Enterprise app vendors ride economic boom wave

Boosted by an excellent monsoon and improved performances from traditional large IT spenders in sectors like manufacturing and services—enterprise application vendors in India are gung-ho about the prospects of increased IT investments. Compared to flat growth last year, the market this year is expected to grow significantly in segments like ERP, BI and PLM as Indian corporates look to become global players. Srikanth R P reports

From a year of pessimism, India Inc. has leapt to a future promising bullish growth. The optimism is reflected in GDP growth forecasts from the Confederation of Indian Industry (CII) and the Reserve Bank of India (RBI). While the RBI revised the GDP growth forecast from 6 percent to 6.5-7 percent, CII revised its growth forecast for 2003-04 from a range of 6.5-6.8 percent to 7.2 percent—both decisions influenced by a good monsoon and industrial revival. For enterprise application vendors who have waited patiently for the revival of the domestic market, these figures show that the patience is paying off. In other words, more and more Indian enterprises are looking to increase efficiencies and productivity using IT.

The maturity of the enterprise applications market has also increased significantly and user corporates today are more aware of what they want from a particular application. Enterprise application deployments are also better planed today and there are far less failures compared to just two years ago. While major corporates are expected to up their technology investments in line with growth, the biggest untapped potential segment is the SME segment and almost every vendor has introduced customised products to woo the SME customer. For the record, an IDC report estimates that almost 60 percent of the IT market in India consists of SMEs.

In the quest for maximisation of RoI in the shortest possible time, demand for vertical-specific industry solutions would increase in the business intelligence space, says Ramesh Krishnamurthy

Another significant trend noticed is the increasing convergence of ERP, CRM and SCM. Established ERP vendors are looking to make inroads in the CRM and SCM space on the strength of their installed base of customers. Similarly, SCM and CRM vendors are also expanding their features and intruding into the space traditionally occupied by ERP vendors.

Here’s a detailed look at the trends seen and expected in the enterprise applications space in India:

ERP

Boosted by a strong economy, the Indian ERP market is expected to post positive growth this year as against the negative growth witnessed last year. As the manufacturing segment (traditionally the biggest segment for ERP in India) sees an upturn, enterprise application vendors expect the growth to continue in manufacturing, aided by emerging growth areas like telecom and power.

Besides, ERP is no longer seen as an additional IT investment but a must-have—specifically for companies in the manufacturing segment.

Says R Ramki, director-Solution Architect Team, SAP India, “ERP implementations today are better planned and the number of success stories have increased significantly. This is not only due to better knowledge on the part of the user but also system integrators who are now armed with knowledge of multiple implementations.”

With increasing privatisation and disinvestment of government stakes in state-owned companies planned in India, enterprise application players believe that the market for ERP will only expand. This is because even today there are a large number of Indian companies who continue to have legacy systems. Ramki of SAP estimates that there are huge untapped opportunities for ERP players in emerging verticals like telecom and power.

S P S Grover says that Oracle has convinced a large number of its database buyers to move to Oracle E-Business suite by focusing on an integrated one-product approach

Another significant trend noticed is the increasing number of players introducing customised products for the SME space. And contrary to expectations that big players entering the SME space will kill small vendors, SME players are optimistic, because they believe that the market will expand, as the big players will only help in accelerating the learning curve for the smaller players.

Says Sanjay Agarwala, director, ESS, “Two years ago the market for ERP was essentially aimed at large customers. Now with the saturation in the market, the focus has shifted to the untapped SME segment. The key difference is the increased awareness of IT and its benefits in the SME segment.” While the software product market for ERP was stated to be close to

Rs 200 crore in 2002, market players believe that growth this year would be much higher due to the sheer size of the SME segment. Vendors like SAP have realised the immense potential of the SME segment and have targeted this space aggressively. Currently, the company has a leadership in the SME space with an installed base of over 150 customers.

While the ASP model has not caught on due to lack of infrastructure, outsourcing is a new concept that could catch on in the ERP space too. For instance, Mumbai-based Aakit Technologies, a player specialising in ERP implementations, recently bagged a major win from a diversified MNC. The MNC has outsourced its ERP and CRM operations to Aakit. The company’s server is kept in Aakit’s office premises and Aakit is responsible for the administration and smooth functioning of ERP and CRM operations. Currently, 12 companies of the group, spread over five countries, access the system over the Internet.

Says Ravindra Tulsyan, director and CEO, Aakit Technologies, “We see outsourcing of ERP operations as the next emerging trend as a company can typically save costs by close to 50 percent by outsourcing operations.” And like other services, outsourcing of maintenance of ERP operations could become another key area for Indian companies.

SCM

Faced with competitive pressures from the increasing complexity of supply chain networks and reduced time-to-market for developing products, Indian companies are now looking beyond their borders for collaboration with different supply chain partners for controlling their supply chain costs. The market for product supply chain automation applications was estimated to be close to Rs 268 crore, growing at a CAGR of 28 percent. While SCM growth has not been phenomenal in India, analysts are positive on this segment as traditional ERP vendors are looking to address the SCM segment by leveraging their customer base.

Says Ramki of SAP, “From a long-term perspective, most customers prefer dealing with vendors whose solutions they have already implemented. We have seen many people preferring SAP’s SCM solutions as they have already have the SAP R/3 backbone implemented in their organisations.”

Another key growth driver for SCM in India will be the increasing number of MNC vendors setting up manufacturing bases in India and who in turn outsource component manufacturing activities to smaller companies.

Adds Dr Ramesh Subramanian, senior VP, Systime, “SCM will become more crucial for assembling and asset-based industries. This is significant when you consider that intense competition from countries like China, Indonesia and Thailand will force companies to reduce procurement costs through supply chain optimisation.”

PLM

Adoption of Product Lifecycle management (PLM) solutions is a recent trend that has been gaining prominence in the manufacturing segment. In simple terms, PLM can be defined as a solution that monitors the progress of a product, right from its creation, to its market acceptance. Typically, an enterprise solution like PLM encompasses a wide range of functions and users, starting from product designers and engineers, going on to manufacturing and logistics, to sales, customer acceptance and maintenance. Hence, even if teams are located in different regions or time zones—they can work as one cohesive unit.

Says Andre Pravaz, senior regional director, Autodesk, South Asia Pacific, “Since around 80 percent of a product’s costs are embedded by the time a product is passed from the design team to the manufacturing team, it is necessary for design teams to adopt methodologies that can optimise reduction. With increased competition, companies need to increase productivity and make better use of their intellectual property, such as digital design data.” A Giga report estimates that PLM can help manufacturers reduce product development time by about 40 percent.

Thanks to growth in the Indian manufacturing sector, the PLM segment, which has its roots in the CAD/CAM industry, is expected to grow significantly as most large manufacturing organisations have been active users of CAD/CAM products. Though the adoption of PLM solutions in India is still at a nascent stage, almost all the vendors in this space are convinced about the huge growth potential. This bullishness is also supported by the significant Indian presence of global players like EDS-PLM, Dassault Systems, Autodesk and PTC.

According to Vivek Marwaha, PLM is fast getting accepted as an important enterprise application and becoming critical to achieve business objectives, particularly for manufacturing organisations

Says Vivek Marwaha, marketing head, EDS PLM Solutions India, “India is now a mature market for CAD/CAM/CAE software. Organisations big and small recognise the critical role that IT-based product development solutions play in getting their products to market faster, in reducing costs, improvement of quality and facilitation of innovation. Organisations are also realising that while applications like ERP, SCM and CRM helped in streamlining processes and brought in operational efficiency, they did little to improve a manufacturer’s core functions within the product development processes. PLM applications address these issues, while performing the integration of product information with other business functions and applications.” The market for PLM is booming as vendors like EDS-PLM have seen growth rates of more than 50 percent in the first half of the year, a reflection of the increasing adoption of PLM solutions by Indian businesses.

As in other segments, traditional ERP vendors are looking to make a dent in this expanding segment by launching their own PLM products. Take the case of Baan, which is banking on easy integration with its ERP products as a key selling point for its PLM solutions.

Says Ravi Kathuria, general manager, Enterprise Solutions, Baan Info Systems, “Our PLM suite is a very well accepted product since we also provide ready integration with Baa n ERP.” Plus, as India continues to attract a lot of attention for outsourced design work, the PLM space could turn out to be the emerging star to watch out for in the enterprise applications space.

CRM

CRM is another segment that held much promise but has somehow not taken off as predicted. Independent reports estimate the Indian CRM market at close to Rs 40 crore, with the market for CRM services bigger than that of CRM software. Like the trends seen in other enterprise applications, large vendors like SAP who hold significant enterprise mind share are concentrating aggressively in this space too. SAP is betting big on its Accelerated CRM initiative where the company promises to implement an entire CRM solution in a timeframe of about 10 weeks. In India, the key drivers for CRM solutions would be sales force automation applications that seek to increase customer touch points. Sectors like banking and telecom could drive growth in this space as they feel the pressure of retaining their customers in highly competitive times such as the one we live in today.

But unlike other segments, the demand for CRM from SME companies is almost non-existent. Says Ravi Chakravarty, director sales–Asia Pacific, Talisma Corporation, “For us, most of the wins are still coming from large customers in different verticals. I think the market for providing CRM solutions to SME customers is still not mature and it will take a while for SME customers to look at CRM.” Chakravarty estimates demand for CRM solutions coming from verticals like BFSI and horizontal segments like the emerging BPO/call centre space.

Business intelligence

Extracting intelligence out of voluminous amounts of data and using it for competitive advantage has been the promise of Business Intelligence applications. In India too, numerous organisations have taken the help of BI tools and have gained market share. In line with the global trend, usage of BI tools in India has gained prominence.

Says Ramesh Krishnamurthy, director, Professional services, SAS India, “Of all the enterprise applications, the fastest growth will come from business intelligence applications. This is because in the enterprise market segment most investments have been made in transaction-based enterprise applications. To ensure RoI from existing applications, the demand is for BI applications that make sense of transactional data to enable companies to make well-informed decisions. In line with this trend, the real potential of the BI market in India, according to Frost & Sullivan, is reflected in a CAGR of 33.5 percent wherein the BI market in India will be $53.8 million by 2008 up from $16 million in 2003.”

While the potential for adoption of BI solutions is bright in all sectors, the biggest growth drivers for BI solutions could come from highly competitive markets like banking, finance and telecom. Vendors too have realised this and have developed highly specialised vertical solutions.

Says Krishnamurthy of SAS, “An emerging trend being seen in the industry is a demand for vertical-specific industry solutions to ensure maximisation of RoI in the shortest possible time. In line with this trend we have launched Telecom Intelligence Solutions in India earlier this year. Further, market triggers like the Naresh Chandra Committee report and BASEL II are fuelling demand for BI solutions.”

Krishnamurthy gives the example of IDBI Bank, which was looking at enhancing its risk management initiative in retail banking in line with its plans of being BASEL II-compliant by 2006. For this the bank needed a solution that would assist it in understanding the credit worthiness of customers and facilitate the development of risk scorecards for home loans, personal loans and define pre-approved credit lines for individuals. This is where SAS came in with its SAS Credit Risk Solution. The solution will help IDBI Bank to proactively maintain non-performing assets (NPAs) at a level lower than industry standards as the bank expands its retail banking portfolio.

Apart from traditional industries like banking and telecom, vendors are also betting big on emerging industries like the manufacturing and automotive sector. The Indian manufacturing and automotive industries have just emerged from the shadow of recession. Sales in the automobile and ancillary industry alone stood at 45,929 crore, reflecting a growth of 12.9 percent over last year. Similarly, the manufacturing industry registered a growth of 6.4 percent in the April-July 2003 period as against 3.8 percent registered in the first quarter of 2002-03. A key reason for this growth has been the impetus provided by these industries to cut and manage costs. In line with this, the key focus area, amongst others, is to reduce warranty costs that typically comprise 3-8 percent of total revenues. SAS hopes to cash in on this opportunity with the highly specialised Warranty Analysis Solution.

Enterprise-wide infection could cost a company thousands if not millions of dollars in clean-up costs and loss of productivity. Hence protection at the gateway is crucial, says Niraj Kaushik

NCR Teradata, another major in the Indian BI, is also betting big on vertical markets like telecom and banking to drive adoption of BI solutions. Says Sandeep Kumar, professional services practice partner, NCR Teradata, “Our focus in India has been large companies in the financial services and telecom industry and we have achieved significant success with organisations like ICICI Bank.” Kumar estimates that the next big opportunity for BI tools ould be in sectors like retail, manufacturing and government.

Integrated players

The opportunities in the enterprise applications space have not only tempted traditional ERP players to go beyond their traditional boundaries but have also prompted traditional database players like Oracle to launch their e-business suites.

Says S P S Grover, senior director, Oracle India, “For long Oracle has held the position of being a clear leader in the database segment. But in recent years, we have leveraged our strengths in databases to other enterprise application segments. In fact, by focusing on our integrated one-product approach, Oracle has convinced a large number of its database buyers to move to Oracle e-business suite.” Grover believes that customers are not merely looking for niche solutions but for a holistic approach.

Oracle has forged tie-ups with leading software companies in India like Satyam and TCS. Almost all these companies have large Oracle practices, which service customers worldwide, including India. Oracle is not only relying on the reach of its database but also hopes to cash in on concerns of customers regarding cutting costs related to integration and cost of hardware for running different systems.

Explains Grover, “A lot of customers have reached a stage where their IT systems have become way too complex to be of use in a rapidly changing market. Worse, the complexity has added to the cost of maintenance as well. Customers want to be able to take IT for granted like any other utility like power or water but the complexity prevents such a paradigm shift. Oracle India is taking the message of consolidation at the technology-, data- and application-layer to its customers. The benefits of adopting an architecture that consolidates these three layers include better time-to-market for new initiatives, reduced cost of maintenance and moving IT towards a business utility model.”

Oracle India is also looking at educating the customer about the benefits of following a holistic approach than going in for a standalone CRM or SCM solution. To explain the promise of an integrated system, Grover gives the example of a consumer electronics firm. “Most companies have developed a number of standalone initiatives around CRM, such as a customer database, sales force automation (SFA), call centres and service solutions that are not integrated with each other. The sheer inefficiencies that such an approach fosters is forcing customers to take a fresh look at these systems. For instance, a major consumer electronics firm has no way to let its service centres know the value of a customer walking in (part of the central customer master) so providing differential service is out of the question in such a scenario. With an integrated system, the company can counter these issues.”

On the other hand, players like SAP are also pushing their own e-business suites to existing customers. SAP has found a ready market for its product, mySAP, among existing ERP users. The growth is promising as SAP has managed to convince around 10 percent of its existing base of customers in India to migrate to the e-business suite.

Enterprise security

Though Indian enterprises are certainly more aware of security today, it is also a fact that almost 70 percent of corporates in India still do not have a formal security policy. However, with ever increasing virus attacks, Indian enterprises too are increasingly becoming aware of the need for a well-defined security policy.

Another trend is the shift from desktop-based anti-virus solutions to the gateway. Explains Niraj Kaushik, country manager, Trend Micro India, “It is being increasingly understood that desktop anti-virus deals only with a copy of the infected file. The original stays at the mail server. If the server is not protected, the virus can replicate itself into an enterprise-wide infection that could cost a company thousands if not millions of dollars in clean-up costs and loss of productivity. Hence protection at the gateway is crucial.”

Spam has also become an issue of relevance to most Indian organisations. Anti-virus players like Trend Micro and Computer Associates are eyeing this rapidly growing field with specialised solutions to combat the spam menace. Trend Micro recently launched the Trend Micro Spam Prevention Solution, which promises to stop malicious spam at the Internet gateway. Similarly, Computer Associates has a solution called eTrust Secure content management, which not only addresses spam but also protects the organisation against viruses and prevents unacceptable use of the Internet by employees.

The current blue eyed boy of almost every vendor, the SME segment, is the cynosure of attention for even enterprise security players. While demand still continues to come from large enterprises, most vendors are convinced that the SME segment is the future.

Says Pravir Vora, channel head, India and SAARC region, CA, “The SME segment has certainly picked up over the last year and we are seeing a lot of activity in this market. This is reflected by the fact that our channels business, which primarily focuses on SMEs, recorded an year-on-year growth of over 40 percent.”

Analyst speak - Frost & Sullivan

ERP The development in the features and functions of the ERP solutions have seen a radical change in the type of investments that are required to be made in the initial phase of the application implementation. Modular rollout in better solutions, which is a result of maturing ERP applications have made it possible for companies to invest in sachets. With the passage of time, subsequent modular rollouts would be integrated in a much better manner than before. ERP solution vendors have crossed the boundaries of traditional manufacturing customers. Vendors are branching out into specialist vertical markets such as pharmaceuticals, retail, utilities, and banking. The growth potential in these verticals is inorganic while the growth in manufacturing is more or less organic in nature. Trends observed and future trends expected It is now clear that India’s mid-size and small manufacturers are ready to exploit the collective experience in the marketplace by successfully implementing an ERP package internally. With the high-end market getting increasingly saturated, installations in the mid-market (organisations with annual revenues of $50 million to $250 million) would be a significant revenue generating source for vendors. In the services sector, the telecommunications, financial and government sectors have shown a strong inclination to go in for ERP solutions. Demand from the government sector is likely to increase. It is likely to become one the highest growth segments in the years to come. Demand for ERP solutions is also likely to come from the service provider sector such as software service providers and logistics service providers. Business Intelligence The Indian services industry has matured very rapidly over the past two decades. Services now account for almost a third of Indian economy, and this segment is growing at an even higher pace. It’s an industry segment that makes the market supply-driven rather than being demand-oriented. As a result where service segments such as banking, telecom, insurance and call centre companies are growing at rapid pace in India, business intelligence solutions are gaining momentum. The hospitality and transportation industry is yet another industry, which has shown strong inclination towards implementing these solutions. The sector being more close to customers has developed some in-house intelligence products. Trends observed and future trends expected The sectors that have been the early adopters of BI solutions in the country are banking and finance, telecom, retail and FMCG companies. The BI market in India is still in its nascent stage; however, an interesting trend to note is that the data warehousing market in India is rapidly gaining momentum SCM Information technology has virtually made geographical boundaries non-existent. Enterprises now can easily track the best supplier across regions and also reach a customer irrespective of his geographical presence. This has led to an increase in suppliers and points-of-presence of most enterprises. Supply chains are exploding both in terms of quantity and complexity of information and transactions done. Thus, supply chain automation has emerged as one of the key areas for Indian organisations to invest in. Sectors to watch out for Pharmaceuticals: This industry is characterised by a few large players and a large number of smaller regional players. The sourcing of raw material is usually from varied suppliers and the distribution system for this sector involves a large number of agents and distributors that supply products to pharmacy retail outlets or medical institutions. This complexity of the supply chain process makes SCM applications imperative in this sector. Higher outsourcing trends One of the major trends witnessed in the manufacturing scenario in India is the continuous increase in the proportion of purchases to the total cost of goods manufactured. This is primarily due to a heavy inclination towards outsourcing by large companies. Outsourcing has reduced total cost of production, increased profit margins and allowed businesses to focus on their core competencies. Small and medium companies can now leverage their strengths with deployment of SCM applications and reaching distant customers using the ubiquitous Internet as an efficient medium of interaction. Large enterprises on the other hand require SCM to integrate their supply chains with that of their suppliers. Untapped sectors There is a huge opportunity for vendors to tap the SME segment. SMEs have traditionally suffered from their inability to reach a wider set of customers due to geographical barriers and high communication costs. With the advent of the Internet and the emergence of applications such as SCM, the doors have opened for SMEs to reach a wider audience without a significant increase in cost. CRM The telecom and banking sector in India has witnessed lot of changes in the last few years. The entry of MNCs, deregulation in these sectors, and M&A activity have made competition very intense in these sectors. Given the high churn rate in the telecom sector an increased demand for CRM solutions is witnessed here. Gaurav Dua, senior industry analyst for IT at Frost & Sullivan

Enterprise security trends

Felix Mohan, CEO, Secure Synergy gives his views on the changing security trends in the Indian scenario Change in the model of security from a fortress model to an airport model. A fortress model of security is dependent only on one access point and is extremely vulnerable. If the one access point is breached, the entire organisation is under threat. This model has now given way to an airport model where an organisation is protected by multiple layers of defence. The industry is gradually moving from a reactive phase to a pro-active phase. In the future, we will see concepts like real-time and online patch management become more pronounced. There will be a drastic change in the security delivery model. We see a gradual trend of organisations outsourcing their security needs to managed security service providers. This trend can also be seen from the data verified by a CII-PwC survey conducted last year. The survey found out that around 25 percent of respondents were eager to outsource their security requirements. Pure SLA-based models will change to the RoI-based SLA model. MSPs will now showcase the revenues gained through increase in productivity due to no downtime or better planned infrastructure. Directives like the RBI issued guidelines to banks to have a periodic review of security policy will drive growth. Identity and access management tools, messaging security and wireless security are some spaces to watch out for in terms of technology. There is also a gradual shift happening from intrusion detection systems to intrusion prevention systems.

srikanth@expresscomputeronline.com