SMBs Drive Massive, Accelerated ERP Growth Through 2024
Within four years, possibly three, spending by all businesses on ERP software will exceed the levels and growth rates estimated by most industry analysts and vendors to be at least six years away. The primary growth engine will be mid-sized and small businesses that will need ERP to compete.
Millions of new ERP customers with limited expertise and resources will swamp the marketplace. Thousands of large enterprises will also change their ERP spend, re-architecting thousands of supply chains and millions of business processes. ERP user firms will improve their ability to mitigate market disruptions and also suffer significant frustration. Software vendors, IT services providers, and channel partners will benefit – but are extremely likely to mis-invest to address customer problems and their own.
What is ERP today?
The definition of ERP has expanded greatly over recent years to include almost all significant business management software. The definition below is a syntheses of several from leading consulting firms, vendors, and industry analysts:
ERP is defined as business management software including some or all of the following business management software types and components: Finance, HR/HCM, CRM, supply chain, customer management, inventory management, and manufacturing process management.
Used effectively, modern ERP software can help identify immediate and incipient issues and challenges to the business and supply chains. ERP cannot by itself prevent supply-chain and labor disruptions such as those due to the current COVID crisis. But more disruptions can be predicted and seen, sooner. More disruptions can be avoided or minimized. More businesses can manage more effectively and more adaptively through those disruptions.
Multiple market growth triggers
After decades working with ERP buyers and ERP providers, I believe that the ERP marketplace overall is vastly under-counted by most industry analysts and by the software vendors themselves. That under-counting is leading vendors to miss opportunities to improve their capabilities and those of channel partners. And I believe that under-counting stems from very traditional views of why and how businesses acquire and use ERP software.
Business conditions right now are challenging, everywhere. Firms are merging with or acquiring others to stay in business. Leadership and labor are churning and going through massive location and resource shifts. Restructuring is rampant. Firms are developing new lines of business and new offerings in new markets to generate revenue. IT and functional silos are shifting or dissolving, creating need for different management approaches.
Each of these events is a trigger for considering and purchasing new ERP software. The greater the number of these events occurring, the more likely – and sooner – businesses will consider and acquire new ERP software.
ERP consideration and change were already in motion
A major shift in manufacturing and global supply chains was underway before 2019 (and noted by The Economist among others), away from massive centers of manufacturing with cheap labor but dependent upon cheap transportation, toward more distributed models that brought manufacturers closer to their markets and to more suppliers, and helped satisfy increasing political pressures. More locations, relationships, languages, currencies and rules is another set of triggers for ERP consideration and purchase.
Hundreds of thousands of smaller firms use cloud-based ERP mostly through combinations of accounting and CRM applications, including freemium offerings. Market upheaval and business change – and growth, once economies begin to recover – will tax and exceed the ability of many such solutions.
Meanwhile, past-generation ERP, including cloud-based, is running out of steam. By YE2019, about half of US-based businesses with ERP (again, including cloud-based) reported that their software was a decade old. Digital transformation initiatives show more and more how inflexible traditional ERP and early-gen cloud ERP can be. And early-gen cloud ERP tends to suffer from an array of bolt-on/layer-up additional functionality that makes the applications less robust.
Finally, SAP said to customers, “Move everything to cloud”. Forced movement away from traditional installations to cloud has pushed hundreds of very large firms to examine alternatives. And these “Master Brands” of massive supply chains will influence consideration and acquisition by hundreds or thousands of smaller partners. In more cases, SMB partners will be required to use compatible ERP.
Global, fundamental business disruption and adaptation are driving massive numbers of businesses to consider or reconsider ERP software in a very compressed amount of time. This is driving adoption and use of ERP software well beyond typical estimates, at a much faster pace. Given current trends, we can see the SMB market alone account for more than $80 billion in annual ERP spend by YE2024. That is the total amount of ERP spend by all firms, as predicted by most market watchers, for YE 2026.
Software vendors, associated services providers, and channel partners will be overwhelmed by the volume and scope of customers. Customers will improve their ability to gather and use data to manage and conduct business. But they will also suffer significant frustration, mostly from a lack of vendor and channel support.
How many and how much will be addressed in my next post. And how much vendors and channel partners will have to change will follow that post.