Enterprise-wide Applications

Automate? Yes. Implement? Not sure

Small businesses have moved on from accounting solutions to ERP systems. Shivani Shinde finds that these companies prefer home-grown enterprise applications to off the shelf ERP packages

That the small and medium business segment is adopting IT is highlighted by almost all the analysts. According to a recent study by AMI Partners, the SMB sector constitutes approximately 95 percent of the total industrial units in India and is a substantial contributor to the country’s GDP. Small businesses (SBs) constitute 99.4 percent of the country’s SMB universe. At present, Indian SMBs provide employment to over 21 million people and more than one-third of the total enterprises would have recruited an additional 3.4 million personnel by end-2005.

Enterprise-wide applications (EWA) remain a low priority area. The survey points out that rapidly changing technology is a major concern when it comes to investing in these applications. Almost 50 percent of the respondents state this as a concern area followed by the uncertainty on investment in technology.

Alok Tandon, Country Manager, India, SSA Global says, “Small businesses in India certainly have a requirement for applications such as ERP and CRM. There are benefits to be gained for these organisations over home-grown solutions or manual processes.”

He feels that as resources are usually tighter in small segments, resource loading is a key requirement. In addition, small enterprises need to work with vendors who are able to deliver faster implementations and a return on investment in a shorter timeframe. They cannot afford the distraction of a long implementation or an RoI that takes a long time to realise.

Having said this, let us take a look at what these segments are spending on when it comes to business applications.

Application servers, ERP, SCM, CRM and SFA come under the ambit of EWA. Among these, application servers continue to be invested in with 54 percent of the total respondent base (180) having already invested in it and another 9 percent planning to make further investments. ERP remains the most used application with 32 percent already having invested in it and 17 percent planning to do so in the coming year. Surprisingly, data warehousing/BI are graded higher by these organisations than CRM, SCM or SFA.

Among the verticals, chemicals and pharmaceuticals is the biggest spender on ERP followed by FMCG, consumer durables and manufacturing. Companies have certainly moved from having an accounting and financing solution to applications that will help them grow.

These two verticals are also registering healthy export revenues. With the export revenue of 18.71 percent, chemical and pharma companies expect export revenue to be 25.5 percent and manufacturing 25.33 percent.

Last year we had predicted that this segment is a huge market for vendors as many are yet to make up their minds on deploying applications. Vendors now need to get into a more aggressive marketing mode.

Customised ERP preferred

According to the survey, investments in application servers continue to increase. The reason could be the need for custom-built applications. This also shows that there is some level of automation in a finance and accounting system.

54 percent of the respondent base has an application server, BFSI being the highest user with 75 percent, FMCG and consumer durables with 57 percent followed by manufacturing at 54 percent. Most respondents prefer to have applications developed according to their own needs.

Among the various applications, ERP is the only one that is showing growth. In the chemical and pharma sector, 46 percent have already invested in an ERP system. Most companies realise the need for a robust IT infrastructure especially among the chemical and pharma verticals. For instance, Lee Pharma, a Hyderabad-based company that used Tally for accounting and finance, is in the final stages of its ERP implementation. Koteswar Rao, EDP Executive at Lee says, “With the volume of data increasing we have decided to invest in an ERP application.”

Lee is also an instance of how small enterprises still prefer to develop their own applications. “We felt that developing an in-house application is the best option as we did not find any of the offerings in the market suitable to our requirements,” says Rao. They are using SQL Server and VB to build their ERP system.

Rao agrees that applications like SCM and CRM are the need of the hour but convincing the management is still a major issue.

Organisations realise that before going in for such IT tools the basics should be in place. Titanium Equipment and Anode Manufacturing (TEAM) has been in business for the last two decades and has had an ERP system since 15 years. The company specialises in the design and fabrication of heat exchangers, pressure vessels, condensers, reactor columns and custom-built equipment catering to various industries. Satish Kumar, EDP In-charge at the company says, “The biggest advantage ERP has offered us is in widening the business process and centralising the database.” ERP integrates with the purchase orders, stores and finance. This has allowed them to centralise data. “We are using the Oracle database for the back end and Developer 2000 as the front end. Though this is not in-built we asked the vendor to customise it according to our requirements,” explains Kumar.

Khaitan Electricals has 15 branch offices all over India. To avoid delay in receiving the details of transactions from the dealers and purchasers was their prime criterion. With Oracle as the back end they are developing an ERP system that fits in with their requirements.

Says G S Nathan, Commercial Manager at Khaitan, “The need for an ERP was felt as we had to streamline the information gathered, make transactions faster and avoid tampering of data. Since the reports are online, they reach the head office faster and thus can be better controlled. The ERP system also allows us to be updated on the vendors and purchasers.”

Nathan feels that ERP is just the beginning of their tryst with technology as they plan to upgrade their IT systems. He believes that ERP has allowed them to be much stronger in the business as they have accurate data to act upon.

Business needs

The business priorities of SBs are evolving and with them the belief that to grow they need to invest in applications and have IT systems in place. The top three business priorities among the small enterprises are increasing production capacities and sales, and creating new markets. These three are again the reasons driving IT investments along with decreasing operational costs.

According to the survey, IT is seen as a tool to be more profitable, mostly through optimisation of resources and making the system more efficient. Technology as an enabler is yet to gain acceptance.

However, there are instances where organisations have been slow but certainly have woken up to the fact that they cannot ignore technology. Apna Sahakari Bank is an apt instance of how IT is becoming an integral part of the business. The bank has total branch automation in place, but increasing demand and the need to offer better service to customers have led it to roll out a core banking solution connecting its 131 branches. Swati Mane, Senior Manager, IT feels that for them, adopting IT has been a gradual move. Mane goes on to say that once the CBS is in place they plan to go in for Internet and mobile banking too.

Similar is the case of Tilak Nagar Industries, a distillery concern. They have two branch offices, four bottling units and a factory in Ahmednagar. Though they do not have any enterprise application in place they plan to implement ERP in a few months. Says Gerald Rodrigues, IT head of the company, “We certainly feel the need for an ERP system as the business and information are growing. Besides we feel that data should be available online and in real-time.” They have recently completed the evaluation for an ERP system and are to finalise a vendor in a few months. He also feels that having a packaged application is better than one built in-house.

Criteria for selection among SBs depends on price and manageability. Vendors like SAP and Microsoft are trying to target this segment with similar offerings. For instance, Microsoft has recently launched Microsoft Dynamics as the platform for a suite of offerings such as financial management, SCM and CRM solutions.

SAP has been the earliest player offering solutions for the small and medium organisations to manage their business. For instance, SAP has unveiled the latest version of SAP Business One, an integrated software solution. Business One offers a full-fledged enterprise solution, enabling SMBs to have a single system to automate, manage and control critical operations such as sales, finance, purchase, inventory, manufacturing and interaction with customers, suppliers and employees.

CRM and SCM aren't there yet

CRM and SCM are yet to make an impact in the SB segment. Of the total respondent base just about 5 percent say that they have invested or are planning to invest in CRM.

There are several reasons for this. Many of these small companies have just started investing in a basic system like ERP and many are in the conceptual or implementation stage. Besides, applications like CRM need integrated transaction systems for which an ERP system is essential.

The product life cycle maturity index of applications is still low in India and organisations are working on moving ahead with ERP implementations.

This is the case for SFA tools as well. For many, SFA as a tool to get information in real-time is not prevalent. The person on the field being able to file his reports through the Internet suffices.

At Lee Pharma, the field force files their reports from an Internet café. Though they realise the importance of an SFA, it is not on the list of IT investments.

Building blocks

Though the investment in applications is comparatively low, organisations are aware that it is important for the growth of the business. Many already have an ERP system, which should be considered as the first building block for other enterprise applications.

Rodrigues feels that once they get the ERP in place they will have to look for further automation such as SCM or a CRM tool.

—With inputs from Vinita Gupta