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Leveraging Technology to Maintain a Competitive Edge during Tough Economic Times -- A Panel Discussion Analyzed Part Five: Profitability and Changing Existing IT Systems

Written By: Predrag Jakovljevic
Published On: May 21 2004

Introduction

At the IFS Executive Forum, which took place on March 29 and 30 in Orlando, Florida (US), leading research analysts and industry experts discussed how companies can still leverage technology to maintain their competitive edge, even during tough economic times. The event was held in conjunction with IFS World Conference 2004, and it included six panel discussions, with each panel including top executives, analysts, and journalists. Some of the renowned panelists were Geoff Dodge, vice president, Business Week; Dave Caruso, senior vice president, AMR Research; Barry Wilderman, vice president, Meta Group; Leo Quinn, vice president of operations, Global Manufacturing Solutions, Rockwell Automation; Dave Brousell, editor-in-chief, Managing Automation; David Berger, Western Management Consultants; and Josh Greenbaum, principal, Enterprise Applications Consulting. Breakout sessions explored such topics as turning global competitive threats into opportunities, increasing the bottom line through operational efficiency, complying with the Sarbanes-Oxley Act of 2002, and using enterprise software to prepare for future challenges.

Technology Evaluation Centers (TEC) was represented at the executive panel titled "The Future of Enterprise Software and How It Impacts Your Profitability", which was aimed at helping companies find out where enterprise software is going in the next five years, and how it can make or break their profitability and market share. The panel, which was moderated by Josh Greenbaum, included the following participants: Barry Wilderman; Peggy Smedley, president and editorial director; Start Magazine; Dave Turbide, an independent consultant and renowned columnist for magazines such as The Manufacturing Systems; and Predrag Jakovljevic, research director, TEC. In preparation for the event, we polled the thoughts and opinions of our experts and contributors: Olin Thompson, Jim Brown, Joseph Strub, Kevin Ramesan, and Lou Talarico, given they were unable to attend the event in person.

Below are the questions and consolidated thoughts and answers that transpired from the panel discussion. We also took the liberty to expand with a few pertinent questions and thoughts that were not discussed at the panel per se (due to the time limit), but transpired from many other interactions and presentations at the conference. Also, some pertinent articles published previously on our site, which may shed more light at the respective topic are mentioned as further recommended readings.

The questions are

Q1. What is the one piece of new software or technology that will be a must-have in the next five years? (see Part One)

Q2. Some pundits say the future of enterprise software lies in service-oriented architectures and component applications. True? False? (see Part One)

Q3. How does the development of new business processes and business process modeling fit in? (see Part Two)

Q4. What are applications hosting and other service models? (see Part Three)

Q5. Radio frequency identification (RFID) is on everyone's mind these days. Let's discuss the software issues around RFID and what kind of software solutions will be taking advantage of RFID. (see Part Four)

Q6. Technology aside for a moment, what can we say about its impact on profitability? (see Part Five)

Q7. With all this new technology, the question is what happens to existing applications and technology. Nobody wants to start over, but how much will existing IT systems have to change? (see Part Five)

Q8. Will the newest and greatest only come from packaged software? What about custom development? What is the build versus buy equation look like in the near future? (see Part Six)

Q9. How will the latest improvements in software flexibility and agility play in the single-vendor versus multi-vendor solution equation at multi-division corporations? (see Part Six)

This is Part Five of a multipart trend note.

Each of the parts covers questions and answers addressed by the panel.

Questions and Answers (continued)

Q6. Technology aside for a moment, what can we say about its impact on profitability?

A6: We believe that technology itself does not generally impact profitability. Only if it enables smarter business practices will it indirectly improve profitability. Technology can always help to implement new processes and instill some structure and consistency, though. Furthermore, some solutions can also enable practices, like design collaboration, customer base trends' profiling, supply chain visibility and problems monitoring, and so on that can be done in new ways and unlock new value. However, every technology deployment should be about improving business. Many technologies can bring significant business value in the world of technical data, but their justification must be derived from business management improvements. Even the best software solution cannot substitute for knowing for sure there is an effective business initiative (case) that can drive the application of the technology.

Recently, the enterprises have begun to analyze the viability of IT investments in a quantified manner, instead of doing only feasibility studies, which would consider only whether implementation of a system is possible but not whether it makes viable business sense. ROI is not a new concept and it is quite a straightforward one—it is the ratio of the benefits of a project, initiative or purchase versus the associated costs and investment.

While doing the ROI calculations might be easy, deciding what figures for benefits to plug into the calculations can be particularly daunting, given there are both tangible benefits (such as order fulfillment increase, lead-time decrease, labor or overhead cost decrease) and intangible, "soft", non-quantifiable benefits (including employees' satisfaction, smoother processes). Making certain the users understand the scope and dynamics of the whole project, program, or initiative presents the greatest challenges. Harnessing technology is a long journey that takes much work and commitment particularly in terms of planning and dedication. It deals with systems, departments, and individuals enforcing (painful) change across the board.

For more information, see the following recommended readings: CRM Analytics Brings More Profitability, The Proof Is in the ROI, The ROI Dilemma—Part 1: Look at How Bad You Look!, Whose ROI Is It Anyway?, and Justification of ERP Investments.

Q7. With all this new technology

Q7. With all this new technology, the question is what happens to existing applications and technology. Nobody wants to start over, but how much will existing IT systems have to change?

A7: Old software hardly ever dies. As long as the software is meeting business needs, new technology is not the change driver. However, in the instance when the software does not meet important needs for the business—like providing demand visibility or problem monitoring over the Internet—that is when old systems need to be enhanced or replaced. Thus, technology alone is not the reason. At times, old technology may become too costly to operate, and that can drive a replacement strategy, but that is far less frequent.

Still, the rapid pace of global business nowadays places a unique set of challenges on all enterprises looking to improve and automate their operations, and at the same time, remain poised to adapt quickly to change. With increased competition, deregulation, globalization, and mergers and acquisition activity, enterprise software buyers increasingly realize that product architecture plays a key role in how quickly they can implement; maintain; expand; customize; and integrate their products. The product architecture is going to do much more than simply provide the technical functionality, the user interface (UI), 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 increasingly evolving user requirements. Thus, while determining the alignment of business and IT, one should be aware of how technology might develop in the future,.

Across the application life cycle, the high cost of development, support, and enhancements in terms of money, time, and quality limit the ability of installed software to meet the many demands of business. While the aged product architecture is a technology problem, it is still not a business problem, which considers time, money, and quality. Using modifications as an example, the reason that they are bad is that they take too long, cost too much, and often have quality issues. Although custom or modified approaches will always cost more (albeit they are not as steep), with changing economics, the next enterprise architecture may make what was once impossible with traditional architecture a practical business solution.

Most vendors have naturally chosen to evolve their existing application framework to meet these market needs. Evolving means a slower process where incremental changes are made to the existing architecture such that it eventually meets these demands. However, if history helps us predict the future, it is very difficult to execute this strategy effectively, and only the most resourceful or steadfast vendors are tipped as winners in the long run.

As an object case, SAP's three-tier client/server architecture introduced in 1992 provided the fundamental structure upon which client/server enterprise systems enabled information and process integration at the user, application, and data levels. The three-tier client/server architecture remains a highly-scalable framework which provides the foundation for SAP business solutions today at more than 20,000 companies worldwide. While the three-tier client/server architecture then abruptly replaced existing mainframe based systems, the latest SAP's technology framework named NetWeaver is instead devised to allow companies to gradually add important new levels of flexibility while allowing customers to maintain and build upon their existing solutions investments through Web services.

SAP's recent announcement of xApps (read "cross-applications") would also be an excellent example of an evolutionary strategy. With xApps, SAP is enabling composite applications to be built more easily since xApps uses SAP's NetWeaver infrastructure to tie other applications into SAP applications. However, SAP is leading a large pack of vendors that are also all headed in the same direction. Namely, Oracle with its 10g Applications Server , PeopleSoft with its AppConnect, (which includes the former J.D. Edwards' eXternal Process Integration [XPI]/eXternal Business Process [XBP] concept), SSA Global with its Enterprise Integrator (which includes the former Baans OpenWorldX framework), Intentia with its e-Collaborator, and Siebel Systems with its Universal Applications Network (UAN) have all laid out pieces of their enterprise platform roadmaps.

Even some tier 2 and tier 3 vendors like Cincom Systems or Exact Software have been ringing the changes of their business process management (BPM) platform roadmaps with new intelligent capabilities allowing the system to respond automatically to inputs or requests for information. The role-based BPM component acts as an information broker, dispatching requests and new inputs across the loosely coupled disparate applications and alleviating (or completely eliminating) the need for dreaded point-to-point integration programming.

Challenges

However, the status of almost all of the above composite applications is that only mere announcements have been made and we are now awaiting delivery. Building composite or cross-applications has not been an easy feat as shown by only a few, such as SAP xApps developed so far. Most of them are still a figment of someone's imagination and will require much custom work until these composite or cross-applications become tried-and-true and reusable. Each individual cross-application will involve sophisticated process modeling and process-level, data-level, and user interface (UI) integration, and often it will involve creating and supporting a system of record that comprises of data from multiple systems. Even after all that effort, the wide variety of technologies and formats of various independent software vendors' legacy solutions one can encounter in any new application for some cross-application, will inevitably mean some tweaking. The mitigating factor for some vendors, though, could be their narrow focus (not necessarily the case for SAP that targets twenty-two industries) and the longevity and a repetitive nature of their multiple partnerships.

Change is a fact of life and software must change with the business. Software must be an enabler (rather than an impediment) of business change, both during initial deployment and across its life cycle. The current state of the market is "standard, configurable" applications. This is because of the fallacy that these applications can bring best practices to a business and be made flexible enough to accommodate the majority of businesses without significant modification. Although through the use of complex tables, parameters, and switches, software can be pre-configured to handle a large number of pre-determined, "flexible" options, in truth, flexibility means only to choose from a list of existing, predetermined options. Thus, while the issue of flexibility might have been solved for an initial implementation, it would not be the case for the ongoing business innovation.

The next generation of enterprise architecture must allow for business change to be adopted on an on-demand basis within the existing architecture as the business evolves. It must provide the cost, time, and quality characteristics to make change a practical choice for the business. It would be a utopian ideal to expect product instances based on outdated or very proprietary technologies like COBOL, RPG or ABAP, if it were not for the help of the above-mentioned new technologies like Web service that provides a comfort zone of evolutionary change for both vendors and users.

Still, while the evolution strategy might be safer in the short run for both customers and vendors minimizing both investment and disruption, the evolutionary strategy has limits in how much can be accomplished. The existing product becomes a limit on the amount of innovation that proves practical. While the large vendors have the advantage of large resources, they also have the mixed blessing of a large customer base. Will the customer-base support the move, and will it transition to the newer architecture? Can the big vendors adequately articulate the benefits of their new enterprise architecture to make the move critical or justifiable to the user base?

These vendors also have the mixed blessing of an existing product. They have to enhance and support that product while spending on a new technology. Business judgment tells them to minimize risk by evolving from the existing product to a new one, but that has proven very difficult for most in the past. Therefore, users should beware of vendors delivering new extensions on proprietary SOA tools, which mean a prolonged technological lock-in, while they should look favorably towards vendors delivering new extensions on open, commonly accepted standards, which is the promise of Web services.

For more information, see the following recommended readings: What's Wrong with Enterprise Applications, and What Are Vendors Doing about It? Strategy One: Evolve, Can You Add New Life to an Old ERP System?, The "Old ERP" Dilemma: Replace or Add-on, and The Old ERP Dilemma—The Refresh Option.

This concludes Part Five of a multipart trend note.

Each of the parts covers questions and answers addressed by the panel.

 
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