Enterprise resource planning boomed during the Y2K crisis period, but three years on, few will say the system has delivered the expected results, Angus Kidman reports

Published in AustralianIT, September 30 2003

MARKET leaders in enterprise resource planning have traditionally made their money from massive projects for large global companies, but increasingly, strategic planning across the ERP sector is aimed at a very different goal: convincing small and medium operations that they, too, need ERP systems.

The most obvious motivation for this strategic shift is financial necessity.

"Vendors are charging into the mid-market," Gartner business applications research vice-president Kristian Steenstrup says. "That is partly because they see the traditional markets drying up, reaching - if not full statistical saturation - a saturation of easy selling."

Making money from traditional ERP is definitely getting harder. Gartner estimates global ERP new licence sales in 2002 at $US5 billion ($7.5 billion), down 9 per cent from the previous year.

The main players jostling for position are SAP and Oracle, which already dominate the large enterprise ERP space, and Microsoft, which wants to exploit its existing visibility on the desktop and move upmarket into business applications.

PeopleSoft is also partnering with IBM to offer integrated hardware and software packages for medium-sized businesses, but Steenstrup says it hasn't yet extended its reach to smaller businesses that comprise the bulk of the local market.

The mid-market shift positions the top-tier players against a large group of smaller and potentially nimble rivals, many of which work in specialised vertical markets.

They may lack the raw financial clout of the new arrivals, but smaller operators can point to greater experience in dealing with small companies.

"It's sort of like the hordes seeing an oasis across the desert, and charging towards it, but there are already people at the oasis," Steenstrup says.

Given the low uptake of ERP in the mid-market to date, that may not be a critical problem.

"The mid-market is certainly big enough in dollar terms for all major vendors to survive in, and possibly thrive," Meta Group technology research services vice-president Michael Barnes says.

"The real issue isn't the size of the market but huge differences among companies that fall within this category. This includes such areas as the relative business complexity the company must support, the scope of deployment, and available skills and technical resources."

SAP has adopted a two-pronged mid-market strategy, offering both All-In-One, a preconfigured and cut-down version of its existing core platform, and Business One, a standalone package developed through acquisition and aimed at smaller companies.

"It's not just a case of offering one product and shoving it into every organisation," SAP Australia-New Zealand SMB market development manager Richard Duffy says.

Oracle, on the other hand, is promoting the fact that its E-Business Suite Special Edition, sold as a single bundle on pre-installed Linux based hardware, runs the same core code as larger Oracle installations.

Microsoft has also taken the acquisition route, purchasing mid-market specialists Great Plains and Navision.

In the long term, it is expected to merge these two offerings into a single product, although details are sketchy.

"There's a huge number of customers in that space and they've been under-served with ERP," Microsoft Business Solutions Australia director Flemming Beissner says.

A common theme among all these new players is the need to simplify integration, which is typically a major headache for any ERP project.

All the new aspirants are relying on channel partners to ensure speedy delivery, but most have restricted customisations to avoid support headaches.

"We can't afford the cost of having lots of support calls," Oracle Australia-New Zealand senior marketing director Don Smallwood, says. Another difficulty is dispelling the impression that software designed for large enterprises is not suitable for smaller companies.

"One of our challenges is getting the market to understand that they can get software with the big boys," Smallwood says.

If they do choose to go with the big boys, which option should SMBs select? "The bottom line is that SAP has a really strong offering and a logical layout for subsidiaries of companies that use their products," Steenstrup says.

"Oracle will succeed in markets where a single vendor simplifies things.

"Microsoft is the dark horse in this because we haven't seen its new product. Its existing products are good, but somewhat overlapping."

Smaller companies still need to look hard at whether they need ERP at all before being seduced by any of these options.

"With ERP application life now 10 years or more, mid-market companies must avoid over-buying by realistically considering the future direction of their business before making investing in this area," Barnes says.

"They should, however, provide a minimum platform for growth."