Needless to say, DataWorks has enjoyed a nice run in the mid-range ERP market.
The mid-range market has expanded upward to include companies with revenues up to $1 billion, but it remains the same, basic market we have always focused on. We focused on specific industries within the mid-range manufacturing market, and focused on specific geographic regions. The goal was to make those customers as happy as they could possibly be. From there, we could expand out nationally and now internationally.

Information technology and computing power have dramatically altered the manufacturing sector during your 10 years at the helm of DataWorks.
You're right. Even the definition of manufacturing has changed. Today we see many companies who are really doing more assembly than manufacturing. They're outsourcing the manufacturing, and doing design, assembly and testing, along with sales and marketing. Sun Microsystems is a classic example. They are virtually out of the manufacturing business. Many of our customers are evolving to that very lean or nonexistent manufacturing arena, and that has created new opportunities for us.

Along with opportunities, the mid-range market also presents its share of problems for ERP vendors. For example, mid-range companies don't have the huge IT budgets associated with the Fortune 500, and certainly they can't afford the three- and five-year implementation periods common in the Tier 1 ERP market dominated by SAP.

Obviously, the SAPs and the Baans have the resources to go wherever they want. So as much as we are enjoying good success against them today, I do think they will become formidable competitors and have an important share of the middle market. But the mid-range market is very large and the increasing presence of the Tier 1 vendors will not slow DataWorks' strong growth. DataWorks is going to continue its growth trend of 35 percent per year; which means we're going to be increasing market share overall. The losers will be the smaller, regional players who have not established critical mass and don't have the financial resources to keep upping the ante on the products, technology and the required support services.

What DataWorks has done extremely well is identify and understand our customer. You mentioned budgets, but it's more than that. Our customers generally lack the infrastructure, the experience and the people to get the IT job done. In that scenario, DataWorks must become their de facto IT partner, and that's the role we really want — the IT partner to the mid-range market. Our customers can expect that we will help introduce them to all the pertinent information technology and application functionality that they need. Today it obviously revolves around an ERP system, but ERP systems are expanding even as we speak. The supply chain, the whole area of logistics and distribution models — we want to help lead them into those arenas.

In a world where customers are now partners, it seems that businesses must put a tremendous amount of faith in an entity they don't really control. Isn't there an inherent danger in all of this partnering?
I think there are some dangers or some inherent concerns that the middle market has with partnering that need to be addressed. In Tier 1 it is referred to as best-of-breed alliances or partnerships where key pieces of additional functionality have been interfaced with ERP systems from the SAPs and the Oracles and the Baans. The difference is that those Tier 1 integrations are incredibly complex and often times very company-specific. Fortunately, when you're dealing with a Global 2000 company or a Fortune 1000 company, you typically find the IS resources in place that can handle those integrations. These large Tier 1 companies take the responsibility themselves of dealing with the three or four key but disparate software providers; they will do much of the support and basically do the integrations within their IS departments.

In the middle range, for all of the reasons we just talked about, that's not possible. The middle market is really gun shy of the multi-vendor approach. They understand that it's a reality, that it's going to happen and they must eventually take advantage of software from different providers, but they're looking for one primary vendor for taking project and on-going support responsibility.

Again, that's the role that we really want to take — that we are taking — in the middle market. We want to take our market partners' products inside DataWorks and provide them as an integrated extension of our product. As we add products through alliances and partnerships, we need to take the role of primary contractor, again coming back to providing an IT partnership for our customers.

One of your partners is Microsoft . . .
That's right, from the technology side, not so much the application side, although that could change as we integrate their BackOffice server products in the future. From a technology point of view, they are obviously an important player, and a very important partner to us as we go forward. We believe that our strong relationship with Microsoft will be a key element in offering our customers the lowest cost of ownership over the long term.

At a recent AMR conference, I didn't hear one word about manufacturing in three days, but I did hear a whole lot about information technology. Isn't manufacturing still about making stuff, or is everyone now in the information business?
Even though the definition of manufacturing is shifting as we discussed earlier, and even though we're seeing different forces in the market, it is still fundamentally about manufacturing. But manufacturers know how to build products and what products to build, so from that perspective, we're not going to help them dramatically. I think the real key is giving them the information that tells them where trends are starting and when they are falling off. How can they get information to their customers much more responsively? Today they're looking at their IT systems as real strategic weapons, as competitive weapons, rather than just as pure cost efficiency tools within the four walls of the factory. That's where the momentum in the marketplace is taking them. We're really talking about strategic positioning and enhancing customer service through information technology, rather than just pure optimization of inventories or how fast they can roll it down the production line. The way they are going to get the competitive edge in their manufacturing environment is through their information system.

Mergers and acquisitions are omnipresent in the ERP market, and DataWorks has been active in this regard. Anything new to report?
We're now in the process of acquiring a small software company in Ithaca, N.Y., that that has developed a very innovative advanced planning and scheduling (APS) capbility. In addition to an excellent product, we are also acquiring the expertise of the two founders who are highly respected in the field of APS and are currently professors at Cornell University. These people really understand the area of mathematical modeling and forecasting algorithms for an industrial enterprise planning tool. We will take their product, enhance it considerably and integrate it into our system. We think that it is going to give us enhanced supply chain capabilities in a very short period of time.

Will this give you the advanced planning and scheduling component generally missing in ERP?
Yes. These people have built a real-time APS engine; in other words, it is memory resident and it operates on the fly. It's not one of these batch-oriented applications which by the time you get results back, even if it's a day or two, could be too late for any critical production or delivery decisions that you are trying to make.

Does this signal an end to your critical mass-building acquisitions, such as last year's Interactive Group deal?
Building critical mass — increasing the size of our company and our customer base — was very important to us in order to give our customers the security that we were going to be around for a long, long time. That's what Interactive and some of the earlier transactions were all about. Now we're shifting away from critical mass building, which I think we've done enough of in recent years, to really looking at what strategic product pieces we can acquire and integrate into our solution. We're going to be looking for products that compliment what our customers are looking for and what they want to do; and then we're going to bring them to them under this IT partnership framework.

There's a tendency in this environment to think in terms of software solutions rather than people solutions. Care to comment?
The world isn't lacking for product; it's lacking for process and it's lacking for people who really understand who they are trying to serve. I have a problem with the consulting community at large in the ERP business because I think there's an inherent conflict of interest. I don't think they try to get in and get out as quickly as they can; they don't look for a lean, mean, efficient implementation. They are in the consulting business — that's their product — so they look for opportunities to sell themselves and to keep themselves involved. That leads to longer and more complex implementations than might be necessary. At DataWorks, we've designed the product to be handled by our own implementation teams, our own consultant teams. Our philosophy is to get in and get out as quickly as possible. I think the people and the process are as important as the product. All three must come together in order to have a model that is going to work for the middle market. That's what DataWorks is all about.

As someone who spends a considerable amount of time looking at strategic plans for his own company and the industry at large, can you give us your thoughts on the ERP market and the manufacturing sector five or 10 years out?
I think first of all we have to take the complexity out of the product and constantly seek a simpler, easier implementation approach. I think Microsoft is going to shake up a big part of the commercial software business. I think we have to talk about finally reaping the benefits of object-oriented technology, in terms of development and application technologies as well as at the object-oriented database levels. I think we are going to see a whole new database paradigm come into play in that period of time.

We are obviously going to see a continuous expansion of Web-based applications. I think ultimately you will see many parts of the ERP system viewed almost as a utility where you don't have the products themselves on your own host system, but you are going to use them through the Internet. There are plenty of examples of that today. In a way, it's returning to our roots of computer timesharing and optimizing those great, big mainframes of 20 years ago.

Sum up the DataWorks business philosophy.
I think it's been said many thousands of times over, and I know it's a clich�, but the customer is king for us. The key is understanding the opportunities our customers are looking for, and being sensitive to their resources and the timeliness in which these opportunities can be successfully integrated into their business. The biggest fear I have right now is that their eyes are so wide open to all these new technologies and software application functionality, that they think you can just go buy them out of a box and it will virtually install itself. I think we have to make sure that we continually improve our model. We must continue to work with our marketplace through the same principles that got us to where we are today. Again I can't overemphasize this IT partnership. Keep it simple, keep it on track, keep it effective and efficient. We measure our own success not only in terms of revenues and earnings, but also on how well our customers improve their businesses with our products.

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