EPLM06 Anup Varghese 2226288 Project Report V 1.1

Analyzing ERP Industry using Porter's five forces'
Analyzing
ERP
Industry
using
Porter's
five forces'
Version 1.1
November
Qualitatively analyze the major players in ERP industry using Porters

five forces to understand the industry structure, underpinnings of
competition and the drivers for profitability.
Author: Anup Varghese (2226288)
November 2013
EPLM Batch 6
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Acknowledgement
I would like to thank God Almighty for helping me successfully complete this project. I would like to
express my deep gratitude to Professor Vidyanand Jha who has guided me in the project preparation and
to Professor Sushil Khanna who has taught us the basics of strategy and has introduced Michael Porter and
the five competitive forces that can shape strategy. They have enlightened me with their vast academic
experience especially in the area of strategic management and organizational behavior. I would also like to
thank my wife who has supported me in this endeavor.
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Contents
Acknowledgement ..............................................................................................................................2
Abbreviations......................................................................................................................................4
Abstract ..............................................................................................................................................5
Introduction.........................................................................................................................................6
Methodology .......................................................................................................................................7
Brief History ........................................................................................................................................9
Data.................................................................................................................................................. 12
Analysis ............................................................................................................................................ 15
Conclusions ...................................................................................................................................... 18
References ....................................................................................................................................... 19
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Abbreviations
ERP
MRP
SAP
RDBMS
MS - DOS
SMB
OS
SQL
SaaS
- Enterprise Resource Planning

- Manufacturing Resource Planning
- Systems Applications & Products in Data Processing
- Relational Database Management Software
- Microsoft Disk Operating Software
- Small & Medium Segment
- Operating System
- Structured Query Language
- Software as a Service
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Abstract
This project will qualitatively analyze the major players in ERP industry using Porters five forces to
understand the industry structure, underpinnings of competition and the drivers for profitability. Michael
E Porter in his first HBR article (How Competitive Forces Shape Strategy, 1979 Harvard Business
Review) introduced the following five forces which later became Porters five forces.
Rivalry among existing competitors

Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products or services
SAP and Oracle are the two biggest and prominent players in the ERP market; this project will also look at
other players in the ERP Industry like Microsoft, Infor, Epicor and Sage to understand the competition and
their relative positioning in the Industry. If the interplay of the five forces is intense then the overall
profitability will not be attractive where as if the interplay is moderate then the profitability can be
attractive. So understanding the competitive forces and their underpinnings will reveal the profitability of
the industry and is also important for effective strategic positioning for these companies.
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Introduction
Enterprise resource planning (ERP) is a set of business applications that coordinates the resources,
information, and activities needed to complete core business processes. ERP Industry is a multibillion
dollar industry today; the major players in the industry are SAP, Oracle, Microsoft, Infor and Epicor. These
players jointly occupy more than 50% of the market share in 2013 with SAP leading the market share with
approximately 26%. This project will qualitatively analyze the ERP Industry using the Porters five forces
to understand the interplay of the competing forces which ultimately shape up the profitability of the
industry.
The ERP Industry has evolved over the last 40 years emerging as an extension of material requirements
planning and later manufacturing requirements planning (MRP) to the current state where we have fully
integrated applications which can be used across almost all functional areas.
SAP developed its first accounting software in 1973 which became the cornerstone for the ongoing
development of other modules which was eventually named as SAP R/1. In the late 70s SAP came up with
SAP R/2 which was based on mainframe and was very successful as a business application software in the
1980s and 90s. In 1992 SAP officially launched SAP R/3 with client server concept, uniform graphical
interface and dedicated use of relational databases. In the late 90s SAP came up with mySAP.com and
continued to launch industry specific solutions and different Business Application Suites. SAP made some
strategic acquisitions like Business Objects, Sybase, and SuccessFactors to expand their product portfolio
in the new millennium.
Oracle was founded in the late 70s under the name Software Development Laboratories when the
founders decided to commercialize a working proto type for a relational database management system.
Oracle subsequently released multiple versions of their relational database management system and by
mid-80 became the leading vendor RDBMS vendor. Oracle invested heavily in innovation which paid rich
dividends in the 90s by building internet ready products. Oracle introduced Oracle Applications in the
early 90s which included accounting programs for the emerging client/server computing environment.
This became the base for the various business applications that Oracle released after the turn of the
millennium. Oracle expanded rapidly in the new millennium by making some big ticket acquisitions like
JD Edwards, PeopleSoft, Siebel, Sun Microsystems in addition to several small scale ones.
SAP & Oracle together holds more than 40% of the market share as of September 2013, while other ERP
vendors like Microsoft, Infor, Epicor, Sage, Tier II & III vendors have the remaining market share. This
project aims to analyze how Porters five competitive forces affect the Industry structure, competition and
the main drivers of the profitability. SAP and Oracle compete head to head primarily for mid to large size
businesses, while Microsoft, Sage, Infor and others compete for small and mid-size business, thus the
rivalry among competition is not significant. The threats of new entrants are typically low considering the
relatively high level of entry barriers in the industry. The bargaining power of suppliers of this Industry is
not significant, as long as the ERP application is compatible with different combinations of server
hardware, operating systems and database. Customers generally dont have much bargaining power as the
switching costs are very high, however smart customers can put the industry players against each other
and demand better quality or more services. The threat of substitutes in the industry is very minimal as the
switching cost for the customers are high. The overall profitability of the ERP Industry should be high
considering the interplay of these competing forces.
System integrators / implementation partners generally play a key role in the ERP vendor selection
process. So the relationship between the ERP vendors and system integrators also need to be considered.
Cloud ERP solutions are also fast emerging as an alternative to the traditional ERP system. This brings a
lot of new vendors into play; also the existing vendors have expanded their product portfolio to include
cloud based offerings. The cloud based ERP have lower upfront costs, lower operating costs, rapid
implementation, better accessibility and mobility could give a stiffer competition to traditional ERP
Products. This project will also look at the impact of emergence of Cloud ERP on the traditional ERP
vendors.
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Methodology
Michael E Porter wrote the HBR article How Competitive Forces Shape Strategy in 1979 which started a
revolution in the strategy field. He has identified that the following forces will shape Industry competition
and profitability.

Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products or services
These forces are popularly called Porters five forces.

The impact of competition depends on the intensity and the basis on which they compete with each other
and it may be manifested in different forms like discounts, better products and services, advertising etc. If
the competition is intense then the overall profitability of the industry will come down. The intensity of the
competition is high if there are many competitors or if they are of roughly same size. If this is the case then
rivals will find it difficult to get to their opponents customer base. If the industry growth is slow or if the
exit barriers are high then also the profitability of the industry will suffer. The basis of competition is also
equally important factor and has a major influence on the profitability. If the basis of the competition is
purely based on price then it will have a grave impact on the profitability. Direct price competition can
happen when the rivals have similar products or service offerings and when the switching costs are lower.
This can also happen if the fixed costs are high and the marginal costs are minimal. If the dimensions that
rivals compete are different from price like product features, brand value, superior services then it is less
likely to affect the profitability. If the rivals are not competing on the same dimensions and are targeting
different customer segments then the average profitability of the industry will not be negatively impacted.
New entrants can drive down the profit potential of the industry as they try to gain market share which
puts pressure on price. If the new entrants are diversifying from a different market then they can leverage
their existing capabilities and cash flows can have significant impact on the existing players. The threat of
new entrants depends on how high the entry barriers are, the higher the barriers the lower the threat. The
threat of the entry drives down the profitability irrespective of whether it happens or not. There are
multiple sources of barriers which the new entrants face.
Economies of scale
This can be a deterrent to the new players by forcing them to come in a large scale or to accept cost
disadvantages.
Demand side benefits of scale

This can be a deterrent to the new player as the willingness of customers to buy from a new entrant
is less as they value being part of a large customer group.
Switching cost
If the switching cost is high then it is difficult for new entrants to get a big customer base.
Capital requirements
High capital requirements generally will be a deterrent for a new entrant. However if the profit
potential of the industry is high then this alone will not be a deterrent as the investors will provide
sufficient fund that the new entrants need.
Cost Advantages of current players

Existing players may have a cost advantage compared to the new entrant which arise due to
technology know how, better access to raw materials, geographic locations etc.
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Unequal access to distribution channels

If the distribution channels are used up by the existing player then it will be difficult for the new
entrants to secure the distribution channel.
Government Policies
Government policies can help new entrant by providing subsidies, funding research or be a
deterrent by restricting foreign direct investment, having licensing requirements etc.
Power of suppliers
If the suppliers are powerful they can charge higher prices which if not passed on will result in the increase
of cost and it drives down the profitability. The supplier group is deemed to be powerful: - 1) if it is more
concentrated than the industry it sells to, 2) the supplier group serves many industries and is not depended
on the industry that you are in, 3) if there is switching cost in changing suppliers, 4) offers differentiated
products from other suppliers, and 5) if no substitutes exist for the same.
Power of buyers
If customers are powerful they can put the players against each other and demand more discounts, or more
services which all can drive down the profits. Customers are considered powerful if there are only few of
them, or if they are a large volume buyer compared to the size of the vendor. Customers also tend to
negotiate hard if the products they are buying are standardized and can find similar products from other
vendors, or if they have low switching cost, or if the customers can threaten that they have the capability to
produce the product in-house. It is also important to understand whether the customers are price
sensitive. They are considered to be price sensitive if the product it purchases forms a significant portion of
its procurement budget or cost structure or if the customer group earns low profit and has low cash flow. If
the quality of their output is directly dependent on the products they purchase then the customers tends to
be less price sensitive.
Threat of substitutes
If the threat of Substitutes is high then the overall industry profitability will be lower. In this situation one
product cant command a huge premium as customers have alternate cheaper options. The threat of a
substitute is high if the industry price performance trade off to the product is attractive. If the relative
value of the substitutes is high then it will drive down the profitability of the industry. Also the threat is
high if the switching cost for the customer is low.
We will look in detail how the above forces play against each other in the ERP industry by analyzing the
prominent ERP vendors like SAP, Oracle, Microsoft, Infor, Epicor, and Sage. The ERP industry has
evolved over the last 40 years. Gartner initially coined the acronym ERP as an extension of material
requirements planning, later manufacturing resource planning and computer integrated manufacturing.
Some of the vendors started with an accounting package and not the core manufacturing even though
overall industry has its roots in manufacturing industry.
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Brief History
SAP
SAP was founded in 1972 by five former IBM employees with a vision for building standard application
software for real time data processing. SAP initially came up with a financial accounting system RF
which eventually became the base for their first ERP package SAP R/1. In the 80s SAP built SAP R/2
packaged mainframe software application which processes data in real time and integrates all of
enterprises business function. In the early 90s SAP came up with a client server version of their
application software SAP R/3 which had uniform graphical user interface, dedicated use of relational
databases, and support for servers from various manufactures. SAP started partnering with Microsoft and
released SAP R/3 for Windows NT. In the mid-90s SAP expanded its customer base worldwide and some
of the big companies decided to implement SAP R/3. In the late 90s SAP introduced mySAP.com as part
of their new strategy which will combines e-commerce solutions with SAP existing ERP applications on the
basis of cutting edge web technology. SAP became the 3rd largest software vendor by 2000 with a
workforce of 24,000 employees in more than 50 countries. SAP introduced the first version of SAP
Netweaver to the market and continued to expand their product portfolio by making several strategic
acquisitions like Pilot software, Oulooksoft, Wicom, BusinessObjects, Sybase and lately SuccessFactors.
SAP embraced in-memory computing by introducing SAP HANA platform. SAP also started focusing on
cloud computing by offering SAP Business ByDesign, SAP Business One cloud, and process specific
offerings in HCM, Finance, Procurement, and Sales & Marketing.
Oracle
In 1977 Larry Ellison, Bob Miner, and Ed Oates started Software Development Laboratories which was the
precursor to Oracle. In 1978 Oracle Version 1 was developed but was never officially released. Oracle
Version 2 was released in 1979 which was the first commercial SQL relational database management
system. Oracle became the leading RDBMS vendor by the mid-80s, offering Oracle Version 3 built on C
programming language and was the first RDBMS to run on mainframes, minicomputers and PCs to Oracle
version 5 which was the first relational database systems to operate in client/server environments. After 10
years of existence Oracle launches a new effort to build an enterprise application to take advantage of their
powerful database. In 1990 the company launches Oracle Applications Release 8 which includes
accounting programs designed for the emerging client / server environment. Throughout the 90s Oracle
continuously improvised and released innovative products by embracing internet, Java programming
language and offering support for open standard technologies like XML and Linux. In the beginning of the
first decade Oracle unveils its application strategy, by launching Oracle E-Business Suite 11i, acquiring JD
Edwards, PeopleSoft and Siebel. Oracle now offers a wide variety of products in addition to Oracle EBusiness Suite like Hyperion, JD Edwards Enterprise one, JD Edwards World, PeopleSoft Enterprise,
Siebel & Taleo.
Microsoft
Microsoft was formed in 1975 when Paul Allen and Bill Gates formed a partnership with a big vision of a
computer in every home and desktop. Microsoft started with building their first operating system
Microsoft Disk Operating System (MS DOS). In 1985 Microsoft officially launched Windows 1.0 their
first operating system based on Graphical user interfaces. Microsoft subsequently released various
versions (Windows 2.0, Windows 3.0, Windows NT, Windows 95, Windows 98, Windows 2000, Windows
Me, Windows XP, Windows vista, Windows 7 and Windows 8) of their operating systems over the last
three decades. In addition Microsoft has released multiple productivity improvement packages as well.
Microsoft entered ERP market when it acquired Great Plains in 2001. Great Plains had acquired Solomon
in 2000. Axapta was originally developed by IBM and Damgaard Data; later IBM returned all rights of this
product to Damgaard Data which then got merged with Navision Software in 2000. Microsoft then
acquired Navision Software in 2oo2, which was successfully competing against Great Plains and Solomon.
Microsoft clearly revealed its strategy of entering into the ERP market with these acquisitions. Microsoft
ended up with four product lines (Solomon, Great Plains, Axapta, and Navision) which were competing in
the same market and for the same customers. This forced Microsoft to decide on whether to continue
development of all four products, pick one or two systems and market them to different segments, or build
a completely new system. In 2003 Microsoft announced that for the next 10 years they will continue to
invest in all four product lines. In 2005 it announced a new wave strategy to bring all four products into a
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single code base; this led to rebranding of all the products under a single brand Dynamics which created
further confusion for potential customers. The four products were named as following
Microsoft Dynamics AX (Axapta)

Microsoft Dynamics GP (Great Plains)
Microsoft Dynamics NAV (Navision)
Microsoft Dynamics SL (Solomon)
There was a lack of clarity in the sales channels and partners about which product suited which industry
the most which prevented the opportunities from being realized. After a few years Microsoft started to
slowly focus on partner strategy rather than product strategy. This partner strategy became a relief for the
Microsoft partner community and it has evolved over the years. In 2010 Microsoft revised this strategy by
insisting that the partners should differentiate themselves by focusing on specific vertical markets and also
should invest in an implementation methodology to provide consistent results to customers. Potential
customers should choose a Microsoft partner for their industry and the partner will know which product
will best suit the customer.
Infor
Infor was founded in 2002 under the name Agilisys which then acquired German company Infor in 2004
and changed its name to Infor Global Solutions. Infor subsequently made a number of acquisitions to
emerge as one of the largest providers of enterprise software. In 2006 Infor acquired SSA Global
technologies which in turn had bought Baan ERP from Invensys in 2003. Baan was rechristened to Infor
ERP LN which was then renamed to Infor10 ERP Enterprise which is positioned as their flagship product
for large and mid-market customers in manufacturing and distribution industries. Infor 10 ERP Business
(formerly known as Infor ERP Syteline) is primarily targeted at the following industries Industrial
manufacturing, High Tech, Automotive, Equipment, Aerospace and Defense manufacturing sectors. In
2011 Infor acquired Lawson and continued to expand their product portfolio. Infor M3 is a comprehensive
suite of software solutions primarily for medium to large organizations that have physical inventories and
assets to manage. This product is targeted for Equipment, Food & Beverage, Distribution, Chemicals & Life
Sciences etc. Infor through its aggressive acquisition has landed up with number of disparate systems. To
counter this Infor introduced a middleware Infor 10 ION Suite to connect all Infor applications. Infor has
many applications which at a first glance offer same capabilities, but on close inspection one can find that
they offer unique functionality for different industries. Infor product portfolio includes Infor LX, Infor Sun
Systems, Infor Distribution SX.e, Infor VISUAL, and Infor XA.
Epicor
Epicor was founded in 1984 under the name Platinum Software Corporation. Their initial product was
financial accounting software designed for multi user LAN based environments. In 1992 the first financial
accounting product specifically designed for client/server computing was released. In the late 90s they
made a series of acquisitions like Clientele (CRM Solution), FocusSoft (Distribution Solution), and
DataWorks (Manufacturing Solutions). In 1999 the company name was changed to Epicor Software
Corporation. Epicor continued to release innovative products like first CRM solution based on Microsoft
.Net, Web service based enterprise service automation solution. Epicor ERP is their flagship product which
is targeted for Midsize to large scale manufacturing, distribution and service companies. The product was
introduced in 2008 as a result of multiyear product consolidation which ended up creating new service
oriented architecture. This product provides extensive analytical capabilities and a full mobile access. In
2011 Apex Partners acquired both Epicor and Activant merged the organizations together and retained the
name of Epicor for the merged entity. Epicor ERP has an innovative and complete Service Oriented
Architecture. It also supports Service as a Software deployment and is one of the few vendors who have a
full multitenant SaaS and on-premises version out of a single product. This product is fully built using
Microsoft .Net which makes customers who are using Microsoft products easy to adapt. Epicor Express is a
comprehensive SaaS offering which is leveraging the core functionality that has been used in their onpremise ERP product.
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Sage
The company was founded in 1981 by David Goldman, Paul Miller, and Graham Wylie to produce
accounting software to small scale businesses. Sage acquired Tetra in 1999 which opened avenues for Sage
to move into mid-market. In the new millennium also Sage continued to grow making strategic
acquisitions. In 2005 Sage acquired Adonix which helped them to launch a global product in the latter
years. Currently Sage has offices in 24 countries and has emerged as the largest supplier to small business
with 6.1 million customers worldwide. Sage offers Sage One & Sage 50 Accounting software for small
business and Sage 100 ERP, Sage 300 ERP, Sage 500 ERP, and SAP ERP X3 for midsized business in
North America. Typically most of Sage offerings are country/region specific catering to small business with
an exception of Sage ERP X3. Sage ERP X3 is their global ERP solution (built on former Adonix product)
and is available in 55 countries. It aims to capture the global midmarket segment. This product has been
elevated as a core strategic offering within Sage, the current version of Sage has been built with user
centric approach, supports search and is well integrated with Microsoft office 2010 products. It also
supports Microsoft SQL Server and Oracle databases thus giving more options to the customers. Sage
leverages an extensive partner community to deliver and support clients and also provides professional
services for large and/or complex deployments. Sage offers industry specific solution for verticals such as
automotive, aerospace and defense, industrial engineering and machinery but lacks the depth in
functionality.
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Data
Table 1: Total Revenue - 2000 to 2012
Total
Revenues
Microsoft
Oracle
SAP
Sage
Infor
Epicor
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
73,723
37,121
21,405
2,118
2,759
855
69,943
35,622
18,416
2,148
2,648
305
62,484
26,820
16,654
1,993
2,584
369
58,437
23,352
15,374
2,217
-
60,420
22,430
16,109
2,305
-
51,112
17,996
15,077
2,292
-
44,282
14,380
12,383
1,684
-
39,788
11,799
10,042
1,342
-
36,835
10,156
7,514
1,238
-
32,187
9,475
8,849
937
-
28,365
9,673
7,772
863
-
25,296
10,860
6,534
-
22,956
10,130
5,881
-
In USD Millions
Note: - Data has been compiled using publically available information like company websites, security
exchange website, Wikipedia etc. If the information was not available in the public domain the same has
been left blank. The total revenue of Microsoft & Oracle includes revenues from their flagship products Operating Systems & Database. So the total revenue shouldnt be used to do direct comparison of how well
their ERP products performed instead it should be used just to understand how they performed relatively
across the years and also to indirectly understand the size of the companies.
Table2: ERP Implementation Cost, Duration & Overruns 2009 to 2012
Year
Cost
% of Cost
Overruns
Duration
% Of Duration
Overruns
% Receiving 50%
of Less Benefits
2012
$7.1MM
53%
17.8 Months
61%
60%
2011
$10.5MM
56%
16 Months
54%
48%
2010
$5.5MM
74%
14.3 Months
61%
48%
2009
$6.2MM
51%
18.4 Months
36%
67%
Source: Page 2, 2013 ERP Report A Panorama Consulting Solutions Research Report
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ERP Vendor Market Share 2013
ERP Market Share 2012 & 13
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ERP Vendor Selection 2013
Traditional Vs. Cloud Based
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Analysis
The ERP Industry was in existence in various forms over the past 40 years; however with the turn of the
century the industry has undergone substantial changes. ERP Industry witnessed large scale acquisitions
and mergers where even some of the established players like PeopleSoft, JD Edwards, Lawson, Baan,
Navision, Siebel etc. got acquired by Oracle, Microsoft, and Infor.
SAP is currently holding 26% of the market share; Oracle holds 17% and Microsoft 11%. All three of them
gained market share compared to the previous year at the expense of the Tier II & Tier III vendors. Let us
now analyze how the Porters five forces shape up the competition in this industry.
SAP & Oracle primarily competes for the Large to Midmarket customers while Microsoft primarily
competes with other Tier II & III vendors for mid to small market customers. The intensity of the
competition between SAP & Oracle is determined to be high as they are roughly of the same size. SAPs
entire revenue is generated from enterprise applications and services related to it, whereas Oracle
generates its majority of the revenue from a number of other line of business including its flagship Oracle
Database. Similarly Microsoft generates its revenue primarily from its Operating System software and
Office productivity tools. ERP industry lacks a clear industry leader even though SAP has the majority of
the market share as Oracle is not far behind and there are numerous Tier II & Tier III vendors who
collectively holds significant market share. The exit barriers for customers are high as if one customer has
implemented ERP software it will take significant effort and cost to move to another one.
SAP, Oracle & Microsoft is highly committed to their enterprise application software which is clearly
shown by the huge investments they have made with several acquisitions. The dimension of the
competition is primarily based on product features specific for an industry, quality of the support services,
brand image and less on price discounts. Profitability is adversely affected if the competition is primarily
based on price alone. In this case the product features are not identical, switching cost is high, and is not
perishable. Hence price competition is not significant in ERP Industry. Even though SAP & Oracle
primarily caters to Large to Midmarket customers they also have expanded their product portfolio to cater
to Small & Medium Business (SMB) segment which puts them in direct competition with Microsoft, Infor,
Epicor, Sage and other Tier II & III vendors. If they compete just on price then this can result in zero-sum
competition.
Numerous ERP vendors currently exist but very few of them are of significant size or have global presence.
The entry barriers for a player to come at global level are pretty high. The success of ERP vendors is
heavily dependent on the partner network which can be reseller, system integrators, and hardware
vendors. So a new entrant needs to build significant partner network to become a global player. Customer
tends to move with the other customers while choosing the ERP as they value being in the network rather
than trying out a new vendor. Customers trust large vendors like SAP, Oracle & Microsoft as ERP software
is a critical product which affects their operations. This becomes a deterrent for new entrants as they will
have to significantly reduce the price till they build up a significant customer base. Customer switching
cost is significant as the effort required for migrating the data from one application to the other is very
high, change in business process to adapt to the new application and also the effort required to retrain the
users are very high. High switching cost raises the entry barrier and becomes a deterrent for the new
entrant.
Initial capital requirements are on the higher side as the products need to be built over a period of time
without any returns till the product is successfully launched in the market. Some of the ERP vendors made
strategic acquisitions to shorten the cycle to launch the product in the market and thus expanding their
product portfolio rapidly. Distribution channel for ERP products are primarily reseller and system
integrators. SAP & Oracle rely heavily on system integrators for sales and successful implementation of
their product whereas Microsoft depends on reseller partner network to sell their products. Current
vendors will take up the majority of the available capacity thus making it difficult for the new entrant to
push their products.
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Power of Suppliers
Supplier/Vendor to ERP Industry includes Server Hardware / OS vendors, Database vendors, partners
who provide skilled human resources. SAP is dependent on various Hardware & Database vendors
including Oracle but as their product is compatible with various Servers, OS & Database there is no
monopoly for any one vendor. Oracle with acquisition of Sun Microsystem can offer end to end ERP
solution which includes Server Hardware, Server OS, Database, and the Enterprise Application without
depending on any vendors. So the power of suppliers is not significant for the top two players in the
industry. Microsoft ERP products are aligned with their own Server OS and SQL Database thus dependent
on vendors for Server Hardware only. Additionally their products are compatible with office productivity
tools which become an added advantage for the customers. Microsoft products are not compatible with
other operating systems or databases which can be a disadvantage for some customers. However the
customer can choose from a variety of Hardware, and are not heavily dependent on any particular
hardware vendor. So the power of suppliers is not significant for Microsoft as well. Epicor is built
completely on Microsoft platform, which makes them dependent on Microsoft.
Sage is compatible with both SQL & Oracle databases thus giving better options for customers. Infor has a
very diverse set of products which they have added through acquisitions. System Integrators /
Implementation Partners play a key role for ERP Vendors; the availability of the skilled workforce for the
products is an important criterion in the success of the implementation of the product. These partners can
influence the customers decision in the ERP Vendor selection process. Microsoft sells their products only
through their partner network and has recently emphasized on their partner strategy. Microsoft expects
the partners to specialize themselves for an industry and also develop an implementation methodology to
give consistent results to customers. ERP Vendors need to maintain the partner network and also have a
solid strategy to engage them at the optimal level. Partners as such cannot put undue pressure on vendors;
instead both vendors and partners need to work together for the mutual benefit. Upfront cost for ERP
Implementation is high due to expensive hardware, databases, implementation cost which is passed on to
the customers. Overall the power of vendor is not that significant in ERP industry and hence cannot
negatively influence the profit.
Power of Buyers
Buyers are considered powerful if they have more bargaining power compared to industry participants.
Customers can demand more value by asking for discounts and/or more services by playing the industry
participants against each other. SAP & Oracle deals with large customers who can be considered powerful
but cant influence the pricing beyond a point as the depth of the functionality that vendors offer vary and
also as the switching cost is very high. The influence of Buyers (customers) also depends on the price
sensitivity. Customers are considered sensitive: - 1) if they need to spend a significant portion of the
procurement budget or cost structure or 2) if they earn low profits. If they are sensitive then the customer
tend to weigh all the options and tend to bargain hard. Also if the products that the customers buy have a
direct influence on the output they produce then the customers tend to be less sensitive. ERP systems can
give significant return on investment by improving experience, reducing labor, material, and other cost; if
this is case then the customers are more interested in the quality of the product rather than the price. Sage
has lot of SMB segment customers; also there are a lot of Tier II & III vendors who cater to the same group.
Here even though the customers have lot of options to choose from, the products dont have lot of features
in common. Customers tend to go with the features that suit them the best and also based on their overall
IT strategy. Generally customers cannot put undue influence on ERP Vendors beyond a limit and hence
cannot negatively affect the profitability of the industry.
Threat of substitute
Substitute products limit an industrys profit potential by putting a ceiling on the prices. The threat of
substitute is relatively less as the switching cost for customers are high and the alternate options available
may not always have the depth of the functionality that the main products offer. Also customer tends to
stick to the established vendors as ongoing support is an important aspect of ERP application. These
applications are often critical to the daily operations of the company. Hence ongoing support is an
important aspect during the ERP selection process. Customers generally will go with the established
players as they tend to provide the ongoing support for a longer time period. Unless the substitute product
can provide a cost effective way to migrate to the new system, the threat of substitute will generally remain
minimal. However changes in Industry can make the substitute attractive.
EPLM Batch 6
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Change in Industry Structure

Profit potential of the industry in the long run is determined by the industry structure as described above
using the five forces. Technological Innovations can change the Industry structure dramatically. Impact of
In-memory computing, Cloud computing in ERP Industry can be significant. Leading vendors have
invested heavily on technological innovation. SAP has introduced HANA Platform to leverage In-memory
computing which will significantly reduce the response time especially for their analytical applications.
SAP, Oracle, and Epicor have embraced Cloud computing by adding new products to their product
portfolio. They offer SaaS (Software as a Service) products in addition to on-premise products.
As the industry structure changes, there can be changes to entry barriers which can shift the threat of new
entry. Emergence of a disruptive technology can catapult a new entrant as a serious threat to the market
leaders. Strategic decisions made by key players can have a significant impact on the entry barriers. They
can make big investment in Research and Development of superior technology/product; increase the
economies of scale which can raise the entry barrier for new entrants. Also technological advances can
create new threat from substitutes which did not exist earlier. The power of supplier and buyers also can
change over time and / or as the underlying factors change.
Cloud based ERP Solutions
Cloud based ERP solutions appear to provide a number of benefits related to cost savings, scalability, and
ability to quickly adapt to changes in business process. It is observed that cloud based solutions are more
suitable for SMB segment primarily because of the subscription based pricing schemes and the lower
upfront investments. The part of upfront cost that is mainly reduced includes expenses for server
hardware, user licenses and implementation. Cloud based ERP solutions should also have lower operating
costs, scalability and a shorter implementation period. They generally boast of improved accessibility &
System availability, better disaster recovery, and easier integration with other cloud services. However
cloud based ERPs also have certain drawbacks like security/confidentiality risks, strategic risks,
functionality limitations, and performance risks. Security risks are typically more of a concern for large
enterprises as they fear loss of confidential data. Cloud ERP creates a strategic risk as outsourcing a
business critical system to a service provider will create a critical dependency on the service provider.
Cloud ERPs are also not as mature and dont have the functionality depth when compared to traditional
ones. It also has limitation in integrating with existing applications of the customers. Performance issues
due to network outage, speed and reliability of the network, and also limitation in transferring large
volume of data also are there.
ERP Industry is witnessing a change where cloud based solutions are growing at a rapid pace. There is a
clear shift from traditional ERP to cloud based ERP. Though the cloud based ERP offers lower upfront,
operating cost and rapid implementation the adoption is generally limited to SMB segments. The primary
deterrent especially for the large enterprises is the security risk drawback of Cloud ERPs. Customers feel
insecure when the data is stored in a cloud where they do not have any control over security. Also it could
be more vulnerable to hackers. SMBs choose Cloud ERPs as the benefit of lower upfront cost and operating
cost are especially relevant to them. They typically dont have enough financial and human resources to
invest in information systems. Also Cloud ERPs provide easier scalability which SMBs can leverage as they
grow.
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Conclusions
The ERP industry grew year on year (except for couple of years) in the new millennium. Qualitative
analysis of the Industry using the Porters five forces reveals that the profitability of the industry can be
sustained or increased on the long run. The intensity of the competition of the rivals is not strong enough
to start price war and thus reduce the profitability. Currently the entry barriers are high for a new entrant
to be a global player and successfully compete with the major players. Bargaining power of suppliers and
buyers are also not significant to drive down the profit margins. Also in the current situation the threat of
substitutes are not intense for major players to put a price ceiling for their products. The major players are
constantly enhancing their product portfolio to adapt to innovative technologies like In-memory and Cloud
computing.
Generally ERP Implementation is costly, time consuming and also disrupts the existing business
processes. Many implementation projects overrun both cost & duration (refer table 2) which has adverse
effect on the customers. The challenge for the industry is to reduce the Total Cost of Ownership (TCO) and
provide better Return of Investment (ROI) for the customers. ERP Products like Epicor ERP which has
SOA and model driven architecture offer more configuration capabilities compared to traditional products
where customizations can prove difficult during upgrades. Vendors need to make their product more user
centric, more relevant for the information user, casual user, business leaders, and process owners.
Accessibility of information via Mobile is gaining lot of momentum and vendors need to define their
mobile strategy clearly.
Cloud ERP Solutions has witnessed a tremendous growth in the past couple of years. Cloud ERP Solutions
are primarily adopted by SMBs while large enterprises are yet to adopt as it has some inherent drawbacks.
The major players are making significant investment in this space by releasing the cloud version of their
traditional ERP as well as through acquisitions. In the past couple of years SAP has acquired
SuccessFactors and Oracle has acquired Taleo to expand their footprint in cloud solutions. SAP Business
ByDesign, Oracle Fusion applications, Epicor Express are examples of vendors offering cloud solutions
based on their traditional products.
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References
Michael Porter, The Five Competitive Forces that Shape Strategy: Harvard Business Review
Clash of the Titans 2014, Panorama Consulting Solutions
2013 ERP Report, Panorama Consulting Solutions
June 2012, Magic Quadrant for Single Instance ERP for Product Centric Midmarket companies: Gartner
2006, SAP: Building a Leading Technology Brand (A): Columbia CaseWorks
2006, SAP: Building a Leading Technology Brand (B): Columbia CaseWorks
2008, Modernizing ERP: How to Make Users Fall in Love with ERP All Over Again
http://en.wikipedia.org/wiki/Enterprise_resource_planning
http://www1.sap.com/corporate-en/our-company/history/index.epx
Last accessed on Oct 10, 2013

Last accessed on Oct 10, 2013
http://global.sap.com/corporate-en/our-company/history/1972-1981.epx
Last accessed on Nov 06, 2013


http://global.sap.com/corporate-en/our-company/history/2002-present.epx
http://www.oracle.com/us/corporate/history/index.html
http://windows.microsoft.com/en-IN/windows/history
http://en.wikipedia.org/wiki/History_of_Microsoft
http://en.wikipedia.org/wiki/Microsoft_Dynamics
http://en.wikipedia.org/wiki/Epicor
http://www.epicor.com/Company/Pages/25YearHistoryofERPSoftwareInnovation.aspx
http://en.wikipedia.org/wiki/Sage_Group
http://na.sage.com/sage-erp-x3
http://www.referenceforbusiness.com/history2/45/The-Sage-Group.html
http://en.wikipedia.org/wiki/Infor
http://go.infor.com/syteline/about-syteline/history/
http://www.enterpriseappstoday.com/erp/article.php/3928171/InforLawson-Merger-Could-CreateThirdLargest-ERP-Vendor.htm
http://www.softwareadvice.com/manufacturing/infor-software-brand/
http://www.forbes.com/sites/louiscolumbus/2013/05/12/2013-erp-market-share-update-sap-solidifiesmarket-leadership/)
http://www.rt-it-group.com/index.php?option=com_content&view=article&id=81:microsoft-dynamicsstrategy&catid=51:navision-news&Itemid=91
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http://www.enterpriseappstoday.com/erp/sap-oracle-battle-erp-giants-2.html
http://www.oracle.com/us/corporate/investor-relations/detailed-financials/index.html
http://global.sap.com/corporate-en/investors/newsandreports/reports/index.epx
http://www.microsoft.com/investor/SEC/default.aspx?year=2013&filing=annual
http://www.infor.com/company/investor-information/
http://www.epicor.com/Company/Pages/Investors.aspx
http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001517393&type=10K&dateb=&owner=exclude&count=40
EPLM Batch 6
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Analyzing ERP Industry using Porter's five forces'

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