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The Financial Post

October 20, 1998

To grow, software giants need small clients

Paul Lima

SMEs beware.  ERP is coming your way.  ASAP.  Until recently, enterprise resource planning (ERP) software vendors, such as Oracle, PeopleSoft, Baan, SAP and IBM targeted only Fortune 1000 corporations with multimillion-dollar applications that could take up to two years to implement and roll out.  As technology becomes more powerful and affordable, SMEs are seeing data flow across networks, intranets and the Internet. 

ERP applications automate and integrate human resources, finance, orderprocessing, production scheduling and other major business functions.  While approximately 70% of Fortune 1000 firms have ERP systems in place, the global ERP market will continue to grow, from $15 billion to $50 billion over the next five years.  This growth will be fueled by sales to new kids on the ERP block ­ small and medium-sized enterprises (SMEs), as well as by continued sales to Fortune 1000 companies, analysts say.  At its mid-September Sapphire conference in Los Angeles, SAP announced it would target the SME market and introduced its New Dimensions program, including Accelerated SAP (ASAP), aimed at SMEs. 

New Dimensions "extends the boundaries of the enterprise," says Robert Beauchemin, president of SAP Canada Inc.  It may also extends SAP's influence within the enterprise by adding salesforce automation, marketing and supply chain management to its ERP suite of applications.  SAP is the enterprise application market leader with revenue of US$11 billion, according to Jim Shepherd, vice-president of Boston-based AMR Research.  In Canada, SAP defines the SME market as companies with annual revenues of more than $250 million.  These companies will not be trotting off to local computer retailers to buy ASAP applications, since SAP's SME application acquisition and implementation program starts at $250,000 and can take up to 16 weeks to roll out.

PeopleSoft, Oracle, JD Edwards and several other ERP vendors plan to target the SME market will lower prices and shorter installation times.  SMEs are overhauling their computer systems because of fears that the Year 2000 (Y2K) computer date problem will disrupt their business, and because they need to adjust to a unified European currency.  These factors have helped open the SME market to ERP.

"If you're spending money to retool your entire IT (information technology) infrastructure, you might as well rethink your business practices and invest in applications that can make you more competitive and productive inthe long run," he says.  An optimistic Beauchemin hopes to grow the SME business in Canada "tenfold" in 1999.  "I know it's a bold goal, but it means doing some things differently to reach it." 

Analysts are skeptical. Stephen Graham, IDC Canada vice-president of global software channel, questions SAP Canada's ability to reachits goal.  acknowledges that programs such as ASAP and SAP's new business application templates do mean lower application costs and faster installation times for SMEs.  But SAP Canada will have to expand its distribution through its business partner program in order to reach its goal, he adds.  The reason is simple.  Although SAP targets Fortune 1000 enterprises with its direct salesforce, it is not profitable for SAP to sell directly to the SME market, he says.  SAP gets more than 90% of its revenue through its direct salesforce. T he SME market, sold to indirectly, accounts for the rest.  SAP executives agree that reaching the SME market poses new sales challenges for the company.  It sells to SMEs through its Certified Business Solutions (CBS) channel program.  This includes three resellers in Canada: Fintech in Calgary, Primonics in Dorval, Que., and Optimum in Toronto.  SAP has no plans to expand this program "at the present time," says Len Vanspall, director of the company's SME business unit.  Vanspall is, however, looking at a new tier of agents to "help sell" SME business solutions.  But he gives assurances that SAP will not scoop business from its CBS partners.  These firms appear not to be too concerned.  "There are plenty of opportunities in this market," says Daniel Kocur, Primonics Vice-President.  Kocur says his business has been so hectic that he has sometimes had to form strategic partnerships with third parties just to fill orders.


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Published at 20:02

11 March 2011

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