IDC’s Avasthi says the squeeze on investments has caused most companies to opt for CRM, because of its higher returns

A need to cut costs caused most companies to think in terms of using software that gave the most value for money and much talked about and over-hyped ERP lost out in the battle with CRM emerging as the victor. Indian businesses are increasingly diverting their attention and resources towards CRM and this trend can be seen across the industry both in the large and SME segment, the potential users of ERP and CRM software.

Says Shekhar Avasthi, assistant manager-software and services research, IDC India, “The demand for complete end-to-end solutions has withered with resource constraints as it entails unnecessary blocking of resources with no compatible returns. What is now emerging is a demand for point solutions catering to specific needs to save on limited resources, and it is advantage CRM at the moment. It is not so much a matter of whether ERP is better than CRM or not, but rather a matter of making intelligent choices based on cost and need to meet changing market dynamics. As opposed to earlier times, when ERP was the first logical step whatever the need be, the emphasis is now on identifying and investing in priorities.” Incidentally, with the need for retaining customers in tough market conditions being imminent, CRM gains an upper hand.

Substantiating this trend are IDC India reports, which point towards a slowing ERP market and a potentially growing CRM market in India. According to IDC, in 2000-2001, the ERP market grew by a mere 12-13 percent over last year, as compared to 30-35 percent growth rates two years back. On the other hand, CRM witnessed a 20-24 percent increase over the previous year. According to estimates, this trend will continue in the months to come with the CRM segment growing at the cost of ERP. IDC figures confirm that while CRM market is estimated to touch a whopping 41.7 percent CAGR over the next few years, the future for ERP looks glum with an estimated CAGR of 17-18 percent, indicating that Indian business houses would rather prefer to invest their money into streamlining their customer relationships through ERP.

Take for instance the case of Timex Watches, which was considering implementation of an ERP package in 2001. The company has shelved those plans and is now concentrating on in-house CRM initiatives. Or take for example the case of Max Healthcare, a division of Max India. The company, which started off operations in India in 2001 has initiated the process of implementing CRM and has relegated its back-end integration plans (which includes automation of financial accounting, HR functions, etc) to next year. This phased plan, according to Rajan Chadha, chief information officer, Max Healthcare, to a great extent has been determined by prioritising investment into CRM. “It is a better bet for companies to invest in CRM rather than ERP due to limited resources and constraint on pockets,” he says.

But what are the factors that are making CRM a better bet to invest in, thereby leading these companies to divert potential ERP investments into it? While it is market dynamics on the one hand, ERP’s own goof-ups weigh heavily on the other. According to industry experts, it is a question of making the most out of limited resources available. Even though it is not an apple to apple comparison, a relative comparison of ERP and CRM applications tilts the scale in favour of the latter. As per industry experts it is a question of getting the most out of limited resources available.

Says Avasthi, “Though offering a holistic solution, ERP generally accounts for heavy investments and a long cumbersome implementation cycle, which does not seem to be viable in the present scenario.” An opinion, which majority of the user community agrees with. Says Kamal Pande, general manager-HR and IT, Timex Watches, “On an average, an ERP implementation ranging from an SME to a large user organisation can cost anywhere between Rs 2-10 crore.” According to Chadha too, costs for an ERP implementation can run into couple of crores depending on the number of licenses. For instance a minimum of 20-25 licenses for just the financial accounting and asset management module, typical requirement for an SME costs Rs 50 lakh apart from hardware costs. This said, the costs for a medium to large organisation can run into Rs 3-4 crore. “Add to this the dedicated resources required from various departments for at least a period of 1-2 years, which adds to the indirect ERP costs,” he explains.

Max’s CHADHA says with costs running into crores for an ERP implementation, CRM is a safer bet

However, more than the cost-factor, it is the factor of return on these costs which determines the shifting investment choices of Indian businesses from ERP to CRM. Analysing both the options on ROI and cost-benefit reflects positively on CRM as opposed to an ERP investment. According to Avasthi, as compared to a lot of hype built around ERP as some sort of magic box, it has not been able to deliver on its promises on ROI and benefits. In case of ERP the ROI is not only slow to come but the results too are not all that tangible whereas businesses today need instant solutions to meet their requirements. It generally takes about two to three years before one starts realising the returns on huge investments one has made on ERP. Experts feel that as the total implementation cycle is long, ROI is bound to be slow.

Even the results, argue users, are not very tangible to warrant the corresponding investments made.

Further, ERP entails back-end processes of a company, which are difficult to be discerned directly, and are largely directed at affecting the bottom line like reducing inventory costs and inventory turnaround time, which do not directly translate into profits.

While maintaining bottom line is important, the need of the hour is to invest in initiatives which directly and visibly affect a company’s revenues with minimum possible investment. And there is an even greater need for improving customer relationships so as to retain the existing customers at a time when customers are hard to come by.

As the trend is gaining momentum, even ERP vendors are undergoing a re-positioning and re-orientation exercise to keep their markets intact. According to Shashi Dhar Bhavaraju, analyst, IDC India, “Vendors are now looking at positioning themselves as e-business solution providers or CRM vendors as opposed to being just ERP vendors to animate the diminishing customer base.” According to Suresh Gupta, president, Atlantic Software and Business Services, an ERP company which is now initiating an entry into CRM market, “There is a growing demand for CRM applications especially in the mid-market segment as businesses do not have enough money to spend on an entire ERP package. CRM is directly relevant to today’s market conditions and provides for greater returns with lesser investment.” Or take the case of SAP, commanding 50-55 percent of ERP market share, which is positioning itself as an e-business company.

While the trend is fast catching on, the question that remains is how viable is CRM implementation without first having an ERP package in place a significant factor which will determine the extent of its success.