Enterprise customer interest in ERP gaining at mid-year

For ERP vendors and users, the sluggish Enterprise Resource Planning marketplace of the last two years is finally gaining a bit of enthusiasm again.

Maybe it's due to the slightly more optimistic economic news that occasionally trickles into the national news feed. Maybe it's the improving corporate earnings reports that are showing new promise for more and more companies each week. Or maybe it's just that business leaders are cautiously allowing themselves to think positively about ramping up again after the stubborn and tiring recession of 2007 to 2009.

Whatever it is, businesses are again starting to at least take a look at how improving their critical ERP systems can bolster their operations and that's notable, according to China Martens, an enterprise applications analyst with Cambridge, Mass.-based Forrester Research Inc.

That's a small but positive shift from early last month, when Forrester released a new study, "The State of ERP in 2011." Back then, most enterprises were reporting that they were standing pat on their ERP investments for 2011 and wouldn't be increasing their spending, according to an IDG News Service story. But since the data for that study was actually collected last fall, things have started changing a bit.

"I think we're in a period of evolving," says Martens, who co-authored the study with fellow Forrester analyst Paul D. Hamerman. Last fall, when client interviews were being conducted for the study, they had somewhat less optimistic views about their ERP plans going into 2011, she reports.

"New information from clients today who are actively looking for upgrades or who are looking to jump into ERP appears pretty healthy today," Martens says. "The ERP waters are diverse - some people are poised to dive in and there are others who are dipping their feet in and trying to decide if it's time to make a move."

One other big change in the ERP mood of clients since last fall, she says, is that nowadays more of them are discussing interest in ERP Software-as-a-Service (SaaS), which hadn't been such a big attention-getter in the past. "It's something that they're maybe not actively considering, but they are at least looking at it."

That means that vendors who offer old-world, on-premises ERP are paying more attention, Martens says. "The impact of SaaS on on-premises vendors has forced them to look again at the economics of the times" and consider whether they need to include a SaaS ERP product to be competitive in the marketplace.

"Look at SAP and the Rapid Deployment Solutions that they're offering now at fixed prices with certain features" that are being eyed and adopted by some customers, she says. "Vendors are doing this because they hear back from customers about some of the economies of the SaaS model. They want to offer some kind of a counter balance and they want to be able to accommodate some of the arguments that the SaaS vendors have - such as being able to scale up more quickly and more easily know your costs going in."

SaaS ERP offerings still won't be for every enterprise, she says, because the level of built-in customization doesn't yet approach the deeper capabilities of on-premised ERP suites. Despite that shortcoming, though, it's an intriguing option for more enterprise customers who might want to have a hybrid ERP system with a mix of on-premises and SaaS options. "I think in general the pendulum is swinging to the customers having more choice," Martens says. "That can be used by customers at the negotiating table. Why should they pay a certain amount of money for software licensing and maintenance when they can also get it at lower price using SaaS? It seems to give customers more of a bargaining chip."

Despite the glimmer of new energy in the ERP marketplace lately, there are still questions. One ongoing key issue, according to the Forrester study, is the continuing consolidation of players in the ERP segment.

"Market consolidation is always hard for customers when it happens," Martens said. "When you see a vendor buy a company where there is some overlap in their businesses, that's certainly a cause for concern" and can affect your deployment and ERP strategy.

" Infor is still in the process of buying Lawson and it looks like it will close," she says. Private equity firm Apax Partners recently acquired Epicor, is taking them private and is merging them with Activant in a deal announced this spring. "We're still waiting to see how these consolidations will affect customers."

Forrester is currently working on a new study with a focus on the future of ERP and reviews on seven interesting trends in the marketplace, according to Martens. "It's more optimistic about the market than it is pessimistic," she says. "There really is a sense that ERP apps are truly changing in terms of what they're going to do and what they're going to look like. The demand from customers is that the apps are going to have to be much more usable.

"I think part of that is the changing demographics of users who grew up using the Internet," compared to past ERP users who adapted to the software that was put in front of them, she says. Today's new corporate ERP users "have certain expectations of what the applications should look like and how they will work," she says. "Vendors will have to work on making them more usable and more personable. I think it's one of the messages you're hearing from vendors, as they are now including more business intelligence capabilities in with ERP so users can do querying of their ERP data and present the results in more arresting ways."

So does that mean that we'll see more gamification of ERP applications, where they could take on more playful, entertaining or intriguing characteristics of video games?

Well, let's not get too carried away, but some of those kinds of more engaging features have been finding their way into some Customer Relationship Management (CRM) applications lately, according to Martens. "We're seeing it in CRM and others. It could happen here in ERP, maybe."

ERP users are also looking for collaboration features, according to the study. "We're hearing a lot about collaboration on the CRM side, but vendors are also talking about it for ERP, too," she says. "I think there is a strong use case for it, especially in the Human Capital Management (HCM) world. It could be very helpful to bring together ad hoc groups of people for discussions within ERP applications."

Todd R. Weiss covers Enterprise Applications, SaaS, CRM, and Cloud Computing for CIO.com. Follow Todd on Twitter @TechManTalking. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Todd at tweiss@cio.com. You can also join Todd in the "CIO Forum" group on LinkedIn.com to talk with CIOs and IT managers about the things that keep them up at night.

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This story, "Enterprise customer interest in ERP gaining at mid-year" was originally published by CIO.

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