Ten years ago, the corporate world discovered the power of enterprise resource planning (ERP) applications, software that would help them automate their business processes and make them more efficient.
The frenzy that followed was unprecedented. Tens of thousands of large companies worldwide collectively spent hundreds of billions - if not trillions - of dollars re-engineering their business processes, implementing complex software to automate everything from financial management to manufacturing control systems, and from human resources management to payroll administration.
Most of these projects took months or even years to complete. Few could be considered truly successful, at least not at first. Many companies ran far beyond their budgets, finding themselves forced to hire armies of consultants from firms such as Andersen Consulting (now Accenture). Many of them failed to appreciate the scale of what they were doing, or didn't plan properly by first ensuring their business processes were optimised and their staff properly trained.
Today most large corporations have some sort of ERP system. Some have succeeded in completely automating their processes and have been able to use these systems to cut costs and make themselves more productive and competitive. Some people credit this intensive investment in enterprise management software for the ongoing productivity boom in the US. The software vendors that supply ERP systems have become powerful companies and have produced some of the world's wealthiest individuals.
Yet despite the astonishing successes achieved by these companies in the past decade, all is not well in ERP-land. The market at the top end, where these vendors have focused their energies until now, is starting to look saturated. Not all large companies have end-to-end ERP systems, meaning there is still room for growth, but all of them have some sort of system in place. It therefore seems likely the days of huge new investments in ERP systems are probably over, at least for now.
The big vendors - Oracle, SAP, PeopleSoft and newcomer Microsoft - are looking for strategies to keep their shareholders happy and earnings ticking over. They have seized on a new target market for their software: the vast midmarket of medium-sized organisations. Some are even developing solutions for the millions of small companies that typically run homegrown systems or small accounting packages.
These companies believe the midmarket is a vast, untapped market. They say medium-sized organisations need the software that big corporations have already implemented if they're to stay competitive. They argue that the midmarket is poised for lift-off, and that this market is at the same stage in the cycle as the top end of the market was between six and 10 years ago.
Is this wishful thinking on their part? Given the high-profile disasters larger organisations have had in implementing ERP, what midmarket company in its right mind would want to do the same? ERP vendors argue they don't have a choice. They also say the lessons have been learnt and the software today is much easier to install and to use, and is less disruptive.
Take SAP, for example. Its software is used to run some of the world's biggest companies. In SA, it's installed at Sasol, De Beers, Telkom, Eskom, Standard Bank, Absa, SABMiller, BHP Billiton, Anglo American and other large corporations.
Now SAP says it wants to penetrate not only the midmarket, but also the low end of the market where it will compete with accounting software vendors such as Accpac and Sage in businesses with 50 or fewer end users.
SAP Africa small and medium business manager Patricia Martins concedes many companies are sceptical about the value of SAP - it's perceived as a solution for large companies only - but she believes medium-sized organisations don't have a choice, given growing global competitive pressures and the increasing interconnectedness of companies.
The challenge facing many midmarket players, Martins adds, is they have heterogeneous IT environments. They bought separate systems for financial management, say, or for manufacturing. Or, they've built their own applications and they're left with disparate solutions and now need to integrate them. "Funnily enough, these are exactly the same challenges the big corporations faced," she says.
Ten years ago, SAP began enjoying enormous success with its SAP R/3 ERP suite, selling it to big companies that were struggling to get their disparate systems to communicate. Finding themselves unable to take advantage of many of the new technologies being developed, simply because they didn't have a holistic approach to their data, they embarked on enormous re-engineering projects and began implementing ERP. It promised to give them a seamless environment that integrated most or all of their business processes.
Martins says SAP's success in the top end of the market will help it win business in the midmarket, too.
This isn't the first time SAP has tried to crack the midmarket. In the past it has tried various models, including application service provision where business software tools are made available across the Web, saving companies the trouble and expense of having to implement the system in-house.
But Martins says SAP didn't take the midmarket seriously enough. "This time we're taking it very seriously on a worldwide basis," she says. The company is making several important changes to the way it tackles the market.
For the first time, it will appoint a channel of resellers who will focus on specific industries. This is a significant departure from SAP's traditional model of selling directly to customers. Rather than looking for resellers solely for their SAP skills, they're being appointed because of specific knowledge they might have of certain industries, she says.
In SA, SAP has appointed six partners: UCS ( which will focus on the retail industry), SCT (consumer products); Swicon and Epi-Use (human resources); Pebbletree (service providers) and BPS (engineering and construction). More partners are to be appointed soon, Martins says.
Another important change in SAP's go-to-market strategy is its admission that the implementation approach used by its bigger clients doesn't apply in the midmarket. After all, SAP projects in large companies are typically lengthy and costly affairs.
"In this market we first understand the customer's environment, then we map the software processes to that environment," Martins says.
Rather than configuring the software from the ground up, it has already been preconfigured for specific industries. "We provide a 90% fit to midmarket companies."
SAP's biggest challenge will not be convincing companies of the quality of its software. Rather it will be overcoming perceptions that SAP's software is big, complex and expensive. Smaller companies are put off by big implementations that run into hundreds of millions of rand and require numerous consultants to complete them. But Martins promises SAP has the "right solutions" at the "right price" for the mid-market. "There are no hidden consultants," she says.
SAP's midmarket offering, launched in SA earlier this year, is called SAP All-in-One. Though it hasn't yet sold any SAP All-in-One software in SA, the company is hoping it will have a reference site by June.
Its first customers are likely to be smaller subsidiaries of big corporations that have already implemented SAP and need to integrate with the management systems run by head office. Some large SAP customers have also begun encouraging their suppliers to implement SAP. They've resisted so far, but may bite now SAP has a solution for the midmarket, Martins says.
To gain a foothold into the low end of the market for small companies, two years ago SAP bought a small Israeli software developer called TopManage and it has spent the interim period enhancing TopManage's software and ensuring it is compatible with SAP's other offerings. The result, SAP Business One, will be launched in SA in August. "We expect major volumes sales," Martins says.
Even the smallest companies need to understand their customers better because competitive pressures are increasing all the time, she says. But again SAP hopes to secure business from small subsidiary companies that need a financial package for virtual reporting to the head office.
SAP's fiercest market rival, Oracle, appears to have an altogether more difficult challenge on its hands as it prepares to tackle the midmarket.
Oracle, which has traditionally targeted the large corporate market, is involved in a hostile bid to take over rival PeopleSoft, which, if successful, would give Oracle broad access to the midmarket. PeopleSoft acquired smaller rival JD Edwards last year. JD Edwards was the biggest player in the midmarket for ERP applications. The acquisition has placed PeopleSoft in a strong position in the midmarket.
Meanwhile, Oracle needs a product to tackle the market and keep rivals such as SAP at bay. Its message is that the software it sells to big corporations is also suited to run midmarket enterprises. This, it says, is an advantage because it means that a medium-sized enterprise, as it expands, doesn't need to implement a new product. It also resolves integration problems.
"Oracle has been playing in the mid-market for a long time, though the perception has been that we've been a provider of application software to large enterprises only," says Oracle SA alliances and channel director Deon Els. "With Oracle's E-Business Suite, we have the ability to scale from a medium enterprise right through to a large enterprise using the same product."
Now it plans to introduce a product called Oracle E-Business Suite Special Edition into the SA market. Special Edition is the same as Oracle's E-Business Suite, but is configured for small and medium enterprises (SMEs). Els says Oracle SA is finalising prices for Special Edition and will soon appoint partners.
"We have learnt what SMEs require and we have taken our experience with our larger clients and packaged it in a way that is more cost effective to smaller organisations, but without taking away any of the functionality."
Special Edition will be available with different emphases. There will be a core financial management package as well as purchasing, manufacturing, services, and inventory and order management components. Oracle's partners will be able to customise Special Edition, within certain guidelines, to tailor it for specific industries. "Our solutions have become more tailored and affordable for their businesses," Els says.
PeopleSoft SA MD Mike Evans finds it ironic the midmarket is suddenly an area of such keen focus by big application vendors such as Oracle and SAP. JD Edwards, a company whose SA subsidiary Evans headed until the PeopleSoft acquisition, had always focused on the midtier.
"Through good luck and some good planning, we became the only major player in that marketplace," he says. "Now everyone believes this is where the market will grow. The top end of the market is SAPurated' and at the bottom end , no-one will make money except Microsoft with its stack-'em-high, sell-'em-cheap model."
Evans believes the corporate-focused vendors will struggle to gain even a toehold in the midmarket, simply because, in his view, there is a vast difference between the solutions required by big companies and those demanded by midmarket enterprises.
"Midmarket companies are not seeking enterprise application software," he says. "It's monolithic, it's overkill, it's inflexible, it's all the things that they can't afford."
He says larger companies don't need to be as responsive as their smaller rivals.
"The little guys have to bob and weave, especially midmarket manufacturing and distribution concerns. They don't want to change their business to work the way the software works, which is typically what big enterprise applications demand. You can't take a big application and dumb it down so that it fits into those businesses. The answer is to have something that meets their business requirements exactly."
