Enterprise Applications--The Genesis and Future, Revisited Part Three: 2000s--Back to the Future

2000s—Back to the Future

Integrated enterprise resource planning (ERP) software solutions became synonymous with competitive advantage, particularly throughout the 1990's. The idea behind ERP systems was to replace "islands of information" with a single, packaged software solution that integrates all traditional enterprise management functions like financials; accounting; payroll; human resource (HR) management; and manufacturing and distribution, and thereby ensure enterprise-wide transaction system coherency. Knowing the history and evolution of ERP within the broader enterprise applications concept is essential to understanding its current use and its future developments. The following is the genesis of enterprise applications by era.

ERP systems should help companies become leaner by integrating the basic transaction programs for all departments, allowing quick access to timely information. However, ERP inherited MRPII's basic drawbacks, which are the assumption of infinite capacity and the inflexibility of scheduling dates, preventing companies from taking full advantage of speedy information flow.

This brings us to the still ongoing phase of users' disillusionment and their consequent wising up, while the vendors had to take the school of hard knocks and adapt accordingly or fail. Namely, the growth and heydays of ERP throughout the most of the 1990s had been a direct result of the fierce global competition, shortening product life cycles, highly distributed operations, and information-driven management that largely characterize today's business environment. The vast majority of companies have always hoped to purchase an information system as a product, not as a collection of technologies, components and services. Leading ERP vendors have been relatively successful at that stage because they had attempted to build such a product.

A typical ERP system indeed now offers broad functional coverage nearing the best-of-breed capabilities; vertical industry extensions; a strong technical architecture; training, documentation, implementation, and process design tools; product enhancements; global support and an extensive list of software, services and technology partners. While it is not a system-in-a-box yet, the gap between its desired and actual features is becoming smaller every day.

However, ERP vendors have by and large not fared so well lately. The initial plight of the vast majority of ERP vendors was mostly attributable to the Y2K-problem caused market slowdown that started in the fourth quarter of 1998 and continued in full force throughout 1999 and 2000. Indications of it winding down finally surfaced late in 2000.

Particularly affected was license revenue, and the market (with some honorable exceptions) was dramatically less expanding and profitable during 1999 and 2000 than in 1998, measured in the total raw dollar revenues and net income. But, the 2000s have proven to be even more adverse years in the entire enterprise applications market. Following the whopping growth rates of the late 1990s, and the short-lived spending surge on sexy e-business-related technology in 2000, hard times worldwide and in almost all sectors have since subsequently morphed into harrowing times for all enterprise systems providers alike. While the biggest and richest vendors have been able to hang onto flat new sales, potentially modest declines, or in other cases, potentially modest growth, only the lucky or the most apt few with a true differentiation in a selected number of markets (such as warehouse management systems [WMS]/supply chain execution [SCE] or strategic sourcing) (see Glossary*) have bucked the trend and have recently shown some enviable growth (see The Hidden Gems of the Enterprise Application Space).

This is Part Three of a six-part note.

Parts One and Two covered developments from the 1960s through the 1990s.

Parts Four and Five will discuss ERP evolution.

Part Six will look at the future.

*There is a Glossary for the terms italicized throughout this article.

Causes of Market Slowdown

We believe that the ERP market slowdown since the end of the 1990s has in a great part been attributable to the following factors:

  • The historical growth in sales of ERP applications had come from large, Fortune 1000 multinational corporations. This market has consequently been highly penetrated (well over 70 percent), and new, large-scale back-office implementations in the F1000 customer base have all but stalled. For that reason, most vendors, tier 1 and lower tier ones alike have lately focused more on the less penetrated lower-end of the market, with variable success. For more info on large vendors' attempts at the market segment, and on incumbent mid-market vendors' defensive moves, see Software Giants Make Courting A Small Guy Their 'Business One' Priority.

  • However, even the relatively untapped small-to-medium enterprises/businesses (SME/SMB) market has been cautious about starting new projects due to the bad publicity caused by a large number of unsuccessful ERP implementations in the past. Namely, it has long been an open secret, general feeling based on rumors, news headlines, and many survey reports albeit hidden within trade publications' or analyst houses' vaults and largely inaccessible to mass audience owing to exorbitant subscription fees—the fact that many major companies are still having difficulty achieving effective ERP systems even after a full year of implementation.

    The above information is based on the report titled ERP Trends (Research Report 1292-01-RR), which was released in 2001 by The Conference Board (www.conferenceboard.org), the premier business membership and research network worldwide. The general feeling, however, is that the situation can be mirrored across the entire enterprise applications space. Namely, when at the end of the 1990s many decided to put ERP down as systems for merely "crunching back-office transactions, which remain locked up therein ever after," guess what, the seemingly sexier customer relationship management (CRM) or supply chain management (SCM) systems have not meanwhile proven any more beneficial either.

    In any case, approximately 40 percent of participants in The Conference Board survey reportedly failed to achieve their business case even a year after having implemented ERP. What has generally not been known for sure though was the more exact percentage of failed implementations. Vendors and consultants, on one hand, would argue that these were mere individual cases out of thousands of implementations, and that the bad perception is merely a product of media's overzealous attention to only the bad news. On the other hand, many prospects and customers may believe that the situation has even been worse than some may have thought as most of these problems typically never make it to the headlines because either a more convenient and less embarrassing justification exists or the company cannot reliably trace the problem back to the software or implementation. Although the report does not mention it specifically, the general feeling is that the percentage of failed implementations is higher in the higher-end of the market. For more information, see The 'Joy' Of Enterprise Systems Implementations.

  • Closely related to the above would be the inherent adequacies that traditional ERP systems have had, some of which have been noted earlier, and which have left enterprises struggling with a system that does not mesh with their operations. This has particularly been true for manufacturing companies that account for the lion share of ERP customers given their early adoption, as also depicted earlier. Thus, the lean, flow or demand-pull manufacturing support philosophy has lately been getting an increased interest, given the ERP systems of the 1990s have been burdened with the liability of carrying on some well-publicized MRP problems like complex multilevel BOMs, infinite capacity, inefficient workflows, and unnecessary (for example, no value-adding) transactions, activities and data collections, which have not been amenable to mass-customization but rather to traditional push-demand, mass production, and inventory building trends. For more details, see Pull versus Push: a Discussion of Lean, JIT, Flow, and Traditional MRP.

    The fact is also that only a minority of all ERP vendors properly support certain manufacturing environments, such as engineer-to-order (ETO) or process manufacturing. This brings us to so called "fatal flaws", which are missing functions that may make it extremely difficult if not impossible for the application software to run the physical business. For more details, see Find The Software's Fatal Flaws To Avoid Failure and The Fatal Flaws for Process Manufacturers.

  • Further, many ERP systems have also been based on a top-down, centralized organization, which does not enable effective planning and management of autonomous satellite plant operations. What will thus differentiate the leaders from the rest of the ERP pack will be the breath, depth, and diversity of plant-level, and distribution centers requirements (this includes flow-based manufacturing, work instruction, dynamic dispatching, etc.). The planning functionality will have to extend to the shop floor or distribution center level, whereby manufacturing and distribution functions will become intermingled. For more information, see Trends Affecting Manufacturers and ERP and Standardizing on One ERP System in a Multi-division Enterprise.

  • The above predicaments have been additionally aggravated by the need to integrate disparate systems, given that currently no single vendor can offer a complete end-to-end solution (from supplier to end customer), despite some enterprise vendors' marketing rhetoric. This will be the topic of another forthcoming article on the evolving core-ERP scope. Meanwhile, for more information at this stage, one can peruse Best of Breed Versus Fully Integrated Software: The Pro's and Con's, Single Source or Best of Breed - The Debate Continues.

  • The ongoing technology paradigm shift from client/server to the Internet-based architectures has created uncertainty about investing in traditional client/server technologies, which are still present (however in an obfuscated manner) among many ERP players' offerings. The second half of 1999 marked a dramatic and fundamental shift in the enterprise applications market with the emergence of the Internet as a viable platform for business-to-business (B2B) e-commerce transactions, which has rendered the outdated architectural and business perspectives of traditional ERP obsolete.

    In order to reinvent itself for the new collaborative external world, ERP products will have to exhibit Web-based, service oriented architecture embodied in componentized products, and better data availability (internally and externally published and subscribed) among ERP and non-ERP applications. The new generation of ERP systems will have to be more customer-focused and will extend beyond the enterprise through e-commerce interaction and collaboration with business partners. Like some of the above bullet points, this one too will be the topic of another forthcoming article on the underlying technology of enterprise applications. For more information at this stage, one can peruse What's Wrong With Enterprise Applications, And What Are Vendors Doing About It?

Consequently, many have failed to see deploying ERP (and other enterprise applications for that matter) as a competitive advantage. Therefore, we believe that many outlined trends in the enterprise applications market, some of which will be analyzed here and will be the subject of another forthcoming article on the trends in the enterprise applications market, are the direct consequence of vendors' attempts to

1) Resolve current ERP functional and technological deficiencies, as to finally fulfill the initially over-hyped benefits in the past,

2) Expand software sales both within their existing and potential customer bases, particularly in the lower-end of the market, by allaying the ERP complexity and costs perceptions, or

3) Further harness the Internet, which has been reshaping the enterprise applications market by making possible unprecedented visibility and information sharing both within an enterprise and between business partners.

This concludes Part Three of a six-part note.

Parts One and Two covered developments from the 1960s through the 1990s.

Parts Four and Five will discuss ERP evolution.

Part Six will look at the future.

Sources and Recommended Further Readings

  1. ERP: Tools, Techniques, and Applications for Integrating the Supply Chain. Second Edition; Carol A. Ptak, CFPIM, CIRM, and Eli Schragenheim; The St. Lucie Press/APICS Series on Resource Management; 2nd Edition, 2003

  2. Selected Readings in ERP; APICS Complex Industries SIG, 1999

  3. Maximizing Your ERP System: A Practical Guide for Managers; Dr. Scott Hamilton; McGraw-Hill Trade, 2002

  4. APICS Dictionary; 10th Edition

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