Big ERP Players Courting Government Agencies

Big ERP Players Courting Government Agencies
P.J. Jakovljevic - November 28, 2000

Event Summary

Those who have been disparaging ERP as a pass technology will have to do a double take at least in the public sector. There are strong indications of revived interest, as well as reports of major ERP contracts awarded to leading ERP players recently by the sector. Incidentally, as reported by Operations Management on-line on November 13, the Tallahassee-based Florida Retirement System (FRS) concluded in October its four-month search for a general ledger system with the purchase of PeopleSoft's General Ledger. The FRS back-office presently uses two PeopleSoft products and General Ledger provides the potential for an efficient systems interface, according to Eric Nelson, director of accounting. FRS has $120 billion in state pension fund assets.

PeopleSoft also won a major ERP deal with the Treasury Department in May in association with Litton-PRC Inc., a McLean, VA consulting company. Under the $110 million, three-year contract, one of the biggest ERP consulting deals of the past year, PRC will be implementing PeopleSoft's human resources software. The software will replace more than 100 legacy systems used for personnel and payroll throughout Treasury and its 14 bureaus. When fully operational, the system will manage personnel data and payroll for more than 160,000 federal employees.

According to Washington Technology online from October 23, Oracle Corp. and SAP Public Sector and Education Inc. have captured important new federal contracts for ERP, signaling continued strong government interest in ERP solutions. Oracle, within the past month, won contracts with the National Institutes of Health and the Small Business Administration. Other recent wins include the departments of Energy and Veterans Affairs. SAP Public Sector and Education of Washington, in addition, landed an award in early October with NASA. That win follows others in recent months, such as a series of pilot projects with the Navy and a major implementation as part of the Army Wholesale Logistics Modernization contract held by Computer Sciences Corp. of El Segundo, Calif.

Officials with Oracle and SAP said they are seeing more solicitations for ERP implementations than they were a year ago "The year 2000 is behind us, and the government is now unleashing the requirements for modernizing financial systems and e-gov is over running everything," said Barbara Bleiweis, director of federal initiatives for SAP.

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"Modernizing financial systems is one of the key steps for moving an agency into electronic government applications", said Steve Perkins, vice president and general manager of Oracle Federal. Most agencies are adopting ERP in a piece-by-piece approach, Perkins said. "No one buys and implements in one fell swoop," he said. "Everyone picks a spot to start." "Financial applications are usually a good place to start because they play an important role in making electronic government applications work", Bleiweis said.

Of Oracle's recent wins, only the NIH is implementing a broad range of ERP software components that include financials, supply chain management (SCM), advanced planning, asset management and procurement, Perkins said. The others are concentrating just on back-office applications such as financials, human resources (HR) and procurement, he said.

At NASA, SAP is implementing a single financial system that will replace 10 separate systems. The contract is worth $6.67 million in the first year. The new system will give NASA more capabilities in managing projects and their costs and generating financial reports, Bleiweis said.

The way the government is approaching ERP is similar to how ERP was adopted in the commercial world several years ago, Perkins said. Most agencies are starting in one of three areas: back-office applications; supplier applications, such as procurement and supply chain management (SCM); or citizen facing applications, such as customer relationship management (CRM), he said. Eventually, agencies will be doing all three, Perkins said. With that in mind, ERP vendors have been taking software they developed for commercial markets and are adapting it for the government market.

Other companies such as American Management Systems Inc. (AMS) of Fairfax, VA, which always has had a strong position supplying financial systems to federal agencies, have been forming close alliances with software developers who can bring in new applications. AMS has alliances with Ariba Inc. a provider of electronic commerce software; Siebel Systems Inc., a maker of customer relationship management software; FreeMarkets Inc., an online marketplace for complex acquisitions; and govWorks Inc., a developer of online government services for citizens.

Analysts following the ERP market in the government sector estimate that 70 percent of federal, state and local governments are looking at implementing some form of ERP. Part of the reason for the growth potential in ERP projects is that about half of these agencies still rely on old legacy systems.

Market Impact

While this is certainly exciting news for ERP vendors and consulting companies who have been sales starved during the last 18 months, they will also have their work cut out for them. Those who can deliver solutions that satisfy the exacting, stringent requirements of vertical markets are in the driver's seat to capture that market segment.

As an illustration in this particular case, SAP Public Sector and Education division has recently announced two new operational modules designed to enhance delivery of personalized applications to users. The Tax and Revenue Management module within suite provides federal, state, and local government agencies tools to automate the tax collection process by enabling citizens (suppliers, partners, or actual end-users) to conduct and view financial transactions. Records Management module provides these same governmental agencies, along with colleges and universities, school districts, and healthcare providers, with the ability to define records and cases, workflow execution and monitoring, and electronic signature and information retrieval capability.

Oracle, PeopleSoft, Lawson Software, J.D. Edwards, Geac and others all have been busy delivering or have already delivered similar capabilities. CRM and additional analytic and reporting requirements are another big issue. Each of these players will bet on creating an offering addressing e-government with a strong backbone ERP component. Meeting the public sector's needs will also require ERP vendors to improve ease of installation, ROI, interoperability, and service support networks. Moreover, escalating competition in the market will definitely make price a significant competitive factor.

The ERP system certainly remains the backbone of a business. It sets the structure an organization needs to do business and to communicate with internal and external users and other organizations. The combination of ERP, supply chains, and the Internet, or collaborative commerce, is an integration designed to offer faster and easier access to business transactions as well as customer and supplier data. To this end, the public sector has realized the compelling need to modernize its back-office systems under the umbrella of e-government, namely, to provide citizens access via the Internet to internal public agencies, processes, and systems. This combination does not mean that ERP systems become obsolete over night. Quite the contrary, ERP functionality remains critical. The 'new economy' will not cause the obsolescence of general ledger or payroll for example. Rather, it may emphasize the importance of their efficient use. Integration and interconnectivity are therefore the name of the game in the future.

User Recommendations

While users in the public sector are in the driver's seat, the task of selecting the right provider is by no means simple. There is a cutthroat competition with no clear market winner yet. Government agencies should be aware of the fact that they need a reliable back-office system in place in order to conduct their e-gov business or client relationship management. Therefore, we encourage them to aggressively inform themselves about vendors' latest product offerings and vigorously negotiate contract terms. Pay close attention to vendors' extended ERP offerings and discern hype from reality.

The importance of a thorough, well-structured software selection process is of utmost importance given the fact that mere nuances will determine a winner. Overlooking any of TEC's six parent business applications evaluation criteria (Product Functionality, Product Technology, Product Cost, Corporate Service and Support, Corporate Viability, Corporate Strategy; for more information, see ERP Systems Evaluation & Selection Audio Conference) can result in a selection with disastrous consequences. Users should therefore seek assistance in the selection process from unbiased service providers, preferably with experience in public sector or similar industries, and base their decisions only on existing functionality that the vendors are able to demonstrate during scripted scenario sessions. Best-of-breed strategy may not necessarily be a bad option. However, 'bolt-ons' should be selected only from official business partners of the primary ERP vendor, after making sure that partnership is not a mere marketing pitch.

The 64,000-dollar question is how functionality rich these new 'e-gov' modules are, and how seamlessly they have been integrated with the back-office. Alternatively, how feasible would the integration with third-party products be? While vendors' corporate viability remains a crucial factor in any selection process, it seems as though the most of major ERP players are going to be around for a significantly long time to come.

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