Fed Gives ERP A Shot In The Arm
reported on May 31 in Government Executive, a monthly business
magazine published by the National Journal Group, Inc, the federal market
for enterprise resource planning (ERP) systems will grow to nearly $1.8
billion per year by 2005, according to a study recently released by Input,
a Chantilly, VA, market research firm. On the other hand, in its article
from June 2, Washington Technology, a semi-monthly published
magazine, cites the federal government spends more than $3 billion on
ERP and CRM software and related services, according to the market research
firm Federal Sources Inc. of McLean, VA.
study, "Federal ERP MarketView", predicts that ERP
purchases will amount to approximately 4% of all federal IT spending by
2005. "ERP is very much alive and well in the federal government," said
Ellen Zidar, Input's manager for e-government and government consulting.
"There are many back office-type administrative systems still being overhauled
and replaced with ERP systems. Although the market hype all centers around
e-business and e-government, there is still a need to implement back office
systems as backbones for the customer who is facing processes that will
come in the future."
customers in the federal market include the U.S. Mint, the U.S. Postal
Service, Federal Prison Industries, the Smithsonian Institution and the
Bonneville Power Administration to name but a few. The past year has also
seen a number of large-scale ERP projects get under way (for some major
ERP federal contract wins in 2000, see Big
ERP Players Courting Government Agencies).
says that cost cutting is one of the most important reasons that agencies
are implementing ERP systems. "Cost-cutting is important in every business,"
Zidar said, but "the federal government is more willing to be upfront
about it." Since ERP implementations are expensive and difficult, Input
also noticed "most projects focus on specific functional areas, such as
finance or human resources, rather than integrated enterprise solutions."
The study said "organizational streamlining and real-time data access"
are the two major reasons why agencies are contemplating ERP systems.
Zidar said software costs represent a fraction of the true cost of an
ERP system. According to the study, more than 50% of ERP spending "relates
to professional services."
that the federal ERP market is becoming sound, greater penetration of
the midsize market is necessary if e-government data-sharing initiatives
are to gather momentum. After all, federal agencies regularly contract
with small or disadvantaged businesses and rely on state and local government
for much of their information and program implementation. Consequently,
for vendors to fully implement ERP and e-government systems at the highest
levels, they will have to offer compatible products for smaller entities.
Fortunately, states are another sector where ERP is experiencing significant
are demanding the same rich functionality and streamlined performance
that for-profit, e-commerce sites provide from their own state and local
government," said Caroline Rapking, a vice president in the state and
local government group of American Management Systems Inc. of Fairfax,
VA. "This demand is crucial in driving ERP needs, as ERP often provides
the foundation for the customer-facing service delivery systems." Rapking
predicts a 15% surge in ERP adoption at state and local government levels
over the next two years.
While not exactly in its prime, ERP bears its middle age well. Having
experienced a rude awakening from an extreme enamor with dot-com's and
owing to a backpedaled growth of yesterday's hot items like customer relationship
management (CRM), supply chain management (SCM) or e-procurement, many
experts have suddenly had an epiphany about the importance of solid back
office transactional systems. The experts have even reverted to predicting
moderate growth for the ERP market despite unfavorable economic conditions.
TEC has long purported the general necessity of ERP systems even though
it might have sounded too archaic or even heretic at that time (see Will
That Wretched ERP Finally Die? Possibly, But Only the Acronym!, ERP
Getting a New Breath of Fresh Air in Europe, and Wrong
ERP Demise Predictions Have (Only Partly) Created Skills Shortage).
federal market opportunity comes as no surprise either given that it has
long been the segment with a low penetration of off-the-shelf integrated
applications. During the salad days of economic boom and federal surplus,
agencies, contrary to their private sector counterparts, have not had
many qualms about devising large-scale fragmented, homegrown, maintenance-intensive
informational systems from scratch. The times have drastically changed
almost overnight. The new administration, pursuant to its campaign promises,
is demanding more streamlined government that "meets the needs of the
American people". To accomplish this, the government agencies have increasingly
turned to readily available integrated ERP systems. Furthermore, with
the General Accounting Office's assessment that a third of all federal
employees will retire over the next four years, upgraded ERP applications
appear to be a convenient way to prevent civic paralysis.
as the shortage of technical personnel is alleviated, the inefficiencies
and liabilities of legacy islands of information need to be replaced by
vendor-supported applications packages. The result of replacing obsolescent
systems will be significant savings in system support cost.
commercially available business applications, the product development
costs are spread among a large population of users. This large installed
base also allows for a greater aggregated vendors' experience, resulting
thereby in higher-quality tried-and-true products.
agencies, having the privilege of relying on always certain taxpayers
money, will likely much more easily opt for acquiring a new ERP system,
as opposed to making virtue out of necessity and finding reasons to stick
with a piece of an outdated technology as is the case with many private
sector companies (see The
"Old ERP Dilemma: Replace or Add-on).
are the other reasons why ERP has recently become a far more attractive
option for the federal market. This market has benefited by vicariously
learning from mistakes and failed ERP implementations in many commercial
companies in the past. Additionally, many ERP systems are now componentized,
which provides phased implementations in more manageable chunks (instead
of a traditional 'big bang' approach) in addition to vendors' developed
implementation methodologies that are based on bypassing the usual traps
of past failures.
ERP systems have meanwhile also been Internet-enabled, which also allows
for a quicker and simpler implementation, because client machines do not
have to be configured time and again. Consequently, an agency also has
a choice of either installing software on its own intranet or renting
it via an application service provider (ASP). Further, the leading ERP
vendors have incorporated CRM, SCM, e-procurement and business intelligence
(analytic) modules by developing them in-house, by acquisition or through
strategic partnerships with the best-of-breed vendors. Therefore, agencies
should benefit from aligning back-office systems with CRM, e-government,
business intelligence and Internet technologies as part of the overall
plan, instead of managing it as multiple separate projects, with all subsequent
integration ramifications. E-government initiative, with its need to extract
usable data real-time across several agencies and to provide it to constituents
too, is also driving the adoption rate of ERP systems that can provide
a unified picture of their data.
who can deliver comprehensive solutions that satisfy the exacting, stringent
requirements of federal agencies are in the driver's seat to capture that
market segment. Increased federal adoption of ERP systems may imply that
these have been increasingly offering a government endemic functionality.
As an example, leading ERP vendors provide procurement software that works
with General Services Administration (GSA) and Federal Supply Schedules
(FSS), human resource (HR) systems that align with military or general
schedule pay rates, and financial systems that comply with Joint Financial
Management Improvement Program practices for government financial systems.
the Tax and Revenue Management module within some ERP suites provides
federal, state, and local government agencies tools to automate the tax
collection process by enabling constituents to conduct and view financial
transactions. The Records Management module provides these agencies, as
well as 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, SCT Corporation, and,
to a degree, Lawson Software, J.D. Edwards, Geac,
Computer Associates, Microsoft Great Plains,
Siebel Systems, i2 Technologies and others
all have been busy delivering or have already delivered similar capabilities.
Provision of CRM and additional analytic and reporting requirements are
other crucial issues. Each of these players will have to bet on creating
an offering addressing e-government with a strong backbone ERP component
(or, at least, an easy integration to major ERP systems in case of niche
vendors). Meeting the public sector's needs will also require vendors
to improve ease of installation, ROI, interoperability, and service &
support networks. Moreover, cutthroat competition in the market during
an economic downturn will definitely make price discounting a significant
an ERP system does for a business is as important nowadays as it has always
been, despite the fact that the term ERP may have fallen out of favor.
It sets the infrastructure an organization needs to do business and to
communicate with internal and external users and other organizations.
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 constituents access via the Internet to internal public agencies,
processes, and systems. This combination does not obsolete ERP systems.
Quite the contrary, ERP functionality remains as critical as ever. Any
business needs good inventory control, planning, purchasing, financial
accounting and all the rest of nitty-gritty's. Therefore, based on the
experiences of earlier e-commerce and e-government initiatives, CRM and
SCM will only function well when backed up by the solid internal transactional
system that ERP provides.
The moral of this story is that, while users in the public sector are
in the driver's seat owing to vendors' unfavorable position in a slow
economy, the task of selecting the right provider is nonetheless grueling.
There is a cutthroat competition amongst well-known viable brand names
with no clear market winner in the offing. Since government agencies need
a reliable back-office system in place in order to conduct their e-government
business or client relationship management, we encourage them to actively
inform themselves about vendors' latest product offerings and vigorously
negotiate contract terms. Pay close attention to vendors' natively provided
extended-ERP modules and discern hype from reality.
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 crucial business applications evaluation criteria
(e.g., Product Functionality, Product Technology, Product Cost, Corporate
Service and Support, Corporate Viability, Corporate Strategy, etc.) may
result in a selection with disastrous consequences. The use of statistically
valid decision-making tool and for careful determination of importance
(weight) factors for all selection criteria will be of paramount importance
Based Selections and A
Case Study and Tutorial in Using IT Knowledge Based Tools Part 1: Decision
Support Discussion). When more than one vendor ranks well within a
given set of areas (as is very likely in the case of leading ERP vendors
in terms of e.g., HR/payroll and financials functionality), the decision
hierarchy provides the supporting material required to justify further
investigations before the final decision. These include, inter
alia, scripted scenario demonstrations and prodding client reference
visits/conference calls. Furthermore, being more regimented than most
of their commercial counterparts, and having to justify the rational spending
of taxpayers' money, the need to document the selection rationale is also
of the utmost importance for federal agencies. This leads us again to
the benefit of using knowledge based Decision Support System (DSS), ERGO
being one (see ERGO
2001 IT Evaluation Tool).
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.
Put vendors' software through its paces during "scripted scenario" demonstrations
(detailed sequences of near real-life business processes), in order to
further distinguish between the vendors who made the short list (see Demonstration
Post-Mortem: Why Vendors Lose Deals). Best-of-breed strategy may not
necessarily be a bad option. However, 'bolt-ons' should be selected only
from certified official business partners of the primary ERP vendor. 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