BBC Article - Do Small Firms Need Big Software?
By Tim Weber
Business Editor, BBC News Website
Customers Can Be Very Demanding
When catering firm Authentic Food prepares a batch of corn-fed chicken supreme in wild mushroom sauce for delivery to pubs, restaurants and hotel groups, its customers want to know a lot. Cricket bat maker Woodworm needs ERP software to grow its business
"Some want 180 data points, others up to 400 - everything from ingredients, nutritional content, allergy information, the measurements of the box, to information whether the packaging can be recycled," says Parminder Basran, business controller at the Sharston, Greater Manchester, based company.
When the firm started out, some of this information had to be gathered and entered 12 to 15 times, at each step of the production chain.
As the company has grown to 200 staff with a £25m turnover and sales to 11 European countries, Authentic Food had to introduce enterprise resource planning software (ERP) to cope.
It's not just health and safety laws that triggered the flood of data.
"The buyers have put the onus on us, we've been dictated to by the industry and our customers," says Mr Basran.
When Spreadsheets Won't Do
Most small firms and start-ups run their business on what is, in effect, consumer software, using a spreadsheet and maybe Microsoft Outlook to manage their contacts.
In two years, Authentic Food has grown turnover by 80%
At Authentic Food, for example, not that long ago, all customer information was held in various Outlook accounts.
But to grow, small companies have to use more powerful software.
"There are critical points in a company's development where the decision which software tools you adopt is critical to your business," says Kevin Smith, general manager and co-founder of medical technology company Cyden in Swansea.
"When we moved from four to 10 people and started to put in the manufacturing process, at that point spreadsheets and Outlook just didn't deliver what we needed," says Mr Smith, whose company uses the Sage Manufacturing ERP suite.
Nobody at Cyden has to "run across the street any more to alert the manufacturing team" to a new order. "If a customer in India buys 10 systems, the software will immediately tell all teams the impact on stock, purchasing, the bottom line, and that's absolutely critical for us."
"If you don't have a coherent system, you rapidly lose control," says Mr Smith.
At Authentic Food, Mr Basran's team uses SAP's Business One software. "If a company grows as fast as ours, you take on a lot of business and need the IT system to do that effectively," he says.
The firm began using the software two years ago (when it had a turnover of just £14m).
Starting with accounting, it has since rolled out other parts of the suite: customer relationship management, purchase ordering, stock management and more.
It has transformed the company, says Mr Basran. "Getting the product information and costing for a product launch used to take a hell of a long time. Now we can get it done quickly."
Fighting For The SME Business
The global ERP market is huge, worth about $17.8bn (£9bn) a year worldwide, according to consulting firm Gartner.
Cyden's iPulse helps to remove hair and treats skin conditions
Most of that money is spent by big corporations tying together sprawling operations. But small and medium-sized companies (SMEs) probably account for about a third of the market.
Until recently, it was mainly served by relatively small software companies, niche players who were strong in their regional markets.
Now the software giants are moving in. Microsoft recently relaunched its business software offering under the Dynamics brand.
Oracle has bought a string of firms that specialise in providing ERP software for the mid-market.
And the largest ERP firm of all, Germany's SAP, is pushing three software suites that target even the smallest of SMEs.
The interest in the mid-market is driven by economies such as India and China, says Henning Kagermann, the boss of SAP.
"Emerging economies are much more mid-market driven," says Mr Kagermann, "and you can't go into this market with a one-size-fits-all model."
Ready To Grow
But in a market that has neither standards nor market leaders, managers of mid-market firms face plenty of pitfalls.
As they focus on their business idea, they have little time to acquire the IT skills that help them decide which software package to use.
SMEs have to get to the bottom line
So what does it take to pick the right product?
Bosses need "a clear vision of their business strategy, how the software will transform their business, and the knowledge of how the technology can deliver a significant benefit to the business", says Petra Wilton of the Chartered Management Institute.
Another key is flexibility, argues Chris Pang, senior research analyst at Gartner. "SMEs need software that is fast to implement and can grow as the company grows."
Authentic Food, for one, got it wrong at first. After just 18 months, the firm realised that its software package was not up to the job.
Involving all users at the company, the firm finally opted for SAP, albeit the entry-level software suite, because even now it is "not in a position to afford a fully integrated package," says Mr Basran.
At Cyden, the first piece of software was a dud as well. When he switched to Sage, Mr Smith followed the recommendation of his accountants, and relied on the support of a local vendor: "As a small company, you can't have all the IT skills that you need for such a move."
Like all ERP suites, the software is "expensive", says Mr Smith, although he argues that if a firm invests in the right software early enough, the benefit is "immeasurable".
Now that Cyden has grown to 35 staff, with a £2.5m turnover and sales to 58 countries, the company is becoming more "departmentalised" and uses more and more of the software suite to deal with everything from marketing to quality assurance.
Pain and Profit
The story is similar at Woodworm, maker of cricket bats and well-known for its sponsorship of Freddie Flintoff and Kevin Pietersen.
We have used the software since October 2006... and we've already seen a tangible return on investment
Joe Sillett, chief executive Woodworm
After two years of trading, Woodworm chief executive Joe Sillett realised that "we needed to upgrade our software".
After assessing three rival offerings, they settled on SAP as well.
Woodworm is small - hoping to double a £2.2m turnover this year - but it runs a complex global business. Just eight employees are on the payroll, because most of the work - manufacturing, accounting, logistics - is outsourced.
Using the ERP software, Mr Sillett can "see the value of all the products in the warehouse at any given time".
"Processing incoming payments used to take us a day, now we do it in two hours," he adds.
And with the launch of a new range of golf apparel this year, he needs "to know even more what's going on, what's selling, how things are going".
He started using his new software package just a few months ago, but says that already he's seeing a "tangible return on investment".
In Swansea, Mr Smith agrees: "My advice to any small and growing company is [to get ERP software], that's the best capital decision you can make."
That may be true, but it won't be easy.
Chris Pang at Gartner warns bosses that there will be "a certain amount of pain you have to go through before you know what's right for your company".
