ERP Software Market Trends and Forecast: Europe, (Executive Summary) Executive Summary

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1 ERP Software Market Trends and Forecast: Europe, (Executive Summary) Executive Summary Publication Date: 27 October 2003

2 Authors Fabrizio Biscotti Chris Pang Derek Prior Tony Humphries Chad Eschinger This document has been published to the following Marketplace codes: SOFT-WW-EX-0139 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 ERP Software Market Trends and Forecast: Europe, (Executive Summary) European ERP Software Market Overview Vendor Performance Forecast Summary The European market for enterprise resource planning (ERP) software suffered a consecutive fall in new license revenue. Although the decline was not as pronounced as in 2001, the main growth inhibitors of a weak European economy and a cautious buying environment remain in place. Enterprises are waiting for clearer signs of an economic upswing before committing to larger IT spending budgets. Nevertheless, some of the pent-up demand for new or upgraded ERP systems has resulted in new business for vendors as enterprises decided to press ahead with projects in preference to further delays, which would affect overall efficiency and costs. In comparison with the worldwide picture, the European ERP market weathered the difficult environment reasonably well. Users continue to be cautious and diligently scrutinize all IT investment proposals. A number of factors account for this mentality, the economy being one of them. In the ERP market, past experience of ERP implementations with cost and time overruns figures highly. The other factor relates to enterprises avoiding "big bang" ERP implementations in preference to buying smaller, but specific, functionality for their applications. This is achieved by modification of established systems or through custom development. The ERP market is in a state of evolution: consolidation of vendors, verticalization of capabilities and a trend toward improved enablement of applications for Internet connectivity and collaboration. Over the forecast period, this evolution will continue to innovate and drive ERP technologies into the future. The top five vendors in Europe in 2002 remained the same as in 2001, with slight increases in market share for SAP, Sage, Microsoft Business Solutions and PeopleSoft. The same vendors appeared in the worldwide top five, but in a different order. Aside from SAP's dominance, the market remains fairly open, with no single vendor having a significant lead over its competitors. Consolidation in the market is inevitable. Consolidation among European players (which overwhelmingly dominate the top vendor rankings in Europe) or North American players, or both, is the only way that another vendor will approach SAP's lead. Gartner Dataquest's forecast for the ERP market shows a decline in 2003 tempered with slow growth in This will continue through 2007 at a slow but steady compound annual growth rate (CAGR) of 1.2 percent. Economic recovery, the need to refresh older ERP systems, newer applications and architectures that allow enterprises to achieve greater efficiencies through integration will help drive the market forward. The strongest growth will come from the financial management systems (FMS) subsegment, which is also the largest component of the ERP market. The weakest-performing subsegment over the forecast will be manufacturing, which will see virtually flat levels of growth Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 ERP Software Market Trends and Forecast: Europe, (Executive Summary) Figure 1 European ERP Growth Forecast, Eastern Europe is forecast to be the highest-performing region for the ERP sector, exhibiting a CAGR of 3.2 percent between 2002 and 2007 (see Figure 1). Germany, meanwhile, will experience the lowest growth, with stagnant new license revenue levels over the forecast period. This is especially unfortunate for the European ERP market because of Germany's position as the second-largest European ERP market. On a more positive note, the United Kingdom and France (first and third, respectively) will post growth levels above 1 percent. Nevertheless, although European ERP license revenue will grow, it is fair to say that room for improvement exists, especially when comparing with other regions, such as North America and Japan. For information regarding ERP worldwide statistics, see "ERP Market Experiences Further Decline: Market Statistics, 2002," SWSA-WW-MS Percentage Growth Worldwide ERP Eastern Europe Western Europe Source: Gartner Dataquest (October 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 October 2003

5 ERP Software Market Trends and Forecast: Europe, (Executive Summary) 3 Observations and Recommendations to Vendors Gartner Dataquest makes the following observations and recommendations to softwarevendorsinthismarket: Vendors must develop and market prepackaged vertical solutions and lessen the customization requirements for enterprises, but only in markets where they have some expertise. Vendorsmustproactivelyassistpotentialclientsinreturnoninvestment (ROI) modeling and ensure the user has performed the proper level of planning required for a successful project outcome. ERP software vendors must continue the integration of their ERP solutions with other enterprise requirements (for example, business intelligence [BI], customer relationship management [CRM], supply chain management [SCM] and portals). ERP providers must continue to explore new technologies (for example, Web-centric and Web services) to position themselves at a high-value level and remain competitive with new sales and renewals. Focus on the emerging ERP markets, namely, Southern Europe (Spain, Portugal and Greece) and Eastern Europe, which are still in the stages of adopting the basics of ERP and need a crash course in ERP II. For the full report, see "ERP Software Market Trends and Forecast: Europe, ," SWSF-EU-MT Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 October 2003