Enterprise Applications

Enterprise apps chase thinner SME wallets

The enterprise application market has hit the wall. A sector that had been growing at 20 to 30 percent CAGR in 2000 took a beating in 2002, when ERP, CRM and SCM recorded negative growth. In 2003-04, the enterprise application software market is expected to remain flat or grow marginally. Akhtar Pasha finds that while ERP will be driven by SMEs, banking CRM and analytical CRM solutions will see high growth

While vendors and analysts were upbeat about the prospects of the enterprise application software market — Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Supply Chain Management (SCM) — in 2002, the market shrunk in all three segments. According to a preliminary report from Gartner India, the total size of the enterprise application software market in 2002 was $36.9 million (Rs 176 crore) in terms of license revenue, down by 7.3 percent from 2001. The ERP market accounted for $19.38 million (Rs 92 crore) in 2002, down 5 percent from 2001. CRM was down 10 percent, accounting for $11.42 million (Rs 54.4 crore), and SCM showed 14 percent at $6.1 million (Rs 29 crore) in 2002.

Ravi Chakravarty feels that most enterprises’ CRM decisions has been affected because they have just finished putting their ERP systems in place

A tough year for vendors
ERP, the biggest segment in the enterprise application software market, was apparently growing at 20-30 percent CAGR in 2000. 2001 was the toughest year for ERP — a decline of 25 percent. The total EAS market grew though at 5 percent.

Pranav Kumar, research director for the enterprise application software segment at Gartner Asia/Pacific says, “Large enterprises with Rs 5 billion plus turnover that drove the ERP market until 2000 are a saturated segment today and the opportunity in this market segment is scarce. This has brought down ERP growth in 2002.”

Customers were concerned about increasing operational efficiency, making data available in real-time for decision-making and reducing total cost ownership (TCO) rather than investing in new technologies. In addition to this, revenues from new licenses dropped. Other key issues facing this market segment were problems in integration with other applications. Some enterprise customers are managing two different databases—one for ERP and the other for CRM.

“Due to the non-availability of real-time information, decision-making is getting affected. Vendors can only expect revenues from selling licenses or by selling add-on-modules to existing customers. Medium-sized enterprises with Rs 300-400 crore in revenues, especially in process and discrete manufacturing, were the drivers for this market in 2002. Companies like Hindalco and ONGC implemented big ERP systems,” says Kumar. Ravi Chakravarty, director of sales for Asia Pacific at Talisma adds, “The market saw the budget for CRM getting slashed last year. In addition to this, most enterprises have just finished putting their ERP systems in place. This affected their CRM buying decision.”

Customers demand vertical-specific solutions
One market trend that emerged in 2002 was verticalisation of ERP systems. Oracle India’s director for marketing, Somesh Bhagat says, “Customers are looking at solving their business problems, maximising their return on existing investments and improving RoI. Therefore they are moving away from using packaged solutions to improving their business processes instead. In addition to this, we saw verticalisation of enterprise application solutions.” Customer needs vary; therefore vendors have created vertical-specific ERP solutions.

Another market trend was a surge in the SME segment. Says Alok Tandon, Baan Info Systems India’s director for sales and marketing, “2002 was actually a year for SMEs, where they began to look at ERP seriously and that was the biggest driver.”
Yash Nagpal, Navision India’s managing director says, “Since the enterprise market is saturated, the SME segment is expected to boom. They are looking at end-to-end business solutions, and words like ERP, SCM and CRM are irrelevant for them.” He adds that factors like availability of information in real-time will drive SME growth. The SME market is price-conscious and vendors addressing it will have to show value.

Since the enterprise market is saturated, the SME segment is expected to boom, says Yash Nagpal

Outlook for 2003
Says Kumar of Gartner, “The ERP market is expected be flat or grow marginally in 2003-04.” Because of a weak economy, companies are wary of investments in ERP. The same holds true in CRM’s case. Incremental investments to get quick RoI will continue. Mid-size companies with revenues of around Rs 100 crore are an untapped market segment holding a large opportunity for ERP vendors. He explains, “Though there is acceptance in this market, customers are not willing to pay big bucks for services. Therefore vendors need to show value, because companies have limited budgets. It is potentially a high-volume, low-margin market.”

Telecom, finance, retail and the hospitality verticals will drive the CRM market. Growth will be higher in analytical CRM solutions. Enterprises like MTNL, BSNL and banks that deal with millions of customers everyday will drive this market. SCM, on the other hand, is still in its early days.

2003-04 Trends
According to Gartner India, ERP vendors will increase their application footprint by integrating mission-critical applications for an enterprise with other applications like CRM and SRM. Companies like SAP, Oracle and BAAN are expected to better business because they offer easy migration and integration with other applications. Nagaraj Bhargava, SAP India’s national manager for marketing and alliances says, “Enterprises are dealing with vendors that have strong financial strengths and R&D capabilities.” The top ERP vendors, according to Gartner, are SAP, Oracle, Baan and increasingly PeopleSoft and Microsoft-Navision.

CRM trends
The CRM market is divided into two categories: operational CRM (gathering customer data via multiple delivery channels— packaged CRM software) and analytical CRM (specialised analytical tools are planted on top of the CRM infrastructure to be able to derive actionable knowledge out of the integrated customer data that has been gathered). Siebel, SAP and Oracle are operational CRM vendors, though their products have analytical features. Vendors like SAS, PeopleSoft, E.piphany and Teradata are CRM vendors dealing with analytical CRM.

CRM goes beyond ‘Have a Nice Day’
An increasing number of banks are now looking for vertical-specific CRM solutions. Says Girish Vaidya, who heads the Banking Business Unit (BBU) at Infosys Technologies, “Customers want the right fit and hence, vertical-specific solutions. Banking CRM helps banks to predict customer behaviour, ability to get related business and ability to capture touch-points giving a 360 degree view of customers.”

For a better understanding of Vaidya’s statement, here’s an analogy and an old banking axiom—20 percent of your bank’s customers generate 150 percent of profitability, 30 percent contribute zero percent and 50 percent cost 50 percent of your profitability. Says Vaidya, “You need to know lots of things about that 20 percent.” You’ve got to find the reasons why they are with you, why they are paying premium prices, why they may have a lot of accounts and how you create value in that relationship to make switching either too expensive or undesirable. Infosys has termed that 20 percent as High Net Worth Individuals (HNWI). The company has two customers for its Finacle CRM—UTI and National Commercial Bank of Jamaica.

The need to get more customers is making banks look for vertical-specific CRM solutions, says Girish Vaidya

Analytical CRM
Another market to watch out for is the analytical CRM market. According to Gartner, enterprises are increasingly turning towards CRM analytics, hoping to distil valuable insights from collected data. The IT research and advisory giant predicts that during 2002 enterprises will seek to attain and leverage greater customer insight by increasing their analytical efforts, granting broader access to data and exploring advanced data-mining techniques.

Kumar agrees that the analytical CRM market will be a high growth area for vendors like SAS and others.

Gourish Hosangady, CEO and managing director of SAS India says, “Currently the industry focus is on developing a customer-centric strategy for improving CRM. CRM analytics provides the means for an enterprise to ensure effective customer segmentation and profiling, identification of cross- and up-selling opportunities, customer retention, and customer profitability analysis.”

SAS has recently implemented its analytical CRM solution for Standard Chartered Bank (SCB). Hosangady adds, “Using the power of analytics we let SCB know the likelihood of its customers going in for a new product and thereby ensure focused marketing campaigns and reduced costs with improved customer satisfaction. Further, the bank wanted CRM analytics be able to answer queries across enterprise divisions for it to proactively service customers and thereby ensure customer loyalty and retention—a must for survival in a fiercely-competitive environment.” Other customers using SAS solutions are Bharti, BPL and Orange.

SAS’s strategy will be to deliver software and services that give customers the power to make the right decisions to improve profitability, productivity and decision-making. The company’s alliances with PricewaterhouseCoopers (PwC), Satyam, IBM, MindTree and Sun, amongst others, gives us the breadth to address the Indian market space.

With the onset of retail banking and deregulation of the cellular and basic telephony market, retaining and acquiring customers is critical for survival. This is where CRM analytics plays a pivotal role, resulting in these verticals driving the market.

SCM: still evolving
The Indian SCM market is still in a nascent stage. Some of the verticals that have gone in for SCM solutions are manufacturing, automotive, FMCG, retail and the oil and gas sector. Kumar says, “It’s still early days for SCM and it has not become mainstream.” The companies that have gone for SCM solutions are big enterprises who rely heavily on their supplier networks, like HLL, Marico and Maruti Udyog (MUL). Many enterprises have not adopted the complete SCM suite but instead have implemented the customer-facing or supplier-facing part of the value chain. Shell Oil has recently implemented i2 Technology’s SRM solution for primary distribution areas. Mahindra and Mahindra has implemented mySAP SRM.

Since not much opportunity is left in the enterprise ERP market, in order to be succesful, vendors wooing the SME segment will need to convince their customers to pay for services. The CRM market is expected to do well in 2003-04, thanks to MNC call centres setting up shop in India.