The boundaries between these types of enterprises have been slowly disappearing; more manufacturing companies have been distributing and servicing their products, which has led to tighter integration of ERP, CRM and supply chain management (SCM) solutions. The combined manufacturing and distribution functionality is used by enterprises in industries as different as third-party logistics, utilities and the energy sector. Although this list is not exhaustive, it indicates that product-centric ERP is used successfully in, and is relevant to, a variety of industries.
Almost all organizations use administrative ERP strategies that are focused solely on the traditional back-office functions in financial administration, indirect procurement and human capital management (HCM). Product-centric companies typically use an operational ERP strategy that covers administrative functionality plus areas such as customer and order management, inventory management, product life cycle management (PLM), direct procurement, and the management of their manufacturing and/or distribution facilities, which often includes asset management.
The systems in this Magic Quadrant are analyzed and rated on their ability to support the operational ERP strategy of product-centric companies. Consequently, the Magic Quadrant is not applicable to organizations that are only looking for administrative ERP, or ERP for non-product-centric companies. This is because several vendors that provide administrative ERP for organizations in the public sector, healthcare, professional services, financial services and so on are not included in this Magic Quadrant. The "Vendor Guide for Administrative ERP Applications" provides a comprehensive overview. For a detailed ERP vendor evaluation model, see "Use a Vendor Evaluation Model to Select ERP Vendors and Software."
Many may mistakenly think that "midmarket" means "ERP lite," or that midmarket companies are "simpler" than their larger counterparts. Gartner has produced research that analyzes this market with a unique process framework (see "Midmarket Companies: Clarify Requirements for Process and Information Support to Enable User-Centric ERP" and "Midmarket Companies: Use These Criteria to Select an ERP System With Low Total Cost of Ownership" [Note: These documents have been archived; some of their content may not reflect current conditions]). Most midmarket enterprises have a core set of business processes that is at least as complex as that of large enterprises, and that forms the basis on which these companies differentiate themselves. However, outside these core processes, the majority of business processes in most enterprises in this segment do not have the scale to require a highly sophisticated or automated solution to support them. Instead of being simpler, these enterprises apply more information-centric and people-centric approaches to executing many of their processes, seeking solutions that offer "good enough" support for their nondifferentiating business areas. A key part of our analysis is a vendor's ability to support a core set of global-class strategic processes, combined with offering good-enough capabilities for the less-strategic, but still important, information-based processes, thereby limiting the overall complexity of the solution.
Product-centric companies vary significantly in size and complexity, ranging from less than 10 employees up to the Global 2000 companies, which have hundreds of thousands of employees. The latter are often subdivided into smaller divisions. Therefore, ERP systems also are composed of varying functional depths and breadths to meet the needs of these different-size companies. In this Magic Quadrant, we concentrate on ERP systems that are used primarily by independent, multientity midmarket companies seeking a single-instance ERP system.
In more detail, the user organizations in this market:
Focus on product-centric business, falling into manufacturing, distribution or a combination of both. They may also offer some product-related services.
Are independent companies with revenue between approximately $200 million and $1 billion, and up to 10,000 or more employees. Typically, companies of this size have limited IT resources and seek ERP systems with low total cost of ownership (TCO). Nevertheless, they look for solutions that offer broad and deep functionality.
Seek systems that can support their differentiating, specific requirements, but do not require a huge overhead in the nondifferentiating business areas. The systems must be adaptable to changing business needs. Because of their smaller size, midmarket companies are able to react more flexibly to changing market conditions, and can react more quickly to new opportunities than most large enterprises. Therefore, they need ERP systems that support flexibility rather than inhibit it.
Require support for industry-specific requirements and business processes: In some cases, they need combinations of these attributes — for example, process manufacturing versus discrete manufacturing, or when they're the manufacturers and distributors of their products, and they also offer after-sales services.
Have an international presence, either by doing business through a channel, or by having or building a direct presence in multiple countries or geographies. Therefore, they seek ERP systems that are available and supported in more than one geography.
This definition was further refined in the 2012 iteration of the Magic Quadrant to include only single-instance ERP systems for multientity organizations, wherein multiple entities can be operated using one central instance of the ERP system. Pushed by globalization, many midmarket companies have a more direct presence in multiple countries. To cope with this situation under the limitations of the resources available to them, their desire is growing to support multiple organizational entities (like country units) out of one single instance of their ERP system (see "When to Consider a Single-Instance ERP Strategy" and "ERP Consolidation: Standardizing Processes and Evaluating Your Options"). The single instance could be one global single instance (GSI), or there could be multiple regional instances, each of which supports multiple business entities in the respective region. It is important to notice that the ability to support single-instance deployment has always been an evaluation criterion in previous iterations of this Magic Quadrant. To further improve the relevance of this Magic Quadrant for CIOs, IT leaders, IT managers, application managers and others in multientity, midmarket companies, we have only included systems that can support multiple organizational entities out of one single-instance system.
A multientity company is characterized by one or more of the following criteria:
The company consists of multiple organizational units, such as multiple business units with different offerings (for example, one manufacturing and one servicing the company's products). These units often work with the same customers and on the same products, but their pricing and delivery mechanisms differ.
The company is present in multiple countries with differing legal, tax and statutory requirements per country. In many cases, each country organization operates in the local language. Even smaller organizations covering parts or all of Europe will experience a wealth of different languages and even multiple currencies.
The entities can encompass multiple manufacturing, sales or delivery locations that can have a high level of interaction, regardless of the geographic location. Many European midmarket companies have, for instance, opened manufacturing locations in lower-cost regions of Eastern Europe.
To coordinate the various units and entities, these companies have cross-entity functions and structures — for example, for areas such as basic financial planning and consolidation, and cross-entity manufacturing resource planning (MRP), including capacity and fulfillment planning, centralized and decentralized purchasing, interentity and intraentity transactions, and flexible assignment of human and technical resources to entities.
Multientity is not a characteristic that is only present in large companies. Among Gartner clients, a variety of smaller organizations with revenue below $100 million have built an international presence, or divided their businesses into multiple organizational units. However, they still want to run these entities with a high level of commonality in processes and information at the lowest possible costs by using a single-instance deployment of their ERP systems.
Alternative Scenarios to Single-Instance ERP
Some multientity companies have chosen a federated approach by supporting each entity with its own ERP instance, and by building data synchronization mechanisms among these instances. This approach can offer benefits, especially in cases where there is a high level of autonomy and independence between entities. When these companies want to consolidate their instances to lower support costs, and to increase business process standardization by using one common instance, they tend to migrate to ERP systems that allow single-instance deployments.
Systems that can only support one entity per instance are in no way inferior to multientity, single-instance systems. Systems such as Infor SyteLine (formerly known as Infor10 ERP Business) or Microsoft Dynamics NAV can be easier to handle in a site-by-site mode, and allow local organizations to be run more flexibly than when using some of the bigger and more complex ERP suites. For more details on different instance strategies (for example, loosely coupled ERP), see "Determining the ERP Suite Strategy for a Newly Merged Enterprise."