Enterprise Resource Planning (ERP) Market Growth Factors
Need for efficiency and transparency in business processes to foster market growth
Previously, most businesses spent significant amounts of time and resources communicating business information and making decisions. Successful organizations continually seek systems to help them better serve their customers and increase their profit margin. ERP systems have evolved into strategic platforms that provide a solid foundation and informational backbone for businesses in emerging nations.
A fully integrated ERP system facilitates the capture and creation of accurate, consistent, and timely relevant data and aids in the formation of more informed business decisions. Offering personalized services and ensuring customer satisfaction affects a company's profitability unless its operating efficiency is exceptional. As a result, businesses currently utilize ERP systems to increase efficiency and improve information integration. The ability of ERP systems to scale and deal with global competition while creating efficiency and transparency in operations is anticipated to drive market growth over the forecast period.
Increased demand for data-driven decision making to accelerate market growth
One of the most significant challenges organizations face is owning and adapting to their new business model. Businesses are undergoing rapid transformations to address the increase in customer demand, regulations, economic changes, and other business activities. Organizations need to provide a customer interaction platform to monitor demand fluctuations, which was made possible by implementing ERP software. Businesses plan to increase productivity to increase profits. In such a situation, ERP satisfies the needs of companies undergoing rapid change, thereby driving their adoption of ERP software.
Market Restraint
High investment and maintenance cost to restrict market growth
Most software vendors provide ERP software for industries, including manufacturing, healthcare, telecommunications, retail, and aerospace & defense. A high initial investment is required to acquire and implement an ERP system. Global software providers such as Microsoft, SAP, Oracle, and IBM Corp. charge a premium for their products.
The annual cost of maintaining and updating the ERP system involves internal costs and a maintenance and support fee paid annually to application vendors. Additionally, since software providers charge higher prices, businesses are unwilling to spend more on applications, limiting the adoption of ERP software. Due to the expense of these services, end-users are no longer willing to upgrade or renew, negatively impacting the market growth.
Market Opportunity
Growth of erp usage in medium and small enterprises to spur market opportunities
ERP applications have enabled businesses to achieve greater clarity and visibility. The majority of large organizations can benefit from ERP. Integrating ERP services currently affords small and medium-sized enterprises (SMEs) the same advantages, such as increased business efficiency and simplified business processes. ERP is an ideal option for SMBs due to its direct impact on operating margins. As SMEs have confined resources for the development and maintenance of ERP, there is expected to be an increase in the adoption of cloud-based ERP software, creating many opportunities over the forecast period.
A developing technology called cloud computing enables businesses to store and retrieve data online. One of the critical aspects of cloud technology that contributes to its appeal is its agility. Other fundamental properties include scalability, reliability, and flexibility. One of the service models of cloud computing based on the pay-per-use charge model is a software as a service (SaaS) or on-demand. Applications built on the cloud help businesses cut their IT infrastructure costs to some extent. This is the main factor driving business adoption of cloud-based applications. Since mobile devices have become an essential component of workplace culture, businesses are willing to invest in cloud-connected mobile applications since they provide anytime, everywhere access to information.
Additionally, cloud-connected mobile applications enable user-specific document syncing, changes, and control. This would aid businesses in preserving a healthy work-life balance for their staff members and boost output. In the upcoming years, demand for cloud and mobile applications is anticipated to be driven by these advantages.
Segmental Analysis
By Component
The global ERP market is divided into Software and Services. The Software segment is the largest shareholder and is expected to grow at a CAGR of 9.5% during the forecast period. Implementing ERP software in a company's business processes is driven by the top management's desire to meet a variety of essential business imperatives, including creating an effective distribution system, enhancing customer service, and reducing operating expenses. ERP software provides an integrated and constantly updated view of business operations through shared databases managed by a database management system. This view can be accessed through the software.
ERP monitors the status of business commitments like purchase orders, edicts, payroll, and business resources like raw materials, cash, and production capacity. In the past, the vast majority of enterprise resource planning (ERP) software was designed for larger companies due to the high costs associated with the ERP system implementation process. The development of low-cost ERP systems, such as resource ERP, has led to an increase in the adoption of ERP software by smaller businesses, an opportunity for the market as a whole.
The Services segment in the ERP market encompasses a range of offerings designed to support the implementation, maintenance, and optimization of ERP systems. These services include consulting, implementation, training, support, and managed services. Organizations often need to customize ERP systems to fit their specific business processes and integrate them with other systems. Professional services provide the technical expertise required for these customizations and integrations.
By Deployment Model
The global ERP market is divided into On-premise, Cloud, and Hybrid. The On-premise segment is the largest shareholder and is expected to grow at a CAGR of 8.1% during the forecast period. Instead of utilizing server space or the cloud, the on-premise methodology for ERP solutions allows software installation and application execution on systems present on the premises of an organization. This ERP solution offers advanced security measures, which drives their adoption in large financial institutions and other organizations that prioritize security. The on-premise deployment model for ERP solutions facilitates the installation of the software and enables applications to run on systems present on the organization’s premises instead of a remote location such as server space or the cloud. In addition, better data security than cloud-based solutions encourages organizations to adopt it.
Throughout the projected period, the hybrid sector is anticipated to grow at the highest CAGR. The growing availability of Big Data via cloud computing, the rising need for improved end-user experiences, and significant players investing in hybrid ERP systems are the main reasons propelling the hybrid deployment market's growth.
The Cloud segment in the ERP market refers to ERP solutions that are hosted on cloud platforms and delivered via the Internet. These solutions offer various benefits, including scalability, reduced IT infrastructure costs, and ease of access from anywhere. Cloud-based ERP systems are managed by third-party vendors, who handle system maintenance, updates, and security. The big tech companies are innovating and improving the technology, for instance, Accenture Collaborates with SAP to Help Organizations Adopt Generative AI and Accelerate ERP Transformation in the Cloud.
The Hybrid segment in the ERP market refers to ERP solutions that combine both on-premise and cloud-based components. This approach allows organizations to leverage the strengths of both deployment models, offering a flexible and scalable solution that can address diverse business needs. Hybrid ERP systems provide the flexibility to keep certain critical or sensitive operations on-premise while the general things and information on the cloud.
By Business Function
The global ERP market is divided into Finance, Human Resources (HR), Supply Chain, Customer Management, Inventory Management, Manufacturing Module, and Others. The Finance segment is the largest shareholder and is expected to grow at a CAGR of 7.3% during the forecast period. One of the most critical ERP system modules is finance, which facilitates the management of cash outflows and inflows and other accounting functions, including bank reconciliation and ledger management. Accounting modules incorporated into ERP systems can provide core accounting capabilities, such as accounts payable, accounts receivable, general ledger, bank reconciliation, fixed asset tracking, and expense management.
In most organizations, the finance team has adopted ERP software to ensure the department's accuracy and reliability. The Finance module assists the organization in making crucial financial decisions, including cash inflow and outflow. Additionally, it facilitates uniform data tracking, providing two users to work in various entries within the same accounting software. The adoption of financial modules is primarily driven by the growing need to maintain financial data standardized and the desire to simplify finance operations.
Over the projection period, the inventory management segment is anticipated to develop at the highest CAGR. The demand for ERP solutions to precisely prioritize and efficiently organize work orders is primarily responsible for the growth. Employing an interactive work order management feature from an ERP program, businesses may control the process of locating and carrying out planned and emergency maintenance tasks across a company.
Effective talent management and recruitment are critical for organizational success. ERP systems with HR modules streamline recruitment processes, including job postings, applicant tracking, and onboarding, helping organizations attract and retain top talent. For instance, various big companies such as Google utilize SAP SuccessFactors for their talent management and recruitment needs which shows the need for ERP in HR.
Supply Chain segment focuses on integrating and managing the various aspects of the supply chain, from procurement and production to logistics and distribution. As companies expand their operations internationally, managing complex supply chains becomes increasingly challenging. ERP systems with robust supply chain modules enable organizations to handle diverse suppliers, customers, and logistics providers more effectively.
Customer Management segment includes managing customer data, tracking interactions, automating marketing and sales processes, providing customer support, and analyzing customer behavior to make informed decisions. Companies are placing a higher priority on delivering exceptional customer experiences to differentiate themselves in competitive markets, ERP and its function help to plan strategies for customers.
Inventory Management segment typically includes real-time inventory tracking, automated replenishment, demand forecasting, inventory optimization, and integration with other supply chain components. Companies require real-time visibility into their inventory levels to make informed decisions about procurement, sales, and distribution, ERP systems provide real-time data. As supply chains become more complex, with multiple suppliers, warehouses, and distribution channels, businesses need sophisticated inventory management solutions. ERP systems streamline inventory processes and improve coordination across the supply chain. Companies such as Amazon, Walmart, Dmart, and Decathlon use inventory management ERP to manage the goods in the warehouse.
By Enterprise Size
Large Enterprises ERP solutions for large enterprises are characterized by their ability to handle complex business processes, large volumes of data, and multiple users across various locations and departments. Large companies need the ERP to manage the HR, Inventory, Supply chain, finance, etc, and due to their funds, they can manage to purchase the ERP system.
SME ERP systems are often more affordable, simpler to implement, and easier to use, making them suitable for the diverse needs of smaller organizations but not all SMEs can afford the customized ERP system and hence they use it generally. SMEs often operate with limited budgets and need cost-effective solutions hence companies can offer some cost-effective ERP system.
By Industry Vertical
By industry vertical, the global ERP market is divided into Manufacturing, BFSI, Healthcare, Retail & Distribution, Government & Utilities, IT & Telecom, Construction, Aerospace & Defense, and Others.
The Manufacturing sector is the largest shareholder and is expected to grow at a CAGR of ~7.7% during the forecast period. In the manufacturing industry, ERP software automates and integrates all business-related aspects, such as materials & inventory, production, operations & sales, and accounting & finance, to simplify database maintenance for the entire organization. This database provides manufacturers with accurate, real-time data vital for their operations. In addition, an increase in the adoption of cloud solutions and an emphasis on collecting customer data to assist in the decision-making phase fuel the market's expansion.
By End-User
The global ERP market is divided into Large, Medium, and Small Enterprises. The Large Enterprises segment is the largest shareholder and is expected to grow at a CAGR of 8.6% during the forecast period. Large enterprises in various industries, including BFSI, IT & telecom, and healthcare, are anticipated to experience substantial growth due to the growing trend for rapid product development and delivery. In addition, the need to improve employee productivity and the demand for better business management are driving the adoption of ERP software in these large organizations. This assists the organization in increasing its agility, sustaining operational efficiency, and enhancing its financial management and connectivity with all stakeholders.
Throughout the projected period, the SME segment is anticipated to grow at the most significant CAGR. ERPs on the cloud are being offered to assist SMEs in streamlining business processes and gaining cost advantages to stay competitive in the market. Additionally, growing SMEs require proper database management, which will drive demand.
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