enterprise resource planning (ERP) software solutions have become synonymous
with competitive advantage, particularly throughout the 1990's. ERP systems
replace "islands of information" with a single, packaged software solution that
integrates all traditional enterprise management functions like financials,
human resources, and manufacturing & logistics (See Market Information Sidebar
for more details). We also believe that having an ERP system is a prerequisite
in most business environments to fully take advantage of the latest business
information processing trends, such as e-Business and customer relationship
could distinguish the following two segments within the ERP market:
Corporate ERP solutions are primarily focused on the consolidated
data management, financial and human resources needs of large Fortune 1000
companies. It evolved from accounting and contract management systems in
the early 1980s. Human resources and more comprehensive financial planning
and control systems were added in the 1990s. Leading vendors of these solutions
are SAP, Oracle, and PeopleSoft.
ERP solutions are primarily focused on the specific needs of mid-range manufacturing
plants and distribution sites or the operations level of global companies.
This ERP market segment's roots are in the control automation market of
the 1960s and 1970s and the manufacturing planning software market of the
1980s. This evolved into the ERP of the 1990s. Leading vendors of these
ERP solutions include SAP, Oracle, PeopleSoft, J.D. Edwards, Baan, JBA (now
a division of Geac Software Corp.), Intentia International, SSA, Lawson
Software, QAD, IFS AB, Symix Systems, MAPICS, Navision, and a number of
smaller niche ERP players.
80's and 90's, businesses have been subject to increasing global competition,
resulting in a pressure to lower production costs, improve product performance
and quality, increase responsiveness to customers and shorten product development
and delivery cycles. Furthermore, globalization has greatly increased the scope
and complexity of multinational manufacturing organizations. Therefore, companies
have long been urged to develop or purchase and implement software applications
to automate their business processes, leverage their transnational data stores
in order to make more informed decisions, and ultimately, decrease operating
costs. Companies realized the need to be able to react rapidly to change due
to increasing competition, deregulation, globalization, and mergers & acquisition
the second half of the 1990s, the market for ERP systems has experienced strong
growth rates in excess of 50% per year, from US$ 5.7B in 1995 to US$ 16.6B in
1998 [Source: AMR Research]. Some of the key drivers, in addition to the above
mentioned underlining reasons, were:
The transition from custom-designed legacy software (software
developed by or for a specific customer) to the implementation of standard
systems that can be applied across different types of industries. This was
particularly true for the largest companies, who previously thought that
they had the resources to develop business solutions under their own steam.
addition to the transition to standard systems, ERP systems have been extended
to support an increasing number of business processes in integrated solutions
like engineering, customer support, sales support, human resources, etc.
customer base has also expanded from mainly manufacturing, trade, and distribution
to the public and financial sectors, transportation, infrastructure, defense,
federal and local governments, utilities, etc.
the past three years, Year 2000 (Y2K) and the adoption of the Euro currency
have been important driving forces in the development of the market. As
a matter of fact, resolving the Y2K problem has, in many instances, led
to the installation of a new ERP system.
worsening plight of most ERP vendors, caused by the market slowdown, which started
in the fourth quarter of 1998, continued in full force throughout 1999. During
the last 12 months, the 20 largest ERP vendors achieved an estimated average
growth of 25% [Source TEC; this figure should not be confused with the absolute
ERP market revenue annual growth], which is much less compared to the equivalent
growth of over 40% a year earlier. Particularly affected was the license revenue,
which is expected to decline more than 10% in 1999 compared to 1998 (See Table
1). The market was dramatically less profitable than in 1998 (down 27.3%), measured
in the total raw $ net income (See Table 1).
Market Financial Data
revenue growth of the market
Licenses Revenue/Total Revenue Ratio
license revenue growth
growth over previous years
R&D Investment/License Revenue Ratio
R&D Investment/Total Revenue Ratio
believe that the continued ERP market slowdown in 1999 was primarily attributable
to the following factors:
The historical growth in sales of ERP applications has
come from large, Fortune 1000 multinational corporations. This market has
been highly penetrated, and new, large-scale back-office implementations
in the F1000 customer base have all but stalled.
focus of companies on Year 2000 (Y2K) remediation brought the purchases
of new ERP systems in 1999 to a significant standstill.
relatively untapped Small-to-Medium Enterprises (SME) market has been cautious
about starting new projects due to the bad publicity of a large number of
unsuccessful ERP implementations in the past. This fear has been additionally
aggravated by the need to integrate disparate systems, given that currently
no single vendor can offer a complete end-to-end solution (from supplier
to end customer).
technology paradigm shift from Client/Server to the Internet created uncertainty
about investing in the traditional Client/Server technology, which is still
prevalent among leading ERP players.
economic recession in markets outside North America, particularly in Asia.
The market size for 1999, with the 4th quarter yet to be reported, is estimated
at $18.5B-$19.5B (12%-16% growth over 1998), with sales expected to top $55B-60B
by 2003, for a CAGR of 28%-32%. The market appears to be consolidating. The
top 6 ERP vendors, SAP AG, Oracle Corporation, PeopleSoft Inc., Geac Software
Corporation (See TEC's News Analysis article: "Geac
and JBA Join Forces to Form New ERP Giant" October 6, 1999), J.D. Edwards
& Company, and Baan Co., account for ~70% of total ERP revenue. Consolidation,
mergers and acquisitions are expected to intensify. Over the last two years,
the ERP market became stratified into growing and profitable vendors on one
side, and stagnating and non-profitable vendors on the other side (See Market
Winners, Market Challengers, and Market Losers). We believe that this will become
more accentuated, with customers becoming more vendor viability wary. We expect
larger ERP vendors to swallow up their smaller brethren, both in ERP and related
markets, such as the recent IFS AB acquisition of Effective Management Systems,
Inc., the manufacturing execution systems (MES) vendor, and MAPICS' acquisition
of Pivotpoint, the vendor of extended ERP for mid-market companies. We also
expect companies with related software products to move into the ERP space through
acquisition like Invensys, Plc. with its acquisition of Marcam Solutions.
systems have earned the general perception of being exorbitantly expensive to
license and implement, and vendors have recently been trying to change that
infamous image with new pricing options in order to keep users' costs down.
Users typically pay an up-front per-user (either concurrent or named) license
fee and an annual maintenance charge to use ERP systems (typically 12%-20% of
the license fee). The per-seat price for ERP varies greatly depending on the
number of users, the number of modules to be deployed and what "bells and whistles"
are added, and whether the company belongs to the high-end Tier 1 (Fortune 500)
or the SME (Tier 2 and 3) market segment. The per-user price range has been
from $2,000 to $8,000 (typically higher values for larger companies), with the
continual price decline trend owing to fierce competition and the reduced or
postponed demand for software. Many vendors offer per-month per-user rental
or outsourcing deals as an alternative to traditional up-front licenses. Fixed
price, preinstalled, pre-configured ERP is also available and is particularly
attractive for the lower-end of market.
cycles vary from months to years depending on the company size, its organizational
structure (single or multi-site, international or not), and the functional scope
of the project. While the selection phase of software acquisitions will increasingly
gain critical importance (due to customers' increased awareness of possibly
fatal consequences from selecting a wrong software), the pressure for faster
decision-making will mount both from vendors (who want shorter and less fluctuating
sales cycles) and users (in order to stay ahead of their competitors). As a
rule, every $1 of ERP software sales drives on average another $3-$6 of additional
hardware, third party integration and consulting, and resellers revenue, although
in some cases additional costs can reach $10-15 for each dollar spent on software.
During the last two years, the functional perimeter of ERP systems began an
expansion into its adjacent markets, such as supply chain management (SCM),
customer relationship management (CRM), business intelligence, and e-Business.
While most traditional ERP software enables the integration and management of
critical data within enterprises, companies have increasingly recognized the
need to deploy more advanced software systems that manage the global supply
chain by enhancing the flow of information to and from customers, suppliers
and other business partners outside the enterprise. More recently, the availability
and use of the Internet has created a demand for software that operates across
the Internet and intranets. This global logistics concept merged with new constraint-based
optimization solutions called advanced planning systems (APS) and specialized
warehouse management software, resulting in SCM (See TEC's Technology Research
Planning and Scheduling: A Critical Part of Customer Fulfillment" December
10th, 1999 ). The major ERP players already have offerings or strategies addressing
this important need (See TEC's Technology Research Notes: "The
Essential Supply Chain" September 16th, 1999, and "SAP
APO - Will It Fill the Gap" September 2nd, 1999).
important area of functional expansion is in the front office/customer relationship
management (CRM) arena. Customers are demanding applications and tools that
allow them to link back-office ERP systems with front-office CRM systems. They
are also demanding enhanced capabilities for e-Business, especially business-to-business
(B2B) and business-to-customer (B2C) electronic commerce. The leading ERP vendors
have begun to discern the opportunity these products present and the benefit
potential for organizations implementing them. CRM has gone from a vast field
of point solutions to suites of customer care applications covering sales force
automation, field service, telesales, call center, marketing automation, etc.
ERP vendors have explored various routes to penetrate the CRM and e-Commerce
markets, such as developing in-house products (SAP, with its telesales module
and mySAP.com portal), acquiring point specialists to augment their offering
(Oracle through its acquisitions of Versatility for call center, Tinoway for
field service, and Concentra for product configurator module), merging full
suites (Baan with its acquisition of Aurum in 1997, and PeopleSoft with its
acquisition of Vantive in 1999), and partnering with CRM and e-Commerce leaders
(J.D. Edwards with Siebel and Ariba, and SAP with Recognition Systems Group
for its market campaigns module).
generally believe that, in the long run, market winners will be those vendors
with an established large customer base and with huge financial and human resources
that would make them more responsive to any future challenges such as sudden
market trends and/or technology paradigm shifts. Rated according to this metric,
the current market leaders, SAP, Oracle, PeopleSoft, J.D. Edwards, and Baan
would be seen as long-term market winners. However, we would like to make a
clear distinction between SAP and Oracle, as undisputed winners on one side,
and the latter three as winners/challengers on the other side, owing to their
substantially lower market share and dismal results in 1999.
is the current market share leader (~32%) after taking global markets by
storm with the release of its flagship R/3 client/server product at the
beginning of the 1990s.
Strengths: Commanding market position and brand recognition, very
sound financial situation, functional breadth of the core R/3 product, attractiveness
of mySAP.com portal for its existing large customer base.
Challenges: Lengthy and costly implementations in the past, a complex
and rigid product, slower total revenue growth in 1999 (~12%) with an ~5%
decline in licenses revenue and an ~23% decline in net income, delayed delivery
of CRM and SCM modules.
For more details, see TEC's note on SAP: "SAP
AG - ERP Leader with a 'New Dimension'" September 1st, 1999.
fortified its position as 2nd largest ERP vendor during 1999 by increasing
its ERP market share (up to ~14%) after being the only large vendor to achieve
significant growth in both total revenue (~24%), license revenue (~16%)
and net income (~59%).
Strengths: Corporate viability, solid reputation of horizontal applications
for functionality and scalability, technology infrastructure ownership,
strong international professional services, early Internet architecture
adoption and entry to CRM market.
Challenges: Product integration issues, delayed delivery of CRM and
SCM modules, divided management attention on a wide range of initiatives,
inefficient sales execution.
For more details, see TEC's note on Oracle: "Oracle
Co. - Internet Paradigm Boosts Applications Growth" September 1st,
PeopleSoft retained its position as 3rd largest ERP vendor, despite
sharply sliding license revenue (down ~43%), mostly flat total revenues,
the first non-profitable fiscal year, and management upheavals during 1999.
Strengths: Large and loyal HRMS and financial module customer base,
corporate viability and culture, user-friendly user interface and development
tools (modification feasibility), strong vertical focus for certain non-manufacturing
Challenges: Product integration of acquired Vantive CRM product,
market perception of its manufacturing product weakness, no significant
number of full ERP reference sites, floundering Internet strategy throughout
1999, low brand awareness outside North American market.
For more details, see TEC's note on PeopleSoft: "PeopleSoft
- Are Business Intelligence and e-Commerce Enough?" September 1st,
lost its 4th largest ERP vendor position owing to Geac's acquisition of
JBA International. Fiscal 1999 was the least successful year in the company's
history of public trading, with a dismal total revenue growth (~1%), declined
license revenue (down ~19%), and the hefty loss of ~$39M.
Strengths: A well-established leading global position in the mid-market,
advanced cross-platform migration strategy, OneWorld's architecture that
promotes flexibility and ongoing post-implementation system agility, well-developed
Challenges: Product integration of acquired Numetrix and Premisys
SCM products, bland marketing efforts in the past, OneWorld initial product
functionality glitches, lack of own CRM and e-Commerce products and need
to rely on a number of partnering agreements.
For more details, see TEC's note on J.D. Edwards: "J.D.
Edwards - Creating OneWorld of Mid-sized ERP Users" September 1st,
continued its descent on the ERP ladder by dropping to the 6th largest ERP
vendor position owing to Geac's acquisition of JBA International. Fiscal
1999 was less disastrous compared to 1998, however still very bleak, with
continued declining both license revenue (down ~46%) and total revenues
(down ~15%), another non-profitable fiscal year, with significant management
Strengths: Discrete manufacturing and project industries functionality,
DEM SE concept of rapid implementation and easy reconfiguration, product
scalability, potential for offering extended ERP 'one-stop shop' capability.
Challenges: Product complexity, unproven integration of its confederacy
of disparate products, prolonged poor financial performance, affiliate channel
shake-out, regaining market confidence in the US market.
For more details, see TEC's note on Baan: "Baan
Company N.V. - Is the Worst Over?" September 1st, 1999.
there are a number of successful smaller vendors with exciting product offerings
and stellar results in 1999 (e.g. Symix Systems, Great Plains Software, Navision,
Fourth Shift Corporation, to name but a few), we will limit our list of market
challengers to the four vendors described bellow. They are either already ranked
high on the ERP ladder or have exhibited steady growth and expansion in recent
years. In addition, they possess attractive product portfolios and innovative
has snatched the 5th largest ERP vendor position owing to its acquisition
of JBA International. Geac is also the largest Canadian software company.
Strengths: Strong history of growth, cross-platform and scalable
products, potential for serving a wide range of industries, strong global
Challenges: Merger growing pains, integration issues and discontinuation
of redundant products, lack of a CRM product within the product portfolio,
no significant number of full ERP reference sites.
For more details, see TEC's note on JBA International: "JBA:
Will it Remain '@ctive Enterprise'?" November 1st, 1999, and News
Analysis article: "Geac
Metamorphosises JBA Into Gear, but Cuts 20% of Staff" November
17th, 1999. A more detailed TEC's note on Geac Software Corporation is currently
in the works and is expected to be published in a due course.
is expected to occupy the 7th largest ERP vendor position owing to its revenue
growth of ~20% in 1999, while languishing SSA suffered a revenue decrease
of ~25% during the same period. Fiscal 1999 was however a challenging year,
with declining license revenue (down ~14%) and an expected non-profitable
Strengths: Versatile product functionality (both for discrete and
process manufacturing), tight vertical focus, strong track record, corporate
culture and viability, heavy R&D investment.
Challenges: Low brand awareness outside the European market, non-uniform
global availability of some modules (HR/Payroll, Transportation), dubious
future attractiveness of its fully Java-written product due to performance.
For more details, see TEC's note on Intentia: "Intentia:
Java Evolution From AS/400" October 1st, 1999.
Lawson Software is entrenched in the 9th largest ERP vendor position
owing to its revenue growth of ~35% in 1999, reaching $270 million in revenues.
The company is currently the largest privately held ERP vendor.
Strengths: Innovative product technology (early Web-enablement, interconnectivity,
and very intuitive user interface), tight vertical focus, solid track record
and viability, heavy R&D investment, cross-platform and open-database product,
very high customer retention rate (96%).
Challenges: Low brand awareness outside of the North American market,
non-support for manufacturing applications, late development of CRM modules,
dubious future attractiveness of its immunity to financial statements disclosure
to more conservative CFOs.
A more detailed TEC's note on Lawson Software is currently in the works
and will be published in a due course.
& Financial Systems, IFS is expected to occupy the 10th largest ERP
vendor position within the next 18 moths owing to its revenue growth of
96% in 1998, and expected growth of over 60% in 1999. Fiscal 1999 is however
expected to be non-profitable, due to a number of recent acquisitions and
worldwide expansion costs.
Strengths: Product technology (component and interconnectivity),
expanded ERP product breath, strong track record and current status as the
fastest-growing ERP vendor, corporate culture and viability.
Challenges: Maintaining management effectiveness while growing very
fast, low brand awareness outside of the European market, integration of
recently acquired products, narrow choice of database (only Oracle).
For more details, see TEC's note on IFS: "Industrial
& Financial Systems, IFS AB: Thriving on Product Flexibility and Incremental
Deployability" January 3rd, 2000.
predict that more than 50% of current ERP vendors will not survive until 2004
(65% probability). About half of these will transform into system integrators,
while either relegating their product to a niche 'bolt-on'or legacy status.
The remaining half will be acquired, and those will be vendors with poor financial
performance and undervalued market capitalization but with a large customer
base and a deep focus and expertise in a certain industry. The following two
vendors are case in the point.
Software Associates, SSA continued its free fall on the ERP ladder by
dropping to the 8th largest ERP vendor position owing to its prolonged dire
situation. Fiscal 1999 was a somewhat less disastrous year compared to 1998,
however still very dramatic, with continued declining in both license revenue
(down ~51%) and total revenues (down ~25%), another hefty loss of $88.2M,
and management upheavals.
Strengths: BPCS functionality breath and industry focus, large customer
base and international presence, fast implementations and low total cost
of ownership (TCO), cross-platform product.
Challenges: Dire financial situation, BPCS 6.0 quality and performance
glitches, installed-base dissatisfaction due to migration glitches, lack
of own expanded ERP modules.
For more details, see TEC's note on SSA: "SSA:
Evolving Into Systems Integrator To Survive" November 1st, 1999.
Solutions continued to struggle in the 1st half of 1999 until being
acquired by Wonderware, the factory automation division of Invensys Plc.,
a global electronics and engineering company with headquarters in London,
UK for the price less than a half of its annual revenue ($60 million).
Strengths: Protean, PRISM, and Avantis niche functionality and plant-level
features, product flexibility and ongoing post-implementation system agility,
tight process manufacturing focus, cross-platform product.
Challenges: Poor financial performance, dubious ERP strategy, confinement
to process manufacturing, weak financial and distribution modules, lack
of expanded ERP modules.
For more details, see TEC's note on Marcam Solutions: "Marcam
Solutions: Shifting its Focus to MES" December 13th, 1999.
believe that growth rates above 40% will be hard to sustain, however growth
will remain the word associated with the ERP market in the 2000's. As mentioned
earlier, the market size for 2003 is expected to top $55B-60B [Source: TEC].
In addition to the growth created by the fact that many companies have not yet
solved their basic ERP needs, particularly in non-manufacturing sectors, we
believe that the following factors will further drive this growth:
emergence of Internet-based system solutions during the next 3 years will
lead to a faster flow of information between all members of the logistics
chain. Demands on quality, customer-focus and faster deliveries are intensifying
at an increasing pace. This will require extensive change and a need for
new enhanced ERP systems. The future of ERP lies in improving the supply
chain and fostering better collaboration across multiple enterprises. Some
ERP vendors have already started creating virtual trading communities consisting
of their large existing users and their trading partners, whereby ERP vendors
provide all the necessary 'plumbing' work.
The enhanced functionality offered by ERP vendors will increase the number
of end users within the current customer base. Currently, ERP is used by
less than 20% of a company's employees, on average. We predict that number
to double within the next 3 years (70% probability)..
emergence of e-Commerce has as a consequence the rapid increase in the number
of new 'dotcom' companies. These companies have the same need for business
systems as other trading companies with respect to human resources management,
financial management, order management, warehousing and distribution, etc.
Moreover, e-commerce will create new paradigms for business that will fuel
a new wave of business process re-engineering, and therefore more ERP software
geographic markets outside North America and Western Europe have not been
significantly penetrated by ERP systems thus far, and we expect further
vendors' expansion there in the future.
sectors, such as telecommunications, utilities and the public sector, are
now exposed to increased competition due to deregulation and increased globalization,
and are turning to deployment of ERP software in order to remain competitive.
believe that, within the next two years, ERP will be redefined as a platform
for enabling e-business globally. Originally focused on automating internal
processes of an enterprise, ERP systems will include customer and supplier-centric
processes as well. The conclusive evidence of this redefinition is the move
of all major ERP players into CRM and SCM applications. ERP software suites
will become universal business applications that will encompass front-office,
business intelligence, and e-commerce/supply chain management, and ERP will
no longer be the acronym sufficient enough to cover it, so we would like to
suggest a new acronym - iERP, meaning inter(net)-enterprise resource
the concept of best-of-breed will not go away, users will increasingly look
for one strategic vendor to fulfill the majority of their business application
needs. This is particularly true for the lower end of the market. This trend,
bundled with strong vendor competition, will drive increased merger & acquisition
activity in the entire business applications market. Smaller ERP vendors and
best-of breed CRM or SCM vendors will acquire new functionality and merge to
protect themselves. We predict that more than 50% of current ERP vendors will
not survive until 2004 (65% probability). About half of these will transform
into system integrators, while either relegating their product to a niche 'bolt-on'or
legacy status. The remaining half will be acquired. The most likely acquisition
candidates will be those vendors with poor financial performance and undervalued
market capitalization but with a large customer base and a deep focus and expertise
in a certain industry. This should not necessarily be a bad thing for current
users of those products. The acquirer will either continue product development
and support of the acquired product (40% probability) or offer a relatively
attractive migration path to its product (35% probability). However, there is
a 25% probability that the acquirer is only interested in milking the maintenance
revenue without ongoing product support. These users may find themselves left
in the lurch with a legacy product. In addition, we predict some unconventional
acquisitions, such as the acquisition of ERP vendors by best-of-breed CRM or
SCM vendors, with a view to offer a more comprehensive solution. We believe
that, within the next two years, Siebel Systems and i2 Technologies will have
to resort to acquiring an ERP vendor (60% probability).
a result of the above described activities, we predict that within the next
three years, over 65% of the license revenue of the SCM market and over 50%
of the license revenue of the CRM market will come from current ERP vendors
(70% probability). Currently, these figures are estimated to be less than 10%.
Furthermore, ongoing merger & acquisitions as well as the need to develop new
product features will increase R&D investments in the future, measured as a
percentage of total revenue (See Table 1).
the user preference for a single, 'one-stop shop' vendor, componentized software
products, interoperability standards and Internet technology will lead to fewer
large-scale projects and an ongoing stream of smaller ones. This will force
third-party system integrators and consulting companies toward fixed-price,
fixed-time implementations. Moreover, vendors will increasingly attempt to conduct
system integrating and consulting work themselves, which will further decrease
the industry average license revenue/total revenue ratio (See Table 1).
believe that vendors that are best positioned to survive fierce competition
will have to exhibit certain core competencies. Competitive costs (low and flexible
software license pricing and implementation costs) and outstanding global service
(proven fast implementations and customer loyalty) will remain important requirements
for success, particularly in the lower end of the market. However, focus will
be the key factor for survival. Vendors that will survive the next three years
will have focused their business and product on particular industries, preferably
those with a current low penetration (federal government, insurance, healthcare,
transportation), instead of a more generic, horizontal approach. Winning ERP
products will demonstrate deep industry functionality and tight integration
with best-of-bread 'bolt-on' products in a particular vertical. Seamless interfaces
to other vendors' products will be a matter of course (to achieve real-time
collaboration among business partners' disparate systems, as well as to more
easily penetrate a competitor's client base with their 'bolt-on' components),
as well as growing partnerships with renowned system integrators, consulting
companies, and application service providers (ASP).
will increasingly realize that architecture plays a key role in how quickly
vendors can implement, maintain, expand/customize, and integrate their products.
An adaptable architecture is the least common denominator for a flexible ERP
system. Although a component-based architecture is not an explicit requirement
for ERP flexibility, component-based applications generally provide greater
flexibility than their monolithic counterparts. Further prerequisites for flexibility
will be abstraction of technical complexity (manifested via the use of intuitive
tools, aids, or wizards that guide user through a set of steps to achieve a
desired end result) and an intuitive, easy-to-use user interface.
financial capabilities (including support for the Euro), advanced planning and
scheduling (APS), product configurators, supply chain management (SCM), customer
relationship management (CRM), e-Commerce, business intelligence (BI), and component
(object-oriented) architecture will remain the order winners for the next 2
years. After that period of time, we believe these functional and technological
features will be demoted into commodities (order qualifiers), whereas the vendors'
financial viability, their service & support capability, and their strategy
for improving their products and services over time will become winning criteria.
large players (i.e. the Big Six) have inherent advantages and incentives to
develop needed competencies: their installed base, their market clout, and their
ability to commit resources to development. To separate themselves from the
rest of the pack, they will either (1) have to use those internal resources
to develop their own extended products and capabilities, as SAP has done, or
(2) have to buy/use someone else's superior technology/product, which was the
route generally pursued by other large vendors.
vendors should either (1) try to develop the above mentioned required competencies
and build up as much market share as possible, either under their own steam
or by means of mergers & acquisitions, thereby strengthening their position,
or (2) align themselves with a major vendor.
need to understand their business requirements and critical business processes
can never be overemphasized. Not knowing their present business state of affairs
as well as their strategic intent and direction will disqualify any future ERP
system implementation from being a success. Is the customer a multinational
corporation that requires sophisticated methods of dealing with multinational
currency? Is the customer a very large corporation that will have to provide
for a significant scalability and multi-byte character strings (MBCS)? Answers
to these questions and a myriad of similar ones should help users create a long
list of vendors to include in an ERP package selection. Precedence should be
given to vendors with a proven vertical focus on the user's industry. Another
frequently forgotten, but important aspect in software selections is detail.
Selections that fail to consider requirements at a sufficient level of detail
inevitably produce costly surprises during subsequent implementation.
should also be aware of consolidation in the ERP market, and corporate viability
should play a prominent role in every selection process. Virtually all software
selection teams appreciate the importance of product functionality and product
technology requirements in making the right decision. Too often, however, these
are the only criteria that play a role in the decision-making process. Other
often overlooked factors can determine the eventual success or failure of a
new system, including vendor corporate strategy, global service and support
capabilities, financial viability, and, of course, cost.
We strongly advise users to exercise their prerogative of "scripted scenario"
software demonstrations, in order to further distinguish between the vendors
who made the short list. "Scripted scenarios" are detailed sequences of business
activities that need to be supported by the software. Vendors present these
business scenarios on their live products - tailored to the way the organization
does business as defined in the scenarios. These scenarios allow the organization
to see how the live product operates in their specific environment, according
to the critical business processes outlined by the selection team. In addition,
the users gain an understanding of the extent to which the vendor would be able
to modify the software to accommodate the users' special needs.
After receiving the final proposal from each of the vendors included in the
negotiation stage, users are advised to perform sensitivity analysis to determine
the ultimate vendor of choice. This analysis should not be based strictly on
price, but also a head-to-head comparison of the functional and technical capabilities
of the products, quality of initial implementation and ongoing service and support
quality, the vendors' relative financial stability, and their strategy for improving
their products and services over time. These factors ultimately lead to the
appropriate vendor choice. At this point, users may want to put into action
any counter-proposal or negotiation steps, which may include a combination of
the following: a request to lower initial software costs, inclusion of free
consulting or training resources, reducing the scope of the services offered,
a decrease in maintenance fees, negotiating the license fee per module, negotiate
discounted license fees for casual users, provision for future incorporation
of "extended ERP" components by bundling them into the contract now at negotiated
license fees, etc. 'Bolt-ons' should be selected only from official business
partners of the primary ERP vendor, after making sure that partnership is not
a mere marketing pitch.
but not least, users should ensure that their critical requirements are unequivocally
spelled out in a contract with a selected ERP vendor. Future clients are also
advised to request the vendor's written commitment to promised functionality,
length of implementation, and seamless future upgrades, particularly for recently
released products and products whose release date is due in the near future.