BUY AN OCEAN AND USE A POND

I have been watching the proliferation of ERP solutions in enterprises in an around the country. ERP solution is something like an idea whose time has come. It is selling well. The companies dealing with the same in India have never had it so good.

After a little wait, in Kerala also it had started happening. Leading PSUs and Corporates are going for this solution in the state.

By the way, what does an ERP solution do? It is an application software solution that integrates all the functions of an enterprise. Functions mean manufacturing, sales & marketing, distribution, maintenance, Production planning, HR, Finance & accounting etc etc. Earlier, enterprises used to go for disparate solutions for each function that never used to talk to each other. ERP integrates all these. All data will be in one single database engine and different users of different functions will have there own front-end screens (for data entry & retrieval). In between the database and the front-end, there lies the rules and the tools. Rules are standards & benchmarks and tools are software technology. Using tools you apply rules between the database and the front end. In addition to being integrated, another advantage of ERP is that you get all global benchmarks along with the solution so that the user can look at applying global standards in his company and that gives companies the possibility of doing business with global practices.

ERP had evolved very well over the last two decades. Initially, there were many global players in the market. SAP, Oracle, BAN, JD Edwards, Navision, Axapta, Peoplesoft, Mfg.Pro were some well known global ERP solutions. These products have consolidated and now there are only 3 / 4 global companies vending it. About 60% world market rests with three companies now and they are SAP, Oracle and Microsoft (Surprising.... Microsoft !…). In every nation, there are some local brands as well.(e.g. Indian ERP solution called Marshal from Ramco Systems)

Now, how does a company progress to become an ERP user? Surely it would have had three to four times of application software changes within a corporate before it starts using an ERP solution. It looks like companies grow up to become ERP user. So, ERP usage is a part of a corporate growth. The more mature a company, the more the chances of it being an ERP user. From simple Financial accounting thru business accounting to integrated enterprise planning, at an average, a company would take 15 to 20 years to become a big time ERP user.

Originally used only by large enterprise such as the Tatas, Reliance, Birlas, Mittals, Dalmias etc in India; ERP usage has now penetrated into the SME segment. Indian SME is big, for it forms 40% of our manufacturing, 30 percent of our exports, in addition to being the second largest employer in the country.

These solutions are expensive. 40 to 50 times higher than the original FA solutions (e.g. Tally). Funnily, ERP solution is an ocean and seldom an enterprise get an opportunity to tap its functions fully. A complex enterprise such as Reliance Corporation must be using its ERP to about 50 to 60 % of its capability, whereas SMEs must be using 20 to 30 percent of the capability of the ERP system that they buy and implement.

Let me now come to the marketing tactics played out buy the most leading ERP brand. It is from Europe. It is the 'crowned king' of all ERPs of the world. All most all leading enterprises of the world are its customers. Having saturated in that segment, it has now moved down to medium enterprises and even smaller ones. The company shows the leadership in its marketing. First of all, it shows its un-assailed (so far!) position by playing the premium nature. Its price is more than double of its nearest competitor (which is the second largest software company in the world). It creates the aspiration and the pride of ownership very well in its buyer (after all, which crickter doesnt want to become Sachin Tendulkar). Playing upon the aspirational emotion of the buyer, it then fixes up specification of the users very systematically around its proprietory functional technologies. Such an RFQ coming from a user can never be matched by any competition and thus it wins the order, thereby leaving the competition far far behind. I am seeing company after company in Public sector falling victim to this strategy. Frankly speaking all the competing companies have all the funcionalities that is there with the leader. May be the leader is about 15 percent more when one compares the functionalities betwen each other. But it uses its leadership and its proprietory functional technologies to win the orders at very high prices. Organzations shell out 15, 20, 30 crores of rupees upfront for buying this software. Later, the maintenance contract per annum would come to almost 25 to 30 percent of the buying cost. Companies have to really work hard to pay back the investment.

Lastly, would such an ERP have brought double or triple level of growth in the corporation? I am not sure. Candidly speaking, I doubt it (that is in spite of being an IT evangelist for close to three decades!).

I have seen many organizations spending lavishly to own this mother of all ERP but not getting the paisa fully vasool. They buy an ocean and use it as a pond! Why should companies go for such an expensive solution?

Why would every man want to marry Aishwarya Rai? The answer is the same!