For most large and medium-size manufacturing companies that use an enterprise resource planning system, the changing ERP vendor landscape is nothing new. A host of ERP software companies, including Dun & Bradstreet Software, ASK Group, Baan Co., Avalon Software and J.D. Edwards are among a long list of road kill that have been acquired by other vendors.
"This trend has gone on for a long time," says Jim Shepherd, senior vice president at AMR Research, a manufacturing IT research firm in Boston. "This is not something new that has been precipitated by the recent downturn in the economy."
In 1993, AMR tracked more than 100 ERP software vendors. Today the number is down to about three dozen. "We tell manufacturers that because ERP is the most mature of the various business software applications categories, this consolidation of vendors is simply following the pattern of natural consolidation that most industries undergo," Shepherd explains. "It's part of how the larger vendors have to grow, via acquisitions."
It may not be new, but having one's chosen software provider swallowed up by another isn't always fun. It can mean less support for the original software package, until the manufacturer decides to switch over to the acquiring vendor's package. A change in ownership, then, isn't usually welcomed by companies that use ERP.
"In general, there is always fear and trepidation associated with having your ERP software vendor be acquired by another," says Martin Piszczalski, principal analyst at research firm GartnerG2's automotive industry group in Ann Arbor, Mich. "Will you get hit up for high maintenance costs?
Will there be continual improvement of the acquired vendor's software package?"
Yet another issue manufacturers worry over when their vendor is acquired, Piszczalski says, "Is whether their branch of the product line will ultimately be scrapped." There's also the larger question of strategy, Piszczalski says. "Does the new vendor have the same strategy going forward for how their ERP system serves the needs of manufacturing?"
Some observers view the large ERP vendors' packages as being sufficiently similar for manufacturers not to worry too much about the effect of consolidation. "There's been enough commoditization in ERP so that there is a lot of commonality across software packages," says Jim Brown, president of Tech-Clarity, an ERP consulting firm in Philadelphia. Most vendors, he points out, are adding specific-industry functionality. Similarly, most are adding such functional capabilities as CRM and PLM. "SAP and Oracle have included PLM within their ERP suite, and other vendors are adding it as well," Brown says.
For his part, Shepherd believes consolidation, while having the ultimate effect of reducing competition in the market, is, on balance, a plus for manufacturers. "It's not a matter of companies having fewer choices, because most companies only seriously look at three or four vendors in their search," Shepherd points out. "There is no reduction in the level of competitiveness in pricing or innovation."
On the surface, one would imagine that once an ERP company is acquired, its software must be replaced by the acquirer's version. But that isn't necessarily so, as many manufacturers have seen the makers of their ERP packages acquired over the years. "The products go on," Shepherd says. "They may change hands, but they stay around."
As an example, he cites Baan. "Baan never did a very good job of supporting its customers," he says. Things went from bad to worse when Baan was acquired by Invensys, Shepherd recalls, "because Invensys had no experience in software and did a terrible job." More recently, SSA acquired Baan and turned things around for those manufacturers that had been Baan users. "SSA clearly sees Baan as a very strategic move and has invested in its development and in better customer support," Shepherd notes. "Baan customers are better off now than they were before under Baan."
In the case of Avalon, which filed for protection from creditors under Chapter 11, IFS later bought the Tucson, Ariz.-based software firm's assets, but instead of trying to milk the customer base, it invested in the product. Says Shepherd, "They took the code and built on it and continue to enhance it."
Even so, PeopleSoft's customers haven't exactly welcomed the idea of marching to Oracle's beat. In December, PeopleSoft agreed to be acquired by the Redwood Shores, Calif., firm best known for its database software
"Their customers are a little edgy, because they don't know what it will mean," the AMR analyst says. "They wonder what Oracle's level of commitment will be to the PeopleSoft products. My sense is that the whole logic of buying PeopleSoft is to gain a large set of customers who will pay you money, so annoying them is not the way to do that."
PeopleSoft itself beefed up its manufacturing customer base a few years back with the acquisition of J.D. Edwards, which had a large number of medium-size manufacturers as well as a good number of departments and divisions of larger multibillion-dollar companies. Now these manufacturers may well one day be using Oracle applications. That is, unless they elect to jump ship for the only other major competitor that will be left standing -- ERP giant SAP, the largest with more than 22,000 customers worldwide.