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The Enigma called “SMB ERP MARKET IN INDIA”

It has been close to 15 years since the word ERP has been used in the Indian market. In the early 1990’s most people and companies were unaware of this term and its implications. However today close to 90% of the companies in the large enterprise segment (> 1500 crores) have embraced ERP and have IT systems in place which comprise of ERP , SCM , PLM , CRM & HCM etc. Similarly close to 60% companies in the 300 – 1500 Crores segment i.e. the mid-market have implemented ERP. So where do we go from here? The answer to this in the view of the management guru – CK Prahalad is “There is money at the bottom of the pyramid”. In our context, it could refer to thousands of companies in India with turnover of less than 200 crores which need IT services and particularly ERP.

Close to 46% of India GDP and more than 70% of enterprises in India constitute the SMB segment. It provides employment to more than 25,00,000 people and believe it or not the potential for IT in this market in India alone is USD 15 billion by  2015. The SMB segment market in India therefore cannot be ignored.

Top companies like SAP, Oracle, Sage, Lawson, Microsoft have realized this way back in 2005 that they need to address this market and are making inroads into this market along with several Indian companies like Ramco, 3i Infotech, Godrej etc. Infact the leader among this is SAP , who has penetrated significantly into this market.

However there are still several challenges to be overcome to penetrate this segment completely and it involves several times the effort that needs to be invested compared to the large enterprise segment . Most companies therefore shy away from this, or simply do not do enough to address this market or smarter still wait for others to do the groundwork of educating the segment before they move in. Either way ERP companies are now at a stage where the prospect of growth cannot happen unless they have products and services to address this huge market & tap the potential.

So what exactly are the challenges in the SMB space and what are the ways in which companies are trying to address these challenges. Let’s take a look.

The biggest challenge faced by ERP vendors is the mindset of the SMB’s. Talk to any SMB and ask him to invest in IT and he would look at you with suspicion. For SMB’s investing in IT is fancy stuff, not likely to give you returns. Rather they would invest in some machinery which would improve their capacity and IT is simply not a priority for them.

The second challenge is the IT literacy and availability of trained manpower in SMB’s are few. Most SMB’s do not have an IT department. Compounded to this the cost of maintenance of IT staff in SMB companies is larger since most IT people would prefer to work in large IT companies with more scope for varied and challenging projects , not to mention the other benefits and therefore would expect a larger compensation to work with an SMB.

Thirdly SMB companies simply do not have the monetary bandwidth to invest in IT projects and are not aware in terms of TCO and long term maintenance costs. In Large companies or mid size companies if an IT project overruns cost, it becomes bearable. Not so in SMB companies where the risk of the company itself going under is very high.

Compounded to all this most ERP vendors offer a “one shirt fits all concept” where typically the product they sell to the large vendors and the SMB’s is more or less the same. Also the products are too generic and rarely take into consideration the unique requirements of the SMB’s business.

Verticalisation is therefore the need of the hour in this segment also. “ERP vendors need to tailor their software to the needs of specific SMB industry verticals. “Verticalisation means not just adding new functionality to a given industry solution but adding vertical functionality to the horizontal functions within the ERP package. This actually means that workflows, supply chains, data warehouses, and analytical tools will all need to be vertical-specific.

With so many challenges what are some of the trends in this segment and what are companies doing to address the challenges in the SMB segment?

The biggest technology trend so far seems to be the SAAS model. SAAS stands for software as a service. In this model, instead of companies having to invest in hardware, software, software license renewal costs , implementation costs , enhancement costs , upgrade costs and several other hidden costs they simply pay a fixed fee per user license on a monthly basis to a vendor who hosts the solution for them . It is similar to the electricity or water services which are provided to households and payment is purely based on the consumption. In other words ” IT on tap”.

The SAAS model has been taken forward by several companies like Netsuite, SAP and is still in the nascent stages. There are several concerns being raised such as the security of the data which will reside outside the firewall of a company. Some modifications to this model being suggested are a third party hosting the service since in the event of the original service provider facing financial problems , the data integrity and security would still be assured for the user.

There are still more issues to be addressed in terms of verticalization and also customization to suit a particular business. These are the differentiators today while evaluating SAAS model services of different companies. User’s need to ask “how does the product address my company and its unique requirements?”.

To sum up SMB have a distinct need to embrace IT or be left behind. Particularly in the automotive , Paints & Manufacturing sectors the supplier need to integrate with their parent companies and global supply chains or risk the possibility of their being replaced by other partners . Today the name of the game is not just manufacturing a great product, but also controlling the supply chain and ensuring customer satisfaction. Yesterday we were happy if a person in the bank manually updated our passbooks. Today the service of the bank may have have improved but we want to be able to sit in the comfort of our house and have visibility on our accounts. Further we want SMS alerts when a transaction happens. The needs of both individuals and organizations are constantly evolving and more demanding.

SMB‘s need to understand this and it is in their interest to educate the SMB customers so that in the success of the SMB’s lies their own growth and success story.

The name of the game for ERP vendors and service providers is “Empower and Grow “.

Rajesh Santhanam – The author has worked for some of the leading firms worldwide such as LogicaCMG , Hitachi , HP, Shell, Deutsche Bank & IGATE.

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