Midmarket ERP Customers Declining Upgrades, Finding New Risks

Midsize companies trying to standardize and rationalize their aging ERP systems while cutting their operational costs face many challenges, new Aberdeen Group research shows.

The post-Y2K priority of Tier I and Tier II ERP providers has been to go after the fertile sales grounds of the midmarket: These maturing companies needing more ERP horsepower than what their QuickBooks or Excel spreadsheets have provided in the past.

According to new research from Aberdeen Group, those vendors have succeeded in wooing the midmarket, though there's plenty more marketshare to go after. But now, those ERP systems are getting a little long in the tooth and, perhaps due to the global recession, those ERP customers are opting to ignore new ERP suite releases and upgrades.

The average age of a midsize ERP implementation is nearly seven years, notes Cindy Jutras, VP and research fellow of enterprise applications at Aberdeen, in the August report ERP in the Midmarket 2009: Managing the Complexities of a Distributed Environment.

For More ERP Analysis, Read the Enterprise Software Unplugged Blog

The data is based on Aberdeen analysis of the use, experience and intentions of 313 midsize companies using ERP in a variety of enterprises. This explains why 93 percent of midmarket companies in the report say they have an ERP solution. It's more likely, Jutras notes, that roughly 70 percent of all midsize companies have deployed an ERP package, as previous survey data shows.

Jutras contends that the age of the implementation isn't necessarily a good or bad thing. But the data does show that many midsize companies' ERP systems are not keeping up with current software.

Just 28 percent of midsize companies are using the latest ERP release, the data shows. As for the rest: 31 percent are one release behind; 13 percent are two releases behind; and another 13 percent are three or more behind. (Fourteen percent are still in the process of implementing.)

"The 26 percent of midsize companies that operate two or more releases behind run the highest risk of falling behind in terms of innovation," Jutras writes, "but even those on the latest release of a product based on old and outdated technology are at risk as well."

Managing these risks is critical: Midsize companies that want to gain more operational efficiencies and ROI must standardize their ERP applications, which has become more critical as midsize companies, in general, have had to expand their operations to compete globally. In fact, the Aberdeen data found that the average number of operating locations supported by ERP jumped year over year by nearly 40 percent, from four locations to 5.6 in the most recent survey.

"The complexities of a business scale with the size of a company," Jutras writes, "and these complexities grow disproportionately with multiple operating locations and exponentially as they expand in distance beyond international boundaries." (For more on this, see Why ERP Is Still So Hard.)

Deteriorating economic and business conditions have likely had a significant impact on midsize companies' ERP upgrade and standardization plans. For the second year in a row, according to Aberdeen data, the "need to reduce costs" is the top business driver influencing ERP strategies continues.

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