VAI Says 'No Thanks' to the Quick Buck

Corrected: March 8, 2007

by Alex Woodie

When you look at how the market for ERP software has changed over the past few years, the rapid consolidation of ERP software companies into a handful of giants is perhaps what stands out the most. But not all ERP software companies are interested in the consolidation game and the big payoffs they can bring to their owners. VAI, for one, is content with the steady growth that comes from attracting new customers, listening to their problems, and developing solutions for them.

VAI (which stands for Vormittag Associates Inc.) has a long history on the IBM midrange platform. Founded in 1978 by Bob Vormitagg, the Long Island, New York, company has attracted about 750 customers--primarily midmarket companies in the manufacturing, distribution, and retail industries, including such familiar names as Dunkin' Donuts, Turtle Wax, and Roto-Rooter.

With about 100 employees, the company enjoyed sales of $18 million in 2003, according to a 2004 article. Today the company employs 120, and about 85 of them are RPG programmers--65 at company headquarters in Ronkonkoma, New York, and another 20 at the company's offices in Florida, Illinois, and California. This might seem like an inordinate number of programmers to have on staff. But make no mistake, the company goes heavy on the RPG talent because that's the business it's in--developing an i5/OS-based ERP suite, written in ILE RPG, called S2K Enterprise Management.

No Acquisitions Planned

The fact that VAI relies predominantly on a reseller channel to sell its products is another reason the company is composed primarily of developers. "It used to be that other software companies [used a channel], but they were bought up, so they don't do that anymore," says sales director Dan Bivona.

There's a fundamental difference, Bivona says, between VAI and the big ERP companies that have employed the mergers and acquisitions (M&A) strategy to buy competing ERP software companies and their customer bases. While the law of the ERP jungle for a time was "eat or be eaten"--and some M&A activity can be attributed to simple survival--Bivona says the trend doesn't serve customers so much as it reward the owners.

"We don't try to downplay them or make them sound like they're not good companies," he says. "But if you're one of those companies, you put your money into the best product. They can't all be best, so somebody is going to suffer. Some customers are still paying maintenance, but they pretty much know what's going on. They [the leaders of the biggest ERP software companies] are investors. They're not developers."

Kevin Beasley, VAI's CIO, reiterates that sentiment. "We do not plan and have no plans to be acquired. We're pretty firm on it," he says. "We're successful at this point and continue to grow. We think we can best serve our customers by maintaining control ourselves."

VAI has made acquisitions in the past, and may make additional buys in the future. But those acquisitions will be made for technology's sake, not to pad the customer base. "For some companies, growing the installed base was a better growth mechanism than organic growth," Beasley says. "We're an organic growth company. Yes, we acquired some companies. But it hasn't hurt our ability to compete."

Building the Channel

The company is competing by continuing to develop S2K Enterprise and building its reseller network. In recent weeks, the company added four new resellers, including: ABC Services, a Babylon, New York, consultancy that specializes in iSeries, Windows, and Cisco services; CIM Strategies, an IBM business partner based in Woburn, Massachusetts, with iSeries, pSeries, and xSeries offerings; Paragon Consulting Service, a York, Pennsylvania, consultancy serving iSeries and other markets; and Saturn Business Systems, a New York City-based IBM partner that has predominantly focused on pSeries but is adding iSeries.

Last week, the company ventured into the hosted application business when it announced a partnership with Invision, a managed service provider (MSP) based in Commack, New York, that will host S2K Enterprise on its own System i servers and allow customers access to the ERP suite from a Web-based interface delivered through a virtual private connection (VPN) across the Internet.

VAI currently has 101 dealers across the U.S., Canada, and Puerto Rico, and the plan calls for adding more. "We want resellers in every state . . . but some states don't have a dealer," Bivona says. "The East Coast is pretty well covered. There are many states in the Midwest we don't have coverage in."

Next month's PartnerWorld in New Orleans will provide a good venue for cementing several more reseller agreements, says Bivona, adding that the company is receiving interest from resellers from as far away as New Zealand, and other English-speaking countries. Expanding globally is part of VAI's growth strategy, and the company has already localized S2K Enterprise for some regions, and plans to translate it into other languages to help this process.

Even without global growth, S2K Enterprise is attracting plenty of interest from the company's target market of organizations with between $20 million and $800 million in annual revenues, VAI officials say. "So far this year our pipeline looks extremely good," Bivona says. "We're expecting a good number of deals--twice as many as last year."

Customer Feedback Drives R&D

The upswing in sales activity is partly the result of aging ERP systems and the need to upgrade IT systems to expand business capabilities, according to Beasley, the CIO. "A lot of software bought in '97, '98, and '99 is very old software," he says. "A lot of new capabilities have been added in the last 10 years--Web technologies, sophisticated user interfaces, analytics. Nobody was looking for key performance indicators [KPIs] 10 years ago. People today want forward-looking forecasting, as opposed to historical forecasting."

VAI relies on its R&D department to keep S2K Enterprise on the cutting edge, and the team delivers by developing a new release every year. Last fall the company issued S2K Enterprise version 3.7.5, which included 300 to 400 customer-requested enhancements to core areas, such as the new capability to allow multi-bin put away in the warehouse management component, and enabling serial numbers for returns to be displayed in the detailed sales inquiry screen of the Customer Orders module.

This fall, at the annual VAI conference, the company plans to issue S2K version 5, which will introduce 100 or so enhancements that customers requested at last fall's meeting. (The company decided to skip version 4 to avoid confusing customers, who were promised several years ago a set of capabilities to be included in version 4, but which the company shipped in version 3.7.4.)

While the company is focusing on getting an interim release, version 3.7.6, out by April, Beasley is also involved in longer-term planning, including incorporating new technologies into S2K Enterprise and beginning the shift to service oriented architectures (SOAs) in the next major release of the product, version 5.

Preparing for the Future

With version 5, the company plans to transition to a Java client that front-ends the core business logic written in RPG. S2K Enterprise already offers Windows- and Web-based GUIs--VAI, like many OS/400 ISVs, is a long-time customer of Seagull Software and its JWalk-LegaSuite re-facing technology. But the move to Java and XML will make it easier to deliver interfaces as Web services as part of an SOA.

VAI wants to make this shift while preserving customer choice. "Browser interfaces are important but it's a multi-interface world. No one interface can support all of what a customer demands," Beasley says. "At this point, it [the Web services interface] would be an additional option as opposed to a replacement. If a customer required 5250, at least in the near term, we will provide it." For some environments, such as a warehouse, reliance on the compact 5250 datastream served through an emulator on a handheld device is still the only feasible option, he says.

A new Java client won't be the only change in version 5. The company is also working in several functional areas, including adding more KPIs and dashboards, bolstering the warehouse management component, and adding mobility features to take advantage of today's 3G wireless networks, and bolstering the portal.

Beasley is also intrigued with some of the latest developments in video and voice over IP (VOIP) capabilities. For example, integrating S2K Enterprise with VoIP on the System i would make it easier for a customer service representative at a company headquarters to transfer a telephone call and all the screen information to the company's closest office.

"There are many other collaboration-types of capabilities [that become possible] as VoIP and video become more commonly used," Beasley says. "Having more video capabilities in our ERP would be useful. It would be nice to have. But it's not on the short list of requirements."

VAI is one of the System i faithful, having tied its cart closely to the IBM platform. And why not? The venerable computer has served VAI well for years. With new technologies such as VoIP and SOA building on the OS/400 and RPG legacy, the company fully expects the System i server to pay technological dividends to VAI and the customers it serves for years to come.

This article has been corrected. VAI employs 85 programmers, not 100, as the article previously stated. S2K Enterprise version 5 will be unveiled this fall, not S2K Enterprise 3.7.6. Version 3.7.6 is due out in April. IT Jungle regrets the errors.

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