This is a transcript
of an audio conference on Enterprise Resource Planning System Evaluation & Selection
conducted on June 14, 2000.
morning everyone, my name is Predrag Jakovljevic (alias PJ) and I head-up the
Enterprise Resource Planning (ERP) research area for TechnologyEvaluation.Com.
Today we are going to demonstrate a proven, best of breed methodology for evaluating
and selecting an ERP system. During the presentation, we will use TechnologyEvaluation.com's
patented online selection engine, eBestMatch,
to guide you through a live, real time evaluation and selection. We will then
review the critical differentiating ERP criteria, as well as detailed comparisons
between the leading 15 vendors such as SAP, Oracle, PeopleSoft, J.D. Edwards,
Baan, QAD, Symix, and MAPICS, to name but a few.
Here are a couple of disclaimers before we proceed, due to a number of queries we received prior to this conference. First, the vendors we included in the first round were those vendors requested by both our offline selection clients and online readership. With those vendors we have long established an ongoing line of communications and, prior to including them in eBestMatch, we also published a research note on them on our site (we encourage you to check it out on our Web site under 'Business Applications' section). We do realize that there are a number of other worthy vendors that can and should also be included; off the top of my head I could think of at least 20 more vendors that will be added over time. Therefore, please regard this model as an ongoing work-in-progress. This conference may be its official launch, but the idea is to repeat it periodically, as new vendors are added and/or existing vendors' ratings reviewed.
Second, the idea of eBestMatch is not to give evaluations or produce magic quadrants, which are set in stone. It is rather envisioned to show you the flexibility of our software in conducting selections, where one can conduct a number of simulations by tailoring criteria, varying weights and/or factor ratings. There was the intent to give some very generic, high-level idea of vendors' standings though. Through our own research activities, client interviews and surveys, our ERP selection engagements, interactions with our counterparts and vendors, we have rated vendors at a high level across the critical ERP selection criteria. You will appreciate the fact that it is very difficult to do anything more detailed with only 270 criteria (at least in the ERP space), and more than that would cause our Web software version to be very slow or almost non-operational. A proper selection exercise, using our desktop version of the software, would involve significantly higher number of criteria (amounting to several thousand), with a sharp vertical industry focus, and that would be rated strictly in a quantitative way, as opposed to the more open-ended, descriptive rating scale that we had to use for this purpose.
Having clarified this, I'm going to begin with an Overview of problems and solutions relating to technology selection, starting first with the problem:
According to our research, over 80% of enterprise technology evaluations run over time and budget, and once completed, over 50% of the implementations fail to meet functional and total cost expectations. There are three main reasons that project teams run into trouble, in our view:
Teams don't have an effective way to identify the critical vendor and product criteria necessary to successfully initiate the evaluation process.
They have no ability to prioritize the different criteria, once identified, relative to one another. As a result, final priorities are often more the result of internal political agendas than true needs and requirements.
And finally, project teams have no ability to gather objective, validated, updated data on the vendor alternatives. As you may well know, vendors have a tendency to exaggerate product, service, and corporate capabilities if it enables them to move to the next phase of the deal.
So, what's the solution?
The solution is to create a structured, repeatable process for evaluating technology solutions and the vendors that provide them. Best practices drawn from our clients that have completed internal technology selections suggest that project teams should examine five key categories of criteria. The first two categories examine product specific capabilities, while the remaining three investigate the software vendor's overall corporate capabilities.
Therefore, let's review these criteria categories.
1: Product Functionality - is the most obvious evaluation criterion
and plays a dominant role in ERP software selections. Simply put, this evaluates
the features and functions delivered by the product as it currently exists.
Together with product technology and architecture, product functionality often
makes up over 90 percent of the overall importance within sub optimal IT selections,
which is too high since other criteria such as service/support, corporate viability,
and strategy should make a far stronger contribution.
2: Product Technology - defines the technical architecture of the product,
and the technological environment in which the product can run successfully.
Sub criteria include things like application architecture, software administration,
and platform and database support. Relative to the other evaluation criteria,
best practice selections place a lower relative importance on the product technology
criterion. However, this apparently lower importance is deceptive, because the
product technology criterion usually houses the majority of an organization's
mandatory criteria, which usually include server, client, protocol and database
support, application scalability and other architectural capabilities. The definition
of mandatory criteria within this set often allows the client to quickly narrow
the long list of potential vendors to a short list of applicable solutions that
pass muster relative to the most basic mandatory selection criteria.
3: Corporate Service and Support - defines the capability of the vendor
to provide implementation services and ongoing support. Repeated industry surveys
have identified this category as the single largest differentiating factor among
potential selection options, as well as the greatest indicator of ultimate user
implementation success and long term vendor viability. A proper professional
services and support evaluation should include both subjective, qualitative
measures validated by current product users, and objective, quantitative criteria
within both the professional services and product support categories. Service
and support includes categories such as consulting, systems integration, project
management skills, geographic coverage, language and time coverage of the vendor
help desk, and delivery mediums.
4: Corporate Viability - is also a critical, yet often overlooked category
that examines the financial and management strength of the vendor. Given the
huge number of dollars spent on IT procurements, not to mention their strategic
importance, the financial stability of the vendor simply cannot be stressed
too much. The vendor viability category in eBestMatch
combines quantitative Wall Street ratio and metric analysis with qualitative
management and corporate evaluations. Only by combining the two components can
IT executives accurately assess the risk and benefit of corporate investment
in a specific product and vendor option.
5: Corporate Strategy - evaluates the corporate road map and strategy
of the software vendor with regard to specific timelines of how the product
will be developed, sold, and supported within the ERP market. This is the most
strategic and long term set of evaluation criteria, and rates how effectively
the stated vendor's three to five year product, support and sales strategy maps
to the overall market direction. Any dissonance between the stated vendor direction
and market direction is a cause for concern, and should be rectified by the
vendor through either a shift in corporate policy or a detailed and market validated
explanation for the discord.
Some of you may, with a good reason, wonder about including Product Cost in parent criteria. This category, often the criterion most closely scrutinized by project teams that make sub-optimal product selections, should examine the initial product acquisition cost relative to its peers in a series of specific, predefined acquisition scenarios. In addition, it should also include longer-term costs, including maintenance fees, upgrade costs, training and implementation costs, and service and support fees. Traditionally, the best practice is to eliminate cost from the initial evaluation steps, and focus first on mandatory functional and technical criteria, as well as the strategic vendor evaluation criteria mentioned above. Only after a short list has been defined, do the most successful organizations reinsert the cost criteria into the decision, using relative cost differences between products for negotiating leverage during the final selection phases. This, bundled with a generic nature of the model in case, convinced us to omit the product costs criteria for this purpose.
Now that we have given an overview of the requirements of a technology selection, I would like to move on to an overview of the current ERP Software Marketplace state of affairs.
The growth of the ERP market has been a direct result of the fierce global competition, short product life cycles, highly distributed operations, and information-driven management that 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. A typical ERP system today offers broad functional coverage; vertical industry extensions; a robust technical architecture; training, documentation, implementation and process design tools; and so on. However, it is not a system-in-a-box as yet.
We believe that the following Trends in the ERP market are the direct consequence of vendors' attempts to 1) resolve current ERP functional and/or technological deficiencies, and/or 2) expand software sales both within their existing and potential customer bases.
The major ERP Market Trends that we are going to touch briefly this time are:
Number 1: ERP Functional Scope Expansion
Early ERP adopters discovered to their dismay that implementing these systems was only the first step toward creating a competitive information technology infrastructure. They and new users alike are now looking for significantly more comprehensive functionality - from advanced planning and scheduling (APS), product data management (PDM), manufacturing execution systems (MES), customer relationship management (CRM), to business intelligence (BI) and e-commerce tools - and demanding that they be integrated into their ERP backbone. Users' visions of ERP are evolving from tactical to strategic.
Consequently, during the last few years, the functional perimeter of ERP systems began an expansion into its above-mentioned adjacent markets. Originally focused on automating internal processes of an enterprise, ERP systems will include customer and supplier-centric processes as well. The major ERP vendors have been busy developing, acquiring, or bundling new functionality so that their packages go beyond the traditional realms of finance, materials planning, and human resources. Therefore, in this model, we attempted to evaluate current vendors' capabilities in some of the above-mentioned areas.
Number 2: Sharper Vertical Focus
Vendors that will survive the coming years will also have focused their business and product on particular industries, instead of a more generic, horizontal approach. Winning ERP products will demonstrate deep industry functionality and tight integration with best-of-breed 'bolt-on' products in a particular vertical. Verticalization can be seen as part of a larger effort by ERP vendors to ease the implementation of their products.
By configuring parts of the package in advance for a given industry and circumventing functions not required in that industry, vendors can shorten and ease the implementation process. Vertical focus indicates that software contains industry-specific features and that ERP vendors have certain industry expertise. This should significantly reduce implementation time by eliminating a lengthy vendor or system integrator learning curve.
Number 3: System Flexibility Enabled by Adaptable Architecture
With increased competition, deregulation, globalization, and mergers & acquisition activity, users will increasingly realize that architecture plays a key role in how quickly vendors can implement, maintain, expand/customize, and integrate their products. The product architecture is going to do much more than simply provide the functionality, the user interface, and the platform support. It is going to determine whether a product is going to endure, whether it will scale to a large number of users, and whether it will be able to incorporate emerging technologies, all in order to accommodate increasing user requirements.
Although a component-based architecture is not an explicit requirement for ERP flexibility, component-based applications generally provide greater flexibility than their monolithic counterparts. By breaking up the large applications into components, vendors are able to more quickly fix or add functionality. Also, once the ERP vendor has established component architecture, it becomes easier and safer for IT to customize the systems.
Componentization will also prove to be crucial to enable ERP systems to support e-business activity since the new e-commerce capabilities are being delivered as individual components. Besides facilitating the ERP vendors to enhance their solutions, component architecture also makes it easier for customers to upgrade the software. Namely, a customer could incrementally upgrade only selected components without having to upgrade the entire ERP solution, which usually would entail a substantial effort.
Number 4: Web and E-commerce Enablement of ERP Systems
Indisputably, one of the most significant trends in the ERP market today is the advent of e-business. As the reality of enabling seamless web-based collaboration between companies and their customers and suppliers becomes more of a reality each day, ERP applications are poised to play a pivotal role. By extending the existing ERP system to support e-commerce, organizations not only leverage their investment in the ERP solution, but can also speed the development of their e-commerce capabilities.
The first stage in the ERP's conquest of the Web is to allow browser access through support for HTML and Java. This stage has almost been completed by a majority of ERP vendors. The next stage, which has only recently begun, is to extend the ERP applications themselves to the Web, where they can be accessed and run by outside partners and customers. With an Internet-only ERP system in place, client-side software upgrades become unnecessary. Browser-based applications significantly simplify the training, and tying together faraway locations of an enterprise becomes simpler too.
Leading ERP vendors have also made moves to adopt web portal strategies. The basic goal is to create a virtual, personalized workplace and marketplace for ERP users, where the ERP applications, other disparate back-end systems, and external content and services (catalogs, directories, travel services, benefits administration, and so on) can be seamlessly and transparently accessed by users via the Web.
Number 5: Intensified Market Merger & Acquisition Activity
The ERP market appears to be consolidating. The top 5 ERP vendors, account for over 65% of total ERP revenue. Consolidation, mergers and acquisitions are expected to intensify. Over the last few years, the ERP market became stratified into growing and profitable vendors on one side, and stagnating and non-profitable vendors on the other side. This will become even more accentuated, with customers becoming more vendor viability wary.
We expect larger ERP vendors to swallow up their smaller brethren, both in ERP and related markets. We also expect companies with related software products to move into the ERP space through acquisition like Invensys, Plc., a British automation maker with its recent acquisition of Baan Company and Marcam Solutions a year ago. Smaller ERP vendors will acquire new functionality and merge to protect themselves. We predict that more than 50% of current ERP vendors will not survive until 2004. About half of these will transform into system integrators, while either relegating their product to a niche 'bolt-on' or legacy status. The remaining half will be acquired.
The most likely acquisition candidates will be those vendors with poor financial performance and undervalued market capitalization but with a large customer base and a deep focus and expertise in a certain industry. This should not necessarily be a bad thing for current users of those products. The acquirer will either continue product development and support of the acquired product or offer a relatively attractive migration path to its product. However, there is always a probability that the acquirer is only interested in milking the maintenance revenue without ongoing product support. These users may find themselves left in the lurch with a legacy product.
As a brief summary of market trends, ERP remains the information backbone for contemporary manufacturing enterprises. However, today's ERP systems are required to address more than the processes taking place within the walls of an enterprise. While the Web and e-commerce will continue to be a major ERP direction, we foresee more ERP trends will appear in the future. Easier enterprise applications integration (EAI), more flexible pricing, reduced urge to customize an application, and embedding analytical applications and knowledge management are some of the best prospects among the next wave of ERP hot-buttons.
Now, I think it's time we moved to the demonstration. Although everyone has been given instructions on getting to the eBestMatch ERP Selection Model on our site, I'll go through it again, briefly just in case some of you may have had difficulty. First, go to our website, www.technologyevaluation.com. From the front page, select the tab marked "Vendor Selection Tool." Then, within the blue-bordered box titled "Current Category: All Categories", select the "GO" button beside "ERP System". This should spawn another browser window in which you should see the eBestMatch application. You will want to maximize this window for best viewing. The great beauty of eBestMatch is its ability to provide project teams with a statistically valid framework for comparing vendor options. In it, we have scored each vendor according to its ability to meet the criteria. eBestMatch aggregates the scores upward through the hierarchy, while simultaneously taking into account the effect of local and global weights.
Now, I would like everyone to click on the Select Choices option on the menu bar at the top part of the browser window. I'll be referring to the top menu bar several times during the demonstration. It is located in the top frame of the eBestMatch browser window to the right of the spinning globe logo. In the 'Select Choices' window, you should see a list of vendors on the left hand portion of the window and a description on the right hand side.
Clicking on a vendor in the left-hand side panel brings up a detailed description of the vendor option in the right-hand side panel. By clicking the check boxes next to the vendor, you can include or exclude it from your selection. Due to time scarcity, we'll touch only briefly on each of these vendors in order, starting with the largest one.
SAP is the current market leader (with ~30% market share) after taking global markets by storm with the release of its flagship R/3 product at the beginning of the 1990s.
Commanding market position and brand recognition; very strong financial situation
and resources; functional breadth of its core R/3 product; possible attractiveness
of mySAP.com portal for its existing large customer base.
Lengthy and costly implementations in the past; a complex and rigid, monolithic
product; slower total revenue growth in the last 18 months, with a decline in
licenses revenue and in net income; delayed delivery of CRM modules and recent
departure from its 'one-stop-shop' product strategy.
Oracle fortified its position as 2nd largest ERP vendor during the last two years for being the only large vendor to achieve significant growth in total revenue, license revenue and net income.
Corporate viability; applications' horizontal functionality and scalability;
technology infrastructure ownership; strong international professional services;
early Internet architecture adoption and entry to CRM market.
Much prolonged delivery of CRM and SCM modules; divided management attention
on a wide range of initiatives; inconsistent application execution in the past;
unproven latest 11i product release; uneven functionality depth and vertical
focus across the board; spotty relationship (competing, in other words) with
some of its partners in the past.
retained its position as 3rd largest ERP vendor, despite sharply sliding license
revenue, almost flat total revenues, the first non-profitable fiscal year, and
management upheavals during 1999.
Large and loyal HRMS and financial module customer base; corporate viability
and culture; user-friendly interface and development tools (modification feasibility);
strong vertical focus for certain non-manufacturing industries.
Product integration of acquired Vantive CRM product; market perception of its
manufacturing functionality; no significant number of full ERP reference sites;
low brand awareness outside the North American market.
J.D. Edwards retained its position as 4th largest ERP vendor position despite shaky performance during the last 18 months, with a dismal total revenue growth, repeated losses, and a recent CEO departure and staff layoffs.
A well established global mid-market presence; advanced cross-platform migration
strategy; component architecture that promotes flexibility and system agility;
well-developed affiliate channel.
Product integration of acquired and/or partnered products; bland marketing efforts
in the past; OneWorld initial product functionality glitches; lack of own CRM
and e-commerce products and need to rely on a number of partnering agreements;
a recent restructuring.
Baan plummeted on the ERP ladder by having its revenues almost halved during the last two years. Protracted declining revenues, repeated huge losses, with significant management upheavals all have lead to crippled market valuation and the recent acquisition by Invensys.
Discrete manufacturing and project industries functionality; DEM concept of
rapid implementation and easy reconfiguration; product attractiveness to both
medium and larger enterprises; potential for offering 'sensor to boardroom'
Product complexity; unproven integration of its confederacy of disparate products;
prolonged poor financial performance; affiliate channel shake-out; regaining
market confidence; uncertain future R&D investment and product service & support
after the acquisition.
Intentia overtook the 7th largest ERP vendor position from languishing SSA, owing to its continued revenue growth over the recent years. Fiscal 1999 was however a challenging year, with declining license revenue and a hefty loss.
Versatile product functionality (both for discrete and process manufacturing);
tight vertical focus; solid growth track record; corporate culture and viability;
heavy R&D investment and recent delivery of extended ERP components.
Low brand awareness outside the European market; non-uniform global availability
of some modules; dubious future attractiveness of its fully Java-written, unproven
product Movex NextGen.
System Software Associates, SSA
Software Associates, SSA all but disappeared from the ERP scene owing to its
prolonged dire situation. Continued declining revenues, huge losses, and staff
exodus have lead to crippled market confidence and the recent acquisition by
Gores Technology Group.
core ERP functionality breath and industry focus; large customer base and international
presence; fast implementations and low total cost of ownership (TCO); cross-platform
Dire financial situation and lost market confidence; installed-base dissatisfaction
due to migration glitches; lack of its own expanded ERP modules; uncertain future
R&D investment and product service & support after the acquisition.
Geac Computers has snatched the 5th largest ERP vendor position owing to its acquisition of JBA International. Geac is also the largest Canadian software company.
Strong growth track; cross-platform and scalable products; potential for serving
a wide range of industries; strong global coverage.
Merger growing pains, integration issues and discontinuation of redundant products;
lack of a complete CRM product across the product portfolio; no significant
number of full ERP reference sites; poor marketing of JBA product line so far.
Industrial & Financial Systems, IFS is expected to occupy the 10th largest ERP vendor position within the next 12 months owing to its continued accelerated revenue growth.
Product technology (component and interconnectivity); expanded ERP product breadth;
strong track record and current status as the fastest-growing ERP vendor; corporate
culture and viability; good service & support.
Maintaining management effectiveness while growing very fast; low brand awareness
outside of the European market; integration of recently acquired products.
QAD continues its quest to join the Top 10 ERP vendor club, with $240 million in revenues. While the company continued to grow, the last two years were not profitable due to exorbitant R&D cost.
MFG/PRO plant level functionality and global capabilities; sharp industry focus;
large and loyal customer base and good international presence; fast implementations
and low total cost of ownership (TCO); superior service & support.
Weak financial performance; uncertain market acceptance of its e-business product,
eQ; lack of own CRM modules; and dependency on the viability of Progress Software
MAPICS, one of the oldest vendors, remains a prominent player in manufacturing mid-market, with $135 million in revenues, consistent profitability and recent acquisition of its rival Pivotpoint.
product discrete manufacturing functionality and global capabilities; well developed
channel; large and loyal customer base and good international presence; a stable
organization; superior service & support.
Pivotpoint merger growing pains; juggling of two similar product lines; integration
issues and discontinuation of redundant products; dismal recent growth.
Symix Systems has established itself as a leader in manufacturing mid-market owing to a notable growth and profitability during the last 18 months.
strong small-to-mid-market focus; large customer base; prudent product alliances
and/or acquisitions in the past; solid growth and profitability track.
limited financial resources; two-pronged product strategy and next product generation
convergence; poor new product release quality in the past.
Great Plains is a rising star and possibly a juggernaut in the SME market segment, after its merger with a rival Solomon Software. It remains one of the fastest growing and most profitable vendors.
strong SME focus and brand recognition; well-developed channel; large and loyal
customer base; prudent product alliances and/or acquisitions in the past; corporate
viability and culture.
Solomon merger growing pains; juggling of two similar product lines; product
integration issues; product global capabilities; weak manufacturing functionality;
confinement to only Microsoft technology.
Lawson Software is entrenched
in the 9th largest ERP vendor position owing to its revenue growth in the last
three years, reaching $270 million in revenues. The company is currently the
largest privately held ERP vendor.
Innovative product technology (early Web-enablement, interconnectivity, and
very intuitive user interface); tight vertical focus; solid track record and
viability; heavy R&D investment; cross-platform and open-database product.
Low brand awareness outside of the North American market; non-support for manufacturing
applications; abandoned in-house development of CRM modules; being a privately
held company, its immunity to financial statement disclosure might concern more
Now that we've discussed each of the vendors in our model, let's take a look at some of the other parts of eBestMatch. First, we'll go to the Weigh Criteria section. Do this by clicking on the 'weigh criteria' option on the top menu bar.
The Weigh Criteria screen is used to assign your own customized weights to the selection criteria. Weights represent relative levels of importance for the criteria. Within the decision tree in the left panel, click on any one of the criteria, and its sub criteria will be displayed in the right panel with their respective weights. You can create customized weights by clicking on the colored bars to the right of the criteria.
For the ERP model, the weights chosen are based on settings we obtained from past engagements and represent broadly defined best practices. Product functionality remains the most important criterion, but is followed closely by service and support. Corporate viability comes next, then product technology and corporate strategy have roughly the same level of importance.
Next, we'll take a look at the vendor ratings. Do this by clicking on the 'view ratings' option on the top menu bar.
The View Ratings screen displays how the vendors perform across all the criteria defined in the model. You can display comparative ratings by one choice (all the criteria ratings for one vendor are displayed) or by one criterion (all included vendors are rated across the criteria highlighted in the tree in the left panel). To see how one vendor option rates against the criteria, go to the 'view ratings' option on the top menu bar and select the 'one choice for all criteria' option. This brings up a list of all the criteria and shows how the vendor displayed in the 'Option' text box scores. Now - to see a comparison, go again to the 'view ratings' option on the top menu bar and select 'all choices for one criterion' instead. This lists all vendor options taking part in this selection with their respective ratings.
Next, let's see the overall results by bringing up the score card. This is done by clicking on the 'score card' option on the top menu bar.
The Score Card screen shows both the overall and detailed scores of the selection model choices. The individual choice can be selected from the drop down box below, and its strengths and weaknesses will be displayed on the left. The bottom scoreboard provides detailed comparisons of selected criterion from the left panel. A criterion shows up as a strength if it passes a threshold of 90% percent match and a weakness if it falls below 50%. By expanding the criteria hierarchy to the left, you can drill down into lower levels of the model to do comparisons. The hierarchy can be navigated in exactly the same way as Windows Explorer.
Well, that would be a very brief overview of eBestMatch and only begins to cover all of its capabilities. It also allows you to create Charts and Reports and contains a full online Help feature. To wrap up, I'll just take a few moments to give you some general pointers on how to use our technology.
If you want to create a shortlist of vendors because there are some criteria that are really critical to you, look through the model and click on those criteria. You can shortlist the vendors quickly that way, and then run through the rest of the model with those selected vendors.
eBestMatch and TESS,
the desktop version, offer major advantages if you want to use them for adding
to the quality of your own research. Each model is fully documented with comments
on the factors and models. I should add that our desktop product TESS
is also available and you can contact our sales department concerning TESS
and model licensing.
you all for participating and please e-mail any additional questions you have
and we will get back to you as soon as possible.