Carving a niche in the enterprise resource planning market

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The time has come for vendors to find innovative ways to differentiate, says Conrad Steyn, co-founder of Barnstone.

Offering best practice and a high level of service is no longer enough for vendors aiming to differentiate in the competitive enterprise resource planning (ERP) market. Today, companies have come to expect these as part and parcel of their solution, compelling vendors to innovative. One option will be for them to provide both functionality and data as part of a pre-packaged, pre-populated solution.

Consider a retailer like Waltons for example: rather than just providing the ERP software and functionality, vendors will need to start offering a package that includes Walton’s stationery suppliers, their product lines and codes already programmed into the solution. This level of service will save a retailer significant time and resources—and is unprecedented in the ERP vendor market.

Taking service to this new level will be critical for vendors wanting to differentiate. It is particularly relevant as an offering to small and medium enterprises (SMEs) who usually do not have abundant resources and would prefer to rely on their service provider for this level of expertise.

In fact, the SMEs market offers a host of opportunities for ERP vendors. One of the upcoming trends is a preference amongst SMEs to opt for the ‘software as a service’ (SaaS) model when purchasing ERP solutions. The primary reason is significant Capex savings, and the ability to finance an ERP solution from the company’s operating budget. In fact, many SMEs select this outsource-model for their entire IT department, saving costs, resources and enabling the company to focus on its core competencies.

However, while interest in SaaS is definitely on the increase, uptake is still relatively slow amongst SMEs. One of the reasons is that many small business owners are not familiar with the IT industry, and SaaS is an advanced concept requiring a certain level of understanding. Many of these business owners would prefer to tangibly see where their investment has gone, so owning the box is still important to them in spite of the financial pressures many of them face.

In this context, vendors will need to relook their maintenance models. Currently, maintenance of in-house ERP systems is a very costly exercise over the long term, and SMEs especially will not be in a position to finance them. To remain relevant, vendors will again need to innovate to find ways to meet service levels and customer expectations while remaining commercially viable.

On the whole, the ERP market looks set for another growth spurt in 2010. While demand in the retail industry will remain low because consumers have not yet recovered from the financial crunch, more activity can be expected from companies in the manufacturing, distribution and mining industries. Thanks to their destocking process of the past year or so, these businesses are under less pressure, and it is likely that demand for ERP in these industries will increase.