Scale up to enterprise class

Smaller and midsize enterprises face unique challenges for IT when they hit a growth spurt

Every business wants to grow. But if a budding enterprise expects to scale effectively, its IT systems must be able to scale as well. That means taking control of your organization’s technical infrastructure early on to be ready for the inevitable expanded roster of customers, suppliers, and employees that growth brings.

The size of an organization shouldn’t determine functionality. In fact, smaller businesses often require enterprise-class hardware, software, and services in many areas -- particularly in networking, security, and Web provisioning, and sometimes in accounting and order management. Yet despite their oversize needs, smaller businesses are typically outfitted with an uncoordinated collection of point applications and systems managed by their individual expert users, notes AMR Research analyst Bob Locke.

Similarly, midsize enterprises often have departmental systems managed by IT experts, but lack a companywide IT infrastructure to tie the systems together. This approach can spell trouble when business takes off.

To increase the odds of success, enterprises of all sizes should adopt and implement a process-driven, automated approach, rather than relying on in-house experts to keep different parts of the company running. “As you grow, you need to put in real processes to manage the system,” says Michael DiPaolo, a consultant at Hitachi Consulting. “No one individual can handle this complexity.”

The emergence of the Internet as a standard wide area network bolstered through standardized interfaces and application platforms such as XML and Java has lowered the bar for linking applications and data systems, even in distributed environments. This development has provided more traditional enterprise-class capability at a smaller scale and lower cost. At the same time, technology providers that once served only the largest enterprises are steadily moving down the food chain. “It’s been creeping down for years,” says Chris Ogburn, sales development director at Hewlett-Packard.

Most vendor attention is being placed on midsize enterprises, or companies with 500 to 5,000 employees that have scale, complexity, and integration needs mirroring the large enterprise’s IT profile. But even small enterprises -- those with 100 to 500 employees -- now have access to traditional enterprise-class technology in critical areas such as networking and database management.

When crafting an IT strategy and platform for growth, small and midsize enterprises face critical technology choices in three areas: front-office applications such as ERP, database and storage management, and networking and security. In each area, the choices and issues vary.

Front office: three main choices

ERP is the latest area to see enterprise-class functionality move into small and midsize enterprises, as Oracle and SAP have all but consolidated the large-enterprise market and have set their sights on new customers. Today, for front-office needs such as accounting and sales, smaller companies have limited basic options.

First, they can look to big-system providers such as Oracle and SAP, Locke says, as Oracle’s Small Business Edition and SAP’s All-in-One suites can be cost-effective at a small scale and then grow with the business. Second, they can adopt Microsoft’s suite of business tools. Third, they can outsource these services to avoid having to build the needed expertise in-house --, RightNow, and NetSuite have shown this to be a popular model for CRM deployment. Another option, and previously the only one, is to buy from a niche vendor, one aimed at vertical industries and typically small companies therein. But that route is increasingly becoming unviable because niche providers have typically fallen too far behind the technology curve, says Hitachi’s DiPaolo.

Adopting Big-Provider ERP: Adopting a database, ERP, or CRM technology originally developed for large enterprises can trip up a smaller enterprise, warns Eliot Colon, vice president at Miro Consulting, which helps clients negotiate and monitor Oracle licenses. Smaller firms must take care to buy what they need for the moment but have the flexibility to add modules or capacity as they go along; they must balance initially overspending to avoid later getting caught with their pants down.

In some cases, unwary enterprises use noncommercial or trial licenses from vendors such as Oracle, PeopleSoft, SAP, and Sun as part of a larger software license.

This can prove dangerous, as some companies have been known to get hooked, rolling out applications to more and more users -- even to customers and suppliers -- over the Web, Colon notes. Then they get a call from someone saying that they are violating their software license and must pay a lot of money for their noncommercial use, both internally and externally. They’re also told that they must license additional software as specified in the original license that no one really bothered to study.

Hitachi’s DiPaolo says some small enterprises fall into this trap, while others avoid it by being savvy up front. Another pitfall for such companies is not thinking through all the license implications when they grow through acquisition, he adds.

Adopting Microsoft ERP: Growing enterprises that sign up for Microsoft’s emerging enterprise business tools should note that the extent of how far these platforms may be able to scale isn’t yet known, AMR’s Locke cautions. He’s unsure that they can scale once a company has a few thousand employees. Microsoft is in a multiyear effort to integrate and enhance these tools, so future versions may scale into the large enterprise, he notes.

The current generation of Microsoft’s ERP tools -- cobbled together from the acquisitions of Great Plains Software, Navision, and Solomon -- can scale only to the low thousands, says Paul Hernacki, director of IT at the consultancy Definition 6.

Outsourcing ERP: The outsourced model is easy initially, because there is no need to pay up front for the infrastructure and expertise, says Yankee Group analyst Sanjeev Aggarwal. “You can pay just $500 per month for five users, versus investing several million dollars up front.”

Most providers will customize their services for businesses with specialized processes, so the businesses don’t have to force-fit truly critical business processes into a plain-vanilla model, Aggarwal says. Plus there’s no six- to nine-month deployment period as there is with an Oracle, SAP, or Siebel ERP system, he notes.

Another advantage: Many smaller enterprises run older hardware platforms such as IBM’s AS/400 that don’t support ERP systems well. Oracle, for example, doesn’t support them at all, while SAP on the AS/400 can’t support much transaction growth, says Hitachi’s DiPaolo.

Taking the outsourced approach avoids a big investment in the infrastructure and talent to handle security, backup, patch and upgrade management, and integration, Aggarwal says. But he urges small enterprises to reject the typical five-year contract and instead insist on two-year maximum contracts for their managed service providers, and to get price caps suited for their planned growth.

The risk with outsourcing is loss of control. “What happens one, three, or four years down the road when the customers decide they need something more complex?” Locke asks. If the providers don’t have a good solution for that new scale, the business must take everything back and build a new system from scratch.

Although the outsourced ERP model is attractive, it’s still rare for a company to outsource its ERP unless it is also outsourcing its manufacturing, notes HP’s Ogburn. One reason is that the industry is new; another is loss of control.

Database and storage management: good technology, bargain prices

Although small companies typically rely on local consultants supporting Microsoft Excel, Access, and FoxPro for their databases, as they grow into enterprises they quickly realize they need a scalable database architecture, Definition 6’s Hernacki says. Typically, most choose to adopt Microsoft SQL Server, because “it’s hard to beat its price and performance.”

Oracle is less common in the smaller enterprise, Hitachi’s DiPaolo adds, because Oracle (like SAP) has focused its expansion on midsize enterprises.

A business of 50 or fewer people tends to be comfortable having its data hosted by an outside provider, but “if you’re bigger than that, you want the data in-house,” HP’s Ogburn says. He also warns that companies that off-load their data will find it increasingly difficult to bring it in-house, because the amount of data accumulated over time will require an ever-larger infrastructure investment. Growing the infrastructure over time stretches that cost out.

Growing enterprises should expect to see high growth in storage hardware, as well as significant investments in compliance and data-recovery software, as they have several hundred or more employees, Ogburn says. That’s because the data storage “grows exponentially, especially in legal, financial, and medical industries,” as they serve more customers with more product or service offerings and begin to share data with partners.

Fortunately, not only do storage devices continue to drop in price, but SANs have also become much more affordable, notes Deric Scott, enterprise architect at the consultancy Optimus Solutions.

So even smaller enterprises are beginning to adopt them. SANs are already common in enterprises with 1,500 or more employees, Hitachi’s DiPaolo says.

Network management and security: enterprise-class for almost all

When it comes to server, storage, client, and networking hardware, what used to be the province of the large enterprise is now broadly available to enterprises of all sizes, HP’s Ogburn says. “Small companies will ... go to Best Buy for a $50 router,” Optimus’ Scott says. “But as they grow, it doesn’t scale.” That’s when they migrate to enterprise-class systems.

Fortunately, enterprise-class networking has gotten much cheaper. For example, the popularity of Linux, combined with cheap but fast server PCs from Dell Computer and Hewlett-Packard’s Compaq group, or with unused CPU cycles in an IBM AS/400 system, means “you get the same performance that cost five times as much a few years ago,” Scott says. Basic networking is one area where’s is relatively safe to loosen the purse strings because the fear factor of obsolete equipment is low. Protocols are established enough to allow for heavy-duty hardware purchases that will last at least five years. And now, blade servers are bringing even more capacity at an affordable cost and manageable overhead, Yankee Group’s Aggarwal notes.

The trend is even more apparent with new technologies such as wireless LANs and IP telephony, which are available with the same core capabilities for both small and larger enterprises, Yankee Group analyst Christine Liebert says. The difference in products aimed at smaller enterprises is their greater simplification, which reduces management overhead, she says.

That shift to core capabilities in key technologies for enterprises of all sizes gives smaller enterprises a new edge -- and a new way to think about IT.

Copyright © 2005 IDG Communications, Inc.