After so many large enterprises were burned by ERP investments gone wrong, can the second generation of ERP software find new markets and stay relevant in today’s changing business landscape?
For far too many companies, ERP (enterprise resource planning) has become a dirty word. Years after they were initially convinced to spend millions by vendors promising unprecedented business optimisation, companies are taking stock of their investments and finding that they usually come up far short of expectations.
In a global survey of enterprise application users, Accenture recently found that just 4 percent had achieved all of the benefits they expected from ERP; 38 percent had achieved just half the benefits they expected. “Clearly, those benefits were used as a business case to justify the program in the first place, so there would obviously be some disappointment associated with that,” notes Tony Holman, partner with Accenture’s Products Operating Group.
Older and wiser, today’s businesses—facing the additional pressure of a difficult economic environment—now shudder at the thought of jumping into technology for technology’s sake. But that hasn’t stopped software vendors from continuing to evolve their tools. Customer relationship management (CRM), supply chain management (SCM), supplier relationship management (SRM), and a host of other three-letter acronyms have continued to drive the ERP-related tools market. The result: ERP II.
Given the history of ERP—which evolved out of MRP (manufacturing resource planning) and its successor MRP-II—it’s hardly surprising that it should spawn a sequel of its own. ERP II is an assimilation of the rapid pace of technological progress in recent years: by formalising collaboration and data architectures across extended supply chains, ERP II extends ERP-driven business optimisation outside the four walls of the business. Its ultimate endgame is the creation of vast trading ecosystems in which businesses and their partners are seamlessly linked in dynamic, mutually beneficial relationships.
But selling that promise won’t be easy: customers are reeling after two years of fiscal conservatism and the backlash from failed or largely unsuccessful ERP projects. “People look back at this and say ‘where did all the money go?’” says Michael Devlin, ERP category executive within the Supply Chain and CRM practice of IBM Global Services.
Yet companies are still looking forward, Devlin says: “If someone’s looking at a business case for ERP these days, it would start on the cost saving front, have strategic returns, and then the third line item would be using that base capability to get returns around revenue generation. Companies [want to] be more competitive and agile by being able to expose information externally to corporations and receive information externally. The difference now is this is not leading edge; I’d call it a ticket to join the dance.”
Recognising that a fully visible supply chain will be tempting for budget-conscious CIOs keen to deliver real business value from enterprise technology, vendors are repositioning themselves and their solutions in an effort to continue the technology-driven business transformation they began six years ago.
This time, they promise, it will be different. Highlighting architectural changes and the maturation of both consulting firms and customers, vendors are working overtime to convince customers that the move to ERP II—which typically includes CRM, SCM, SRM, and ERP implementations directed by yet another business process review—will be relatively painless.
Sceptical? Good. Stay that way.
The ties that bind
As early adopters of ERP all too ironically found out, the biggest problem in implementing a single business information system often turned out to be the business itself. This was reflected in difficult and painstaking business process audits, ongoing project evangelising, migration planning, funding battles, and challenges winning users onto the merits of the upgrade.
That was just the business. When it came to technology, what was promised as the world turned out to be a whole lot harder to deliver than anybody first thought. One of the biggest sticking points was in the integration of legacy environments and databases with the new ERP systems; since ERP was designed to work best when all the data was processed centrally, implementers were stuck with the task of getting all manner of incompatible systems to talk to each other.
Getting this data into the primary system in usable form, and enabling two-way communications back to the source systems, proved to be so complicated that it spawned a billion-dollar industry with its own three-letter acronym: EAI (enterprise application integration). Acting as a sort of universal Babel fish, EAI tools could automate the transfer of data between common enterprise systems and shape it according to business rules set by the user. Even with that help, however, integration was extremely difficult.
That problem was magnified for users that chose best-of-breed ERP solutions necessitating the cobbling together of myriad components into something representing a coherent whole. Although it must have sounded like a good idea at the time, best-of-breed ERP became a bugbear for those who chose it: estimates suggest that systems integration could account for up to 60 percent of a typical ERP project—money and effort that could be better spent elsewhere.
But there was little choice, notes Roland Slee, director of business and technology solutions with Oracle Corporation: “Integration is extremely expensive and consumes enormous volumes of labour, and vendors have done very nicely,” he explains. “The key reason it was popular was that there was no credible alternative.”
Except, of course, to buy into the proprietary architecture of the JBOPS—J D Edwards, Baan, Oracle, Peoplesoft, and SAP. All espoused the merits of their end-to-end ERP suites, and in many cases customers bought into their stories simply to avoid the complexity of integration. That doesn’t mean it was the best approach, however: monolithic ERP applications locked customers into vendor upgrade cycles and made it difficult to expand systems outside of the vendor’s core feature set. As Baan’s intervening collapse demonstrates, being locked into one vendor could also be disastrous in terms of ongoing support.
Much to everybody’s delight, the industry seems to have learned its lesson this time around: one of the core tenets of ERP II is that it promises easier integration through use of industry standards that were in their infancy during the first wave of ERP.
Most importantly, XML (eXtensible Markup Language) has provided a common target for data representation and exchange between systems. Because XML is more or less universally understood, anybody with relatively modern information systems should be able to participate in ERP II-driven online business communities. That makes it a much more versatile solution than EDI, the much maligned and highly onerous standard for data interchange that’s now over a decade old.
ERP II will also be fuelled by the panoply of Web services standards (SOAP, WSDL, and UDDI foremost among them) providing integration between business processes that might be hosted on any type of system. In the ERP II environment, it is the data—not the system’s procedural idiosyncrasies—that matters.
“When you want to connect everything together—either talking with a machine in your plant, a customer, or a supplier—your core infrastructure needs to be very open,” says Gavin Dixon, northern region general manager with Intentia, which has Web services-enabled its entire Java-based Movex solution in anticipation of the shift towards ERP II.
“Almost without exception, legacy systems were designed to interact only with humans,” he continues. “They are ill-suited to this more agile, more flexible environment. Fortunately, [integration is] not as hard as it used to be. The tools are built by us, supplied by us, and they’re integrated with the product. The effect is that it’s much easier to implement things like data warehouses with KPIs [key performance indicators] appropriate for the industry the customer is in.”
Even with such widely adopted standards, however, the challenge of integration won’t go away completely: legacy systems must still be considered, and all the integration work of the past isn’t going to just be ditched overnight.
Broad support for data interchange standards should make the logistics of future ERP projects much simpler by letting customers define data models that can be easily shared amongst business units—as well as being sent to business partners and suppliers. If the first wave of ERP was about building out enterprise infrastructure, ERP II will enable real-collaboration between that infrastructure and comparable systems elsewhere.
