2010 Prediction: The Year ERP (SAP, Oracle, and Infor) Get Spend Management Right

This second prediction for 2010 is bound to generate some controversy (read the first here). After all, ERP providers have lost one opportunity after another to consolidate the Spend Management market in recent years, giving best-of-breed providers like Ariba, BravoSolution, Emptoris, and Zycus lease after new lease on life. I believe, however, that 2010 could signal a major inflection point for ERP's software in the Spend Management sector. Indeed, 2010 may very well be the year ERP gets it right.

Consider: Oracle is driving new flexibility in deployment models -- not to mention breaking new functional ground and surpassing best-of-breed competitors in emerging areas (more on that in the coming weeks) -- and SAP is embracing its BPO channel-partner ecosystem as well as a suite of home-grown On-Demand capabilities to get around the forklift-upgrade challenge. Looking at this, it becomes pretty clear that, for the first time, ERP is playing with a full deck of Spend Management cards -- or the fullest set it's been dealt to date. Add to this the fact that Infor, a dark horse in the ERP race for business application suites, could very well make its first major procurement acquisition in 2010, and the ERP Spend Management market is looking more interesting than ever.

Why might 2010 be the year ERP breaks out? Let's first tackle ERP's own worst cost and deployment nightmare -- ERP itself. Historically, you had to budget roughly 3-4X the cost of the software when factoring in all of the implementation, customization, integration, and process-change components of a deployment or major upgrade. This meant that a major ERP move that crossed business units and functional areas could easily mean a nine-figure proposition for most Fortune 500 companies. Since ERP business suite capabilities were (until now) tied to the underlying back end, such limitations also greatly handicapped functional areas of the business (such as procurement) that wanted to upgrade or purchase individual components of the broader suite of business applications, but couldn't. So in short, even if procurement wanted the latest that SAP or Oracle could deliver in procurement, sourcing, contract management, and supplier management, chances are they couldn't get it.

Until now. Fast-forward to 2010: In a matter of quarters, both SAP and Oracle have gotten flexible-deployment religion. No longer must an organization tie a back-end upgrade or deployment to an ERP procurement-technology investment. Both providers now offer a range of deployment options that mimic the deployment flexibility of best-of-breed vendors. Now, this is not to say the situation is perfect. In the case of core P2P, users will sacrifice functional and integration capabilities if they're running a new version of the hosted application with an older back end in SAP's case (and Oracle still pushes installed in core P2P areas); but it's a better situation than before. Moreover, through BPO relationships in the sector, SAP -- among others -- is becoming significantly more flexible on pricing, allowing users to now pay for applications over several years in a model that looks like traditional SaaS (even if many of its deployments are really single tenant hosted models). I was on the phone with someone this week who mentioned that the lack of a "rental" pricing model for certain areas of SAP's footprint had been a major sales stumbling block -- until now.

Moving on to the next reason that 2010 could be the year that ERP gets Spend Management right, it's pretty clear to me that both SAP and Oracle have invested significantly in their solutions to bring them close to functional parity with best-of-breed competitors in certain areas (and to at least 60-70% of their functionality in others). For example, there are now some real advantages to going with SAP for On Demand e-sourcing and contract-management because of tight integration into back- end systems to pull/push information (e.g., when developing an RFI or implementing a contract). At one recent SAP event, I talked to one customer that had looked at -- and used -- other e-sourcing Solutions, and found this to be a major differentiator, and a deciding factor in its selection of SAP. This despite some of SAP's functional limitations relative to Ariba, BravoSolution, Emptoris, Iasta, and others in the sourcing area. If we turn our attention to Oracle, it's quite clear to me that its new functional Spend Management footprint is most certainly tied with Ariba for broadest in the market (and potentially deepest in at least one area -- stay tuned for more coverage of this in the coming weeks).

The last reason I believe 2010 may be ERP's year in Spend Management is that it makes sense for Infor, among other ERP and business application suite providers, to get more serious about the sector at this point. With the recent addition of analyst extraordinaire Bruce Richardson to its executive team, Infor is getting a pundit and vendor-strategy mind that knows at least the basics about Spend Management (I know that during his time at AMR Bruce listened quite a bit to Mickey North Rizza who is a top analyst in the area). It's nearly certain that he'll steer Infor to at least consider deals in the sector to build out yet a third ERP Spend Management technology footprint. Moreover, this is a sector where I suspect M&A activity will continue to heat up throughout the year, giving Infor -- and others -- a chance to look at quite a number of deals before pulling the trigger on the right ones.

Jason Busch

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