Key Trends in ERP
To cut through the confusion, I spoke with Brian Zrimsek, research vice president with Gartner, who focuses on the ERP space and gives us an inside look at the trends for the year.
Cobb: What are some of the key trends in the ERP space for 2005 and what factors are driving those trends?
Zrimsek: The whole issue of consolidation continues, along with the impact that consolidation has on end users. With consolidation typically comes product portfolio rationalization, which means many end users will have decisions to make.
It may not be this year, but they will be told that their existing products are last generation and/or they will not be supported after a certain date. Even PeopleSoft customers need to sort out whether they should upgrade or not.
In fact, in the non-SAP camp, that's a huge concern. In the SAP camp, users are watching the continuous emergence of NetWeaver as a platform and the continued evolution of their portfolio. Plus, the issue of upgrades is ongoing across the board; end-of-service dates are coming within the next two years. And major upgrades take time.
Generally speaking, these trends are a continuation from the past few years. Plus, products are becoming more industry specific and there are different extensions in place for different industries.
Finally, there is a high-level focus on business process fusion. SAP calls it xApps. It's all about assembling business processes via application components. Those components can come from many different vendors, which makes it easier for the customer to "fuse" the business process.
How much are companies are planning to spend on ERP upgrades in 2005?
The amount spent will reflect the scope of upgrade. By looking at install base data, it would be possible to venture a guess as to what type of upgrade activity will take place. But as for how much will be spent, that's harder to quantify.
For example, if you installed three components individually, you might upgrade those three individually. Alternatively, you could choose to consolidate instances as part of the upgrade, or you could deploy new functionality. It all impacts the amount spent.
What are the typical ERP projects that companies are planning in 2005?
It depends on the maturity level. For many companies, it's a fairly mature market so there are more upgrade projects than new implementations. However, there will always be new implementations and there will always be the rollout of new functionality.
Are there certain industries that are more actively pursuing ERP upgrades?
Manufacturing is more mature in its use of ERP systems than other industries, so there is a larger population of manufacturers that are facing the upgrade challenge than other industries.
That said, if you look at the SAP install base across 20 different industries, there are really no correlations as to where they are on the install base curve. What I can say is that government agencies are behind the curve and are more likely to be facing implementation projects than upgrades.
Do companies have the IT talent in-house that they need to complete ERP projects?
When it comes to new implementations, the answer typically is no. They will need to turn to third party consultants or system integrators, whether they are major players, boutique firms or offshore companies.
However, as companies get into upgrade mode, there are more skills in-house; the IT departments have the technical knowledge to make it happen. There may not be the knowledge of the newest features, so there will be some skill gaps. The same holds true when it comes to customizing ERP systems.
In next month's installment on May 13, Cobb and Zrimsek take a look at the staffing needs required to meet these challenges.