As companies query the benefits of enterprise resource planning investments, the rise and rise of e-business is both challenging ERP vendors and giving them an avenue to reinvent themselves. Sue Bushell reportsEnterprise resource planning vendors have had their ups and downs, but now they're paying a heavy price. Financial year 2000 proved a very ordinary year for the ERP market, with barely any growth at all.
In response, the major ERP vendors are belatedly but furiously trying to reinvent themselves as e-business players, desperate to reassure their customers that those years of effort spent implementing new business processes and technology have maximised their chances of being winners in the online world.
But while analysts agree successful ERP implementations can help organisations position themselves for the new economy, they say ERP vendors still have much work to do and many threats to face along the way if their customers are to continue to rely on them as providers of business solutions.
The fervour to pursue a single vendor solution, coupled with a spending spree unleashed by Y2K phobia, created an artificially high demand for ERP in the three years leading up to year 2000.
Now, according to Gartner, companies are discovering that year 2000 is bringing general user disillusionment over ERP investment value.
"With the pressure on IS organisations to do 'e', many companies are further questioning the wisdom and the return of ERP investments," Gartner says.
"However, ERP remains crucial for effective, optimised operation in many companies. As companies seek competitiveness in the 'e' world, they will seek more flexibility and focus on core competencies. In so doing, they will find that ERP - in the broader context of a suite of applications - truly becomes a key platform for successful evolution into an e-commerce-enabled company."
Ultimately, the research company opines, the question for users seeking competitive advantage is not, "What was my ERP return on investment (ROI)?" but rather, "How do I leverage the ERP capability I have to enable me to become a better partner and collaborator?" Ultimately, it says, the answer to that question lies in pursuing ERP II strategies.
As companies play survival-of-the-fittest in the 'e' space ERP is likely to provide a key platform for success in the B2B (business to business) and B2C (business to consumer) arenas.
But the payoff will only come if organisations now put as much effort into integrating Web-based front-ends and CRM (customer relationship management) with the proven back-end transactional processes supported by those ERP systems as they did in introducing those ERP systems in the first place.
How successful vendors are at helping them address the challenge may prove crucial to those vendors' long-term survival.
"In the long run you would be hard pressed to argue that SAP and PeopleSoft and Oracle would not be successful," says Neil McMurchy, Gartner research director enterprise applications.
"They have large numbers of customers and big revenues, so they can throw money at research and development, and they do understand business. And the fact is that whether it's called ERP or something else, the fundamental things those systems do are still going to be required inside companies."
But to survive he says the ERP vendors will have to evolve to what has labelled ERP II: building new architectures, deploying new functionality and addressing inter-enterprise collaboration rather than just enterprise optimisation and transaction processing.
The major developers of ERP applications, including PeopleSoft, Oracle, Baan, JD Edwards and SAP, are guessing he's right. And to ensure that they're still major players in years to come they're all articulating strategies designed to let companies use their installed ERP infrastructures as foundations for e-business.
Gain out of pain
At the same time, says IDC senior analyst Natasha David, CIOs who have undergone the real pain of back-end integration are more focused than ever on getting real value from their ERP systems. Ultimately it's the vendors who can assure them the pain points will never be as high again for ERP implementations that will succeed in the new e-business era, she says.
All the ERP players have much work to do yet to establish their credentials in this arena and fend off the attack on their core business from nimble e-procurement and e-marketplace vendors like Ariba and Commerce One.
With vendor strategies unproven and many of their e-business offerings still looking more like vapourware than concrete offerings, business users are looking to their ERP vendors to provide much more certainty in the future.
High levels of user disillusionment over the return on ERP investment have already left many companies questioning the wisdom of their ERP investment. Some fear the complexity of their systems may leave the organisation ill-equipped for the rapidly changing environment of e-business, while analysts point out that ERP vendors have yet to prove that they can deliver on their promise of integrating e-business applications with their back-office apps.
The challenge for ERP vendors then is to exploit their existing market share while finding credible ways to help their customers integrate their e-business efforts with back office functionality. Only then will their futures look anywhere near as bright as their collective pasts.
"The big ERP vendors have the lion's share of the large enterprise market, (SAP has nearly 20,000 customers here) so that they've got a captive customer base into which to sell e-business applications and CRM, provided they can deliver product to market," McMurchy says.
"The critical issues now are the extent to which they are going to be successful doing that and the issue of how well, with this large installed base of ERP systems, they can take those customers forward."
The vendors have much to prove. The requirements for supporting back-office functions like finance, payroll, human resources and manufacturing are very different to those for supporting e-business. ERP may bring process, integration and efficiency to critical internal operations, but e-business means opening up the business to external activity with customers and suppliers. And that, as the marketplace might say, is a very different kettle of fish.
It would be fair to say the ERP vendors have all been slow off the e-business mark. McMurchy points out that it's precisely their failure to pick up on the speed of uptake of e-business that has allowed competitors like Ariba and Commerce One to move in on their jealously guarded accounts. Now they all seem to have woken up at once to the threat to their ongoing viability, although their responses have been varied.
SAP is trying to tackle the online world via its MySAP.com e-business portal and MySAP.com Marketplace, a Web site where SAP customers can buy and sell business materials online. It is also pressing ahead through alliances such its CRM deal with Nortel Network's Clarify.
Oracle has its 11i product range covering supply-chain execution and Web-based planning, and has CRM, e-commerce, and supply-chain offerings integrated with its back-office. It is now trying to make e-business simpler and more flexible for mid-size businesses via offerings like Oracle FastForward Web Store, comprising applications for creating an online store and handling transactions and services to help mid-size companies quickly establish online stores and trading communities.
Oracle11i adds more e-business features to Oracle's ERP system while a supplier-management portal will let companies link suppliers to their Oracle ERP systems.
After very publicly attacking SAP and Oracle's approach, PeopleSoft has reacted to a threat to its market share from Siebel by acquiring CRM functionality through its purchase of Vantive and has plans to Webify its ERP software. Meanwhile its PeopleSoft 8 suite of accounting, human resources, and supply-chain applications is intended to centralise processing functions on servers, with users able to access applications from a Web browser.
Embroiled in financial woes, Baan has been acquired by London-based automation and controls group Ivensys, which has reassured Baan users it will be committed to the e-business area. Baan joins SAP in a strategy of packaging software in smaller pieces, looking to 'thin' versions of its ERP applications to ease implementation for those looking to manage a supply chain or handle logistics, procurement, and product configurations.
Baan is also expand-ing its new E-Enterprise platform, a set of online e-commerce applications for sales, configuration, and B2B collaboration that integrate with its ERP and front-office applications.
Meanwhile JD Edwards has signed licensing and original equipment manufacturer agreements with middleware player Active Software and the XML-based, B2B integration vendor NetFish Technologies, which competes with Active's new owner, WebMethods. JD Edwards Web applications, linked to back-end ordering and inventory systems, include an Internet store where business customers can make purchases and check order status.
And all the ERP vendors are falling over themselves to position themselves as consulting companies offering integration services around e-business initiatives.
David says IDC research shows SAP in Australia emerging as a clear leader in Web-enabling of back-office systems, with Oracle and PeopleSoft coming a close second and third.
"SAP has a huge installed base in Australia and what it's doing with MySAP.com is trying to convert a fraction of its installed user base over to that," she says.
But the situation facing SAP users shows the dilemma for ERP customers looking to move to e-business. David says many SAP users are waiting to achieve the full return on their existing investment in infrastructure before moving into e-business, with most now confident of achieving ROI.
"But SAP has got a good chance because it has such a huge and strong user base in Australia. Basically its market share is what will drive SAP's success in that area," she says.
But for the moment, as McMurchy points out, SAP has a major marketing problem with MySAP.com - nobody understands it.
"There's no question that some very large customers have committed to MySAP.com," McMurchy says, "but people do not understand what it is because SAP has not articulated what My.SAP.com is.
"If you ask [the company] about CRM it says MySAP.com is the answer. Ask it about e-business and it says MySAP.com is the answer. You'd be arguably foolish to bet against SAP, because it has been a very successful company for a long time. But there's no question in our experience that SAP is not articulating clearly what MySAP.com does, what application areas it addresses."
As a result, while there are companies with significant investments in SAP committing to buy MySAP.com, there are many other SAP customers looking at alternatives.
Then there's Oracle, which David says faces a huge task in Australia as competitor PeopleSoft has almost double its installed base of licences in this country.
"For Oracle to succeed, lacking the installed user base to exploit, it will need to aggressively market itself as an e-business company capable of providing integrated software," she says.
"For Oracle I think the jury is still out. It is taking it from the tack of having modular components that you can then link and integrate very quickly and easily. "David says organisations simply don't have the skill sets or time needed for e-business, while being acutely aware of the dangers of their competitors beating them into the e-space.
"I think integration with any software of this kind is going to be the key to success both on the user implementation side and for vendor credibility in the area," she says.
Meanwhile corporate approaches to e-business are divided, with some organisations viewing it as a totally new set of applications and technology, while others are more inclined to see it as a natural extension to their ERP implementation. Analysts suggest the latter will be much more likely to succeed.
"I get concerned when I see e-business for established companies being hived off into a separate activity because in reality the Internet is just another channel," McMurchy says.
"E-business is not a separate thing. It's using the Internet to do better business as one of a number of channels.
McMurchy says that highlights the fundamental challenge of ERP: that ERP systems by definition are inwardly focused, being about internal processes of an enterprise, and centred on achieving internal efficiency.
"The 'e' world is about opening up your business and tighter and tighter collaboration between you and your trading partners," he says. "The challenge for the ERP vendors has been an architectural one where the entire focus of those products has been very much on an internal perspective. Now they have to turn around and suddenly open them up, so organisations can end up sharing applications between themselves and suppliers and customers."
And it's that challenge the ERP vendors have yet to fully address.