Why the mid-market is now fertile ground

The ERP industry can no longer overlook the potential of the mid-market. The mid-market could be forgiven if it suffers from middle child syndrome. Underserved and ignored by the industry for years, mid-market firms have historically been forced to compromise when it comes to sourcing ERP software.

Having outgrown their small systems, mid-market firms were faced with few choices. They could opt for a highly specialised solution from a niche vendor, or they had to invest in large corporate ERP systems. This might involve reverse engineering systems to fit, or spending huge amounts of money for functionality they didn’t need.  

Phil Lewis, VP of solution consulting at ERP vendor Infor describes those customers as being caught between a rock and a hard place.

“The common problem is that neither of these options enable growth – the specialised systems hit issues of scale and the monoliths become so customised that any upgrades become unwieldy IT projects in their own right,” he says. “Both approaches are also expensive as businesses must track down ever-decreasing numbers of specialists that can manage the systems, and all too often the slower pace of change means missed opportunities.”

Mid-market firms – especially those in sectors such as food & beverage – are always  looking to find the next competitive advantage”, Phil Lewis  / Infor

Steven Wright, chief commercial officer at specialist systems integrator, Sapphire Systems agrees, noting that what “mid-market companies ended up with was a relatively poor time to value and a modified solution which did not provide much agility and became expensive to maintain and upgrade. This means that the solution quickly became out of step with the changing needs of the business.”

Mid-market: a fertile ground

Failing to recognise the importance of the mid-market means ERP vendors will miss out on valuable revenues. Almost two-thirds (62 percent) of mid-market companies expect to be thriving by the end of 2021, according to research by accountancy and advisory firm, BDO. Moreover, 59 percent plan to increase IT spending, and

54 percent plan to invest specifically in new finance and accounting technology.

“Middle market companies will prioritise technology in 2021 as they ensure their ability to meet changing demands, bolster security and safely enable work-from-anywhere eligible employees,” notes BDO.

The good news is that mid-market businesses usually mean high growth businesses that are still able to experiment and innovate at a faster pace than a lot of their enterprise contemporaries.

Mid-market is fertile ground for net new names. It is therefore essential to cultivate a partner network that can offer the value”, Dan Clibbens / Percipient

“Mid-market firms – especially those in sectors such as manufacturing or food and beverage – are always looking to find the next source of competitive advantage and to disrupt the market,” says Lewis. “This means that they are fantastic partners for vendors, both commercially and in terms of input into the software.”

Another reason why the mid-market should be important to ERP providers is that over time the large enterprise market has become fairly static. Most of those organisations standardised on the stack of a major vendor and once committed, would very rarely change, notes Wright.

“The mid-market has seen a large volume of new projects and therefore new client acquisitions for the vendors and most have amended their strategy to engage with this segment of the market. The mid-market ERP space is very interesting as it is comprised of steady growth and high growth businesses, divestments from large enterprises and subsidiaries of large enterprises, all of which have unique characteristics but the one thing that they share is the need for rapid time to value, high agility and scalability.”

Wright says that vendors now realise that the mid-market is fertile ground for net new names. It is therefore essential to cultivate a partner network that can offer the value, scale and transformational experience required at the appropriate level of investment.

Blurred lines

One thing worth noting is that what defines the mid-market is now somewhat blurred. Often when we talk about the mid-market, we mean companies which are fast growing, or have established themselves fully and have ambitions to expand.

“Turnover and employee numbers, which define the segment, no longer reflect the type of ERP capabilities which are likely to support their journey,” says Dan Clibbens, operations director at cloud-based finance software provider, Percipient.

“In reclassifying what the mid-market actually means, scale for growth, and flexibility to adapt to new opportunities are paramount. The new breed of cloud ERP systems deliver the capabilities for the modern enterprise, offering quick deployments, often in weeks rather than months, and easy integration with other systems to maximise visibility, insights and quick decision-making. Crucially these systems mean that there is no longer a compromise to be made on cost or being overburdened with complexity.”

 Clibbens points to the fact that the younger generation have been brought up “on a diet of technology that simply works”. Therefore, systems which don’t reflect this expectation simply won’t be tolerated and will quickly become redundant.

 “Dedicated cloud-native systems, which are intuitive and designed with flexibility and agility at the forefront, have finally reached the mid-market, and proving to be game changers in both the perception and the value of ERP,” he says.  

Intelligent buying

There are other trends within the mid-market. Chris Richards, regional president UK&I, at ERP vendor Unit4 believes we’re now seeing more intelligent buyers who expect greater things from their ERP systems. At the same time, there are additional decision-makers involved in choosing which system to purchase.

“Traditionally, it might have been left to the MD or finance director to buy the software and other functions would just have to rub along with whatever decision was made. Now we’re seeing disciplines, such as HR, having more of a voice,” she says.

Richards says this is good, because it shows mid-market organisations are maturing in their understanding and application of ERP systems.

If your ERP vendor’s heritage is large enterprise software applications, there’s a danger they will treat all customers the same”, Chris Richards / Unit4

“For example, there’s a clear recognition that mid-market organisations need to do more to engage their employees to offer them different experiences. This is symbolised by the change in job title for many HRDs as they become more people-focussed and there’s a clear push to improve HR systems as mid-market companies feel they are behind larger enterprises in enhancing user experiences to attract and retain top talent. Consequently, they are becoming more involved in decision making. HRDs want ERP systems to enable them to be more agile and help them to communicate better with employees while offering staff the flexibility of self-service.”

We’re also seeing increased demand for more integrated single platforms as organisations understand that having integrated finance and employee data is critical to making important decisions for the business.

As such, Richards says we’re seeing a move away from the individual best-of-breed applications to more consolidated platforms to avoid the cost and complexity of running multiple systems.

Even at a high-level, mid-market businesses are looking to leave behind an on-premise, legacy mindset and continue their journey to the cloud. This now extends beyond conversations of cost savings, to automating existing processes and uncover new revenue opportunities.

Personalised for the mid-market

So how can ERP providers best serve their customers in the mid-market moving forward?

The simple answer, says Wright, is by listening and providing a personalised application of technology and services to identify and achieve revenue and cost improvements.

“This probably boils down to major authors concentrating on the core ERP solution, using their experience and knowledge to provide a range of industry and process best practice to make core adoption easy and instantly impactful,” he says.

The role of the system integrator is then to add to the core through personalisation, automation, insight and enhanced user experience. This, says Wright, provides “a constant path for improvement and enhancement with minimal disruption and incremental cost. A great partner will manage your digital transformation and ensure adoption and value at each point in your technical evolvement.”

Reclassifying what the mid-market actually means, scale for growth, and flexibility to adapt to new opportunities are paramount”, Steven Wright / Sapphire Systems

However, Richards warns that if your ERP vendor’s heritage is large enterprise software applications, there is a danger they will treat all customers the same. This has historically manifested itself as the bigger vendors selling ‘lite’ versions of their products to the mid-market with scaled back functionality. However, this sends an awkward message to customers that they don’t really have a voice unless they can find the budget and resources to purchase the full enterprise version of the vendor’s products.

She observes that just because mid-market firms may not have deep pockets, “it doesn’t mean they don’t expect to have the functionality for their specific business needs.”

“Ultimately, as a vendor you have to be honest with customers that they have to go on a journey with you to reap the benefits of innovation. If you have these standardised foundations, it will be much easier to extend your ERP system and integrate innovation that will give the customer the future-proofing they need to respond to changing market opportunities.”

Even though it is easier for the purposes of discussions like this to refer to ‘the mid-market’, it is important not to put all firms in the same basket. There is no ‘one-size-fits-all’ approach. However, it is becoming clearer that investment in digital transformation over the past several years is now paying off, and mid-market customers want to focus on sustaining agile growth.

Eighty six percent of UK mid-tier businesses are looking to recruit more staff over the next six months, with more than half (54 percent) planning permanent appointments. The companies will be increasingly focussed on workforce optimisation, flexibility and efficiency. From automating back-office finance processes to elevating customer service to building more agility into workflows – the ERP industry can no longer afford to ignore the mid-market.