Does the new generation of ERP products have the necessary flexibility to integrate fully with e-business? Mark Vernon reports.
Has the moment finally arrived for the triumph of enterprise resource planning (ERP), or are its days already numbered? Such a question might seem a little perverse. ERP has been phenomenally successful in spreading its influence across enterprise networks, and forecasts promise continued growth. But such headlines conceal radical developments to ERP applications that paint a different picture.
ERP software today looks very different from how it looked even a year ago. The change has been necessary not merely to keep the industry moving forward but to avoid solutions being rendered obsolete. Because of changes to business processes, and the main culprit is electronic business, the logic of which - fast, flexible and functional - does not resonate well with traditional ERP solutions. This point is made by Andrew Bartels, vice-president of Giga Information Group. He notes that ERP suppliers have been successful in automating what has been or can be standardised. But imposing rules on organisations, especially rules that seem arbitrary in relation to evolving markets, is the antithesis of e-business.
"The success had already been turned into a criticism of solutions since it tends to impose idealised business processes on organisations, which some experience as a rack," says Bartels. "And there are problems when this standardisation is extended to the Web." He notes two in particular. First, that the Web environment is still relatively immature, which means that standards and best practices are still being formed. Second, ERP's standardising character has worked well within an organisation, but in the new world of inter-company collaboration, there is a question-mark over whether e-commerce versions can deliver flexibility.
This is not to say that ERP suppliers are not making substantial efforts. In fact, a new study by Frost & Sullivan reports that they are doing so with some success. It notes that drivers include expanding global strategies and operations, and organisational drives towards greater agility and flexibility are actually propelling growth in the ERP software market. Mukesh Karsan, a research analyst at Frost & Sullivan, says: "Perhaps one of the most visible changes in the industry is the development of component-based technologies, as companies look for more flexible avenues. Suppliers' strategies in this area are gaining momentum, as the traditional large suppliers downsize their huge, monolithic applications for smaller, more agile vertical markets and medium-sized companies."
It is in the Web-enabled supply chain that ERP has been making a particularly strong bid for e-business. Work at NV EDON Groep, an energy distribution company in the Netherlands, is typical. "I see a bright future for ERP in the sense that it is the core system for our organisation - all new systems must be integrated with ERP," says Marcel den Besten, corporate IT manager. "We will use an Internet front-end as a tool for contractors to bid on work. In an energy company, you have lots of small projects. Individually, they are pretty expensive. But if you group them, and we can use ERP for that, you can let the contractors bid on them and then reduce your costs." Integration with Web-based commerce is the final piece of the jigsaw.
But this raises other issues, notably the problem of integration. For example, the logical end-point of integration in the e-business environment is to allow external customers direct access to internal ERP systems. However, this depth of integration presents major hurdles, not just technical but cultural, since it demands new collaboration and trust between partners. To this end, Cambridge Technology Partners has already coined a new acronym: extended resource planning or XRP.
Perhaps a prior question, though, is whether such integration imposes limits on ERP's embrace of the corporate network. No one doubts the dramatic in-roads ERP has made, but the point is that a successful implementation demands not only high levels of technical expertise but also a good knowledge of the business concerned.
The emergence of application service provider (ASP) offerings from ERP suppliers has brought this question into focus once again. The point of becoming an ASP is to capitalise on economies of scale: "one too many" is the name of the game. However, whether ERP solutions really lend themselves to this model, without raising all the old problems of business process straitjackets, is a moot point. Durlacher Research, for one, believes that technical and operational factors coupled with immature pricing models may not make this segment of the market profitable for the top-tier ASP ERP solutions. Further, while ERP suppliers have addressed the high-end user business market, many of them have little experience of working with small- to medium-sized enterprises.
However, Deepak Gupta, general manager of PeopleSoft's new ASP venture eCentre, believes that the opposite will be the case. The ASP will be applicable to a large percentage of smaller companies, but only to a small percentage of larger companies because it is they, and not SMEs, which find that heavy customisation is necessary to ERP projects. "But if organisations are willing to live within the constraints of the ASP model they will benefit," he adds. In fact, work PeopleSoft carried out for GroceryWorks.com, a fast-growing Dallas-based online grocer, suggests that the new generation of ERP products do contain the necessary flexibility. "We chose PeopleSoft because its flexibility, its ease of use and service teams will allow us to focus on the execution of our business - not training people on software," says Mike Puls, senior vice-president of corporate development at GroceryWorks.com. "Also, when you have a start-up company, you need to align yourself with outstanding partners like PeopleSoft to achieve your overall goals." Perhaps ERP's time has come after all.
Guest editor's view
Peter Mansbridge says:The ERP method suggests that one should carry out BPR before the implementation stage, in order to fix your business processes. The essence of e-business, however, is flexibility and changing processes. Quite some dichotomy for the IT director!
- Should we beware of change for change's sake?
- Just how flexible do we want to be?
- Do we risk instability if we change too quickly, too often?
- Never mind IT, are the users able to keep up with consistent change anyway?
- Is the organisation ready for a fast rate of change?
Are we being driven to a point where the ability to change fundamental processes frequently is essential to keep competitive edge? Or can excessive change spawn instability? Send us your thoughts, marked "Guest Editor", to [email protected]