Corporate: Ramco's gameplan needs e-volution

CORPORATE
Ramco's gameplan needs e-volution

With a shakeout imminent in the ERP industry, the company's insistence on targeting big-ticket clients could prove costly.

By Bharati & Pooja Garg.

When the Chennai-based Ramco Systems' first independent financial statements get published later this month, they will not be a pretty sight. For, Ramco-a division of Ramco Industries until late last year-has spent the last 9 years of its existence trying to become a sap or BaaN of the Enterprise Resource Planning (ERP) world. In the bargain, it has sunk $45 million (Rs 193 crore) in R&D. No doubt, Ramco did come out with a home-grown ERP package, Marshal, which 200 customers worldwide today use. However, in return for the investment, the company has a bare Rs 107 crore in revenues to show. And, until this year, it had not even broken even.

Barely 6 months into its demerger from Ramco Industries, the company is programming a turnaround strategy. It plans to turn the Net into an ally with its Web-based ERP package, called e-Applications. Besides, it will strengthen its services business, and diversify into hardware sales, beginning with hubs and switches of Bay Networking, and cabling solutions from amp, a US-based company. Says P.R. Venketrama Raja, 40, Vice-Chairman and Managing Director, Ramco Systems: ''Over the next 18 months, our business model will firm up our cash-flow.''

Playing for high stakes

In ERP, there are 3 ways by which the vendors make money. One, by adding new functionalities; two, by attracting new users via industry specific packages, and three, by issuing more user licences to existing customers.

Ramco's new e-Applications does 2 things. One, it adds supply-chain and customer-relationship management capability to Marshal, its ERP package. Two, and more importantly, it allows the ERP to interface with the Net. Which means that customer- and supplier-orders will not only get logged electronically, but will also get fed into the production or marketing schedule of the company.

Most ERP majors have already made this journey. Market-leader sap has a Web-based ERP called Mysap.com. International Data Corporation-an infotech research firm-estimates that one-third of all medium-size enterprises would meet their ERP needs through the Web model by 2003. And a market that has been for long been disappointed with Ramco's performance is finally taking notice of e-Applications. Says Ajay Srinivasan, 35, Managing Director, Prudential ICICI: ''The expectations are high.''

Ramco hopes to be able to tap its customer base of 200 to get the new product rolling. But it's quite likely that it will run into trouble. The reasons for this have as much to do with the industry environment as with e-Applications' characteristics. From a 50 per cent quarter-to-quarter increase in 1997-98, the growth rate in enterprise applications market plummeted to between 15 and 20 per cent in 1999. However, it is expected to go up again to 28 per cent in 2002. Also, the fact that Ramco's ERP is based on Microsoft's proprietary Windows platform, limits the user's ability to expand the package's functionality by adding modules from other vendors. Predictably, in an industry where the ERP implementation cost is 9 times the software cost, closed-end packages are not favoured.

The Indian ERP market is dominated by sap, with a 53 per cent share. If Ramco is a tier-2 player with 6 per cent marketshare, it's because it chose to ignore the domestic market for the sake of its global ambitions. Points out Anjan Majumdar, 36, Executive Director, PricewaterhouseCoopers: ''Ramco should have partnered with a well-known company for marketing abroad, as India does not have any global infotech brand to boast of.''

Creating a new paradigm

By the time Ramco returned to the Indian market, all the big-ticket clients had been snapped up by global ERP heavyweights. Ramco could have created a niche for itself in the Small and Medium Enterprise (SME) segment, but it stuck to bigger customers. Explains Rajah: ''Small companies just give one-time investment opportunity, since upgrades are few and far in between.''

The ''apps-on-tap,'' or the Web-based model, changes all that. For, the Net allows smaller companies to use ERP at a nominal monthly rental. The only other Indian company with its own ERP package, Eastern Software Systems, provides Web-based ERP for a bare Rs 9,000 a month. Needless to say, this segment is set to boom. Says Anil Bakht, 45, CEO, Eastern Software Systems: ''The big corporate market is almost saturated, and the only way to tap the smaller companies is by lowering the cost of ERP ownership.''

Ramco's insistence on sticking to big-ticket clients could cost it dearly if the SME segment does explode as predicted. And while the new router and switches distribution business might marginally add to Ramco's return on investment, it also signals a climb down.

A shakeout looks imminent in the ERP industry. PeopleSoft recently acquired a smaller rival, Red Pepper, and BaaN snagged Coda, a financial software provider. The idea: extend capabilities. Which means unless Ramco reprogrammes itself, the bug in its strategy could crash its big-time plans.

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