Integrated enterprise resource planning (ERP) software solutions have become synonymous with competitive advantage, particularly throughout the 1990's. ERP systems replace "islands of information" with a single, packaged software solution that integrates all traditional enterprise management functions like financials, human resources, and manufacturing & logistics (See Market Information Sidebar for more details). We also believe that having an ERP system is a prerequisite in most business environments to fully take advantage of the latest business information processing trends, such as e-Business and customer relationship management (CRM).
One could distinguish the following two segments within the ERP market:
1.
Corporate ERP solutions are primarily focused on the consolidated data management, financial and human resources needs of large Fortune 1000 companies. It evolved from accounting and contract management systems in the early 1980s. Human resources and more comprehensive financial planning and control systems were added in the 1990s. Leading vendors of these solutions are SAP, Oracle, and PeopleSoft.
2.
Plant/Operations ERP solutions are primarily focused on the specific needs of mid-range manufacturing plants and distribution sites or the operations level of global companies. This ERP market segment's roots are in the control automation market of the 1960s and 1970s and the manufacturing planning software market of the 1980s. This evolved into the ERP of the 1990s. Leading vendors of these ERP solutions include SAP, Oracle, PeopleSoft, J.D. Edwards, Baan, JBA (now a division of Geac Software Corp.), Intentia International, SSA, Lawson Software, QAD, IFS AB, Symix Systems, MAPICS, Navision, and a number of smaller niche ERP players.
In 80's and 90's, businesses have been subject to increasing global competition, resulting in a pressure to lower production costs, improve product performance and quality, increase responsiveness to customers and shorten product development and delivery cycles. Furthermore, globalization has greatly increased the scope and complexity of multinational manufacturing organizations. Therefore, companies have long been urged to develop or purchase and implement software applications to automate their business processes, leverage their transnational data stores in order to make more informed decisions, and ultimately, decrease operating costs. Companies realized the need to be able to react rapidly to change due to increasing competition, deregulation, globalization, and mergers & acquisition activity.
During the second half of the 1990s, the market for ERP systems has experienced strong growth rates in excess of 50% per year, from US$ 5.7B in 1995 to US$ 16.6B in 1998 [Source: AMR Research]. Some of the key drivers, in addition to the above mentioned underlining reasons, were:
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The transition from custom-designed legacy software (software developed by or for a specific customer) to the implementation of standard systems that can be applied across different types of industries. This was particularly true for the largest companies, who previously thought that they had the resources to develop business solutions under their own steam.
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In addition to the transition to standard systems, ERP systems have been extended to support an increasing number of business processes in integrated solutions like engineering, customer support, sales support, human resources, etc.
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The customer base has also expanded from mainly manufacturing, trade, and distribution to the public and financial sectors, transportation, infrastructure, defense, federal and local governments, utilities, etc.
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In the past three years, Year 2000 (Y2K) and the adoption of the Euro currency have been important driving forces in the development of the market. As a matter of fact, resolving the Y2K problem has, in many instances, led to the installation of a new ERP system.
The worsening plight of most ERP vendors, caused by the market slowdown, which started in the fourth quarter of 1998, continued in full force throughout 1999. During the last 12 months, the 20 largest ERP vendors achieved an estimated average growth of 25% [Source TEC; this figure should not be confused with the absolute ERP market revenue annual growth], which is much less compared to the equivalent growth of over 40% a year earlier. Particularly affected was the license revenue, which is expected to decline more than 10% in 1999 compared to 1998 (See Table 1). The market was dramatically less profitable than in 1998 (down 27.3%), measured in the total raw $ net income (See Table 1).
One could distinguish the following two segments within the ERP market:
1.
Corporate ERP solutions are primarily focused on the consolidated data management, financial and human resources needs of large Fortune 1000 companies. It evolved from accounting and contract management systems in the early 1980s. Human resources and more comprehensive financial planning and control systems were added in the 1990s. Leading vendors of these solutions are SAP, Oracle, and PeopleSoft.
2.
Plant/Operations ERP solutions are primarily focused on the specific needs of mid-range manufacturing plants and distribution sites or the operations level of global companies. This ERP market segment's roots are in the control automation market of the 1960s and 1970s and the manufacturing planning software market of the 1980s. This evolved into the ERP of the 1990s. Leading vendors of these ERP solutions include SAP, Oracle, PeopleSoft, J.D. Edwards, Baan, JBA (now a division of Geac Software Corp.), Intentia International, SSA, Lawson Software, QAD, IFS AB, Symix Systems, MAPICS, Navision, and a number of smaller niche ERP players.
In 80's and 90's, businesses have been subject to increasing global competition, resulting in a pressure to lower production costs, improve product performance and quality, increase responsiveness to customers and shorten product development and delivery cycles. Furthermore, globalization has greatly increased the scope and complexity of multinational manufacturing organizations. Therefore, companies have long been urged to develop or purchase and implement software applications to automate their business processes, leverage their transnational data stores in order to make more informed decisions, and ultimately, decrease operating costs. Companies realized the need to be able to react rapidly to change due to increasing competition, deregulation, globalization, and mergers & acquisition activity.
During the second half of the 1990s, the market for ERP systems has experienced strong growth rates in excess of 50% per year, from US$ 5.7B in 1995 to US$ 16.6B in 1998 [Source: AMR Research]. Some of the key drivers, in addition to the above mentioned underlining reasons, were:
*
The transition from custom-designed legacy software (software developed by or for a specific customer) to the implementation of standard systems that can be applied across different types of industries. This was particularly true for the largest companies, who previously thought that they had the resources to develop business solutions under their own steam.
*
In addition to the transition to standard systems, ERP systems have been extended to support an increasing number of business processes in integrated solutions like engineering, customer support, sales support, human resources, etc.
*
The customer base has also expanded from mainly manufacturing, trade, and distribution to the public and financial sectors, transportation, infrastructure, defense, federal and local governments, utilities, etc.
*
In the past three years, Year 2000 (Y2K) and the adoption of the Euro currency have been important driving forces in the development of the market. As a matter of fact, resolving the Y2K problem has, in many instances, led to the installation of a new ERP system.
The worsening plight of most ERP vendors, caused by the market slowdown, which started in the fourth quarter of 1998, continued in full force throughout 1999. During the last 12 months, the 20 largest ERP vendors achieved an estimated average growth of 25% [Source TEC; this figure should not be confused with the absolute ERP market revenue annual growth], which is much less compared to the equivalent growth of over 40% a year earlier. Particularly affected was the license revenue, which is expected to decline more than 10% in 1999 compared to 1998 (See Table 1). The market was dramatically less profitable than in 1998 (down 27.3%), measured in the total raw $ net income (See Table 1).
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