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A New Legacy
John Foley
InformationWeek - Published June 30, 2003
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.
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. HighJump CEO Chris Heim says Nazca brings a fresh approach to the market, with Fingerhut as proof that there's a strong case for replacing aging systems with newer apps that increase functionality while lowering costs. Fingerhut's rip-and-replace strategy was "astonishing" in its success, Heim says. "I think they will be able to achieve that for other companies as well."
At the center of Nazca's applications is a so-called direct-commerce automation engine, based on XML, that automates customer-facing business processes and manages transactions, orders, and fulfillment. Using the software, Fingerhut cut the time it takes to get a product moving, once an order comes in, from a couple of days to a few minutes. By linking Nazca's order- and transaction-management capabilities with Microsoft's customer-relationship management and HighJump's supply-chain apps, Argir says, midsize companies will be able to develop real-time, customer-oriented transactional systems that can work with or without ERP systems. "What we're saying is, let's create one system of record on the front end," he says.
Nazca is targeting companies that, like Fingerhut, have catalog and E-commerce operations, ranging in size from $50 million to $2 billion. Mondale says it has nearly a dozen prospects. Prices start at about $100,000 for Nazca's software.
With many other companies already selling order-management capabilities, Nazca is entering a crowded market, Yankee Group analyst Mike Dominy says. But Nazca's real-world roots in Fingerhut and high-caliber partnerships give the company a reasonable chance at success. "That's a fantastic start," he says.
So how's the slimmed-down Fingerhut doing? Officials of the privately held company won't reveal sales figures. But executive VP Megan Kavanaugh says the company is "exceeding expectations" in its business plans. In April, Fingerhut secured a $100 million line of credit to finance inventory, receivables, and working capital. Its mega data center--so big that the company used to resell excess electricity to local municipalities--was sold to United Healthcare.
Dave Hemler, a VP of small and midmarket solutions with Microsoft, says Fingerhut's story is compelling because the company demonstrated not only business agility but "business reconstitution." As for Nazca's applications, Hemler says: "They've got a lot of runway in front of them." If, that is, they can convince midsize companies to climb aboard.
For more information, contact: Jason Hepp, jhepp@nazcainc.com (612-279-6104) at Nazca |
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THE NAZCA LINES
Two thousand years ago, the Nazca Indians of Peru created a series of mystifying etchings in the desert which can only be fully appreciated from an aircraft.
The same visionary thinking inspires Nazca Solutions to see opportunities in information brokering which others miss. |
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