Top Ten ERP Software Predictions for 2010

A new decade is upon us and the ERP software industry looks quite different than it did at the start of the decade.  Ten years ago, the enterprise software space was booming, IT budgets were flush, and companies were replacing accounting systems left and right in preparation for Y2K.

In contrast, the decade closes with depressed IT spending levels, revenue contraction among many ERP vendors, and uncertainty about the future.  However, there are several things to be optimistic about.  Below is our ten predictions for the enterprise software space in 2010.

ERP Software Predictions for 2010

1. Diligent focus on ERP software benefits realization and ROI. Long gone are the days of spending like it’s 1999 and hoping for the best.   CIOs and COOs will continue to face pressure to prove that every dime of investment in ERP systems is justified and generates a solid return on investment.  Look for more deliberate spending, more phased rollouts, buying licenses only as they’re needed, and hesitancy to invest in more expensive advanced enterprise software modules.
2. SMBs to get back into the ERP software market. The bright spot in any recovering economy is usually small business (SMBs).  As the economy emerges from the recession, SMBs will look for small business software to automate their operations and scale for growth.  In addition, large software vendors such as SAP and Oracle will continue to focus on the SMB market to reinvigorate their revenue growth in software license sales.
3. Increased adoption of Software as a Service (SaaS) at SMBs. While SMBs may lead the charge in their small business software investments, it may be difficult for them to make the necessary investments.  Given that tight credit markets will likely continue into the new decade, many SMBs will look to SaaS ERP software to help them minimize up front capital IT costs.
4. Lots of ERP SaaS talk, but not as much action at large organizations. Larger companies, on the other hand, are likely to consider SaaS options, but are much less likely than their SMB counterparts to commit to these deployment models.  As software vendors expand hybrid solutions combining the benefits of SaaS with the flexibility of traditional ERP (e.g. Oracle’s On Demand and SAP’s Business By Design offerings), larger organizations will continue opting for non-SaaS options that more commonly reduce cost and risk while maximizing business benefits in the long-term.  They will, however, be more inclined to leverage SaaS for some niche functions, such as Document Management Systems (DMS), Human Resource Management Software (HRM/HCM), Product Lifecycle Management (PLM), and Customer Relationship Management (CRM).
5. Increasing focus on organizational change management and ERP benefits realization. As demonstrated by the exponential growth in Panorama’s organizational change management practice, companies are directing much of their ERP software investments to areas that ensure they implement effectively and get more out of their existing enterprise investments.  The need to more effectively manage organizational and business risk will likely result in a continuation of this trend in 2010.
6. With ERP software, it’s still a buyers’ market. Even in the most optimistic scenario, overall 2010 enterprise software spending will not return to pre-recession levels.  This means ERP software buyers will remain in the driver’s seat, which will be reflected in aggressive software pricing and shared benefits implementation models, such as that introduced by Epicor late this year.
7. Enterprise software risk management. As CIOs and executive teams remain on the hot seat to prove the value of their investments, risk management will be the name of the game.  Look for more ERP implementations to leverage organizational change management and independent oversight of software vendors to help mitigate business risk.
8. ERP software vendor consolidation. Vendor competition was fierce before the recession and is even more so now.  Dozens of smaller vendors are starved for cash and unable to fuel R&D and other product innovations without infusions of capital.  Add the fact that larger vendors have cash and some have grown successfully via acquisition to date (e.g. Oracle and Infor), and continued vendor consolidation looks inevitable.
9. Focus on integration rather than major ERP package enhancements. Given corporate aversion to risk, companies are going to be less likely to bet on entirely new products or risky upgrades.  As a result, vendors are more likely to invest in incremental product enhancements and tighter integration between modules rather than revolutionary changes to their software.
10. Niches, low-hanging fruit, and business value. Look for companies to be very deliberate about how they invest in enterprise software, the risk they’re willing to take, and how they manage implementations.  If executives aren’t convinced that their enterprise software investments will deliver measurable business value, they won’t invest in it.  Areas that deliver immediate value are priorities for the coming year.

We are optimistic about the coming year and can’t help but wonder if the economic recession exactly what the enterprise software market needed.  ERP failures, cost overruns, difficult software vendors, and lack of business benefits had become too frequent, but these lean times will not allow for these trends to continue.

So what does this mean to clients and other companies considering ERP software investments in the coming year?  The companies that choose the right software for their organizations, best manage business and organizational risk, implement effectively, and position themselves for benefits realization will be better positioned headed into the recovery.  This will require companies to more effectively assess vendor viability during their ERP selection processes and leverage ERP software implementation best practices more than they have in the past.

Here’s to a prosperous and successful 2010!