The Enterprise Applications space has metamorphosed considerably over the last couple of years to mature into solutions that offer a clear value proposition with a definite Return on Investment to organisations. Pankaj Mishra analyses the trends and also forecasts what lies ahead for this industry segment.

Enterprise Apps: Top Trends

• RoI a prime factor in deciding on ERP adoption.
• SMEs will begin to adopt ERP in a big way.
• Verticalisation of product offerings in CRM space.
• Services will emerge as revenue stream for vendors.
• Enterprise apps will evolve into solutions with an inherent analytic capability to effect business change.

When the Enterprise Resource Planning (ERP) phenomenon descended upon India a few years ago, much hype surrounded it. Some old economy companies that implemented ERP were expecting paybacks in a very short time frame, which didn’t happen. And everyone said ERP was dead. Other applications like Customer Relationship Management (CRM) and Supply Chain Management (SCM) also met a similar fate. Today, the Rs 321 crore Indian enterprise solutions market ERP, CRM, SCM, ASP, Internet Services and Knowledge Management is undergoing a fundamental change in terms of the value proposition it represents and also in the vendors’ approach toward selling these solutions.

Trends in ERP

A Gartner report that delves into the relevance and utility of enterprise applications, is quite clear that such applications can no longer be mere automators of existing business process, but rather, they need to have an inherent analytic capability to effect business change. The report states: “For enterprise applications, 2002 marks the beginning of the age of analytics. Results from enterprise applications will be best achieved using applications to effect business change. Functions related to automation of the status quo will no longer be adequate. By 2004, applications that have an inherent analytic capability or transparent connectivity to industry-standard analytic applications will deliver a minimum of twice the RoI as those that do not.” Most of the vendors including SAP, Baan, Microsoft, Computer Associates and Oracle believe that the Indian Enterprise customers have matured and today an ERP solution is not looked upon as a ‘boxed’ solution.

The assessment holds great relevance for the Indian enterprise market, which is undergoing a slow and evolutionary change. The fancy expectations of the early nineties when the companies used to look at ERP as a magic wand to solve all their problems have faded away. As Pradeep Sen, director - manufacturing and distribution, SAP India, puts it, “CIOs and CEOs today are more concerned about return on investment after investing in ERP. Gone are the days when companies used to adopt ERP as a fad.”

According to Gartner, the major ERP vendors of the 1990s have undergone significant transformations. For example, Baan is now owned by Invensys, an industrial conglomerate with a heritage in process equipment, automation and control, addressing the lower rungs of the IT hierarchy in manufacturing. “The fact that such a ‘high-flying’ ERP company could stumble and be purchased by an industrial automation company is a significant change in the business applications landscape,” the Gartner report says.

Some of the other important trends identified by Gartner are:

• The transformation of Baan and of the “Big Four” vendors into ERP II providers.
• The repositioning of small and mid-size business (SMB) of ERP vendors.
• The persistence of customer relationship management (CRM) and supply chain management (SCM) vendors such as Siebel Systems and i2 Technology is providing additional insight into how the ERP backbone will respond to challenges inherent in discrete manufacturing.

If we try to analyse these trends with more of an India focus in mind, the following issues are expected to influence the market to a significant extent in 2002.

* RoI will top the list of decision-making criteria for ERP adoption.

“As large corporates scale down their IT expenditure owing to the slump, most of them will also look at reducing costs by adopting an ERP package. But much before that, they would like to know RoI post implementation of ERP,” says Sen of SAP India.

* SMEs will begin to adopt ERP in a big way.

According to a recent research conducted by IDC India, the awareness level amongst Indian SMEs about ERP is 31 percent and around 5 percent of them are evaluating which solution/technology to choose. Therefore, the segment holds tremendous potential for ERP vendors who are now chalking out various strategies to woo them. Only 0.4 percent of the Indian SMEs have implemented ERP so far.

However, the SMEs will have to look into their needs before committing huge investments in implementing ERP. Else, they would not be in a position to reap the full benefits from the implementation.

* Se rvices will emerge as substantial revenue stream.

In light of the above point, the role of consulting services as part of an ERP implementation will become more lucrative and such services will emerge as a substantial revenue stream. Says Ninad Sule, head - SAP Practice, Atos Origin India, “In terms of global trends in the enterprise application space, we are witnessing demand for full lifecycle ERP services, from consulting to managed operations. The recent economic climate is having an influence over large organisations with trans-national presence with organisations driving towards better operational efficiencies, which in turn is influencing their decisions for a large scale ERP implementation and rollout.”

Sen of SAP says that the Indian enterprise clients have never perceived enough value in paying for the services component of an ERP package. Around 89 percent of the Indian enterprise customers are aware of ERP as a concept and more importantly they are now realising the role of consulting services, which come along with the package. Therefore, services will emerge as a lucrative revenue stream for the vendors.

* Outsourced manufacturing will increase.

As more and more MNCs set up bases in the country, outsourced manufacturing will increase. This in turn will boost ERP adoption.

Trends in CRM

“Executing enterprise-level CRM is not easy. It requires Board-level vision and leadership to drive a “relentless focus on the customer.” It involves learning new customer management skills, potentially difficult changes to processes, culture and organisation, and grappling with the technology challenges of multichannel alignment, systems integration and data quality,” states the Gartner Group. With the advent of MNC players in sectors like telecom, banking and insurance, Indian enterprises have no option but to differentiate themselves by offering services at par with the international competition. Before going for a CRM solution, the deliverables have to be defined by an Enterprise.

“Even if the Board accepts the need for enterprise-level CRM, the quarterly demands of revenue and profit targets, especially in delicate economic conditions, often mean that although CRM is the most important challenge facing an enterprise, it is not seen as the most urgent. This typically results in a focus on isolated tactical “quick wins” until conditions are better,” says Gartner.

The Indian CRM market is pegged at Rs 23.7 crore (2000-01). However, it is still a nascent market, according to IDC, because of low awareness levels, especially in the SME segment. Some of the trends that will influence CRM in the country are:

• CRM will find potential in both SMEs and large organisations and around 45 percent of the SMEs will adopt CRM as an extension of e-commerce.
• Adoption of CRM in India will start from specific modules, rather than an end-to-end CRM solution.
• Verticalisation of products is predicted by Gartner.

“Despite marketing hype to the contrary, many vendors have not provided adequate verticalisation in their products. The emergence of ERP II (an extended ERP) and industry-specific CRM initiatives highlights the growing relevance of industry-specific capabilities in enterprise applications and that vendors recognise the need. As the enterprise applications become business operating systems, broad functional applicability plays well; however, industry-specific needs must still be addressed,” says Gartner.

This explains why companies like Baan, SAP and Microsoft are drafting strategies aimed at various industry verticals like banking, insurance, government and manufacturing in India. 2002 is expected to witness aggressive campaigns by the vendors for wooing clients in these verticals.

“In 2002, we expect vendors will extend the vertical industry capabilities of their products by focusing on select markets with domain-specific functionality and integration capability with backbone applications or opening their backbone products, via componentisation, to enhancement via configuration to meet industry-specific requirements,” adds Gartner.

Trends in ASP

ASP emerged as a buzzword a while ago, when there were claims that SMEs can benefit a lot from this model as it didn’t require huge investments. On the flip side, however, most of the ERP vendors are still not very confident about the ASP model. “Lets face it, ASP as a model is yet to take off because the infrastructure is not ready. Connectivity is a dogging issue,” says Y Shekar, general manager, Baan India. Vivek Marla, director of sales at Oracle India, believes that ASP is still one of the potential growth areas. “ASP didn’t click because of several issues. Infrastructure constraints and security concerns are few examples. Fortunately, the perception of companies, especially the SMEs, is changing and there is a perceptible shift.”

According to K P Vinod, director marketing, Computer Associates India, ASP as a concept has not achieved critical mass in the country to drive it.

The Road Ahead

According to Gartner, enterprises will be taking a “back to basics” approach in 2002. They will prioritise and justify their activities based on how well they meet the three original tenets for investing in any enterprise apps project: Firstly, decrease the total cost of ownership; secondly, improve the quality of services delivered in terms of availability, response time and end-user satisfaction; and lastly, reduce the risks of operational or catastrophic failures.

One of the trends predicted by Vinod of Computer Associates is increased investment by enterprises in infrastructure applications like storage and network management solutions.

With government spending expected to increase and better awareness amongst the Indian enterprise customers, 2002 is definitely going to be an exciting year. SMEs have also emerged as a lucrative segment for enterprise applications. However, selling enterprise solutions to the SMEs through the ASP model is still not viable at present since SMEs are still apprehensive about issues of security and infrastructure.

Gartner predicts that 2002 will be a turning point for enterprise application software, as users’ expectations align with business objectives and vendors start delivering products that are more of a solution and less of a tool. The vendors like SAP, Oracle, Baan and Microsoft should now focus more on educating the customers by offering consulting services. This will help enterprises realise the true potential of enterprise application software.