million) are being courted by vendors including Greentree, Exonet, and Accpac and are interested in integrated financial management systems which can be added to on a modular basis.
Tier four businesses (with revenues of less than $10 million) are New Zealand’s smallest and also form the largest proportion of the country’s business population. Some are in manufacturing and benefit from an ERP suite with manufacturing and distribution modules in addition to financials. However, price and the cost of support are the main priorities at this level. Brands that continue to meet small business priorities include NZAGold, MYOB, CBA and Quickbooks.
Traditional bottom-end barriers
The consolidation of brands and services through buyouts has narrowed the number of vendor choices available to purchasers in Tiers One and Two, making brand analysis simpler. However, in Tiers Three and Four – or in New Zealand organisations earning less than NZ$49 million – things are not quite so clear-cut.
Despite valiant attempts to scale larger products to suit this market, buyers at the lower end of the market are generally too cash-strapped or wary to take on the implementation and support costs of bigger products. Confusion is still a problem, due to the number of brand choices Tier Three and Four organisations face.
At Tier Four, New Zealand’s smallest businesses are unable or unwilling to afford the fees of an independent business consultant.
Some Tier Four businesses complain brand agents are more interested in capturing the sale than building a relationship. Others have bucked this trend by developing a long-standing relationship with an accountant or financial software advisor.
Tim Ellis, partner for IBM Business Consulting Services, says budgeting, forecasting and business intelligence tools are the principal focus of discussion with senior finance executives.
“Once businesses have the transaction processing side of their financials sorted out, they begin to focus on improving business intelligence. Attention is moving beyond winning the benefits and efficiencies from an internal investment in an ERP system. Executives are increasingly encountering the relative luxury of being able to focus on business intelligence.”
Suri Barlett, managing director of ERP solutions for Bearing Point (formerly KPMG), concurs.
“New Zealand companies tend to hang onto their FMIS products a little longer than their international counterparts and are always looking to get better value from them through integrating them with budgeting, forecasting and business intelligence tools.”
(Turnover of NZ$100 million plus)
Issues: Scalability, multiple sites, languages, international versions, support costs, e-business, integration and training.
Key brands: PeopleSoft, SAP, Oracle, Microsoft
Businesses in Tier One poised to reinvest in an FMIS face a number of challenges this year, with brand selection being just one.
For organisations with existing investments in JD Edwards (JDE) and PeopleSoft products, a degree of uncertainty surrounds the future of these brands, following PeopleSoft’s acquisition of JDE and an as yet unsettled bid by Oracle Corporation for PeopleSoft.
One Tier One business forging ahead with a JDE implementation regardless of vendor mergers is the retail giant Pacific Retail Group (PRG). With an annual turnover of $605 million, PRG falls soundly into the Tier One category and is an interesting case study for larger businesses looking at major FMIS investments.
Shane Dermott, financial controller for PRG, says the group is in the midst of a major JDE implementation that includes general ledger, accounts payable and fixed asset modules. PRG’s legacy financial software investment is in disparate FMIS applications; including an AS/400 based accounts payable application, Intersoft fixed assets, and BPCS general ledger. “The limitations of these legacy systems were that they were not integrated. Our JDE investment provides that integration.”
However, Dermott says selecting JDE was not necessarily a straightforward decision. “It is very complex to determine what financial software can actually do and what each vendor delivers. We engaged Ernst & Young to help us make the best decision, and have carried out the implementation process in-house.”
Dermott says PRG’s last major FMIS implementation was more than eight years ago, which reinforces the observation by some analysts that New Zealand businesses stretch out their FMIS investments beyond international norms.
It is certainly the case at the Otago District Health Board. Arlee Folkers, chief financial officer for the Otago DHB, says her organisation has been interested in upgrading its legacy JDE OneWorld FMIS system for some time, but that is still yet to happen.
“We’re not into being an early adopter, that’s for sure. We went through the whole software evaluation process in conjunction with a consultant earlier this year, only to abandon it for higher priorities, like patient management systems.”
Steve Wakefield, a partner with consulting firm Deloitte, says this is not uncommon. “For most companies, replacing their FMIS systems is a fairly low priority because many have updated them within the last five
years and they are more focused on operational and business improvement projects.”
However, he says organisations that have experienced strong growth within that time frame are outgrowing legacy FMIS systems and will soon need to replace them.
A sudden growth in revenue brought about by commercial factors is obviously not a factor for Otago DHB. Like many users of large international FMIS brands, Folkers says Otago has not managed to configure all the features of its current JDE system. And she says while the board is fairly pleased with the performance of the system, users find the JDE report writer difficult to use. The board threw out the payroll system in favour of one from Datacom.
Wakefield says this isn’t so uncommon either. “Many international brands don’t cater for the payroll needs of New Zealand businesses. As a result, companies like PayGlobal have been doing well here.”
Folkers says it would be nice if software vendors spent less time trying to be salespeople and more time trying to be supportive.
“My advice to businesses at this level is to ensure you do your request for proposal (RFP) process properly and give the vendor a brief as to what you want to see happen in your organisation. Then, when they demonstrate the system, make sure they are showing you what you wanted to see, not what they think you should see.”
Glenn McStay, national finance support manager for the New Zealand Fire Service, agrees. “Software selection is very confusing. When vendors demonstrate a system, they know how to make it sing and dance for you. What you see on screen can look like exactly what you want. It’s not until you get to use it for yourself and look at what you want it to do that you begin to understand the nuances of it all.”
The NZ Fire Services uses a JDE FMIS system and says in-depth training can be another stumbling block.
“Next time, we would approach the selection profess differently and spend a week full-time on hands on training on the actual software we’d be using.”
(Turnover of NZ$50 million to $99 million plus)
Issues: Avoiding oversell on features, choosing platforms to build critical applications on, ability to integrate and customise, affording and managing implementation, e-business.
Key Brands: Microsoft (Great Plains, Navision, Axapta), Intentia, Epicor, Exonet, JDE, Oracle, SAP
It’s a buyers’ market for organisations at Tier Two level, with traditional Tier One brands like SAP, Oracle and PeopleSoft making a concerted effort to scale their products to be less feature-intensive and more affordable, and settled Tier Two players (including Microsoft Business Solutions, Epicor and Intentia) fighting back with lures of their own.
If you are a Tier Two business, you should know software vendors and consultants see your business as the ‘sweet spot’ for their own growth. This means you get to call the shots, but it may also be hard to choose between systems.
Steve Wakefield, a partner with consulting firm Deloitte says, despite consolidation in the Tier Two market, there are still many different products to choose from and vendors are marketing them in smarter and equally convincing ways.
“Microsoft is coming through strongly and getting smarter about differentiating their three core brands so they are not competing against themselves. At the same time, Intentia does good business in New Zealand, because it has a lot of experience and its products are well suited to the size of New Zealand companies.”
Wakefield says he expects Microsoft to continue to drive customers to use its products, due to the degree of integration available between its financial and office suite products.
Having said this, Wakefield points out Tier Two organisations are more likely to confound the expectations of clever marketing than a Tier One company, because they may follow the legacy FMIS investment of an international parent. This can occur despite the fact another product may have more local business benefit.
“A good example is Bendon, which looked at Intentia but ended up going with JDE because JDE was able to deliver a specialised module from Europe to cover its needs for the style/colour/size matrix required for the apparel industry, and also its parent, Pacific Retail Group (PRG), has gone with JDE.”
In the past six months, says Simon Bright, an Ernst & Young director, the consultancy has seen SAP and Oracle enter the Tier Two market. “Microsoft is onto about 90 per cent of market opportunities, but there’s still space for brands which have shown an ability to cater well for a specific industry. For example, FinanceOne has some very good experience in the utilities market.”
Wakefield agrees with that trend. “We’re beginning to see a bit of specialisation according to industry at Tier Two levels, such as Navision doing well in the meat industry.” And he says a lot of the success of Tier Two brands depends on their resellers. “[Reseller quality] has a big effect on individual organisations and their choices.”
This is definitely true for transport specialist Taxicharge, which manages a taxi transport card and voucher system in conjunction with local taxi companies, some of which are shareholders. It turns over $50 million annually, sells 2800 voucher books per month and has 46,000 cards in use. Its mission critical IT system is a customised business application from Cardlink called TMS (Taxi Management System). Manage-ment of TMS is outsourced to Cardlink, and Taxicharge financial systems are standalone.
Mark Lines, general manager of Taxicharge, is currently selecting new FMIS software. However, he says the selection process has been marred by what he considers a less-than-interested approach on the part of local resellers.
“We’re very disappointed in the way [FMIS] products have been supported and presented to us. There’s always pressure to buy a $70,000 FMIS suite, but resellers of these products have not taken an interest in our business or listened to our business drivers.”
Lines says he is presently looking at Accpac, because he says it offers a comprehensive approach to Taxicharge’s needs but does not have unrealistic support pricing.
“We want basic financials and accounting. We want online bank reconciliations in conjunction with Westpac’s Deskbank. We’re not interested in full integration, and the cost of support is a big thing.”
Tier Two businesses are undoubtedly affected by the cost of supporting their FMIS choice and, while they may be attracted to the scaled down versions of large brands, will often shy away from the support and training commitments such purchases entail. However, analysts across the board believe skimping on support is a mistake.
Suri Barlett, managing director of ERP solutions for consultancy firm Bearing Point (formerly KPMG), says businesses of all sizes need to stay committed to their FMIS investments and not neglect them once they get over the ‘go’ line.
“Some businesses drop support levels and help desk calls may be discouraged in order to save costs once the initial implementation is over. A level of maturity is needed to protect the investment in these systems.”
Henry Chan, associate partner for IBM Business Consulting Services, summarises where businesses making 2004 FMIS investments should be focusing their energies: “Cost is the primary driver in terms of achieving a clear ROI (return on investment). That ROI needs to be based on the outlay made for the system and how long it takes for that cost to be recovered in measurable business benefits.”
(Turnover of NZ$10 million to $49 million)
Issues: Purchasing the best system when price and good support are paramount.
Key Brands: Microsoft (Navision, Great Plains, Axapta), Exonet, Greentree, Oracle, SAP
There is some crossover at Tier Three between locally and internationally produced brands that will scale up or down to work in businesses at Tiers Two, Three or Four. As such, local products Exonet and Greentree – along with international brands Microsoft Business Solutions (Navision, Great Plains and Axapta), Oracle and SAP – are all valid suppliers of Tier Three businesses.
While traditional Tier Three software vendors may be shaking their heads at the inclusion of Oracle and SAP, Henry Chan, associate partner for IBM Business Consulting Services, says top tier vendors are moving fast to produce pre-packaged applications for the SME market. “That being said, there is always room for a more effective link between their sales [pitch] and delivery,” he says.
With 100 employees and turning over in excess of $40 million a year, Snell Packaging and Stationary is a Tier Three business and a user of Microsoft’s Great Plains financial management software.
Mark Netten, IT manager for Snell, says the important thing for his organisation is Great Plains being built on open technology. “With the upgrade, we’re looking forward to wider integration with Microsoft Exchange, Biztalk server, and their office products. And Great Plains allowed us to build a sophisticated e-commerce website. We’ve done millions of dollars of business through that website and the website transactions dovetail into the Great Plains system.”
Snell is a legacy Great Plains site, having initially installed Great Plains before its acquisition by Microsoft. Netten says both the legacy version of the system and the upgrade have been easy to use and learn.
“Great Plains is stable, reliable and robust and we’re happy with the cost of support and training.”
However, Netten attributes this to Snell looking after its own support. “We have two of our own IT staff and are very autonomous. I look after Great Plains mostly myself, but use the IT staff for troubleshooting.”
He says the need for quality financial software is rather obvious. “It would be pretty important because its a ‘must have’. Companies have to look at it from the perspective of needing a system that allows for the reliable billing of customers and tracking of payments. If you can’t get that right, it outweighs other business problems.”
Despite some businesses’ concerns – using an international brand creates support issues – Netten says, when he does need to work with Great Plains directly, he has an established relationship with a support person in Sydney. “They do come over to see us for upgrades, but otherwise it’s just phone support. In the last couple of years we just haven’t had a major issue.” He advises less fortunate businesses to tread carefully when it comes to securing support.
“I would make sure the person who implemented the software had a very good product understanding and a good track record with project management. A lot of the time, the problems of the implementer become your problems, and who’s got time for that? They’re keen as mustard at the time of sale but, when the hard work starts, they fold.”
Netten rates inventory control, order management and tools to ensure stock accuracy highly within any financial management system. “Customers, internal and external, should be able to place orders easily.”
Like many customers who opt for products based on a Microsoft platform, Netten says the foundation of Snell’s choice is a concern for future proofing. He says it is important to evaluate financial software according to how well it will “wrap around” other technologies. “To get a competitive edge you need other software tools working with your financials. For example, customer relationship management, warehouse management and business intelligence tools. They need to be able to just tack on.”
However, Netten concedes getting everything in one go may be overwhelming for some organisations. And he is critical of businesses that take too long to choose between financial software brands.
“My advice would be don’t muck around. Splitting hairs won’t get
(Turnover of less than NZ$10 million)
Issues: Survival, thinking ahead, installing a system that’s ready to grow, price.
Key Brands: MYOB, CBA, NZA Gold, Quickbooks, Sybiz, Exonet, Greentree
By far the most difficult level of business to analyse, Tier Four businesses in the market for financial software are diverse and tend to work independently of financial consultants.
Reinforcing this, of the four financial consultants spoken to for this report, only Ernst & Young, says it provides consultancy services for Tier Four businesses; and even then, Simon Bright, partner for Ernst & Young, says Tier Two and Three businesses tend to dominate its client demographics.
Part of the problem of reaching Tier Four businesses in New Zealand is the diversity and number of businesses involved. Statistics New Zealand reveals that, excluding farming, the number of enterprises engaging less than 10 full-time equivalent employees was 260,334, as at February 2002; or 93 per cent of all New Zealand businesses.
While many Tier Four businesses are also employers, IT specialists don’t tend to be among them. As such, Tier Four businesses typically have little IT contact or ongoing education. Instead, the accountant or software reseller typically provides advice and direction for the purchase of financial software products.
The result is little progress from year to year at Tier Four level: These businesses maintain a do-it-yourself approach to implementing financial management software; are confused by vendor differences; face the same dilemma of larger companies over which brand to choose; and have little understanding of the benefits of owning a fully integrated system and web-enabled financial software.
Small businesses are generally dismissive of the e-business potential of financial software, and some have recently invested in standalone financials not integrated with other business systems.
Lyn Walker, director for software development firm Triquestra (formerly ALM Systems), says her organisation recently purchased Exonet after nine years of using another locally produced program, Profax, and is running Exonet standalone. “We don’t think much about the need for an integrated system and we don’t care at all about e-business features. I’d go so far as to say we couldn’t be less interested.”
She says Exonet is informative and gives the company more information about its business than the previous system did. She says quality, cost effective financial software is important to Tier Four businesses because any efficiencies the software creates count towards the bottom line, and that is what the majority of Tier Four businesses are concerned with.
And, she says, financial software vendors should understand Tier Four businesses without IT departments and software specialists need training and support that is not patronising, but is explained using plain English.
“The way the market is structured, it is confusing to decide which product is best. Yet, at the same time, products at this level all seem to be on a par in terms of features. It’s the resellers that make it confusing, because they all have a different story to tell.”
Walker says she prefers dealing with New Zealand companies and international brands don’t appeal as much.
“Just look at the basics. Ignore the vendor hype and go to other users of the product that may be of a similar size or type to your own company. Try to find your own reference sites if you can, rather than relying on those provided by the reseller.”
Walker says if she were to purchase new financial software tomorrow, she would ask more basic questions about how software and support options worked, rather than simply accepting what the reseller had to say.
Whether these experiences are typical for a Tier Four business or not is difficult to say because of the aforementioned diversity and volume of businesses at this level and the fact consultant help is in many cases not affordable. Yet, paradoxically for the cash-strapped Tier Four business, to balk at the price tag of financial consultation may mean missing out on a well-considered FMIS investment that would ease both cash-flow and tax demand pressure – and probably bring with it other internal efficiencies, such as electronic invoicing, business reporting or improved payroll.
Obviously, these are benefits Tier Four businesses want. So what should they know about purchasing financial management software in 2004?
To begin with, smaller businesses doing well tend to outgrow some part of their financial information system every three to five years. So a growing business looking to reinvest should shop for a product with the capacity to accommodate business expansion, and therefore last as long as possible.
The ongoing cost of licensing and product support is also a major consideration.
Tier Four software vendors often offer an annual or monthly subscription-based service, according to the software modules or features purchased.
This is useful, as Tier Four businesses can then invest in business-critical financial functions (accounts receivable, reporting) and add other features and modules as the business grows or new marketing channels open up.
Other important considerations are the stability of the brand, the performance of the product and what is involved in the implementation of it.
Tier Four businesses should set about testing different brands of financial software before making a commitment and give consideration to how quickly data can be entered manually and how easy it is to produce reports that actually say something.
Online banking support should also be available, so bank reconciliations can be completed online and accounts should be able to be addressed by name or number.
The ease with which the software can import and export data between applications is also of importance. For example, are there conversion tools to convert data from Quickbooks to MYOB or to a spreadsheet program? Can the software create a forecast of income and expenses?
Can it provide a business analysis of financial status and track sales orders? Can inventory be tracked and in what ways? Are automatic budgeting tools available? The range of invoice, estimate and other form templates can also free or restrict a Tier Four business, so form customising should be available.
Planning and buying tips
Look for advice on best practice processes, and learn how to drive business benefits from an FMIS implementation.
Concentrate on process improvement through the use of business intelligence, budgeting and forecasting skills.
Think outside the square. Don’t concentrate on how to reduce the price of your next FMIS investment, but on how a considered choice could increase internal efficiencies and therefore save you money long-term.
If you are considering signing strategic Tier One software agreements with vendors under major transitions (for example Oracle, PeopleSoft), proceed, but ensure your agreement includes terms, conditions and policies to protect your investment in key areas such as support, upgrades, migration and service for the term you desire.
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.