ERP spending is set to soar – but what are customers looking for?

Many major global businesses are planning to increase their spending on enterprise resource planning (ERP) software this year.

Gartner, which first coined the term ERP back in 1990, has conducted a poll of 1,500 IT leaders from 40 countries which revealed that global application software spending over the next year is expected to increase by 31% compared to 2010. (http://www.codestone.net/news/story/erp-software-spending-set-to-rise-in-2011/800424885/)

By adopting an ERP system, businesses can integrate internal and external management information from functions such as finance, manufacturing, sales and service, across an entire organisation.

“Today’s growing organisations need to be able to co-ordinate a great deal of information. Every business division, from materials management, production and finance, to HR, sales and marketing, needs to know exactly what action needs to be taken, where, and when,” says Oracle. (http://www.oracle.com/as/solutions/midsize/business-solutions/erp/index.html)

ERP systems will be a key area of investment, with 36% of respondents stating they will be increasing their investment in these products, added Gartner, while customer relationship management software and office suites will also be in demand.

Hai Hong Swinehart, a research analyst at Gartner, said this renewed interest in investing in ERP is a great opportunity to systems providers. “A market downturn and its aftermath create great marketing and sales opportunities for organisations prepared to take advantage with the right products,” she added. “We’re expecting the market to recover gradually as buyer confidence returns and as businesses begin refocusing on growing revenue as opposed to just reducing costs,” she said.

With spending on ERP going up, the question for providers is, what are customers looking for from their upgraded and enhanced ERP systems? Is there, as Swinehart says, a massive opportunity for providers to seize the moment and develop next generations ERP?

“Although ERP systems have made tremendous progress in functionality, capability and usability over the years, I’m disheartened to see current ERP projects still dealing with the same implementation, adoption and benefit realisation problems as 20+ years ago,” said Mikle Frichol. (http://www.linkedin.com/groupItem?view=&gid=78320&type=member&item=39786290&qid=04d76924-2750-40fb-a04f-4ba33deca8ff&goback=%2Egmp_78320)

“We must understand the nature of the end users,” added Sami Musleh on the same site. “The system must be flexible to be used as the customer needs.”

Such a move towards developing systems that are more easily adapted by users, so allowing small and medium-sized business access to these large and so far expensive packages, is the most likely scenario. “Legacy ERP systems can consume as much as 18% of revenue from large businesses, and the ‘one size fits all’ approach often leads to expensive customisation in addition to expensive software licenses and pricey maintenance contracts.

“The current state of ERP alienates hundreds of thousands of small companies that can help revive the global economy, but are struggling with software that’s too rigid and expensive for their needs,” said Paolo Juvara, chief executive of Openbravo a US open source ERP software company. (http://www.tmcnet.com/channels/erp-software/articles/147815-business-agility-an-important-selling-feature-erp-software.htm)

As with many solutions that are morphing away from major corporate customers towards SMEs, the route being taken by ERP providers seems to be via an online option. (http://www.outsourcery.co.uk/news/?story=crm-online-looks-set-to-be-used-as-gartner-finds&id=2291)

“ERP software companies such as Oracle are providing online ERP solutions, often at a lower initial cost and complexity than traditional ERP products,” said IT Toolbox (http://it.toolbox.com/blogs/erp-roi/is-online-erp-right-for-your-business-22450). “But is it a viable solution for organisations?”

So, is ERP viable as a business tool for organisations of all sizes? Or should SMEs rely on simpler systems to facilitate communications and information exchange between the functions?

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