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E-BusinessSoftwareJune 2003

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E-Business Software

Table of Contents 3

Methodology 5

The eMarketer Difference 6

The Benefits of eMarketer’s Aggregation Approach 7

“Benchmarking” and Projections 7

I E-Business and Enterprise Applications 9

Market Estimates 10

Spending and Usage Surveys 15

II Enterprise Resource Planning 23

Market Estimates 24


III Portals and Enterprise Content Management 35

A. Portals 36

Market Estimates 36


B. Enterprise Content Management 46

Market Estimates 46


IV Customer Relationship Management 55

Market Estimates 56


V E-Procurement and E-Sourcing Solutions 79

Market Estimates 80


VI Supply Chain Management 95

Market Estimates 96



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E-Business Software

June 2003

Dear Reader:

The E-Business SoftwareTM report provides an overview of the worldwide market for enterprisesoftware, covering sales of ERP, enterprise portals, enterprise content management, CRM, e-sourcing/e-procurement and SCM applications.

Each section of this report provides comparative estimates of historical sales and market forecastsamong the major categories of e-business software, along with survey data highlighting key trends ineach software market.

Through its aggregation of multiple user surveys, eMarketer is able to provide insight into howbusinesses are using e-business applications, what they are spending, and what their spendingpriorities are for the future. eMarketer’s aggregation of other industry analysts’ opinions will also givereaders a sense of the best practices among e-business software users.

If you have any questions or comments concerning eMarketer or any of the material in this report,please call, fax or e-mail us.

Steve ButlerSenior Analyst

Steve ButlerSenior [email protected]

eMarketer, inc.821 BroadwayNew York, NY 10003T: 212.677.6300F: 212.777.1172

Reuse of information in this document, without prior authorization,is prohibited. If you would like to license this report for yourorganization, please contact David Iankelevich [email protected], or 212.763.6037.

Written by Steve Butler

Also contributing to this report:Yael Marmon, director of researchDavid Berkowitz, senior editorAllison Smith, senior editorKwanza Osajyefo Johnson, data entry associateDana Hill, production artist

Methodology 5


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E-Business Software


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E-Business Software

Methodology

E-Business andEnterprise Applications

Enterprise Resource Planning

Portals and EnterpriseContent Management

CustomerRelationship Management

E-Procurement andE-Sourcing Solutions

Supply Chain Management

eMarketer’s approach to market research is founded on a philosophy ofaggregating data from as many different sources as possible. Why? Becausethere is no such thing as a perfect research study and no single researchsource can have all the answers. Moreover, a careful evaluation andweighting of multiple sources will inevitably yield a more accurate picturethan any single source could possibly provide.

The eMarketer DifferenceeMarketer does not conduct primary research, it therefore has no testingtechnique to defend, no research bias and no client contracts to protect.

eMarketer prepares each market report using a four-step process ofaggregating, filtering, organizing and analyzing data from leading researchsources worldwide.

Using the Internet and accessing a library of electronically-filed researchreports and studies, the eMarketer research team first aggregates publiclyavailable e-business data from hundreds of global research and consultancyfirms. This comparative source information is then filtered and organizedinto tables, charts and graphs. Finally, eMarketer analysts provide conciseand insightful analysis of the facts and figures along with their ownestimates and projections. As a result, each set of findings reflects thecollected wisdom of numerous research firms and industry analysts.

“I think eMarketer reports are extremely useful andset the highest standards for high quality,objective compilation of often wildly disparatesources of data. I rely on eMarketer’s researchreports as a solid and trusted source.”— Professor Donna L. Hoffman, Co-Director, eLab, Vanderbilt University

www.eMarketer.com©2001 eMarketer, Inc.

Analyze

Aggregate

Filter

Organize


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E-Business Software

Methodology







The Benefits of eMarketer’s AggregationApproachObjective: information is more objective than that provided by any singleresearch sourceComprehensive: gathered from the world’s leading research firms,consultancies and news organizationsAuthoritative: quoted in leading news publications, academic studies andgovernment reportsAll in one place: easy to locate, evaluate and compareReadily accessible: so you can make quick, better-informed businessdecisionsAbove the hype: accurate projections that business people can use withconfidenceTime saving: there’s no faster way to find Internet and e-business stats,online or offMoney saving: more information, for less, than any other source in theworld

“Benchmarking” and ProjectionsUntil recently, anyone trying to determine which researcher was mostaccurate in predicting the future of any particular aspect of the Internet didnot have a definitive source with which to do this. For instance, over 10firms predicted e-commerce revenues for the fourth quarter 1998 onlineholiday shopping season, and yet no single source could be identified afterthe fact as having the “correct” number. In the Spring of 1999, however, theUS Commerce Department finally began measuring e-commerce B2Cactivity so business people and others could have a benchmark with whichthey could compare and evaluate projections.

eMarketer has adapted its methodology to recognize that certaingovernment and other respected, impartial sources are beginning toprovide reliable numbers that can be consistently tracked over time. Mostof these established sources, however, only measure past results; typically,they do not make predictions.


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Methodology







Today, eMarketer formulates its essential e-business numbers by firstidentifying the most established, reputable source for a given sector beingmeasured and then adopting that organization’s figures as benchmarks forthe historical/current period. For instance, eMarketer’s US Internet userfigures will be based on a combination of the most recent data from the USCensus Bureau and the International Telecommunication Union. Using thisdata as the benchmark for 2000 and 2001, eMarketer will make projectionsfor subsequent years based on the following factors:

■ a comparative analysis of user growth rates compiled from otherresearch firms

■ additional benchmark data from Internet rating firms, e.g.,Nielsen//NetRatings, comScore Media Metrix, which use panels tomeasure Internet user activity on a weekly and monthly basis

■ an analysis of broader economic, cultural and technological trends inthe US

Similarly, US e-commerce revenues are being “benchmarked” usinghistorical data from the US Department of Commerce, and broadbandhousehold and penetration rate forecasts are being built off baseline datafrom the Organization for Economic Cooperation and Development (OECD).

Through this benchmarking process, eMarketer will be holding itself –and its projections – accountable.

“When I need the latest trends and stats on e-business, I turn to eMarketer. eMarketer cutsthrough the hype and turns an overabundance ofdata into concise information that is sound anddependable.”— Mark Selleck, Business Unit Executive, DISU e-business Solutions, IBM

I E-Business and Enterprise Applications 9


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Methodology







Market EstimatesAccording to estimates from the Giga Information Group, the worldwidemarket for enterprise software and services totaled $62.1 billion in 2001, anincrease of 5.6% over the $58.8 billion that was spent in 2000.

In its definition of enterprise software, the Giga Information Groupincludes enterprise resource planning (ERP), customer relationshipmanagement (CRM) and supply chain management (SCM) solutions, alongwith e-procurement, content management and e-commerce solutions.

Excluded from its market estimate are integration products,infrastructure software and desktop software products.

When revenues from software maintenance fees and consulting servicesare deducted, the Giga Information Group estimates that worldwide sales ofenterprise software licenses totaled $23.7 billion in 2001, a slight declinefrom the $24.7 billion in software licenses that were sold at the peak of thetechnology boom in 2000.

By comparison, Gartner Dataquest estimates that worldwide infrastructureand applications software license revenues totaled $74.5 billion in 2001.Gartner includes application integration software, as well as network andsecurity systems solutions within its broader forecast.

According to Gartner’s “most likely” market estimate that was released inDecember 2002, worldwide software license sales were forecast to reach$78.7 billion in 2003, before increasing to $85.9 billion by 2004.

Worldwide Enterprise Software and ServicesRevenues, 1999-2001 (in billions)

1999 $45.76

2000 $58.84

2001 $62.13

Source: Giga Information Group, March 2002

049179 ©2003 eMarketer, Inc. www.eMarketer.com

Worldwide Enterprise Software License Revenues,1999-2001 (in billions)

1999 $17.73

2000 $24.69

2001 $23.77




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In arriving at these numbers, Gartner cited an increase in pent-up demandamong business software buyers at the end of 2002 that would lead tostrong growth once an economic recovery got under way. On the otherhand, continued price-cutting by software vendors was also noted as afactor that could keep market growth in check.

In terms of growth rates, after measuring a decline in sales of 4.9% for2001, Gartner’s preliminary estimate indicated relatively flat software salesin 2002, with growth of just 0.6%, prior to an increase of 5.1% in 2003.

Similarly, the Giga Information Group predicted that software saleswould remain flat in 2002, but return to growth in 2003. In March 2002,the Giga Information Group forecast that enterprise software license saleswould increase by 9% in 2003, while combined software and servicesrevenues would grow by 15%.

Worldwide Infrastructure and Applications SoftwareRevenues, 2001-2004 (in billions)

2001 2002 2003 2004

Best case $74.5 $76.8 $83.1 $92.5

Most likely case $74.5 $74.9 $78.7 $85.9

Worst case $74.5 $72.7 $72.6 $73.6

Source: Gartner Dataquest, December 2002


Worldwide Infrastructure and Applications SoftwareRevenues, 2001-2004 (as a % increase/decrease vs.prior year)

2001 2002 2003 2004

Best case -4.9% 3.1% 8.2% 11.3%

Most likely case -4.9% 0.6% 5.1% 9.1%

Worst case -4.9% -2.4% -0.2% 1.5%




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Methodology







As of March 2003, Gartner Dataquest finalized its estimate for 2002software license sales, confirming that they had actually fallen by 0.7% lastyear, to $73.5 billion.

Gartner has also trimmed its growth forecast for 2003, projecting anincrease in sales of 3.5%, to $76.1 billion by the end of this year.

Among the leading enterprise software categories, ERP and related best ofbreed solutions were the single largest category of software license sales in2001, according to the Giga Information Group, followed by CRM andbusiness intelligence solutions, with revenues of $3.21 billion and $2.08billion, respectively.

Leading Enterprise Software Markets Ranked byWorldwide License Revenues, 2001 (in billions)

ERP and best-of-breed specialists

$6.02

Customer relationship management

$3.21

Business intelligence

$2.08

Product development management

$1.52

Call center/customer contact

$1.50

Enterprise content management

$1.49

Supply chain management

$1.31



Worldwide Spending on Software, 2002 & 2003 (inbillions and as a % change vs. prior year)

2002 $73.5 (-0.7%)

2003 $76.1 (3.5%)

Source: Gartner Dataquest, March 2003



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Methodology







ERP led the way in total software and services revenues as well, with salestotaling $17.8 billion. By comparison, CRM sales accounted for about onethird of ERP sales, at $6.7 billion in 2001, while SCM solutions reached$3.15 billion in total sales.

In considering the broad enterprise software market, the Giga InformationGroup believes that older enterprise applications such as ERP and CRM willsee slower growth over the coming years, since many large companies havealready purchased such applications.

The Giga Information Group does see growth in the newer enterpriseapplications markets for portals, content management solutions and e-sourcing. Similarly, industry-specific solutions tailored for the healthcare,retail or financial services industries are also expected to see strongergrowth over the coming years.

Leading Enterprise Software and Services MarketsRanked by Worldwide Revenues, 2001 (in billions)

ERP and best-of-breed specialists

$17.77

Customer relationship management

$6.66


$4.50

Call center/customer contact

$3.40

Product development management

$3.17


$3.15

Enterprise content management

$2.80




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Despite the anticipated growth in these niche markets, in a separateforecast, AMR Research estimates that ERP and CRM will still account formore than three-quarters of enterprise applications revenues by 2006.Taken together, ERP, CRM and SCM applications revenues are predicted toreach $70.6 billion in three years’ time.

Finally, one other niche within the enterprise software market is expectedto see significant growth over the next few years as well. Referred to as“software as a service” by IDC, revenues from hosted software solutions areforecast to increase by a 28% compound annual growth rate between 2002and 2007, to reach $8.0 billion in five years’ time.

IDC expects that mid-market companies will drive growth of hostedsolutions, along with individual divisions of large enterprises that chooseto turn to outside service providers for the management of their softwaresystems, so that they may better focus resources on core business activities.

Worldwide Enterprise Applications Market Revenues,by Category, 2006 (in billions)

Enterprise Resource Planning (ERP)

$31.0

Customer Relationship Management (CRM)

$26.0

Supply Chain Management (SCM)

$13.6

Total

$70.6

Source: AMR Research, May 2002


Worldwide Spending on Hosted Software Solutions,2002 & 2007 (in billions)

2002 $2.3

2007 $8.0

Source: International Data Corporation (IDC), March 2003



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Spending and Usage SurveysAccording to data from the World Information Technology and ServicesAlliance (WITSA), worldwide spending on e-business technology totaled$234.1 billion in 2001, an increase of $32 billion over spending in 2000.This spending estimate includes not only e-business software, but relatedinfrastructure spending as well.

As a percentage of technology spending, WITSA estimates that worldwidee-business spending has increased from an average 12% of IT spending in1999 to 17% in 2001.

Worldwide E-Business Technology Spending,1999-2001 (as a % of IT spending)

1999 12%

2000 15%

2001 17%

Source: World Information Technology and Services Alliance (WITSA),International Data Corporation (IDC), February 2002


Worldwide E-Business Technology Spending,1999-2001 (in billions)

1999 $148.96

2000 $202.88

2001 $234.12




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Among the top 10 countries that are investing most heavily in e-businesstechnology, China, Israel and Mexico are channeling the highest portion oftheir overall IT spending toward e-business initiatives. By comparison, theUnited States is spending 17% of its IT dollars on e-business initiatives,compared with 16% for Canada, 14% for the UK and 11% for France.

In a separate survey that was published by A.T. Kearney and Line56Research in August 2002, it was found that North American companiesspent an average 18.0% of their IT budgets on e-business in 2002. In 2003,spending on e-business was expected to significantly increase to anaverage 26.8% of IT spending.

Taking a look at the narrower market for e-business applications, DeutscheBank and CIO Magazine found that most of the CIOs they surveyed inMarch 2003 planned to keep their e-business applications spending steadyother the next 12 months, with 47.8% of respondents saying that it wouldremain unchanged.

Leading E-Business Technology Markets Worldwide,by Country, 2001 (ranked by e-business spending as a% of IT spending)

China (PRC) 32%

Israel 31%

Mexico 27%

Germany 22%

Saudi Arabia/Gulf States 21%

South Africa 21%

Colombia 21%

Argentina 21%

Singapore 18%

Malaysia 18%



North American Companies' Average E-BusinessSpending, 2002 & 2003 (as a % of IT budgets)

2002 18.0%

2003 26.8%

Source: A. T. Kearney/Line56 Research, August 2002



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Compared with survey data from one year earlier, fewer CIOs planned todecrease their e-business spending in early 2003, while a further 35.5% ofrespondents indicated that they planned to increase their spending on e-business software during the next year.

Within the broader market for business software applications, MorganStanley found that security software topped the list of spending prioritiesamong 40% of the 225 CIOs it interviewed in November 2002.

Security software was followed by employee portals and contentmanagement solutions, with more than one-third of survey respondentsindicating that they planned to purchase such solutions over the coming months.

March 2002 March 2003

Unchanged43.6%

Decrease15.4%

Increase36.5%

Unchanged47.8%

Decrease14.7%

Increase35.5%

IT Executives' Planned Spending on E-BusinessApplications Software over the Next 12 Months, 2002& 2003 (as a % of respondents)

Source: CIO Magazine and Deutsche Bank, April 2003



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Interestingly, CRM and ERP solutions ranked ninth and tenth on the list, confirming the Giga Information Group’s analysis that suchapplications would see lower spending growth when compared with other niche solutions.

Top 10 Software Spending Priorities among US CIOs,November 2002 (as a % of respondents)

Security software

40%

Employee portal

36%

Document/content management software

33%

Windows 2000/XP upgrade - desktop

33%

Windows 2000/XP upgrade - server

31%

Web services

30%

Customer portals

28%

Microsoft .Net

27%

Customer relationship management (CRM) software

25%

Enterprise resource planning (ERP) software

24%

Note: n=225Source: Morgan Stanley, December 2002



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Methodology







Focusing upon the narrower e-business applications market, A.T. Kearney and Line56 Research found that business intelligence andanalytics applications topped CIOs’ priorities, followed by CRM and sell-side applications.

Similar to other e-business surveys that eMarketer has observed,exchange platforms, be they for private or public business-to-businessexchanges, have fallen off of most IT executives’ priority lists in 2002.

North American Companies' Most ImportantE-Business Projects for 2003 (based on a scale of 1-5*)

Business intelligence/analytics 3.31

CRM/sell-side e-business 3.24

Web services 3.21

Content management/catalog 3.13

Strategic sourcing/procurement 3.12

Supply chain management 3.10

Corporate portals 3.08

Enterprise application integration 3.04

Electronic payment and settlement 2.80

Enterprise resource planning 2.63

Private exchanges 2.62

Public exchanges 2.18

Note: *where 1=least important and 5=most importantSource: A. T. Kearney/Line56 Research, August 2002



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Methodology







In a more recent survey of IT executives that was conducted in early 2003,Line56 Research found that almost 90% of respondents expressed apreference for standardizing enterprise-wide on e-business solutions,rather than permitting individual departments or company divisions toselect solutions vendors independently.

As for the suite versus best-of-breed debate, 58.7% of respondents to theLine56 Research study said that they preferred full-featured suites with pre-integrated applications.

Nonetheless, a significant 41.3% of IT executives said that they wouldrather purchase technologies from multiple vendors, apparently preferringthe greater functionality of best-of-breed suites over the benefits ofintegrated software suites.

And finally, when it comes to evaluating the ROI of various businesstechnology investments from desktop systems to content managementsoftware, CIO Insight found that e-commerce software is the most closelymonitored by technology executives.

In March 2003, CIO Insight discovered that 70.2% of the IT executivesthat it surveyed monitor the ROI on e-business/e-commerce applications,compared with 62.0% of respondents that follow their returns on salesforce automation software. Engineering/product development software,marketing automation, and CRM software were also among the moreclosely measured technology solutions.

Global IT Executives' Primary Strategy to Scale WebInitiatives, 2003 (as a % of respondents)

Standardize enterprise-wide on a portfolio of technologies andvendors that can scale

89.9%

Delegate the evaluation and selection of technology and vendorsto each business department

10.1%

Note: n= 397 IT executivesSource: Line56 Research, March 2003


Global IT Executives' Preferred Web TechnologyPurchasing Strategy, 2003 (as a % of respondents)

Prefer full-featured suites with pre-integrated applications,analytics and reporting capabilities

58.7%

Prefer to purchase technologies from multiple vendors

41.3%




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Methodology







Not surprisingly, few IT executives monitor the ROI for security software,which many companies view as a necessary cost of protecting their overallinformation systems. Other hard-to-measure technologies such as businessintelligence applications and distance learning solutions were also lesslikely to be monitored.

Percent of US CIOs Who Calculate ROI, by Technology,2002

Desktop systems

41.9%

Disaster recovery/business continuity

39.4%

Corporate portal/intranet

40.6%

Data warehousing

53.4%

E-Business/e-commerce

70.2%

Collaboration

32.8%

CRM

56.5%

Security /digital identity management

29.2%

ERP

41.2%


35.8%

Sales force automation

62.0%

Engineering/product development software

59.8%

Marketing automation

57.5%

Distance learning/online education

32.3%


53.5%

Knowledge/content management

45.5%

Source: CIO Insight, March 2003


II Enterprise Resource Planning 23


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Methodology







Market EstimatesThe Giga Information Group estimates that sales of enterprise resourceplanning (ERP) software and services solutions fell slightly in 2001,dropping to $17.77 billion from $17.84 billion in 2000.

As a subset of ERP solutions sales, human resources managementsoftware showed the strongest growth, increasing 12% from $3.40 billionin 2000 to $3.79 billion in 2001. By contrast, revenues for manufacturingmanagement software and services fell by 10% in 2001 after falling 4% in2000, while financial management solutions increased by just 2% in 2001following strong growth of 21% in 2000.

When maintenance fees and services revenues are excluded, ERP softwarelicense sales fell by 9% to $6.02 billion in 2001, according to the GigaInformation Group, with manufacturing management solutions leading theway with a 27% decline.

On the positive side, sales of HR management software licenses increasedby 4%, from $1.34 billion in 2000 to $1.4 billion in 2001.

The Giga Information Group notes that the market for manufacturingmanagement solutions has reached maturity, largely because most bigmanufacturers have already implemented such systems. Although newsales are expected to come from mid-tier companies and upgrades over thelonger term, Giga nonetheless predicts that manufacturing managementsolutions sales will continue to decline by a compound annual rate of 8%through 2005.

Breakdown of Worldwide ERP Software and ServicesRevenues*, 1999-2001 (in billions)

1999 2000 2001

Financial management software $6.61 $7.98 $8.17

Human resources management software $3.04 $3.40 $3.79

Manufacturing management software $6.71 $6.46 $5.80

Total ERP and best-of-breed revenues $16.35 $17.84 $17.77

Note: *includes best-of-breed specialists' revenuesSource: Giga Information Group, March 2002


Breakdown of Worldwide ERP Software LicenseRevenues*, 1999-2001 (in billions)

1999 2000 2001

Financial management software $2.42 $3.01 $2.99

Human resources management software $1.12 $1.34 $1.40

Manufacturing management software $2.23 $2.25 $1.63

Total ERP and best-of-breed revenues $5.77 $6.59 $6.02

Note: *includes best-of-breed specialists' revenuesSource: Giga Information Group, March 2002



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By contrast, human resources management applications have experienceda resurgence due to the broad adoption of Web-based HR applications. TheGiga Information Group predicts that HR systems will increase by acompound annual growth rate of 7% over the next few years, with sales tosmall and midsize companies making the greatest contribution to growth.

Financial management applications are forecast to see a slightly lowercompound annual growth rate of 5% through 2005, as businesses adoptnew budgeting and expense reporting applications, typically as add-ons toaccounting systems that have already been installed.

In its assessment of worldwide ERP software license sales, GartnerDataquest estimates that revenues fell 12% last year, dropping from $5.50billion in 2001 to $4.84 billion in 2002. For 2003, Gartner predicts a furtherdecline of 8%, to $4.45 billion in ERP license sales.

By comparison, the Meta Group estimates that the Tier 1 ERP market servingGlobal 2000 companies took in $15 billion in revenues during 2002. The MetaGroup includes customer relationship management (CRM) and supply chainmanagement (SCM) solutions sales within this figure, in addition to core ERPsolutions such as financial software and human resources applications.

According to the Meta Group’s calculations, the Tier 1 ERP market willsee continued growth of between 12% and 15% over the next several years, with leading vendors such as SAP, Oracle and PeopleSoft boostingtheir revenues by selling ERP solutions with added functionality toestablished customers.

Just like the Giga Information Group, the Meta Group believes that salesto small and midsize companies will be a key area of growth for traditionalERP vendors in the years ahead, as will the development of furtherindustry-specific solutions that provide greater functionality to verticalindustry ERP users.

The ARC Advisory Group’s most recent forecast also supports the notionthat Tier 2 companies will play an important role in driving ERP marketgrowth. With worldwide ERP software and services sales forecast toincrease by a compound annual growth rate of 5.8% between 2002 and2007, the ARC Advisory Group predicts that sales to Tier 2 firms willincrease by a CAGR of 6.3% over the next five years.

ERP Software New License Revenues Worldwide,2001-2003 (in billions)

2001 $5.50

2002 $4.84

2003 $4.45




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Interestingly, the majority of prospective Tier 2 clients are located inEurope, leading the Massachusetts-based research firm to estimate that theEurope, Middle East and Africa (EMEA) region already accounted for 44%of worldwide ERP sales in 2002, versus a 42% share for North America.

The ARC Advisory Group expects that a new upgrade cycle will also helpdrive global ERP sales over the next several years, as pre-Y2Kimplementations are replaced or upgraded.

Another comparative estimate from AMR Research predicts that theworldwide market for ERP solutions and services will increase by acompound annual growth rate of 10% between 2001 and 2006, to reach$31.4 billion in annual revenues in three years’ time.

Similar to the Meta Group’s analysis, AMR Research estimates that $4billion of the $19.4 billion in revenues received by traditional ERP vendorsin 2001 was from add-on solutions such as CRM, SCM, and productlifecycle management (PLM). Sales of add-on solutions are expected toincrease over the next three years, to account for about half of ERP vendorrevenues by 2006.

Worldwide ERP Software and Services Revenues,2002-2007 (in billions)

2002 $8.98

2003 $9.44

2004 $9.97

2005 $10.56

2006 $11.20

2007 $11.90

Source: ARC Advisory Group, May 2003


Worldwide Enterprise Resource Planning (ERP)Revenues, 2002 & 2006 (in billions)

2002 $21

2006 $31




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And finally, according to IDC, the enterprise relationship management(ERM) services market is expected to increase by a compound annualgrowth rate of 10.8% between 2001 and 2006, to reach $45.6 billion by2006. IDC includes accounting, human resources, materials management,and maintenance management applications within its definition of ERM.

Spending and Usage SurveysAs indicated in the forecast data above, services and related customizationand installation fees generate the largest portion of revenues in the ERP market.

This is confirmed in a study of more than 200 ERP users that was conductedby the Meta Group in early 2003, which found that labor and related servicesaccount for roughly 70% of the cost of an ERP implementation.

The Meta Group estimates that on average, the total cost of ownershipfor an ERP installation at a Global 2000 company comes in atapproximately 1% of a company’s total revenues. So, for example, anenterprise with $1 billion in revenues would spend about $10 million on itsERP implementation.

Respondents to the Meta Group’s study indicated that ERPimplementations took an average 20 months to complete, while benefitsfrom ERP implementations typically began to show up 27 months after aninstallation was started.

Enterprise Relationship Management (ERM) ServicesMarket Worldwide, 2001 & 2006 (in billions)

2001 $27.3

2006 $45.6

Note: CAGR=10.8%Source: International Data Corporation (IDC), June 2002


ERP Implementation Metrics among Global 2000Firms, 2003Average cost of an ERPimplementation

Approximately 1% of corporaterevenues

Labor cost of ERP implementation Approximately 70% of total costs

Average implementation time 20 months

Average time to benefit 27 months

Note: n=200Source: META Group, May 2003



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According to a study conducted by the Standish Group, the averagepurchase price for a single ERP application was $1.3 million in mid-2002,while the average implementation cost was approximately 5 times thepurchase price, at $6.4 million.

In its survey of over 100 ERP installations, the Standish Group found thatjust 10% of ERP implementations came in on time and on budget, asoriginally planned. For those that go over budget, the average cost overrunis 178%, while the average time overrun is 230%.

In total, the Standish Group estimates that 35% of ERP implementationprojects are cancelled altogether.

On the other hand, despite the bad reputation that ERP has for oftenbeing costly and difficult to implement, many firms view ERP as aninvaluable solution that has helped them to consolidate the management ofinformation throughout their organizations.

Among the leading drivers for ERP adoption or expansion, AMRResearch found that improving productivity and gaining a competitiveadvantage were the primary motivators for the 500 US companies that itsurveyed in July 2002. A further 14% of firms said that they purchased ERPsolutions to better meet customer needs.

On average, survey respondents allocated 34% of their applicationsbudgets to ERP in 2002, while services sector firms were found to have setaside an average 24% of their applications budgets for ERP.

Companies in the services sector were found to be most likely to see ERPas a means of gaining a competitive advantage. This is due to the relativelylow penetration of ERP systems among service sector firms, where ERP hasnot yet made as many inroads as it has in the manufacturing sector.

Leading Drivers for Businesses' Adoption of ERPSolutions, 2002 (as a % of respondents)

Improve productivity 31%

Improve competitive advantage 16%

Meet customer demands 14%

Note: n=500 medium and large companiesSource: AMR Research, August 2002


Average Cost to Buy and Implement an ERPApplication, 2002Average purchase price for a single ERP application $1.3 million

Average implementation cost $6.4 million

Note: n=107Source: Standish Group, August 2002



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When it comes to comparing the results of enterprise applicationinstallations, AMR Research found that 30% of the companies it surveyedsaid that ERP played the main role in achieving general business goals overthe past 12 months. Another 20% cited supply chain management (SCM)initiatives and 19% cited customer management (CM) initiatives.Companies surveyed were either in the manufacturing or service industriesand had 1,000 or more employees.

When companies were asked why enterprise applications were so helpful,35% said they increased efficiency, 33% said they increased revenue and30% said they reduced overall costs.

Overall, ERP systems in one form or another had been implemented at67% of the 500 medium and large companies that AMR Researchinterviewed, with finance and revenue management applications being themost commonly deployed, at 91% of respondents.

Human Resources and workforce management applications were the most commonly deployed systems at services companies, after financial applications.

SAP had the largest installed base of ERP customers within the entiresample group, followed by Oracle at 18% of respondents and PeopleSoft at17%. In the manufacturing sector, SAP held 43% of the market, comparedwith Oracle’s 20% market share.

In an April 2003 report, the Meta Group found that within the Tier 1 ERPmarket that primarily serves Global 2000 companies, five vendors accountfor 80% of ERP sales, with SAP, Oracle, and PeopleSoft listed as the leaders.

Niche vendors occupying the mid-market for ERP implementationsoccasionally challenge these companies, although the largest ERP vendors are presently trying to make inroads into mid-market ERPcustomers themselves.

In a separate report, Forrester Research includes J.D. Edwards, Baan andLawson among those ERP vendors that sell to large enterprise customers,while MAPICS, Exact Software, Microsoft Business Solutions, Epicor, andQAD are listed among leading mid-market players.

Among the factors that prevent mid-market players from selling to large

Leading ERP Vendors among Businesses withDeployed ERP Systems, 2002 (as a % of respondents)

SAP 33%

Oracle 18%

PeopleSoft 17%

Homegrown applications 11%

Note: n=500 medium and large companiesSource: AMR Research, August 2002



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enterprises, Forrester cites local or industry-specific limitations, whichoften prevent some of these smaller vendors from providing the globalsupport that large enterprises require. On the other hand, as most industryanalysts have noted, most of the large ERP vendors are continuing to makeinroads into the small and mid-size business market, with companies suchas SAP, Oracle, and PeopleSoft focusing on the development of sales andservice channels that permit them to sell to smaller customers.

In total, AMR Research claims to be tracking more than 60 ERP vendors,with a further 25 smaller niche vendors that lie outside of its coverage.

According to AMR Research, upgrade cycles for ERP systems areincreasingly being extended, with companies now looking to upgradeevery 10 to 15 years, rather than every 5 to 7 years, as they had done in the early 1990s. As a result, AMR Research predicts that the nextsignificant upgrade cycle will begin in 2006, but will most likely reach itspeak in 2010.

Until then, the high growth areas for ERP systems over the next fewyears will be the government and services industries, according to AMR. Mid-size businesses are also expected to be a high growth market,with ERP sales to such companies increasing by between 10% and 15%through 2006.

In a separate survey of 109 companies that had completed an ERPupgrade in early 2002, AMR Research found that 85% of respondents saidthat the primary benefits of their upgrades include improved ease of use,additional functionality and improved collaboration.

Portals, Internet-based procurement applications, self-service HR andbusiness intelligence were the leading solutions that companies added totheir ERP solutions through their upgrades. On average, survey respondentsadded three new functional areas during their last upgrade.

As for upgrade costs, 76% of respondents said that the average cost oftheir upgrade was $1.5 million – roughly 18% of their initial ERPimplementation cost.

Each upgrade took an average 7 months from planning to launch date, with29% of firms reporting that testing was the most difficult stage of theirupgrade. A further 28% of respondents said that data conversion/migrationwas the most difficult stage.

Average Cost to Upgrade an ERP System, 2002Average upgrade cost $1.5 million

Average cost as a % of initial ERP implementation 18%

Average cost over-run $100,000

Note: n=109 companiesSource: AMR Research, CIO Magazine, April 2003



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Not surprisingly, large upgrades that affected more users were found tohave been less costly than small incremental ones, primarily due to theeconomies of scale that companies were able to achieve.

When it comes to purchasing add-on CRM systems, Forrester Researchfound that CRM adoption rates were relatively high among all ERP users.Just over 60% of Oracle customers had already deployed CRM software ofsome kind as of mid-2002, while at least 44.8% J.D. Edwards’ customershad implemented a CRM system as well.

When CRM systems use was broken down by ERP vendor, it was found thatSAP had been the most successful at retaining its own customers for CRMsystems sales, with 18.5% of its ERP users purchasing its CRM solutions.

Percent of ERP Vendors' Customers in North Americathat Use CRM Software, by Vendor, 2002

Oracle ERP customers 61.3%

SAP ERP customers 50.3%

PeopleSoft ERP customers 45.1%

J.D. Edwards ERP customers 44.8%

Note: n=412 North American companiesSource: Forrester Research, August 2002


Primary CRM Software Vendor to SAP ERP SystemCustomers in North America, 2002 (as a % ofrespondents)

SAP 18.5%

Siebel Systems 11.9%

In-house development 8.0%

Clarify/Nortel Networks 2.5%

PeopleSoft 1.3%




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By comparison, 18.8% of Oracle’s ERP customers used Siebel Systems’ CRM software, while a respectable 15.1% of its ERP customers used Oracle’sCRM solution.

PeopleSoft appears to have had the toughest time selling its CRM softwareinto its own ERP base, with just 9.0% of its customers having chosen itsCRM solutions as of mid-2002. On the other hand, a significant 12.5% of itsERP customer base was still relying on in-house CRM solutions, indicatingroom for future sales into its client base.

Primary CRM Software Vendor to Oracle ERP SystemCustomers in North America, 2002 (as a % ofrespondents)


Oracle 15.1%



PeopleSoft 3.9%



Primary CRM Software Vendor to PeopleSoft ERPSystem Customers in North America, 2002 (as a % ofrespondents)



PeopleSoft 9.0%


SAP 1.2%




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And finally, 13.7% of J.D. Edwards’ ERP customers chose to use SiebelSystems’ CRM software, while 12.5% of its customer base decided to gowith J.D. Edwards’ CRM solution as an add-on.

Primary CRM Software Vendor to J.D. Edwards ERPSystem Customers in North America, 2002 (as a % ofrespondents)


J.D. Edwards 8.1%


Oracle 2.7%


PeopleSoft 1.5%



III Portals and Enterprise Content Management 35


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A. Portals

Market EstimatesAccording to the Giga Information Group, the market for portal softwareand services began to take off two years ago, when it doubled from $400million in revenues in 2000 to $800 million by the end of 2001.

Sales of portal software licenses alone totaled $600 million in 2001, withlicense sales increasing by a 35% compound annual growth rate (CAGR)through 2005, according to the Giga Information Group.

Among the leading portal solutions vendors, Giga lists Plumtree andVignette’s Epicentric as key specialist vendors in the portal market.Enterprise resource planning (ERP) vendors such as SAP, Oracle andPeopleSoft have also added portal offerings to their enterprise applicationsuites, while application platform vendors such as IBM, BEA Systems andMicrosoft have developed portal solutions as well. The growing presence oflarge, established technology vendors in the portal market is expected toadd a further boost to sales over the mid- to long-term.

The Giga Information Group has found that one of the other leadingdrivers of portal software sales is the growing desire of many companies toconsolidate multiple information systems solutions onto one portalinterface, be they for internal employee portals, or for external customer-or supplier-facing Web sites.

Giga predicts that over the next few years, portals will play anincreasingly important role in helping large companies organize access toenterprise content and business applications.

Worldwide Enterprise Portal Software and ServicesRevenues, 1999-2001 (in billions)

1999 $0.20

2000 $0.40

2001 $0.80



Worldwide Enterprise Portal Software LicenseRevenues, 1999-2001 (in billions)

1999 $0.15

2000 $0.30

2001 $0.60




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In its look ahead at the current year’s portal market, the Delphi Group estimates that worldwide portal software sales will increase from $787 millionin 2002 to $957 million by the end of 2003, before climbing to $1.13 billionin 2004. Integration projects connecting portal platforms with variousenterprise applications are expected to contribute significantly to thegrowth in spending over the next few years.

The manufacturing industry is projected to lead portal sales, accountingfor 29.7% of market revenues in 2003, followed by governmentorganizations at 22.2% of revenues, and then the financial servicesindustry at 19.0% of revenues, according to the Delphi Group.

The Delphi Group also predicts that over the next few years, enterprises will begin to spend more on bringing their multiple portals together onto a single platform, rather than continuing to develop separatecustomer- or employee-facing portals that so far have often been builtusing different platforms.

This means that by 2004, portal platforms will account for 45% of portalmarket sales, according to the Delphi Group.

Worldwide Enterprise Portal Software* Revenues,2002-2004 (in billions)

2002 $0.79

2003 $0.96

2004 $1.13

Note: *includes collaborationSource: Delphi Group, 2003


2001 2004

Portalplatforms

15%

Portalapplications40%

Portalinfra-structure45%

Portalplatforms

45%

Portalapplications24%

Portalinfra-structure31%

Breakdown of the Worldwide Portal Market, byTechnology, 2001 & 2004 (as a % of total revenues)

Source: Delphi Group, 2002; CIO Magazine, July 2002



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A third comparative estimate from IDC puts what it calls the “enterpriseinformation portal” market at $3.10 billion by 2006, while the Gartner Group estimates that portal license revenues will increase from $709 billionin 2001 to $2 billion in 2006.

As part of its forecast, IDC predicts that portal software sales willincrease by a CAGR of 41% between 2001 and 2006, compared withGartner’s forecast CAGR of 24%. Between 2002 and 2004, the Delphi Groupforecasts that portal software sales will grow by a CAGR of 20%.

Divided by world region, the Radicati Group estimates that the UnitedStates is the biggest market for portal software, accounting for 68% ofworldwide revenues in 2002. Sales in Europe are a distant second at 24% ofrevenues, while the Asia-Pacific market remains largely untapped,accounting for less than 6% of global portal software sales.

Broken down by vendor, early data indicates that the portal solutionsmarket was still highly fragmented in 2001, with no vendor taking morethan 7% of all revenues. Furthermore, those companies outside of the topfive vendors held a substantial 68% of the market.

Enterprise Information Portal (EIP) Software MarketWorldwide, 2001 & 2006 (in billions)

2001 $0.55

2006 $3.10

Source: International Data Corporation (IDC), June 2002


Rest of World2%

Asia-Pacific6%

Europe24%

US68%

Enterprise Portal Software Revenues Worldwide, byRegion, 2002

Source: Radicati Group, June 2002



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However, as the market began to take off in 2001, both IBM and Plumtreesaw their revenues jump over the previous year, with increases of 233%and 125%, respectively, over 2000.

In a more recent study that was published in December 2002, the Delphi Group surveyed 200 organizations that had implemented a portal of somekind, finding that Plumtree’s portal solution was installed at 15% of thecompanies it surveyed, compared with a 10% market share held byMicrosoft’s SharePoint solution and a 9% market share for Oracle. IBM’sWebSphere portal solution had been installed at 8% of respondents.

When comparing portal market share, it is worthwhile to note that due tovariations in price, some vendors will have a lower share of marketrevenues because their solutions sell at a lower price. On the other hand,these companies are more likely to have a better market share when theirinstalled base of customers is compared with those vendors offering moreexpensive solutions.

For instance, licenses for Microsoft’s SharePoint portal software are lessexpensive than those of other solutions, which partly explains its betterplacement in the Delphi Group's survey.

Spending and Usage SurveysIn an October 2002 study of the enterprise portal market, the the Meta Groupestimates that 20% of Global 2000 companies had deployed a portalplatform as of the third quarter of last year. Anticipating strong growthover the coming months, the Meta Group estimates that portal solutionswill achieve an 85% penetration rate among Global 2000 companies by theend of 2004.

According to a December 2002 Delphi Group survey of enterprise portalimplementations, approximately three-quarters of respondents indicatedthat their current portal solution had only been deployed within the past 15months, while a further 16% of respondents said that they had been usingan enterprise portal of some kind for more than 20 months.

Portal Vendors’ Market Share Worldwide, 2000 & 2001

Plumtree

SAP

IBM

Sun Microsystems

Broadvision

Others

Total

2000 marketshare

5%

–

3%

7%

–

85%

100%

2001 marketshare

7%

7%

7%

6%

5%

68%

100%

Revenuegrowth

125%

–

233%

29%

–

26%

59%

Source: Gartner Dataquest, June 2002



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In total, 200 Global 2000 companies that had deployed an enterprise portalwere interviewed for the study.

When asked about the number of orientations, or primary userconstituencies that their portals addressed, the Delphi Group found that 37% of respondents to its survey had at least two primary portals in use, while afurther 25% of enterprises had as many as three portal orientations in use.

Most companies were found to have started with an employee-facingportal, with 51% of enterprises indicating that they were currentlyoperating a portal that serves payroll or HR-related functions.

Once an enterprise becomes comfortable with its internal portal use, thestudy found that many then move on to develop a business-to-businessportal, which typically includes some kind of collaborative solution.Customer-facing portals were discovered to be the least common portalorientations among respondents to Delphi Group survey.

Primary Orientation of Global 2000 Company Portals,2002 (as a % of respondents)

Business to employee 51%

Business to business 26%

Source: Delphi Group, 2002; CIO Magazine, January 2003


Number of Portal Orientations Used by Global 2000Companies, 2002 (as a % of respondents)

One orientation 28%

Two orientations 37%

Three orientations 25%

Source: Delphi Group, 2002; CIO Magazine, January 2003



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These results were similar to those of Jupiter Research, which found inearly 2003 that nearly two-thirds of enterprise portals were targeted atemployees, while a further 54% of enterprise portals had been establishedfor business-to-business channel partners or suppliers.

However, a substantial 49% of respondents to the Jupiter surveyindicated that they had deployed a customer portal as well.

As for the amount of time required for a portal implementation, in aseparate survey of 110 of its own customers, Plumtree found that mostcompanies had been able to deploy its portal software within six months,with 32% of respondents having completed their portal deployments withintwo to three months.

Just under two-thirds of Plumtree’s customers, at 64% of respondents,said that they considered their portal deployment to have been a success,while a further 32% said that it was still too early to determine how theirdeployment had gone.

Deployment of Enterprise Portals among Companiesin the US, by Portal Type, 2002 (as a % of respondents)

Employee portals 64%

Customer portals 49%

Portals for channel partners 29%

Portals for suppliers 25%

Source: Jupiter Research, February 2003


12+8%10 to 12

7%7 to 97%

4 to 642%

2 to 332%

14%

Number of Months Required by Plumtree Customersto Deploy Its Portal Software, 2002 (as a % ofrespondents)

Note: n=110 Plumtree customersSource: Plumtree, March 2003



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By comparison, the Meta Group estimated in October 2002 that as many as30% of portal deployments had been described as failures, largely due to a lack of user participation. In some cases, portal deployments were found to have remained the domain of one business unit or division, mostoften the IT department, and had therefore not been adopted throughoutthe enterprise.

As a means of avoiding the development of so-called “empty portals,”the Meta Group recommends that companies encourage different businessgroups to submit content to their company’s enterprise portal so that itbecomes a central place for exchanging information.

The Meta Group also recommends that companies establish collaborativeforums on their enterprise portals, where separate groups within acompany may work together on a single project. Enterprises are urged tointegrate existing applications with their central portal as well.

According to Plumtree’s experience, the most successful portaldeployments begin as a central place for the dissemination of generalinformation. Over time, different work groups build departmental resourcecenters or collaboration sites within the portal. Eventually, selectcommercial and proprietary applications are integrated with the enterpriseportal, providing users with a single access point to enterprise applications.

Among Plumtree’s customer base, the HR and IT departments weretypically the first lines of business to deploy applications within a portal,followed by the sales & marketing and finance departments.

When it comes to employees’ use of enterprise portals, Agency.comfound in late 2001 that 36% of the US workers it surveyed said that theircompanies’ portals helped them to work more productively.

A further 30% said that their corporate intranets helped them to providegood customer service, while 28% said that their company portals let themcollaborate with fellow employees.


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Employee directories, statements of company benefits and policies, andonline training were among the most popular portal features thatparticipants in the Agency.com survey cited as being most helpful.Company news was also listed as one of the more useful features.

Respondents to Agency.com’s study estimated that they were saving anaverage 2.84 hours per week, thanks to the use of their companies’corporate intranets. Based upon a 40-hour workweek, this represents about7% of workers’ time.

Assuming that an employee earns an average $55,000 per year,Agency.com calculates that enterprises can save an average $3,908 per employee, while for heavier portal users, this savings can go as high as $7,178.

US Employees’ Opinions Regarding the Benefits ofIntranets/Corporate Portals, 2001 (as a % ofrespondents)

Can work more productively

36%

Can provide good customer service

30%

Can collaborate effectively with other employees

28%

Can make good business decisions

22%

Can collaborate effectively with customers and partners

19%

Note: n=543Source: Agency.com, November 2001


Impact of Intranets and Corporate Portals on USEmployee Productivity, 2001 (as a % of respondents)

Average Heavy usage (8 hours+)

Medium usage(2-8 hours)

Light usage(0-2 hours)

Hours saved perweek

2.84 5.22 2.32 0.63

Productivityimpact*

7.1% 13.1% 5.8% 1.6%

Savings peremployee** (in thousands)

$3,908 $7,178 $3,196 $867

Note: n=543; *based on 40 hours/week; **based on fully loaded cost of$55,000 per employee per yearSource: Agency.com, November 2001



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Due to the high variability among different kinds of portal deploymentsand their complexity, the Meta Group estimates that the cost of a portalsolution can vary from $200 to $2,000 per user seat, per year. Softwarelicensing, according to the Meta Group, accounts for just 10% to 20% ofthe total project cost.

As part of its December 2002 portal study, the Delphi Group surveyed 500 companies that were either current or potential portal solutions buyers.Among the study’s findings, it was discovered that by far, collaborativecapabilities were among the leading functions that enterprises want to beincluded in portal software.

Other key functions include enterprise search capabilities, a single sign-on feature, and content management capabilities.

When it comes to deploying their companies’ Web-based portal solutions,the vast majority of IT executives would like to be able to implement suchsolutions as quickly as possible, finds Line56 Research.

Leading Functions that Enterprises Want to BeIncluded in Portal Software, 2002 (as a % ofrespondents)

Collaboration 74%

Enterprise search 73%

Single sign-on 73%

Content management 72%

Taxonomy management 63%

Directory services 55%

Instant messaging 40%

Business process management 39%

Note: n=500 enterprise software buyersSource: Delphi Group, December 2002



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However, for 85.9% of respondents, it is also important to have an effectivestrategy for their portal deployment that aims to provide integrated accessto existing applications via a single platform. By taking the time to workout such a strategy, businesses believe that they can reduce integrationcosts over the longer term.

Most respondents to the Line56 Research study also want to consolidateInternet-based access to enterprise applications through a single portal,rather than provide unique interfaces to each application.

Among its own customers, Plumtree has found that most companies haveintegrated between one and five commercial applications within theirenterprise portals. Groupware, content management solutions, ERP and aportlet framework for Microsoft Excel were the most common applicationsthat users had integrated with Plumtree’s solution as of early 2003.

In terms of the number of documents that Plumtree customers have madeavailable through their enterprise portals, the median number ofdocuments ranges from 1,000 to 10,000, although just under 20% of itscustomers have made more than 50,000 documents available through theirportal solutions.

Global IT Executives' Primary Strategy for DeployingPortal and Web Applications, 2003 (as a % ofrespondents)

Priority is to deploy portal and Web applications quickly, withlong term portfolio management costs to be considered in future

14.1%

Quick portal deployment is a priority, but consolidation ofexisting applications and information is critical to decrease longterm costs

85.9%



How Global IT Executives Describe Their Company'sEnterprise Portal, 2003 (as a % of respondents)

Online access to information and functionality of each enterpriseapplication provided through a unique interface

15.8%

Online access to information and functionality of each enterpriseapplication provided through a consolidated interface

84.2%




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Access to so many documents is made possible through the integration ofPlumtree’s portal solution with other systems, which requires a complexsynchronization of data as it moves between Plumtree’s Web-basedenvironment and other systems.

B. Enterprise Content Management

Market EstimatesThe Giga Information Group describes the market for enterprise contentmanagement solutions as one that is in transition, as documentmanagement applications sales are in decline, while Web contentmanagement (WCM) solutions are seeing rapid growth.

In 2001, for example, sales of document management solutions andservices fell by 8% from $1.80 billion in 2000 to $1.65 billion in 2001. Onthe other hand, sales of Web content management solutions grew by asubstantial 29%, from $890 million in revenues in 2000, to $1.15 billion inrevenues in 2001.

When services and maintenance fees revenues are deducted, overallcontent management software license sales fell slightly, from $1.61 billionin 2000 to $1.49 billion in 2001.

Once again, however, document management software sales pulled thebroader category down, falling by 23%, while Web content managementsoftware saw 18% growth. Furthermore, this 18% growth came on top of224% growth in Web content software license sales in 2000.

Breakdown of Worldwide Enterprise ContentManagement Software and Services Revenues,1999-2001 (in billions)

1999 2000 2001

Document management $1.41 $1.80 $1.65

Web content management $0.27 $0.89 $1.15

Total enterprise content management $1.67 $2.70 $2.80



Breakdown of Worldwide Enterprise ContentManagement Software License Revenues, 1999-2001(in billions)

1999 2000 2001

Document management $0.73 $1.01 $0.78

Web content management $0.18 $0.60 $0.71

Total enterprise content management $0.91 $1.61 $1.49




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According to the Giga Information Group, the growing importance ofcorporate Web sites in the late 1990s led to the explosion in Web contentmanagement software sales in 2000 and 2001, with vendors such asVignette, Interwoven, Documentum and Stellent benefiting from theirspecialist expertise.

Meanwhile, software vendors such as FileNet, IBM and OpenText sawtheir document management software revenues decline, as fewerbusinesses purchased their solutions in 2001.

Looking ahead to 2005, Giga predicts that sales of Web contentmanagement solutions will increase by a healthy CAGR of 19%, whiledocument management solutions will see slower growth of about 3% peryear. Overall, the content management market is shifting from its pastfocus on document management, to one that includes Web and digitalcontent as well.

Indeed, as of early 2002, industry analysts such as the Meta Group havebegun to refer to what is now called the “enterprise content management”(ECM) market, a term that includes both traditional document and Webcontent management solutions, along with the emerging market for digitalasset management solutions.

“The era of solely focusing on WCM is coming to a close. Competitive vendors are integrating WCM, document management, digital assetmanagement, report management, collaboration,and other features to create flexible ECM solutionsthat can be implemented and standardized acrossan entire organization.”— Jarad Carleton, Frost & Sullivan

This re-ordering of the content management market has been touched offby the recent acquisition activity of solutions vendors such asDocumentum, FileNET, and Open Text, which are aiming to assemble wholesuites of content management solutions under their own umbrella.

As a subset of the ECM market, the Meta Group predicts that sales of Webcontent management software and services will grow to $10 billion by theend of 2004. IDC estimates that sales of ECM software totaled $2.5 billionat the end of 2002, and will increase by a CAGR of 53% through 2007.


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According to IDC, the related content and document services market isexpected to grow from $4.8 billion in 2001 to $24.4 billion by 2006.

In its breakdown of the content management market, the Meta Groupestimates that by 2004, one-half of the market’s $10 billion in revenues willbe spent on the management of business-to-business data. Just $1 billion isforecast to be spent on employee-facing solutions, while $4 billion will bespent on consumer-related solutions.

Spending and Usage SurveysWith business data continuing to grow at an almost exponential rate, businesses have necessarily turned to content management solutions to better organize and filter the vast amount of information that they are generating.

Among the forces driving the adoption of content management solutionshas been the growth of Web-based communication and relateddocumentation, along with significant improvement in contentmanagement technology.

Content and Document Management ServicesSpending Worldwide, 2001-2006 (in billions)

2001 $4.8

2002 $6.1

2003 $8.0

2004 $12.0

2005 $17.0

2006 $24.4

Source: International Data Corporation (IDC), March 2002; BoardwatchMagazine, May 2002


Content Management Market, by Segment, 2004 (inbillions)

B2E $1.0

B2C $4.0

B2B $5.0

Source: META Group, March 2002; ZDNet, May 2002



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Changes in regulatory rules for businesses in the financial services andpharmaceuticals industries have also forced companies to find ways tobetter store, organize and retrieve information. This has fostered aresurgence in sales of document management solutions sales since early2002, while Web content management (WCM) software sales have recentlyfallen behind.

As for those packaged solutions that businesses are using to managetheir content, the Yankee Group found in October 2002 that 76% of the 600medium-size and large businesses that it surveyed were using traditionalWeb content management software from vendors such as Documentum,FileNET and Interwoven, among others.

Other packaged content management solutions were less commonlyused, with just 11% of respondents using brand asset management softwareand 7% using digital asset management applications.

A significant 9% of firms were found to be using integrated contentmanagement suites – a percentage that is expected to grow over the nextseveral years.

Forrester Research discovered in a June 2002 study that more than one-halfof the Global 3500 companies it surveyed used their own internallydeveloped tools to manage content.

Type of Content Management Software Used byBusinesses Worldwide, 2002 (as a % of respondents)

Traditional Web content management (i.e., Documentum, FileNET,Interwoven, Stellent and/or Vignette)

76%

Brand asset management (BAM)

11%

Integrated content management suites

9%

Digital asset management (DAM)

7%

Video asset management software

6%

Source: Yankee Group, October 2002



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Among the leading commercial applications, 22% of respondents said theyused Lotus Domino, followed by 16% that use Oracle’s Internet File Systemand 13% that use Documentum 4i.

Within the narrower Web content management market, the Meta Groupestimates that as of the first quarter of 2002, 60% of Global 2000organizations had purchased a WCM package from a solutions vendor.The Meta Group projects that by 2005, 95% of Global 2000 firms will havepurchased a packaged WCM solution.

By contrast, the Yankee Group found in October 2002 that 60% of thebusinesses it surveyed used homegrown WCM tools and applications,which typically had “rudimentary workflow, security and access control.” Itis worthwhile to note that the Yankee Group included medium-size and largebusinesses in its study, while the the Meta Group’s survey focused on larger, Global 2000 firms.

Tools Used by Global 3,500 Companies to ManageContent, 2002 (as a % of respondents)

Homegrown/developed internally

54%

Lotus Domino

22%

Oracle Internet File system

16%

Documentum 4i

13%

Broadvision One-to-One Content

10%

Microsoft Content Management Server

10%

Rational Suite ContentStudio

8%

Interwoven TeamSite

7%

Microsoft SharePoint Server

7%

Vignette V5 or V6

4%

Source: Forrester Research, June 2002



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Among those industries that are most likely to be using a homegrownsolution, 56% of firms from the financial services industry were using suchapplications, compared with 49% of manufacturing sector firms and 48%of government organizations.

The Yankee Group found that Web content management software was widelyused by more than 80% of businesses with more than $10 million in annualrevenues. A significant 73% of companies with less than $10 million inrevenues also used Web content management software.

Businesses Worldwide that Use HomegrownApplications to Manage Their Web Content, by Sector,2002 (as a % of respondents)

Financial services 56%

Manufacturing 49%

Government 48%



Businesses Worldwide that Use Web ContentMangement Software, by Annual Revenues, 2002 (as a% of respondents)

Under $10 million 73%

$10 million to $99.9 million 81%

$100 million to $499.9 million 86%

$500 million to $1 billion 86%

More than $1 billion 84%

Total 78%




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As for the greatest challenges that companies have with implementingcontent management tools, 42% of respondents to Forrester’s survey saidthat customization was difficult. A further 36% said that integration withthird party applications was another challenge, while just under one-thirdof respondents said that they found content management tools difficult tolearn, administer and implement.

These findings bode well for the content management services market,which IDC sees as the larger opportunity within the overall ECM space,with installation, customization and training representing a significantopportunity for full-service solutions vendors.

Indeed, Frost & Sullivan notes that some leading software vendors havebeen selling content management solutions at a heavy discount, as a lossleader for more lucrative services contracts.

In order to keep up with the growth of both Web content and digitizedpaper content, businesses have necessarily had to turn to enterprise searchsolutions as part of their overall content management strategies.

Greatest Challenges with Content Management ToolsFaced by IT Executives at Global 3,500 Companies,2002 (as a % of respondents)

Hard to customize 42%

Third-party integration 36%

Hard to learn 31%

Hard to administer 31%

Hard to implement 30%

Poor vendor support 18%

Hard to use 16%

Other 12%

Note: n=134Source: Forrester Research, June 2002



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Not surprisingly, when it comes to integrating Web content managementsolutions with other enterprise applications, 55% of respondents to theYankee Group study said that their Web content management solutions hadbeen integrated with a search solution.

“Portal integration is growing in importance asorganizations recognize the need for a robustcontent infrastructure to support portal initiatives.”— Andrew Warzecha, Meta Group

Indeed, a further 37% of respondents to the Yankee Group survey said thattheir WCM solution had been integrated with their corporate portal.

Businesses Worldwide that Integrate Web ContentManagement with Other Enterprise InformationManagement Applications, 2002 (as a % ofrespondents)

Search solutions 55%

Corporate portals 37%

Collaboration tools 28%

CRM 21%



IV Customer Relationship Management 55


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Market EstimatesRiding the wave of the late 1990’s technology boom, the market for CRMsoftware and services more than doubled between 1999 and 2001 to reach$6.66 billion in sales.

According to the Giga Information Group, CRM software license salesactually fell by 5% in 2001 to $3.21 billion, although CRM softwareretained its position as the second largest market for enterpriseapplications, just behind ERP.

It is worthwhile to note that other research firms sometimes include callcenter/customer contact management software as part of their CRMsoftware forecasts, while the Giga Information Group separates call centersoftware sales out of its forecast for the CRM market.

As an aside, according to Giga’s calculations, the market for call centersoftware saw license revenues grow by 2% to $1.49 billion in 2001, whilecombined sales of call center software and services totaled $3.40 billion.

Looking ahead to 2005, the Giga Information Group predicts that CRMsoftware license sales will increase by a compound annual growth rate of12%, with sales gaining momentum in 2003 and 2004, once an economicrecovery is underway. Giga believes that CRM sales will return to growthonce businesses reduce their focus on cost cutting, and instead begin tolook for ways to increase revenues.

Worldwide CRM Software and Services Revenues,1999-2001 (in billions)

1999 $3.19

2000 $6.06

2001 $6.66



Worldwide CRM Software License Revenues,1999-2001 (in billions)

1999 $1.72

2000 $3.40

2001 $3.21




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In a more recent forecast from December 2002, Gartner Dataquest expectsCRM software sales to remain flat in 2003, at $3.03 billion in revenues.

By contrast, the Aberdeen Group is much more optimistic than GartnerDataquest, predicting that spending on CRM hardware, software andconsulting services will increase by 12.1% in 2003 to reach $15.40 billionby year’s end.

This forecast is based upon a survey conducted by the Aberdeen Groupand RealMarket in January 2003, which found that more than half of thecompanies they surveyed planned to increase their CRM spending this year, with most expecting to increase their spending during the second halfof 2003.

By 2005, the Aberdeen Group predicts that the CRM market will havegrown to $19.60 billion, with small and medium companies playing animportant role in driving growth as well.

A fourth comparative estimate by the ARC Advisory Group puts worldwideCRM software and services revenues at $6.75 billion in 2001.

In 2003, the market is forecast to grow by 7.2%, to $7.3 billion, beforegoing on to increase by a compound annual rate of 9.1% over the next fouryears, to reach $10.43 billion by 2006.

CRM Software New License Revenues Worldwide,2001-2003 (in billions)

2001 $3.74

2002 $3.03

2003 $3.03



Worldwide CRM Software and Services Spending,2001-2003 (in billions)

2001 $13.48

2002 $13.74

2003 $15.40

Source: Aberdeen Group, February 2003



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The ARC Advisory Group includes sales of marketing automation, salesforce automation (SFA), customer support automation and knowledgemanagement applications as part of its CRM software forecast. CRMservices accounted for 55% of total CRM sales in 2001, with maintenancefees making up 50% of services revenues.

IDC predicts that worldwide sales of CRM software licenses will increase bya compound annual growth rate of 16% between 2002 and 2006, to reach$15 billion by the end of 2006.

IDC includes marketing, customer service, and sales force automationsolutions in its definition of the CRM market, with marketing applicationsexpected to show the strongest growth over the next four years.

CRM Software and Services Market Worldwide,2001-2006 (in billions)

2001 $6.75

2002 $6.81

2003 $7.30

2004 $8.02

2005 $9.01

2006 $10.43

Source: ARC Advisory Group, July 2002


Customer Relationship Management (CRM) SoftwareSales Worldwide, 2002 & 2006 (in billions)

2002 $8

2006 $15

Source: International Data Corporation (IDC), April 2002



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Breaking down the CRM applications market, IDC estimates that sales forceautomation software generated the most revenues in 2002, accounting for41% of total license revenues.

Marketing software accounted for just 22% of overall license revenue,while customer service applications brought in the remaining 37% ofindustry revenues.

Turning to CRM services, IDC predicts that revenues for this market willgrow from $19.3 billion in 2002 to $45.5 billion in 2006.

Not surprisingly, systems integration made up the greatest portion of CRMservices revenues in 2002, as most companies that have adopted CRMapplications have necessarily sought to link these front-end solutions withback end systems.

Deployment and support services for CRM solutions formed the nextlargest component of CRM services sales, at 23% of revenues.

Marketing22%

Customer service37%

Sales41%

Breakdown of Customer Relationship Management(CRM) Software Sales Worldwide, 2002 (as a % of totalsales)



Customer Relationship Management (CRM) ServicesRevenues Worldwide, 2002 & 2006 (in billions)

2002 $19.3

2006 $45.5




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Interestingly, IDC foresees significant growth in the market for outsourcedIT services by 2006, which is forecast to increase from 4% of CRM servicesrevenues in 2002 to 14% of revenues in just four years.

According to the Meta Group, CRM services revenues will see relativelyslow growth of just 5% to 6% in 2003, as sluggish CRM software sales from2002 impact the need for services this year. However, services growth isexpected to rebound nicely in 2004, with revenues increasing by 8% to10%, according to the Meta Group, thanks in part to this year’s anticipatedrebound in CRM software sales.

And finally, Forrester Research estimates that worldwide CRM software,hardware, and services sales will increase from $42.7 billion in 2002 to$73.8 billion by 2007, growing at a compound annual rate of 11.5%.

2002 2006

ITconsulting8%

IT training11%

Deploy andsupport

23%

Systemsintegration50%

Applica-tion devel-opment4%

IT outsourcing4%

ITconsulting

6%

IT training13%

Deployand

support17%

Systemsintegration47%

Applica-tion devel-opment3%

IT outsourcing14%

Breakdown of Worldwide CRM Services Revenues, bySegment, 2002 & 2006 (as a % of total revenues)



CRM Consulting Services Growth, 2002, 2003 & 2004

2002 6%-8%

2003 5%-6%

2004 8%-10%

Source: META Group, December 2002



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CRM services will account for the greatest share of market revenues in2003, at $27.24 billion, followed by CRM applications sales at $12.54billion and CRM infrastructure at $6.94 billion. Overall, CRM marketrevenues are expected to grow by 9.2% this year, after sales fell 5.4% in 2002.

Among the fastest growing segments within the CRM software market,marketing automation applications are expected to show the strongestgrowth between 2002 and 2007, increasing by a compound annual rate of16.2% according to Forrester. Sales, or “field” force automationapplications are predicted to post a similarly high 15.3% CAGR over thenext five years, while revenues from full CRM suites are expected toincrease by a 12.8% CAGR through 2007.

Forrester Research believes that multi-channel integration will driveCRM software and services sales over the short term, as Global 3,500companies continue to work on integrating customer data across phone,Internet, and direct sales channels.

As most companies begin to move out of this data integration phase inearly 2004, Forrester predicts that businesses will start to focus onchanging internal business processes, so that they can better coordinatecustomer sales and services across multiple channels.

Worldwide Customer Relationship Management(CRM) Spending, by Category, 2002-2007 (in billions)

Applications total


CRM suites

Analytics

Customer channel apps

Field force automation

Services total

Contact centeroutsourcing

Consulting

Marketing services

Infrastructure total

Data integration

Contact centerinfrastructure

Total CRM Spending

2002

$11.75

$0.44

$7.13

$1.53

$2.19

$0.47

$24.82

$10.02

$12.74

$2.06

$6.20

$1.02

$5.19

$42.77

2003

$12.54

$0.49

$7.63

$1.65

$2.26

$0.52

$27.24

$11.35

$13.59

$2.30

$6.94

$1.18

$5.76

$46.73

2004

$14.30

$0.58

$8.81

$1.86

$2.44

$0.61

$30.41

$12.78

$14.99

$2.64

$7.86

$1.37

$6.49

$52.57

2005

$16.33

$0.68

$10.19

$2.11

$2.64

$0.71

$33.95

$14.40

$16.54

$3.02

$8.91

$1.59

$7.31

$59.18

2006

$18.35

$0.79

$11.51

$2.36

$2.86

$0.82

$37.72

$16.13

$18.19

$3.41

$10.02

$1.83

$8.19

$66.09

2007

$20.64

$0.93

$13.01

$2.65

$3.10

$0.95

$41.92

$18.06

$20.01

$3.85

$11.28

$2.11

$9.17

$73.84

Source: Forrester Research, July 2002



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Finally, by late 2005, Forrester believes that as companies complete theirCRM implementations, businesses will place an even greater emphasis onhow they can optimize their sales, marketing and customer serviceoperations. Analytic solutions will take on more importance, as companiesmaster their customer-facing information systems.

Turning to the most recent market share data among leading CRMsoftware vendors, Gartner Dataquest estimates that Siebel Systems held29% of the overall market in 2001, with sales of $1.06 billion.

Consolidation in the CRM market was clearly underway in 2001, as themarket share of vendors outside of the top five fell by 10%, from 56.6% oflicense revenues in 2000 to 46.6% in 2001.

Spending and Usage SurveysIn January 2003, the Aberdeen Group conducted a survey of businessexecutives that were visitors to RealMarket’s Web site, as a means ofgaining insight into the current state of the CRM market in early 2003. Theexecutives that participated in this online study were from small, mediumand large companies, and all respondents were screened to ensure that theywere familiar with their company’s CRM initiatives.

Among the study’s findings, just 18.6% of the businesses surveyed saidthat they had deployed a full suite of CRM solutions at their company.

Top Vendors of CRM Software Licenses Worldwide,2000 & 2001 (in millions)

2000revenue

Marketshare

2001revenue

Marketshare

Siebel $1,115 28% $1,066 29%

SAP $77 2% $434 12%

Oracle $253 6% $205 5%

PeopleSoft $104 3% $145 4%

Amdocs (Clarify) $180 4% $143 4%

Others $2,262 56.6% $1,742 46.6%

Total $3,991 $3,735

Source: Gartner Dataquest, July 2002



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Not surprisingly, due to their relative maturity, sales force applicationswere the most commonly deployed CRM module among respondents. Afurther 24.4% of respondents said that they had deployed a CRM solutionfor customer service or support, while 19.2% of companies said that theyhad deployed a CRM marketing solution.

In a similar study that was also conducted in early 2003, Forrester Researchsurveyed 111 North American IT executives, finding that 30% ofrespondents said that their company’s CRM software came from one of thebig four vendors – Siebel Systems, SAP, PeopleSoft or Oracle.

Another 26% of respondents said that their CRM software came from avendor outside of the top four, while a significant 28% of respondents saidthat their CRM solutions had been developed in-house.

CRM tools for sales38.0%

CRM tools for serviceand support24.4%

CRM tools formarketing19.2%

All modules18.6%

North American Companies' Deployment of CRMSolutions, by Type of Module, 2003 (as a % ofrespondents)



None/won’t say16%

In-house28%

Other softwarevendor26%

Siebel, SAP,PeopleSoft, Oracle30%

Primary Source of CRM Software for Large Companiesin North America, 2003 (as a % of respondents)

Note: n=111 decision-makers at companies with $500 million or more inrevenuesSource: Forrester Research, February 2003



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Among the 62 companies that had purchased CRM software from anapplications vendor, just 14.5% said that they had been able to implementit without any customization.

On the other hand, a significant 69.3% of respondents said that at leastsome configuration changes had been necessary, with 43.5% of ITexecutives describing such changes as minor, while about one-quarter saidthat they had had to make significant configuration changes as part of theirCRM implementation.

A further 16.1% said that a significant amount of customized code had tobe written for their CRM implementation.

When it comes to CRM purchasing strategies, the Aberdeen Group hasdiscovered an important change over the past few years, as businesses haveshifted away from letting separate business units or divisions choose CRMsolutions that meet their independent needs.

Instead, almost two-thirds of executives from the Aberdeen study said that over the next two years their company will be purchasing CRM solutions that are selected according to an enterprise-wide technology strategy.

No customiza-tion (implemented

as-is)14.5%

With minor configurationchanges

43.5%

With significantconfigurationchanges 25.8%

With significantcustomized code16.1%

Level of Customization of Primary CRM SoftwareApplication among Large Companies in NorthAmerica, 2003 (as a % of respondents)

Note: n=62 decision-makers at companies with $500 million or more inrevenues; numbers may not add up to 100% due to roundingSource: Forrester Research, February 2003



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Although many respondents may prefer to purchase CRM suites in favor ofbest of breed solutions, these findings do not necessarily mean that will bethe case. Rather, these results indicate that businesses have centralized thedecision-making process for selecting technology solutions at theenterprise level, and that they would prefer to purchase and implementCRM technology that is consistent across their businesses’ operations.

When asked about their CRM spending plans for 2003, a significant 52.6%of respondents to the Aberdeen study said that they planned to increasespending during the coming months, while 31.0% said that their CRMspending would remain the same as in 2002.

The study also found that most companies planned to increase theirspending during the second half of this year.

1998-2002 2003-2005

By division/subsidiary

25.4%

By depart-ment/busi-

ness unit30.3%

Enterprise-wide44.4%

Bydivision/subsidiary14.3%

By depart-ment/busi-ness unit21.4%

Enterprise-wide64.3%

North American Companies' CRM Purchasing Patternsby Organizational Level, 1998-2005 (as a % ofrespondents)



Stay the same31.0%

Decrease16.4%

Increase52.6%

North American Companies’ Planned Spending onCRM Initiatives, 2003 (as a % of respondents)




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As for their CRM spending in 2002, the majority of respondents said theyhad budgeted less than $500,000 for CRM last year, which is a reflection ofthe number of small and medium firms that participated in this study –45% of the survey’s respondents came from firms with revenues of lessthan $10 million, while 33% of respondents’ revenues were between $10million and $500 million.

Nonetheless, 11.4% of the companies surveyed said they had spent morethan $1 million on CRM in 2002, while 7% of respondents said that theyhad spent more than $2 million on CRM initiatives last year.

$1 million+11.4%

$500,000-$1million10.4%

<$500,00078.0%

Average Size of North American Companies” CRMBudgets among Companies in North America, 2002 (asa % of respondents)




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In a mid-2002 survey of North American e-business managers, A.T.Kearney and Line56 Research found that customer analytics, sales forceautomation, and marketing automation were expected to be the top threeCRM initiatives that companies planned to invest in during 2003.

Mobile CRM applications ranked the lowest of the 10 leading priorities,slightly behind product configuration software, which was a priority forjust 22% of respondents.

According to a Gartner Dataquest study that was released in early 2003,73% of North American companies said that they planned to invest inonline customer service, or eCRM solutions during the coming year.Included within this niche category are internal customer supportapplications, as well as external, customer-facing portals.

Of the 223 companies surveyed by Gartner, 54% agreed that their Web-based customer support needed improvement, although 52% ofrespondents said that online support did not effectively solve their

Leading CRM Initiatives in Which North AmericanCompanies Plan to Invest in 2003 (as a % ofrespondents)

Customer analytics and content management

55%

Sales automation

47%


44%

Customer self-service

32%

Call centers and contact centers

32%

Partner relationship management

26%

Order management

25%

Integration of disparate CRM technology

24%

Product configuration software

22%

Mobile CRM applications

20%

Source: A. T. Kearney/Line56 Research, August 2002



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problems. Budget restrictions were an impediment for 60% of thecompanies surveyed, which could potentially impact further investment inonline customer support solutions over the near term.

Large enterprises with more than 2,500 employees were more likely topurchase eCRM applications, with 80% of large companies saying theywould invest in online support solutions. By comparison, just 45% of smallcompanies with less than 100 employees said that they would do the same.

For further information about current trends in eCRM, please seeeMarketer’s Online Selling and eCRM report athttp://www.emarketer.com/products/report.php?crm_online

As anyone who has been following the CRM market is well aware, there hasbeen considerable debate over the value of CRM systems during the pastfew years, with much discussion over whether CRM has, in general, been asuccess or failure.

“Despite the negative press buzz, most firms saythey are pleased with both their CRM businessresults and app vendors.”— Bruce D. Temkin, Forrester Research

According to Forrester’s early 2003 study of 111 IT executives, 75.9% ofrespondents said that they were either “satisfied” or “very satisfied” withthe technology and services that had been provided by their primary CRMsoftware vendor.

On the other hand, 12.9% of respondents said that they were “somewhatdissatisfied” with their CRM software vendor, while a significant 11.3% ofrespondents said they were “very dissatisfied.”

Verydissatisfied

11.3%Somewhatdissatisfied12.9%

Somewhat satisfied69.4%

Very satisfied6.5%

Satisfaction with the Technology and ServicesProvided by their Primary CRM Software Vendoramong Large Companies in North America, 2003 (as a% of respondents)

Note: n=111 decision-makers at companies with $500 million or more inrevenues; numbers may not add up to 100% due to roundingSource: Forrester Research, February 2003


http://www.emarketer.com/products/report.php?crm_online


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However, when asked about their satisfaction with the business results thathad been achieved through their CRM implementations, fewer companiessaid that they were “very dissatisfied” with their CRM solution, with just5.4% of respondents indicating that they were very unhappy.

Similar to the number of firms that were satisfied with their CRMsoftware vendors, a significant 74.8% of respondents indicated that theywere either “satisfied” or “very satisfied” with the business results that theyhad achieved thanks to their use of CRM solutions.

In a December 2002 study, AMR Research found that the value of a CRMimplementation largely depends on the eye of the beholder. Vendors tendedto view CRM projects in terms of whether they were implemented on timeand on budget, while CRM buyers often evaluated CRM initiatives basedupon their ability to meet specific business goals, or the extent to whichinternal users had adopted them.

Even within companies that purchased CRM systems, surveys haveshown that IT executives sometimes view their company’s CRMimplementations in a different light than their line of business users. Whilean IT executive may see cost overruns and technical delays, the marketingmanager might report spectacular cost savings thanks to the ability toimprove the targeting of marketing campaigns.

AMR Research found in its survey of CRM implementations that in total,12% fail to go live. A further 47% of projects were found to have gone live,but although they were a success on the technology side, there werefailures reported on the business side, mostly due to poor changemanagement and subsequent low user adoption rates.

Very dissatisfied5.4%

Somewhatdissatisfied

19.8%

Somewhat satisfied66.7%

Very satisfied8.1%

Satisfaction with Business Results Achieved throughCRM among Large Companies in North America, 2003(as a % of respondents)




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Another 25% of CRM implementations had been successfully implementedby all accounts, but without any quantifiable metrics to support the notionthat they had benefited the business.

When considering respondents’ overall satisfaction with their CRMsystems, Forrester Research noted that for those companies that describedtheir CRM implementations as having been successful, most determined thesuccess of their projects by considering how their CRM systems haddelivered value to their customers, rather than focusing upon issuessurrounding the technology itself.

Among the greatest obstacles to a successful implementation, Forresterdiscovered that internal resistance to process change was the most commonproblem, followed by difficulties relating to back end integration and thecost of CRM software.

Significant Obstacles to CRM Efforts According toLarge Companies in North America, 2003 (as a % ofrespondents)

Resistance to process change

45.9%

Integrating with back-end systems

34.2%

High software costs

33.3%

Lack of consensus on objectives

28.8%

Executive commitment levels

27.0%

Disagreement over project scope

22.5%

Disagreement over project ownership

16.2%

Missing functionality in application

15.3%

Disagreement over funding levels

10.8%




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When it comes to examining successful CRM implementations, A.T. Kearneyand Line56 Research have found that executive sponsorship of CRM projectsis crucial, along with effective employee/end-user communications.

As indicated above, poor employee adoption rates have been one of themost common failures among CRM implementations. Consistentengagement by executive sponsors has been found to help facilitate useradoption of CRM solutions, while clear and open communication withaffected employees has also helped reduce their resistance to change.

Several companies have attributed the success of their CRMimplementations to the close alignment of technology and business processesas well, which in turn make change management all the more easier.

In support of the above findings, Forrester Research found that nearly one-quarter of the companies it surveyed reported that their CRM projects raninto difficulty after their systems had been implemented, when it came timeto have users adopt new CRM technology.

Key Factors for Maximizing CRM Returns amongNorth American Businesses, 2002 (based on a scale of1-5*)

Executive sponsorship

4.29

Effective employee/end-user communication

4.25

Alignment of technology and business processes

4.12

Alignment with key business stakeholders

3.89

Implementation and project management expertise

3.89

Proper alignment of business metrics and incentives

3.84

Technology functionality

3.72

Robust business and/or ROI case

3.59

Note: *1= “least important” and 5=“most important”Source: A. T. Kearney/Line56 Research, August 2002



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Forrester attributes this failure in part to poor planning, since manycompanies see the “live” date for their CRM projects as the end goal of theirimplementations. Instead, Forrester suggests that companies should expandtheir deployment strategies to set post-implementation goals, such astargeted adoption rates for internal business users.

In addition to post-implementation difficulties, it was discovered thatmany firms ran into problems at the earliest stages of their CRM projects.More specifically, 18.9% of respondents to the Forrester survey said thatthey had trouble setting objectives, while 17.1% said that they hadproblems defining their CRM strategy.

A further 16.2% of the companies surveyed said that they experiencedthe most difficulty when it came time to redefine new business processes.

Somewhat surprisingly, selecting the right CRM technology was arelatively easy step for most firms, with only 2.7% of respondentsindicating that they had problems choosing CRM solutions.

According to the Aberdeen Group’s CRM study, most companies haveindicated that, in general, they are only moderately satisfied with theirCRM solutions.

On a scale of one to five, with five being “completely satisfied”,respondents to the Aberdeen Group survey provided an averagesatisfaction rating of 2.70 for sales solutions, compared with lower ratingsof 2.54 and 2.41 for customer service and marketing solutions, respectively.

CRM Project Phase in Which Companies Most OftenRun into Difficulties According to Large Companies inNorth America, 2003 (as a % of respondents)

Defining strategy 17.1%

Setting objectives 18.9%

Defining new processes 16.2%

Selecting technology 2.7%

Implementing technology 10.8%

Driving adoption 22.5%

Note: n=111 decision-makers at companies with $500 million or more inrevenues; 11.7% of respondents said “none” or “don’t know”Source: Forrester Research, February 2003



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The Aberdeen Group believes that although many companies are relativelysatisfied with their CRM solutions, these results indicate that many userswould still like CRM software to have greater functionality.

The Aberdeen Group has also noted that due to the wider adoption rate ofsales force automation software versus customer service and marketingsolutions, a larger number of respondents to its survey have had the time togenerate returns from their sales solutions, which may account for SFAsolutions’ higher satisfaction rating.

When companies were asked how CRM systems could be improved,26.8% of respondents to the Aberdeen Group study said that CRM solutionswere too expensive to implement, while 18.2% said that they were toodifficult to maintain and upgrade.

A further 17.7% claimed that CRM systems were too hard to use.

North American Companies' Satisfaction Levels withCRM Solutions, 2003 (on a scale of 1 to 5*)

Sales 2.70

Customer service 2.54

Marketing 2.41

Note: *where 1 is not satisfied and 5 is completely satisfiedSource: Aberdeen Group, February 2003


Leading Areas in which North American CompaniesBelieve CRM Systems Can Be Improved, 2003 (as a %of respondents)

Too expensive to implement

26.8%

Too hard to maintain/upgrade

18.2%

Too hard to use

17.7%

Not enough domain expertise built in

11.6%

Need other platform support (i.e., wireless, tablets)

6.1%

Too immature

5.6%

CRM technology is okay

6.6%




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However, when asked about how they had benefited from their CRMimplementations, 37% of respondents to the A.T. Kearney/Line56 Researchstudy said that CRM solutions had helped them increase customersatisfaction levels among their clients. Other companies reported improvedcustomer retention rates, decreased operating costs, and an increase in sales.

Few firms reported an increase in customer profitability, however, at just22% of respondents.

By comparison, the Aberdeen Group found in its more recent study that23.8% of companies cited productivity improvements as one of the leadingbenefits of their CRM deployments.

A further 19.4% of survey respondents said that CRM solutions hadhelped improve their analysis and reporting on customer-facing businessprocesses, while 18.4% said that their CRM deployments had helped themreduce costs.

Just 15.0% of respondents said that their use of CRM solutions hadhelped them to improve revenues or increase market share, which issomewhat of a surprise considering that CRM systems are often promotedas an effective tool for increasing revenues.

CRM Initiatives’ ROI among North AmericanBusinesses, 2002

Increase in customer satisfaction

37%

Increase in customer loyalty/retention

33%

Decrease in operating costs

28%

Increase in sales

27%

Increased customer profitability

22%

Increased supply-chain efficiency

14%

Note: multiple responses allowedSource: A. T. Kearney/Line56 Research, August 2002



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Indeed, the Aberdeen Group has found that most prospective CRM usersbelieve that CRM solutions will help them enhance their revenues, either byhelping them to gain market share, or by getting further revenues fromestablished customers.

As for businesses’ willingness to use hosted CRM solutions, a surprisinglyhigh number of respondents to the Aberdeen Group’s survey were open tothe idea.

Call center software was the most popular, with 91.7% of respondentssaying that they would consider using a hosted solution, compared with89.6% of respondents who were willing to consider using hosted customerservice software.

Reported Benefits of CRM Deployments among NorthAmerican Companies, 2003 (as a % of respondents)

Productivity improvements

23.8%

Improved analysis and reporting in specific business processes

19.4%

Cost control/savings

18.4%

Enhanced revenues/increased market share

15.0%

Initiated new line of business

6.8%

Helped maintain/gain competitive advantage

6.8%

Defensive benefits/keep up with competitors

4.4%

None

2.9%




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Clearly, the “software as a service” model has made great strides in recent years, with such wide majorities of businesses willing to considersuch solutions.

And finally, in a separate study that was concluded in March 2003, theAberdeen Group surveyed 365 of Siebel Systems’ customers, as part of aneffort to measure businesses’ overall satisfaction with their CRM deployments.

The Aberdeen Group chose to use Siebel Systems’ customer base for thisstudy because it provided a large pool of mature CRM users from which itcould gain a statistically valid sample. Siebel Systems permitted theAberdeen Group to survey its customers, but it did not retain any editorialcontrol over the survey questions, or published results.

Among the study’s key findings, more than two-thirds of CRMimplementations were found to have come in on time and on budget,within 10% of their originally projected time and cost. On the other hand,16% of implementations exceeded their initial deadlines by more than25%, or came in over budget by 25%.

North American Companies that Would ConsiderUsing Hosted CRM Solutions, by Function, 2003 (as a% of respondents)

Call center 91.7%

Customer service 89.6%

Field service 88.9%

Sales 87.2%

Marketing 84.4%



On Time Delivery Performance of Siebel Systems'CRM Implementations, 2003 (as a % of respondents)

On time, early or within 10% 69%

Less than 25% over project deadline 15%

More than 25% over project deadline 16%

Note: n=365 Siebel Systems customersSource: Aberdeen Group, April 2003



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Surprisingly, large enterprises’ CRM projects were more likely to have beencompleted on time, when compared with those of smaller customers. As theAberdeen Group suggests, this may be due to the fact that large companieshave greater IT resources that they are able to dedicate to a CRMimplementation.

The study also found that when it comes to measuring the impact of theirCRM implementations, 22% of companies looked to measure an increase inrevenues, while another 20% of respondents monitored customersatisfaction rates. Other metrics include customer retention rates, sales orcustomer service productivity, and marketing productivity.

Once again, and consistent with other surveys that measure businesses’returns from their CRM implementations, productivity gains were the mostcommon benefit of CRM deployments among Siebel Systems’ customers.

CRM Benefits Measured by Siebel SystemsCustomers, 2003 (as a % of respondents)

Marketing productivity 10%

Sales productivity 12%

Service/contact center productivity 18%

Customer retention 18%

Customer satisfaction 20%

Increased revenues 22%



On Budget Delivery Performace of Siebel Systems'CRM Implementations, 2003 (as a % of respondents)

On budget or within 10% 71%

Less than 25% over budget 13%

More than 25% over budget 16%




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Furthermore, increased revenues were also lower on the list of measuredbenefits, with just 10% of respondents indicating that they had observedsuch results. It is worthwhile to note, however, that most CRM deploymentsfrom this survey were rolled out during the recent economic downturn,when customer retention, rather than revenue growth, has been the toppriority of most firms.

As for some of the less tangible benefits that survey respondents reported,many companies said that their CRM deployments had indeed helped themto gain a more complete view of their customers. Companies have alsoautomated previously manual processes, and have benefited from animprovement in the quality of their customer data.

Several respondents reported that their sales force has become moreefficient, while they have also benefited from better communicationbetween their sales and marketing organizations.

Observed Benefits by Siebel Systems Customers oftheir Deployed CRM Solutions, 2003 (average %among respondents)

Increased revenue 10%

Customer retention 10%

Marketing productivity 12%

Customer satisfaction 14%

Service/contact center productivity 16%

Sales productivity 17%



V E-Procurement and E-Sourcing Solutions 79


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Market EstimatesSales of e-procurement and e-sourcing software saw significant growthbetween 1999 and 2001, increasing by more than 116% as both largeenterprises and newly-formed business-to-business exchanges rushed tojump on the e-business bandwagon.

According to the Giga Information Group, combined sales of e-procurement and e-sourcing software and services leapt from $323 millionin 1999 to $1.20 billion in 2000, before climbing to $1.63 billion by theend of 2001.

When services revenues are excluded, sales of e-procurement and e-sourcing software licenses totaled just $164 million in 1999, but by the endof the following year, they had nearly quadrupled to $637 million.

However, as the dot com bubble began to deflate in 2000, venture-capitalfunded business-to-business exchanges started to quickly disappear. Bylate 2001, e-procurement and e-sourcing software sales totaled $675million, increasing by a moderate 6% over 2000 sales.

With the collapse of the dot com bubble, stock prices of companies likeAriba and Commerce One rapidly fell, as most companies scaled back theirIT spending and began to take more time and care in developing their e-business strategies.

The Giga Information Group estimates that e-procurement and e-sourcing software sales are about to make a comeback, however, with salesprojected to increase by more than 21% through the end of 2003, at whichpoint the market for e-procurement and online sourcing solutions isexpected to reach saturation.

Worldwide E-Procurement and E-Sourcing Softwareand Services Revenues, 1999-2001 (in billions)

1999 $0.32

2000 $1.20

2001 $1.63



Worldwide E-Procurement and E-Sourcing SoftwareLicense Revenues, 1999-2001 (in billions)

1999 $0.16

2000 $0.64

2001 $0.68




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Another market forecast from the Aberdeen Group puts the market for e-procurement software alone at $9.07 billion in 2003, predicting growth of30.1% this year, up from sales of $6.97 billion in 2002.

E-sourcing software sales are expected to grow even faster, increasing by acompound annual growth rate of 75% between 2001 and 2005, to reach$3.13 billion.

Electronic Procurement Market Worldwide, 1998-2003(in billions)

1998 $0.15

1999 $0.99

2000 $2.91

2001 $4.36

2002 $6.97

2003 $9.07

Note: CAGR=178%Source: Aberdeen Group, June 2002


Worldwide Electronic Sourcing Software Revenues,2001-2005 (in billions)

2001 $0.82

2002 $1.14

2003 $1.67

2004 $2.36

2005 $3.13

Source: Aberdeen Group, September 2002



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A third comparative estimate from IDC is also much higher than that of theGiga Information Group’s, forecasting e-sourcing and e-procurementsoftware sales of $2.9 billion by the end of 2003, for an increase of 20.8%this year.

IDC predicts that combined sales of e-sourcing and e-procurementsoftware will top $6.0 billion by the end of 2006.

E-Sourcing and E-Procurement Software MarketWorldwide, 2001-2006 (in billions)

2001 $2.1

2002 $2.4

2003 $2.9

2004 $3.7

2005 $4.7

2006 $6.0

Source: International Data Corporation (IDC), April 2002; Baseline, May2002



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Spending and Usage SurveysAccording to a mid-2002 survey of 869 purchasing professionals, the MAIInstitute of International Purchasing found that 25% of respondentsbelieve that the pursuit of end-to-end supply chain integration will add thegreatest value to their business over the next three years.

For many companies, the first step toward the deployment of a fullsupply chain management (SCM) system has started with the adoption ofan e-procurement or e-sourcing solution.

Indeed, 19% of respondents to the MAI study indicated that improvementsto purchasing productivity, a typical benefit of an e-procurement softwaredeployment, would provide the most value to their organization in the nearterm. A further 18% said they expected to see substantial benefits from theuse of online auctions or online RFQ/RFP solutions.

E-Procurement Initiatives that PurchasingProfessionals Worldwide Believe Will Provide theGreatest Value Add to Their Business in the NextThree Years, 2002 (as a % of respondents)

End-to-end supply chain integration and collaboration

25%

Improvements to purchasing productivity

19%

Online auctions and online RFQs/RFPs

18%

Capturing, sharing and assessing sourcing knowledge

18%

E-Procurement initiatives will not deliver value by 2005

9%

Data mining and expenditure analysis tools

8%

Other

3%

Note: n=869Source: MAI Institute of International Purchasing, September 2002



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When it comes to gauging the progress that businesses have made withtheir adoption of e-procurement solutions, A.T. Kearney found in mid-2002that most companies were still in an early phase of their deployments,awaiting measurable results from their use of e-procurement software.

On the negative side, a significant 23% of respondents indicated thattheir implementations had not met their planned objectives, although 29%said that e-procurement solutions had met their expectations for at least alimited amount of their total spend coverage.

Overall, respondents to the A.T. Kearney study were found to be channelingan average 11% of their total spending online, with indirect materialsleading the way with 15% of category spending being conducted online.

On average, just 4% of services spending was channeled via the Internet,while a significant 14% of direct materials spending was being placedthrough businesses’ e-procurement software.

Level of Progress with their E-ProcurementImplementations among Companies Worldwide, 2002

Have met or exceeded expectations among a significant portionof spend coverage

8%

Have met or exceeded expectations among a limited portion ofspend coverage

21%

Have not met planned objectives

23%

Awaiting measurable results

48%

Note: n=147Source: A.T. Kearney, June 2002


E-Procurement Spending by Companies Worldwide,2002 (average spending as a % of total spending)

Indirect materials 15%

Direct materials 14%

Capital spending 8%

Services 4%

Total spending 11%

Note: n=147Source: A.T. Kearney, June 2002



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Taking a closer look at online purchasing in the United States, anotherstudy that was conducted by Benchmark Research on behalf of CommerceOne discovered that 61% of US-based Commerce One customers wereregularly making purchases from suppliers’ online catalogs. A further 42%of respondents said that they were using e-procurement software to makeonline purchases, while 38% said they were using online auctions.

Interestingly, Purchasing magazine discovered in a mid-2002 survey ofAmerican purchasing professionals that most companies had notsignificantly changed their use of electronic sourcing tools over the pasttwo years.

Although as many as two-thirds of respondents to the Purchasing surveyare continuing to make online purchases with “easy-to-use” e-sourcingtools such as supplier directories and supplier-hosted storefronts, less than25% of companies are using more complex solutions such as e-commerceenabled extranets to interact with their suppliers.

Use of E-Procurement Solutions by Enterprises in theUS, by Channel, 2002 (as a % of respondents)

Purchase via a supplier's online catalogue/shopping cart 61%

Purchase using e-procurement software 42%

Purchase via online auctions 38%

Purchase via a trading exchange 17%

Note: n=50 US enterprises with 5,000+ employeesSource: Benchmark Research Ltd. for Commerce One, July 2002



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However, it is worthwhile to note that this apparent lack of progress is lessan indication that businesses have rejected e-procurement, but rather aconfirmation that more robust e-business integration requires considerabletime and effort.

Indeed, most businesses continue to describe themselves as makingprogress with their adoption of e-procurement solutions. In the most recentForrester Research/Institute for Supply Management (ISM) survey of USbusinesses, 64.1% said that they had made some progress toward the fulladoption of Internet-based purchasing solutions, up from 62.5% ofrespondents who made the same claim in the fourth quarter of 2002.

Just 2.2% of US companies said they had fully implemented e-procurement solutions, while 10.0% confirmed that they had reached thehalfway point.

US Purchasing Professionals' Use of ElectronicSourcing Tools, by Channel, 2000 & 2002 (as a % ofrespondents)

2000 2002

Supplier directories/databases 73% 74%

Tools for supply base/strategic sourcing research 66% 60%

Supplier-hosted web storefronts 56% 57%

EDI 32% 38%

E-RFQs 30% 34%

Commerce-enabled extranets with select suppliers 25% 23%

E-Collaboration with suppliers 10% 21%

E-Auctions (reverse, buyer controls) 6% 15%

E-Auctions (real time) 9% 11%

E-Auctions (forward, seller controls) 6% 8%

E-Auctions (not real time) 4% 6%

E-Matching (Nasdaq style) 4% 8%

Demand aggregation with other companies 6% 9%

Source: Purchasing Magazine, June 2002



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In total, 291 companies were surveyed at the end of the first quarter of 2003.

As for the specific tools that respondents are using for online purchasing,65.8% said that they were using online RFPs, while enterprise-widee-procurement tools were being used by 40.1% of respondents.

A narrower 26.4% of US businesses said that they were using online auctions.

Large companies with more than $100 million in revenues were muchmore likely to be using enterprise-wide e-procurement software, with58.7% of large businesses indicating that they were using such solutionsduring the first quarter of 2003. By comparison, just 26.1% of smallercompanies with less than $100 million in revenues were using e-procurement software.

Amount of Progress that US Companies Have Madetoward Fully Adopting the Internet for PurchasingActivities, Q1 2003 (as a % of respondents)

Do not plan to use the Internet 5.6%

None, but thinking about using Internet 8.1%

Some progress 64.1%

About halfway adopted 10.0%

Mostly adopted 10.0%

Fully adopted 2.2%

Source: Forrester Research, Institute for Supply Management (ISM), April2003


Percent of US Companies Using Internet-BasedPurchasing Tools, Q1 2003

Used the Internet as part of an RFP process

65.8%

Internet-based supply chain tools

59.1%

Enterprise-wide Internet procurement tool

40.1%

Online exchange

32.7%

Online auction

26.4%

Source: Forrester Research, Institute for Supply Management (ISM), April2003



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Over the course of 2002, business use of online RFPs has fluctuatedbetween 60% and 70% of respondents to the Forrester/ISM study, trendinghigher during the three most recent quarters.

The use of online auctions for sourcing and procurement is much lesscommon, with a little more than one-quarter of US companies havingpurchased some goods via an Internet auction during the course of 2002.

As a percent of indirect purchasing, US companies were found to bechanneling less than 10% of their indirect goods and services purchasesonline during most of 2002, reaching 10.5% of total category spending inthe fourth quarter.

US Companies that Have Used the Internet As Part ofan RFP Process, by Quarter, 2002 (as a % ofrespondents)

Q1 2002 62.6%

Q2 2002 60.6%

Q3 2002 64.3%

Q4 2002 68.4%

Source: Forrester Research, Institute for Supply Management (ISM), January2003


US Companies that Have Purchased Goods/Servicesvia an Internet Auction, by Quarter, 2002 (as a % ofrespondents)

Q1 2002 20.2%

Q2 2002 22.4%

Q3 2002 18.8%

Q4 2002 27.2%




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In the first quarter of 2003, Internet-based procurement accounted for anaverage 11.0% of total indirect spending among survey respondents.

Because of its strategic importance, most companies have been morecautious about bringing their direct goods and services procurement online.Nonetheless, in the fourth quarter of 2002, respondents to the Forrester/ISMstudy channeled an average 9.5% of their direct purchasing online.

In the first quarter of 2003, this percentage increased slightly to 10.0% of total direct spending, as large companies with more than $100million in revenues channeled an average 11.5% of their direct materialsspending online.

According to the Benchmark Research study of Commerce One customers,US enterprises were found to be sending an average 12% of their totalpurchasing through the Internet in 2002.

Average Amount of Indirect Goods/ServicesPurchasing Done via the Internet, by Quarter, 2002 (asa % of total company purchasing)

Q1 2002 8.3%

Q2 2002 8.7%

Q3 2002 9.0%

Q4 2002 10.5%



Average Amount of Direct Goods/Services PurchasingDone via the Internet, by Quarter, 2002 (as a % of totalcompany purchasing)

Q1 2002 5.7%

Q2 2002 6.6%

Q3 2002 6.5%

Q4 2002 9.4%




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Among the 50 large enterprises that were surveyed, it was discovered that9% of their employees had access to online purchasing capabilities,indicating that even among the early adopters of e-procurement software,several companies have some way to go in expanding their use of onlinepurchasing solutions.

When it comes to US companies’ integration of e-procurement softwarewith other enterprise applications, Benchmark Research found that just24% of Commerce One users had integrated their e-procurement softwarewith their ERP or SCM systems.

On the supplier side, 40% of the 50 enterprises surveyed said that theyreceived regular price updates from suppliers into their own vendordatabase, while 30% said that their e-procurement solutions permittedthem to exchange electronic tenders with their suppliers.

Extent of US Enterprises' Use of E-ProcurementSolutions, 2002

Average percent of all purchasing conducted online

12%

Average percent of employees who can request a purchaseonline

9%



Integration Level of US Enterprises' E-ProcurementSolutions, 2002 (as a % of respondents)

E-procurement solution provides an automated format forinternal customers to submit requests for purchases

49%

E-procurement solution receives regular price updateinformation from suppliers to update vendor database

40%

E-procurement technology is linked to extensive centraldatabase of supplier information

34%

E-procurement solution issues tenders to suppliers electronicallyand receives bids back in standard format

30%

E-procurement system is integrated with ERP/SCM

24%




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In a separate study conducted by research firm Vanson Bourne on behalf of Ariba and the London Business School (LBS), businesses in Germany and France were found to be leading other European countries in theiradoption of e-procurement solutions, followed closely by businesses in theUnited Kingdom.

In total, 39% of the 200 respondents to the Ariba/LBS study said that theyalready had an e-procurement system in place, with 45% of thosecompanies saying that they used their e-procurement system to purchaseoffice supplies.

A narrower 32% of those 78 companies that have an e-procurementsystem said they were using it to purchase direct goods, while 17% saidthey were using their e-procurement system to purchase complexcommodity products.

Percent of Companies in Europe with anE-Procurement System, by Country, November 2002(as a % of respondents)

Germany 54%

France 42%

United Kingdom 38%

Benelux 24%

Italy 16%

Note: n=200 companiesSource: Vanson Bourne, Ariba, London Business School, January 2003


Use of E-Procurement Systems by PurchasingProfessionals in Europe, by Spend Category, 2003 (as a% of respondents)

Office supplies 45%

IT equipment 35%

Direct goods 32%

Services 30%

Complex commodities 17%

Capital items 16%

All spend categories 26%

Note: n=73Source: Vanson Bourne, Ariba, London Business School, Janaury 2003



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According to the Benchmark Research study of Commerce One customers,41% of enterprises in the UK and 30% in Germany said that they wereusing e-procurement software to make online purchases.

As in the United States, fewer businesses in the UK and Germany wereusing online auctions, at 32% of British companies and just 3% of German firms.

The Benchmark Research study found that on the whole, Germanenterprises were much more conservative in their adoption of e-procurement solutions than their British and American counterparts,largely due to the prevalence of traditional, offline commercial processesthat have been long established in Germany.

As a result, German firms were found to be channeling just 7% of theiroverall purchasing online in 2002, compared with 13% among Britishcompanies purchasing and 12% among American firms.

On the other hand, it is worthwhile to note that the Benchmark Researchstudy disagrees somewhat with the Ariba/LBS survey, which found thatGerman companies led their British counterparts in the adoption of e-procurement solutions. This discrepancy may be accounted for, in part, bydifferences in sample sizes between the two surveys, as well as the kind ofbusinesses surveyed.

Use of E-Procurement Solutions among Enterprises inthe UK and Germany, 2002 (as a % of respondents)

UK Germany

Purchase via a supplier's online catalogue/shopping cart 57% 40%

Purchase using e-procurement software 41% 30%

Purchase via online auctions 32% 3%

Purchase via a trading exchange 10% 9%

Note: n=50 enterprises with 5,000+ employees in the UK and 50enterprises with 5,000+ employees in GermanySource: Benchmark Research Ltd. for Commerce One, July 2002


Extent of the Use of E-Procurement Solutions amongEnterprises in the UK and Germany, 2002

Average percent of all purchasing conducted online

Average percent of employees who can request apurchase online

UK

13%

11%

Germany

7%

1%




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According to Benchmark Research, very few businesses in the UK orGermany were found to have integrated their e-procurement applicationswith the ERP or SCM systems as of mid-2002.

German firms were ahead of their British counterparts, however, in theirlevel of external integration with suppliers, with 26% of German enterprisesand just 18% of UK enterprises saying that they are able to receiveautomatic price updates from suppliers into their own vendor databases.

On the other hand, British businesses were better able to send electronictenders to their suppliers than their German counterparts, with 22% of UKbased enterprises indicating that they were able to do so, compared to just12% of German firms.

Level of E-Procurement Solutions Integration amongEnterprises in the UK and Germany, 2002 (as a % ofrespondents)

E-procurement solution provides an automated formatfor internal customers to submit requests for purchases

E-procurement solution receives regular price updateinformation from suppliers to update vendor database

E-procurement technology is linked to extensive centraldatabase of supplier information

E-procurement solution issues tenders to supplierselectronically and receives bids back in standard format

E-procurement system is integrated with ERP/SCM

UK

30%

18%

30%

22%

20%

Germany

6%

26%

22%

12%

4%



VI Supply Chain Management 95


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Market EstimatesAccording to the Giga Information Group, supply chain management(SCM) software and services revenues increased by 15% in 2001, growingfrom $2.74 billion in 2000 to $3.15 billion by the end of 2001.

SCM software license revenues fell slightly in 2001, however, dipping 1%from their high of $1.33 billion in 2000 to $1.31 billion one year later.

As of early 2002, i2 Technologies was still the leading SCM softwarevendor, according to the Giga Information Group, although SAP andManugistics had gained market share in 2000 and 2001. Outside of the topthree SCM solutions vendors, the Giga Information Group notes that nichemarkets such as those for warehouse management solutions or supplychain intelligence applications are often dominated by specialist vendors.

Looking ahead to 2005, the Giga Information Group predicts that SCMsoftware sales will increase by a compound annual growth rate of 5%, aslarge enterprises continue to search for ways to improve the efficiency oftheir supply chains. Over time, further revenue growth in the SCM solutionsmarket is expected to come from those companies that purchase more userseats, or add new functionality to their established SCM systems.

Compared with the Giga Information Group’s more conservative forecast,AMR Research estimates that worldwide SCM software revenues reached$6.4 billion in 2002.

Worldwide SCM Software License Revenues,1999-2001 (in billions)

1999 $0.88

2000 $1.33

2001 $1.31



Worldwide SCM Software and Services Revenues,1999-2001 (in billions)

1999 $2.01

2000 $2.74

2001 $3.15




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AMR Research predicts that by 2006, the market for SCM will have morethan doubled, to $13.6 billion.

By comparison, in its forecast for the SCM services market alone, IDCestimates that revenues from related services fell from $27 billion in 2001to $26.1 billion in 2002. IDC attributes this decline to the tough economicclimate and geopolitical uncertainties of the past two years, which ledmany companies to scale back on ambitious supply chain projects.

Looking ahead to 2007, IDC estimates that SCM services revenues willincrease by a compound annual growth rate of 9.2%, to reach $40.5 billionin five years’ time. Businesses are expected to continue to focus on smallSCM projects that deliver a quick ROI, but IDC also believes that manycompanies will rely upon service providers to help them develop long termsupply chain technology strategies, that will bring together their manysmall implementations into a single vision.

In its narrower estimate of the US market for supply chain managementsystems, Forrester Research predicts that combined software, consultingand operational spending will increase from $2.38 billion in 2003 to $9.11billion by 2008.

The consumer packaged goods and high tech industries are expected tolead the way as the biggest spenders on SCM systems, followed by theindustrial equipment and retail industries.

Supply Chain Management (SCM) Revenues, 2002 &2006 (in billions)

2002 $6.4

2006 $13.6



Worldwide Supply Chain Management ServicesRevenues, 2002 & 2007 (in billions)

2002 $26.1

2007 $40.5

Note: CAGR=9.2%Source: International Data Corporation (IDC), May 2003



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Forrester believes that large enterprises will continue to be the primarybuyers of SCM solutions through 2005, at which point midsize firms willbegin to invest in supply chain technology as they follow the lead of theirlarger trading partners.

When SCM systems spending is broken down by separate processcategories “supply management”, which includes e-procurement and e-sourcing solutions according to Forrester’s definition, is expected togenerate the most revenues in 2003, at $409 million. Sales of supplymanagement solutions are forecast to increase by a compound annualgrowth rate of 30% through 2008, to reach $1.20 billion in five years’ time.

Order fulfillment and distribution solutions are currently the secondlargest SCM category in 2003, with revenues predicted to reach $396million by year’s end. This category includes warehouse and transportationmanagement solutions, and is expected to grow by a compound annualrate of 33% through 2008.

US Supply Chain Management (SCM) SystemsSpending, by Type of Cost, 2003-2008 (in billions)

2003 2004 2005 2006 2007 2008

Licenses $0.90 $1.38 $1.93 $2.46 $2.91 $3.22

Consulting $1.08 $1.61 $2.18 $2.69 $3.09 $3.34

Operation $0.40 $0.64 $1.00 $1.46 $2.00 $2.56

Total $2.38 $3.63 $5.11 $6.61 $7.99 $9.11

Source: Forrester Research, December 2002


US Supply Chain Management (SCM) SystemsSpending, by Process, 2003-2008 (in billions)

Collaborative product lifecyclemanagement

Supply management

Enterprise asset management

Production networkmanagement

Continuous demandmanagement

Order fulfillment anddistribution

Aftermarket servicemanagement

Total

2003

$0.33

$0.41

$0.33

$0.28

$0.37

$0.40

$0.27

$2.38

2004

$0.47

$0.61

$0.47

$0.42

$0.61

$0.65

$0.41

$3.63

2005

$0.65

$0.84

$0.64

$0.59

$0.89

$0.94

$0.56

$5.11

2006

$0.84

$1.11

$0.82

$0.77

$1.15

$1.21

$0.71

$6.61

2007

$1.03

$1.38

$0.99

$0.93

$1.37

$1.45

$0.84

$7.99

2008

$1.20

$1.60

$1.14

$1.07

$1.54

$1.62

$0.95

$9.11

Source: Forrester Research, December 2002



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Forrester’s “continuous demand management” category includescollaborative planning, forecasting and replenishment (CPFR) systems, inaddition to other supply chain planning solutions. Sales within thiscategory are also expected to see significant growth through 2008, withrevenues predicted to increase by a CAGR of 33% to $1.53 billion over thenext five years.

By 2005, Forrester Research believes that the market for SCM systemswill have consolidated around four major platforms vendors – SAP, Oracle,IBM and Microsoft.

Large enterprises have already expressed a 4 to 1 preference forpurchasing SCM solutions from their established ERP vendors, according toForrester, while companies such as IBM and Microsoft have been developingtheir own networks of enterprise applications vendors that should help themmake in-roads into the market supply chain management solutions.

Forrester believes that these broader enterprise platform providers willrelegate best-of-breed SCM vendors such as i2 Technologies andManugistics to the sidelines, although they will remain as key partners ofIBM and Microsoft, respectively.

Spending and Usage SurveysIn a late-2002 study of 26 supply chain professionals, Forrester Researchfound that half of the respondents to its survey planned to moderatelyincrease their spending on SCM systems between 2003 and 2006, while27% of the professionals who were surveyed said that their spending wouldremain the same over the next four years.

“The ‘go-go days’ of major supply chain softwareand hardware investment are largely over.”— Scott Elliff, Capital Consulting & Management Inc.


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Clearly, the days of ambitious, one-shot rollouts of SCM systems are behindus, as most large firms have taken a more cautious approach to rolling outnew enterprise applications of all kinds.

In a separate survey of 124 US executives that was conducted in November2002, Forrester discovered that respondents had spent an average $6.8million each on supply chain projects during the past few years.

Going forward, Forrester found that most companies plan to reduce thesize and cost of future SCM initiatives. Due in part to a significant declinein applications prices, Forrester believes that new, smaller SCM initiativeswill cost an average $650,000 per project.

Such “bite size” initiatives are expected to typically last less than sixmonths, rather than the more ambitious implementations of the past, whichoften lasted between 1 and 2 years. Forrester has also found that companiesare increasingly expecting to see returns from their supply chain initiativeswithin weeks or months, rather than years.

Further contributing to changes in the market for supply chainapplications, Forrester has noted that businesses appear to be warming upto the idea of using hosted supply chain solutions, as a means of reducingup front costs and upgrade fees.

Among their spending priorities heading into 2003, Forrester’s smallergroup of 26 supply chain professionals said that making improvements tooperational efficiencies was their number one goal.

US Supply Chain Executives' Spending Plans for SCMSystems, 2002 (as a % of respondents)

Significantly increase 8%

Moderately increase 50%

Remain the same 27%

Moderately decrease 4%

Drastically decrease 4%

Don't know 8%

Note: n=26 supply chain professionalsSource: Forrester Research, December 2002



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A little more than half of respondents to Forrester’s study said that theyintended to use SCM solutions to improve customer service, while justunder one-quarter said that they wanted to use new SCM technology toreduce the time it takes to bring a product to market.

According to Booz Allen Hamilton, 80% of the 196 companies it surveyedin late 2002 said that reducing their inventory levels was one of theprimary benefits that they expected to achieve through their investment insupply chain technology.

Interestingly, just like the Forrester survey, many businesses said theybelieved that their use of supply chain technology would help them toincrease customer satisfaction, with a further 69% of firms saying that theywanted to improve delivery reliability.

Leading Priorities among US Supply ChainProfessionals, 2002 (as a % of respondents)

Improve operational efficiency 92%

Improve customer service 54%

Reduce time to market 23%

Gain flexibility 4%




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Other anticipated benefits include reduced transaction costs, cycle timesand supply chain management overhead.

Primary Benefits that Businesses Expect From theirSCM Investments, 2002 (as a % of respondents)

Lower inventory levels

80%

Increased customer satisfaction

71%

Better delivery reliability

69%

Lower transaction costs

60%

Reduced cycle times

49%

Reduced supply chain management overhead

49%

Lower purchased goods prices

37%

Better fill rates

34%

Other

9%

Note: n=196 companies worldwideSource: Booz Allen Hamilton, May 2003



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Methodology







According to a Cap Gemini Ernst & Young survey of 365 supply chainprofessionals, 52% of respondents said that their company views its ownsupply chain management operations as a cost center, while just 25% ofcompanies view it as a strategic component of the overall business.

With 54% of respondents listing cost reductions as the primary objective ofsupply chain initiatives in 2002, Cap Gemini noted that this was the highestrating for cost reduction as a priority among survey respondents in the 11years that it has conducted this survey.

Other2%

Profit/rev. center6%

Servicecenter

15%

Strategiccomponent

25% Cost center52%

US Supply Chain Professionals’ Opinions RegardingHow Their Organization Views Logistics/Supply ChainManagement, 2002 (as a % of respondents)

Note: n=365Source: Cap Gemini Ernst & Young, University of Tennessee, GeorgiaSouthern University, September 2002



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Because most companies view their supply chain operations as a costcenter, Cap Gemini is concerned that businesses may by over-emphasizingshort term cost reductions, rather than considering how to use supply chaintechnology to their competitive advantage over the long term.

On the other hand, surveys by Forrester Research and Booz AllenHamilton indicate that many companies are indeed using supply chaintechnology strategically, especially as it pertains to their use of SCMsolutions to improve customer service.

In yet another separate survey of 22 supply chain executives that ForresterResearch published in March 2002, nearly two-thirds of respondents saidthat their supply chain projects had taken more time to implement thanthey had originally expected, while half said that such projects cost morethan they had initially planned.

Maximizingassetutilization9%

Maximizingprofitability

15%

Increasingcustomer

satisfaction22%

Reducingcosts54%

Primary Objectives of Supply Chain IntiativesAccording to US Supply Chain Professionals, 2002 (asa % of respondents)

Note: n=365Source: Cap Gemini Ernst & Young, University of Tennessee, GeorgiaSouthern University, September 2002



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Just 5% to 10% of executives said that their projects came in under budgetand in less time than expected, while a significant 41% of respondents saidthat their supply chain projects came in on budget.

Despite these reported time and cost overruns, 41% of those companies thathad installed SCM systems said that their supply chain initiatives hadyielded a return that was more positive than they had initially expected.

Global Supply Chain Executives' Views on the Timeand Cost of Traditional Supply Chain ProjectImplementation, 2002 (as a % of respondents)

Implementation time

64%

9%

23%

5%

Project cost

50%

5%

41%

5%

More than expected Less than expected

Exactly as expected Not applicable

Note: n=22; percentages do not add to 100 due to roundingSource: Forrester Research, March 2002


Global Supply Chain Executives' Views on the ROI ofSupply Chain Projects, 2002 (as a % of respondents)

Not applicable5%

More negativethan expected

18%

Neutral36%

More positivethan expected41%

Note: n=22; percentages do not add to 100 due to roundingSource: Forrester Research, March 2002



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Methodology







In a more recent study of 100 supply chain professionals, CapitalConsulting and Management Inc. (CCMI) found in early 2003 that 76% ofrespondents to its survey believed that it was still too early to tell what theROI from their SCM initiatives will be.

Of those that did have an idea of their early returns, 18% said that theyhad achieved some kind of ROI, while 6% said that they had not.

Among the 18 respondents who said they had achieved a return on theirnew supply chain technology, more than half indicated that it hadnonetheless fallen short of their expectations.

Another third said that their SCM initiatives had met their anticipatedROI, while 2 respondents said that they had exceeded their expectations.

No6%

Definitely yes18%

Unsure (too soon to tell)76%

ROI Achieved by US Supply Chain Professionals onPurchase of Supply Chain-Related IT, 2003 (as a % of respondents)

Note: n=100Source: Capital Consulting & Management, Inc. (CCMI), March 2003


Above expec-tations

11%

At expected level33%

Below expected level56%

US Supply Chain Professionals' Opinions RegardingLevel of ROI Achieved on Purchase of SupplyChain-Related IT, 2003 (as a % of respondents who achieved ROI)

Note: CCMI surveyed over 100 supply chain professionals, 18% of whomsay they achieved ROI on their supply chain-related IT purchaseSource: Capital Consulting & Management, Inc. (CCMI), March 2003



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Methodology







Booz Allen Hamilton found in its late 2002 study that satisfaction rates forSCM technology tended to vary by how much companies had spent onSCM solutions.

In total, 45% of respondents to its survey said that their investment inSCM technology had failed to meet their expectations, with 58% ofcompanies expressing dissatisfaction with the fact that their SCM systemdid not provide performance measures across their supply chain. A further 51% were disappointed in the decision support capabilities of theirSCM solutions.

Surprisingly, those companies that spent the least on SCM technologyappear to be the least satisfied, while those that had spent the most werealso the most likely to say that their SCM solutions had exceeded theirexpectations. This may be due in part to the greater importance that isattached to large supply chain projects, which are more likely to attract theattention of top management and be more strategic in nature.

Looking at the specific reasons for why supply chain solutions did not meetuser expectations, Booz Allen Hamilton found that 56% of respondentsbelieved that their SCM systems did not help them to forecast more effectively.

Implementation delays related to business issues were a problem for justunder half of the companies surveyed, while technology-relatedimplementation delays were a problem for just 11% of respondents.

SCM Users' Satisfaction with Their SCM Solutions, byAmount of System Spending over Three Years, 2002(as a % of respondents)

<$1 million

56%

5%

$1-$4.9 million

51%

15%

$5-$9.9 million

45%

11%

$10 -$24.9 million

31%

23%

$25 million+

38%

21%

Did not meet expectations Exceeded expectations




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Methodology







Unrealistic expectations were cited by 44% of those companies surveyed,as a reason why their SCM implementations did not turn out as well as theyhad initially expected.

It is interesting to note that Booz Allen Hamilton actually chastises thoseSCM users that complain that their supply chain systems have failed to liveup to expectations, not so much for being unrealistic, but rather for theirbelief that new supply chain technology would somehow solve their supplychain problems. As discussed below, it is becoming increasingly clear thatSCM implementations are more about changing business processes, thanthey are about adopting new technology.

Leading Reasons Why SCM Solutions Have Failed toMeet Users' Expectations, 2002 (as a % ofrespondents)

Inability to forecast effectively

56%

Implementation issues/delays - business related

48%

Unrealistic expectations of the impact of technology

44%

Inability to converge on cross-enterprise policies and objectives

41%

Incompatible cross-enterprise business processes/models

33%

Lack of participation from customers/suppliers

30%

Implementation issues/delays - technology related

22%

Data incompatibilities

19%

Physical limitations of the supply chain

15%

Implementation cost overruns - technology related

11%

Implementation cost overruns - business related

4%

Other

19%

Expectations were met or exceeded

22%




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Methodology







On the technical side, Forrester found in its March 2002 study that mostsupply chain executives said that difficulties with the integration of theirSCM solutions and other enterprise systems had been one of the leadingproblems with their implementations.

Few respondents found that their SCM system was easier to implementthan originally planned, while 27% said that their implementation wentaccording to plan.

In a broader sense, however, Forrester’s November survey of supply chainprofessionals found that change management was the biggest impedimentto improved supply chain performance among respondents, as companieshad difficulty encouraging users to adapt to new ways of doing business.

Fluctuations in supply and demand were also a leading impedimentamong 42% of those firms surveyed, while integration issues were onlylisted as a problem by 15% of the 26 supply chain professionals thatForrester interviewed.

Global Supply Chain Executives' Views on theIntegration of the Supply Chain Package , 2002 (as a %of respondents)

More difficult than expected 64%

Exactly as expected 27%

Less difficult than expected 5%

Not applicable 5%

Note: percentages do not add to 100 due to roundingSource: Forrester Research, March 2002


Leading Factors that Impede US Manufacturers'Supply Chain Performance, 2002 (as a % ofrespondents)

Difficulty changing processes and people's behavior 46%

High variability in supply/demand 42%

Technology immaturity 19%

Integration issues 15%

Don't know 4%




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On the other hand, when supply chain professionals were asked aboutsupply chain software specifically, just two-thirds of respondents toForrester’s survey said that SCM technology standards had disappointed,while a significant 50% of those surveyed said that the rigidity of their owncompany’s processes had led their adoption of supply chain applications tofail to meet their expectations.

These findings support those of Booz Allen Hamilton, which found in itssurvey that few respondents cited problems with supply chain technologyitself, while almost half said that business-related issues had resulted intheir SCM implementation not living up to expectations.

Indeed, McKinsey reports that a key factor contributing to the success orfailure of supply chain software deployments has everything to do withwhether or not the software buyer takes the time to analyze and improvesupply chain processes, prior to proceeding with an SCM implementation.

As part of its study, McKinsey examined the supply chain softwareimplementations of 63 high tech hardware manufacturers that had beendeployed between 1995 and 2001.

Among the most successful implementations, inventory turnover hadtypically been reduced by 100% to 150% within two years of aninstallation. But among the biggest failures, weaknesses in old businessprocesses had often not been addressed, leading to significant problemswith overproduction.

Reasons Why Supply Chain Applications Have NotMet US Users' Expectations, 2002 (as a % ofrespondents)

Technology standards immature

64%

Rigidity of company processes

50%

Integration issues

36%

People slow to adapt to applications

21%




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“…Weakness in [a] process tended to be magnified,because when bad information is flowing,software only helps it flow faster.”— McKinsey Quarterly, 2003 Number 1

As a result of the need for process change, Forrester Research believes thatprocess consulting will be one of the high growth areas of the SCM marketthrough 2008, with process consulting and related change managementcosts accounting for as much as 55% of SCM systems spending in fiveyears’ time.

When it comes to businesses’ current use of supply chain solutions,Forrester Research in partnership with the Institute for Supply Management(ISM) found in their quarterly e-business study that 59.1% of the UScompanies they surveyed said they were using the Internet to collaboratewith suppliers in early 2003.

Over the course of 2002, Forrester and the ISM have tracked a steadyincrease in SCM applications use, with an additional 10% of US companiesmaking use of SCM tools between the first and fourth quarters of last year.

US Companies that Collaborate with Suppliers UsingInternet-Based Supply Chain Tools, by Quarter, 2002(as a % of respondents)

Q1 2002 48.2%

Q2 2002 51.5%

Q3 2002 53.5%

Q4 2002 58.2%




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As for the specific supply chain tools that businesses are using,InformationWeek found in its survey of 500 leading business technologyusers that order management information and inventory data were mostcommonly shared between large enterprises and their suppliers.

Accounting updates and production schedules were also exchangedbetween one-third of those companies that made the InformationWeek 500,while product development specifications, a key element of productlifecycle management (PLM), was shared between 36% of these technologyleaders and their suppliers.

It is worthwhile to note, however, that this study did not clarify whetherthis information sharing was automated and in real time, or if informationwas manually transmitted via an electronic format.

As of late 2002, Booz Allen Hamilton found that 71% of the 196 companiesit surveyed use their ERP systems to manage their supply chain information.

Data InformationWeek 500 Companies Share withTheir Suppliers, 2002 (as a % of respondents)

Order management

58%

Inventory levels

46%

Accounting updates

37%

Product-development specs

36%

Production schedules

36%

Sales forecasts and results

20%

Marketing plans

18%

Customer demographics

17%

Customer-loyality or satisfaction metrics

17%

Cost-structure data

13%

Source: InformationWeek, September 2002



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Fewer companies used inventory or warehouse management systems, at54% of respondents, while 40% used order management solutions.

Among packaged supply chain applications that have been deployed by UScompanies, Forrester Research found in its late 2002 survey that inventorymanagement software was being used by 73% of respondents to its survey,while transportation and distribution software was installed at nearlythree-quarters of survey respondents.

Most other supply chain applications had high penetration rates as well,leading Forrester to conclude that the market for supply chain softwaremay have already peaked in the United States.

However, Forrester has also noted that very few companies haveextended their internal supply chain applications out to their tradingpartners. For example, just 38% of companies indicated that theirprocurement and sourcing solutions were able to exchange data with theirtrading partners, while only 35% of respondents could say the same fortheir inventory management solutions.

Most Commonly Used SCM Solutions amongCompanies Worldwide, 2002 (as a % of respondents)

Enterprise Resource Planning (ERP)

71%

Inventory/warehouse management

54%

Order management

40%

Supply chain execution systems (EDI, inventory visibility tools)

37%

Advanced planning systems

31%

Marketplaces/exchanges

26%

Other

23%




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Methodology







For this reason, Forrester expects that future growth in the supply chainmarket will be driven by sales of software and services that help companiesextend their internal systems, so that they may exchange data with theirexternal trading partners.

When it comes to how businesses prioritize collaborative supply chaininitiatives, Cap Gemini Ernst & Young found that this depended uponwhere a firm sits within the supply chain.

For example, manufacturer-suppliers ranked quality certificationinitiatives as their most important supply chain priority in mid-2002, whiledistributors listed order visibility and delivery confirmations as their topcollaborative priority.

Packaged Supply Chain Applications Deployed by USManufacturers, 2002 (as a % of respondents)

Inventory management

35%

73%

Transportation and distribution

31%

73%

Manufacturing planning

23%

69%

Order management

31%

69%

Procurement and sourcing

38%

65%

Spare parts logistics

35%

62%

Product lifecycle management

4%

19%

Application able to beextended to partners Applications deployed




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Methodology







Among survey respondents from the retail industry, Cap Gemini found thatsharing point of sale information was their leading collaborative priority,ahead of exchanging short term demand forecast information.

Within the four walls of their own organizations, top management hasbeen found to be taking an active interest in measuring the effectiveness oftheir company’s supply chain operations, according to Cap Gemini.

Cost variability, lost sales and inventory turns for finished goods are thekey metrics that upper management often monitors, while a substantialnumber of executives were found to request information on “perfectorders” as well.

By definition, a “perfect order” is assessed according to four criteria – anorder must be complete, it must be delivered on time, the invoice must beaccurate, and there must be no loss or damage to the shipment.

Most Important Supply Chain Initiatives among SCMSolutions Buyers, 2002 (on a scale of 1 to 7*)Suppliers

Quality certification 1.7

Distributors

Order visibility 1.4

Confirmed delivery date 1.4

Available to promise 1.7

Consolidated shipments 1.9

Customers

Point of sale information 1.3

Supplier short-term demand forecast 1.8

Quality certification 1.9

Note: *1=very important, 7=not importantSource: Cap Gemini Ernst & Young; University of Tennessee; GeorgiaSouthern University, September 2002



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Methodology







This increased awareness of “perfect order” metrics represents a significantshift in how companies view their supply chain operations, according toCap Gemini, confirming that companies are taking a more strategic view oftheir SCM systems, as they extend them out to the customer service side oftheir operations.

“Supply chain management programs tend toperform best when both the supply and demandsides of the business are represented.”— Supply Chain at 21, Booz Allen Hamilton

Indeed, as Cap Gemini has noted, by improving the management andsubsequent sharing of supply chain information, many companies are notonly able to reduce costs on the buy side of their operations, they are also ableto better serve their customers with more timely and accurate information.

Supply Chain Management (SCM) Operational MetricsRequested by Top Management According to USLogistics Professionals, 2002 (as a % of respondents)

Cost variability 90%

Lost sales 88%

Inventory turns-finished goods 83%

Fill rate 73%

Inventory turns-raw material 72%

Perfect order 70%

On time delivery 64%

Note: n=365; multiple responses allowedSource: Cap Gemini Ernst & Young, University of Tennessee, GeorgiaSouthern University, September 2002



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Methodology







This is reflected in Cap Gemini’s survey, which found that the sales andmarketing organizations at many firms are key users of order visibility andoutbound tracking data, which is often made available through acompany’s supply chain system.

Cap Gemini’s findings are further supported by those of Booz AllenHamilton, which discovered that the most successful SCM implementationshave placed a priority on addressing demand side needs as part of theirsupply chain deployments.

Use of Supply Chain and Logistics Information withinUS Companies, 2002 (as a % of respondents)Attribute

Order status

Tracking inboundshipments

Alerts on transportationdelayed shipments

Divergence of shipments

Domestic visibility oforders

Alerts on order delays

Tracking outboundshipments

Pur-chasing

62.3%

61.9%

58.2%

52.6%

46.4%

46.1%

17.6%

Manu-facturing

14.8%

19.0%

16.4%

21.5%

17.6%

21.8%

21.0%

Sales/ marketing

13.1%

6.3%

15.6%

17.2%

23.2%

21.1%

42.9%

Other

9.8%

12.8%

9.8%

8.7%

12.8%

11.0%

18.5%

Source: Cap Gemini Ernst & Young; University of Tennessee; GeorgiaSouthern University, September 2002



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Methodology







Indeed, among the top 10% of SCM implementations, by cost savingsperformance, 94% of the leading firms used their SCM systems to improvedelivery promises to customers. A further 73% of these leaders alsoinvolved sales and marketing management in their supply chain planning meetings.

Among other factors contributing to higher returns on supply chaininitiatives, Booz Allen found that those companies that spent the most onSCM tended to do better, suggesting that the bigger the commitment toimproving supply chain management, the better the returns.

Leading Factors Contributing to Successful SCMImplementations, 2002 (as a % of respondents)

Make explicit delivery promises to customers

Involve marketing and sales in supply chain planningmeetings

Rationalize the tail of suppliers

Spent more on SCM solutions during the past 3years ($10 million+)

Made more effort to improve supply chains

Made an explicit link between revenue growthtargets and cost targets

Have more frequent supply chain planning meetings(daily and weekly)

Customers share demand forecasts

More likely to use annual (year-over-year) timehorizons for supply chain improvement targets

Use e-sourcing to generate orders (% of orders byvalue)

Use e-sourcing to make contracts (% of contracts byvalue)

Top 10%*

94%

73%

62%

60%

57%

57%

50%

46%

36%

36%

19%

Others

79%

58%

45%

32%

41%

44%

43%

32%

10%

15%

8%

Note: n=196 companies worldwide; top 10% of respondents by costsavings performanceSource: Booz Allen Hamilton, May 2003



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