Vendors on a knife-edge

This year could be an ugly year for software vendors. Budgets will be smaller, nice-to-have projects are already being shelved and automatic renewals of licences won't be as automatic any longer. Will ERP vendors find themselves among the casualties?

According to Alvin Paules, chief technology architect at SAP SA, existing customers are looking at where they are in their life cycle, what the economic downturn is doing to their businesses, and what - if any - opportunities there are.

"Many of our large customers are looking at shared service centres to consolidate into a single environment where they can get standardisation of processes and resources. New customers are coming to us with the same requirements too. So, rather than having a growth strategy, customers are looking at consolidation, standardisation and getting a better return on what they have. But it's very busy.”

Keith Fenner, VP of strategic sales at Softline Accpac, says his business is still healthy despite the conditions. "We're not going into 2009 with blind optimism that everything is going to be perfect," he says. "But certainly the existing clients are not shy to invest, as well as some new clients looking to go across Africa. Mid-market ERP at the moment is strong."

Ian Huntly, MD of Rifle-Shot Performance Holdings, a specialist provider of ERP solutions to the process control market, says there's caution in the market for now, given that his industry has long technology cycles.

"We're seeing a lot of focus on cost containment - I would guess that people have money and budget, and they're going to see how this year pans out. Our clients are all Tier 1 and they've said they're going to give it three to six months to see what happens. We're also seeing a lot of customers in the process control market who invested to solve the Year 2000 problem coming back; they're now in the reinvestment phase. They put in something to solve Y2K, but it's not actually solving the business problem now. The specific pains have changed since 1999."

Ashley Ellington, divisional director of Softline Enterprise, also sees a period of wait-and-see. "Most companies that have already invested in ERP are going be looking to optimise their business processes around that, and that's where a service content comes in. Vendors who have service offerings will still see an uptake. From a sales point of view, we haven't seen any drop-off, so out there in the market, people are still buying ERP and applications. The next two to three months will be a test to see where the trend goes."

Some markets are still healthy, some look healthy, but aren't because 2008 budgets are artificially inflating them, and the rest are cautious. Who is in a position to take advantage?

Martin Vipond, ERP advisory partner at KPMG, says the vendors that do well in 2009 will fall into two camps.

"On the one side, there will be vendors who are good at any specific industry where money is being spent," he points out. "Banks, for instance, are still spending money on IT - we're working on a business case right now for a client who wants an ERP system. Government is also still spending a lot on ERP, judging by the number of tenders that have come out in the last few months.

"The other camp that will do well are the guys who can help companies just fix their problems: for instance, companies that are running ERP systems but still can't control their payroll or procurement for some reason."

Johan Delport, SAP consultant at GijimaAst, says many of his clients are in the first camp. "[These clients] play in vertical markets that aren't that affected by the downturn in the global economy. The gold mines haven't felt anything, yet. We have a long sales cycle: a minimum of six months and anything up to 18 months, and in it we haven't seen a large downturn yet. We do see clients moving spend away from non-strategic things, but since ERP is so strategic to large corporates, they do spend and, in a lot of cases, it's to realign and reinvent themselves."

We see clients moving spend away from non-strategic projects.

Johan Delport, SAP consultant, GijimaAst

Will ERP vendors have to reinvent themselves to follow suit? Softline Enterprise's Ellington says there's already a change of emphasis from them, be they mid-range or enterprise level. "The industry has moved from business process optimisation towards liberating customer data from ERP systems. From a customer's perspective, it's about getting access to that data timeously and effectively, and it's also about providing the right tools on the desktop to the right person in an organisation."

Fenner, whose products are aimed at the mid-market, says his pressure is from the products higher up the food chain. "Because of the work companies like SAP do at the top end, the mid-market expects the same from us."

For the larger vendors, which don't have the same agility, the pressures will be about speed and flexibility, two benefits not normally attributed to enterprise-level ERP systems.

Kevin Clarke, country manager of HansaWorld SA, says 2009 will see these becoming critical. "Positioning this year will be about the better offering and the one that's configurable," says Clarke. "And it will be about rapid implementation. The customers that will be friendly towards ERP will be the ones that haven't gone through an implementation recently, and have no memories of pain and teething problems. This year, companies will have to act fast - anyone that can deliver quickly will benefit."

Positioning in 2009 will be about rapid implementation.

Kevin Clarke, country manager, HansaWorld

SAP's Paules says the need for speed to market is what has prompted the vendor's release of a bundled solution as well as tweaks to its channel. "Customers are looking for fast returns, so we've segmented our partners selling our all-in-one solutions into specific industries. You get one partner with specific skills in an industry and he pre-configures the solution with the best practice for that specific industry in his in-house facilities. Then what he does is drop it into the customer so that they can be running in the shortest amount of time. Hardware vendors are also supplying pre-configured images with all software and patches. That takes two weeks to a month out of the installation cycle."

When The Economist published a list of the world's fastest growing economies last month, African countries made up the bulk of them. Most are off a very low base, but local representatives agree that business is booming south of the Sahara, especially for ERP.

"The growth is there in Africa," says Fenner. "We've been investing in Africa for over 20 years and we've grown our channel in Africa to span over 20 countries. In Africa, you can't turn up once and not bother going back. If you're going to make an investment, you need to get a local partner involved so there isn't a perception that someone has to fly from South Africa every time there's a problem. And that takes time.

“What we've done with our codebase is make it international, because it has to be. Everyone expects a multilingual platform, legislative compliance and all of the other things that must work seamlessly in other countries. We do that because, if you leave it to your partners and the customer does an upgrade, then you have a problem. But the mid-market in Africa is really huge, so it's worth the effort."

Clarke says a considerable amount of HansaWorld's revenue will be coming out of East Africa this year. "You get a lot of talk and a lot of time wasters, but if your focus is right and you talk to the people who are serious about investing, you can do very well."

The mid-market for ERP in Africa is huge.

Keith Fenner, VP of strategic sales, Softline Accpac

KPMG's Vipond says there are two major categories of business going on in Africa. "There are a lot of companies doing first-wave ERP implementations, particularly utilities at the moment. We're helping a couple of big utilities with ERP selection and project set-up. The other trend is that a lot of the big multinationals that are run out of Europe are rolling their systems out to Africa. They're struggling with the concept of how a European ERP system can work with the unique challenges that you get in Africa. We're helping them with some of the hotspots: how to run a procurement process in Nigeria, for instance - what extra controls you have to have in place for that to work. All the telcos in Africa are also currently spending a lot on ERP."

Telcos are not the only investors. Nigeria, for instance, has plenty of other multinationals to keep ERP vendors and their partners busy.

"Nigeria is a classic example of a country with lots of multinationals," notes SAP's Paules. "All of the petroleum countries up there have good in-house or on-site skills. The markets are utilities, central government, and process industries like mining and petroleum. In the other countries, we've built up a partner network. One of the most successful companies is a company from Zimbabwe called CCTS. They've released all their resources up into the rest of Africa. Packaged solutions are very popular there because you get shorter and cheaper implementation cycles."

In SA, one technology that's making a difference to ERP is virtualisation. GijimaAst's Delport says resource-intensive systems such as SAP used to need extra machines and bigger server farms when upgrading, but no longer.

"With the introduction of 64-bit architecture and cheap memory, we're seeing enough scale within a single virtualised server to handle modern ERP. The virtualised ERP market is growing rapidly because there are a lot of maintenance and cost advantages."

Gerrit du Plessis, SAP consultant at GijimaAst, points out another advantage of the virtual playground. "In a project environment, what's great about a virtual machine is that you can put something together very quickly," he says.

"The beauty of this is that it gives you the opportunity to test patches and configurations rapidly with low risk. If you don't want it, you can just delete it. There's no need to set up an entire physical server and bug the server guys just so that you can do some testing. And you can use a virtual server as a library for particular configurations.

Softline Accpac's Fenner says one of his customers has already done this. "One of our big customers made the decision to move to a completely virtualised environment because they were running 30 or 40 instances of Accpac in-house on five-year-old machines. Now they're serving their customers from a virtualised set-up. During the roll-out, it was easy to set up a couple of virtual servers to test and make sure everything was working."

Fast implementation times, choice and flexibility, bundled solutions, better access to internals: can we really be talking about ERP? Yes, and it's going to be out of necessity.

This year could well shape up to be a horrible year for many thousands of companies around the world.

ERP systems will have to help them cut costs, find new opportunities or simply just survive. They won't be sold otherwise and vendors will find themselves going the way of the US mortgage broker.