Boom in enterprise applications market

The enterprise application software market had a great year in 2003 when it turned around after a two-year slump. This year things are expected to be even better, says AKHTAR PASHA

MANUFACTURING made the difference. 2003 found enterprise application software (EAS), which consists of enterprise resource planning (ERP), supply chain management (SCM), customer relationship management (CRM) and network management software (NMS) vendors smiling. The previous two years had been quite bad with markets showing negative growth. Though the final numbers are yet to come in from IDC and Gartner, conservative estimates based on deals done by EAS vendors in 2003 are expected to reveal a market that’s grown by 8-10 percent in new licence revenues from the $37.1 million of 2002.

PRANAV KUMAR says that the market for EAS performed well because there was both a revival in spending by enterprises as well as aggressive market development efforts by vendors

Says Pranav Kumar, research director, EAS, Gartner Asia/Pacific, “The market for EAS performed well in 2003. It was buoyed by ERP, which accounted for more than half [the market]. This was the result of both a revival of spending among enterprises as well as aggressive market development efforts by vendors.”

While manufacturing—the traditional big spender on ERP—continued to be the biggest segment for enterprise applications, an increasing number of organisations from banking, government and utilities also deployed ERP solutions. SMEs (small and medium enterprises) accounted for a larger share of the ERP market than ever before. Everybody was targeting SMEs last year. It wasn’t just the focused SME specialists this time around as vendors such as SAP, SSA Global, Microsoft Navision, ICICI Infotech, Oracle and ESS all gunned for SMEs.

Though enterprises evinced interest in CRM and SCM, ERP continued to be the prime driver of the Indian EAS market.

Good times will continue

We expect this market segment to continue its good form. It will grow at the rate of 10-12 percent in 2004. ERP will continue to account for about half the market. Some large enterprises will rip out their old ERP installations and replace them with applications built on open technologies. CRM adoption will continue to grow and we see analytical CRM gaining traction. This market will gain momentum as retailers and manufacturers are looking for growth. SCM will grow as manufacturing goes in for lean manufacturing solutions that help plan capacity, schedules and production.

RAVI KATHURIA sees big investments coming from large construction companies for infrastructure management or project management software

Anil Tikoo, head, IT, ICICI Prudential Life Insurance, sees positive growth continuing in 2004. He says, “Businesses that have been holding their IT budgets for the last two to three years will free their arms in 2004 since there is a clear need for application software that can affect the bottom line and improve overall efficiency. It [EAS] will make an impact for businesses looking at export markets.”

The year of SMEs

Because of consolidation taking place in the EAS segment (the acquisition of Baan by SSA Global, JD Edwards by PeopleSoft, and Navision by Microsoft), four large vendors have emerged. Since most EAS vendors are actively looking at the volume market (SMEs), there will be a reduction in average deal size, putting pressure on vendors’ new licence revenues.

Opines Ronnie Sarkar, head, Sales & Marketing, SAARC, SoftBrands Manufacturing, “Vendors will try to woo as many SMEs [as possible] and increase the number of installations.” Two key trends will emerge in 2004 for EAS in general and ERP in particular: EAS products will be verticalised, and, within manufacturing, exports will drive the market.

Vertical-specific products

RAY KLOSS points out that in CRM, one size does not fit all. What works for insurance or telecom will not work for manufacturing

While SME is the buzzword in the market today, actual growth in this segment will require micro-vertical specialisation and extensive training of the distribution channel. Says Dib Chaudhuri, general manager, Enterprise Solutions, ICICI Infotech, “Business engagement is shifting and these [SME] customers expect us to know about their business process and pain areas. They are also asking for best practices.” SME customers are not interested in generic solutions. They want domain-specific solutions. Points out Nagaraj Bhargava, director, Marketing & Alliances, SAP India, “SME customers are smarter than enterprises and they are looking for tangible business value such as total cost of ownership (TCO) and return on investment (RoI). Vertical-specific solutions will help them get faster RoI.” For example, SAP and SoftBrands are adding textile modules to their ERP solutions. ICICI Infotech is adding food and beverages, retail and power to its solution. SSA Global is adding transport and route optimisation. Manufacturing and export-oriented units (EOUs) will be strong buyers.

According to ANIL TIKOO, VPN providers and companies looking after large networks will have to make greater investments in NMS tools to bring down the cost of monitoring and managing networks

Gartner says that despite large IT budgets in the banking, financial services and insurance (BFSI) space, the total number of companies in manufacturing and their corresponding levels of automation far exceed that of the BFSI sector. Manufacturing therefore had a higher cumulative spend on IT than financial services, and the trend is likely to continue till 2005.

Manufacturing is the third-largest vertical in terms of IT-spend after BFSI and telecom. Companies that are into process manufacturing (such as auto ancillaries, paint, chemicals and forging) are using ERP to enhance their production, financials, manufacturing, inventory and supply chains. Says Ravi Kathuria, general manager, Marketing and Enterprise Solutions, SSA Global India, “The domestic drive for ERP and SCM will be higher in verticals such as auto ancillaries. Firms (Tier-II and Tier-III) that supply engine, chassis and brake suspension assemblies to Tier-I suppliers and OEMs are being asked to supply information the way Tier-I suppliers do, in formats such as ANSI, Odette and EDIFACT. It is essential that these firms consolidate their data in that format.”

The second drive is the export factor. Companies such as the Anand Group (which manufactures the Gabriel brand of auto accessories) and TEI Electronics (suppliers to electronic giants such as Samsung) have export plans. Likewise, there are a dozen others, including TVS Motor, Phoenix Lamps and the Kalyani Group that have forayed into exports. These companies need to conform to international quality standards. They need to analyse product costing, streamline their supply chain, and gear up for demand scheduling and capacity planning to maintain a minimum level of inventory. All these factors will drive ERP and SCM sales this year.

Insurance will embrace CRM

Traditionally, large banks and telcos drove the CRM market. That’s passé. Insurance is emerging as a key vertical, and insurers are expected to drive the CRM market, next only to BFSI and telecom in 2004. According to IDC, IT investment by the insurance sector is growing at 35 percent CAGR compared to 23 percent for the financial services sector. Much of this spending will be on CRM applications and integrating multiple delivery channels. Says George Varghese, head, Marketing, SAS India, “Consumers are increasingly fickle. With so much product information just a couple of keystrokes away, it’s truly a buyer’s market. It’s about leaving behind a product-centric business model and adopting a customer-focused philosophy.”

NAGARAJ BHARGAVA of SAP wants to grow the company’s revenues by three times in the next two-three years

Leading the pack is ICICI Bank, followed by the likes of Standard Chartered Bank and Aviva Life, which uses analytical CRM to sell multiple products [life and non-life; pension, education policies, etc] to existing customers and to acquire new customers. Analytical CRM helps insurance companies obtain granular details about their customers, design better products, improve service levels and reduce operational costs. Smaller insurance firms such as Birla Sun Life, Allianz Bajaj and Kotak Life are expected to take baby steps too, starting with operational CRM to increase sales force automation. Once they have a sufficiently large customer database they will use business intelligence or analytical tools to mine data from contact centres and banks with whom they have formed alliances to sell insurance products.

Manufacturing and retail will get a taste of CRM for the first time in 2004. Vendors such as SAS, SSA Global, PeopleSoft and ICICI Infotech see business potential in vertical-specific CRM products. Comments Ray Kloss, director, Product & Industry solutions, PeopleSoft JAPAC, “One size does not fit all. What works for insurance or telecom will not work for manufacturing. In the latter case, customers are looking for order fulfilment optimisation and post-sales customer service.”

The way for companies to move forward is to implement CRM solutions that are designed not just to gather customer data but to arm companies with the knowledge that lets them develop and implement smarter customer strategies and maximise profitability.

SRM will gain traction

Supplier Relationship Management (SRM) will emerge as a discipline focused on sourcing, engagement, procurement and settlement processes. In the next two years, mature SRM offerings will include features such as supplier selection, bid management, full e-procurement and supplier performance analytics. Companies are looking at streamlining their supply chain cycle to increase productivity and capacity. In some cases it will help improve shop-floor scheduling (the industry calls it lean manufacturing.) These solutions will help SMEs and enterprises plan capacity and keep inventory levels lows.

New growth driver

RONNIE SARKAR says that vendors will try to woo as many SMEs as possible and increase the number of installations

In the interim Budget for 2004-05 (which was tabled in January), the government said it would spend Rs 1,560 crore on infrastructure such as roads, highways, power and shipping. These projects will require continuous monitoring of men and material resources across locations, and status checks of projects by large construction companies. Kathuria sticks his neck out: “We see big investments coming from large construction companies for infrastructure management or project management software.” SAP, Oracle, PeopleSoft and ICICI Infotech consider this a big market opportunity.

NMS restricted to large enterprises

The NMS (network management software) segment saw positive growth of 12 percent in new licence revenues in 2003. Says Tikoo, “VPN providers and companies looking after large networks will have to make greater investments in NMS tools to bring down the cost of monitoring and managing networks.”

Adds Suresh Raman, vice president, Microland, “NMS frameworks such as OpenView, Tivoli or Unicentre are expensive to implement because of the cost structure in the range of $100,000 to $300,000. Hence, this market will be primarily driven by large enterprises [BFSI, telecom and R&D centres] with large and complex network infrastructure and mission-critical solutions that need to be monitored 365x24x7 and require 99.9 percent availability.”

Tikoo says, “If you have complex network infrastructure like ours (ICICI Group), you need to be able to monitor availability and performance issues on a near real-time basis.” You can allocate bandwidth on the fly if a specific branch’s leased line crosses a defined level of bandwidth utilisation by kicking in, say, ISDN links during the peak period of bandwidth usage. NMS lets ICICI Prudential manage bandwidth, network nodes, routers, links and ATMs. Overall it helps reduce network downtime.

akhtar@expresscomputeronline.com