Accounting and ERP survey 2004*

By Michael Burns

*This is an expanded version of a Test Drive column that appeared in the September 2004 issue of CAmagazine.

Welcome to our sixth annual survey of accounting and enterprise resource planning (ERP) systems. This year's survey is bigger and better than ever. We have added some significant products, including SAP, that were absent in previous years. Most accounting and ERP vendors have realized that one of the best ways to reach new customers is through chartered accountants – and that one of the best ways to reach CAs is through our annual survey in CAmagazine. There are still a few holdouts, however – PeopleSoft being the most notable.

The survey now includes new or updated responses for 57products as of June 2004. We also expanded the survey by asking each vendor to provide percentages of customers based on the North American Industry Classification System, or NAICS. (See www.naics.com/info.htm#Structure for more about NAICS.) Every industry has its own peculiarities, and there are advantages in working with a product that has been tailored to a specific industry. Moreover, the implementers will know the best practices for a specific industry. Rather than having to teach them the subtleties of your business, you should be able to rely on them to make suggestions for improvement.

One reason for adding NAICS has to do with the continuing consolidation of accounting and ERP vendors. We now have huge companies (Microsoft, Best Software, SAP, etc.) with massive install bases, partners in every major city and large sums allocated to R&D and marketing. The smaller vendors can compete only by differentiation – by picking one or a few industries (the more specific the better). So when considering your next system, you should probably include the big names, but should also look at the smaller vendors that have focused on your industry.

By now you know ACCPAC and BusinessVision were purchased by the Sage Group, which also owns Best Software, one of the world's leading providers of systems for small and medium businesses (SMB). The acquisition of ACCPAC has created a company with more than US$1 billion in expected revenue, more than 4 million users, and nearly 20,000 reselling and software development partners. According to Vasu Desikachary, managing director of Best Canada, the company is now the 800-lb gorilla in the Canadian SMB market. Best products, including MAS 90, MAS 200 and MAS 500, are popular in the US, and ACCPAC and BusinessVision are popular in Canada. Part of Best's strategy is to have sufficient critical MASs to fight the other large software vendors. According to Vasu, the company will focus its marketing efforts on the leading products in a particular country, which means it will concentrate on ACCPAC in Canada. As with other Best acquisitions, ACCPAC Advantage, ACCPAC Simply Accounting and BusinessVision will retain their identity and development team.

Another big development during the past year was the launch of SAP Business One, which is targeted at companies with revenue of $5 million to $100 million. SAP Business One is not a light version of their high-end system (mySAP ERP) – it is a completely different solution. SAP has its work cut out in shattering the perception that SAP is too complex and expensive for SMBs. (See Test Drive, CAmagazine, August 2004, for more about SAP Business One or click here.) SAP has provided us with three completed surveys – one for mySAP ERP, one for SAP Business One and one for MySAP All-in-One, which is targeted at companies with revenue of $100 million to $250 million. It's a scaled-down mySAP ERP, preconfigured for specific industries.

This year, we have included a wide range of accounting and ERP systems from QuickBooks to SAP. To make some sense of this huge array, we placed each system in a tier based on customer revenue and cost. This is a convenient, albeit not perfect, way of differentiating the systems. For example, an organization with small revenue may have a global vision or complex business processes that lead to a higher tier. In any event, there is usually something wrong if you are comparing systems that are two tiers apart.

	Tier 1	Tier 2	Tier 3	Tier 4	Tier 5
Customer revenue	> $100M	> $50M	> $10M	> $5M	< $5M
Licence fees	> $300K	> $150K	> $50K	> $5K	> $100
Implementation fees : Licence fees	> 2:1	>1.5:1	>1:1	>.5:1	<.5:1

You may have noticed we have changed the criteria from last year. In particular, we have reduced the revenue substantially in tiers 1 – 3. This reflects the targeting of mid-market companies by the vendors – the majority of big fish have already been caught.

You may be wondering about the difference between ERP and accounting systems. Initially, ERP was seen as a solution that integrated all business processes across an organization, while accounting systems were generally considered relevant only to the financial end of things. Today, most accounting systems have gone far beyond their traditional mandate and closed the gap. However, accounting and ERP systems don't generally do justice to service-based organizations, which require a form of professional services automation (PSA). (For more about PSA, see Test Drive, CAmagazine, March 2004 or click here.) In our accounting and ERP survey, you will find products focusing on financial, distribution and manufacturing functionality rather than timesheet, time billing, opportunity management, resource management and knowledge management, which are associated with PSA.

Trends
The good news for buyers is that it's an all-out war for your business. The big vendors that have entered the market are prepared to buy market share and have the dollars to do so. This creates tremendous price pressure and you can expect discounts from just about all vendors. The vendors have also realized the bulk of their revenue comes from existing customers. They have borrowed a page from public accountants in that their customers represent an annuity-based revenue stream. The vendors charge about 18% in maintenance fees a year, based on list rather than discounted price. They also make money when their customers purchase additional licences or new functionality. In the past, customers considered five years a respectable time period for any one system. Today, that's not enough. No one wants to go through a time-consuming and expensive implementation unless it is absolutely necessary.

Another big trend is that business is back in the driver's seat. No investments are made in technology unless there is a compelling business case. In some cases, the business case is obvious because the existing system is no longer supported or the organization has outgrown it. However, it might not be obvious whether the higher-end solution is the right choice and you should have a good business case to back up your choice. You will find the vendors more than willing to help you with your business case, but you need to be a little skeptical about the numbers considering their lack of independence.

The issue of business cases would merit an article on its own. Here, though, we'll just add a few more words. First, beware who does the business case. Often, the very people who have the most to gain personally from the acquisition are responsible for the business case. Their lack of independence is not as glaring as the vendors', but it's still a problem. Another concern is lack of knowledge about how to build a business case. The problem is not in actual calculations such as ROI, NPV or IRR. The problem is in the underlying assumptions, which may not be complete, accurate or reasonable.

One big technology trend that looms on the horizon is Web Services. Just as HTML made it possible for anyone to read a Web page from any computer or operating system, Web Services and XML (eXtensible Markup Language – a component of Web Services) will make it possible for any company to share data with another company. Imagine being able to send your purchase orders to your supplier electronically and receive their invoices without any re-keying. All the major developers are now working on enabling their software for Web Services.

Web Services is a key element of Microsoft's .NET framework. The next generation of the Microsoft Windows operating system (Longhorn) will be built using Microsoft .NET technology and the company is building a completely new, unified business application that will eventually replace its existing offerings. The new Microsoft Business Solutions products will depend on Longhorn versions of Microsoft's client and server operating systems. Although Microsoft has already released CRM and Business Portal, which were developed using the Microsoft .NET technology, you will need to wait many years for the new, unified business application. In the meantime, Microsoft will protect their clients' investment in Microsoft Business Solutions technology. There will be no charge to update to the next generation as long as the customer keeps current with the upgrades and there is functional equivalence between the existing product and the new one.

Microsoft's strategy is not to rest on its laurels or to wait until the release of their .NET version. According to Nancy Teixeira, Microsoft Business Solutions' product manager for ERP solutions, the company will be releasing new versions of all its ERP systems – including Microsoft Great Plains, Microsoft Navision, Microsoft Solomon and Microsoft Axapta – in the next fiscal year. Teixeira said the June 21 release of Version 8.0 of Microsoft Business Solutions Great Plains is the biggest update in Microsoft Great Plains' history. The product now has more of the look and feel of Microsoft Outlook and enhancements have been made to distribution, manufacturing, project accounting and analytics.

Analytics is another big trend. ERP systems create huge amounts of data that are not easily analysed. Part of the problem is that traditional accounting systems rely on an account structure to slice and dice financial information. Many traditional systems offer very large account structures that can be divided into segments to report on departments, cost centres, regions or even projects. This approach creates a massive chart of accounts and is missing important data that do not make their way to the general ledger. Today, a number of companies offer analysis codes that you can attach to transactions or to accounts, customers, suppliers, etc. Don't be fooled by vendors who say you can do this by adding user-defined fields. Analysis codes need to be embedded in the system so that any existing financial report could be generated using these analysis codes for selecting and sorting.

Analytics is more than just analysis codes. It has also been called business intelligence, decision support and executive information systems. (For more on business intelligence, see Test Drive in the June/July 2004 issue of CAmagazine or click here.) Many ERP vendors rely on third-party systems such as Cognos or Hyperion for analytics. You should also know that analytics is a component of business performance management (BPM), which also includes consolidation, forecasting and metric management. BPM has become a hot technology partly because of Sarbanes-Oxley, which requires the CEO and CFO of publicly traded US companies to certify that their financial statements and disclosures fairly present the company's operations and financial condition, and to certify the existence of an adequate internal control structure. Many ERP systems don't provide the tools needed to comply with Sarbanes-Oxley. For more about BPM, see Test drive, CAmagazine, December 2003, or click here.

One more trend to consider is customer relationship management (CRM), which brings together all the systems that relate to customers – contact management, marketing automation, salesforce automation and service management. Up until fairly recently, CRM was considered a front-end solution to complement the ERP back-end. Today, you will find a few ERP systems that dispel the distinction between front- and back-end systems by offering a unified solution. As well, the costs of CRM have fallen dramatically over the past few years and SMBs are now the main target of CRM vendors.

Finally, there is work flow, which automates business processes such as routing purchase orders for electronic approval or alerting management when shipments are late. In the past, only the top-tier vendors offered this function. You will now see the mid-tier vendors offering work flow as a way to differentiate themselves and offer a bigger ROI to their customers.

Customer survey
We are trying something new this year - an unbiased customer survey of accounting and ERP systems, to be completed by CAs across the country. The survey will rate accounting and ERP systems, vendors and implementers, and provide statistics on potential benefits. We will publish the results of the survey in a subsequent issue of CAmagazine.

Please complete the survey, which is available here. It can be filled out in a couple of minutes. We can accept only one completed survey per organization, and it must be completed only by CAs.

Bottom line
Switching to a new system is usually expensive and disruptive to an organization. You may find the biggest costs are the internal costs related to an implementation and not the licence, consulting fees or costs for new hardware. That said, bringing in a new system is also a great opportunity to improve business processes, which should lead to a positive return on investment.