The number of new enterprise resource planning (ERP) investments is plummeting, with the majority of companies trying to get the most out of what they already have, say industry experts. While there are a few promising trends around, many Hungarian companies are still struggling to find the optimal cost-benefit ratio using what today’s technology has to offer.
“It was a little less than ten years ago, in 2003, when ERP software first became a huge hype in Hungary,” says Tamás Giller, division manager of DLM Solutions Kft, and the author of Hungary’s only blog dedicated to ERP and CRM applications. “Back then, everyone was more than excited to see a system that would incorporate numerous previously independent processes, many of which were still paper-based, into one single application. Companies bought these software products like there was no tomorrow, and the first sales representative who got there had a pretty good chance of closing the deal.”
Things have, of course, changed drastically in recent years, and by now the industry has practically come to a standstill. “The number of new ERP investments is very low,” says Attila Biber, application director at Oracle Hungary, adding “the activity that still remains is the upgrading and extending of applications already in use”. According to him, companies usually focus on modules with easily quantifiable added value like sales, production or logistics, and short term ROI is of the highest priority.
“Decision-makers nowadays require a much more solid business case for any sort of ERP project than a few years ago. ERP investments are usually not made out of necessity, but as a result of long-term strategies. Since most companies find it difficult to plan too far ahead, most of them will turn down any initiative regarding a new project in this area unless there is a really good reason not to do so,” he explains.
Balázs Ablonczy, MD of SAP Hungary Kft, agrees. “At the beginning of the crisis in 2008, most companies delayed or completely shut down their ongoing ERP projects, but after a while ever more IT investments, the short term ROIs of which were well-founded and relatively risk-free, were greenlit,” Ablonczy says. “In many cases, we also saw a change in the decision-making process: financial directors or even CEOs began to take part in strategic decisions on major IT investments.” Ablonczy believes that this change reflects technology becoming a necessary component of the core business to implement its basic strategy, rather than the supporting service it used to be a few years ago.
While the Hungarian ERP market is still dominated by the three major suppliers, SAP, Oracle and Microsoft (“Each one of us can find the appropriate statistics to prove that we are the market leaders,” says Attila Biber of Oracle), competition amongst Hungarian providers in the SME sector is still strong. Most of these providers do not try to cover the entire market, however, but rather specialize in certain sectors.
“The main priorities in the SME sector are that the ERP application has to be completely compatible with the industry, it has to be easy to implement and inexpensive to maintain,” says Tamás Giller. He says that clients do not really have high standards when it comes to evaluating their possibilities. “The system, obviously, has to be completely in line with the current legal regulations, but other than that, SMEs mainly focus on their costs and whether the software will boost their sales potential,” he says.
Biber, on the other hand, highlights a very interesting trend he finds characteristic of Hungarian clients. “While most international users try to make the most of what the application already has, Hungarian clients tend to insist on being unique and try to insert as many custom-developed elements into these systems as possible.” And while these developments are rather expensive, the service providers who implement the software more often than not cover the costs in an effort to keep customers, given the difficult market conditions.
Making the most of what these applications readily have to offer is, indeed, a sensitive point, Giller says. According to him, one of the main problems is that while the crisis resulted in an increase of staff turnover, training is not considered a priority when it comes to using these complex software products. “After a short while, the employee who is using the software has no clue what these systems are capable of. They are sometimes surprised to discover a functionality that has been present in every single ERP application for ten years,” he says.
“The ERP penetration of Hungarian companies is approaching that of Western Europe. However, the gap is still substantial, particularly in the SME segment, among minor companies,” Ablonczy concludes. A way to overcome this difference could be the growing popularity of cloud-based software as a service (SaaS) solutions where, instead of implementing seemingly expensive softwares, companies can use these services for an affordable monthly fee. But until companies see a clear indication of a fast return on their investments, a radical change is unlikely to happen anytime soon.