Acquisitions Fuel Vendor Growth in the Enterprise Applications Field

Both SSA Global and Infor continue to grow through the acquisition of companies that extend the scope of their offerings. New Vendor Acquisition Strategies in the Enterprise Applications Field and The Impact of the "Assembler Strategy" in the Enterprise Applications Field began an examination of these acquisitions. We continue by examining Infor's acquisition of Formation Systems and Geac.

This is Part Five of the six-part series The Enterprise Applications "Arms Race" To Be Number Three. Parts One to Four were published April 24 to April 27.

This is part of a comparative analysis of SSA Global and Infor, two contenders in the fierce ongoing competition to be number three (after SAP and Oracle) in the world of enterprise resource planning (ERP) vendors. See The Enterprise Applications "Arms Race" To Be Number Three for background information and a discussion of vendor similarities. Also see Contributing to the Rejuvenation of Legacy Systems in the Enterprise Resource Planning Field. The other leading contender is Lawson Software. For a detailed discussion of Lawson, see 'New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions.
Infor cites continued organic growth, license revenue from new customers, and install base cross-selling and up-selling as key growth drivers for the group. The company is also betting on expansion outside the North America and Germany strongholds, into the UK and other key markets such as the Asian Pacific region and China. A potentially expanded footprint in the realms of product lifecycle management (PLM) or enterprise asset management (EAM) should also contribute to the top line. To that end, in August 2005, Infor announced that it had acquired Formation Systems, a privately-held provider of PLM solutions exclusively for process manufacturing companies. This acquisition further strengthens Infor's broad product portfolio for process industries. Formation Systems has since joined the Infor Process Manufacturing Group, which is led by Hermann Stehlik (vice president [VP] and general manager [GM]), and which continues to operate in Southborough, Massachusetts (US).

As a leading provider of PLM solutions for the food and beverage, home and personal care, and specialty chemical industries, Formation Systems should significantly enhance Infor's capability to integrate, streamline, and manage the entire process of product development. For ten years, the company has provided PLM software solutions to high-profile process manufacturers, and has built a highly skilled and dedicated workforce having a deep knowledge of PLM best practices in the vertical markets they serve. Thus, the acquisition of Formation Systems supports Infor's vertical strategy, and should establish the combined company as a global leader in providing solutions with an integrated PLM system to selected process manufacturing industries.

For a more detailed discussion of process manufacturing ERP, see Preparing for Product Development in Process Manufacturing.

Many regulatory bodies have renewed their focus on product compliance, and the Formation Systems acquisition confirms the trend towards PLM functionality becoming an essential element of an enterprise application portfolio. It also confirms that industry-specific functionality is increasingly critical to buyers of enterprise applications. Naturally, regulatory requirements vary according to the industry, as do many other PLM requirements (for more information see PLM is an Industry Affair—Or Is It?).

While product design rules engines may eventually be retrofitted to apply across several vertical industries, the tricky makeup of recipes/formulae and security mandates will require a deep understanding of process manufacturing requirements. Consequently, defining and formulating recipe-based products requires industry-tailored solutions to adequately allow product development. The Optiva product suite from Formation Systems features strong formula management capabilities which might give Infor a differentiating value proposition when selling to prospective customers in process manufacturing, as well as the ability to up-sell and cross-sell to a larger installed customer base. Infor and Formation Systems customers may mutually benefit by gaining the opportunity to standardize on a single broad process solution for all their process ERP, supply chain planning (SCP), supply chain execution (SCE), corporate performance management (CPM), and PLM needs.

The centerpiece of the suite is Optiva Workbench, which accelerates product development by supporting design collaboration with suppliers on formulas and specifications, as well as by providing the visibility needed for fully using existing information to avoid unnecessarily "reinventing the wheel." Other modules in the Optiva product suite, such as Optimization (for constraint-based formulating), Requirements Management, and Specifications Management, are designed to capitalize on the data management features of Workbench (see Formation Systems Pioneers Product Design Collaboration For The Process Industries). Also widely deployed are integrated packaging management (from the primary pack to the pallet), integrated label content management, product performance, safety and efficiency testing, material safety data sheets (MSDS) and hazard label generation, nutritional and nonconformance analysis modeling integrating laboratory information management systems (LIMS) assay results, integrated stage gate, and portfolio management. Capabilities such as parametric searches, visual comparisons, material usage restrictions, best practices feedback, and role-based modeling are used from concept to launch.

In its entirety, the Optiva suite speeds up the product development lifecycle by easing collaboration, facilitating access to supply information, and managing product testing and the other tasks that precede a commercial release. Combining process PLM with process ERP can produce a unified sample management solution that allows product samples to be shipped in the same manner as commercialized products. Furthermore, combining process PLM with process-oriented supply chain solutions can provide unique recipe optimization capabilities that evaluate current inventory to develop least-cost or best-fit formulations, thereby accelerating the new product introduction (NPI) process and achieving globally compliant products with lower development costs and a shorter time to world markets. It is thus no small wonder that Coca-Cola Co., Akzo Nobel, Gillette Co., GE Plastics, Campbell Soups, and over forty other process manufacturing clients (several of them are also Infor customers) are on the vendor's roster of high-profile process manufacturing clients.

The downside, however, is that Optiva, despite deep and broad collaborative product data management (PDM) functionality, is not yet a full-fledged PLM suite, since it is missing important pieces like strategic sourcing, product configuration, portfolio management, shop floor integration, and regulatory compliance for multiple industries (both discrete and process). For more information on what constitutes a full-fledged PLM system, see Critical Components of an E-PLM System and The Many Faces of PLM.

In fairness, Optiva integrates sourcing and extends traditional strategic sourcing, to meet process industries' specific requirements and to drive significant material cost and cost avoidance savings. Strategic sourcing applications are nonetheless limited to total spend analysis, and lack pervasive content management. With Optiva, companies like RPM have a purchasing action component that not only analyzes total spend across more than twwenty companies having multiple ERP packages, but also more accurately projects cost, time, and risks involved in material and vendor rationalization. This automated business process thus helps refine the business case, since once a project is approved and resources are apportioned, executive management has insight into trade-off decisions and achieved cost savings.
This business process helps the diverse teams managing materials, formulas, packaging, and vendors to better rationalize their charges. By using the integrated design and compliance applications, more projects should be completed, and more savings should be delivered. Also, since all product development teams have insight into material, vendor, formula, and packaging status, redundant materials or rationalized materials are not re-introduced, and cost savings are sustained. Additionally, as part of new material introduction, the sourcing team should have visibility the instant a new experimental material is entered; alternate approved materials or vendors can then proactively be suggested.

Many companies have cross-functional teams which continually assess material value-add and regulatory risk. In an effort to minimize compliance risks, one customer reportedly turned off over 48 percent of its materials, and achieved significant cost savings. As companies buy, sell, close, or reconfigure plants, they need strategic sourcing suggestions. To that end, Optiva plays a critical role in requalifying, reformulating, and repackaging, in order to ensure regulatory, cost, and quality compliance. Companies are also finding that they are making sourcing decisions based on incomplete information, although the item and vendor item module in traditional ERP systems is well-suited for nascent regulatory requirements. A hypothetical scenario provides a good demonstration of the utility of this kind of module: Once an ERP item (a vitamin, for example) is entered and certified, alternate vendors may be sourced from, and entered as vendor-specific items, with differences in cost also entered. If a new allergen law (let's say) is enacted, it might suddenly be relevant that the first vendor uses peanut oil as a processing aid. But if one or more of the vendors uses vegetable oil as a processing aid instead, then a critical decision needs to be made.

Since sourcing is a numbers-oriented game, factors such as compliance risks and product quality need to be included. Several customers have integrated such sourcing metrics into product development, in order to ensure that products require less post-launch effort when developing alternate sources for single-sourced vendors, or when finding lower cost providers. These customers will focus R&D efforts on having fewer single-source materials, or will calculate the percentage of materials coming from preferred vendors. Integration of Optiva with ERP systems allows product development to leverage high volume (and often in-stock) materials. Rather than simply selecting an approved material, using these higher volume or in-stock materials means that managers can avoid generating new purchase orders, as well as the carrying costs of partial drums (or other bulk packages). If the material has shelf life issues, material write-off can be avoided too. Rather than needlessly duplicating existing strategic sourcing capabilities, Optiva has extended these capabilities to drive cost reduction and cost avoidance.

Optiva can also send recipes compliant with Instrumentation, Systems, and Automation Society (ISA) standard S88 to manufacturing execution systems (MES) used at multiple customer sites. Using integrated business process management (BPM) capability, the system can integrate with one or more ERP and MES systems, which should eliminate time and cost wastage, while optimizing cost performance and compliance. As these platforms are approved for multiple plants and markets, product platforms that are truly global can be relatively quickly adapted to company specificities, and companies can minimize time to global rollout.

With every new release, Optiva's portfolio management capabilities are enhanced. Most customers are using rule-based scoring and prioritization, risk rating, and readiness rankings, which are rolled up with each activity to provide near real-time visibility in Web-based dashboards. Being focused on process manufacturing, Optiva has developed a process-focused product configuration capability which is based on application platforms. Common uses include color matching, flavoring, or scenting of application platforms. Rather than maintaining a separate formula and packaging bill of material (BOM) for every possible combination, customers are building product platforms which are certified for permissible options (by plant, market, brand, use and user, and sometimes customers). This allows new requirements to be matched to the option, and also allows the most cost-effective and compliant intermediate material to be identified. A unique formula and package can be derived and validated for compliance.

Still, this laser-sharp focus is likely the reason why SSA Global was not more aggressively involved in the bidding for Formation Systems, although it would come as no surprise to learn that it was involved in preliminary (at least) merger discussions. Again, lately SSA Global has been considering only the acquisitions that would help in a "bigger picture" manner. In a way which is analogous to its CRM case, the vendor has a decent PDM solution stemming from Baan, but admits that the product's low brand recognition has limited it to only the existing install base (and even there it has to contend with best-of-breed PLM products). Conversely, as mentioned earlier, the vendor has become a feared competitor in the supply chain execution (SCE) space, given the successful assimilation of once well-known products such as EXE or CAPS (indications are that the license revenues from these products have quadrupled under SSA Global, compared to their status under their formerly independent and struggling vendors). Thus, if and when the time comes, SSA Global will most likely acquire a well-rounded and well-known PLM product (or a strategic sourcing and supply chain planning [SCP] product), although it recognizes that specialty process PLM vendors such as Selerant, Prodika, Sequencia, and IMS would be a good fit for its process-manufacturing-oriented products, which stem from both BPCS and the former Marcam's Protean and PRISM products (see The Name and Ownership Change Roulette Wheel for Marcam Stops at SSA Global). For the same reason, Infor will also likely remain in the hunt for more solutions, in order to round out its PLM, EAM, and product configurator capabilities.

The Optiva strategy is to develop tier one applications in modeling, vendor collaboration, compliance, and portfolio management, and also to increase its open integration capabilities. This will likely be used to integrate with applications from Infor or other vendors; as these tier one capabilities are developed, Infor pledges to develop best practices offerings that can be deployed by smaller process manufacturing customers.

The Impact of the 'Assembler Strategy' in the Enterprise Applications Field

In evaluating recent acquisitions in the enterprise resource planning (ERP) field, it will be useful to describe Infor Process Group's vertically-focused "assembler strategy" (also see Stability and Functionality for Process and Discrete Manufacturers). It is interesting to note that the Infor of today originated with the Infor Process Group; its very first acquisition was the 2002 Process Group spin-off from the former SCT Corporation, which brought Adage ERP and Fygir SCP process manufacturing products into the fold (see iProcess.sct Enters Golden Gate Opportunity). It is ironic, however, that this very functional and prosperous "mother" product portfolio has been left largely unattended by Infor for some time, owing to a spate of other acquisitions, especially within the now much larger discrete manufacturing and wholesale distribution groups.

This is Part Four of the six-part series The Enterprise Applications "Arms Race" To Be Number Three.

But any "injustice" in this regard has seemingly been rectified. For one thing, in late 2004, Infor acquired IncoDev Software-Entwicklung GmbH, headquartered in Hamburg (Germany). Over the past twenty-five years, this company has provided ERP software to large and midsized European companies within the chemical, dyes and paints, life sciences, and food and beverage industries. Their software has deep a vertical focus, supporting most requirements of the lot- and recipe-oriented manufacturing industry, which, combined with its broad customer and partner base throughout Europe, was an important factor in strengthening Infor's position within process industries.

The combination of IncoDev's ERP capabilities with Infor's existing supply chain planning (SCP) offerings, international presence, and financial strength, provided additional benefits to its customers while increasing the vendor's competitive advantage. IncoDev's ERP solution, rebranded into Infor Blending, now supports many aspects of financial management, production planning, and inventory management for specific process industries, and is certified for the pharmaceutical industry. The solution also includes integrated quality management, a laboratory information management system (LIMS), and hazardous materials management. The product serves over 200 large and midsized customers, and has more than 10,000 users; this is a result of being marketed directly (in a big way) in Germany, and through a dedicated network of solution partners throughout western Europe.

Consequently, the Infor Process Group now boasts over 120 employees (with over 80 percent of employees in the research and development [R&D], support, and professional services departments) and over 400 customers (of which 150 are specialty chemical enterprises, 50 are pharmaceuticals, and 200 are food and beverage companies). The group has estimated annual revenues of about $36 million (USD), with license reevenue amounting to 27 percent (with an equitable split between the support and maintenance revenues). Europe contributes 53 percent of revenues, and North America contributes the remaining 47 percent.
This continuation of a series comparing SSA Global and Infor Process Group, two contenders in the fierce ongoing competition to be number three (after SAP and Oracle) in the world of ERP vendors, analyzes Infor's acquisition of Adage ERP and Fygir SCP from the former SCT Corporation, and of Datastream Systems. Later articles will discuss Infor's acquisition of Formation Systems and Geac.

See The Enterprise Applications "Arms Race" To Be Number Three for background information and a discussion of vendor similarities. For more information, see Contributing to the Rejuvenation of Legacy Systems in the Enterprise Resource Planning Field. Also see New Vendor Acquisition Strategies in the Enterprise Applications Field for a comparable analysis of SSA Global. The other leading contender is Lawson Software. For a detailed discussion of Lawson, see �New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions).

In combination, the two ERP products, Infor Adage and Infor Blending, feature support for the resolution of many process manufacturing "fatal flaws" (see The Fatal Flaws for Process Manufacturers, Fatal Flaws in ERP Software Create Opportunity for Niche Software in CPG Companies, and Process Manufacturing Software: A Primer). Some key differentiators worth mentioning include support for variable weight or "catch weight"; lot traceability to help food processors trace any portion of each batch or lot (for purposes of damage control, the US Department of Agriculture [USDA] requires food processors to be able to trace any portion or product of, for example, a processed chicken); quality management; variable weight-based costing and pricing throughout the supply chain; regulatory compliance; and a comprehensive supply chain management (SCM) solution for process industries.
The vendor does acknowledge some technological and functional shortcomings, especially with respect to the Adage product, which still lacks a proper graphical user interface (GUI). Also, Adage often needs to interface with strong financial management products (such as SAP or PeopleSoft solutions), and lacks US Food and Drug Administration (FDA) regulatory compliance for pharmaceutical companies. For that reason, a helpful target division of products would involve using Adage for larger companies in the food and beverage, and chemical sectors, and Blending for smaller companies in the pharmaceutical and consumer products sectors.

In the short term, which means by the end of 2006 (or even earlier), the products are slated for user interface (UI) enhancements (in terms of browser deployment and improved usability for Infor Adage 5.0), and for integration with Infor WMS (i.e., VISUAL WMS) and Infor Global Financials (for the Infor Blending 5.9 release only)—the latter stemming from Varial. The idea is to migrate the Adage 6.0 and Blending 6.0 releases in 2007 to the adopted Infor client (within Corestone) and to integrate them into Infor Global Financials. Also, both products are to be migrated to n-tier architecture, with complete encapsulation of business logic in a manner enabled by service-oriented architecture (SOA). All these short-term and midterm functional enhancements have been driven by user groups, regulatory compliance, and industry trends.

The long-term roadmap, for 2008 and later (and for both product releases 7.0 and later), is to eventually converge the products into an Infor Process ERP product (in a way that is somewhat similar to SSA Global's current forays), using Corestone architecture components, with core process industries applications such as process manufacturing, order management, and costing. By then, the product will also be integrated with Infor Global Financials, Infor WMS, Infor CRM (coming from SyteLine), and Infor SCM.

New Vendor Acquisition Strategies in the Enterprise Applications Field

Although its consolidation appetite is not diminishing by any means, SSA Global seems to be showing signs of more deliberation and even restraint, rather than jumping the gun to indiscriminately gain market share. Once seemingly insatiable, SSA Global now admits that growth by acquisition is no longer as straightforward and cheap as it used to be in the early 2000s, due to the increased costs of install base acquisition. Namely, while the vendor has paid on average $37,000 (USD) per customer for its 13,000 acquired customers, recently Oracle apparently paid about $2 million for each acquired Retek customer. Thus, while acquisitions at the right price will continue, SSA Global is shifting its focus towards providing extended solutions rather than acquiring peer enterprise resource planning (ERP) products.

This is Part Three of the six-part series The Enterprise Applications "Arms Race" To Be Number Three.

This article continues a comparative analysis of SSA Global and Infor, two contenders in the fierce ongoing competition to be number three (after SAP and Oracle) in the world of ERP vendors. See The Enterprise Applications "Arms Race" To Be Number Three for background information and a discussion of vendor similarities, along with Contributing to the Rejuvenation of Legacy Systems in the Enterprise Resource Planning Field. The other leading contender is Lawson Software. For a detailed discussion of Lawson, see �New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions.

By its own admission, until 2003, SSA Global was merely a collection of ERP products, with a desire to consolidate. At that time, its only established ERP product extensions were the embedded Cognos business intelligence (BI) nuggets, the acquired Warehouse BOSS solution, and a collection of disjointed third-party products (such as Applix for customer relationship management [CRM], Logility for supply chain planning [SCP], and Digital Union/Verticalnet for sourcing and procurement). Acquisitions were focused on ERP as well as on the associated research and development (R&D) investment. This state of affairs is in contrast to today's nearly complete SSA Global solution footprint and delivery of converged solutions having predictable and published product roadmaps. Also, the acquisitions have become rather more strategic, bundled as they are with balanced development investment, and deliveries on promises of continued support.

Although many might still consider SSA Global's acquisitions to be opportunistic, the vendor has long instituted a so-called "4M approach" underlying the evaluation of acquisition candidates:

* Motivation—is the candidate motivated?
* Money—will there be sufficient payback?
* Method—does the candidate have the right people?
* Match—does the acquisition fit SSA Global's "big picture"?

The vendor's goal is to ensure that it keeps customers for life. In order to do that, it must preserve the customers' investments while continuing to deliver a long-term product strategy of convergence, modernization, and vertical focus, all in a predictable and incremental manner. The short-term strategy, on the other hand, is to enhance the value of current applications in delivering the functionality (with a consistent tempo of releases) that customers have been asking for, by delivering integration to extension products like CRM and supply chain management (SCM), and by delivering first-rate support.

SSA Global' s three most recent acquisitions in particular, E.piphany, Boniva Software, and Provia Software, may indicate a new phase in the vendor's acquisition strategy and development cycle.
In the fall of 2005, SSA Global completed the acquisition of E.piphany, Inc. (also known as Epiphany), an innovative but financially long-struggling global CRM solutions provider. As a result of the merger, Epiphany now operates as a wholly owned strategic CRM division of SSA Global; shares of Epiphany common stock have been delisted from NASDAQ, and deregistered with the Securities and Exchange Commission (SEC).

Unlike many earlier SSA Global acquisitions, Epiphany certainly cannot be categorized as providing an outdated product. In fact, the embattled CRM vendor, which now prefers to drop the dot from its official name, was famed for trying to put the e (the electronic business moniker) into CRM, and was a big name during the dot-com era. Its CRM analytics were (and arguably still are) an important part of e-commerce and e-business development. To a certain degree, it succeeded in building a business on applications related to marketing automation, call center management, real-time customer analytics, and real-time interaction. These applications (the Interaction Advisor, Insight Advisor, and Lead Advisor modules) peaked at $125 million (USD) in annual revenues in 2001, with Vodafone, Nestle, Gap Inc., Citibank, Virgin Holidays, HBOS, and Barclays all signing up as users. However, revenues have since fallen sharply, closer to the $70 million (USD) mark.

Epiphany's products have been widely implemented among business-to-consumer (B2C) companies that have large numbers of direct customers, such as wireless carriers, travel and transportation services, banks and other financial services firms, telecommunications, utilities, and retailers. The catch with these customers, however, is that they tend to spread their applications portfolios over multiple providers, making Epiphany's revenues much less impressive than its customer list. In fact, Epiphany has never shown a profit in any fiscal year since it went public in 1999. Thus, in August 2005, after 7 years of consecutive losses, including a whopping $2.6 billion (USD) hit in 2001, the innovative CRM provider fell into the arms of SSA Global, for a quite surprising $329 million (USD) in stock. This was all the more surprising given that the company had revenues of about $75 million (USD) and losses of $16 million (USD) in the previous 12 months (although a significant cash position of about $160 million [USD] would have been a good rationalization for SSA Global).

In justifying the merger, the two parties cited two major synergies between them. First of all, out of 450 Epiphany customers, there was reportedly a significant 20 percent of shared customers in the manufacturing, finance, and services industries, with certain cross-selling opportunities owing to the complementary nature of the products. Epiphany filled a major gap in the SSA portfolio, with respect to inbound and outbound marketing automation and analytics (see Why Are CRM and Analytics Intrinsically Connected?), sales force automation (SFA), online solutions, and e-commerce. Some marketing automation features are certainly top-notch, such as collaborative filtering (identifying cross-selling campaign opportunities based on past purchases), real-time data mining and decision-making (using static and dynamic customer attributes while the customer is browsing online), and predictive analytics capabilities (see Predictive Analytics; the Future of Business Intelligence). Although SSA Global had some CRM capabilities with Baan (via the acquisition of Aurum and subsequent in-house developments), these were inconsistent and lacked sophistication, so that the customer demand and mind share for the SSA CRM suite have always been very low. On the other hand, SSA CRM's native strengths lie in sales configuration, order management, and field service functionality, which are not areas that Epiphany covers. Once the integration is complete (some time in 2007 at the earliest), the SSA CRM offering should be more well-rounded and appealing than current native offerings for users of Baan or the Applix add-on on the business planning and control (BPCS) side.

However, concern remains that the two companies have thus far not had much of a common market focus. Namely, while SSA Global is oriented toward business-to-business (B2B) applications (primarily in the realm of manufacturing), Epiphany has largely focused on the aforementioned B2C markets in service industries. These install bases naturally have separate functional and support requirements, and only time will tell where additional outlets will arise once the immediate cross-selling opportunities are mined. SSA Global contends that manufacturers too should be interested in reaching customers directly via marketing campaigns (with the help of analytics), as shown by recent success of marketing automation specialists such as Unica and SAS (see Should Uniqueness Vouch For Marketing Automation Niche Players?). Also, since SSA Global had a considerable business in service industries even without Epiphany (for example, with KPN as a customer), there may actually be more of a common market focus than might appear at first glance. With Epiphany, 37 percent of the installed base is now in the services sector; conversely, a significant percentage of Epiphany's customer base was in the manufacturing sector.

But the second synergy—shared adoption of technology based on open standards and service-oriented architecture (SOA)—might be even more compelling. Namely, while Epiphany has long leveraged J2EE- and SOA-based technologies to rewrite its products, SSA Open Architecture explored in Part Two of this series remains in part a statement of direction, since many of its products will need much retooling to conform to the SOA vision (although fewer will need retooling as of the third release of the product in the spring of 2006).

The vendor will need developers experienced in these technologies, and by buying Epiphany, it has acquired a development organization which is already at the place SSA Global is aiming for. Apparently, the former Epiphany Customer Relationship Backbone (CRB) platform has already been rolled into SSA Open Architecture (6.0, the first release where CRB and Open Architecture converge, is due in the spring of 2006), and the SSA SCM team has been delivering new warehousing management capabilities while leveraging the savvy of its CRM colleagues.

In summary, existing Epiphany customers will breathe a sigh of relief owing to the strength of a global company behind the CRM products; this assures financial viability and continued R&D. Indeed, CRM is a strategic area of investment for SSA Global, and the Epiphany's team in San Mateo, California (US) has been supplemented by engineers in India, the Netherlands, Dallas (US), and Toronto (Canada). As they have done many times before, SSA Global will commit to continued support for all CRM products. On the other hand, existing SSA Global customers will eventually be exposed to a more complete sales force automation (SFA) and call center solution that enables sales (and service of customers) across multiple channels and lines of business (LOBs). Some customers may benefit from a comprehensive marketing automation solution both for B2C and B2B environments, but all solutions will be under a sole SSA CRM brand which includes all current capabilities on a modern J2EE platform, both for CRM solutions and all future development activity.

The go-to-market CRM strategy for SSA Global consists of maintaining and growing business in B2C verticals, where it plans to maintain a distinct sales structure to focus on traditional Epiphany market segments (such as the financial services and telecommunications sectors). Also, the vendor will try to widen cross-selling opportunities in its installed base by leveraging existing SSA Global sales teams and specific offerings targeted at the mid-market. The idea is also to expand sales into eastern Europe, Latin America, and the Asian Pacific (APAC), by leveraging a global sales organization and providing tier one language support. SSA Global will also try to leverage strategic alliances in some sectors, for example, with IBM (for financial services,, retail, and manufacturing), with Capgemini (for telecommunications), and with some resellers such as Harte Hanks and Merkle (for the mid-market).

Contributing to the Rejuvenation of Legacy Systems in the Enterprise Resource Planning Field

Lawson Software's upcoming Landmark platform (see A New Platform to Battle Software Bloat?) and Infor's Corestone have been described during our recent The Blessing and Curse of Rejuvenating Legacy Systems series, whereas Microsoft's, SAP's and Oracle's platform related forays have been duly reported as well (see SOA-based Applications and Infrastructure—The Next Frontier? and Multipurpose SAP NetWeaver). But the time has now come for us to describe the corresponding moves of SSA Global, whose equivalent platform is branded SSA Open Architecture.

This is Part Two of the six-part series The Enterprise Applications "Arms Race" To Be Number Three.

The common thread to all these platforms is a service-oriented architecture (SOA) strategy built to meet current market requirements, such as hidden complexity, and low total cost of ownership (TCO). Sound product architecture is critical to enabling faster implementations, easier upgrades, easier integration to other non-native applications, and more flexibility to change processes on an ongoing basis. For acquisitive vendors, there is the benefit of lowering acquisition cost; they can assemble component pieces that are non-proprietary, with an upgrade path to greater functionality, while still maintaining the replaceable nature of these components (due to their standards-based quality). The idea is to build anew only what cannot be assembled from the existing component repository. SOA is the unifying integration factor, whereby one can assemble composite solutions from disparate components: some that are built internally; some that come with acquired companies; and some that come from partnering with best-of-breed vendors.

One can thereby thin down a monolithic application's bloated and unwieldy core, while putting increasing amounts of functionality in thinner layer components that can be snapped onto or shared with several application kernels as required. Software built in an object-oriented (OO) fashion is thus less unwieldy; the leaner, more modular architecture can result in quicker implementations, improved flexibility, and easier uppgrades. This framework also provides agility and flexibility for integrating industry niche solutions, and for development of industry-specific solutions, with insulation from the vendor's major release cycles. For instance, SSA Global has recently been striving to add new functionality to support the food and beverage industry needs in the form of business logic that supports country of origin labeling (COOL), bioterrorism preparedness, and global trade item number (GTIN) compliance.
Although SSA Global has many service, software, and technology alliances or partnerships with companies around the world (such as Atos Origin, Accenture, Fujitsu, Cognos, Sirius, CSC, and Capgemini), its quintessential partnership is with IBM. This partnership was cemented in mid-2004, and aimed to more easily modernize and integrate disparate SSA Global systems across the extended enterprise. Under the terms of the agreement, the two companies jointly market SSA Global extended enterprise solutions built on IBM middleware, including IBM WebSphere Portal, IBM WebSphere Business Integration, IBM WebSphere Application Server, and IBM DB2 Universal Database. IBM Business Consulting Services and SSA Global also collaborate to offer implementation and consulting services.

With thousands of customers already running SSA Global solutions on IBM eServer xSeries, iSeries, pSeries, and zSeries technology, the joint solution should further reduce TCO and time-to-value, while helping these companies adopt a growing list of industry standards and information technology (IT) mandates. In other words, while Intentia, Lawson, and Infor are certainly major IBM partners, SSA Global has possibly become the most exclusive. SSA Global justifies this exclusivity decision by referring to the following three concepts:

1. Synergy: Together, SSA Global and IBM should offer a more complete and extensive solution, meeting both business and technology needs. Namely, SSA Global has been providing customers with the industry solutions they need for competitive differentiation, whereas IBM has been contributing leading technology and infrastructure (this technical standardization should ultimately lower the TCO).
2. Affordability: The two vendors have been developing solutions for large global customers—solutions that can be scaled down and made affordable for small and medium customers as well.
3. Interoperability: SSA Global is standardizing on the renowned IBM WebSphere middleware platform, providing its customers with industry-standard integration infrastructure.

Like its peers, SSA Global has thoroughly analyzed the industry trends and issues affecting manufacturing and distribution companies worldwide. Business is now moving faster than most companies' ability to adapt. The velocity of business transactions—from orders by mail, to orders by phone, fax, and now the Internet—is ever-increasing, and as a result there are increasing demands on IT departments. In addition, executive strategies passed down through the organization are expected to be implemented faster and faster, which is putting further pressure on IT departments to be more agile and to implement solutions quicker and more efficiently. Globalization is also introducing new levels of complexity, and virtually no company, big or small, has been unaffected by globalization. Whether a company has operations across borders or whether its supply chain extends overseas, it must contend with economic, cultural, linguistic, and regulatory differences, putting more pressure on the IT infrastructure to efficiently accommodate these needs (see Merging Global Trade Management with Global Finance).

The trend towards lowering TCO requirements also needs only small mention, since top executives are wiser today than they were several years ago (given they are apt to have had direct or indirect experience with IT projects that failed to deliver promised business benefits). They are also under more competitive pressure to obtain a tangible return on investment (ROI) and to extend the value of their IT infrastructures. The level of detail for ROI studies has meanwhile increased, and executives demand information that tells them what the true, long-term cost of a technology investment will be (without a credible ROI forecast, the odds are that a given project will not be approved).

Bundled with this is the trend towards application portfolio rationalization; over the last few decades, we have seen a move towards decentralization, as a result of which companies have built elaborate localized technology infrastructures to support the needs of remote locations. Despite the flexibility and agility of autonomous remote divisions (see Standardizing on One ERP System in a Multi-division Enterprise), many top executives have realized that there is a high cost of maintaining a software infrastructure characterized by a disparate set of standard and customized applications. To achieve greater efficiency, cost reduction, and security, many user companies are moving to consolidate and standardize their applications and associated technology platforms, whereby the objective is to align IT infrastructure with business needs.

Technology landscapes are also consolidating, since customers are beginning to realize that they can get significant cost benefits by reducing the number of technology platforms they support. In addition, there is an inclination toward supporting open nonproprietary standards that offer more control over the applications they use and the vendors with whom they work. The industry consensus is that more than 75 percent of new enterprise application development is now built on platforms based on either Microsoft .NET or J2EE.

In summary, everyone needs more business agility, as well as the ability to conduct more transactions (including quality, service, management, production, and so forth) with fewer resources and assets (in terms of supporting applications and hardware). Like most of its peers, SSA Global is focused on providing business value via underlying technology improvements, such as solving the business problems of supply chain visibility, master data unification, vendor-managed inventory (VMI), and so on.

While the vendor is tackling recent buzzword-based technological concepts like Web services, composite applications, extensible markup language (XML), enterprise service bus (ESB), SOA, and so forth, the point is to map these concepts to true business value (in order to prove that this horde of whiz-bang terms and concepts really adds some value).

To that end, SOA describes modular software which is constructed using discrete executable tasks as the primary unit of subdivision, and which uses exposed service interfaces as the primary method of modularization (see Understanding SOA, Web Services, BPM, BPEL, and More). As mentioned earlier, users have an increasing need for greater simplicity, manageability, and agility, and if their business processes have changed, they want to know exactly how long it will take for an IT department to modify the software accordingly. As for what SOA means for customers, it should enable more rapid integration with existing systems, whereby customers can acquire new services without going through full upgrades. Additionally, it supports hybrid solution rollout and insulation against technology changes, and enables business process configuration and orchestration specific to vertical industries and distributed deployment.

The Enterprise Applications 'Arms Race' To Be Number Three

In the enterprise resource planning (ERP) world there is fierce competition to be number three (after SAP and Oracle). The leading contenders are Infor, Lawson Software, and SSA Global. For a detailed discussion of Lawson, see �New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions).

This is Part One of the series The Enterprise Applications "Arms Race" To Be Number Three.

Even those who still believe that weapons of mass destruction (WMDs) will be found in Iraq (or in North Korea or Iran) should by now have realized that the number one position in the enterprise applications space will ultimately be decided in the inevitable showdown between SAP and Oracle (and their accompanying platform and partner ecosystems). Certainly, this does not imply that either of those will ultimately dominate the tier two or high end of the tier three market segments per se. Thus, the "arms race" for the number three spot is no less exciting (and is maybe even breathtaking), given that the revenue rankings snapshot for SSA Global, Lawson Software (soon to merge with Intentia), and Infor may change at any time, depending on which vendor has most recently announced yet another acquisition. One should also note that Infor, Lawson, and SSA Global have no illusions of dominance in the tier one segment, since that battle will already have been decided between the two aforementioned giants.

One should also not ignore Microsoft Business Solutions (MBS) or Sage Group, in light of their total applications revenues, but these two archrivals are still fighting in the lower end of the market. Their respective significance remains, however, especially given Sage's recent acquisition of Adonix (which certainly has many larger midsized customers), and the fit of Microsoft Dynamics AX (formerly Microsoft Axapta) to like-sized enterprises, although this product is impeded by its nascence. Also significant are Epicor Software (with its recent acquisition of CRS Retail Solutions), and China-based CDC Software (with its ongoing digestion of the globally renowned Ross Systems, IMI, and Pivotal brands; its recent acquisition of JRG Software; and vacillating plans to nab Onyx Software), but they are still at a safe distance, revenue-wise, from the tier two echelon.

Recently, we have given due attention to the Lawson-Intentia combination, and to the rivalry between MBS and Sage (see The Market Impact of Two Powerhouses), so the time has come for a comparative analysis of the remaining two foes: SSA Global and Infor. Executives of these two vendors would be genuinely (or not so genuinely) insulted at any mention of similarities between the two entities, and although the two do have mutually distinct characteristics (which will be tackled further on), the two vendors do indeed have many similarities.

For one, besides their similar size, similar geographic coverage, significant industry overlap, close partnerships with IBM, and so on, both are, after all, aggressive acquirers (being more or less strange conglomerations of over a dozen enterprise products). This is in distinction to "organic growers," which SAP, QAD, IFS, or IBS largely remain (if one disregards their occasional smaller, complementary acquisitions to fill some functional gaps). Other so-called organic growers include Oracle (prior to their acquisition of PeopleSoft/J.D. Edwards, and Siebel), and pre-merger Intentia and Lawson (see Rapidly Consolidating Enterprise Applications Market: The Worlds of 'Organic Growers' and 'Aggressive Consolidators').

Both vendors vehemently object to anyone characterizing them as aggressive consolidators, since the term gives the negative impression that acquisitions serve the purpose of farming maintenance revenues without any commitment to developing new solutions. SSA Global contends that it is much more than a consolidator, as it has been espousing and executing a well-defined convergence strategy. On the other hand, Infor claims to be a sort of organic grower of the businesses that it has assembled—adding close to 1,000 new customers annually.

Related to this is the similar youth of the companies, which are both around toddler age. We know them now as SSA Global and Infor respectively, but via their progenitor companies, they can each boast about thirty years of market existence and industrial experience.

For example, from bankruptcy (with about $130 million [USD] in revenues and a cash hemorrhage of $16 million [USD]) in late 2000, SSA Global generated almost quintuple revenues of $637.8 million, with a net income of $20 million (USD) for the fiscal year ending July 2004. This was accomplished via nine acquisitions from April 2001 to August 2004. For fiscal year 2005, revenues totaled $711.8 million (USD), not including the last three acquisitions, which will be discussed later. With about 5,000 jittery customers in 2000, SSA Global now has over 13,000 active customers in 90 countries and 121 offices worldwide. The company, which also went public in May 2005, spends on average 15 percent of its annual revenues, or over $100 million (USD), on the research and development (R&D) of new solutions and enhancements.

On the other hand, from its first (hardly ever publicized) acquisitions in 2002, Infor has thus far acquired 18 companies, and estimates are that it has become a nearly $780 million (USD) company. This includes projections for the latest, partial acquisition of Geac Computer Corporation, and the complete acquisition of Datastream Systems, which will also be analyzed later on. It now has more than 3,100 employees in over 50 global offices, with earnings before interest, tax deduction, and amortization (EBITDA) currently around $140 million (USD), or a projected $190 million (USD) after the above acquisitions. The company is privately held, but remains refreshingly open about its finances, which is another similarity with private-era SSA Global. Another similarity is that both companies are far from being finished with their acquisition streaks—both are keeping watchful eyes around the clock on several dozen possible acquisition targets. However, eager candidates can also click designated buttons at these vendors' Web sites and offer themselves up to "chief acquisition officers" (or whatever their titles might be).

Both SSA Global and Infor will sooner rather than later reach the magic $1 billion mark in revenues. As a matter of fact, both vendors are occasionally frustrated at being branded by analysts as mid-market-only providers simply because their revenues do not match up those of SAP and Oracle. In fact, many of their customers are multinational corporations with multibillions in revenues. Another striking similarity is that a lot of due diligence and integration takes place before any acquisition is publicly and officially announced; there is no confusion amongst their ranks about who is staying in which capacity, and about who has to move on. Also (at least at a mid-managerial level), there is a tradition of meritocracy in both houses, whereby incumbent employees do not necessarily have a "free ride" advantage over newcomers—many employees from acquired companies have actually climbed far up the corporate ladders.

Using Predictive Analytics within Business Intelligence: A Primer

Predictive analytics has helped drive business intelligence (BI) towards business performance management (BPM). Traditionally, predictive analytics and models have been used to identify patterns in consumer oriented businesses, such as identifying potential credit risk when issuing credit cards, or analyzing the buying habits of retail consumers. The BI industry has shifted from identifying and comparing data patterns over time (based on batch processing of monthly or weekly data) to providing performance management solutions with right-time data loads in order to allow accurate decision making in real time. Thus, the emergence of predictive analytics within BI has become an extension of general performance management functionality. For organizations to compete in the market place, taking a forward-looking approach is essential. BI can provide the framework for organizations focused on driving their business based on predictive models and other aspects of performance management.

We'll define predictive analytics and identify its different applications inside and outside BI. We'll also look at the components of predictive analytics and its evolution from data mining, and at how they interrelate. Finally, we'll examine the use of predictive analytics and how they can be leveraged to drive performance management.

Overview of Analytics and Their General Business Application

Analytical tools enable greater transparency within an organization, and can identify and analyze past and present trends, as well as discover the hidden nature of data. However, past and present trend analysis and identification alone are not enough to gain competitive advantage. Organizations need to identify future patterns, trends, and customer behavior to better understand and anticipate their markets.

Traditional analytical tools claim to have a 360-degree view of the organization, but they actually only analyze historical data, which may be stale, incomplete, or corrupted. Traditional analytics can help gain insight based on past decision making, which can be beneficial; however, predictive analytics allows organizations to take a forward-looking approach to the same types of analytical capabilities.

Credit card providers offer a first-rate example of the application of analytics (specifically, predictive analytics) in their identification of credit card risk, customer retention, and loyalty programs. Credit card companies attempt to retain their existing customers through loyalty programs, and need to take into account the factors that cause customers to choose other credit card providers. The challenge is predicting customer loss. In this case, a model which uses three predictors can be used to help predict customer loyalty: frequency of use, personal financial situations, and lower annual percentage rate (APR) offered by competitors. The combination of these predictors can be used to create a predictive model. The predictive model can then be applied and customers can be put into categories based on the resulting data. Any changes in user classification will flag the customer. That customer will then be targeted for the loyalty program. Financial institutions, on the other hand, use predictive analytics to identify the lifetime value of their customers. Whether this translates into increased benefits, lower interest rates, or other benefits for the customer, classifying and applying patterns to different customer segmentations allows the financial institutions to best benefit from (and provide benefit to) their customers.
Data mining can be defined as an analytical tool set that searches for data patterns automatically and identifies specific patterns within large datasets across disparate organizational systems. Data mining, text mining, and Web mining are types of pattern identification. Organizations can use these forms of pattern recognition to identify customers' buying patterns or the relationship between a person's financial records and their credit risk. Predictive analytics moves one step further and applies these patterns to make forward-looking predictions. Instead of just identifying a potential credit risk, an organization can identify the lifetime value of a customer by developing predictive decision models and applying these models to the identified patterns. These types of pattern identification and forward-looking model structures can equally be applied to BI and performance management solutions within an organization.

Predictive analytics is used to determine the probable future outcome of an event, or the likelihood of a situation occurring. It is the branch of data mining concerned with the prediction of future probabilities and trends. Predictive analytics is used to analyze automatically large amounts of data with different variables, including clustering, decision trees, market basket analysis, regression modeling, neural nets, genetic algorithms, text mining, hypothesis testing, decision analytics, and so on.

The core element of predictive analytics is the predictor, a variable that can be measured for an individual or entity to predict future behavior. These predictors are based on models that are created to use the analytical capabilities within the generated predictive models. Descriptive models classify relationships by identifying customers or prospective customers, and placing them in groups based on identified criteria. Decision models consider business and economic drivers and constraints that surpass the general functionality of a predictive model. In a sense, statistical analysis helps to drive this process as well. The predictors are the factors that help identify the outcomes of the actual model. For example, a financial institution may want to identify the factors that make a valuable lifetime customer.

Multiple predictors can be combined into a predictive model, which, when subjected to analysis, can be used to forecast future probabilities with an acceptable level of reliability. In predictive modeling, data is collected, a statistical model is formulated, predictions are made, and the model is validated (or revised) as additional data becomes available. One of the main differences between data mining and predictive analytics is that data mining can be a fully automated process, whereas predictive analytics requires an analyst to identify the predictors and apply them to the defined models.

A decision tree is a variable within predictive analytics that allows the user to visualize the mapping of observations about an item and compare it to conclusions about the item's target value. Basically, decision trees are built by creating a hierarchy of predictor attributes. The highest level represents the outcome, and each sub-level identifies another factor in that conclusion. This can be compared to if-else statements, which identify a result based on whether certain factors meet specified criteria. For example, in order to assess potential bad debt based on credit history, salary, demographics, and so on, a financial institution may wish to identify multiple scenarios, each of which is likely to meet bad debt customer criteria, and use combinations of those scenarios to identify which customers are most likely to become bad debt accounts.

Regression analysis is another component of predictive analytics that allows users to model relationships between three or more variables in order to predict the value of one variable in comparison to the values of the others. It can be used to identify buying patterns based on multiple demographic qualifiers such as age and gender which can be beneficial to identify where to sell specific products. Within BI, this is beneficial when used with scorecards that focus on geography and sales.
Practical applications of all of these analytical models allow organizations to forecast results to predict financial outcomes, hopefully increasing revenues in the process. Within BI, aside from financial outcomes, predictive analytics can be used to develop corporate strategies throughout the organization. What-if analyses can be performed to leverage the capabilities of predictive analytics to build various scenarios, allowing organizations to map out a series of outcomes of strategic and tactical plans. This way, organizations can implement the best strategy based on the scenario creation.

How Predictive Analytics Are Used within BI, and How They Drive an Organization's BPM

Data mining, predictive analytics, and statistical engines are examples of tools that have been embedded in BI software packages to leverage the benefits of performance management. If BI is backward looking, and data mining identifies the here and now, predictive analytics and their use within performance management is the looking glass into the future. This forward-looking view helps organizations drive their decision making. BI is known for its consolidation of data from disparate business units, and for its analysis capabilities based on that consolidated data. Performance management goes one step further by leveraging the BI framework (such as the data warehousing structure and extract, transform, and load [ETL] capabilities) to monitor performance, identify trends, and allow decision makers the ability to set appropriate metrics and monitor results on an ongoing basis.

With predictive analytics embedded within the above processes, the metrics set and business rules identified by organizations can be used to identify the predictors that need to be evaluated. These predictors can then be used to shift towards a forward-looking approach in decision making by using the strengths from the areas identified above. Scorecards are one example of a performance management tool that can leverage predictive analytics. The identification of sales performance by region, product type, and demographics can be used to define what new products should be introduced into the market, and where. In general, scorecards can graphically reflect the selected sales information and create what-if scenarios based on the data identified to verify the right combinations of new product distribution.

What-if scenarios can be used within the different visualization tools to create business models that anticipate what might happen within an organization based on changes in defined variables. What-if analysis gives organizations the tools to identify how profits will be affected based on changes in inflation and pricing patterns as well as the impact of increasing the number of employees throughout the organization. Online analytical processing (OLAP) cubes can be created to identify dimensional data, and patterns within changing dimensions can be compared over time to contrast scenarios using a cube structure to automatically view the outcome of the what-if scenarios.

Conclusion

Using predictive analytics helps organizations identify forward-looking trends based on identified data patterns. Predictors and models can be used to discover sales patterns and detect high risk credit card holders. They can also be leveraged and embedded within BI and BPM solutions. Organizations using BI and performance management tools should take advantage of the built-in predictive analytics tools to perform what-if scenarios, create regression models, and build decision trees to benefit from the patterns identified within the data mining tools that are embedded within BI.

Performance management initiatives within an organization can help drive forward-looking business decisions. Whether for the finance department, government compliance, call center performance management, or an organization's sales and related shipping patterns, developing what-if scenarios and using predictive models, the use of these techniques within performance management has changed the face of BI.

Selecting the appropriate predictive analytics tools is not a simple task. The following capabilities must be considered before implementing a predictive analytics tool: algorithm richness, degree of automation, scalability, model portability, web enablement, ease of use, and the capability to access large data sets. The more diversified the business, the more functions and unique models that are required. Model portability is important even within different business units in the same company. The scalability of the solution and its ability to handle expanded functionality should also be verified and based on the growth of a business.

Best-of-breed Approach to Finance and Accounting

CODA Group, a finance and systems specialist headquartered in the United Kingdom, offers financial solutions that help companies grapple with international business issues such as language, currency, and compliance. Designed to be an "upgrade friendly system", CODA applications offer open and standards-based reporting tools. CODA's alliance with Microsoft Corp. has allowed it to deliver a range of financial and management accounting systems, and it has made several strategic acquisitions to further strengthen its position as a compliance solution.

Part Three of the Composing Collaborative Financial Applications, CODA series.

Among its recent endeavors, CODA has recently announced new set of financial planning and budgeting products: CODA s-Planning ("s" standing for "standard") and CODA c-Planning ("c" standing for "collaborative"), as well as a range of improved analysis and reporting tools, which will be detailed shortly. Nevertheless, to date, these corporate performance management (CPM) capabilities have targeted mainly existing customers of the CODA transactional systems. These users have focused on financial analytics, budgeting, and planning, either through Microsoft Excel integration within CODA c-Planning and CODA s-Planning, or through a partnership with Cognos for enterprise-level planning and budgeting. CODA's consolidation capabilities have traditionally been limited to the basic ones inherent in Coda-Financials. While these are adequate for simpler enterprises, the vendor has thus far been unable to successfully compete with offerings from specialists such as Hyperion Solutions, Geac (formerly Comshare), Applix, Longview, Outlooksoft, or Cartesis. Yet, the importance of these functionalities has been witnessed by Cognos' acquisition of Adaytum in 2003 and Business Objects' recent acquisition of the specialist SRC. See Financial Reporting, Planning, and Budgeting as Necessary Pieces of EPM for information on the functionality.

Thus, this merger deal should benefit both parties for many reasons. While Simple Concepts should get access to CODA's well developed global distribution channel and benefit from its financial stability, CODA should fill the financial consolidation gaps in its solution. Immediate cross-selling opportunities into CODA's install base will expand further as CODA translates OCRA into more languages. Not to mention, there are opportunities coming from OCRA's prior integration with SAP, Oracle, and other leading enterprise resource planning (ERP) solutions. The acquisition also gives CODA a base for strengthening its direct sales operation and presence in Scandinavia.

The two recent acquisitions came at the heels of CODA's June 2005 launch of a suite of add-on applications that extends the range of planning and budgeting requirements: CODA s-Planning and CODA c-Planning . These could offer more benefits for CODA-Financials users. The suite includes Version 3 of the much talked about CODA-XL application. CODA-XL allows the fairly simple and secure output, manipulation, display, sharing, and input of CODA-Financials data within Microsoft Excel. s-Planning and c-Planning were seen to enable users to carry out a range of day-to-day tasks, such as producing and sharing statutory reports; processing expenses; or even developing and setting financial budgets using CODA-Financials alongside Excel and the other familiar Microsoft Office tools that most organizations probably already have in place. These new products were meant to make CODA-Financials the launch pad for a quicker and easier budget cycle. By combining the functionality and embedded control of CODA with the familiarity and convenience of Microsoft Excel, CODA s-Planning and CODA c-Planning should streamline the seeding, preparation, manipulation, and production of budgets, based on (or update) the user's CODA-Financials data. Moreover, CODA continues to develop its relationship with Cognos, offering the Cognos Enterprise Planning product where clients have wider enterprise requirements. The vendor also uses a mix of partnership and in-house development to address other CPM elements, such as activity-based costing (ABC), strategic planning and scenario analysis, shareholder value measurement, activity monitoring, information distribution, etc.

In addition to the "standard" budgeting and forecasting facilities provided by CODA s-Planning, users have the option to make their entire cycle more coordinated, efficient, and controlled by opting for the "collaborative" add-on of the CODA c-Planning product. This interfaces with the CODA-Control process management solution, adding a facility to publish budgets as CODA-Control web sites and tasks. This will keep all participants informed and aware of the input needed and when it is required. There are also audit trails and document history to support compliance reporting. CODA c-Planning aims to help organizations set financial budgets and collaboratively develop plans, which both reflect top-down business objectives and assess the need to account for bottom-up creativity and realities. For example, it will give budget managers visibility of process bottlenecks, including vacation and sick days of department managers, information on groups waiting for information from subsidiaries, and vice versa. Conversely, many other peer products focus purely on bringing together and reporting the figures in the system, and not on collaborative processes that are key to collecting and verifying the figures in the first place. The application's aggregation features often make the budgeting and planning process quicker, more dependable, and more predictable, giving financial professionals more time to analyze and consider their overall budget before making decisions crucial to the organization's mid-term plans.

Another analytic module worth mentioning is the CODA Collaborative Scorecard, which helps user organizations link corporate goals through group objectives and individual performance. Designed to be deployed to every desktop in the enterprise, the product supports multiple performance management methodologies. Generally speaking, scorecards assist organizations in monitoring their business performance beyond bottom-line results by tracking both financial and non-financial measures, and then reporting them in a graphical user interface (GUI). A key element is the way they cascade corporate goals through the organization, helping managers to set individual objectives, and then aggregate performance results back up through the company structure, so that management can review the contributions made by individuals and groups. This aligns corporate strategy with the activities of individuals within the organization.

CODA believes that scorecards should be a strategic pillar of any analytic framework, bonding personal accountability to the enterprise's overall performance management. Initial releases of CODA Collaborative Scorecard have complied with commonly used performance management methodologies, such as the European Foundation for Quality Management (EFQM) balanced scorecard, Six Sigma, etc. to provide a relatively functional and flexible method of managing and aligning enterprise, group, business unit, and personal objectives. However, one should note that, although scorecards should be the fundamental link between personal performance and the overall objectives of the enterprise, they are frequently the weak link in the CPM closed-loop cycle, either because they are too difficult to deploy widely in the organization, or because they have fixed, inflexible methodology (see Why Most Balanced Scorecards are Subverted).
Related to the above line of products is CODA Analytic Explorer, which is a business intelligence (BI) tool that allows CODA users to carry out multidimensional browsing across CODA-Mart and any other relational data source. It is a generic, on-line browsing tool with both two-dimensional and multidimensional browsing capabilities built in, and has a separately licensable cube builder that provides extra performance. As finance departments struggle to add value to their businesses, performance management enables them to deliver better decisions more efficiently. However, CPM is not about static plans that sit on the shelf and get dusted off at board meetings, but rather about continuously adjusting to the range of inputs that the business is constantly receiving. To that end, CODA Analytic Explorer provides the ability to investigate exceptions and trends quickly and easily, so that corrective actions can be taken, and forecasts and plans reviewed.

CODA-XL is now in its third release. It provides a two-way bridge between Excel, which is indisputably the most popular spreadsheet, and CODA's enterprise-level financial and CPM products. CODA-XL was launched in 2003 and brings the familiarity of the Excel interface to CODA-Financials. It should provide customers with several benefits, such as reduced training for end users of CODA-Financials during implementation. Other benefits typically include the elimination of transcription errors and file-handling overheads during the transfer of data between CODA-Financials and Excel. Thus, it may prevent the proverbial "islands of information," where local systems containing great value and insight are locked on individuals' desktops and personal computers and cannot be shared across the organization. However, unlike some similar products from competitors, CODA-XL goes beyond exploiting the familiarity of the user interface (UI) and makes use of the success that Excel enjoys as an informal business modeling and planning tool. It provides "What If?" scenario testing with the option of writing back from the spreadsheet to CODA-Financials. For example, the CODA Security Model is fully embedded within CODA-XL, thus ensuring consistent data security. This means that while add-ins to Excel deliver rich CODA functionality accessed directly from the Microsoft Office desktop, they must respect the same CODA security, validation, and business rules. For example, Excel formulas referencing live account balances are stored directly in CODA Database, with all necessary authorizations for users appearing down to the spreadsheet cell level. For more on the advantages and the inherent risks of Excel-based tools, see Vendors Harness Excel (and Office) to Win the Lower-end of Business Intelligence Market.

Within CODA e-Finance (a Web-based version of the product), all reports validated and cross-checked on-line to validate, to eliminate separate, unsecured reporting tables. "Lights out" scheduling and Web document publishing also eliminate manual intervention. In addition, the data manipulation capabilities of Excel mean that management accountants can build and model scenarios that can be tested against real data relatively quickly, which can be very useful for creditor and debtor management, customer profitability analysis, and ad hoc queries. Furthermore, US Security and Exchange Commission (SEC) submissions can be made through Microsoft Word documents with embedded "live" Excel documents that do not have cut and paste, export, and manipulation functions, which can introduce the potential for errors. Non-programmatic, wizard-driven automation of data entry with real time validation direct from Excel (transactions, allocations, masters, budgets, and forecasts) also eliminates open database connectivity (ODBC), direct structured query language (SQL) updates, relational database management systems (RDMBS) logons, etc., which are also points of risk.

Last but not least along collaboration lines, CODA Collaborative Close is yet another application built using Microsoft Office technologies, one that is designed to help organizations close their books more quickly, more dependably, and more predictably, giving financial professionals more time to analyze and consider data before making crucial decisions. The product was designed to recognize and support the neglected collaborative processes that underpin period close. Other products in this area focus merely on consolidating and reporting the finance figures, but not on collaborative processes that are key to collecting and verifying the figures in the first place. Unfortunately, verification is traditionally carried out manually, which can be time-consuming and makes the process hard to track and improve.

Period-end reporting has always been a challenge for all accounting departments, and this challenge grows when an organization is distributed. The cost of an extended period close in human resources is considerable, since each extra elapsed day can cost a finance department many days of labor. Period-end closing is a collaborative process of questions and answers, of confirming detailed information, and of individuals collaborating to arrive at the answer and generate a picture of numbers about the organization's current financial situation. Every organization in the world has to address this, and they all have different processes; often, financial processes across corporations vary due to merger and acquisition activity, which has absorbed different groups using different business models. This adds complexity to the task of gathering information to close the financial period, and makes it all but impossible to fully automate using conventional systems. Ironically, the aim is to ensure that accountants spend more time adding value to management and performance information, and less time "chasing" data.

The use of technology to render the process less painful, to enable people to collaborate, to progress tasks, and to automate the final postings may be of help in delivering a true, fast closing process to business. Another potential benefit is that CODA's Collaborative Close may uses only information technology (IT) infrastructure and technology that a customer likely already uses. CODA Collaborative Close uses the latest technologies and features from Microsoft Office 2003, Microsoft SharePoint Portal Server, and Microsoft Office Infopath. These, together with task modeling technology from CODA, allow CODA Close to manage approvals, exception reporting, stock reconciliations, aged debt processes, and a string of other potential bottlenecks in the period-end closing process. The application automatically generates a period-end web site through the Microsoft SharePoint Portal Server. Related links then automatically bring up InfoPath forms to gather information from different participants and to drive period-end processes, while the web site dynamically reflects data in the back-office finance system. Real time information sharing between CODA and Microsoft applications is driven through Office Research Panes in Microsoft Excel, Word, and Outlook.

It is a well-known fact that many accountants currently use Microsoft Office tools like Excel in their closing process�but in isolation. Conversely, CODA Collaborative Close integrates these tools with a wide variety of corporate finance systems to bring a unified approach to the problem, with the likely result of improved speed and control over information gathering, allowing more time for analysis and planning. The idea is to help user organizations meet the regulatory demands of the Sarbanes-Oxley Act (SOX), International Accounting Standard (IAS), Basel II, etc., and also to give finance managers more time to analyze their finance figures, and to think about and plan for the near future. CODA Collaborative Close has been designed to work with extensible markup language enabled (XML)-financial applications from vendors such as Microsoft Navision, Microsoft Great Plains, SAP, and Oracle (including PeopleSoft), as well as CODA's own CODA-Financials.

Joining the Sarbanes-Oxley Bandwagon; Meeting the Needs of Small and Medium Businesses

The need for solutions that can meet compliance regulations has grown. In 2004, finance executives around the world became increasingly sensitive to the need to improve reporting in relation to their corporate governance and regulatory compliance obligations. CODA Group, a United Kingdom-based finance management system specialist responded by launching CODA-Control, a task modeling tool (engine), which helps user companies control and audit business processes, and automate data collection for financial reporting. CODA-Control is one of CODA's recently unveiled collaborative solutions, and aids regulatory compliance, period-end financial closing, and automates financial procedures, thus possibly reducing escalating audit costs and lowering the risks of non-compliance. The product takes the organization's best practice model of a documented financial process and automatically generates a dedicated shared, secure, in-house team web site through which the execution of the entire process is controlled. CODA-Control helps transform the organization's processes into highly repeatable, auditable, and controllable events.

Part Two of the Composing Collaborative Financial Applications, CODA series.

As exemplified by CODA-Control, CODA views Microsoft technology as its primary development platform for its process control applications. This should help organizations manage and improve complex business processes, such as those geared towards enabling compliance with the Sarbanes-Oxley Act (SOX) of 2002 and towards facilitating month-end closing. CODA's decision to design a control application using the Microsoft SharePoint Products and Technologies platform has even been cited as a key factor in some customers' decisions to purchase CODA-Control.

To put this into context, SOX was passed by the US Congress in response to a number of high profile financial scandals, such as those at Enron, Tyco, and WorldCom, with the idea of making corporate accounting procedures more transparent to investors and regulators. Even before these fraudulent scandals, missed earnings announcements were often accompanied by chief executive officers (CFO) stating that financial expectations were not met due to a "lack of visibility" into corporate activities. These CFOs would frequently blame unforeseeable events, such as a key customer canceling a major order unexpectedly, or suppliers ramping up prices due to a shortage of raw materials. Regardless of the reason, CFOs are increasingly being called upon to give more accurate estimates of their earnings potential, and explanations as to why their company failed to meet these estimates.

Although the SOX law included a number of new mandates, two sections in particular have had clear implications for corporate information systems. Section 404 (Management Assessment of Internal Controls) requires management to assess, on a yearly basis, the effectiveness of its own internal controls and procedures for financial reporting. Section 409 (Real Time Disclosure) requires companies to disclose material changes in their financial condition or operations on a rapid and current basis. These two sections have prompted many predictions regarding how much must be spent on information technology (IT) in order to meet compliance needs (albeit, this may be at the cost of stalled projects in other areas that are now considered lower priority). Section 404 requires audits of internal controls, and has caused executives to reexamine, and possibly replace, operational systems that are not well integrated with financial systems. For example, an accounts payable (AP) system that does not systematically match purchase orders and receipts to vendor invoices, before the payment is made, might be vulnerable to fraud. Such a system may also be vulnerable to abuse by someone who creates fictitious employees and suppliers and then pockets the money. In addition, an invoicing system that is not integrated with shipping might allow a manager to improperly recognize revenue that was not yet earned.

Section 409 seems to call for a more transparent and integrated financial reporting system than many companies have. For example, companies that work on a ten day financial closing period seem to be at risk for non-compliance with real time disclosure, which currently demands the disclosure of material events within forty-eight hours. The problem is particularly acute for firms with multiple operating units and decentralized systems, because, in recent years, many enterprises have grown both organically and through acquisitions. As a result, accurately reporting on these business units requires a significant number of "manual" accounting processes and adjustments. Such companies will either need to adopt a common financial reporting system, perhaps by integrating multiple systems with a financial reporting layer at the corporate level, or by implementing a corporate performance management (CPM) solution to provide near real time analytics.

In any case, the requirements of SOX increase the amount of required manual processing, which, in turn, significantly increases the cost of compliance. The ongoing cost of testing manual financial controls to ensure SOX compliance, and the ongoing compliance risks associated with those controls are forcing companies to move towards financial systems that not only record transactions, but also manage the entire SOX 404 compliance process. Early adopters of SOX-compliance have reportedly learned some hard lessons by using SOX programs that highlight manual, paper-based processes. Such processes are very costly to audit as commpared to automated processes, and it is quite time-consuming to reconcile and correct errors. Such systems are also at higher risk for human errors and omissions.
In light of this, small or medium business faces a daunting task. It is no longer enough for a company to develop a strong business plan, have a breakthrough product or service, and build strong and effective distribution channels. The complexities of today's business world have created new risks, with a myriad of regulations and complex reporting requirements that can overwhelm a lean and focused organization, regardless of its size. The logical question is how a smaller organization, with limited resources, is supposed to cope with all of this, and, even more importantly, how it will stay abreast of the additional changes that are on the way. For instance, under existing (and soon to be outdated) accounting rules, a company might value its inventories at historic cost. For example, an electronics goods vendor might value unsold, months-old DVDs at the amount they could have been sold upon their initial release. However, under the forthcoming proposed International Accounting Standard (IAS-2), a company has to give an up-to-date net realizable value (NRV). In other words, it must give an accurate estimate of the products' market value at the time the report is published, with the idea that all corporate assets must be valued at their fair value, rather than at their problematic historic cost. Companies will also need to account for the cost of all employee compensation plans. In particular, this means that the cost of stock option plans or any shortfall in company pension funds must be recorded in the accounts.

Given the magnitude of tracking these types of nuanced accounts, the only sensible answer is to use technology, since many tools have been developed that can greatly simplify the process. Indeed, new versions of compliance software represent big improvements over earlier incarnations. Certainly, in addition to CODA-Control, recent releases from Axentis, ACL Services, Certus, Oversight Technology, Hummingbird, OpenPages, Virsa Systems, Precision Consulting, and Approva reflect a more realistic understanding of the compliance burdens. Some of these solutions compare a company's current controls to compliance "best practices", offering solutions on how to shore up weaknesses and better segregate duties. For example, the software can govern who has clearance to write checks to vendors, to pay employees, or to add revenue in a given quarter. Such software can also enforce the rules by, for example, alerting compliance watchdogs if an unauthorized person attempts to make changes, and can thus act as a mechanism to prevent fraud. Other solutions can help managers document policies and procedures, create electronic archives of those policies, or flag internal transactions that look suspicious.

Investment in CODA-Control-like financial systems might provide a cost-efficient solution that would allow business managers to focus more time on operations and less on compliance. Further, these systems might allow user enterprises to streamline the integration of new divisions into their financial systems and processes, ensuring that the business processes of the acquired units are SOX 404 compliant. Nonetheless, before they can benefit from this technology, small business managers must select the right tools. For more on the critical attributes of SOX tool sets, as well as a discussion on how to use them effectively to maximize payback on the investment of time and money, see Attributes of Sarbanes-Oxley Tool Sets.

Many SOX-compliant businesses will likely still spend many thousands of labor hours and millions of dollars in documenting their accounting processes. In addition, many companies will continue to incur significant annual audit fees for the ongoing testing of manual processes. CODA-Control might come in handy as a practical and affordable solution to this problem for medium to large companies, since CODA can transform manual processes into visible, repeatable, controllable, and auditable events. In other words, it might make auditing simpler, quicker, and cheaper, and thereby change CFOs and controllers back from being slaves to SOX to being masters of finance. In particular, the automation and centralization of manual processes should reduce both the risk and the associated costs of audits because the required checks and balances should be enforced by the system. In addition, processes in remote locations can be tested centrally, re-keying errors are eliminated (and reconciliation effort is thus reduced), and authorizations can be captured electronically and viewed on-line, because one can implement preventive controls to preempt errors before they occur. While there is no panacea for ensuring adherence to documented best practices, automated process management, such as the CODA-Control solution, still seems to be an essential part of first two years or so of any SOX compliance program.

The CODA-Control solution is available to all organizations, particularly those subject to SOX-compliance, and is independent of a company's financial accounting system. A Microsoft SharePoint web site powered by CODA can deliver tasks, forms, attachment, documents, etc. to business units' diverse transactional systems, and even include all necessary language translations. CODA expects demand for the solution to be extremely high in 2005 and 2006, and has specialist implementation resources available to support organizations worldwide. Still, while such software can help, it is not going to completely automate compliance, which will continue to be a huge manual effort, as there is no substitute for a manager's understanding of the business when it comes to assessing, designing, and implementing proper internal controls.
Compliance is a major issue in the US, particularly as more organizations struggle with the provisions of SOX, but it is also rapidly becoming a key issue in many other countries as legislation is introduced around the world to improve corporate governance. Thus, in August 2005, to further bolster its financial control capabilities, CODA announced an acquisition agreement and partnership with Control Solutions International, a global provider of assurance, risk management, and compliance advisory services. Founded in 1991, Control Solutions was one of the first firms dedicated solely to providing support to internal audit functions and to helping companies realize the benefits of effective internal controls. Control Solutions' services include internal audit outsourcing and co-sourcing, SOX first-year compliance and annual recertification, technology audits and advisory services, quality assurance reviews, enterprise risk assessments, and internal audit start-up services. The firm has reportedly developed close and long-term relationships with a diverse client base of leading companies through flexibility, open communication, and a "value-added" project approach. It has over 800 experienced internal audit professionals and 21 directors in offices around the world.

Under the terms of the agreement, CODA acquired the Sarbanes-Oxley Controls Evaluation Tool (SOCET) product from Control Solutions. SOCET is a Web-based internal controls documentation, evaluation, monitoring, and project management application designed to facilitate SOX compliance, and is currently deployed at a number sites of Control Solutions' major customers. CODA pledges to take on the future development and marketing of the product, whereby existing customers will receive support through the US-based support desk of CODA Financials Inc., part of the company's global support operation. Also as part of the agreement, Control Solutions and CODA will jointly develop additional, comprehensive compliance software products to help customers comply with SOX and other regulations, such as the European Union's Basel II.

Control Solutions has leveraged its breadth and depth of internal audit experience to assist over 250 US-listed companies with SOX readiness and ongoing compliance. After achieving a quick compliance fix , the next challenge for companies is "making SOX stick" , turning the near-impossible project into a practical and sustainable process, where documented processes are transformed into systems that drive the finance function. Accordingly, SOCET adds effective management dashboard reporting to the features of CODA-Control. The combination should bring additional value to existing customers. With the addition of SOCET and the opportunity to capitalize on Control Solutions' SOX expertise, CODA hopes to soon be a one-stop software shop for the whole process compliance cycle.

Future versions of SOCET, now re-branded as CODA-Control Assessor will support compliance with international regulations, since, while Control Solutions will provide the internal controls experience, CODA will provide the software to deliver it. Additionally, CODA-Control currently provides a Web-based platform for defining, rolling out, monitoring, and executing a complete range of financial, human resource (HR), and IT processes, in order to provide the visibility, repeatability, and an audit trail that is required to drive ongoing adherence to a user company's defined compliance procedures. SOCET similarly provides a Web-based environment to facilitate the testing and evaluation of financial, HR, and IT processes by an organization's internal audit team. The tool also provides management information on the status project testing and presents the information in an executive dashboard. As such, CODA's existing compliance application and SOCET are functionally highly complementary. On the technology front, both leverage Microsoft .NET, Internet Information Server (IIS) Web Server, and Structured Query Language (SQL) Server databases.

Control Solutions' deep expertise and experience in running over 250 SOX compliance projects in the US have shaped the design of SOCET. By transferring ownership to CODA, existing users should benefit from both CODA's support infrastructure and ongoing development, while CODA can continue to draw on Control Solutions' domain experience for the product's ongoing design. The roadmap for SOCET shows that the solution will become integrated into the CODA compliance suite (whose footprint will thereby be extended), while retaining its current ability to run as a standalone application. CODA will shortly announce a solution to greatly accelerate the design of controls and thereby provide a more complete solution for designing, implementing, sustaining, and testing the controls for SOX and other existing and emerging compliance initiatives, globally.

At this stage, even without SOCET's additions, CODA-Control delivers a centralized management and document repository. This is a repository web site that pulls together the tasks, people, supporting documentation, and necessary choreography to ensure that the process is completed in a compliant and efficient manner. It will also offer reasonably quick deployment and adoption and will be an easy-to-use implementation of a best practice model for a given financial process. CODA-Control also has a minimal user learning curve that leverages existing Microsoft Office skills and existing back-office applications. The product will also foster consistency throughout the framework to implement preventive controls that ensure repeatability of process completion, and this will be done in a way that promotes continuous process improvement. It will also offer "Command Center" visibility of current process status, percentage of completion, current hold-ups, task assignments, etc., and an entire audit trail of tasks, documents, commentary, etc. These features will be accessible to users and their auditors via an intranet uniform resource locator (URL). However, the product is also an extensible platform that supports automated task completion using Web service interrogation and automated updates of back-office systems. It also associates electronic forms to their related tasks using Microsoft InfoPath, and ccontrols both recurring financials processes (such as period-end closing, internal audit programs, budgeting, planning cycles, etc.) and ad hoc processes (including new hires, new vendors, capital projects etc.). Last but not least, the product also controls business processes such as the opening of new locations, corporate responsibility programs, HR processes, and so on.