jupiter systems case

8/3/2019 Jupiter Systems Case

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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 corrector 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 ofthis publication may be reproduced, stored in a retrieval system, used in a report or spreadsheet, or transmitted in any form or by any

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[email protected].

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 in2006 by offering new IT solutions such as customer servicing & vehicle sales

administration. The CEO thought of how the initial success of DMS would helpaddress its strategic expansion priorities. Juan was scheduled to meet his executiveteam 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 Jupiters 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 800client 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 anddistribution markets in the Philippines and abroad. Jupiters 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 Jupiters future.

Serving the SME market

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

http://www.jupitersystems.com.ph/studies.aspx for ERIC implementation cases


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Jupiter Systems Case

AyalaTBI and Asian Institute of ManagementCopyright 2007

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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 theManufacturing 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 1980s, capital expenditure was quite heftyfor 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 SMEs and a

hospital that required programming work. Finally, in 1987, they decided to launchJupiter Systems. We wanted to build something of our own, lamented the 48 year-

old 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-costalternative 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 astandard 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 90s, 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 clientcommitments, 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, butadditional 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 Juans entry as

Jupiters 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 Nelsons management (exhibit 3). ERIC had developed into a variedset 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, offeringalternatives to ERIC. Larger, more established players began pushing client serversolutions to both multinationals and local conglomerates. Jupiter was affected by the

local introduction of Europe-based SAPs R/3 product and Oracle solutions from the

USA. Oracle positioned firmly in the financial segment of the market with its Platinumsolution. 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 yearsexperience 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 tomanagement 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 financialperformance 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 othergeographic regions such as Visayas/Mindanao and South East Asia. John was fullyaware 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 Jupiters 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 andlanguage barriers. We seemed to have bit off more than we could chew at that

time, Juan critiqued on their early overseas expansion. In Vietnam, Jupitersresources 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-ownedsoftware 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 needof 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

thats where we attacked, Juan commented. Jupiter created a proprietary DealerManagement 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 ERICover 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 year-

old 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 implementationexposure with JD Edwards, a renowned IT solutions brand. Eddies 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 provenlanguage 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 salesby 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 QAtesters. 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

Jupiters business?

Balancing Priorities

Juan had reviewed the impact of the DMS contracts on expanding Jupiters

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.htmhttp://www.e-servicesphils.com/en/news.php?page=29


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would affect Jupiters continued servicing of the SME market. He wondered how best

to convince Nelson, as founder of the company, of the new opportunities that wouldultimately 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 Jupitersservices. 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 efficientsolutions 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 Industry Financials Distribution Manufacturing

ERIC-DMS (DealershipManagement System) Personnel

Consolidated Dairy &Frozen FoodCorp.

Distribution of dairy and meatproducts Accounts Receivable Order Entry & Billing

Accounts Payable Inventory Management

Rustans Superstore Inc. Supermarket

Human ResourcesManagement

Time Card Management

Payroll

Isuzu Autoparts ManufacturingCorp. Parts manufacturing. PEZA account.



Payroll

IOS Marketing Corporation

Importer and distributor of opticallenses Gene ral Le dg er Inven to ry Ma na ge me nt

Accounts Receivable Order Entry & Billing

Accounts Payable Advanced Purchasing

TSPI credit cooperativeHuman ResourcesManagement


Payroll

FLEXO MANUFACTURING F ilm pa ck ag ing man ufactur in g Gene ral Le dg er Inven to ry Ma na ge me nt

Material Resource Planning/Production Planning


Accounts Receivable Order Entry & Billing

Product Engineering &Costing Time Card Management

Accounts Payable Advanced Purchasing Shop Floor Control Payroll

Top Mechatronics Manufacturing. PEZA account.



Payroll

DHL ON call Services Logistics, package delivery Time Card Management

Salem Manufacturing

Manufacturing and sales--homeproducts Treasury Advanced Purchasing


Inventory Management Time Card Management

Order Entry and Billing Payroll

Green Cross Inc.(Mfg)

Manufacturing and distribution---household goods Gene ral Le dg er Inven to ry Ma na ge me nt

Master ProductionScheduling HR, Payroll, TimecardMaterials RequirementPlanningCapacity RequirementPlanning

Lamoiyan (Phase 2)

Manufacturing---toothpaste,household goods Accounts Receivable Order Entry & Billing

Shop Floor Control

NSG Micro Optics Phils. Inc. Manufacturing. PEZA account. Gene ral Le dg er Inven to ry Ma na ge me nt

Product Engineering andCosting

Accounts Receivable Advanced Purchasing

Master ProductionScheduling

Accounts PayableMaterials RequirementPlanning

Shop Floor ControlCapacity RequirementPlanning


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Exhibit 4: New Clients & installations 2005-2007 (continued)

Client Industry Financials Distribution Manufacturing

ERIC-DMS (DealershipManagement System) Personnel

All Key International Inc. Manufacturing. PEZA account. Gene ral Le dg er Inven to ry Ma na ge me nt

Accounts Receivable Order entry Billing

Accounts Payable Advanced Purchasing

CATS Motors Inc.Distributor of Mercedez Benz andDaimler-Chrysler vehicles Gene ral Le dg er Inven to ry Ma na ge me nt

ERIC-DMS (CRM, VehicleSales, ServiceManagement)


Accounts Receivable Order entry Billing Time Card Management

Accounts Payable Advanced Purchasing Payroll

SO Nice

Import and Distribution---meatproducts General Ledger Or der Ent ry & Billi ng

Accounts Receivable Sales analysis

Accounts Payable Warehouse Mgt. system

Advanced Purchasing

Car World Inc. Car distribution (various vehicle lines) General Ledger Or der Ent ry & Billi ng Customer Relation Mgmt.

Accounts Receivable Advanced Purchasing Vehicle Sales Adm.

Accounts Payable Inventory Management Service Vehicle Mgt.

Treasury

Fixed Assets Mgt.

ZOE Broadcasting Broadcast & communicationsHuman ResourcesManagement


Payroll

Lamoiyan Corporation Phase1

Manufacturing---toothpaste,household goods Accounts Payable Advanced Purchasing

Product Engineering &costing

General l edger Inventory Management

Master ProductionScheduling

Materials RequirementsPlanning

SummerSault (Prople) BPOHuman ResourcesManagement


Payroll

Personnel Web Inquiry


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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 rangeof 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 weresupported 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 byHong 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 interfaceportal 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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