EAS: fresh segments to the fore

The enterprise application software market grew robustly in 2004. Manufacturing made the difference. Akhtar Pasha believes that the EAS market will enjoy similar growth this year too

In our 2004 anniversary issue, Express Computer predicted that the SMB market would become more important for enterprise application software (EAS) vendors than large enterprises and that consolidation would put pressure on new licence revenues, and that vendors needed to look at fresh verticals by tailoring their software to the needs of specific industry verticals. A growth of 10 percent in new licence revenues was predicted. All our predictions came true by end-2004. In fact the new licence market exceeded even our projections by growing at a higher rate than we had predicted.

Although the final numbers for the EAS market for CY2004 are yet to come in, Gartner’s conservative estimates state that new licence revenues from this category have grown by 10 percent in CY2004 from $50 million in 2003. However, based on reactions from vendors, we believe that growth in new licence revenues is in the range of 14 percent for the same period (CY2004). Says Pranav Kumar, Research Director, EAS, Gartner India, “The EAS market performed well for the second time in a row buoyed by ERP which accounted for more than half of the total EAS market.” Adds Manoj Kunkalienkar, Executive Director, 3i Infotech, “A lot of companies are putting core enterprise solutions in place before implementing supply chain management (SCM) and customer relationship management (CRM).”

This was the result of a revival in spending among enterprises and SMBs. The latter segment did very well in 2004, and offers vast opportunity to EAS vendors over the long-term. According to Kumar, “Manufacturing, BFSI and telecom are the three largest verticals in terms of spending on EAS.”

Verticals such as discrete auto ancillary, processed foods, textile and pharma, along with big spenders in BFSI and telecom, kept the momentum going in the EAS market. S P S Grover, Senior Director-Government, Education & Health, Oracle India Manufacturing, states that a big chunk of the Indian SMB segment consists of Tier-II / Tier-III suppliers to domestic and global OEMs. “Manufacturing has come out of the dark days to become the dark horse in the domestic market.”

Says Ravi Kathuria, Director-Marketing & Solutions, SSA Global India, “SMB manufacturing is not an easy market because of its growth pattern. ERP increases productivity while reducing time-to-market and costs.” He cites his customer, transformer manufacturer Vijay Electricals. The transformer market is saturated, so to differentiate itself from the competition, the company reduced its delivery cycle time and grew by 50 percent. Goa Shipyard used SSA Global ERP to bring down the time taken to build ships by 20 percent, which led to a 10 percent reduction in operations costs. Notes Nagaraj Bhargava, Director-Marketing, Alliances & Sales Operations, SAP India, “SMBs are growing rapidly, and to manage their growth they require enterprise applications.”

New licence revenues flourish

The growth of new licence revenues has been considerable. SAP led the EAS market in CY2004. Its new licence revenues grew by 70 percent over 2003. The company has doubled the number of customers it had in 2003. Of the 120 new customers it acquired in 2004, 75 deals were in SMB space. (In 2003, SAP had 35 SMB customers.) Reveals Nagaraj Bhargava, Director-Marketing, Alliances & Sales Operations, SAP India, “For the first time, SAP has been able to penetrate newer verticals in a significant way—BFSI, telecom and services. In BFSI we bagged some key deals with Tata Finance (for leasing and asset management), National Housing Bank, National Bank for Agriculture And Rural Development, ICICI Bank, and General Insurance Corporation (core re-insurance solution). In telecom we picked up TTSL and BPL Mobile. Within services utilities we secured the Chattisgarh State Electricity Board and Tata Power, both for our core billing application.”

Oracle won deals from the Gujarat Electricity Board, Kolkata Municipal Corporation (ERP) and the Chennai Metro Supply Board (ERP). Within manufacturing it closed a deal with Eveready, the Gujarat Milk Federation (Mehsana) and Hatson Agro.

SSA Global India added 30 new customers in 2004, and its new licence revenues grew by 70 percent. Half of this was accounted for by ERP, and the balance split across SCM and Corporate Performance Management.

EAS performed well for the second time in a row, buoyed by ERP which accounted for more than half of the total EAS market Pranav Kumar Research Director, EAS Gartner India	Consolidation will lead to better choices for customers as only financially-sound EAS vendors will be left with clear product roadmaps Alok Shende Director, Technology Practice Frost & Sullivan	For the first time, SAP has been able to penetrate new verticals in a significant way—BFSI, telecom and services Nagaraj Bhargava Director Marketing, Alliances & Sales SAP India	Core ERP systems can improve internal efficiencies and financials, but that’s not enough Subhmoy Sengupta General Manager Application Sales Oracle India

Outlook for 2005

Analysts say that ERP will continue to get a higher share of the EAS market when compared to CRM and SCM, although the adoption of these applications will continue to grow as well. Gartner sees pharmaceuticals, auto-ancillary manufacturing as well as government and the public sector as industry verticals that will invest in EAS during 2005. Competition and the need to reduce prices and look beyond the enterprise for expansion will drive this market. Gartner predicts 10-12 percent growth in new EAS licence revenues for 2005. Industry consensus is that the EAS market will grow 13-14 percent this year. Micro-verticalisation of EAS will continue in 2005, and will become finer; customers into gems and jewellery will demand and get applications that suit their line of business.

Consolidation in EAS

According to Kumar of Gartner, 2004 saw consolidation take place in the EAS segment. Today, customers are left with fewer choices, which is not entirely a good thing as they have less bargaining power than before. Additionally, as long as uncertainty remains in the minds of CIOs, the decision-making process may get delayed. As industry consolidation continues, it will act as an inhibitor to market growth in the short term. Kumar elaborates, “As a result of the consolidation in the EAS market, there has been a drop in the average deal size for most vendors by 15-20 percent. Secondly, an increasing number of SMBs are buying fewer licences.”

Alok Shende, Director-Technology Practice, Frost & Sullivan, has a different take on the situation: “Consolidation in EAS was a natural outcome.” He does not agree that consolidation will lead to small deal sizes, or that customers will be left with fewer choices. “Consolidation will [actually] lead to better choices for customers as only financial-sound EAS vendors will be left with clear product roadmaps. This should result in increased customer confidence. Additionally, the market will see the emergence of a duopoly [with SAP and Oracle as the principal contenders]. These vendors are looking at going deeper into micro-verticals, so their competition will not affect deal sizes.”

Global pressure spurs India Inc onwards

Most vendors agree that the average deal size is smaller. Their strategy to counter this trend is to explore fresh markets; they are now turning to SMBs.

SMB is not a buzzword any more. The real action in the EAS space has started with the share of SMBs in the EAS pie rising. According to Gartner, it is not surprising that SMBs are increasingly implementing ERP systems, as they also realise the need for greater visibility into their financial operations. Earlier, management decisions were taken based upon gut-feeling without visibility into the inventory pipeline, working capital, etc. This made planning an exercise in guessing. In a highly competitive market, this just isn’t good enough. As large OEMs expect their suppliers and partners to interconnect with their EAS systems, it became a spur for SMBs to deploy these applications. Many Indian SMBs are part of a larger supply chain of OEMs that want to design and plan production and delivery to improve turnaround time. Also, global pressure is mounting on SMBs; they need to cut costs and adopt lean manufacturing.

Within the SMB segment, manufacturing drove sales. Kathuria says, “Some Indian automotive or auto ancillary companies operate in the global market. Of these, some are tier-II and tier-III suppliers to large OEMs. There is pressure on them to deliver products on time while meeting quality norms as per global standards.”

Greater granularity

Kumar of Gartner points out that “SMBs are investing in micro-vertical solutions because integrated packages are already substantially pre-configured with best practices and industry vertical-specific domain knowledge, thus reducing time, cost and risk in implementation.” Adds Shende, “Companies look to reduce their complexity and bring transparency to their business. They want standard features that meet their requirements and provide the necessary functionality so that they have to spend less time customising the solution. Micro-vertical solutions help businesses get a quicker return on investment (ROI).” Frost & Sullivan says that micro-verticalisation will continue in 2005 as EAS vendors need to capture new market segments. Grover says that as micro-verticalised solutions are 70-80 percent pre-integrated with specific functionality, ROI is achieved much faster.

However, Kumar of Gartner sounds a note of caution. Although mySAP All-in-One and Oracle E-Business Suite Special Edition are essentially the same as the enterprise versions of these product suites, this is not necessarily a good thing. While these help when organisations want to scale up, it also makes the solution a complex one. Pre-packaging a solution for a particular vertical is useful, but it is not the only method of delivering value; the domain knowledge of the professionals implementing it is also important.

CRM disappoints

CRM is well on its way to becoming a key business strategy. That said, Frost & Sullivan expresses disappointment with this technology as it has been unable to deliver on its promises. The deployments in 2004 have

been predominantly point solutions. There are exceptions, though; full deployments took place at ICICI Lombard and Tata Motors. Comments Ravi Chakravarty, Director, Asia Pacific, Talisma, “Last year we saw a trend wherein customers demanded integrated solutions as against point solutions, unlike in the previous years. The key driving factor for integrated CRM is to have a full-fledged enterprise CRM solution in place to avoid integration problems as a business grows rapidly.” System integrators are playing the role of a sheet anchor in CRM deployments as most of them were involved in ERP or business application deployment in the past, and they are constantly in touch with customers.

Ravi Mirchandaney, Vice-president and General Manager, Siebel India Operations (SIO) says, “Customer churn in the automotive industry is significantly higher; it is as high as 50 percent. Consequently, automobile manufacturers are looking to deploy end-to-end CRM solutions.” Analysts say that Tata Motors’ Siebel CRM implementation could trigger off a wave of CRM deployments in manufacturing. They opine that 2005 will see a third wave in which manufacturing will be at the forefront of Indian CRM. (The first two waves saw banking and telecom, followed by insurance, drive the adoption of this technology.)

Tata Motors uses Siebel’s Automotive CRM solution for the task of dealer management. “Globalisation has changed the entire business environment for us. We have developed strategies to pursue our ambitions of becoming a more global company while continuing to grow domestically,” says K R Sreenivasan, head of the CRM and dealer management systems project at the company earlier known as Telco. Tata Motors deals with 250 dealers staffed by 10,000 salesmen across 1,600 locations in India. The dealer management helps individual dealers with everything from inventory management and credit reporting to calculating commissions. The solution helps dealers capture customer data as part of their operations, and provides a 360-degree view of customers to the extended enterprise.

Observes Ramendra Mandal, SIO’s country sales manager, “There is a new trend in the automotive vertical. OEMs are manufacturing more spare parts because of the booming new car and used car segments. Dealers are playing a significant role in the spare parts business. This is going to compel automotive OEMs to look at CRM for dealer management solutions.”

Trimming the fat

Subhmoy Sengupta, General Manager, Application Sales, Oracle India, says, “Core ERP systems can improve internal efficiencies and financials, but that’s not enough. Businesses are expected to increase customer service, quality and reduce costs in order to be competitive. This trend is leading to the adoption of lean manufacturing to reduce wastage by improving flow manufacturing.” He adds that companies need to map their lead-time analysis with the Bill of Materials components, and conduct capacity planning to do away with unnecessary inventory load.

Sengupta cites Kirloskar Oil Engines which has 100 suppliers. The company uses Oracle’s supply chain solution to manage orders, deliverables and delivery notification. At Madura Garments, N P Singh, the Vice-president for Information Technology says, “Our legacy systems were affecting our order execution which was 75 percent. With SAP AFS we have been able to increase order execution to 92 percent, and cut down the work order to finished goods process from 22 days to just 14. We have also been able to cut down dormancy (wastages) from 4.32 percent to 3.65 percent.” These factors will ensure the popularity of lean manufacturing.

The next big thing for EAS

McKinsey has found that the productivity of Indian exporters is only 35 percent of those in America. This is in contrast to the 55 percent achieved by Chinese exporters. Even the overall productivity of the Indian apparel industry, including that of tailors and domestic manufacturers, is just 16 percent of what the American industry has achieved. With economic reforms and the removal of quota systems, Indian textile exports are expected to grow annually by 15-18 percent. Analysts feel that the removal of quota systems has created opportunities as well as challenges. Indian manufacturers now have to compete domestically, but they also have to fight it out with Chinese manufacturers. These factors are set to drive Indian textile and apparel manufactures to revamp their IT systems as many of them are a part of larger supply chains. Says Shende of Frost & Sullivan, “The textile industry’s embrace of enterprise applications will unfold over a longer period from 2004, going right up to 2007, as they will need 2-3 years to fully change over from the old model of doing business to a technology-led one.”

Agrees Abbas Raja, CIO of National Clothing Company, “The removal of quota systems is putting pressure on us to meet customer deadlines and ensure on-time delivery at lower prices without compromising on quality.” Muthuswamy P, the CIO of another apparel exporter, Jupiter Knitting, adds, “We are in stiff competition with Chinese manufacturers whose finished products are 20-30 percent cheaper than ours. To compete in this market we need to have IT systems and vertical-specific business applications that take care of planning, production, inventory, scheduling and order execution.” In the event of not able to meet the customer’s timeline, these companies can incur substantial losses in the region of Rs 10 lakh to 15 lakh per order.

Business intelligence

Historically, business intelligence (BI) tools were used for querying and reporting or business analysis for tactical or operational reasons. More recently, companies have started using BI tools for strategic purposes such as measuring and monitoring the execution of corporate strategy. Since India Inc is still adopting enterprise applications such as ERP and SCM, BI, being a mature application, is likely to be deployed only after primary applications are in place.

According to George Varghese, Head, Marketing & Alliance, Pharma & BPO, SAS India, Indian businesses have adopted automation and business solutions at varying speeds based upon their requirements and understanding of solutions. Overall, technology adoption has been so diverse that systems are tough to integrate. Systems integration is a major problem during a BI implementation as a BI system has to extract information from various sources and across departments and functions. “Customers are looking at ‘Solution Message’ (end-to-end BI solution) for a seamless view of metadata that can be used for reporting and forecasting,” notes Varghese.

EAS spends by most CIOs will rise in 2005. Analysts expect an overall increase of two percent in IT spending, of which a major part will go toward deploying EAS. The verticals to watch out for include auto ancillary and discrete manufacturing, jewellery, polyester films, dairy, pulp & paper, metals, pharmaceuticals, chemicals and retail.

akhtar@expresscomputeronline.com