On-demand ERP – Future Growth Engine for India Service Sector Firms

Background
First, let’s pen a line on what constitutes the service sector. The service sector, also called the tertiary sector, is one of the three principal and traditional economic sectors. The other two sectors are Agriculture (covering areas like farming, mining and fishing) and the secondary sector covering manufacturing. The importance of the service sector can be gauged from the fact that it constitutes more than half of the overall GDP in India. Moreover; its contribution to the GDP is continually on the rise; signifying that India is gradually showing a shift from manufacturing-based economy towards a services-based one. The service sector also provides employment to more than a quarter of the labour force.

Need for a Business Integration Solution
The service sector has become increasingly IT-savvy and technology-focused in its quest to conform to client expectations and achieving global standards in business processes and performance. AMI research shows that service sector SMBs account for over a quarter of the entire SMB business universe and constitutes almost a fifth of the overall sectoral IT spend.

This research further shows that SMBs in India face multiple business challenges. Several of these challenges are the need for business integration, manpower management and payroll processing, automation of manual tasks, ensuring compliance, ensuring higher profitability and cost control. Thus, the need of a robust and comprehensive business application software that can address these business problems has grown by leaps and bounds among India service sector SMBs. With the modernization of the sector and exposure to global business partners, factors like transparency, efficiency and accountability have grown in importance. Many businesses within this sector are on the lookout for business application software that helps in managing resources and providing a bird’s eye view to top management regarding the overall business situation.

The question arises – specifically what are the sub-verticals within the service sector that show a higher potential of growth in terms of ERP solutions?  AMI’s study shows that sub-verticals like back-office service providers (audit & tax / finance & accounting, legal) as well as other service providers (healthcare, hospitality & professional business services) show significant potential of adopting business application software.

Currently, ERP penetration is marginal within this sector with most adoption being an on-premise platform. However, there is significant growth potential for on-demand or cloud-based ERP within this sector in the days to come.

Drivers and Barriers
As part of its survey, AMI has analysed the key growth drivers and hindrances for Cloud-ERP adoption in the service sector. The major growth-inducers, as mentioned by most end-users are ease of use, anytime/anywhere accessibility, automatic upgrades, pay per use improved efficiency and scalability.

There are also several hindrances. These include data security concerns, poor connectivity, performance unpredictability and the need for internal training.

As mentioned by a Travel Agency, “Timely ticket booking online is a key success factor for my business. However, in this city the Internet speed and connectivity fluctuates a lot. So, you can understand the trouble I would face if I am unable to process a request due to internet issues. Hence, cloud-based ERP is not for me!” Another person in the hospitality sector indicated that he was convinced that there would be true TCO benefits “I am not sure that although I pay none or little initially that I may not end up paying a lot more in the long run!

The way Forward. . .
There is indeed huge ERP adoption potential within the India service sector SMBs but for that to become a reality multiple measures need to be undertaken by ERP vendors. One of the most important needs is to select proper implementation partners with adequate technical and service capability. Undoubtedly, this is a vital requirement since in our discussions with service sector SMBs they have mentioned that one of the key bottlenecks to successful ERP adoption is the problem faced during implementation and training. A primary necessity is that partners should have a concept of the vertical-specific Line-of-Business Software usage patterns so that they can gauge the client requirements better and design solutions accordingly. Further, there should be a clear demarcation between sales partners and implementation partners.

Another interesting finding is that most organizations prefer an easy plug-and-play-solution with little customization that should fit most organizations. Vendors will do well to remember this at the stage of product designing. Many end-users are still unaware of the value proposition and advantages of cloud-ERP. Vendors should surely initiate more awareness-building campaigns among prospective users along with channel partners to educate users about cloud-ERP value propositions and remove all misconceptions.

Thus, it is easy to conclude that cloud-ERP adoption and spending is set to grow among the India service sector businesses in the future.

~ Dev Chakravarty, Sr. Manager, Research