Enterprise Application Software

Record breaking growth for EAS

Strong demand from SMBs, manufacturing, exports and pharmaceuticals propelled the market in 2006. 2007 is expected to be even better. By Akhtar Pasha

2006 was a special year for enterprise application software (EAS) vendors as the market grew beyond expectations. The trends that we predicted in 2006 were largely responsible for this growth—SMBs as the trendsetters, micro-verticalisation, exports and the like have come to pass. Last year we said that the market would grow by 15 to 16 percent—and that happened. In absolute market growth there has been a change in how growth is reported by analysts—license revenues are no longer looked at in isolation, rather these are being clubbed with maintenance revenues. Yanna Dharmasthira, research director, Software Asia/Pacific, Gartner Dataquest Research says, “Indian EAS software revenues are expected to have grown by close to 17.5 percent to $171.7 million in 2006, up from $146.2 million in 2005. India, along with China, continued to be one of the fastest growing markets in the Asia Pacific. Both these countries are driving the Asia Pacific market for EAS.” She adds, “Yet again the EAS market was buoyed by ERP spending that accounted for 60 percent of overall EAS spending in terms of software revenues.” We had said that manufacturing, the SMB segment, micro-verticalisation of EAS and exports would be significant factors in the growth of the EAS market. Dharmasthira agrees, “Yes, manufacturing and SMBs played an important role. Additionally, the global integration of Indian industry because of the continuous growth of India as an off shoring-outsourcing centre also continues to play a significant role in the overall growth of the market.”

R Ray Wang, principal analyst, Enterprise Application /Tech Industry Strategy, Forrester Research Inc, is upbeat about EAS growth. He says, “My estimates say that EAS software growth is in the range of 20 to 22 percent, mostly driven by SMBs across growing verticals, exports and auto-ancillaries, risk and compliance management and infrastructure projects. The infrastructure required to compete in the marketplace be it domestic or exports has gone up significantly. SAP has grown by leaps and bounds and should have at least twice Oracle’s market share.” Dharmasthira adds, “SAP, Oracle, Infor Global, Sage and Microsoft are the leaders in this market.”

License revenues soar

Software license revenues grew significantly for the top vendors as did customer acquisitions. Since most EAS vendors are going after the same market, the average deal size shrank, but it did not affect business because vendors ramped up in the SMB space where they tapped first time buyers of packaged software. SAP’s dominance over the market across ERP, CRM and SCM was reflected in its business growth.

Nagaraj L Bhargava, vice president - Marketing & Business Operations, SAP India says, “Our software license revenues grew by 55 percent in 2006 over 2005 and I would refer to 2006 as by far the best year in revenue growth and customer acquisitions. We signed up 498 new customers. Of this, 170 new customers bought mySAP All-in-One, our solution for mid-sized companies. mySAP Business-One which is meant for small businesses gave us 263 new wins in spite of being introduced in the second half of 2006.” The company did well in new verticals such as healthcare, financial services, airports and hospitality. It also closed deals for solutions such as CRM on Demand (Zydus Cadila) for the first time.

Other vendors also reported similar growth in their respective software license revenues. Suraj Pai, senior director - Services Industry, Oracle India says, “We saw significant traction in the marketplace especially in manufacturing, auto ancillaries, clinical trials, BFSI, telecom and utilities.”

In addition to pure license revenues, EAS vendors also earn maintenance revenues. Wang says, “My estimate is that 20 percent of the software license revenues are coming from maintenance costs in the form of annual escalation of costs, license upgrades, and price increases for enterprises. That means that enterprises are buying new licenses every four years and most customers pay for services that are lightly utilised and therefore feel that they are being gouged.”

Micro-verticalisation spurs the market

Ravi Kathuria, vice president - Global Marketing, Birlasoft says, “2006 belonged to SMBs. They are investing in packaged applications because they have a fixed time and budget for package implementation. Customising an EAS solution is risky, time consuming and may not meet their complete requirements.” Looking as they are for industry best practices and templates fine-tuned to meet their business requirements for a faster implementation, SMBs are buying micro-verticalised solution.

Dharmasthira adds, “Micro-verticalisation of EAS solution has helped the market expand as businesses want to go live faster with less customisation so that they can earn a faster RoI. The smaller companies (and the relatively new users of IT in emerging markets including those in India) will be positively affected because they tend to be more sensitive to the money spent on IT.” Wang adds that since most EAS vendors are catering to the same volume market (SMB) because of competition, they need to innovate, understand the customer’s unique business problems and built best practices into micro-vertical solutions.

A large number of service providers with vertical expertise are aligned with SAP to offer industry-specific solutions. For example Birlasoft is offering specialised industry vertical solution for paper mills in partnership with SAP. SAP has 20 All-in-One partners and another 22 partners for its SAP Business-One solution. Sushant Dwivedy, business group lead, Microsoft Business Solutions, Microsoft India says, “Micro-verticalisation has helped the EAS market expand rapidly. We have 65 partners who help us integrate micro-vertical solutions with our solution. We have eight micro-vertical solutions in the market.” SMBs have traditionally grown at 10 to 15 percent. Today, however, most of them want to grow at 35 to 40 percent and the only way to do that is to invest in micro-verticalised solutions to automate processes and get a faster RoI.

Governance, risk and compliance

A multiplicity of government regulations, growing pressure from financial markets, and clamouring on part of stakeholders has increased the significance of corporate-wide focus on governance, risk, and compliance (GRC). As a result, leading organisations no longer see GRC activities as being discrete, project-based ones to be managed as separate functions.

One such regulation is SEBI’s Clause 49 referring to clause number 49 of the Listing Agreement between a company and the stock exchanges upon which it is listed (the Listing Agreement is identical for all Indian stock exchanges, including the NSE and BSE). It is intended to introduce some basic corporate governance practices in Indian companies and has brought in a number of changes in governance and disclosures. It specifies the minimum number of independent directors required on the board of a company. The setting up of an Audit committee, and a Shareholders’ Grievance committee, among others, were made mandatory as were the Management’s Discussion and Analysis section and the Report on Corporate Governance in a listed company’s Annual Report, and disclosures of fees paid to non-executive directors.

Basel II is also driving EAS investments. It was devised to improve the soundness of the financial system by aligning regulatory capital requirement with the underlying risks of the banking industry. It encourages banks to conduct better risk management and enhance market discipline. Under the committee’s request, financial institutions have integrated Basel II into their operations.

GRC has emerged as a big factor pushing the need for investments and the market saw the likes of Tata Motors, Wipro Technologies, Orchid Parma and a large Public Sector Bank that is implementing a Basel II solution from SAP taking action in this regard. Bhargava says, “As Indian companies are seeking foreign capital and entering global markets, standards become mandatory for them and this is driving them to adopt software that helps them comply with Clause 49, Sarbanes-Oxley, Basel II and HIPAA among others.”

Anil Bakht, chairman and managing director, Eastern Software Systems adds, “Earlier auto-ancillary manufacturing and quality processes were not defined but today they are required by their OEMs to follow ISO 9001 practices.”

Exports made to order

Exports emerged as a very strong factor for businesses operating in auto-ancillaries supplying parts to OEMs worldwide and in textile and apparel manufacturing (specialised fashion garments). Consider Maestro Engineering, a manufacturer and exporter of high-fashion garments. This type of business is typically identified as a made-to-order one. Paul Arthur Dueman, Business Analyst and Head of IT at Maestro says, “Our turnaround time is short, and we have two seasons in a year—autumn-winter and spring-summer—each spread over six months. During each season, two months are spent in sampling, booking orders, production and dispatch. The only way in which we could reach the market on time was to invest in ERP and Advance Planning Optimisation to streamline our processes across the supply chain.”

Bakht adds,” Auto-ancillary companies have emerged as suppliers to global companies and are earning huge profits from the exports market.” Exports have become a big factor in the decision to buy ERP solutions.

CRM: firing on all cylinders in 2007

According to Wang CRM is primarily seen in contact management, marketing and e-mail campaigns, service requests, responding to proposals and order management. Mohamed Ali, president and CEO, CRM24X7 says, “SMBs want to use SFA and CRM to capture service requests and respond to proposals and track orders.” Idea Design, a dealer in design software, uses SFA solutions to monitor its RFP (request for proposal) invoices and order fulfilment.

Thomas Abraham, managing director, Sage Software India (P) Ltd says, “We saw a surge in demand from in-bound travel agents (holiday makers), travel portals and services company trying to capture customer interactions and integrate them with the booking engine to offer an end-to-end solution.” Sage closed many SFA deals with Cleartrip.com, Cox & Kings, Ezeegol.com, and Blue Dart. Talisma has a range of customers such as Bharti Axa Insurance, Franklin Templeton, JP Morgan Mutual Fund, Indus Ind Bank, Kingfisher Airlines, Pantaloon/Future Group, Sutherland Global Services and HTMT.

Girish Krishnamurthy, Managing Director-APAC, Talisma Corporation says, “Customer interaction management has become a mainstream application.” With increasing customer choice and the easy availability of information, customers have more questions than ever before. As SMS and the Internet gain mainstream acceptance as channels for customer service, it is becoming easier for customers to pose these questions. As a result, the number (and complexity) of interactions that need to be managed continues to explode. “Companies are starting to use personalised customer service (and hence CRM) as a strategic differentiator,” says Krishnamurthy.

In 2007, the CRM market will see strong demand from retailers, dealers, services and in manufacturing.

Demand driven supply chain

Businesses are under pressure, and their linear model of pushing products into the market has gaps a mile wide. They are looking at a demand-driven supply chain to collaborate with suppliers and dispel the supply chain blues. Factors such as globalisation, leaner supply networks and heightened customer expectations are all affecting the market for supply chain management (SCM) solutions. New business foci and pressures are driving pockets of innovation and renewed corporate spending in supply chain initiatives. For example, the prices of four-wheelers in India rose four times in 2006 on account of the rising costs of steel and other inputs. Despite this, the market has seen a flood of new passenger car models. The complex product life-cycle of an automobile with thousands of suppliers and sub-contractors necessitates that an OEM must have complete visibility into its supply chain to reduce costs and stay innovative.

Broadly, the Indian SCM story can be divided into two trends that are prompting businesses to invest in structuring their supply chain—Demand-Driven Supply Network (DDSN) and collaboration between subcontractors / tier II / tier III suppliers and OEMs.

The demand driven supply network can work wonders and it will be a megatrend in 2007. There will be four driving factors—order accuracy, forecast accuracy, inventory management and new product development.

C Gowri Shankar, executive director, Take Solutions says, “Organisations are measuring demand forecast accuracy as a key result area for the functions of planning and head of marketing. They expect forecasts to be accurate with some organisations expecting greater than 94 percent accuracy when it comes to demand forecasts, which is a dramatic shift.” He says that a collaborative forecast is a pre-requisite before the target for a specific period is arrived at in such an organisation.

Collaborative forecast models typically involve a forecast starting from the bottom of the sales hierarchy, say, the area manager, and moving up to the sales head at the apex level. Typically, forecasts done at the lower end of the hierarchy are for shorter time horizons, but with greater granularity they may even extend to the SKU (stock keeping unit) or pack level. There is an increase in time horizon with lesser granularity as the forecast moves up the sales hierarchy. “While actual demand is captured in traditional ERP systems, collaborative forecasts are not part of such systems. The actual demand figures need to be integrated from an ERP system into a collaborative forecast and planning system. These typically result in classic ‘white spaces’ in ERP,” states Shankar.

He cites ITC’s greeting cards and stationery business. Its printing and production is done at 12 to 15 locations. Capacities for production depend on the product mix. The production at each plant is a function of the product mix, and is not easy to define in terms of tonnages of paper to be processed. The company needs to optimise performance by deciding the production to be undertaken at each plant for each of the SKUs based on proximity to markets, as well as production and transportation costs; it also has to ensure that there are no stock-out situations.

Anil Bakht, Chairman and Managing Director, Eastern Software Systems says, “In the case of one of our customers, OyzterBay, the jewellery designs that they make and sell in south India are different from those that retail in the north. Even the seasonal sales cycles are different. Given that they have an inventory of 5,000 items, inventory management and production planning becomes exceedingly complex.” OyzterBay would like to capture data from its ERP system as to which region is more profitable, which are fast-moving items, and so on.

BI to tap incremental revenues

Sony Electronics will soon use BI from SAP for most of its Sony exclusive outlets to track secondary sales information so that it can plan better and react promptly to market leads. This will also give it a closed loop system from customers to suppliers. Other businesses have started using BI to gain visibility into secondary sales and as a decision support system. Mahindra & Mahindra, Reliance Communications and Asian Paints are using SAP’s BI solution.

George Varghese, director - Pharma, ITeS & Mid Market, SAS India says, “The BI market was driven by the maturity of applications be it core banking or ERP.” These applications have created silos of data and decision makers are not able to get a unified view of their business. Lack of standardisation of data—be it customers, suppliers, materials—result in poor quality data where multiple ways are used to record supplier or customer names or material details. Standardisation is required for reporting, budgeting and forecasting to be done.

A Rajendran, director-Information Services, TEAM Computers Pvt Ltd says, “Using dashboards, analytics and reports, businesses want to create a unified view of their customers. For example our customer, Reliance Life Insurance, has eight different business applications and they are using our BI solution to get various reports—such as branch performance through dashboards that display metrics such as target achieved or pending and the number of policies closed in a day or pending. These details cut across products, sales executives and agents.” Similarly Apollo Tyres is using CRM analytics to track warranty issues of tyres and handle claims processing.

Rajendran says, “In 2007, the major drivers for dashboards, analytics and reports will be retail, manufacturing and auto ancillaries. We see a large business opportunity in cleaning data and it will emerge as a dedicated service.”

Large businesses are applying analytics to ERP data, looking at historical data to extract patterns of information pertaining to, say, production planning, material management, inventory, CRM or even the supply chain. They are also trying to predict and forecast the same, or to study customer behaviour and churn using historical data, and are deploying BI across the organisation.

EAS is expected for see a quantum of high growth, maybe in the region of 22 percent, and SMBs, micro-verticalisation and infrastructure projects will continue to drive the market in 2007. CRM will pick up with heavy buying from retail and customer-centric services industries. SCM and BI will be high growth areas.