Market Watch, January 2005
By Don Cochran, regular Market Watch Contributor, Configuration Work Group Review
The day of the large Configurator implementation is nearly gone. Reason: ROI, in a year or less.
Is it up, or is it down?
One moment you read in the most recently reported trends that profits are up and spending is up, and then your read that they're down. The latest forecast, I think, is that spending is up for 2005 by 3% to 8%, but that of course depends on who is doing the interviewing.
In a recent Reuters article they noted that the growth outlook just cited was echoed at IBM, which in early January said it expected IT spending to rise 4% to 6% this year, and which characterized the global economy as shifting from "economic recovery" to "moderate expansion." Other tech executives are expecting improved demand in 2005, but none are forecasting a "barnburner".
"Things will be a little bit better," said a CFO at contract electronics manufacturer in San Jose. "I wouldn't say it's spectacular, and I wouldn't say it's a disappointment, either."
Any growth at all stands in sharp contrast to the steep drop in demand we have experienced recently in the tech market sector. But even with that technology companies fortunate enough to survive the dot-com bust are still straining to show sales growth that justifies expensive stock prices. Technology companies have trimmed down to improve their margins, but price wars and other competitive pressures have squeezed sales growth.
This is particularly true in the Configurator Application Market space. There is continued pressure to reduce the prices of software and consulting services, and many companies are feeling the pain. But there are a few that are showing really good signs of recovery.
How are they doing it?
More and more companies buying software licenses are required by management to have a positive ROI after the first year. Hence, selling software and services to companies that must have positive Return On Investment in the first year makes it difficult to justify. The first phase projects have to be well planned and not full of sales fluff. The initiatives must have a clear direction and purpose with a strong possibility of achieving success.
Given this, many of the smaller configurator applications companies are basing their sales pitch and their delivery on the prospect of implementation in 90 days or less. Some are doing it well. Some are not. But all are marketing ease of use and higher productivity more quickly.
The day of the large Configurator implementation is nearly gone. Reason: ROI in a year or less.
Why are they doing it?
During the last few months there have been many large companies choosing to change their Configurator applications. The reasons for change are many, but a few rise to the top.
I am aware of two multi-billion dollar companies that have recently made decisions to change their ERP direction, and each of them have multiple [more than 5 each] configurator applications running for specific product applications. Why? They have been in acquisition mode during the last decade, and therefore they each have a variety of ERP and business applications.
What they've realized is that it is far too costly to maintain so many differing sets of business rules and products on different applications. Obviously the path to a single solution will be painful. Many of us have already experienced this, and we know that it isn't pretty. Neverthless, it's necessary.
Configurator applications are being replaced at Best Buy, for example, because, while they'd had Calico's configurator originally, that product disappeared from the market when PeopleSoft bought it in 2001, and it disappeared more or less entirely when Oracle bought PeopleSoft. Companies can't live with a dead product and with no one trained to main the rules. They had no choice.
There are several other large companies like Level 3 and Hitachi that are moving away from Selectica. Each of these companies selected Comergent as a new solution. It cost too much to maintain custom code.
Large and small companies alike are re-thinking the effort and expense required to build product models and maintain complex solutions in a rapidly changing product environment. With a new emphasis on ROI, the extremely large implementations of yesterday are being evaluated with a microscope.
The emphasis on ease of modeling is becoming paramount and the winners of tomorrow are the software providers that are going to focus on their customer and making them "easier to do business with".
Most of the Configurator applications in production today were built or modeled a few years ago and there have been significant changes to the ease of use in modeling in the last two to three years.
Virtually every product upgrade for most Configurator applications providers is oriented to ease of modeling. This is true for Comergent, Blue Martini, Firepond, Selectica, TDCI, Big Machines, Cincom and many more over the last year.
Ease of modeling and maintaining the applications will soon translate to improved productivity and improved ROI. Watch it happen. More about Ease of Use in the next Market Watch.