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Pioneer payoff

April 14, 1999
Web posted at: 11:27 a.m. EDT (1527 GMT)

In this story:

Scratch my back
Long-term benefits
The bottom line
The down side isn't so far down
Risky business
The perfect project

by Stannie Holt


(IDG) -- Customers who agree to play the role of software trailblazers often risk implementing unfinished, bug-ridden code with key features missing -- but according to many, the rewards are worth it.

Those rewards, according to customers who have signed on as early adopters of new or revised enterprise software, include getting a leg up on technology that helps them do business faster, cheaper, or smarter than their competitors.

These customers also get to play a part in fine-tuning the product to their specific needs, and usually secure the software at a price below the commercial price tag.

"Being a pioneer could mean getting a few arrows in your behind," said Joshua Greenbaum, an analyst and head of Enterprise Applications Consulting, in Berkeley, Calif. "For the customer, it's the classic trade-off between getting some competitive advantage and running risks. The benefits can be huge, but it is a form of gambling. You're not just adopting new software, you're adopting new business processes."

As the idea that technology can have demonstrable effects on a company's competitive edge becomes more acceptable, experts say more enterprises are warming to the concept of becoming early adopters.

The prospect of getting products into customers' hands sooner motivated Riverwood International, an Atlanta-based maker of cardboard packaging, to join SAP's early-adopters program for its Business Information Warehouse and Advanced Planning and Optimization (APO) supply-chain software.

"To survive and grow, we have to be more nimble than our competitors," said Bob Betts, Riverwood's chief information officer. His company, with yearly revenues of about $1.3 billion, is dwarfed by giants such as Georgia-Pacific. Riverwood cannot beat Georgia-Pacific on price alone, but it can try to better serve its customers, he said.

SAP claimed that its APO engine would allow Riverwood to be more flexible in its production and fill orders much faster, Betts said.

Riverwood executives knew APO was not finished when they installed it. But that turned out to be a plus, Betts said, because the company could influence the software's final form, and end up with something almost custom-tailored, for a lower price than custom development.

Scratch my back

"The deal [beta testers] are making is they don't have to develop an application themselves, and they're outsourcing the maintenance for the next few [production cycles]," said Haim Mendelson, a professor at Stanford Business School at Stanford University, in Palo Alto, Calif.

In exchange, however, customers must be willing to invest more time, money, and effort in taking on a product, including explaining their needs, developing an implementation process from scratch, training the vendor's staff, and debugging, Mendelson said.

What the vendor gets out of the deal is real-world feedback in exchange for less profit and extra support or other services.

Enterprise resource planning (ERP) giant SAP has a two-layer program: A select group of pilot customers help develop a new product, then a slightly wider group of "early customers" get the beta release before it becomes generally available, said Gordon Anderson, SAP supply-chain services director, in Foster City, Calif.

"The pilot project verifies that we're delivering [new products] as the customers wanted them," Anderson said.

Sometimes customers have trouble articulating early in the design process exactly what they want, but when they try out a prototype they can more easily spot what works and what doesn't, Anderson added.

Long-term benefits

Such test runs of products can help out other users down the line. For example, Release 4.0 of Avenue, a sales and customer-relations suite from Saratoga Software, includes the ability to cut and paste information from Microsoft Office applications largely because of pressure from beta tester Northeast Utilities, in Berlin, Conn.

Northeast had been using Saratoga's earlier account management software, SPS, and was eager to upgrade after New England's power markets were deregulated and energy providers had to work harder to win and keep corporate customers, said John DiGirolamo, Northeast's team leader of business information.

But vendors need to be careful that they do not end up customizing their precommercial software for too narrow a set of needs, one executive warned.

"We don't view [the beta tester] as a customer, but as a design partner," said Hal Steger, vice president of marketing and co-founder of automation software vendor Rubric, in San Mateo, Calif. "But you have to be very, very careful when you do that, so you don't end up building a special application just for that company."

That is why a vendors should take pains to choose as beta testers companies whose needs are typical of the industry at which it is aiming, Steger added.

The bottom line

Money is another motivator for beta users, though both customers and vendors tend to soft-pedal the issue. Stanford's Mendelson said it is common knowledge that early adopters often get their applications with deep discounts, or even for free.

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Rubric offered about 30 percent off the $250,000 price tag of Enterprise Marketing Automation (EMA) 1.0 to its first few users, a discount that according to Steger is "very typical" among software vendors.

SAP offered Riverwood a sizable discount off APO, Betts said, though he would not specify the amount. Supply-chain vendor i2 offered Riverwood a "bargain-basement give-away" price on one of its beta products, which the company tried but did not adopt, he said.

Money was not a high priority for Riverwood, Betts said, because the company was not trying to compete on cost and price, but rather on faster, more flexible operations.

But the company did take advantage of some cost-saving opportunities, such as leveraging its modest research and development budget by sharing ideas with the 14 bigger companies that were also piloting SAP's APO, such as Coca-Cola.

The down side isn't so far down

Despite these benefits, it is certain that a percentage of beta projects that companies undertake will fail. Yet those that have been there have said failed pilot projects threaten to cause less damage than full-scale implementations gone bad, if only because they are more limited in scope.

Also, users define failure more loosely for pilot projects, because they tend to consider such endeavors as experiments for which all results are useful feedback. Additionally, users may chalk up extra time, expenses, or frustration to the cost of developing their relationship with the vendor.

Semiconductor maker Pericom, in San Jose, Calif., went through a series of problems with the beta version of J.D. Edwards' OneWorld ERP suite before wide-scale deployment in December 1997, according to Dan Wark, Pericom's vice president of operations. Although the implementation was eventually successful and Pericom is pleased with OneWorld, the beta software was bug-ridden.

"Being on the bleeding edge is quite painful," Wark said. "Did they rush [the software] out too soon? Probably. Did we serve some quality-control function? Yes. But I'm convinced you'd have [problems] in any implementation. Overall, our relationship with them has been very good."

The quality of the relationship was nearly as important to Pericom as the actual functions J.D. Edwards promised, such as a direct electronic data interchange link with chip buyers and the capability to track minuscule changes in orders, Wark said. His company wanted a well-established vendor it could count on to keep up with its changing processes for many years to come, he said.

That is why Pericom is willing to consider beta-testing some future J.D. Edwards release, Wark said. But that is also why he would be considerably more leery of trying new products from start-ups that do not have as long a track record, he added.

Risky business

Despite the rising popularity of early adopters, most companies stick to a philosophy that dictates someone else should test enterprise software before they use it.

Manufacturing companies tend to be the most conservative, according to Rubric's Steger. Banking and finance are midway on the spectrum, then telecommunications, with high-tech the most risk-tolerant because its management is the most familiar with the pros and cons from developing their own products, he said.

Another factor that can dictate a company's tolerance for risk is what Stanford's Mendelson referred to as the "clock speed" of a company, or how fast information moves within it. This is based in part on the length of the customer's own product life cycle, which can range from, for example, four years to five years for a car manufacturer to a few months for a PC maker, he said.

The more often a company develops new products, the more anxious its employees are to find software that will help it move faster, Mendelson said.

Mike Prince, chief information officer of the Burlington Coat Factory, in Burlington, N.J., said his company blends boldness and caution in its approach to new technology.

"We do try to avoid any dot-zero release," Prince said, referring to versions of software that end in 1.0, 2.0, 3.0, etc., because that nomenclature usually denotes a major upgrade and therefore a raft of untested features. O

n the other hand, Burlington is willing to test beta software under the right conditions -- or even in desperation, as happened nearly 10 years ago, when it became the first user of Oracle's financial applications, according to Prince.

When Burlington's mainframe ran out of processing power for essential accounting functions, Burlington had to make the jump to the then new client/server applications, Prince said.

The gamble worked, Prince said, but normally the company prefers to make its leaps with a safety net underneath.

The perfect project

Experts and beta testers have said the most successful enterprise software pilot projects have the following characteristics.

  • Are mission-critical -- should help improve your crucial business functions but not be so critical that failure would be a major handicap
  • Add new functions, rather than replace existing software
  • Offer an edge vs. competitors, instead of playing catch up
  • Offer quick, easily measured benefits
  • Can be gradually rolled out
  • Fit company culture and business processes
  • Allow plenty of opportunity for user feedback

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Saratoga Systems Inc.
J.D. Edwards & Co.

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