Partner Power

IS shops team with software vendors to cut costs and get individual needs met

By Richard Adhikari

onald Tew was sweating bullets. Management at Carolina Power & Light Inc. had given Tew, its applications manager, just five months to implement and roll out a Web front end to the company's PeopleSoft human resources application.

The goal was to let employees maintain their own human resources accounts. That, in turn, would let the Raleigh, N.C., company trim its human resources department. Like other electric utilities, Carolina Power, a $3.12 billion company with some 6,500 employees, is tighten ing its belt in anticipation of deregulation.

So Tew put out a request for proposals. He ultimately picked NexGen SI Inc. to develop the application.

As talks progressed, both parties realized there was potential for marketing the resulting application to other utility companies, so they decided to create a partnership to do just that. "No one had done this type of Web-enabled front end for PeopleSoft before," says Tew, "and we thought there would be a real demand for it." Besides, he adds, his company is "looking for new sources of revenue."

Like Carolina Power, many companies are partnering with their software vendors. The goal: to develop customized applications quickly. Partnerships let user companies tap the benefits of off-the-shelf software while overcoming some of their limitations. It can take six months or so to install packaged software and get it rolled out in production, while developing code from scratch can take around 10 times as long, say industry analysts. Installation can be quicker with a partner.

Partnering provides a way to get the low costs and fast ramp-up times of off-the-shelf software, while adding to the mix a user's specific requirements. Vinnie Mirchandani, a research director at the Tampa, Fla., offices of Gartner Group Inc., points out that off-the-shelf packages are a "very good fit for certain cross-industry administrative functions such as core financials and HR." But in areas such as customer focus activities, manufacturing styles, or operational issues, they're not as useful, Mirchandani adds. For example, he estimates that major software vendors provide barely 15% to 20% of all the applications a bank needs to run. "That's one of the reasons to partner with software vendors," Mirchandani says, "to get them to build an application that's unique to your requirements."

Partnering also helps companies cut maintenance costs, use the best processes available, consolidate the number of software packages used, and perhaps recoup some of their investment. It als o lets users concentrate on their core competencies instead of going into the software development business. "It's much harder to build software than people realize," says Peggy Biddison, VP of marketing at QAD Inc. in Carpinteria, Calif., which builds and markets object-oriented enterprise resource planning (ERP) software. One multibillion-dollar multinational corporation spent five years and $30 million trying to develop the software it wanted before giving up and partnering with QAD, Biddison says.

Under Carolina Power's arrangement, NexGen SI will market the modules it built for the utility and give Carolina Power 5% of the net proceeds of sales for the first 18 months. In return, Carolina Power will serve as a reference site and let NexGen SI's sales prospects see how it uses the application, called PeopleNet. After 18 months, NexGen SI will take full ownership of the front end and stop making royalty payments. NexGen SI has already landed one sale for PeopleNet, inaugurating a new revenue stream for Carolina Power.

Similarly, global chemicals and energy company DuPont & Co. partnered with Chesapeake Decision Sciences Inc. of New Providence, N.J. DuPont's goal was to cut application development costs. Together with other large users of Chesapeake's MIMI package, DuPont funds development of new modules that will meet their common requirements. In exchange, DuPont and the other companies pay a "fraction of what off-the-shelf software would cost," says Joseph Simpson, formerly manager of business resource planning at DuPont and now manager of business resource planning at Andersen Consulting's Wilmington, Del., offices, where he handles the same duties under an outsourcing contract. Depending on the size of the module and the number of companies funding the project, DuPont has paid from $3,000 to $100,000 per module, he adds.

John Ford, operations research specialist at Rohm & Haas Co., a $3.9 billion chemicals maker in Bristol, Pa., partnered with Chesapeake to help cut his company's maintenan ce costs. Though Rohm & Haas has developed planning and scheduling applications in-house, "it's getting very difficult to maintain because it's a lot of work just keeping up with the communications technology alone," Ford says.

He signed up with a group of six other users of Chesapeake's MIMI product to build modules that perform distributed planning and scheduling functions. Each partner paid $60,000. Also, Chesapeake maintains the systems modules, freeing up Ford to do more productive work.

Offloading systems maintenance onto vendors is a smart move, says Harry Tse, a director at Yankee Group Inc. "Systems maintenance consumes up to 40% of large companies' IT budgets," he says. When several clients team with a vendor, it not only drives down costs, but also lets companies leverage the know-how of each group member.

Consider Hunt Manufacturing Co. This Philadelphia company, best-known for its line of Xacto knives and related tools, is one of five companies partnering with QAD in the On/Q project. On/Q is QAD's next-generation supply-chain and logistics system, which is scheduled for release next year. Each member of the consortium has developed a set of processes that are considered best-of-breed for a given facet of the supply/logistics chain, and each is contributing its process to QAD for incorporation into On/Q.

Hunt's contribution is its "world-class processes in logistics and transportation," says Gene Stiefel, the company's VP of information services. In return, Hunt gets a discount on On/Q, offloads the maintenance of its transportation and logistics processes to QAD, and benefits from the contributions of the other members of the group.

Conquering Chaos
Telecommunications is another area in which partnerships are flourishing. Take Promus Hotel Corp. in Memphis, Tenn., which operates 900 hotels nationwide under the Hampton Inn, Embassy Suites, Homeward Suites, and other brands. It's using a partnership to bring order out of telecom chaos. The company's hotel prop erties differ in size and target markets by brand. For example, Embassy Suites hotels have 250 or more rooms, while Hampton Inns have just 60 to 100. Thus, the company's telecom requirements differ from one chain to another. The result: Promus has a mix of products from different vendors.

To fix that, Promus partnered with Lucent Technologies. They're developing a custom telecom product that will become the standard for all the company's hotels. "We're trying to get a single-source provider of customized telecom services for all our brands, but one that's customized for the hospitality industry and provides functionality that helps the hotels run their business," says John Flack, director of computer operations and telecommunications at Promus.

Companies that want to derive a revenue stream from software partnerships can take varying routes. Wisconsin Energy Corp. in Milwaukee bought the SPS sales-force automation package from Saratoga Systems Inc. in Campbell, Calif., and customized it with links t o Microsoft Word, Excel, and databases on both legacy and client-server platforms. This let Wisconsin Energy's sales staff pull up all the details about customers' systems when calling on customers.

In subsequent talks with other utilities, Wisconsin Energy discovered there was a market for the customized product, called Contact Manager. Rather than sell the enhancements to Saratoga and collect royalties, as Carolina Power is doing, Wisconsin Energy spun off a company, Custometrics, to sell Contact Manager. "The product is so industry-specific that you need somebody who has knowledge of what the system does and understands how the process that system supports works," says Douglas Bott, Custometrics' president and CEO. Industry knowledge is key-and so is the fact that Saratoga is willing to help Custometrics make Contact Manager work.

Instead of struggling to build apps with steadily shrinking budgets and staffs, IS departments may find a welcome alternative in a software vendor partnership.

See related story " Tips On Partnering With Vendors "

See related story " Stay Ahead Of The Competition "

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