“The pressure on SMBs to modernize their IT at some point is essentially due to ever shorter technology cycles,” says Matthias Zacher, a consultant with META Group. As a recent META Group study on IT for SMBs identifies, Enterprise Resource Planning (ERP) is one of the four most important driving forces behind IT growth. Market researchers from Forrester Research, such as analyst Charles Homs, also trace their positive growth forecasts for IT expenditure in 2004 back to companies’ increasing investment in ERP software, among other factors.
Back in favor
This is an amazing development, especially since just a few years ago Enterprise Resource Planning (ERP) was thought to be outdated and was frequently equated with inflexible, low-function architectures and functionalities. However, the image has changed dramatically and ERP has regained acceptance. The term ERP II coined by US market research company Gartner Group describes the paradigm change that business software has undergone since the early 1990s and there are essentially two aspects to this change.
Corporate solutions nowadays have to satisfy e-business requirements and, in addition to data exchange functions, also have to support cross-company transactions. But increasing cost pressure, shorter product lifecycles and new forms of cooperation with suppliers, partners and customers also mean there is a need for detailed analysis, restructuring and acceleration of business processes. Information on a business’s “operating parameters” (e.g. business and customer data and business-management analyses) and on customers or stock levels, which can be called up at the click of a mouse, shorten response times and increase company flexibility. And targeted use of resources is absolutely imperative for SMBs who compete on an international level.
There is evidence of a further paradigm change in another area too. The area of application for ERP systems is extending beyond the traditional user groups of business area managers. The new users can more or less be divided into the following three groups:
- Multi-enterprise users: Business processes are extending beyond individual companies and creating a need for cross-company cooperation, not only between systems but also between users.
- Self-service users: According to IDC analyst Dennis Byron, the number of users working with ERP software within companies, to record vacations or absenteeism for instance, is set to increase from its current level of 20 percent on average to 75 percent by 2008.
- Mobile users: Field staff increasingly have to be able to call up important customer data while out of the office. SAP’s SMB partners like Teufel Software and Unirez have, for instance, developed appropriate mobile add-on solutions to SAP Business One that have been designed specifically for SMBs.
Setting sail for new horizons
“Generally speaking, the market for ERP software is being shaped by new challenges,” says Olaf Deininger, Managing Director of Hamburg-based business consultants mediaone which specializes in business software, commenting on the current development. The increase in corporate networking both within and outside the firm, the blurring of company boundaries, new requirements arising from e-business and growing pressure on cost and competitiveness are bringing about new product philosophies, sums up mediaone in its “ERP Marktübersicht 2004” (ERP Market Overview 2004) study. According to Deininger, the result is that “ERP providers are setting sail for new horizons.”
For Christian Glas, an adviser at Pierre Audoin Consultants, the new horizons are already visible. “State-of-the-art ERP solutions,” says the PAC consultant, “should be oriented toward the needs of the user company and the costs for implementation, integration and adaptation have to be cut.” This is made possible by service-oriented architectures (SOA), which “will in future lower the cost of implementation and maintenance,” says Glas. SMBs in particular require modular systems with open interfaces, writes Professor Walter Dettling, Head of the Institute of Applied Business Economics (IAB) at the University of Applied Sciences Basel (FHBB) in a strategy paper. As a result, industry-specific standards, e.g. for mechanical engineering, the plastics industry or meat industry, are being integrated quickly and flexibly and add-ons like Customer Relationship Management (CRM), Product Lifecycle Management (PLM) or Supply Chain Management (SCM) are becoming simpler.
That means ERP providers have to perform a delicate balancing act, since the SMB market is “still fragmented”, according to Rüdiger Spies, Vice President at META Group. On the one hand, companies are demanding ERP solutions that are tailored as accurately as possible to their particular needs. But on the other, the SMB market is not willing (or in a position) to bear the financial burden of lengthy company-specific adaptations. Against this backdrop, SMBs generally prefer special industry solutions or standard ERP software with functional add-ons. These specific needs and the fact that support requirements also have to be addressed locally, “will lead to a situation where ERP providers establish an appropriate partner strategy for this market segment,” writes Rüdiger Spies in a market analysis.
With SAP Business One and the functional add-on solutions developed by SAP Business Partners, SAP is addressing SMBs and subsidiaries of large enterprises by offering them simpler processes. The company and its Business Partners provide diverse sectors like the manufacturing, plastics, meat processing and energy industries with preconfigured mySAP All-in-One solutions which map industry-specific processes.
Modifying processes, exploiting opportunities
Introducing an ERP solution in a company always involves modifying and adjusting existing processes. Companies must be able “to adapt their own processes and systems within the shortest possible time to suit those of partner companies,” say Detecon consultants Michael Wettklo and Marc-Andreas Schultze, describing the consequences of cooperation between individual companies (collaborative business). SMBs therefore have to consistently link their ERP implementation projects to their in-house business strategies and fully exploit the anticipated cost benefits (e.g. lower process and running costs, greater transparency). The end users of the new system should “familiarize” themselves with it from the outset and employee training and information on new processes and roles will all increase acceptance on the part of users. “Not only that, SMBs place great value on short project runtimes and acceptable pricing,” says Rainer Rathgeber, Managing Director of SAP Partner Cubis Solutions, mentioning another key aspect.
SMBs looking for an ERP system should proceed cautiously, follow specific selection criteria and ensure they are well prepared. Key requirements for cutting-edge business software are a flexible architecture and modular structure, support for popular standards, internal and external interfaces, and scalability. Other factors include simple configuration, fast implementation and user friendliness. “If SMBs take these aspects into account when making their decision and tackle an implementation project systematically, then a new ERP system will be an excellent driving force for business success,” summarizes PAC consultant Christian Glas.
General: www.detecon.com/en (White Paper “ERP-Strategien im collaborative Business” (ERP Strategies in Collaborative Business), www.gartner.com (for information on ERP II)
Studies: www.forrester.com, www.idc.com, www.metagroup.co.uk/, www.pac-online.de
SAP: www.sap.com/solutions/erp and www.sap.com/solutions/smb