Oracle and SAP are working on new architectures that are more responsive to business change, but there will be costs, and benefits will not be immediate.
The leading enterprise resource planning applications are set for a fundamental change over the next few years. Suppliers Oracle and SAP are changing the underlying architecture of their software to create a platform for running business processes using a service oriented architecture.
Over time, this should result in ERP systems that are far more flexible and able to accommodate business change than is possible today. However, experts have warned that users should brace themselves to pay as much as three times the original cost of their ERP system to migrate onto the next-generation Oracle Fusion and SAP Netweaver architectures.
Existing packaged applications enable process efficiency, but businesses that implement a package often find the processes they have modelled have become very rigid and inflexible, according to analyst firm Gartner.
Both Oracle and SAP are working on next-generation ERP systems to replace their existing monolithic applications with a component-based approach. This will see business processes run as services within a service oriented architecture. Such an approach should simplify future upgrades but analysts have warned of a complex and costly reimplementation of existing ERP systems.
Oracle's strategy is based on Project Fusion and the Fusion middleware platform. These provide Oracle's service oriented architecture for next-generation ERP and bring together its PeopleSoft and JD Edwards acquisitions with its own eBusiness Suite.
SAP is developing the next version of its MySAP suite around Enterprise Service Architecture - the company's version of a service oriented architecture - which will integrate with the its Netweaver application server.
Addressing delegates at the Gartner Symposium in Cannes earlier this month, Gartner research vice-president Andy Kyte warned that such software may not add immediate business benefit, but it could cost two to three times the original implementation cost.
Industry analysts expect a large proportion of users to remain on their existing platform.
David Mitchell, software practice leader at Ovum, recommended users stick with existing ERP systems for the maximum time possible. "Get an upgrade path from your supplier on what they will support and look at different suppliers. The cost of reimplementation could be high," he said.
In a presentation at the Gartner Symposium, Gartner research vice-president Yvonne Genovese said, "Although SAP has said that MySAP ERP will replace R/3 Enterprise, by 2007 more than 50% of enterprises will not have upgraded because of a lack of details to build a business case for the upgrade."
But users who do choose to build next-generation ERP with SAP Netweaver will face an integration challenge. It is unlikely that all of the processes needed to run an enterprise are contained in a single package or suite, Genovese warned. "Linking processes from multiple sources exposes conflicts in definitions and overlapping implementation - challenges that must be overcome as part of application integration," she said.
Presenting on the migration to Oracle's Fusion strategy, Gartner analysts Simon Hayward and Lee Geishecker said, "Up until 2011 the upgrade from any of Oracle's current application products delivered from Project Fusion will be at least as substantial as that from eBusiness Suite v.10 to v.11i, or from PeopleSoft v.7 to v.8."
Even if users win approval for a migration, many questions remain on how the next generation of ERP will work in practice. Unlike existing applications, the next generation of ERP will be based on a service architecture where software components communicate asynchronously, making it hard to determine the time a business process will take to complete. AMR Research analyst Derek Prior said, "No supplier has proved they can handle end-to-end performance management."
Another area of concern when migrating onto these new platforms is how much existing applications have been customised. Experts agree that the less customisation in the application, the easier the migration will be.
Debra Lilley, deputy chair at the UK Oracle User Group, speaking at the user group's annual conference last month, said, "Do not go anywhere near changing the underlying structure. Many people on Oracle 11.0.3 did a lot of customisation and cannot move."
The situation is worse where the underlying architecture has been completely redesigned, as in the underpinning of the SAP and Oracle next-generation platform. Teresa Jones, an analyst at Butler Group, said, "Users may have to test or even rewrite [the customisation] for the new ERP platform." This will further push up implementation costs.
Neither Oracle nor SAP would be drawn on the potential cost and complexity of moving to next-generation ERP systems based on their respective architectures.
Fred Studer, vice-president of applications and industries marketing at Oracle, said, "A key tenet of Project Fusion is what we refer to as the 'superior ownership experience', which aims to significantly reduce the downtime, disruption and costs typically associated with upgrades."
SAP said, "We have a very large installed base of customers and the importance of the SAP applications to our customers is core to their operations. We have already greatly optimised and simplified the upgrade processes over the years and any move to Enterprise Service Architecture will be evolutionary."
The company said that until the MySAP business suite release on Enterprise Service Architecture comes out in 2007 and has been substantially deployed, it will have no real data on which to base any assumptions on the costs required.
- 2005 Netweaver becomes much more integrated into the SAP product
- 2006 Netweaver components become more central to MySAP software
- 2007 The integration of Netweaver and SAP's Enterprise Service Architecture is expected to be complete
- 2009 End of mainstream support for SAP R/3.
Planning for Oracle Fusion
- Businesses on older versions of applications will find the Fusion upgrade more costly and disruptive
- Users focused on administrative applications (Financials and HR) will find upgrading easier than those with a broader range of modules
- Users not wishing to use Oracle database will probably have to reconsider
- Implementations with extensive customisation in technologies such as People Tools will be harder and more costly to upgrade than those with little or no customisation
- Organisations already committed to Oracle middleware will most readily adopt
- Users running a heterogeneous application portfolio should use the upgrade to Fusion applications to rationalise - into the Oracle portfolio or out of it
- Early releases of Fusion applications may be less suited to small and medium-sized operations with single-site operations.