The ERP Market 2001 And Beyond
2: Vendor Reactions
Enterprise resource planning (ERP) integrated software solutions have
become synonymous with competitiveness, particularly throughout the 1990's.
ERP systems replace "islands of information" with a single, packaged software
solution that integrates all traditional enterprise management functions
(transactions) like financials, human resources/payroll, and manufacturing
& logistics (See Essential
ERP - Its Functional Scope 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 collaborative e-Business and customer relationship management
a list of the major ERP vendors and their market share, see Figure 1.
is Part Two of a five-part article. This part discusses the vendors' reaction
to market changes. Part One contains
an overview of the ERP market and how ERP is expanding to included SCM,
CRM, and e-procurement. Part Three will briefly analyze some of the major
ERP vendors. Part Four will contain market predictions. Part Five will
contain recommendations for the vendors and users. Part Five will contain
links to the preceding parts.
Are Vendors Reacting?
On the other hand, in the ERP market, the major vendors focused on the
high-end of the market have virtually evolved into providers of comprehensive
e-Business suites (see Where
Is ERP Headed (Or Better, Where Should It Be Headed)? Part 3: E-Business
and Mid-Market Shakeout). They also compete with a slew of smaller
extended ERP vendors for the market for small to medium enterprises (SMEs).
While the heyday of the ERP market in the mid 90s may have postponed the
consolidation in the lower tiers of the market, it is, however, not the
case today. The acquisitions mentioned in Part
One reflect the morphing enterprise applications landscape as vendors
scramble to outrival competition or, more often, survive during the next
phase of e-Business.
at the high end of the market, vendors of enterprise applications suites
face fierce competition from CRM, SCM, B2B exchange providers and other
niche players, in the mid-market, a more conventional consolidation has
been taking place, mainly with an aim of combining the resources to deliver
extended enterprise software suites that meet the 'one-stop shop' requirements
of smaller companies.
ERP systems have earned the general perception of being exorbitantly expensive
to license and implement (see ERP
Trivia - Every Why Should Have Its Wherefore), 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, role-based, 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 small-to-medium enterprises - SMEs (Tier 2 and 3) market segment.
per-user price range has been from $1,000 to $6,000 (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 (for more information, see
Is ERP Headed (Or Better, Where Should It Be Headed)? Part 4: ASP's and
New Pricing Models). Fixed price, preinstalled, pre-configured ERP
is also available and is particularly attractive for the lower-end of
market (see Fast-path
Implementations - Are They Good or Bad?).
Sales 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 the 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.
ERP adopters discovered to their dismay that implementing these systems
was only the first step toward creating a competitive information technology
infrastructure. They and new users alike are now looking for significantly
more comprehensive functionality - from advanced planning and scheduling
(APS) and manufacturing execution systems (MES), to sales force automation
(SFA) and collaborative business-to-business (B2B) e-commerce tools -
and demanding that they be integrated into their ERP backbone. Consequently,
during the last few years, the functional perimeter of ERP systems began
an expansion into its adjacent markets, such as supply chain management
(SCM), customer relationship management (CRM), professional services automation
(PSA), product data management (PDM), manufacturing executions systems
(MES), business intelligence (BI)/data warehousing (DW), and e-Business
Is ERP Headed (Or Better, Where Should It Be Headed)? Part 1: Functional
Scope and Vertical Focus).
with competitive inadequacies, the major ERP vendors have been vigorously
busy developing, acquiring, or bundling new functionality so that their
packages go beyond the traditional realms of finance, materials planning
& management, and human resources. 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.
typical ERP system now offers broad functional coverage nearing the best-of-breed
capabilities; vertical industry extensions; a robust technical architecture;
training, documentation, implementation and process design tools; product
enhancements; global support and an extensive list of software, services
and technology partners. While it is not a system-in-a-box yet, the gap
between its desired and actual features is becoming smaller every day.
Consequently, we believe that the above outlined trends in the ERP market
are the direct consequence of vendors' attempts to:
current ERP functional and/or technological deficiencies,
software sales both within their existing and potential customer bases,
particularly in the lower-end of the market, by allaying the ERP complexity
and costs perceptions, and/or
the Internet, which has been reshaping the enterprise applications
market by making possible unprecedented visibility and information
sharing both within an enterprise and between business partners.
Part Two of a five-part article on the ERP Market 2001 and Beyond. Part
One contained a market overview. Part Three will analyze the major
vendors in terms of Market Leaders/Winners, Challenger, and Losers.