CGT Board Members Say Consolidation will continue

Even though the necessity of consolidation among ERP vendors is debatable, many believe the consolidation cycle will march on, regardless of adaptability and customer service concerns.

The adaptability and configuration issues that surround the PeopleSoft/J.D. Edwards acquisition, for example, also apply to Oracle if its bid for enterprise application dominance via PeopleSoft is successful. The time frame to migrate customers to a single Oracle platform without being cost-prohibitive is a daunting challenge to say the least. But it's a challenge that Oracle and other large vendors can handle, according to Mike Dominy, analyst, The Yankee Group.

"There has been a shift in dollars spent from the core of the enterprise to the edges of the enterprise," says Dominy. "Many companies, including consumer goods, are still figuring out ways to drive down costs. The next opportunity resides outside the four walls of the enterprise. As Oracle observes what is happening in the industry and they want to be one of the survivors, they will understand that whoever controls a lot of customers in different market segments will have the upper hand."

TO BE CONTINUED

As indicated in a recent poll, CGT Editorial Advisory Board Members also believe the enterprise software space will continue down the path of consolidation.

"There is no question that consolidation will continue," says the chief information officer of a leading appliance manufacturer. "IT shops want to deal with fewer suppliers who can provide them with a broader range of products whether it be ERP systems or systems software."

The speed and scope of consolidation, according to this Board Member, will vary from segment to segment in the technology landscape and is inversely proportional to the value of innovation in a particular space.

"Where innovation is crucial, there will be more nimble, niche players. Where technology is mature, companies will consolidate to take advantage of the greater efficiencies of a larger organization."

As far as how consolidation affects CG companies, it is a double-edged sword according to the Board Member.

"On the positive side, the resulting firms are generally more financially stable and dependable. On the downside, consolidation can also be very disruptive as it lessens competition and generally makes market entry much more difficult because it reduces innovation.

ASSISTED LIVING

The Vice President of a major food and beverage manufacturer and CGT Board Member says the consolidation that is currently taking place has already been predicted by many of these same players for many years.

"From a manufacturer perspective, the consolidation will most likely assist us in assuring long term stability versus having to roll the dice' on just a few of the smaller, niche players."

This Board Member also expressed concern that consolidation might generate a lack of focus on development and customer service, leading many CG firms to suffer as a result.

Another board member, the Vice President of an automotive and industrial products manufacturer questions if the same three competitors who dominate the large company ERP business will be the same three to dominate small company systems.

"If you look at SAP and Oracle, they've designed their companies around understanding and solving the core IT problems of large companies," says the Board Member. "Their products are built to leverage common process, to build scale. I think it is highly unlikely that the big vendors will also dominate small and medium company ERP."

As for the impact on the CG industry, this Board Member feels that a level of "choice" in core ERP systems will be more limited causing many processes to become even more homogeneous across companies, thus making it more important than ever for large CG businesses to carefully choose which applications they want to use to just support the business, and which ones to use in order to gain strategic advantage.

"For smaller CG businesses, this trend may present opportunities," says the Board Member. "Especially if they can find ways to add value for customers by being different than their larger competitors."