Nine companies out of ten had disastrous experiences with ERP, and pundits predicted the death of this application. But ERP has resurrected and is flying high on e-biz wings, says Rajneesh De

There’s a superstition that all you need to do to turn your business around is to plug in an ERP solution and bingo, all will be well. Real life can be very different, if the experience of hundreds of Indian companies and thousands of global firms is any indication. Consider for instance this Rs 50 crore Delhi based manufacturer of toiletries which sought salvation from a popular ERP solution sold by a reputed vendor in mid 1998. Two years later, only a minuscule 2.4 percent of its overnight orders were being processed on its expensive ERP application, and even that little bit of data was full of errors. The resultant chaos pushed the company perilously close to bankruptcy. Similar horror stories of failed ERP implementations resulting from huge cost and time overruns and outright failures from all segments of corporate India abound, so much so that the Cassandra’s were out with predictions of the death of ERP. A recent Gartner study found that the average cost overrun in Indian ERP implementations was 178 percent, the average implementation time overrun was 230 percent of original expectations, and the average decline (that’s right decline) in productivity was an astonishing 59 percent. Says Gaurav Dua, research analyst-IT, Frost & Sullivan, “Most CIOs we spoke to said that ERP packages cost the earth, take ages to implement and at the end of the day deliver nothing. That’s as damning an indictment of ERP as you can possibly get, but if you look at the inside story you discover that the fault was not in the ERP packages as much as in poor understanding of what it takes to install ERP and poor planning and implementation. “

The implication of this observation is that if you did it right, you would have a success story to tell, and in all fairness there are more than a few success stories around as well. BV Jagadish, director-marketing & alliances, SAP India showcases some notable ones, “Our list of successful ERP implementations include BPCL, IOCL, ONGC, Reliance, Coke, Pepsi, ITC, Colgate-Palmolive, Procter & Gamble, Mahindra, and TELCO. All these companies are using our R/3 ERP application.” Ramco Systems’ vice president-global marketing & planning, Girish Menon adds, “ Its true that 9 out of 10 ERP implementations in India failed, but the one success story produced such spectacular results that it kept the market alive”.

But if the overwhelming majority has had nothing but disaster with ERP, is it time to write off ERP? A quick look at the market scenario shows that nothing could be further from the truth. ERP is actually very much alive and kicking, and growing robustly. According to IDC estimates, the ERP market in India has been witnessing a CAGR of 70 percent over the last 5-6 years. As a result, the market has leapfrogged over the years from Rs 12 crore in 1995-96, Rs 27 crore in 1996-97, Rs 62 crore in 1997-98, Rs 134 crore in 1998-99, Rs 250 crore in 1999-2000 to Rs 460 crore in 2000-01 and is expected to reach Rs 650 crore or $120.7 million in 2001-02. The paradox of implementation disasters and robust growth is easily explained. Says Neil Dibb, director, business development, India Sub-Continent, JD Edwards, a major player in the Indian ERP market, “The growth of e-business is a major driver of the ERP market today. Indeed, customers are no longer looking for a simple ERP solution but one that incorporates e-business elements such as SCM and CRM. We call this kind of solution ERP II, as opposed to the earlier plain vanilla products. ERP II is central to e-business and as long as there is compulsion for firms to become e-enabled, ERP II will grow robustly”. Agrees Arjun Erry, country manager, QAD India, “We are witnessing a paradigm shift in the ERP market, with more and more clients demanding second generation ERP solutions which include SCM and CRM. In this kind of market place, only vendors who have a second generation product and the ability to implement it can survive and grow. During the last few years we have seen the virtual decimation of the unorganised sector ERP vendors, and that’s because these vendors did not have second generation products and the experience to implement them”.

Dominant Players
A snapshot of the structure of the Indian market confirms this. The dominant players are all second generation product vendors, who offer a complete suite. SAP India tops the charts with a 56 percent share followed by QAD at 10.8 percent. Ramco at 10 percent, Baan at 8 percent, Oracle at 6 percent, Peoplesoft at 3.5 percent, JD Edwards at 3 percent and ESS at 2.5 percent are the other major players. The remaining is constituted mostly of the unorganised sector as well as ERP solutions developed in-house. At Rs 250 crore in 2000 or $54 million, the Indian market accounted for nearly 8.4 percent of the total Asia-Pacific market for ERP solutions.

Though direct vendors dominate the ERP space in India, a recent trend that has added impetus to the market is the emergence of ERP consultants who are third-party prov-iders who not only implement the vendor solutions at client sites, but also provide maintenance as well as implementation services. “This trend has been prevalent in the Western countries, especially after they too suffered similar setbacks initially with ERP implementation,” comments, Pradeep Erinjery, CEO, Thirdware Solu-tions, one such third-party provider for implementation of QAD MFG/ PRO solutions. Thirdware’s clients include Ford Motor Company, Delphi Automotive, Lear Seating, Tata Johnson Controls, HLL, Godrej Soaps, Fosters India, Bacardi India, Dabur India, Sara Lee, Pilsbury, Nicholas Piramal, Allen Bradley, Raychem RPG, Tata Liebert, Schlumberger and GE Lighting among prominent names. Siemens Information Systems (SISL) is another major third-party player involved in implementing Baan, SAP and even Oracle solutions. SISL has around 70 implementations with some major clients being Marico Industries, Hero Honda, Sanmar Engineering and Chemplast, Osram and Novartis. Peoplesoft solutions are being implemented by Chennai-based Hexaware Technologies.

The pattern of adoption and successful implementation of ERP in the Indian corporate world tell an interesting story. ERP is mainly used by manufacturing firms, with FMCG, automotive, steel, oil, textile and pharma companies dominating the picture. For these early adopters, Finance and Accounting, Sales and Distribution, and Materials Management/ Purchase are the most popular ERP modules implemented; though HR modules are growing in popularity. Names such as TISCO, TELCO, Nestle, Reliance, Godrej, Larsen & Toubro, HLL and Maruti are prominent in the list of early adopters. The oil companies and even some IT-savvy PSUs such as Konkan Railway also join the roster.

Aggressive Adopters
The SME segment in India has been one of the most aggressive adopters of ERP in India. In fact, of the 791 firms in India today who have an ERP, almost 60 percent of them belong to the SME segment. With different vendors coming out with country-specific localisations, besides having a large pool of skilled functional and technical talent available, the total cost of ownership of an ERP has dropped significantly. Subsequently, there have been a substantial increase in the penetration level in the SME segment. Some of the more prominent names in the SME segment include Tribhovandas Bhimji Zhaveri, Nippo Batteries, Baroda Dairy and Haldiram among others. Among the vendors active in the SME segment is ESS which has pioneered solutions specific to SME firms. The Rs 260 crore Indo-National, best known for its Nippo brand of batteries, is a typical example of an ESS implementation. ESS has implemented its flagship product ‘ebizframe’ to automate their Corporate Office in Chennai as well as their branch offices and two factory locations in Tada and Nellore. Comments Anil Bakht, CMD, ESS, “Indo National has opted for using both the ERP aspect and the Internet enabling features of ‘ebizframe’. This will aid the company in smooth inventory management, timely scheduling of production cycles and shipment of goods, managing human resources and online data communication.”

Tangible Benefits

But has there been any tangible quantitative benefit for India Inc post- ERP implementation? According to Shrikant Gathoo, general manager-ETRANS, BPCL, “BPCL has worked on the ROI on SAP R/3 implementation, totalling Rs 40 crore on annual savings.” Adds Sunil Deshmukh, financial controller & company secretary, Fosters India, “In the absence of an ERP solution (MFG/PRO from QAD), closing of our accounts would take more than 20 days, but now it takes less than a week.” Sharad Saxena, CTO, Konkan Railways, remarks, “Our in-house ERP called RMS helped us make substantial savings and now the other railways also intend to purchase the application from us.”

But what should Indian companies do with ERP-II so as not to repeat the earlier mistakes? First and foremost, selection of the proper package is of paramount importance based solely on business needs. An interesting example is Larsen & Toubro, which uses two ERP solutions, SAP R/3 and Baan, for separate divisions. One of these, the Unit Equipment Division uses Baan with the finance, manufacturing, distribution, shopfloor scheduling and budgeting modules. Obviously, they found that a single vendor solution was inappropriate for the entire organisation.

Getting top management to understanding and recognise that ERP implementation will involve a radical departure from past practises, where every existing process as well as sub-process in the supply chain will have to be put under the microscope, is an essential element to success. Every process will need to be put as close to the theoretical optimum methods as possible, which eliminates all unnecessary duplications and reverse work flows. Menon elucidates with an example: “An existing process that involves a document going to and from the sales office to the factory to the office before a proposal can be given to the client will have to be questioned to see whether an empowered sales person could not undertake the entire process without all the delays.” Or as Somesh Bhagat, managing director, Oracle India, explains, “A process that involves looping between two peer departments such as design and production will have to be streamlined and excessive delays for decisions to be taken by bosses which call for information flows that are orthogonal to the desired work flow will have to be simplified.”

Applied common sense
Jagadish expounds, “You can call this reengineering or process rationalisation, but the basic necessity is applied common sense. What was required and possible in a supplier-oriented shortage economy cannot be afforded in the cut-throat competition that pervades all industry segments in present times.” It would be truly disastrous to attempt a force-fit of an ERP product till the implementation team is confident that the processes are as close to optimal as possible. Once that is achieved, the correct ERP product can be put in with some customisation which will be more driven through change of a few parameters than an attempt to revisit the fundamentals of the process.”

The argument that is being made here is that it is not the ‘ideal ERP Package’ or multiple man-years spent in customisation and training that will drive the success of an ERP project in any business organisation. If the processes are elegant and streamlined and enough effort is put in to make sure that all possible rationalisation and reengineering is done, half the battle is already over and the organisation can truly hope to see the pot of gold that is expected to lie at the end of the ERP rainbow.

(See print issue for more details)