Is it death for ERP?

Declining revenues on the traditional and lucrative sales and implementation model that enterprise resource planning vendors embrace signal its death throes.

User expectations of ERP vendors and their products have changed dramatically in the past few years, a trend reflected in low vendor stock prices and declining revenues.

Tier-one ERP player PeopleSoft last week announced a 77 per cent drop in its first-quarter income, reporting an income $US26.2 million less than the same quarter last year. The bulk of PeopleSoft's revenues for the quarter came from services ($US228.3 million) with revenue from licence fees totalling $76.6 million.

The ERP market has experienced phenomenal growth in the past few years, but business applications software is taking a plunge. Stock prices at ERP companies are down this year with demand falling sharply compared with last year. The slump is largely caused by a levelling off in demand for new application packages as businesses sought to install year 2000-compliant systems.

An IT manager who preferred to remain anonymous told Computerworld the big ERP vendors had "ridden the wave of Y2K, very expensive consultants and very long lead times for deployment" for too long. "They need to change their service models and shift towards relationship management," he said.

The challenge for the vendors is to get value out of their services, he said. SAP was proactive in this regard, having recently changed its support model. Rob Panizzon, IT manager at Ford Australia, said the company was not a large user of ERP systems, but used PeopleSoft's HR and Financials modules as part of Ford's global IT strategy.

From conversations with his peers, Panizzon said ERP systems had often been installed to achieve year 2000 compliance, but the software had not been fully leveraged.

"They're aware of that and plan to make use of it after 2000," he said.

"I think the ERP vendors enjoyed a time of significant growth, which was driven by Y2K demand. The challenge now, as Y2K disappears, is for them to shift to make the best use of their installed base," he said.

Panizzon suggested the ERP vendors shift their focus from software to providing services. Dataquest estimates the professional services area will explode in the next four years.

"Given that services represents 55 to 70 per cent of the total cost of an ERP implementation -- as compared to software licences, which comprise 20 per cent -- this strategy appears at first view to be a viable one," a Dataquest report said.

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