by Michael Eilan
Do Israeli companies have a place in the world of ERP, assumed to be the highest growing software market worldwide right now? That depends on how you define ERP, a place - and even an Israeli company.
Let's start from the outside. Two highly respected consultancy companies quoted by Internet magazine The Red Herring - Advanced Manufacturing Research and IDC - estimate the current size of the ERP market at $7.2 and $14 billion respectively. Of course, the lower figure relates only to the market served by such market leaders as SAP, BAAN, Oracle, PeopleSoft or JD Edwards. The high figure includes much more enterprise-wide software. However the discrepancy is indicative of the confusion, especially now that ERP is so hot because it seems to be growing faster than anything else on the market.
- See also Arena coverage of Toptier -- an Israeli start-up in the ERP field.
Even the name - the ERP market - is misleading compared to other software markets because it is not really a software market in the sense of a tangible product sold to a customer. Amigar’s marketing director Dr Avi Shemesh says that up to 80% of a major ERP system of the kind sold by SAP is actually built and developed by the system integrator. This figure might be rather high, but the fact is that SAP started to look a year or two ago at the kind of money major consultants like Arthur Anderson were earning from systems integration, and decided to enter that business too, thus confusing the field even further.
Returning to the elephant and the Jewish question. The first simple answer to the question posed at the beginning of the article is "no". There is hardly a major organization in Israel that needs fully- fledged ERP. This means that there a few companies around to practice on, and nobody will allow an unknown Israeli firm to learn the ropes by playing around with the key information that is the core of its business.
An even more critical factor is culture, which in this case is not just a matter of knowing how to talk to Americans or Europeans. Alan Feld, whose fund invests in Israeli ERP start-ups (see box) says: "Israeli companies live in a vacuum. They just can't talk to the Chief Information Officer of General Motors or Boeing to find out what they need."
Ira Efron of Applicom, one of the most experienced Israeli companies in the field, says that ERP is not software but a mindset towards management. There are very few commercial organizations in Israel with a large enough structure to create the kind of innate knowledge of the tremendous complexities involved in the efficient running of a large multinational business. The only company from a small country that made a major mark in ERP is Baan, but the largest Dutch companies have been multinational since the word was invented, and in any case, Europe is literally on their doorstep.
And it's Baan, working with Israeli venture capital fund Vertex, that might be creating the largest opening for Israelis into the world market. Both Baan and Vertex are actively seeking those companies than can play a part in the market because they believe that the "best of breed" approach will prevail, rather than seeking whole packages from one vendor.
Efri Argaman is an Israeli senior manager at Ernst and Young in California, who specializes in implementing ERP solutions in the "middle market."
"Israeli companies will find it difficult and maybe even impossible to sell whole systems of any size outside Israel’s borders. The experienced players are storming the middle market, and right now in Silicon Valley, you can see more than one start-up implementing SAP," he says.
"In any case, a company deciding for any reason not to implement an international system will opt for a local solution, and these are rife all over the US and Europe, (for example, Great Plains)."
The second, but less simple answer to the question is a possible "yes". Efron and Shemesh are both involved in selling forms of ERP abroad, as are a few other major Israeli vendors and integrators. They take entirely different approaches to the problem. Amigar is working on a scaled-down ERP package for sale to users in medium-sized organizations in Europe and the US, while Applicom is focusing on packages or modules to sell to major vendors of fully-fledged ERP systems, which have the whole package and the route to the customer.
Shemesh of Amigar says the company is currently in the process of raising capital towards a major push outside the country, with a package intended for much smaller organizations, from 50-500 workstations. The package, he says, is built completely within a Microsoft environment, which may make it easier for smaller organizations to digest, and requires far less customization.
Is this ERP? That might be a moot question, because the industry is changing so quickly as more companies - not only major multinationals - seek better management tools. There are many measures constituting ERP, but most involve the notion of integrating massive amounts of information, including legacy systems into highly complex systems that manage information; starting before production and ending after sales.
Access to information, communications and managing the dynamic flow of a business are also important quotients. Do smaller organizations need this kind of sophistication? Probably, if it helps them compete and they can afford both the cost of the package, and more critical, the management time needed to make it work.
This last element - management time and resources - is one reason that only larger organizations have embraced ERP so much. They have deeper management benches and can afford the tremendous amount of time its takes to get a fully-fledged ERP package up and running.
Efron's Applicom is interested only in the big time where, he says, Israelis can work mainly by developing modules that the major ERP companies can use in worldwide installations. This was the approach of Ofek-Tech, whose work with SAP led to an investment in the company, and of other companies working with major vendors.
Applicom, a member of the Formula Group, is one of the more experienced software companies in the country, and works both as an integrator and developer for SSA, a medium-sized international player that sells the highly complex BPCS ERP package. Working on an ERP package for Teva led to the development of a software module for the pharmaceutical industry. Work for Coca-Cola Israel led to a delivery module.
Ernst and Young’s Argaman agrees with this approach. "The ERP market is currently going through many changes. If in the large wave of system applications worldwide in the 90s the tfisa was that ERP provides a single solution to each one, they today there is a demand for more specific modules for each industry or business process. Within this framework you can see more and more complementary products. "
As an example, he cites Baan’s acquisition of Aurum, which produces a solution for the automation of buying power, and is closely cooperating with Hyperion Solutions, which produces planning, reports and report unification solutions.
"Any Israeli company which focuses on the development of a directed module required for a certain industry or business procedure will succeed," says Argaman.
Anybody with even passing knowledge of the software industry has a sort of gut feeling about the nature of business software. Everybody should know what they need to, and no more than that, at the right time. This knowledge, properly shared, should be integrated into the company's strategy, tactics and real life situation from the production floor to the customer's warehouse, in perfect step with day to day accounting and major financial considerations. Everybody with just a little more knowledge knows now horrendously difficult it is to achieve this target.
The question is, how much and in what way Israelis can contribute to this possibly unachievable goal. There is a clear business model in local integrators or specialized software houses selling elements to major vendors. It could be a good business, but probably not large-scale, since ultimately its rests on the local market’s small size because the route to success passes through the kind of intimate knowledge that only possessed by systems integrators, and in Israel, there are just not enough customers for them to play with.
The second route of going independently abroad, with scaled down packages or discrete elements, that can fit into "best of the breed" installation projects is so far untested. It will depend on many elements, including to what extent Israelis can understand their target markets’ business culture, and above all, how they reach and service their customers. It won't be easy, because the number of market players may now be expanding as ERP moves into smaller firms, but the inexorable forces of consolidation are present in this field just as in any global software market.
Argaman says: "At the end of the day, the ERP industry will convene around the veteran systems producers, (and in my opinion, only the large ones will survive), and the complementary module producers. Globalization is the name of the game. The large companies like Oracle, Baan and SA, recognized the added value the Israeli know-how can contribute, and therefore each one of them has in some way a research center in Israel. In my estimation, the ones who will survive will be the ones who build a solution which integrates with these players’ overall solutions.
"To fight against the major players is a near hopeless battle. Which is the right way? My gut feeling, and maybe results in the field hint that it’s preferable to turn the large players into parties at interest."
On the other hand, Amigar won't be the first Israeli company that set itself an impossible target. A radically different frame of mind towards the total package cost and management time needed for implementation may, with lots of luck and skill, be just what the market wants.
Published by Israel's Business Arena September 16, 1998