Reflecting the significant challenges that small, independent enterprise software vendors face in attempting to differentiate themselves in a market increasingly dominated by large competitors, SoftBrands Inc. this week said it will restructure itself to further emphasize its partnership with SAP AG over its traditional FourthShift ERP business.
SoftBrands President and CEO Randy Tofteland, in an interview with Managing Automation, said SoftBrands will eliminate 55 positions — about 12% of its manufacturing products team — as part of the restructuring, which is expected to result in savings of about $3 million. SoftBrands also will create separate development organizations for its FourthShift and FourthShift Edition for SAP BusinessOne ERP brands, increasing resources devoted to the FourthShift Edition for SAP BusinessOne product, Tofteland said.
As a result of the moves, SoftBrands said it expects to record a restructuring charge of $1.5 million in the upcoming, third quarter of its 2007 fiscal year.
The restructuring is the latest step in SoftBrands' transition over the past two years from a traditional independent ERP vendor with a direct sales distribution model to one closely aligned with SAP, selling mainly through value-added reseller (VAR) partners.
"The question we had to ask ourselves was how were we going to differentiate ourselves in a very mature manufacturing ERP market where consolidation was occurring," Tofteland said. "We believe that being aligned with a very strong player [SAP] was the best way to differentiate ourselves from other mid-market, stand-alone ERP companies."
Two years ago, SoftBrands introduced FourthShift Edition for SAP BusinessOne alongside its traditional FourthShift ERP product, which has now been in the market for about 20 years serving manufacturers in food and beverage, chemicals, medical devices, electronics, semiconductors, pharmaceuticals, rubber and plastics, industrial machinery, and automotive verticals. The FourthShift Edition for SAP BusinessOne product augments SAP's BusinessOne ERP system for small and medium-sized businesses with manufacturing functionality, such as lot tracing, that derives from the FourthShift product line.
Today, SoftBrands introduced version 8.5 of FourthShift Edition for SAP BusinessOne, which makes greater use of core BusinessOne processes and features, such as order entry and inventory management. The change, Tofteland said, will make it easier for VAR partners to sell and support the product and for current BusinessOne users to migrate to the FourthShift manufacturing-centric version of the product.
SoftBrands has been gradually shifting business to the FourthShift Edition for SAP BusinessOne product, discontinuing FourthShift new license sales and dismantling the FourthShift direct sales force, Tofteland said. At the same time, the company has launched new versions of the FourthShift Edition for SAP BusinessOne product in Canada, the United Kingdom, Germany, and China.
Although Tofteland declined to say how many FourthShift Edition for SAP BusinessOne customers SoftBrands has, he said that, for the company's 2007 fiscal year ending in September, it expects to grow the number of FourthShift Edition for SAP BusinessOne customers by more than 100% compared with the previous year.
SoftBrands' strategy, Tofteland said, is to sell the FourthShift Edition for SAP BusinessOne product to small plants that may be part of larger enterprises. Many of these plants, Tofteland said, have historically used ERP products from smaller, independent vendors, such as SoftBrands. But, he said, managers at such plants may be interested in moving to a product supported by a large vendor, such as SAP, particularly if it also supports the kind of advanced manufacturing functionality found in products such as FourthShift.
"We are starting to feel very comfortable that our channel partners are reaching the necessary levels of maturity, owning leads and the sales cycle and closing deals," Tofteland said.
While SoftBrands is no longer selling FourthShift licenses to new customers, it continues to sell additional FourthShift modules and seat licenses to existing customers. And SoftBrands will continue to extend and support the FourthShift product indefinitely. "We have no plans to stop support of the installed product," Tofteland said.
SoftBrands has communicated a roadmap of enhancements it plans for FourthShift, and it will stick to that roadmap, Tofteland said.
Tofteland said he expects "a small percentage" of FourthShift users to migrate to the FourthShift Edition for SAP BusinessOne product.
SoftBrands' transition to a new product strategy and sales model coincides with financial struggles at the company. In SoftBrands' most recent fiscal quarter, ended March 31, the company reported a $3.3 million net loss on revenue of $21.4 million. The revenue figure represented a 23% rise from the same period a year ago. Much of that increase, however, was attributed to SoftBrands' acquisition in the fourth quarter of 2006 of HIS, a maker of enterprise software for hospitality companies.
As SoftBrands becomes more dependent on SAP, the company is comfortable with its large partner's evolving SMB and mid-market product strategy, Tofteland said. SAP has said it is developing a new SMB-oriented product, code-named A1S, which will be deployed as an on-demand service and will overlap somewhat with BusinessOne and SAP All-in-One, the SAP product targeting customers with $75 million to $100 million in revenue.
"We're comfortable that there will continue to be a market segment where BusinessOne will be a fit, even after the release of A1S," Tofteland said. "And there may be a role for us with the A1S product as well."