ERP: Sales Flat or Declining as Customers Make Do with Existing Software

While increases in IT spending are expected for most areas of IT in 2011, Enterprise Resource Planning (ERP) software looks to be the exception.  Forrester Research expects that ERP spending will decline in 2011, although only slightly.  And 2010 ERP spending was up considerably over 2009 which Forrester characterizes as a “disastrous year” for ERP.

About one quarter of companies with ERP systems plan to upgrade their software this year, which is down from the 29 percent that upgraded last year.  And 72 percent of companies using ERP currently have no plans to upgrade or make additional investments in their existing ERP systems.  On top of that, about have of ERP customers are running ERP software that is two major versions behind the current release, although that could be incentive to upgrade for many soon because maintenance cost often rise dramatically for older product versions.

Despite  reluctance of companies  to spend more dollars on ERP this year, ERP vendors are still adding more features and delivery options in the hope of bringing the customers back.  New ERP features in the areas of cloud-computing deployment options, mobile applications and embedded business process modeling.

The author of the report, Paul Hamerman, Vice President and Principal Analyst at Forrester said  “Enterprise applications for running your business are evolving rapidly to enable more flexibility, better user experiences, and new deployment options offering more predictable long-term costs of ownership.  Most ERP software customers, however, may not take advantage of the latest product innovations in 2011 due to limited IT budgets and daunting upgrade project costs.”

One ERP event that is scheduled later in 2011 is Oracle’s much-awaited ERP release of Oracle Fusion Applications, probably later this quarter.  Fusion Applications will bundle together more than 100 different Oracle products with a single modern interface.  Hamerman predicts that “There is not going to be a flood of people buying in initially. People are going to wait a couple of years to see how it shakes out.”

Parallel to the Oracle announcement, SAP is also pushing forward with new SaaS-based extensions of its flagship on-premise software.  Hamerman noted that some of the slack in demand is due to the fact that customers are looking for more cost-effective SaaS-based ERP products, but the vendors just aren’t there yet, and most of the offerings in that area to date are “downscale”.