Made2Manage acquiring ETO vendor Encompix

Made2Manage Systems, a Tier III ERP vendor, is acquiring Encompix, an even smaller player focused on engineer-to-order manufacturers. The deal shows once again how difficult it is for small enterprise system vendors to remain independent these days.

I've had the opportunity to evaluate Encompix a couple of times in the past. It is not a big name in the ERP space, but it has carved out a nice niche for itself among engineer-to-order manufacturers. Most ERP systems require inventory items to be defined before a purchase order, sales order, or manufacturing order can be created. For companies that build products based on customer specifications, such an approach simply does not work. The sale may be made, but material must be purchased, and some production activities must take place before the product design has been completed. The approach that's really needed is to treat the customer order as a project, and to tie all design and production activities to activities in the project plan. There also needs to be a tight integration between engineering functionality (e.g. product data management) and the production system.

There are only a few ERP systems that do this well. Baan (now owned by SSA and renamed ERP LN) is one. Glovia is another. Oracle can do it, but its functionality in this area is relatively new and evolving. Encompix is another, and one of the smallest. As I understand it, it originated in the early 1990s as a joint venture of several ETO manufacturers in the Midwest that were unhappy with the lack of attention being given to their requirements.

Made2Manage has been turning out to be an aggregator of small niche vendors over the past two years. What all of its acquisitions have in common is that they serve very narrow industry segments. The acquisitions include DTR Software (ERP for plastics manufacturers), ADS (a former M2M reseller and developer of M2M extensions), Cimnet (ERP for PCB manufacturers), and AXIS (ERP for manufacturers of "rolled products," such as cable and wire).

I like the narrow industry focus of M2M's strategy, but I'm not sure how easily it will make money doing it. Some of these acquisitions are on entirely different technology platforms: M2M's original system is Microsoft .NET-based, while Encompix and AXIS are Progress-based. This limits the economies of scale that can be achieved in product development. Operating each of these products as separate business units also limits sharing of administration, management, and sales resources.

Update, Apr. 13: For an extended discussion and clarification on the strategy of M2M, see my post on April 13, "Making money in software with a niche-industry strategy."

A press release on the Encompix deal is on the M2M website. Managing Automation has an article discussing M2M's previous acquisition of AXIS, with more details on who is putting the money behind M2M's acquisition program.

Microsoft pushes out the goal line for business apps convergence

Microsoft Dynamics (formerly Microsoft Business Solutions, or MBS) is holding its annual Convergence conference this week in Dallas, and it is now shooting for a 2009 date to introduce the successor product to its five enterprise applications products.

Four of the existing Dynamics products--formerly known as Great Plains, Axapta, Navision, Solomon--came through acquisitions Microsoft made over the past five years. The fifth, Microsoft CRM, was built from scratch by Microsoft.

Microsoft's convergence plan, once known as "Project Green," has suffered a series of setbacks and redefinitions over the past two years. The most recent definition was that the converged product would be introduced in waves, the first wave being the introduction of "role-based user interfaces" to the existing products, which Microsoft is now introducing incrementally.

But the goal line for migration to a single code base is moving farther away. According to an article in Managing Automation,

Specifically, [MBS] officials said this week, they no longer feel it is feasible to build a converged product line on top of a single, common data model.

It may be necessary, according to Mike Ehrenberg, architect for Microsoft's MBS products, for the software giant to use different data models and different tools for different implementations of the converged enterprise application product to suit customers at different-sized companies with different levels of experience.

Five "differents"--sounds like different products to me, which is what Microsoft has today--not a converged product.

The article continues.

Also, Ehrenberg said, prior to the release of a converged enterprise application product, Microsoft has decided not to spend time and resources on tightly integrating its Microsoft CRM product with the current Dynamics AX (Axapta) and Dynamics NV (Navision) ERP suites. Those products, Ehrenberg noted during a general session, already have built-in CRM functionality. Forcing current customers to switch, he said, "would be seen as a take-away."

Microsoft is still determined to get to a single, converged ERP product operating on a converged code base. "But," Ehrenberg said, "we have a significant amount of work to do."

One associate of mine, commenting in an email regarding Microsoft's announcement, had this to say:

1. Microsoft finally realized and admitted they have a problem with not understanding how enterprise applications (and data models) are designed, purchased and used. It is much different then shrink wrapped apps.
   
   
2. Microsoft has little experience in major upgrades to enterprise apps, so they have no migration experience. Anyone buying Dynamics now will be faced with a traumatic and complete new implementation ahead, in about 3-5 years.
   
   
3. Microsoft is not focusing on improving the functionality of the current product line. They are just doing the minimum to look like they care.
   
   
4. To shift focus from the above three points, Microsoft is aiming the marketing and product plan at “productivity” instead of “functionality,” pushing “mashed up“ applications that have lots of stuff (email, video, etc.) integrated. Nice marketing plan for the Tier 1’s but don’t think it will sell to the majority of the SMB’s. I'm waiting to see the first RFP that requests a RSS feed into accounting or manufacturing.

To be fair, I think my associate's assessment is a bit harsh. The four products that Microsoft acquired were good systems in the past, and they continue to be good choices backed by the deep pockets of Microsoft. They aren't going away, in contrast to some other small vendors whose viability is questionable.

Nevertheless, organizations that are considering these systems should be buying them based on the functionality that they offer today and not pinning hopes on some set of features or functions planned for the future. As seen this week in Dallas, the goal line keeps moving out farther and farther.

Related posts
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Is Microsoft dying?
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Software vendor growth not in software

The ever-provocative Josh Greenbaum takes a cynical view of enterprise software vendors' push towards software on-demand (software-as-a-service) and service-oriented architectures (SOA).

Josh points to a Merrill-Lynch study that puts the market for enterprise applications at only $21-23 billion a year, while the market for consulting and services is "a whopping $550 billion." He argues that with IT spending growing weakly, enterprise software vendors are looking to expand beyond software. This, he explains, is what's really behind vendors' interest in software-as-a-service and SOA.

In an article in Managing Automation, he writes,

With overall growth shrinking, applications companies like SAP and Oracle have to fund their double-digit growth plans by grabbing IT dollars from the consultants. From the applications vendors' perspective, companies are wasting a tremendous amount of IT budget on custom integration and applications development services, money that could be more effectively spent on packaged applications that deliver out-of-the-box innovation without requiring a hefty service fee.

The services companies are taking one of two possible tacks. Some are postulating that the perpetual license model for applications software, and the requirement to staff an IT department with systems and applications administrators, is vulnerable to a potentially more cost-effective model such as on-demand and software as a service. Others -- IBM Global Services in particular -- are saying that innovation can no longer come from a packaged software solution, and that custom consulting is the way to go.

Our research at Computer Economics confirms the slow growth in IT spending. We find that the median IT budget in the U.S. and Canada has only risen at a 1.5% average annual percentage rate over the past three years. Furthermore, corporate revenues are rising faster than IT spending, meaning that on a percentage-of-revenue basis, IT budgets are actually shrinking, slightly, at least over the past three years (although the 10 year trend is up).

Furthermore, application software currently consumes less than 10% of the typical IT budget, according to our 2005/2006 IT Spending Study. Therefore, as Josh points out, if software vendors want to grow, they either have to buy other vendors or do something besides sell software.

To be sure, software-as-a-service and SOA are hot topics--among software vendors. But preliminary results from our next year's survey, currently in progress, show that nearly half of IT organizations report "no activity" in either of these hot topics--they're not even researching them.

Software-as-a-service and SOA may still be the path to growth for software vendors. But the slow uptake of these technologies by end-user organizations means that significant growth is still at least several years away.

Software industry increases bounty for license non-compliance tips

Get ready for more calls from the software police. The Business Software Alliance (BSA) is increasing its maximum finders-fee for software piracy leads to $200,000.

The BSA is a software industry association (i.e. a special interest group) whose mission is to promote the business of commercial software vendors. One key objective is to cut down on software piracy, which it accomplishes by following up on tips about companies that are running non-licensed commercial software. According to its website, BSA members include Adobe, Apple, Autodesk, Borland, Internet Security Systems, Microsoft, McAfee, SolidWorks, Sybase, Symantec, and VERITAS Software.

In an interview with Computerworld, attorney Robert Scott said that BSA is upping the finders-fee in order to drive more fines against software users, which it keeps for itself.

I think the basic problem is that in order to generate revenue for its own operations, BSA is driving more enforcement money.... BSA keeps all of the money it generates from enforcement. None of the money goes back to the members.

Few would disagree that software piracy is wrong. But according to Scott, the increased bounty money will probably result in a greater number of false reports to BSA.

Basic economics suggest that when you put these types of incentives in place, a rise in legitimate and illegitimate leads will increase. For the salaries that these IT folks make, $200,000 is a lot of money.

That’s why I think there’s a huge potential for abuse. My clients tell me that the very people they thought were handling compliance for them were the same people they’re sure turned them in.

Scott predicts that the Software & Information Industry Association (SIIA), the other major software special-interest group, will probably follow BSA's lead and increase its own finders-fee.

So, how should IT organizations respond to the increased risk of being caught in a BSA enforcement action? A periodic desktop audit program for software license compliance is now more important than ever.

Unfortunately, according to our research at Computer Economics, 67% of companies do not conduct such periodic software audits. Many companies, therefore, are probably over-buying software licenses to ensure that they are compliant.

The business case for a comprehensive software asset-management program just got better.

SAP's Apotheker trying to out-Ellison Ellison

What is it about software executives that encourages verbal abuse of competitors? Oracle's CEO, Larry Ellison, has always been known for his outspokedness. Not far behind are Salesforce.com's Marc Benioff, and former PeopleSoft CEO Craig Conway. Scott McNealy at Sun is also be a contender. The list goes on.

Lately SAP's COO, Leo Apotheker has entered the ring. At the Reuters Global Technology, Media and Telecoms Summit, he was asked whether SAP might try to acquire Salesforce.com.

According to Line56,

Apotheker specifically denied any rumor that SAP might acquire Salesforce.com. "If the question is are we going to buy someone that begins with 'S' and has a big mouth...the answer is no," was his comment.

It wasn't clear whether, in referring to Salesforce.com's "big mouth," Apotheker was referring to the CRM company's ongoing "No Software" marketing push or, more personally, to outspoken CEO Marc Benioff, who has never been shy about criticizing the licensed model that is SAP's bread and butter.

Apotheker also dismissed Oracle's propects for overtaking SAP in the enterprise software market.

When asked to weigh the competitive prospects against Oracle, Apotheker said that "I believe China has more potent competitive potential than Oracle." Despite the admitted fact that there is currently no e-business software company of truly global scope to come from China, Apotheker gave that country more of a chance to incubate and field such a company ("in five years") than he did to Oracle.

Read more at Line56.

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Biometric ID systems face hurdles

Ziff-Davis has a long article on the difficulties that biometric identification systems are having, especially in the retail industry. The article starts with a particularly interesting anecodote on the problems that Piggly Wiggly has encountered with getting grocery customers to sign up for its Pay-by-Touch fingerprint checkout system.

Bolt [an IT executive at Piggy Wiggly] said she didn't appreciate how emotionally intense some of the opposition was until she visited a store and saw a 70-year-old woman literally throw a Bible at an employee trying to enroll people in the program.

"She told him that God was going to rain hellfire on him and that he was promoting the devil's work," Bolt said, adding that she took that to mean the customer was not interested in enrolling....

The 70-year-old customer was reacting to the concern of some in the religious community that RFID (radio-frequency identification) and biometric programs are similar to a Bible story known as "the mark of the beast." The story from Revelation speaks of limits to sales or purchases "save he that had the mark, or the name of the beast, or the number of his name."

Apart from religious objections, biometrics systems are not the panacea that some technophiles believe they are.

Read the whole article to get a view of some of the more significant problems with biometrics.

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Salesforce.com publishing real-time system status

Reacting to complaints about service outages, Salesforce.com has set up a new website, trust.salesforce.com, that reports real-time system availability for each instance of its systems worldwide.

The site reports historical information for the past month. For example, in North America, on February 16, the status reads,

Time: 6:28pm PST

Category: Service Disruption

Detail: The NA1 system experienced a disruption in service due to the failure of a hardware server in our cluster. a manual restart restored availability.

Root Cause: At 6:28pm PST, a primary hardware server in our cluster failed and one of our North American (NA1) servers did not automatically recover. This required a manual restart of the NA1 database, which completed at 7:30pm PST.

Although not a substitute for maintaining expected service levels, broadcasting the current system availability can go a long way toward satisfying customer demands for information. Salesforce.com's move to make this information publicly available, even to non-subscribers, is to be applauded, and I believe this sets a precedent for other on-demand providers. If on-demand computing is to take hold, this level of transparency is needed.

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How to cost-justify an IT investment

I'll be speaking on the subject, "How to Cost-Justify an IT Investment," at AFCOM's spring Data Center World conference in March. The presentation will explain how IT managers can use the concept of economic value added (EVA) to build the business case for IT infrastructure and data center investments.

Business executives aren't writing any blank checks to IT these days. Therefore, data center managers and other IT executives need to be able to present the cost and benefits for each IT project in terms that executives outside of IT can appreciate.

Too often an IT manager will present a new project in terms of why it is important. But, every project is important to somebody. With limits on funding, business executives think in terms of which project delivers more value to the organization.

For example, it may be obvious to the IT group that server upgrades are necessary. But when the request gets to the executive committee, it is competing with a new plant in Idaho, or a new warehouse in Buffalo, which are also important. So the IT group needs to find a way to show that those server upgrades either make money or save money. It's not always easy.

Part of the presentation will focus on application of economic value added (EVA) as a tool for IT investment analysis.

AFCOM's Data Center World conference is being held March 19-23, 2006, at the Georgia Word Congress Center in Atlanta, Georgia. To request a free conference brochure or to register for the conference, visit AFCOM's website at www.afcom.com

About AFCOM
AFCOM is the premier association representing the needs of enterprise and Internet data center executives and vendors around the globe. Established in 1981, AFCOM has become a forum for data center professionals, where they can share best practices and disseminate education on key management issues through the media, trade shows and conferences. The Data Center Institute--AFCOM's think-tank--provides the industry's most comprehensive insight and analysis on key issues affecting all data-intensive organizations. The association's members include data center managers, CIOs and other IS professionals from Fortune 1000 companies.

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IT security: large firms lag behind

At Computer Economics, we've just released our new IT Security Study. There are some interesting results regarding who's leading and who's lagging when it comes to IT security.

By nearly every measure, large firms lag behind mid-size organizations in IT security spending, staffing, technology, and management best practices.

According to our recently released 2006 IT Security Study: The Current State of IT Security Budgets, Management Practices, and Security Incidents, companies with over $750 million in annual revenues lag behind mid-size firms in relative spending for IT security, adoption rates for security technologies, and deployment of best practices for IT security management.

In addition, many companies of all sizes fail to implement a number of basic security management best practices. For example, 65% of all organizations do not provide periodic IT security training for their employees, and 67% do not conduct periodic software audits of desktop computers to ensure that unauthorized programs or content are not present. A number of other statistics from the study confirm this finding.

The study also found that, in spite of these deficiencies, most companies are not authorizing more money for IT security. The median company in our study had zero increase in IT security spending last year, and the budget increases that did occur were mainly among small and mid-size firms.

IT security may be a hot topic, but that doesn't mean that management is willing to spend more money on it.

The budget squeeze is most evident among small firms and large firms, where roughly half of the respondents said that their security budgets are not adequate to provide the level of IT security needed. In mid-size firms, only about a fifth of the respondents felt that way.

The study, based on a survey of North American IT security managers, analyzes information security spending, staffing, incidents, the rate of technology adoption, and the deployment of security best practices for large, medium, and small organizations.

The full IT Security Study, of 186 pages with over 150 charts, is available for instant online purchase from the Computer Economics website. An executive summary with key findings and trends is also available.

NetSuite scoops Microsoft resellers

A strong reseller channel is a key success factor for selling enterprise systems to the small and midsize business market. As I've noted in the past, the population of such resellers is limited, and its not easy to build a reseller organization from scratch. The reseller has to make a significant investment in hiring experienced salespeople and implementation consultants, then they must be trained specifically in the vendor's product. Sales cycles are long, and implementation projects can be risky, stretching out collections.

So, the easiest way for a vendor to build the reseller channel is to steal resellers from another vendor. This has been going on for years.

According to the Channel Insider, the latest example is Netsuite, an ERP on-demand vendor that appears to have picked up five former resellers of Microsoft Dynamics (formerly, Microsoft Business Solutions, MBS). The five are Altico Advisors (Marlboro, MA), Roux Business Systems (Baton Rouge, LA), VAR2 (Beaverton, OR), Premier Computing Technologies (Salt Lake City, UT), and Nolan Computers (UK).

The need for resellers is so important, that NetSuite, like other vendors, offers incentives to jump ship.

The NetSuite program offers Microsoft Dynamics VARs selling products such as Great Plains, Solomon, Navision, and CRM a 35 percent margin, a 50 percent discount on NetSuite for internal use, and free sales training for up to five people if they switch to its hosted ERP (enterprise resource planning) solution.

Not that Microsoft isn't also trying to poach resellers from other vendors.

Microsoft has announced its own program to grab Sage resellers for its Dynamics family. VARs selling Peachtree will receive a $200-per-seat discount up to $1,000 on Great Plains, Navision and Solomon products. VARs selling MAS90, MAS200, MAS500 can receive a $500-per-seat discount, up to a maximum of $10,000, on Dynamics Professional version.

eWeek has the story.

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