A few years back, Sage Group acquired an upmarket product line called Adonix. It was promptly rebranded to Sage ERP X3 and has done fairly decent business in Europe. Its market awareness in North America has been limited, though.
Over the years, I’ve seen this product line shift a lot technically. Sage ERP X3 has gone from a traditional client server architecture to a materially re-platformed solution with a number of cloud components and cloud add-on apps. As it exists today, the product can be deployed on-premises and in a hosted (private) cloud manner. It may soon, I believe, possess multi-tenancy.
Sage ERP X3 underwent a major user interface (UI) upgrade in its Version 7 upgrade. The new UI is a web-first design. Mobile access to the apps is native with users getting more than browser access on mobile devices. Sage added contextual and other enhanced search capabilities to the product. Sage ERP X3 provides user-defined landing pages with embedded KPIs and graphics.
It’s great to see vendors like Sage making more than transactions available to their respective software users. Users can also define how they want to lay out their screens and can export content behind gadget displays to Microsoft Office apps. The data connection behind these Microsoft Office exports is maintained so that data can always be refreshed.
Sage ERP X3 also utilizes Sage Enterprise Intelligence, a Business Intelligence tool for the ERP data from which users can produce reports, queries and analytics. This product actually was developed by a third-party firm and white-labelled via Sage. This BI data is accessible via mobile devices to authorized users anywhere and any time they want it. For any ERP user who can’t get data access outside of their facility or only via clunky dial-in server access, this is how data should be served.
Can Sage ERP X3 and Sage Enterprise Intelligence do big data analytics yet? Not really. The technology is in place but the data and performance sizing need to be expanded by Sage. I’d expect Sage to make big inroads here soon as competitors will really push this for their customers.
Sage ERP X3 version 7 is available globally. Version 7 is architecturally quite distinct from prior versions.
(Readers interested in some of the architecture shifts might want to see this.)
I recently attended the Sage Partner event in Lisbon where Version 7 was debuted. It was the sort of event and product that SAP’s Business ByDesign partners and prospects would want. Like Business ByDesign, X3 has a lot of configuration options. X3 implementation partners will need to work with users to establish the processes, workflows, business rules, etc., as part of the installation.
When I spoke with X3 channel partners, they reported a lot of customer interest in hosted and on-premises implementations. A common theme I heard in Lisbon was that the dialog with prospective customers often starts with a pronounced cloud interest but then customers later elect to have an on-premises implementation.
I suspect that in North America, more customers will want cloud solutions, and I’d also wager that more will want and expect a multi-tenant (not single-tenant hosted) product. There’s a stronger bias to on-premises or single-tenant hosted solutions in Europe than in North America right now. But, I’d also guess that some channel partners are still, even subconsciously, recommending or steering prospects to on-premises deployments.
Sage X3 channel partners told me that they:
- Love the new UI.
- Want more product and brand awareness. In North America, X3’s name recognition is negligible. From a branding perspective, it may be an empty vessel at this time. Sage has an opportunity, in North America, to make the X3 brand be whatever they’d like it to be.
- Are creating dedicated teams to sell and implement X3.
But the interesting thing for the channel partners may be changes they’ll have to make themselves. These changes will, I believe, challenge a generation of partners who grew up with on-premises implementations and sold products via relationships. In the new channel world, I expect these partners will have to:
- Create and deliver higher value-add services as the fees generated from implementing newer generation X3 products will decline. The new services, such as pre-testing new releases and integrations/interfaces for clients as new releases of X3 arrive, can be great recurring revenue streams for partners and remove a lingering headache for customers.
- Create and deliver needed vertical extensions to the X3 product line. For X3 to grow rapidly and effectively, it needs channel partners that will extend the core applications into numerous vertical and micro-vertical niches. Sage appears to possess some partners in Europe with these capabilities and may have some in North America, too. Going forward, vertical expertise and unique vertical extensions will likely be market differentiators for partners.
- Partner with geographically dispersed channel partners to assist them in configuring and implementing vertical solutions for local plants, divisions, etc.
- Create dedicated sales and delivery teams for the different on-premises, hosted and multi-tenant cloud powered solutions.
- Manage big “C” Change for customers. ERP software buyers today want more than an implementer. They want a business partner that does more than just releases and upgrades. They want vertical, process, analytic and other expertise brought to bear on their initiatives. More bluntly, they want a partner that possesses a point of view as to how specific processes and business practices should be designed. That’s right, today’s customers want more than a "software configurator" that tells the software how the company functions today. They want someone who will challenge them and get them to imagine how they ought to run their firm. It’s time to quit re-paving the cow path once and for all.
While the above commentary is mostly aimed at Sage ERP X3 partners, these points could equally apply to the channel partners of many other ERP vendors, too!
Will ERP users buy new ERP solutions?
I have no doubt of this. There are several factors behind a resurging mid-market ERP business market. These include:
- An improving economy
- Businesses have restructured and reworked their businesses to be more competitive (especially against low labor cost overseas competitors)
- Growing dissatisfaction with incumbent ERP solutions
- Accumulated dissatisfaction with greedy incumbent ERP vendors
I saw some analysis Sage did recently. They believe some 9000+ mid-market firms will replace their ERP solutions every year. Sage X3 alone bagged some 513 new customers in fiscal year 2013 and is ahead of that pace for this year. Total X3 customer count is around 4500.
The opportunity for Sage and other new Entrants
But, let’s come back to the "growing dissatisfaction with incumbent ERP solutions" point from above. New market entrants, like X3, can take advantage of this dissatisfaction. They can create a different kind of user or customer experience that contrasts nicely with the one the customer has been facing with their existing ERP provider.
For example, I recently got a chance to talk to several Ceridian prospects at their recent user conference. (Ceridian is an HR/Payroll software and services firm. I asked these prospects why they were switching from their ERP (or other) provider’s HR solutions; I wanted to see if dissatisfaction with the incumbent was indeed a factor in their decision to shop around today.) While their answers are clearly a good thing for Ceridian's sales prospects, they do speak to a dark side of the application software market — particularly for old-school vendors.
The first two prospect firms had the identical answer: During the recession of 2008-2013, their revenues plummeted but their ERP vendor didn’t care. One prospect told how she "wasted" two years of her life trying to re-negotiate their ERP contract only to be told in the end that nothing could be done. Nonetheless, this vendor continued to raise the maintenance fee over 20 percent per year during every year of the recession. Boy, talk about kicking a dog when it’s down. When I see this ERP vendor’s executives at their fall user conference, I can’t wait to pursue a line of questions with them on this behavior and its long-term consequences on their firm.
These prospects are simply not feeling the love from their current ERP vendor and they will, in the words of Dear Abby, “seek true love elsewhere." Good for them. Remember, revenge is best served cold and these buyers will ensure their on-premises provider is frozen out/solid.
Prospects across the ERP spectrum are looking for a better customer experience (CX) and relationship. Good luck with that. Getting that from the old guard might be as easy as having a great in-flight experience. If there were ever two industries that don’t get customer experience it’s airlines and some old software vendors. How ironic it is that some of the same ERP vendors selling CX solutions consistently mistreat their existing customers.
Site Visit with X3 Customer
Recently, I got a colleague (and ex-Gartner alum), Tom Ryan, to join me on a site visit at a Sage X3 customer. Tom has great insights on manufacturing software and we’ve even worked together on ERP litigation projects. Tom and I had a chance to sit down with Richard Sade, VP of S&S Hinge Company. S&S is a North American X3 customer. Richard and I met initially at the Sage Summit in Las Vegas recently and he was kind enough to permit Tom and me to have a follow-up meeting at their Bloomingdale, Illinois plant.
S&S manufactures hinges – lots of them. They take coiled metal and wire, stamp it, cut it, wash it, etc., to make their machined products. Theirs is predominately a make-to-order shop with some make-to-stock items. It has been in business since 1932. S&S is a mid-market sized firm that is on the higher end of Sage’s average customer mix.
A few years back, S&S undertook a project to document all of their business processes. The effort produced a substantial binder of documentation but it also raised a number of questions as to how things actually functioned. Not surprisingly, the front office didn’t necessarily know what really happened in the plant. Accounting didn’t know what happened in the plant, either. Apparently, decades of "institutional knowledge" about how the company really worked wasn't correct at all.
This process project soon pivoted and S&S created a better set of business processes. Better processes would be more efficient, more transparent and more satisfactory for customers and suppliers. This effort substantially reduced the size and complexity of existing processes. It also produced a number of other benefits that helped materially reduce cost of goods sold. For example, labor as a percent of total cost for one production line is now only 1.8 percent. This cost focus and process design allows the company to compete more effectively with offshore competitors.
It was after this process re-engineering work that S&S began the search for a new ERP solution. The old solution was a collage of products from several vendors. Integration between existing products ranged from none to loosely interfaced. Any new solution had to be integrated from front office to plant to back office.
Sage X3 was chosen as it was materially less expensive than competing products, but, most importantly, X3 had a Product Configurator module that was key to S&S’ new process improvements.
S&S implemented the solution about two years ago. The company is currently on release 6.5 and is testing the release 7 functionality.
Richard’s satisfaction with the solution is evident. The business is more profitable and competitive than ever. Lots of islands of automation have been replaced with an end-to-end solution. Visibility of business operations is up with many processes transparent for the first time. It’s now quite straightforward for S&S to see the value-add that some operations are bringing to the business and its customers. The company recently won a Frost & Sullivan manufacturing leadership award. The new automation was likely a major contributing factor to that achievement.
Richard also indicated that X3 permits S&S the flexibility of deciding when it wishes to turn on new modules (e.g., the website capability).
Key savings for S&S and this solution came from material reductions of inventory (via better visibility to deal pipeline, order history, etc.), greater use of sales portal by customers, improved plant efficiencies and labor savings in the front office.
S&S plans to build an e-commerce solution and will integrate it with the X3 products.
There were some other observations from this customer. These included:
- The relative newness of X3 in North America meant that few qualified implementers were available to S&S initially. Richard is happy with the two persons he used from a local Sage channel partner. Richard said another partner in Montreal also has deep, strong implementers.
- Sage currently lacks a strong, active user group for the X3 product line in North America today. He did state that when he attended the Sage Summit a few weeks ago, numerous North American X3 customers were exchanging cards with one another to create a less formal, more virtual user community.
Sage X3, if it continues to get the attention of top Sage executives, should take an ever-increasing share of market for mid-market ERP in North America. That will only become a reality if:
- More promotion of this solution is undertaken. The ERP space is a crowded, noisy arena. For any vendor to capture some of the mindshare in North America, it must have an equally loud and forceful marketing presence to be heard over the din of competitors’ marketing efforts.
- More implementers are trained on this product line
- Sage continues to build out the technical advances in the product line. While a number of mobile and cloud payment solutions are already available, multi-tenancy will likely be a priority area if the company expects Sage to compete against the likes of Rootstock, Plex and Kenandy (add links) to name but a few.
- More vertical extensions are created by either Sage or its channel partners. These extensions would give the solution set more runway in more market sectors.
- Sage adds more analytic capabilities to this solution. This may require more canned data and software (e.g., in-memory analytic software delivered via cloud). Manufacturers can really benefit from these insights if only vendors make these solutions possible (and affordable).
Sage Group, the parent firm, is getting a new CEO in a few weeks. How this executive sees the X3 product line (amongst all of Sage’s products) should be telling.
I have no doubt X3 will continue to do well in France and Africa (currently 40 percent or so of X3 revenues still originate from France.
Disclosure: Sage did cover some of my travel costs at their two recent events. The customer visit was independently sourced and executed.