Russian IT Sector: Gaining Momentum
As we catch up, we find ourselves in a vulnerable position. It's time to stop playing catch-up, build our own solutions – the ones that work for us, the efficient ones. No looking back at SAP, Oracle, or Microsoft. Is our current architecture 20-year-old, as Russian Railways CIO Kirill Semion claimed at the digital industry conference for heavy industry in Russia (CIPR)? What are we chasing?
Semion also heads the National Competency Center for Information Systems Management Holding (NCC ISU). Founded by RZD, T1 IT Holding, and Gazprom Neft, the NCC ISU unites players in the IT market for the development of a national-grade ERP system capable of handling complex tasks and processing massive amounts of information – Resource Management Systems (RMS). This product will likely be built on a different architecture than mainstream ERP offerings from SAP, as it could integrate modules from various software vendors addressing different aspects of business management.
Railway executive Semion cut short his applause at CIPR, where discussions on the creation of a Russian ERP system were ongoing. He also suggested that the move towards a microservices container architecture for RMS with open programming interfaces would allow modules to be replaced incrementally, reducing the need for a hard dependency on a single vendor. Practice shows that the optimal approach would be initially to migrate financial accounting and control, followed by logistics and production while running MDM (Master Data Management) in parallel. This would help mitigate risks and potentially reduce CapEx by 20%.
Representatives at the NCC ISU told CNews that this project started in 2023, with the design of RMS architecture and detailed technical specifications now completed. Much depends on IT system developers now: how quickly they can create the “filling” for RMS to enable it to replace foreign counterparts for managing large industrial enterprises. However, it's possible that the new product may have to compete for market share with already existing Russian systems, which are currently being brought up to heavy-duty status.
SAP or Not SAP
The tenth, jubilee, CIPR conference took place in Nizhny Novgorod. For a week, participants in the IT sector, government representatives, companies, and industrial businesses discussed the digitalization of the Russian economy. One of the most repeated terms at the event was SAP, the name of a German company producing software. Unsurprisingly, as it's one of the world leaders in providing systems for managing businesses, its share on the Russian market was over 50% until 2022. One of the largest in-house implementations of SAP ERP was the Russian Railways.
Following 2022, foreign software providers who actively supplied Russian companies stopped their support and updates, potentially jeopardizing normal operations in the industry. However, even when frozen, these software solutions remained functional, causing no major issues. Nevertheless, the need for domestic alternatives to address potential software problems without the vendor's presence is clear. Additionally, enterprises are expanding, new directions are emerging, business processes are becoming more complex, and a management system should be able to keep up with all changes. However, in the situation of a freeze, this could prove quite challenging. An additional aspect is data protection. The lack of updates ensuring information security poses significant risks, including halting the system and production.
Yet, the transition from import software to domestic one has proven to be complicated. Today, there are approximately ten software companies – ERP system developers in Russia. The most well-known include 1C, "Business Technologies" (Global ERP), "Korporatsiya "Galaktika"" (Galaktika ERP), "Korporatsiya "Parus"" (ERP "Parus"). However, Russian ERP systems mainly cater to light and medium-sized businesses, focusing primarily on medium and large enterprises. The current challenge lies in creating heavy industrial and engineering software, suitable for large industrial holdings, which currently dominate the market, particularly the SAP offerings.
According to T1 CEO Alexey Fetisov, one of the major obstacles to successful domestic system implementation is user mentality, accustomed to working with SAP. Again, the principle "if it works, don't touch it" comes into play. Additionally, Russian users of foreign IT products ceased making licensing payments to providers following 2022. These payments, amounting to billions of rubles, were important for Western ERP vendors, whose Russian subsidiaries accounted for up to two-thirds of their revenue. Now, with installed foreign systems still operational and licensing payments no longer required, it makes little sense to invest substantial funds in a new product and then start paying licensing fees to a domestic vendor again, especially considering the existing investment in the used product is still being depreciated.
Creating industrial competence centers allows for the unification of developers and customers of software products, thereby reducing the time required for their development and releasing timely solutions for the market.
However, even if an enterprise decides to transition to a domestic solution, the process will not be quick. For example, fertilizer company Ferrostaal is implementing a project to replace Oracle ERP with Russian Global ERP, with go-live in experimental operation scheduled for the end of this year. According to a company representative, the ERP system selection took around two years. In the first year, the company assessed the market; various products were considered, and their criteria for ranking were set. In the end, only two options – a system based on the 1C platform, custom-developed for Ferrostaal by one of Russia's major software integrators, and Global ERP – remained. The transition began in August 2024. Interestingly, Ferrostaal initially opted for a gradual transition from Oracle to Russian solutions, focusing on a phased replacement approach rather than a one-time switch.
In light of the current situation, the need for a national-grade ERP system capable of handling complex tasks and processing vast amounts of information, such as Resource Management Systems (RMS), is becoming increasingly apparent. This product could potentially be built on a different architecture than mainstream ERP offerings from SAP, allowing for the integration of modules from various software vendors addressing different aspects of business management.
The industrial competence centers, uniting developers and customers of software products, aim to reduce the time required for their development and release timely solutions for the market, as these systems are crucial for managing large industrial enterprises efficiently. The industry, finance, and technology sectors are all intertwined in this process, as the development and implementation of domestic ERP systems could potentially reduce reliance on foreign vendors and mitigate data protection risks.
