After a frantic 2007 and early 2008, will the ERP market see more consolidation over the coming year? Does the steady incorporation of features into the major platforms mean the definition of ERP should change? What does vendor consolidation mean for local offices and their partners? And how will the smaller integrators cope with the new landscape?
Present to give their opinions and experience on these and other talking points were Steven Cohen, MD of Softline Pastel; Deon Kruger, head of business solutions and ERP systems at XON; Marc Gower, GM of AccTech Alliance; Gary McHugh, director at Pebbletree Consulting; Meryl Malcomess, marketing director at Syspro; Dave Macdonald, pre-sales and marketing manager at Mincom; John Olsson, sales and marketing director at Ability Solutions; Warren O'Reilly, director at Immix Solutions; Carlo Gunter, COO of e.com Institute; Liezl van Staden, business development manager at i5 Group; and Alvin Paules, chief technology architect at SAP SA.
ITWeb: How do you define ERP today? Has it changed at all?
Steven Cohen, Softline Pastel: Coming from my background, which is accounting, I believe ERP is a system that integrates your accounting system with HR, payroll and functions like operational telephony. When I look at our customers, they have Evolution running with Microsoft Office and that's it.
Alvin Paules, SAP: From our perspective, ERP is about managing business processes; the more you can automate them, the more you can get greater efficiencies.
Warren O'Reilly, Immix Solutions: I believe ERP is more end-to-end: don't forget about the manufacturing and CRM components that aren't just bolt-on; they integrate with the Microsoft stack. That's extremely important as well as the customisation that we can do on the .Net framework for customers. It's an end-to-end thing from lead generation, manufacturing, sales and service delivery.
Deon Kruger, XON: Obviously there are the definitions that ERP combines financial information with operational information and specific vertical solutions for a particular sector. But something that is very important is that it must be a source of information for the finance data, operational data, sales, customer information and so on. What we strive to do is implement a solution where the information flow from different sectors follows the user so that they don't have to go looking for it.
Marc Gower, AccTech Alliance: One of the difficulties we face is that the definition [of ERP] is a moving target. What ERP was two years ago is not what it's going to be by the end of this year. Some of the things we see happening is more integration into non-typical IT areas such as weights and scales, and PABXs that are being automated. The ERP concept is becoming broader into business management. We're almost coming back to the original management information systems [MIS] concept 10 years ago. It's a very loose term.
John Olsson, Ability Solutions: Since our inception, we've done 170 ERP deployments and every delivery has been an end-to-end solution. But we're a great industry for saying the same thing under a different label. What is important is solving a business problem in a cost-effective manner. There's a danger with some of the proposals that vendors are supplying a Rolls Royce to deliver milk.
Dave Macdonald, Mincom: I think the traditional definition of ERP has been blurred by the traditional ERP vendors themselves. Is CRM a part of ERP or is it outside ERP? The publicly-traded mega vendors obviously have to keep shareholders happy and that means continued growth. As originally defined by Gartner, ERP addressed the broad high-level processes of an enterprise - I think the enterprise aspect should not be forgotten - including finance, sales, human resources and manufacturing, along with all the associated logistics and materials problems. The drive for growth means the vendors have been looking outside ERP boundaries and very necessarily so; processes do not exist in isolation, but that means the definition gets blurred. Maybe we do need a new name for ERP.
The C word
ITWeb: What consolidation will we see in 2008?
Liezl van Staden, i5 Group: I agree with what we've been discussing around the table: ERP is becoming more about integration and additional functionality that isn't necessarily part of ERP. Yes, consolidation in the industry will continue to happen among vendors, but it will also happen internally as vendors bring more functionality from what they've acquired into their mainline products.
Gary McHugh, Pebbletree Consulting: From a consulting aspect, we're going to see a lot of consolidation this year. The work's there, but getting good consultants is difficult. We saw it last year - some of the smaller players have already consolidated. I also think that when you get into the larger enterprises, it's been traditionally dominated by the big four. In order for us to go and compete there, we have to gain volume. There are different ways of skinning the cat when it comes to rolling out these projects: smaller consultancies tend to be more boutique whereas the larger ones work in a more blended fashion. Mature enterprises want more of a business consultant than a configurator and the smaller ones tend to have that. There's also a trend towards named resources: 'Joe Bloggs is the best in the industry and I want him, no matter where he comes from.'
Gower: Customers are becoming more and more sophisticated. They know what they want and quite often they are sitting with resources in-house that only the consultants had two years ago. It's commoditising consulting services and, because of this, it's almost impossible for a consultancy to have generalists. It's driving more and more pockets of specialisation to deliver different pieces of the business. Unfortunately, the vendors are driving this as well because they add functionality and we're the guys who have to deliver it - and it requires more expensive resources to do so.
Paules: There are a number of things happening in the industry: standard ERP is not about innovation; it's about best or common practice. You get some innovation that happens on the side and, at some stage, the ERP vendors are forced to add it to their systems. For example, six years ago we sold our treasury solution as a separate module. Today, it's bundled with ERP. This is an ongoing cycle that the vendors have to manage. The vendors have to make a choice. Either they use an acquisition strategy to try to cope or they put a platform out there, which allows people to innovate on top of it.
Macdonald: What I'm seeing is a strong differentiation between consolidation, mergers and acquisitions. I think that, among the top vendors, we've seen as much consolidation as we're likely to. In the SME space, we have yet to see any take place. As long as I've been in the industry, we've had this dream about re-usable objects, service-oriented architectures and plug-and-play applications, and it is getting closer. Will vendors with their commercial interests allow it to get to a level that users and consumers would want? I guess the answer is no.
Meryl Malcomess, Syspro: The age of the vendor is an important point. We're one of the few businesses in the world - and I can talk safely about either the SAP or Syspro range without getting into figures - where you see only 10% or 15% growth in new business. You have annual licence fees, you can farm your business, you can do add-ons, you can recruit new customers, but it's still difficult for the small to medium vendor to survive. It's the way the world has changed. The customer needs more from the ERP vendor and the business drivers have forced us to bring new layers in. I defy anyone around the table to say they have had 20% new business growth against their other income, which is consulting and annual licence fees.
We've had consultants leaving to become plumbers.
Marc Gower, GM, AccTech Alliance
O'Reilly: It depends on what your strategy is. Five or six years ago, Microsoft bought two companies - Damgaard and Great Plains - and competitors speculated that it was a database buyout of their customers. But it wasn't. I can now go to any customer who has Office and say: 'Did you know Microsoft does ERP?' There's no other vendor who has the strength like Microsoft. We're not a tier one product, but we are getting there soon. In the Microsoft space, I haven't spoken to a VAR who doesn't have 20%-plus growth.
Growing, growing?
What is important is solving a business problem in a cost-effective manner.
John Olsson, sales and marketing director, Ability Solutions
Paules: We've grown extensively and I'll tell you why: once you have an extensible platform, you have the ability to create new products. Gartner calls it cross-applications, we call it x-apps and those innovations are in unique applications. For instance, in the petroleum industry, no one has an application for exploration because those are very complex - they're all about joint ventures. In order to manage them, you need a core ERP. So you can start to add functionality on top and you can price it very differently.
McHugh: It's still an add-on, though. When was the last time you had a brand-new customer?
Malcomess: This is the most difficult part of the industry. You cannot take brand-new core ERP sites to 40% of your total revenue.
Macdonald: The ERP market locally and worldwide is pretty saturated. I've been hearing that ERP is dead for some time now. In terms of core base ERP functionality, you're not going to see explosive growth. But growth in niche applications, you can.
Cohen: There are cost pressures to consolidate as well. If you're not seeing the demand on the sales side, then a lot of people get together because they won't make it otherwise. There's also consolidation at the ISV and reseller level. We have 180 000 clients of maybe 10%, of which most people here would call sizeable. A lot of those guys are using our higher-end product, Evolution, for HR, payroll, CRM, business intelligence. A couple of them even integrate it with their PABX. Would you classify that as ERP or is it the size of the business that's installing it? It is becoming very difficult to get into that space, but I would consider that, for a customer who isn't into very specialised verticals, we do supply ERP stuff. We all confuse this whole market too much. If I was a businessman, I would say just give me a system that works and call it what you want.
Kruger: I haven't seen any consolidation going on in our space. We've grown from nine business partners to 40. I've just done some training classes for interest's sake and there were a number of people from other vendors wanting to skill up on our specific vertical.
Carlo Gunter, e.com Institute: Historically, everyone jumped at big corporates because that's where the money was. At e.com, we joined the ERP space a bit late and our focus has been on the SME market; we have had great growth in that space. That's why the Microsoft guys can say they've had good growth because that's where their focus is.
McHugh: The pricing models of how you position your product to the mid-market are a big issue. A lot of the enterprise guys complain that they bought a system for R100 million, but the same thing today with best business practices, templates and cheaper licensing is R5 million. And the effort required to deliver in the mid-market is sometimes more than for an enterprise because the maturity isn't there.
ITWeb: How much of an issue is skills shortage?
Malcomess: ERP used to be a fashionable and attractive way to learn business skills. I don't think it's attractive anymore to young people. What are the 25-year-olds doing? It's an extremely demanding career and there are easier ways to make money than working hour by hour for some customer who is kicking you up the backside, screaming at you, although at the end of the project you do get satisfaction.
Macdonald: There is a need on the services side to be able to add value. On the application side, one of our strengths is knowing and sticking to our knitting. We have chosen specific verticals so that we understand the nuances of their businesses. The glamour of the industry has probably gone, yes. What we as vendors are having to do is build applications that are a lot more intuitive; the user interface and design are becoming critical. That's the kind of thing that's attracting the younger generation. Web 2.0 and Enterprise 2.0 are affecting the design of applications. When that becomes everyday technology, I think we'll see a resurgence in this market.
Gunter: Our company is an Oracle implementation partner and we've been involved with an intern programme. I strongly disagree with the comment that there is no glamour. Last year, we had in excess of 3 000 young people with an IT or business background come in wanting to get into the ERP space. What we are struggling with is keeping them in the country. We cannot compete with the pricing and rates our consultants get in Europe. Our good resources are going international.
I haven't spoken to a VAR who doesn't have 20%-plus growth.
Warren O'Reilly, director, Immix Solutions
Kruger: If you make your product properly and present it to the client properly, then they get excited. They get excited about both the product and how they can deliver solutions to their clients.
Gower: There's no shortage of people who want to join. There's a shortage of people who can actually deliver. The good guys suddenly get married and they don't want to travel. We're faced with an issue where we've had consultants leaving to become plumbers. They say they earn more money as plumbers and they can work when they feel like it. And these are our top international consultants.
The winners?
Who wins? Customers do, of course. As ERP systems get cheaper, faster and more integrated, what was only available to the large enterprise 10 to 15 years ago is now included for free in a package aimed at the up-and-coming SME.
Vendors already know that the boom years just before Y2K are long gone. But the next crunch for them might be more subtle as, ironically, they become victims of their own success.
Could ERP become as ubiquitous as an office suite? It's entirely possible.
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