ERP: How much do you need?

Vendors of enterprise resource planning (ERP) and other enterprise solutions have started developing scaled-down versions of their systems, yet the small and medium enterprise (SME) sector still seems hesitant to invest in what it perceives as a lot of technology.

At a round table discussion hosted by ITWeb, vendors gave testimony on how far ERP has come and how it is having an impact on local businesses, big and small.

Although a good system in itself, smaller businesses might not actually need a total ERP solution, comments Peter Wolfe, business development executive at Computer Science Corporation (CSC).

"The IDC recently released a report on the business application market showing that almost 50% of the spend in this space is on accounting functionality, as opposed to supply chain, warehousing and logistics or distribution," he notes.

Wolfe questions how cost-effective it is to scale down core functionalities such as supply chain enablement. "How down-streamed does that type of functionality come to small businesses, as opposed to core financial functionality, which is available at retail price for the store-front right up to the large corporate?"

Research company BMI-TechKnowledge, in its recent "SME IT end-user trends and market forecast" report, aimed to determine what business solutions are important to the SME sector. It found that 68 out of the 80 respondents listed their top three business solutions as customer relationship management (CRM), business intelligence (BI) and content and document management.

However, in the corporate space, the top three were: ERP, CRM and enterprise application integration (EAI).

CRM is the only area important in both sectors. For the SMEs, ERP is in 10th place and EAI in eighth.

However, with companies of all sizes doing business together, vendors have made ERP solutions scalable to enable electronic transacting between companies of varying sizes.

Companies that want to avoid getting their fingers burnt are advised to avoid the "big bang" approach to implementing enterprise systems.

"Unlike a financial system, which only affects one element of the business, with ERP you will find that change management alone is a nightmare, not to mention all the resistance you get from the various lines of business," comments Steven Howe, Business Connexion divisional manager.

Vendors at the round table discussion agree that all parties bear part of the blame for initial teething problems with ERP solutions. The vendors oversell their solutions, system integrators and consultants lack adequate experience and expertise to determine what is required, and end-users underestimate the impact the systems will have on their businesses.

"About 10 to 15 years ago, most consultants that would go to end-users to do a business case analysis were ill-qualified, but nowadays vendors are insisting on full accreditation programmes for all consultants doing the work," says Howe.

Oracle`s application sales manager Paul Webel comments that many decisions taken in implementing new systems in the late 1990s were taken out of fear, because it was the pre-Y2K period when most companies were panic-stricken.

As players in the space, we have all come along a journey of leading with technology and putting business needs next.

Derek Kudsee, business solutions group manager, Microsoft

At the same time, most consulting houses, on a global scale, were pushing the concept of business process re-engineering.

The immaturity of the country`s IT industry at the time should not be underestimated either, comments Derek Kudsee, Microsoft`s business solutions group manager.

"As players in the space, we have all come along a journey of leading with technology and putting business needs next. At Microsoft, we have felt the biggest pain in the Windows and Office space by leading with technology and disconnecting from what customers are saying," he says.

A basic way of fulfilling customer needs is to embrace open standards, say many participants. This is a factor all vendors are coming to terms with as they attempt to deliver solutions that fully integrate heterogeneous environments.

Because open standards are platform-independent, collaboratively developed and vendor-neutral, users do not feel that once a system is implemented, they will be tied to a specific vendor.

Open standards will encourage vendor innovation, while preventing vendor lock-in, believes Jeremy Waterman, MD of Softline Accpac.

One of the biggest drivers for ERP is the relational database, which has helped businesses overcome problems caused by data sitting in different silos while providing access to real-time information. For example, a branch office manager might like a view or report on all customers that bought products after a certain date. A financial services manager in the same company could, from the same tables, obtain a report on accounts that need to be paid.

Over the past 10 years, ERP solutions have evolved, becoming feature-rich and more user-friendly, while implementation times have improved greatly.

Michelle van Aardt, nVisionIT ERP business solutions operation manager, comments that modern day ERP systems are easier to use, and applications like BI have been bundled into solutions, enabling quicker strategic decisions. Even CRM is part of the solution, she says.

At the same time, it is suggested increased technology literacy enables users to better maximise systems.

So what should an end-user look for as a differentiator between different offerings?

Some have a bell or a whistle here and there but, in the end, they all offer more or less the same thing.

Steven Howe, divisional manager, BCX

There is no hard and fast answer to this, but there is a shift from generic ERP solutions to highly industry-focused ones, because processes in different industry verticals tend to vary.

For example, solutions for the health sector, motor manufacturing and computer components distribution verticals will differ to accommodate unique industry attributes.

Although still an out-of-the-box solution, these are at least industry-specific.

Howe believes most vendor solutions are more or less the same. "Some have a bell or a whistle here and there but, in the end, they all offer more or less the same thing."

Basically, no one vendor will ever be able to satisfy the needs of every customer in the world. The formation of strategic industry partnerships between solution vendors will create industry eco-systems that service specific vertical needs.

Howe, however, admits that no matter how much vendors might try to deny the fact, price will always be a major differentiating factor in winning tenders or projects. Vendors will continually find themselves locked in price wars.

"What we are also seeing is companies not wanting to deal with multiple partners. This means that, a lot of the time, vendors find themselves collaborating with competitors to provide a total solution," he adds.

Corporations, Howe says, are buying brands they can trust. This means vendors need to maintain good relationships with customers to ensure continued business.

The bottom line is that companies will buy from a vendor that provides value across their entire enterprise.

Project methodologies and implementation skills have improved over the years, which Brendan Peo, country manager for Hansaworld, says has greatly reduced implementation periods.

"The functionality built into the systems has improved as well, and because specific industry standards have been adopted that define what constitutes a basic ERP system, the amount of customisation and retesting needed during implementation cycles has also been reduced," Peo says.

Another factor to note is that new developments on the hardware side have helped do away with technological constraints such as limited bandwidth and processing power.

Contrary to the view of most of the round table participants, iAdapt director Gilbert Parsons says, in many cases, implementation times have not been reduced much. What has improved, he says, is the quality of solution end-users get.

Companies that have implemented ERP systems are able to boast of capabilities that include a "real" single view of their customers.

From a compliance, transparency and corporate governance perspective, companies find having critical data readily available does away with problems associated with "siloed" data.

On a more simplistic level, Waterman observes, the corporate desire not to have disparate systems is often motivated by a need to eliminate potential loopholes for fraud.

Both vendors and system integrators are reluctant to comment on the return on investment such a system can deliver, saying it is too hard to quantify.

When we pitch to potential customers, the last thing on their minds is return on investment. They are more interested in price and improvement of processes.

Paul Webel, application sales manager, Oracle

"There are too many factors that determine what sort of additional income a company makes after implementing an ERP system," comments Webel. "Even when we pitch to potential customers, the last thing on their minds is return on investment. They are more interested in price and improvement of processes."

One client CEO estimated what it would cost to continue running his company without an ERP system, says Webel, and the figure he came up with was enough to motivate him to put a system in place.

Howe says returns go beyond just financials. For example, a company is seen in a better light by customers and business partners if it has automated systems in place, and is bound to get more business because of it.

Overall, from a vendor and integrator point of view, there is agreement that, when it comes to business solutions, customers want a platform that manages business processes from a stability perspective. At the same time, it needs to provide the independence to plug in other components for specific functionality that might be needed.

"With everyone migrating onto service-oriented architectures (SOA), the customer now needs a system off-the-shelf with standard functionality for their specific line of business," says Alvin Paules, SAP NetWeaver solution manager.

In this context, SOA can be defined as two computing entities, such as programs interacting in such a way as to enable one entity to perform a unit of work on behalf of another entity.

The system should put these in the best practices arena, but have the capacity to add specific tools to enable them to do things a little differently.

And all this needs to be at the right price and the right time.

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New licence revenue, all market segment types and regions (millions of dollars)

Source: Gartner, March 2006