The Real Reason ERP Sales Are Down: Buyers Aren’t Morons – Software Companies Are

The abrupt, if not totally unexpected, news of SAP AG’s (SAPG.DE) chief executive Leo Apotheke’s departure brings all sorts of Monday morning quarterbacking opportunities.

SAP’s troubles are not unique. Most ERP software companies are struggling to get their mojo back after enjoying an unprecedented run of ever increasing annual new license sales.

InfoWorld has essentially the same observation with a post  that predicts SAP’s future depends on how they treat their customers. Read it here.

But SAP is only one software company – and pretty much all software companies are suffering from this lack of customer benefit focus – having instead turned to treating the customer as a portable ATM machine that dispenses yearly maintenance fees.

Software VARS aren’t blameless either. Most hold tightly to their ancient model of overpriced canned training, installation and upgrade services  – all mechanical procedures with relatively small value add.

The past 10 years were filled with customers looking for the next great ERP software. Companies routinely reviewed their options – and when they perceived a better accounting solution was available they switched.

So what happened?

In my view the slowing (shutdown?) of the much cherished ERP “replacement cycle” is at the root of the  ERP software vendor malaise.

In the past “the wise men” of nearly all software companies were smug in their prediction that customers “would be back”.

The conventional wisdom was that companies grew weary of their ERP software and sought something better about every 5 years (pick your own number here but it seems like 5 years or so was typically bantered about).

The problem?  ERP software didn’t get  better – only more expensive, more complex.

At least in the eyes of the customer. The only people who matter.

Software companies assumed that ERP buyers would, like robots on autopilot,  keep replacing ERP software every 5 years. This despite  ERP Software offerings remaining largely unchanged from the 1990s.

The fatal assumption?  Assuming that  buyers (customers) were morons.

Turns out the customers weren’t that dumb after all. The first sign is that almost all ERP software companies are struggling to report new license sales growth.

The real morons became the software executives who completely failed to observe that buyers weren’t stupid.  Without improved software ERP replacement cycles would quickly grind to a halt.  Most importantly, real improvements needed to be more than ill-fitting bolt on software which is increasingly more expensive to implement, support and upgrade.

Software buyers — the customers — have had their fill of open ended ERP engagements where each upgrade is potentially more painful than the last.

The gravy train stopped. Customers became wiser and smartly discovered that the grass was not perpetually greener on the other side of the fence.

In the 1990s conventional wisdom said most customers switched ERP systems between 2 and 3 times. Suddenly those customers learned after the 3rd ERP replacement that there  was no “promised land” waiting around the corner with that next (more expensive than the last)  $50,000 ERP replacement system.

So they stopped changing software. Instead they make due with what they have.

ERP software sales slump? It’s really this simple.

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Comments

  1. In my first flirtation with being a top salesman expressing my concern about running out of prospects, my boss said, “Dave there are two reasons why you won’t run out of prospects: (1) we provide the finest customer experience, and , (2) we are constantly obsoleting our present products to give the customer what they need and want.”

    That was many years ago – before the PC revolution. That company has grown from a regional sales organization to global power, never once failing to show an increase in new revenue.

    Wayne, if PC applications software would have adhered to the simple principal above they would still be profitable today. Instead it became a “forget developing products for the long term – our only driving force is the amount of money can we make today, this quarter, this year.”

  2. When is the last time you have seen true innovation from an ERP vendor?

    The maintenance renewal invoice always seems to show up more often than an upgrade that is a must-have (other than for security/patch reasons…).

    Most customers don’t realize until too late that every add-in and customization moves them closer to creating their own little FrankenERP. This, in turn, significantly increases their real upgrade or replacement costs. Many do not have the money, time, nor energy to go through the hassle of another conversion.

    • That can be true, but what companies need is a working FrankenERP that is tracked as closely as possible to their needs. As we all know, the decision to adopt this or that ERP solution often turns on a very small part of the package that addresses one hot-button issue at the top of the client’s radar. In my experience, that usually means a customized solution of some sort.

      The amount of value that can be extracted from a tool that one’s competitors could also be using is limited compared to the extraordinary value that results from incorporating a firm’s unique competitive advantages into their ERP system. Build that intelligence into the system, and put your core team in charge of it, and you not only minimize your training costs, you minimize the brain drain when your more productive employees are recruited by your competitors.

      The consultant’s role in all of this is to become a key part of that core team, an advisor and mentor that fills a role as important as the company lawyer or CPA. The value that the consultant adds is to translate the higher level business requirements expressed by management into functional technical requirements in such a way that the goals are accomplished as efficiently and effectively as possible.

      The software vendor’s role is to provide tools to support the consultant’s efforts. This is what most of them don’t get. They think they’re selling solutions instead of tools. Rather than empowering the consultant, they attempt to empower the end user, and unless they offer a comprehensive service that includes the role of the consultant (eg, the IBM model), they are shooting arrows in the dark.

      Make it easy for me to deliver a customized solution to my client, and to change or grow all or part of it as needed, and both of our markets will grow.