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Some smaller to midsize companies have been motivated by the need to modernize old systems during slow periods and to be ready to take advantage of an anticipated burst of growth. Consider the Weitz Co., a Des Moines, Iowa-based general contractor for large office, institutional and industrial projects. In 2002, a soft commercial construction marketan aftershock of the Sept. 11 attacks, corporate accounting scandals and declining tax proceeds that have forced states to forego capital constructionsent Weitz's revenues tumbling to $745 million from $818 million the year before. Anticipating the downturn, Weitz's CIO, Mark Federle, suggested that the builder finally get rid of its old VAX-based network and replace it with an ERP system that would be managed by WTS Inc., an applications service provider for PeopleSoft.
The implementation began in November 2001 and the ERP system went live a year laterin time, says Federle, to take advantage of what Weitz executives believe will be accelerated construction activity in the company's new areas of focus: retirement communities, schools and healthcare institutions. Currently, the ERP system is mainly used for cost management, particularly to track real-time data about subcontractor billings and project expenses, and, in the process, limit endemic overruns. In the near future, Federle plans to add a CRM component and an estimating tool that will calculate up-to-the-minute costs of inventory, raw materials and labor to generate better construction bids. All of this is done with an eye toward squeezing out the most profit as Weitz pursues its ambitious goal of $1.6 billion in annual revenue by 2007.
"Technology was directly identified as a requirement for achieving the numbers in our strategic plan, during which we hope to triple in size between 1999 and 2007," says Federle. "We expect technology to drive efficiency and performanceand ultimately profits from the increased revenue. Without it, there's no way we could expect such outsized improvement."
But many small and midsize businesses don't have the luxury of planning for a four-year growth spurt. In most instances, they need results now, in the form of new sales and new customers. During the expansion of the 1990s, the economic pie was growing so quickly that even in markets with larger competitors, small and midsize companies were able to grab a slice of the customer base. But with the economy stutter-stepping, smaller players are not only finding themselves going head-to-head with each other; they're also facing rivals many times their size in the struggle to attract cautious consumers or, if they're a supplier, penurious companies. It's no surprise that 53 percent of respondents to the Grant Thornton survey said that the competitive environment in their industry was more intense than 12 months before. Smaller companies are obviously at a disadvantage against larger, well-heeled rivals, so they have to distinguish themselves from each other. That's where technology comes in: Rather than turning away from it for fear that wasteful spending will hurt the bottom line, many smaller competitors are adopting it as a necessary quick fix to seize increasingly elusive market share and new revenue.
Small and midsize businesses "must have immediate results with a short payback period," says Mark Oster, a partner in Grant Thornton's technology industry practice. "For that reason, in many cases, the systems they install are designed specifically to instantly extend the company's touch by bringing them closer to their customers. They're engineered to create a quick competitive distinctionways to stand out of the crowdas opposed to a competitive advantage."
An example is the system at Sonance, a high-end audio speaker manufacturer based in San Clemente, Calif. The company, which registers about $50 million in annual sales, relies on a network of dozens of independent dealers and retailers like Best Buy Co. Inc. to sell and install its products. Convincing these small and large consumer electronics shops to carry and promote the Sonance line over brands from bigger companies such as JVC and Infinity, not to mention as many as 100 niche players, is Sonance's primary challenge. Without an attentive distribution network the company can't survive. That's why Chip Brown, who became CEO four years ago after stints as a consultant for a venture capital firm and a product manager at PepsiCo, is determined to improve Sonance's somewhat tattered relationships with its retail network.
"When I arrived, we had an old, frustrating, non-computerized system for communicating with dealersa perfect way to alienate the people we depend upon," says Brown. "A dealer might call in an order on a Saturday night and not find out until Monday morning at the soonest, when someone called him back, that the speakers he wants aren't in stock. That hurt the dealer's business. It made it difficult for them to schedule installations and close sales. I was determined to build an infrastructure to get data to them in real time."
Brown says Sonance's success in the early 1990s is to blame for the threadbare technology: The company grew so quickly that it eventually outpaced the ability of its manual systems to serve customers efficiently. "Many companies don't realize that they're falling further and further behind on the technology capabilities that they need to sustain growth, and by the time they figure this out, it's two or three years later, when their growth has already been halted," notes Brown. "I was determined to implement a customer management system ahead of time, before we started to grow again, and before we missed another opportunity."
Brown and a team of Sonance employees, chosen to help select the technology they and their customers would be using, reviewed nearly 70 vendor bids for this system. In early 2003 they settled on a PeopleSoft ERP, which would let dealers place orders, retrieve account data, obtain product information and pay bills through an extranet known as SonaLinQ. It was an expensive undertaking for Sonance$2.7 million, or 5 percent of a single year's revenue, over five years. The only way Brown could justify such a high-priced effort was to identify a specific set of short-term and long-term benchmarks for the project, including quantified revenue and cost savings as well as specific improvements in customer relations.