Overview

Enterprise Resource Planning (ERP) software is designed to automate internal business’ processes. In the attempt to accomplish the ERP mission it has become unclear what exactly is meant by the term ERP. We feel IDC gives a good definition: an ERP product is one that helps automate a company's business process by employing an integrated user interface, an integrated data set, and an integrated code set. In laymen’s terms it attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs and runs off a single database so that the various departments can more easily share information and communicate with each other. The areas where ERP applied in a organization is shown in fig.1.

Fig.1 Enterprise resource management as a part of a successful E-business model ( AMR Research)

According to Gartner's The Large-Enterprise, Asset-Intensive ERP II MQ 4Q01 report, Features that characterize a leading ERP package are the following:

Traditionally when most people referred to the "core" ERP applications or "modules," they mean the back-office capabilities to manage human resources, accounting and finance, manufacturing, and project-management functions. However, major ERP suites from the likes of Oracle, PeopleSoft, and SAP now provide much more--including modules for sales force automation, business intelligence, customer relationship management, and supply chain management.

Market Analysis

According to the AMR research, ERP market in 2000 grew 4%, from $17.9B to $18.6B,the real story lies beneath the surface. While the traditional ERP market, which includes standalone financials and human resources grew at only 3%, licenses for strategic extensions like CRM, SCM, procurement, and B2B commerce platforms, grew 61%. This trend will continue through 2005, at which point the strategic extensions will overtake core ERP itself, creating a total market of $35.7B.

Historically, ERP systems have been costly and time-consuming investments with implementation extending over one and a half years. In a survey of 63 companies, Meta Group found that the average total cost of ownership was $15 million for an ERP project when all of the costs such as hardware, software, employee time, and consultant time are included.²

Looking forward, there remains much uncertainty with regard to the rate of growth in this market. A recent study by Merrill Lynch predicts 3% growth in IT spending with strong growth likely to occur in ERP, Web Development, and storage. ³ One positive trend for the larger ERP and IT providers is the corporate preference for large stable suppliers in times of uncertainty.

Three companies, SAP, Oracle and Peoplesoft, dominate the market for ERP software. Together these companies account for over 55 percent of the market sales in 2000 according to AMR Research (see chart below for additional competitors).

Fig.2 Major ERP Players ( AMR Research 2001)

The Magic Quadrant is Gartner's opinion and is an analytical representation of a marketplace at and for a specific time period. It measures vendors against Gartner-defined criteria for a marketplace. The positioning of vendors within a Magic Quadrant is based on the complex interplay of many factors. According to Gartner's The Large-Enterprise, Asset-Intensive ERP II MQ — 4Q01 and Midmarket, Asset-Intensive ERP II/EAM/CMMS MQ — 4Q01 report, the magic quadrant for Q4 2001 for ERP vendors is as follows:

Fig 3 Magic Quadrant for Large Enterprise ERP vendors

Fig 4 Magic Quadrant for Medium and Small Enterprise ERP vendors

Detailed Financial Comparison Table

		SAP		Oracle		Peoplesoft
		1 year	3 year	1 year	3 year	1 year	3 year
Growth (1 & 3 year)
	Sales	17.2%	18.4%	7.2%	15.0%	19.4%	12.0%
	Net Income	-5.7%	3.3%	-59.3%	46.6%	31.5%	11.0%
	R&D Expense	-7.3%	-	12.7%	16.6%	-6.7%	7.9%

		FY 2001	FY2000	FY 2001	FY2000	FY 2001	FY2000
Margins
	Gross Margin	61.2%	60.5%	74.3%	71.0%	58.9%	56.4%
	Operating Margin	17.9%	12.8%	34.8%	30.4%	12.2%	4.1%
	Pretax Margin	7.9%	9.8%	23.6%	62.2%	9.2%	8.4%
	Net Profit Margin	8.1%	9.9%	23.6%	62.2%	9.2%	8.4%

Returns
	Return on Equity	19.3%	22.5%	40.2%	124.0%	14.6%	16.3%

Leverage & Risk
	Debt to Equity	0.00	0.00	0.05	0.05	0.00	0.07
	Beta	1.501		1.809		1.837