Ailing Fingerhut threw out its old systems and developed new software in just six weeks. The result was twofold: a second chance for the catalog retailer and a new software company
If necessity is the mother of invention, then Fingerhut Direct Marketing's legacy data center was the parent and innovative order-management software running on low-cost servers is the promising offspring. Fingerhut, a once-thriving catalog retailer that closed for about six months last year, developed its own software to replace systems it could no longer afford and did so just in time for the holiday shopping rush. Now, the software that helped save Fingerhut is about to be sold commercially by Nazca Solutions Inc., a startup with ties to Fingerhut's parent company.
Nazca's pitch is that its Windows-based applications will let companies manage customer orders and transactions better, faster, and at lower cost than they can using enterprise resource planning software from larger vendors. The software was developed in six weeks last fall by a team of developers working 24 hours a day, seven days a week.
Fingerhut chose Microsoft apps over Oracle's and PeopleSoft's because the vendor's software could be implemented in just weeks, Nazca CIO Argir says
The timing was crucial. Fingerhut was purchased in July 2002 by FAC Acquisition LLC, a holding company, after being dumped by Federated Department Stores, which bought it in 1999 as part of an E-business initiative. Fingerhut was on life support, having laid off most of its employees while officials worked out a plan to relaunch the 55-year-old business, parts of which had already been sold off. "It was absolutely imperative that we [find] a solution that would allow us to be in business by the fourth quarter," says Fred Argir, CIO of Nazca and, until April, the CIO of Fingerhut. The applications went into production in the second week of November, making it possible for Fingerhut to process orders generated by its just-off-the-press consumer merchandise catalog. The systems processed 90,000 transactions by the end of the holiday season.
The way Fingerhut did it, and the applications that resulted, speak to some of the issues facing small and midsize businesses that want to enjoy the same technology benefits of large companies but have smaller IT staffs and budgets. "We fit a space where the needs are pretty great," says Nazca CEO Ted Mondale, a onetime Minnesota state senator and son of former Vice President Walter Mondale. "We're seeing all of these companies faced with a lot of pressure on their IT budgets, yet needing to increase functionality at the same time."
Nazca points to Fingerhut as its earliest--and so far, only--success story. When Fingerhut was acquired by FAC, its data center housed a Hitachi supercomputer, two mainframes, 274 Unix servers from Sun Microsystems, and 500 Windows servers, all part of its more than $110 million in IT expenses in 2001. After an analysis of its alternatives, Fingerhut shut down the systems, replacing them with Microsoft's Great Plains applications running on Windows-based Compaq servers and using Visual Studio .Net to build order-management and transaction-management functionality. This year, Fingerhut's IT operation, including about 50 staffers, is budgeted for $14 million, accord- ing to Mondale.
"The old legacy systems were business prohibitive," Mondale says. "There was no way Fingerhut could have succeeded with the existing systems." Fingerhut decided against using Oracle or PeopleSoft Inc. applications, even though it had up-to-date licenses for both. Argir says that's because Microsoft was the only vendor that could meet Fingerhut's requirement for an implementation that could be done in weeks rather than months.
If the hardest parts of Fingerhut's transformation are mostly behind it, Nazca's challenges are still ahead. The company has yet to sign its first customer--a pending contract fell through just last week--and with only six employees, it will have to work hard to win buyers' confidence. So far, it has marketing partnerships with Microsoft and Unisys, as well as with HighJump Software Inc., a developer specializing in supply-chain execution software for use in warehouses and shipping yards.
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