Enterprise resource services to grow

The enterprise resource planning software market is hot and it is bringing to a boil the related services industry.

3 min read
The enterprise resource planning software market is hot and it is bringing to a boil the related services industry.

According to a new study by International Data Corporation in Framingham, Massachusetts, the enterprise resource planning services and training market is expected to grow at a rate equal or greater to the software industry to which it caters. This comes despite warnings that companies are going to put their ERP projects on hold while they solve their Year 2000 problems.

IDC predicts the "consulting and integration services market will grow at a compound annual growth rate of 17 percent, while the client-server segment will exceed 25 percent over the next five years." Training and education services, now a $770 million market, will grow more than 30 percent in the same time frame.

ERP software systems are packaged application suites that automate many corporate functions such as general ledger, order entry management, and inventory management. They also give companies an integrated view and reports of information from all areas of the business.

But the systems require companies to abandon old ways of doing business and adopt entirely new processes. They are also massive and daunting systems that are extremely difficult to implement and the projects can drain valuable information system resources. The combination of factors means many companies have to spend up to $5 on outside consultants for every $1 they spend on software licensing.

However, for many companies the pay off is worth the up front headaches.

"These applications reduce costs, improve business processes as well as replace legacy, non-Year 2000-compliant custom applications," the IDC report stated. "Training must be conducted as an integral part of the ERP project, and the earlier the knowledge transfer occurs in the implementation process, the better the chances for successful ERP adoption."

The report comes on the heels of other recent reports predicting the software market itself will continue to grow in coming years despite the Asian crisis, Year 2000 issues, and other issues long rumored to bring the entire ERP and related industries to a screeching halt.

"Given the time it takes to select and implement these major systems, companies have already passed the Y2K deadline," said Tony Friscia, president of AMR Research in Boston about the ERP software market. "Most global 1000 firms are well-advanced in their ERP deployments and will now seek to extend ERP and related applications throughout their global supply chains."

The report also comes as at least one consultancy reported it was taking a hit to its bottom line from companies stalling IT projects to tackle Year 2000 issues. Cambridge Technology Partner's stock took a slide after it reported its growth was being hampered by clients not taking on any new technology projects while they pour all resources into solving existing Year 2000 problems.

But even with the slowdown, the company is growing. In a conference call with investors Friday, Cambridge Technology's chief financial officer Art Toscanini said the project delays could slow annual revenue growth to between 40 and 45 percent from the company's traditional rate of near 50 percent.

Yet, IDC's study suggests Cambridge Technology and others in the market will have plenty of business in the quarters to come even if things slow a bit the next few years.

"Spending will slow down somewhat in 1998 and 1999 as attention turns toward fixing the Y2K and Euro dollar issues, but growth in this market will resume after 1999," the study concluded. However, "the worldwide ERP consulting and integration services market was estimated at [$15.4 billion] in 1997," and it is expected to grow to $33.7 billion by 2002.

And it's the service agencies that can provide a broad range of services including preconfigured systems for specific industries, have a large focus on the middle market, and that focus on supply chain management and front office management in addition to ERP, that will land the new accounts, IDC predicted.