Small-Biz Meets ERP

As the name implies, enterprise resource planning applications are entrenched in big companies. Not so much in smaller ones. That means the land grab is on in the lower end of the market with both vendors and solution providers fighting for share.

"Before, everyone wanted Fortune 500 accounts. Well, guess what? There are only 500 of those so now everyone is coming downmarket. Vendors like SAP are coming to the midmarket and so are partners," said Jeffrey Goldstein, president of Queue Associates, a New York-based Microsoft Dynamics ERP VAR.

That means potentially big opportunities for solution providers because ERP is never—despite what vendors may say—an out-of-the-box fix. It requires a lot of hand-holding, a lot of time and a lot of care and feeding of customers. Most of all, it requires a good understanding of a customer's business.

AMR Research finds that many small- and midsize manufacturing and service companies, which it defines as companies with less than $1 billion in annual revenue, are driven by a demand to better use and analyze the data they already have. That was the No. 1 priority for the next 12 months for 21 percent of the 487 companies surveyed by AMR. Thirteen percent cited the "application of lean practices across the organization" as priority No. 1 and 10 percent said e-business.

ERP underlies all those prioritized tasks although the name may be a little grand for what the smaller companies on that scale need. For those companies—from mom-and-pop shops to those with maybe 20 or 50 employees—a VAR can go in easy and automate a process that is still done on paper or in Excel. For such accounts, QuickBooks or Peachtree Accounting may be fine.

Before we go further, some definitions: ERP has its roots in manufacturing but now encompasses far more businesses.

"ERP was an outgrowth of MRP II, and it linked the factory floor to financials, but that doesn't apply to higher education or health care or retail. All of those non-manufacturing industries have adopted the concept and term of ERP, and for them it means an integrated suite, including their administrative and operational applications," said Jim Shepherd, senior vice president at AMR.

The very fact that lines specializing in SMB ERP—including several Sage Software options, Microsoft Dynamics and SAP Business One—are doing well in companies with less than $100 million in revenue is an indicator that ERP is, in fact, moving downstream, Shepherd said.

While very small businesses are still transitioning out of shoeboxes, Microsoft said companies with as little as $5 million to $10 million in revenue are becoming good candidates for its Dynamics applications. Such companies can be expected to spend $1,500 to $2,000 on ERP software, the Redmond, Wash.-based company said.

Solution providers, too, say that many small businesses, as they grow into small enterprises, want to connect the dots in their organizations, much like large enterprises did a decade ago. With service-oriented architecture, hosted services and more robust server, networking and storage infrastructures, it is becoming easier for even small enterprises to integrate not only their own processes but to tie into those of their customers and suppliers, if needed.

Solution providers who now take care of their customers' networking, e-mail and storage infrastructures but leave the business applications to others need to ask themselves whether or not they should move "up the stack" into applications consulting as well. But if they do so, they need to bulk up their technology and business domain expertise.

Next: The Place To Start