The Hindu Business Line : ERP cos offering `poison pills' to reassure clients

ENTERPRISE Resource Planning (ERP) firms have started offering "poison pills" to insulate customers from the high level of churn in the industry due to heightened merger and acquisition (M&A) activity.

"As ERP package implementation is a long-term process, there is need for the customer to be protected in case his vendor ceases to exist tomorrow. As clients have started holding back orders due the uncertainty in the sector, companies have responded with a clause called poison pill, which ensures that even if the vendor is acquired by another company in the future, the client's interests are protected by the new entity," Mr Chandra Shekhar Kakal, Vice-President and Head (Enterprise Solutions), Infosys Technologies Ltd.

ERP implementation requires a lot of care in choosing the right vendor.

With Oracle making a bid for PeopleSoft and other companies also seeking to maximise their revenues through M&As, there is a lot of consolidation happening in the industry.

A customer should not land himself in a situation that his vendor ceases to exist tomorrow, Mr Kakal told Business Line.

"Large corporations plan for a 15-25 year lifecycle for ERP products. More than 400 out of the Fortune 500 giants have already implemented a core ERP backbone, which has shifted the focus to smaller companies that expect to grow into the large multinationals of tomorrow," he said.

License revenues for the major ERP players such as SAP, Oracle and PeopleSoft fell sharply soon after the Y2K surge.

In the last couple of years, revenues have started rising steadily, but the uncertainty in the market and the fact that most large corporations have already implemented ERP, have spurred the existing players to look at new ways to increase their earnings, he said.

Another trend, Mr Kakal said, was increasing offshoring, an area where India held great potential for growth.

Most of the large ERP developers have large facilities in the country.

SAP and Oracle already have large development centres in India while Microsoft and PeopleSoft have announced plans to recruit more software professionals for their development centres.

As system integrators and consultants, companies such as Infosys are able to work closely with the larger vendors on projects for new packages that use the feedback received from clients to develop new products, he said.

Companies are also looking at industry verticals to develop new products that address the needs of specific industries, he said, pointing out that even Infosys had a product, Finnacle, for the retail banking sector.

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