Anxiety and fatigue mar an otherwise cheerful Sudhir Pal [SP] Arya, VP-IT of the Delhi-based Amtek Group. Amidst finalising an ERP for his entire group, Arya feels challenged at many fronts. “I have been in and out of nerve-wrecking, inconclusive meetings with the key stakeholders in the company. Despite the best brains at work, it is taking a lot of time to decide which way to go,” says Arya with a grim look. Unlike the popular instances of ERP deployment, Amtek is taking a radically different approach. The company has decided to go in for a third-party managed ERP with overall control in their hands so that it can focus on keeping IT aligned with the core business strategy.

This is the challenge facing many companies in today’s scenario primarily due to the reduction in IT budgets and a conscious approach towards extracting maximum return on the investment. Ground realities of last 12-18 months have significantly changed, and the business software in its original form has taken a backseat.

Yet another case is that of the international airline British Airways (BA). The loss making airline delayed its global ERP rollout. The deployment was delayed despite BA completing the procurement for the new ERP and was just a week away from selecting the vendor in late 2008. This was projected as one of the biggest ERP deployments in Europe.

“When we looked at this (ERP) initiative, we realised that it would cost us a huge amount of money. There was absolutely no doubt in my mind that we had to postpone this deployment, as it was a long-term investment that would not pay us back immediately,” says Paul Coby, CIO, British Airways.

ERP investments involve huge budgets. According to analyst reports, total cost for an average SAP deployment goes as high as $ 16.8 million with Oracle charging $12.6 million and Microsoft a bit cheaper at $2.6 million. The second rung of ERP providers such as Baan and Infor charge around $3.5 million.

And if such spending guaranteed that businesses would increase their efficiency and reduce costs, many CIOs of large enterprises would have gone ahead with ERP deployment despite the recession. Also, whatever fresh ERP deployments happened in the last 18 months were built around small and medium businesses.

Reality check
One positive outcome in during the economic turmoil has been that businesses of all size, every industry and geography had time to conduct a meticulous re-examination of their ERP investment and strategies.

According to a Forrester report in November last year, the frustration over maintenance fees and upgrade costs around ERP and emphasis on business intelligence (BI) and CRM applications notwithstanding, an ERP suite is still considered the "backbone" of enterprises. The software still supports core functions of a company such as operations, sales and distribution, besides sustaining administrative functions of finance and procurement.

But all this comes at a price which most times appear prohibitive for any user company. In any given board meeting, CIOs are asked to justify the cost of huge ERP investments and show the real ROI before implementing these applications.

“We examined our past IT investments in ERP set in the last few years to explore our cost management options in the long run. The good news is that our ERP system sustained itself and the strategy stood reinforced,” says Arun Gupta, Group CIO, K Raheja Corp.

The industry at large has started revisiting their ERP spends after a recent study tolled the death knell of the enterprise software. According to US-based Panorama Consulting Group, 65 percent of ERP projects went over budget. 93 percent take longer than expected. Implementation cost in most cases exceeded the original estimate by 50 percent.

“Any ERP implementation should be viewed as a strategic initiative and not an operational one. The foremost thing required for its success is a strong management buy-in,” says Hilal Khan, Head IT, Honda Siel Cars India Ltd.

Khan adds that ERP is not about deploying a technology, but it is about managing people, conflict, expectation and change. “If one can manage all these four factors effectively, one has done wonders with the ERP,” he says.

For many large enterprises that had implemented ERP a few years ago, the focus was to capture and manage end-to-end business transactions in an integrated manner. Today, many CIOs feel that it is important for them to merely stop focusing on transactions. They say that it is high time they focused on how they these transactions can be effectively used. Organisation need to start with the implementation of an ERP and gradually move towards data warehousing and BI.

But in an IT environment where multiple systems have to be networked together, can a ‘single-instance’ ERP idea hold promise? Many industry players think that ‘multiple-instance’ implementation is the way to go. They believe that enterprises can achieve efficiencies in their systems without having to using a unique system that manages the entire business landscape. This could be true for their western counterparts, but back home CIOs vouch for an ERP installed in one location.

One size fits all
With ‘single-instance’ ERP, enterprises get an all-around of their business activities. Take the instance of LG Electronics India. The white goods major has over 100 subsidiaries spread across the world, and each one of them had its own ERP installation around two years back. But, as the company gathered the technology nuances between ‘single-instance’ and ‘multiple-instance’ ERP, they opted for the former.

“In order to address business challenges in different countries, we decided to adopt a ‘single-instance’ ERP that could standardise our operations across LG subsidiaries,” says Daya Prakash, CIO, LG Electronics India.

The company believes a single-instance ERP would help the company in streamlining key operations like supply chain planning. Once the system gets implemented, the company can have a space shuttle view of its operations around the world from its headquarters in South Korea.

“India is in the fourth phase of deployment and the single-instance rollout would begin in the end of February this year and finished by year end,” reveals Prakash.

Similarly, New Delhi-based auto component manufacturer Amtek Group is betting on single-instance ERP to integrate its diversified business. In the last six years, the group has grown organically and inorganically. Company’s product portfolio consists of an extensive range of components for 2-3 wheelers, Cars, Tractors, LCV, HCV and stationary engines.

“There was a need to bring in all group companies onto a common ERP platform to bring agility in business processes. This would definitely help the group in quick and easy financial consolidation, process integration and automation,” says SP Arya, Vice President Corporate (IT), Amtek Group.

Besides ‘single-instance’ ERPs making inroads into India Inc, other trends that are fast catching up are: advances in middleware offerings; tools that allow integration between databases and infrastructure; and Software-as-a-Service (SaaS) applications that can be deployed wherever necessary. The industry refers to it as a hybrid model.

Change in form
The primary reason for the buzz around the hybrid model is that most companies are upgrading their old ERP applications. CIOs are now evaluating if they need to stick to the older version of the enterprise software or move on to newer suites such as SaaS or cloud computing.

“ERP will continue to exist in mission-critical applications like finance, production, and sales. Other customer-oriented applications like CRM would stay hybrid,” says S R Bala, Executive Vice President, IT and Corporate Development, Godfrey Phillips India.

For other CIOs, it is the high licensing fees and support and maintenance costs of ERP that make them look for greener pastures like the hybrid model. The SaaS model offers numerous cost benefits, including no up-front costs, no licensing fees and rapid, easy deployment.

“SaaS or cloud computing model has the potential, but providers need to clear implementation issues related to manpower and technology,” says Honda Siel Khan who says that once these models mature, he would surely look at them as possible add-ons to the company’s existing ERP.

The present day scenario has also changed the turf of the game. With IT spending going down, the avenues of revenues for ERP providers have become smaller. In fact, many traditional ERP vendors are now providing SaaS services as a value addition to their offering and making up for their decimated revenues.

More bang for the buck
Companies on their part are negotiating tooth and nails to get a fair deal. Many enterprises objected to the software maintenance fees levied on traditional on-premise applications. In fact, a leading ERP giant gave in to customer demands to call off their hike in enterprise support fee.

Business software leader SAP recently stepped back from its plan to move its customers to enterprise support contracts priced at 22 percent (of the sale price of the licenses) per year.

Instead, it will adopt a two-tiered system that reintroduces a standard support option set at 18 percent and a slightly higher price to the customers who want advance support. SAP also froze prices for existing enterprise support contracts at the 2009 level of 18.36 percent. The plan to gradually increase that price will resume in 2011, bringing enterprise contracts to 22 percent by 2016 instead of 2015.

However, some CIOs have a word of caution. “We may consider ourselves smart by negotiating terms of implementation and price of licenses, but they (ERP vendors) will do everything possible to hook you in. And once you fall in their trap, there is no way out,” says a CIO of a leading manufacturing company on conditions of anonymity.

Arya is now confident that after all the brainstorming his company is finally ready to take a decision which way to go. Open for new delivery models like managed services and SaaS, Amtek management is just bothered to safeguard the secrecy, sanctity and security of its data. “Indeed we are looking for some innovative and cost-effective delivery models. We will keep it as a business-centric application delivery model where we limit ourselves to focus on business objectives and leave the rest for the experts,” concludes Arya with a guarded smile.

There is no doubt that the ERP market is witnessing considerable amount of churn. This will benefit the CIOs who have looked at it as a strategic initiative. With the economy showing signs of recovery, CIOs are hoping that their ERP strategies can pack the much needed punch in the future, and yes, without any questions raised.

ashwani.mishra@9dot9.in