Cutting ERP Down To Size

By Larry Stevens

Large financial enterprise systems from vendors such as Lawson, Oracle, Peoplesoft and SAP are suitable for Fortune 1000 companies with large IT and accounting departments. But if a company has a small IT department and no accounting department at all, ERP applications have very little to offer.

The Internet may change that. Small and midsize companies will soon have access to the power of larger financial and ERP systems through a new breed of application service providers. Web-hosting financial applications is not a new concept; Oracle's application hosting unit, Oracle Business OnLine, has being offering that service for over a year. But new accounting-service ASPs are offering more than just the hosted application. They also offer bookkeeping, accounting and back-end transaction services. Some also simplify the interface to make it friendlier for small business users.

"A standard ASP might have reduced our IT responsibilities, but we'd still have to staff up a complete accounting department," says Robert Krolik, CFO at Karna LLC in San Francisco. The company, which makes optical technology used in computer mice for the gaming and medical equipment industries, hired ReSourcePhoenix.com to deliver Web-hosted access to Oracle Financials and general accounting services.

With a projected $5 million in revenue this year and only 12 employees, Karna is a perfect candidate for this type of service. The company has outgrown basic accounting software, but is not ready to staff its own IT and accounting departments.

For about a year, the company used Intuit's QuickBooks, with Krolik or an assistant entering the data. But the firm's rapid growth was making that option impractical, says Krolik. The company's projected revenue for 2003 is $120 million dollars, and QuickBooks, a single-user system, could not scale up to support an accounting department that would be needed as the company expanded.

Clearly, it was time to consider an ERP system. But while the cost of the application and hardware would have been a stretch for the company, the real problem would have been staffing. Krolik estimates he'd need a five-person accounting department comprised of accounts payable, accounts receivable and payroll clerks; and an accounting manager and a comptroller. The company would also have to hire a database administrator to oversee an ERP system and possibly an assistant database administrator. In the expensive Bay area labor market, the total cost would be in excess of $350,000 a year. Add to that the real estate needed to house the new employees, and QuickBooks wasn't looking so bad.

But late last year, Krolik found ReSourcePhoenix.com. For a fee of $10,000 a month, the company relieves Karna of all bookkeeping and most accounting responsibilities. Krolik mails all the company's bills to ReSourcePhoenix.com, which inputs the data into Oracle Financials. When Krolik accesses the application via a VPN, he sees a list of payables. If he wants, he can view a scanned image of the actual invoice. He simply goes down the list clicking on the bills that need to be paid.

The accounts receivables process is similar. Krolik submits incoming purchase orders to ReSourcePhoenix.com. They are posted on Oracle Financials, and Krolik indicates with mouse clicks when the product shipped. The service firm mails out the invoices, and indicates on the application when the bill is paid. Krolik can also use Oracle to produce reports, either automatically or on an ad hoc basis.

ReSourcePhoenix.com offers its clients Web access to the full feature set of Oracle Financials. Users see the same screen they would see if the company ran Oracle on its own servers. Small or midsize companies such as Karna that expect rapid growth need the flexibility and scalability of a full-featured ERP. But Corey West, president and CEO at ReSourcePhoenix.com says his company's services are not necessarily aimed at smaller operations.

"A company that's small and doesn't expect to grow would find Oracle too complex,'' West says. To say nothing of the high monthly fees.

Virtual Growth Inc. and AbridgeASP take a different track. While they offer customers access to financial apps from Lawson Software, they created middleware that insulates users from the complexities of the full Lawson application. And their fees are only about $1,000 to $2,000 dollars a month. Both Virtual Growth and Abridge-ASP offer a complete range of services, including payroll, general ledger, payables, tax filing and reconciling bank statements.

To simplify Lawson's app, each of the companies eliminated many Lawson fields small businesses do not need. For example, an accounts payable input screen in a standard ERP system such as Lawson has about 40 to 50 fields. But a small business that might have five or six departments and no sub-departments needs fewer than 10 fields. Most small businesses only have to enter the payee, the amount, a brief description and an account code. All that data can fit on one screen compared with four or five screens on a full-sized ERP application.

"By separating out the GUI from the rest of Lawson, we could deliver a dumbed-down version that people in small businesses can use,'' says Stephen King, CEO of Virtual Growth.

While Virtual Growth created a general-purpose small business Lawson interface, AbridgeASP creates industry specific interfaces. The company's first product, eCheckup, is geared for dental offices. Next year, the company plans to unveil versions for assisted living, childcare and long-term care companies.

Virtual Growth's Virtual Accountant is in beta until the third quarter of this year, but AbridgeASP's eCheckup is commercially available. Kevin Devine, a dentist in Columbia, Ill., has been using eCheckup since March. Previously, he used Quicken and handled all the transactions himself. Now he only has to provide simple input on salaries and payables. Abridge-ASP figures the payroll taxes, pays the taxes, pays the receivables and cuts the payroll checks.

"Dealing with accounting and bookkeeping was the most frustrating part of my practice," says Devine.

John Martin, vice president of finance and administration at Soliloquy in New York, is beta testing Virtual Accountant. He also likes the simplified Lawson interface. "It's easy to access the functions we need,'' he says.

The company, which has about 60 employees, develops technology that lets users hold intelligent two-way dialogues with Web sites by typing or speaking in natural language. Until last spring, Soliloquy depended on QuickBooks and a local accounting service that Martin says was paper-based and not very helpful. Last March, Soliloquy hired Virtual Growth to help automate more of its bookkeeping functions. At that point Virtual Growth also used QuickBooks. Martin would send invoices and purchase orders to Virtual Growth, which would enter the data into QuickBooks and e-mail back the QuickBooks file.

While the procedure was much faster than the paper-based method, it lacked immediacy. The QuickBooks files might be updated every few days, so Martin didn't have access to changes that occurred between updates. So when Virtual Growth launched its beta of Virtual Accountant, Martin agreed to be a tester.

Now Martin still mails the bills, paroll reports and purchase orders. But instead of using e-mail or the telephone to indicate which bills he wants paid, he accesses the Lawson screen via the Web and indicates approval for payment through mouse clicks. Virtual Growth cuts the checks and sends them to Martin to sign and mail out. In a short time, Virtual Growth will include an electronic funds transfer service, eliminating the need to sign or mail checks.

And unlike QuickBooks, Virtual Growth allows him to view the scanned image of the invoice or purchase order online. He says the imaging feature will help during the annual audit since it eliminates the need to gather together mounds of canceled checks and bills.

The Low End

Small companies that want quick access to basic low-cost financial applications and services can look to NetLedger Inc. This online application was developed from scratch using Oracle 8i. It's not based on an ERP app. There are two versions: a basic single-user system that's free; and a more complex multi-user application, called NetLedger, that costs $4.95 per month. NetLedger Basic prints checks and receipts, creates invoices, tracks payables and receivables, memorizes recurrent transactions and makes journal entries.

The full version adds employee expense tracking, payroll taxes for all 50 states, forms customization, credit card processing and a host of reports, including purchase journal and analysis.

The multi-user version also lets users run supply-chain transactions and do self-service data entry, tasks that used to require large ERP systems. Employees can log on to the NetLedger site using passwords and make changes to their personal information. Service personnel, whether employees or contractors, can log on and enter their time and expenses. Customers can check inventory before making a purchase, and suppliers can check purchase orders made out to them.

Bill Mirbach, CEO and president of NetLedger, says the company has 18,000 customers, but adds that most are still using the free version. Mirbach says the company has had trouble getting people to sign up for the paid module. The main problem, he says, is that NetLedger doesn't have as many features as QuickBooks, which has become the standard for the low-end accounting systems.

The most significant issue is NetLedger's lack of a payroll module, says Mirbach. The problem may be solved this month, when NetLedger releases its 4.0 version, which will match most of QuickBooks' features including payroll. But payroll and other new features in NetLedger 4.0 may require additional fees.

NetLedger also plans to market services through partners such as Automatic Data Processing Inc. for online payroll and OneCore.com for a variety of services, including bill payment, payroll, merchant accounts, and credit service.

NetLedger users may be unaware of the underlying Oracle database. But Mirbach says the use of Oracle was important because of its reliability. AbridgeASP and Virtual Growth chose to use Lawson financial software because they determined it was the easiest ERP system to customize. Virtual Growth's King, who says he did a careful study of ERP systems, points out that Lawson and Oracle are the easiest ERPs to customize because they have a three-tiered structure: the application layer, the database and the user interface. All other ERP makers tie their interface tightly into the application. That structure may make the interface obsolete and in need of a rewrite when a new version is released.

Dave Boulanger, an analyst at AMR Research, agrees with King that Lawson is ahead of other ERP vendors in adding Web and customization features.

"All ERP vendors seem to be moving in that direction. But Lawson has been doing this for almost four years," he says.

Laurie McCabe, vice president and service director at Summit Strategies, a market analyst firm, adds that Lawson is the only ERP maker with a strong and unequivocal strategy of working with ASP's. In contrast, Oracle has not concentrated as strongly on partnering with ASPs, hoping instead to go it alone with Oracle Business OnLine. Of course, there are some reports that Oracle might change its mind. But when asked to discuss its ASP plans, Oracle officials would not comment.

Looking forward, Boulanger says the ASP business model will expand. Start-up companies will offer additional services and concentrate on functions other than accounting, such as help desk or human resources. And established firms will also expand their offerings.

No one can predict exactly which new services will be available for small and midsize businesses in 2001. But this year, Web accounting services may just make life easier for many small-business people.