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For all but the smallest organizations, an ERP (Enterprise Resource Planning) system promises big gains, helping to grow revenue, increase productivity companywide, improve efficiency throughout the enterprise and manage costs. ERP integrates a variety of disparate systems, such as financials, SCM (Supply Chain Management) and CRM, automating timeconsuming processes and streamlining operations. With a unified view of cross-company information, executives can ultimately make better decisions about corporate objectives and strategies.
Right now, most of the ERP action is happening in the midmarket. More and more midsize companies — which are rather broadly defined as organizations that earn more than $50 million annually in revenue but less than $1 billion — are looking to replace outdated ERP systems or jump into the technology for the first time.
In fact, Boston-based AMR Research says in its “ERP Market Sizing Report, 2006–2011,” “in the small and midsize business (SMB) segment, which continues to outgrow the overall market, companies are buying new ERP systems in response to new customer requirements and the desire to participate in the global market.”
ERP solutions tailored to the midmarket abound, making it a buyer’s market. In this age of mergers and acquisitions, many of these organizations were once small companies, and now, as midmarket organizations, they need to consolidate various software systems and standardize business processes. Most companies in this space are coping with increasingly complex operating environments, aging technology — including outmoded ERP systems — proliferating business-management software and, of course, the need to grow revenue.
Midsize companies also face challenges specific to their industries. According to Aberdeen Group Inc., an IT research firm based in Boston, businesses that make consumer product goods are concerned about regulations and reporting requirements, while public-sector organizations are worried about maintaining customer loyalty. Also, manufacturers are concerned about the commoditization of their products. A robust ERP package can help address these issues, as well.
Late last year, Aberdeen Group released its “2006 ERP in the Midmarket” study, which surveyed more than 500 organizations from a variety of industries. It found that very few midsize companies — just 6 percent — don’t already have an ERP or MRP (Material Requirements Planning, the precursor to ERP) implementation. For those businesses, the reasons to take a leap into ERP, which is largely considered necessary infrastructure for midsize companies, are many and compelling. According to Aberdeen Group’s “2007 ERP in Manufacturing” report, 650 midsize companies cited the availability of low-cost options; pressure from the parent company, suppliers or customers; “explosive” growth; compliance with regulatory requirements; and a “disastrous event” as factors convincing them of the value of ERP.
At the same time, Aberdeen Group found that many ERP implementations in the midmarket are quite mature and ripe for replacement. In the “2006 ERP in the Midmarket” report, 35 percent of respondents had ERP systems older than 10 years, and 38 percent had ERP systems 5 to 10 years old — and 22 percent of these were the organizations’ first ERP systems that supplanted manual processes. ERP technology has evolved significantly in the years since these systems were deployed, so many of these organizations have developed their own applications to make up for inadequacies.
Many midmarket companies must now also choose an ERP system on which to standardize after multiple systems were installed, perhaps through mergers, across the enterprise. Aberdeen Group’s 2006 study found that 42 percent of midsize companies had two or more ERP packages, and 16 percent had three or more ERP systems. Although it’s not necessary, midsize companies seem to prefer consolidating their business management applications in one ERP package, at least in part to cut down on integration headaches.
In its “2007 ERP in the Midmarket” survey, Aberdeen Group surveyed respondents about their upgrade and replacement strategies, which is in good part spurred by proliferating ERP systems. In one year, 9 percent plan to replace their ERP package; in two years, 14 percent plan a replacement; and in three years, 25 percent plan a replacement. In addition to consolidating multiple ERP systems, respondents want to replace their ERPs because 46 percent need more functionality than they currently have, 39 percent are unhappy with outdated and clumsy user interfaces, and 37 percent need a standardized solution with international capabilities.
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