Enterprise Software

What is the future of ERP?

Despite being on a slight downturn, analysts suggest that this may be the perfect time for CIOs to consider putting in an ERP system. Here's what you need to know about the solidity of ERP.

While ERP’s heady days of huge budgets and massive schedules may have passed, ERP (even on the downside of a wave) has continued to thrive, according to analysts.

“ERP is very much alive,” said Judy Hodges, an analyst with International Data Corporation in Framingham, MA. “It has become especially strategic in e-commerce where transactions tend to be more complex, smaller, and geographically diverse.”

Lee Geishecker, an analyst with the GartnerGroup agrees: “There is definitely a synergy between e-commerce and ERP. You can see this with the market agreements that the major ERP vendors are making. All of them are aligning with e-commerce vendors.”

If you’re the CIO who has been hesitant about putting in an ERP system, don’t be. Now may be the perfect time.

“If you are a CIO looking to implement an ERP system, your timing couldn’t be better,” said David Wasson, senior vice president at Technology Solutions Company in Dallas. “The slowdown in ERP has made it much more of a commodity market. You can expect to pay one-third to two-thirds less for software than you would have just one year ago. And hourly billing rates for consulting help are at an all-time low.”

Vital on the Web
A good ERP back end, Hodges contends, is especially critical for enterprises that are rapidly adopting Web-based transaction systems.

“The intrinsic nature of these new transaction models is placing tremendous stress on manufacturing, warehousing, and transportation operations,” Hodges said. “These are getting squeezed by the shorter planning horizons that result from extending your business over the Web.”

Internet speed also makes ERP more critical than ever, said Mark DeVoe, vice president of operations with Plaut Consulting in Waltham, MA.

“If you are doing business transactions over the Web and your inventory data is bad, this just means you will pump out bad data faster than ever and, very likely, increase customer dissatisfaction by an order of magnitude.”

Opportunities in the mid market
Vendors and analysts have long recognized that while the high-end ERP market is saturated, there is tremendous opportunity for growth in the so-called mid-market.

So far, however, the much-ballyhooed mid-market ERP boom has failed to occur. Some, however, believe that could soon change.

“The mid market has been in a bit of a stall for a number of reasons,” said Joshua Greenbaum, principal of Enterprise Applications Consulting in Berkeley, CA. “Y2K is certainly one of them. Also, the ERP delivery model—which tended toward a modified version of the big bang—was just too expensive and too risky for these companies.”

But mid-market companies that have avoided ERPs because of cost and risk may gravitate to the application service provider model, Greenbaum said.

SAP’s recent announcement that they intend to start an ASP hosting company really gives validity to this new model,” he said.

Some ERP consultants are already seeing some renewed mid-market action.

“We have recently closed quite a few mid-market deals that just would not have happened a year or two ago,” Wasson said.

Second-tier vendors
Second-tier ERP vendors, such as Lawson Software and J.D. Edwards Enterprise Software have built their customer bases in the mid market, unlike industry giants like Oracle and SAP. Hodges predicts that J.D. Edwards would fare well in the mid market.

However, they will also have to work harder to stay competitive, said Michael Herzog, managing director with KPMG Consulting, LLC.

“The major ERP vendors are continuing to globalize their products, adding support for foreign languages and currencies,” Herzog said. “This is the kind of thing that presents a special challenge to the smaller vendors.”

Greenbaum also expects some consolidation among ERP vendors. “I think some of the second-tier players that already have a good track record in the mid market will survive,” he said. “But there are still more vendors than the market can support.”

A benefit for CIOs?
The fact that there is still so much in play proves that ERP is far from dead. Such fluidity, while somewhat confusing, could be a benefit for CIOs.

Gartner’s Geishecker advises ERP-hungry CIOs that in order to do e-business, a good ERP system is required. “And because of this, the whole definition of ERP is being expanded,” he said. “Make sure you implement something that can be extended functionally.”

So while ERP’s huge growth surge may have come and gone, it has incorporated itself into the core of big IT systems, Greenbaum said. “And for those who want to do e-commerce, you simply can’t get the efficiencies of scale there unless you have ERP.”

So the wave may have broken, but Greenbaum contends the surf is still up.

“Look at it this way: ERP isn’t going to take over the world, because it already has.”
Has the heyday of the ERP already come and gone? Have you had success with your ERP? Post a comment below or send us an e-mail.
0 comments

Editor's Picks