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Jupiter Systems Case

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JUPITER SYSTEMS CASE
During a rainy October week in 2007, Juan Chua, the 47 year-old CEO of Jupiter Systems Inc. pondered the directions of its recently developed Dealer Management System (DMS) project. Jupiter had entered the automotive dealership market in 2006 by offering new IT solutions such as customer servicing & vehicle sales administration. The CEO thought of how the initial success of DMS would help address its strategic expansion priorities. Juan was scheduled to meet his executive team Nelson Ng (Founder and R&D Head), John DeFiesta (General Manager) and Eddie Uy (AVP for Consulting/Client Services) to evaluate the trade-offs between improving Jupiter’s branded software and accepting contracts for new outsourced services. In addition, he had to carefully balance operational priorities against the founders’ original business model. Jupiter was known for its enterprise software solution branded as ERIC (Enterprise Resource Information and Control Systems), with an installed base of more than 800 client companies (of which 300 are currently active) since its inception in 1987. Over a span of two decades, this 100% Filipino-owned homegrown IT firm delivered software enterprise solutions to companies in the mid-sized manufacturing and distribution markets in the Philippines and abroad. Jupiter’s ERIC had product modules for varied processes in Manufacturing, Human Resources, Finance and Distribution fields.∗ In the past 20 years, Jupiter had grown from a two-man development team to a 100-staff major player in the small-medium enterprise (SME) IT solutions market. However, operational constraints and market realities had severely affected Jupiter’s future.

Serving the SME market Jupiter traced its origins in 1985 when two executives, working on IT solutions for manufacturing clients for the prestigious accounting firm SGV, decided to strike out


http://www.jupitersystems.com.ph/studies.aspx for ERIC implementation cases This case was written by Mr. Gulliver Go, under the supervision of Prof. Gabino A. Mendoza, Asian Institute of Management. All case materials are prepared solely for the purposes of class discussion. They are neither designed nor intended to illustrate the correct or incorrect management of problems or issues contained in the case. Copyright 2007, Asian Institute of Management and Ayala Foundation, Inc., Makati City, Philippines, http://www.aim.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a report or spreadsheet, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the consent of the Asian Institute of Management. To order copies, interested parties must secure a Site License Agreement from the Knowledge Resource Center - Library Casebank, AIM, 123 Paseo de Roxas, Makati City 1260, Philippines, Tel. No. (632) 892-4011 local 164/214/212; Telefax: (632) 817-2663 or e-mail [email protected]

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on their own. Nelson Ng, a De LaSalle Industrial Engineering graduate and Joseph Uy, a University of Illinois BS in Engineering, replicated a low-cost version of the Manufacturing Resource Planning (MRP) solution they developed for their former employer. Their thesis in college, both on software applications for operation research, gave them the initial insight into building solutions that would assist manufacturing planning. During the early 1980’s, capital expenditure was quite hefty for MRP, given the costs for investing in mini-computers (then the precursors of servers) as well as programming expenses. Nelson and Joseph believed that there was a market for a cost-efficient MRP in the local medium-scale industries. They were weekend warriors from 1985 to1987, building solutions for their clients while working in SGV. Their initial clients were local manufacturing SME’s and a hospital that required programming work. Finally, in 1987, they decided to launch Jupiter Systems. “We wanted to build something of our own,” lamented the 48 yearold Nelson. He & Joseph had the entrepreneurial drive that they attributed to their Filipino-Chinese ancestry. They both wanted to own a firm that provided a low-cost alternative to the market– a common business strategy of overseas Chinese businessmen. They dubbed their proprietary solution ERIC (an acronym for Enterprise Resource Information and Control Systems) and started by installing Bill Of Materials (BOM) solutions to assist their clients’ procurement & inventory management. Both founders were technically competent in their IT programming fields. Joseph handled the sales responsibilities as he was, as Nelson recalls “the more vocal and articulate (with clients) of the two of us.” Nelson handled the product development activities of Jupiter Systems and provided back office support. In the early years, the initial Jupiter business model emulated SGVs method of subdividing a company client into groups based on departmental specialization (ie. accounting, inventory, etc) or service type. This slowly developed into a more product-centric focus when ERIC was brought to market. The founders established a standard process and revenue model (Exhibit 1) that enabled to move beyond service-based custom solutions to a fixed product with various revenue opportunities. Re-architecture & Re-investment By mid 90’s, the market was rapidly adopting the Windows format for many of its IT applications. Compared to its competitors, ERIC was still a character-based interface and had not migrated to a Windows format. It took three years for Nelson and his technical team to make the transition a reality – delays were due to client commitments, resource and funding constraints. By 1997, the re-architecture of ERIC had drained Jupiter of a substantial amount of cashflow. Jupiter had installed the new Windows-platform (exhibit 2) for clients like Mariwasa and SC Johnson, but additional effort was needed to stabilize the new product and add new modules. It was at this time that Jupiter began considering external investors. Nexus Technologies, under the leadership of Juan Chua, infused P40 mil (about USD1.5 mil in 1997, USD1.00 = PhP26.60) to assist Jupiter in completing the Windows transition. After 18 more months, ERIC had officially completed its 3.2 version. Nexus had an equivalent of 49% stake in Jupiter, which allowed Juan’s entry as Jupiter’s interim CEO. Nelson was now full-time in R&D while Joseph had begun to dedicate more time to helping his father in their family business. Jupiter had grown
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its manpower to almost 100, with most of the staff on the technical R&D department of Jupiter, under Nelson’s management (exhibit 3). ERIC had developed into a varied set of modules to address changing requirements and a growing number of diverse clients (exhibit 4 & 5). By 2000, numerous other players had already entered the market, offering alternatives to ERIC. Larger, more established players began pushing client server solutions to both multinationals and local conglomerates. Jupiter was affected by the local introduction of Europe-based SAP’s R/3 product and Oracle solutions from the USA. Oracle positioned firmly in the financial segment of the market with its Platinum solution. In 2001, Microsoft had already made inroads into the ERP (enterprise resource management) segment via their MS Dynamics product. Not limiting themselves to big clients, SAP unleashed their BusinessOne brand four years later to address the SME market. Nelson often mulled over the competitive offerings (with varied functionalities such as cost accounting, supply chain, business intelligence etc.). As founder, he would ask, “How can we improve ERIC to compete in this new environment?” Enter the Executives, Onwards to Expansion In 2004, Jupiter brought John DeFiesta as General Manager. John had over 16 years experience with IT solutions and hardware reselling for brands like IBM. He was tasked to handle sales expansion, redefine internal processes, improve communication between implementation and R&D, and provide resolutions to management conflicts. The SME market was a “a cost sensitive one,” mused the 38 year-old John, wherein Jupiter had to blend the “high level of software functionality of international brands and the low billable rates of local independent developer teams.” He had several priorities for Jupiter, the top three being: profitability, market expansion, and retention of talent. John had reviewed the past financial performance of Jupiter and felt that a better costing method was needed to rein in expenses (exhibit 6). He looked at the possibility of new installations from other geographic regions such as Visayas/Mindanao and South East Asia. John was fully aware of the rising competition in the SME space; local developer teams began sprouting, claiming to have low-cost IT solutions similar to ERIC. These were small teams of five to six IT developers that were slowly encroaching into Jupiter’s space. John also had to contend with the same staff turnover problems encountered by most local firms – losing talent to overseas jobs or large multinational companies. John agreed with Nelson that Jupiter had “enough strength to pull in talent given ERICs reputation.” Jupiter Systems began looking to grow beyond local shores. They set up joint ventures in Thailand, Vietnam and China in order to tap the medium scale firms operating in those countries. Jupiter aimed to create a new ERIC distribution channel for these countries but remained wary of the pitfalls such as piracy, maturity and language barriers. “We seemed to have bit off more than we could chew at that time,” Juan critiqued on their early overseas expansion. In Vietnam, Jupiter’s resources went to orientation and training, rather than implementation, as potential SME clients were unprepared for standardized manufacturing processes. Their ventures in China were uneventful as local companies preferred Chinese-owned software solutions, paired with older pre-Windows interfaces. Thailand, however, offered more promising opportunities as Jupiter examined new sectors. Jupiter
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completed four (4) installations in Thailand valued at a total of USD 155,000 in software licensing. Moving Towards Verticals & Outsourcing In early 2005, Juan, Nelson and John began exploring new business sectors in need of customized solutions based on the ERIC platform. They evaluated markets that competition had overlooked, given the limitations of economies of size and scope most international brands were burdened with. They set out to identify sectors that had : (1) a low penetration of IT services, (2) smaller, customized solution requirements, and (3) no available local solution for niched operations. “We found that there was a potential vertical niche in the local auto dealership industry, and that’s where we attacked,” Juan commented. Jupiter created a proprietary Dealer Management System (DMS) for customer servicing & vehicle sales administration (exhibit 7), to handle their specific needs of the Philippine and Thai automotive dealership market. The first Philippine DMS installation was for CATS Motors, a Mercedes-Benz dealership. In 2006, Jupiter bagged two Ford dealerships that had selected ERIC over a foreign brand currently installed in other Ford branches in the Philippines. In addition, there were several Thai auto dealerships in the pipeline, interested in Jupiter's DMS. In 2006, Jupiter hired Eddie Uy to handle Consulting & Client Services. The 54 yearold Assistant Vice President had a background in IT and had a CPA to complement his finance process consulting expertise. Eddie had held positions with a semiconductor firm, FastTech, as IT head and had extensive implementation exposure with JD Edwards, a renowned IT solutions brand. Eddie’s main objectives were to manage client expectations, control implementation costs and provide timely training & orientation. At about the same time, Jupiter explored the opportunities in the Business Process Outsourcing (BPO) field, where Philippines had a proven language and technical advantage over other countries.∗ The move to BPO was progressing along during the same period. “We have had several successful and ongoing turnkey projects, requiring IT solution customization, all from abroad,” John stated, “due to our low per hour cost for development work.” Jupiter offered very competitive billable hours, charging P300-400/hour for these projects rather than the usual standard ERIC rates. BPO projects were estimated to contribute 15% of sales by end of 2007, with healthy gross margins of 60%. The typical talent turnover, though, was staggering. For the Quality Assurance group, Nelson estimated a 70% turnover (vs. prior years’ 20%) due to BPO competitors’ offerings for experience QA testers. Would they stray too far from the product-centric model for ERIC, thus losing focus and sacrificing resources? Or would it be the model for the future of Jupiter’s business? Balancing Priorities Juan had reviewed the impact of the DMS contracts on expanding Jupiter’s international footprint. In the area of outsourced services, he thought of how this


http://www.philippinebusiness.com.ph/archives/magazine/vol13-2006/13-9/industry.htm http://www.e-servicesphils.com/en/news.php?page=29

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would affect Jupiter’s continued servicing of the SME market. He wondered how best to convince Nelson, as founder of the company, of the new opportunities that would ultimately reshape Jupiter. When the week had drawn to a close, Juan prepared to meet with his executive team. They all shared the goals of constantly improving and expanding Jupiter’s services. However, the current workload entangled Jupiter in several operational challenges such as talent recruitment, staff retention, technical issues and continued profitability.

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Exhibit 1: Standard Process, Revenue Model & Rates: First, the client triggered the requirement for developing a solution. As a catalyst for development, this provides Jupiter with directions for new functionalities as well as revamping of other features. Jupiter then went through a rigorous review and evaluation of the current operations systems of the client. It then offered efficient solutions to the process flow by introducing the basic ERIC module with additional features added based on client needs. Programming & training soon followed once all requirements were finalized. - Project definition – Business process assessment, project definition report, kick-off meeting, workplan - Training & orientation - Data conversion – client given templates & fields to migrate existing data (about 40-50% of effort on client-side and another 40% from Jupiter) - CRP (conference room pilot) testing of all functionalities, very high R&D interface (heavy emphasis on billable hours here – maybe 40% of total, Jupiter) - “Go Live” Support – maybe 20% of billable hours & resources - Refinement (client role to check for needed updates etc) -Training & refresher courses – billed separately, usually requested annually by clients Revenue Model & Comparative Billing Rates: - Per user license - A license fee for the ERIC software module/s, usually 40% of client investment - Training & Implementation - Commonly priced at 50% of project investment – set by billable hour rates of P1,200/hour - Annual Maintenance – A Software Maintenance Agreement (SMA) equivalent to 20% of total license fees - Hardware - an option, should a client decide to bundle rather than purchase separately Enterprise Software Implementation: Jupiter Systems : P1,400-2,000/hour (same for Service Maintenance Agreement) Multi-national Software Firms (average) : 1,800-2,000/hours BPO Programming & Turnkey solutions Jupiter Systems : P550/hour Local Developers (average): P300/hour

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Exhibit 2 : Screen Shots & ERIC interface (Attached “ERIC GL screenshots” file)

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Exhibit 3: Organizational Chart

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Exhibit 4: New Clients & installations 2005-2007
Client Consolidated Dairy &Frozen Food Corp. Industry Distribution of dairy and meat products Financials Accounts Receivable Accounts Payable Distribution Order Entry & Billing Inventory Management Human Resources Management Time Card Management Payroll Human Resources Management Time Card Management Payroll General Ledger Accounts Receivable Accounts Payable Inventory Management Order Entry & Billing Advanced Purchasing Human Resources Management Time Card Management Payroll Material Resource Planning/ Production Planning Product Engineering & Costing Shop Floor Control Human Resources Management Time Card Management Payroll Human Resources Management Time Card Management Payroll Time Card Management Human Resources Management Time Card Management Payroll Master Production Scheduling Materials Requirement Planning Capacity Requirement Planning HR, Payroll, Timecard Manufacturing ERIC-DMS (Dealership Management System) Personnel

Rustans Superstore Inc.

Supermarket

Isuzu Autoparts Manufacturing Corp.

Parts manufacturing. PEZA account.

IOS Marketing Corporation

Importer and distributor of optical lenses

TSPI

credit cooperative

FLEXO MANUFACTURING

Film packaging manufacturing

General Ledger Accounts Receivable Accounts Payable

Inventory Management Order Entry & Billing Advanced Purchasing

Top Mechatronics

Manufacturing. PEZA account.

DHL ON call Services

Logistics, package delivery Manufacturing and sales--home products

Salem Manufacturing

Treasury

Advanced Purchasing Inventory Management Order Entry and Billing Inventory Management

Green Cross Inc.(Mfg)

Manufacturing and distribution--household goods

General Ledger

Lamoiyan (Phase 2)

Manufacturing---toothpaste, household goods

Accounts Receivable

Order Entry & Billing Shop Floor Control Inventory Management Advanced Purchasing Product Engineering and Costing Master Production Scheduling Materials Requirement Planning Shop Floor Control Capacity Requirement Planning

NSG Micro Optics Phils. Inc.

Manufacturing. PEZA account.

General Ledger Accounts Receivable Accounts Payable

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Exhibit 4: New Clients & installations 2005-2007 (continued)
Client All Key International Inc. Industry Manufacturing. PEZA account. Financials General Ledger Accounts Receivable Accounts Payable Distribution Inventory Management Order entry Billing Advanced Purchasing ERIC-DMS (CRM, Vehicle Sales, Service Human Resources Management) Management Time Card Management Payroll Manufacturing ERIC-DMS (Dealership Management System) Personnel

CATS Motors Inc.

Distributor of Mercedez Benz and Daimler-Chrysler vehicles

General Ledger Accounts Receivable Accounts Payable

Inventory Management Order entry Billing Advanced Purchasing

SO Nice

Import and Distribution---meat products

General Ledger Accounts Receivable Accounts Payable

Order Entry & Billing Sales analysis Warehouse Mgt. system Advanced Purchasing Order Entry & Billing Advanced Purchasing Inventory Management Customer Relation Mgmt. Vehicle Sales Adm. Service Vehicle Mgt.

Car World Inc.

Car distribution (various vehicle lines) General Ledger Accounts Receivable Accounts Payable Treasury Fixed Assets Mgt. Broadcast & communications

ZOE Broadcasting

Human Resources Management Time Card Management Payroll Accounts Payable General ledger Advanced Purchasing Inventory Management Product Engineering & costing Master Production Scheduling Materials Requirements Planning Human Resources Management Time Card Management Payroll Personnel Web Inquiry

Lamoiyan Corporation Phase1

Manufacturing---toothpaste, household goods

SummerSault (Prople)

BPO

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Exhibit 5: Selected Project Descriptions ERP Implementation for SC Johnson and Sons (Philippines) Known for brands such as Raid, Zip Loc, SC Johnson and Sons is a globally recognized consumer goods manufacturer. Working with an independent MRPII consultant for business process improvement, Jupiter Systems developed a full range of solutions for productivity improvement and resource optimization- from supply management, manufacturing, distribution to demand creation and fulfillment. . The project was completed in record time, months ahead of other SCJ subsidiaries that chose to implement a global brand ERP Application. Unique functionalities for SCJ • Batch Balancing Computation Routine in MRPII optimizes manufacturing processes • Consumer goods distribution tactics- discounts, promotions, and bundling were supported by built-in software functionality enabled SCJ to compete for retailer shelf and warehouse space. HRM Solution for Hong Kong Chep Lak Kok Airport Services Having made inroads with the Hong Kong and China markets in the mid 1990s with a simplified Chinese version of it's packaged ERP, Jupiter Systems was contracted by Hong Kong Airport Services (HAS) to develop an HR system. It was deployed at HAS in the late 1990s and has been consistently updated/upgraded to the latest user interface, operating system, and RDBMS platforms (currently Windows Server 2003 and SQL Server 2000). The system serves the HR requirements of about 3,000 staff running the airport. Unique HR functionalities for HAS: • Extended employee master files containing accident/insurance information • Reporting, recording of disability/injuries. • Specialized maintenance and tracking for leaves, loans, and other benefits Customer Interface Portal for Sony Philippines With an affiliate company as the primary service provider, Jupiter Systems provided development resources to create Sony Philippines' web-based customer interface portal which showcases the company's local electronics and technology arm through a streamlined, animated display - attracting users to interact with and experience the products. Unique functionality for Sony Philippines: • Aside from giving product listings in dynamic form, the Web site contains details and specifications for these products, and can highlight a number of these for the purpose of promotion. Customer service enhancements include such sections as a "Do It Yourself" page and an extensive listing of Sony Customer Service Centers found around the country.

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Exhibit 6 : Financial Statements 2004-2006

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Exhibit 7: Dealer Management System (DMS) Functions

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Exhibit 7: Dealer Management System (DMS) Functions (continued)

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