Searching for ERP systems offering a perfect fit.

Until recently, the major ERP vendors (SAP, Oracle, Peoplesoft, JD Edwards, and Baan) were mainly targeting the high end of the market (companies with more than 1,000 employees), but this market comes close to saturation. Many large companies have already adopted ERP systems and are planning the next step of how to use the installed ERP infrastructures as foundations for e-business [1, 2]. Most of the small- and medium-sized companies still have to make the decision to deploy ERE The midsize market is an interesting market, for example, the number of midsize companies (50-1,000 employees) in Europe is estimated to exceed 100,000. Data from our research shows that with average annual IT budgets of more than $500,000, the total European midsize market for IT products and services surpasses a staggering $50 billion per year. This market as a whole is very attractive for the major ERP vendors. However, since the wave of adoption by midsize companies is in its early, stages, little is known about developments and drivers that form the basis of ERP adoption decisions. The purpose of this article is to understand developments in ERP adoption within the European mid-market.

Our empirical information is based on a large-scale European multicountry/multi-industry survey conducted in mid-1998. Based on the survey data, we will address various issues, such as: How did ERP penetration in the mid-market develop until 1998 and what can be expected in 2000? Furthermore, we explore criteria used by European midsize companies for investing in ERP systems and for choosing an ERP supplier.

ERP Penetration Development

The survey included questions both on current (mid-1998) adoption of ERP and planned adoption within two years (mid-2000). In 1998--over all countries and industries--already 27% of the European midsize companies had ERP software installed in one or more functional areas. The functional areas included in the interview were purchase and sales order management, inventory and materials management, production and assembly, transportation, service and maintenance, marketing and sales, warehouse management, financial accounting, and human resource management. Interestingly, a minority (13%) of the adopters used ERP software in just one functional area, while most companies (70%) used it in more than three functional areas. Thus, companies clearly aim at using ERP's main strength: integrating several functional areas. The data further reveals that in nearly all companies, the various functional areas are automated using ERP software of a single vendor. Hence, difficulties in integrating ERP software from different vendors often seen in large companies are not yet an issue for midsize companies. This may change, as midsize companies will increasingly integrate their supply chains, and thus communicate with suppliers that are likely to have adopted different ERP solutions.

With respect to expected further penetration of ERP software our estimations are based on investment indications by the respondents. Among the firms that did not have ERP software installed in 1998, about 40% indicated intention to invest in ERP before mid-2000, yielding an expected average penetration level of 56%...