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Meeting the IT Demands of Small and Mid-Market Consumer Goods Companies

In 2003, more small and mid-market companies moved away from paper-based and telephone communication with their large customers to EDI and XML.Small and mid-market consumer good companies, with revenue between $300 to $900 million, demand large enterprise functionality at a low cost.
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Written by Michael Dominy on

In 2003, more small and mid-market companies moved away from paper-based and telephone communication with their large customers to EDI and XML.

Small and mid-market consumer good companies, with revenue between $300 to $900 million, demand large enterprise functionality at a low cost. With limited resources, but identical customer requirements, mid-market consumer goods companies reject vendors that do not have extremely focused functionality, implementation, or delivery models that keep initial and recurring costs low. Vendors such as IBM, SAP, and Microsoft attempted to crack the mid-market during 2003 using product bundling and channel strategies. As consolidation continues in the enterprise IT market into 2004, vendors will continue to hone their strategies for this market segment.

The following questions and answers focus on IT challenges and dynamics in the small and mid-market consumer goods technology market.

Question
In 2003, SAP, Oracle, Siebel and other large vendors designed new applications that target the SMB and mid markets. Why would companies in these markets find the offerings from tier-one vendors compelling? How did this SMB strategy pan out for the big vendors?

Answer
Small enterprises find these offerings compelling if a trusted channel partner delivers (sells, implements, and services) the solution. The further down market a vendor goes, the more it must rely on channel partners.

The application vendors that focus on the large enterprise market, Siebel and SAP in particular, have forged relationships with Microsoft and other channel partners to penetrate the smaller enterprise markets. Specifically, SAP has alliances with several channel partners with strong relationships in the SMB market.

The large application vendors’ SMB strategies have not been as successful as they had hoped. Despite extensive marketing, we did not see significant penetration in the small and mid-sized markets. This was not a huge surprise because developing the channels in the smaller enterprise markets takes time. Vendor consolidations in the tier-one market also diverted vendor attention from the SMB and mid markets.

Question
What affect does Microsoft have on this market?

Answer
Microsoft is a huge force in the SMB market, not only from an infrastructure perspective, but also in ERP and supply chain management. Microsoft’s ERP applications (Great Plains and Navision) and its relationship with small to mid-market ERP vendors such as Epicor and Exact have increased Microsoft’s presence. Microsoft will become the market share leader in the traditional SMB space but will achieve limited success in the mid-market.

Question
How can tier-one vendors be more successful in the SMB and mid markets?

Answer
Large application vendors can be more successful in the smaller markets by more narrowly defining their solutions, making them easier to implement and use. In particular, vendors that wish to penetrate the consumer goods mid market must deliver consumer goods functionality without requiring extensive resources. Targeted functionality must include trade funds management, promotions planning, sales forecasting, and inventory planning. Another option for tier-one vendors is to offer software as a service and become a hybrid IT and business process outsourcer.

Question
What is your take on IBM’s SMB and mid-market strategies?

Answer
IBM’s OnDemand initiative addresses several key mid-market issues. Small enterprises often require comprehensive functionality found in applications offered by vendors such as Siebel and SAP. However, these small enterprises want to leverage existing IT investments and avoid additional license fees and systems integration costs. OnDemand has the potential to address both of these requirements by delivering leading application functionality via the Internet. Through 2004, IBM will have limited success with OnDemand in smaller enterprise markets.

Question
What were some of the other key trends in the consumer goods SMB sector in 2003? What should small and mid-market consumer goods companies be concerned with from an IT perspective in 2004?

Answer
Another key trend that took place during 2003 was the increased level of electronic integration with large customers. Many large retailers initiated supplier enablement programs designed to eliminate paper-based exchange of business documents. During 2002, and continuing through 2003, vendors such as ADX and SPS Commerce helped retailers and their suppliers move from mail, phone, and fax exchanges to EDI and XML. Related to this trend was the continued adoption of the AS/2 standard and UCCnet. The impact of these 2003 trends goes beyond electronically enabling the exchange of business documents. Investment in these technologies equips large enterprises and their network of smaller partners to begin attacking the $200 to $450 billion opportunity that exists in the inter-enterprise supply chain in the US.

In 2004, small and medium-sized consumer goods businesses should continue to demand highly tailored solutions that address functionality requirements inside the enterprise and enable them to manage the escalating B2B integration and communication requirements being mandated by large retailers and other customers. The ability to exchange transaction data and information easily with business partners will be a differentiator in the SMB and mid markets in 2004 and beyond. As more large enterprises require their partners to share information electronically, companies with stronger B2B communication capabilities will win business more readily.

Question
What can we expect to see in 2004? Will more large vendors try to enter the online arena and offer inexpensive IT packages with low, monthly fees, etc?

Answer
In 2004, vendors with Internet-based applications that deliver best-in-class functionality such as Red Prairie, Manugistics, and Manhattan Associates will push further into the SMB and mid markets. Small enterprises—especially in the consumer goods industry—will scramble to enhance their supply chain capabilities without massive implementation investments.

Meanwhile, large vendors will scrutinize Siebel’s and IBM’s results before significantly changing their SMB and mid- market strategies. Providing technology through a monthly per-user fee is dramatically different than the tier-one vendors’ existing business models, making it difficult for them to shift much revenue into that model without disappointing investors. At this point, it appears unlikely that SAP will change its partnering strategy, although Oracle will likely leverage its outsourcing business as way to penetrate more of the small and mid-sized markets.

The Yankee Group originally published this article on 5 December 2003.













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