Since the late nineties, the enterprise resource planning (ERP) vendors that originally targeted the needs of manufacturing organizations have slowly extended their functionality to service the needs of non-manufacturing industries as well. By 2000, when many of the major ERP implementations for the manufacturing industry had tapered off, tier one ERP vendors such as SAP and Oracle had refocused efforts to market their integrated solutions in the greener pastures of service-oriented vertical markets, including health care, government, higher education, banking, insurance, and other service-based businesses.
Today, ERP vendors are aggressively marketing industry-specific and project-oriented functionality to service industries. Unlike best-of breed solutions, these systems provide a fully integrated, mature back-office system originally developed for manufacturing industries. Consequently, this raises the question: Is ERP for services a new category? Or is it "ERP less manufacturing?"
From a vendor's point of view, the answers to these questions vary according to which side of the ERP fence you stand on. On one hand, ERP vendors claim that ERP for services is a well-developed software category customized for the service industries they serve. On the other hand, best-of-breed vendors for service verticals (such as professional services, health care, government, and financial services) push their industry expertise and vertical solutions built from the ground up for those respective service industries. Consequently, organizations in service industries are faced with the challenge of determining which vendors best fit their functional requirements.
Defining ERP for Services
The main difference in functionality between best-of breed service applications and ERP for services is the back-office component. ERP for services applications provide complete functionality for both the transactional (or operational) components, and the project-oriented components of service organizations. However, best-of breed service applications typically refer only to industry-specific functionality. Some vendors may include a back-office piece, and others may only deliver vertical functionality that communicates with other ERP systems or financial packages. As a result, there are two categories of vendors for service organizations:
- Best-of-breed service vendors: Vendor solutions such as Compuware's Changepoint and OpenAir PSA focus primarily on professional services organizations, and are typically marketed to the small to medium business (SMB) market. These offerings vary in breadth and depth, and the vendors tend to target a few key vertical markets. Depending on the vendor, their business models are diverse and can deliver software as a service (SaaS) and license models to their clients.
ERP for services
: These vendors are typically traditional ERP vendors that provide a fully integrated solution with complete back-office functionality. Since they provide their clients with complete operational and transactional functionality, their offerings tend to be broader in application. In addition to project-oriented functionality that vendors such as Epicor
deliver for professional services organizations, ERP for services vendors provide fully integrated, operational functionality for non-project organizations, such as Lawson
in the health care sector, and Unit 4 Agresso
for the public sector.
ERP for Services
||Health care components
|Customer relationship management
||Higher education components
||Financial services components
||Professional services components
ERP for Services Strategy
When evaluating solutions for service organizations, organizations should identify their particular business strategy. Smaller service organizations tend to prefer best-of-breed solutions due to their affordable price points (usually delivered through an application service provider [ASP] model) and their ability to easily integrate with the existing IT infrastructures. Typically, smaller service organizations have a financial package from vendors such as Microsoft or Sage that serves as the back-office component, and they will seek an industry-specific solution that provides the missing functionality to completely automate their business processes. Although under this option the initial investment can be lower, the level of integration between these systems will vary from application to application (including the level of field mapping, real-time processing use, and batch processing use). Furthermore, the out-of-the-box integration offered by vendors is typically limited to a number of financial systems, customer relationship management (CRM) packages, and project management tools. Consequently, users need to be extra diligent in identifying the solution that will best fit their needs.
For organizations seeking an integrated solution, ERP vendors have extended their offerings to include project-centric and industry-specific functionality coupled with mature back-office capabilities. However, the challenge remains for the large ERP vendors to deliver the best industry-specific capabilities, since many of these offerings were developed at a later date (and in many cases bolted onto the ERP architecture they built for the manufacturing industry). Although these integrated systems tend to have fewer integration issues, many of these vendors will likely not provide the same depth and breadth of functionality as their best-of-breed competitors. Nevertheless, ERP vendors are generally stronger in delivering financial and accounting capabilities, and have more experience at servicing the mid-market and the enterprise market.
ERP for Services: Moving beyond Manufacturing
ERP for service organizations can be divided into two categories: project-oriented organizations, and transactional or operational organizations.
Project-oriented organizations fall under the professional services automation (PSA) umbrella, and demand the typical business components offered by PSA solutions, such as capabilities for extensive time management, expense reporting, resource planning, portfolio management, and project management. Vendors targeting professional service organizations include Oracle and SAP in the enterprise market; Epicor, Deltek, and Compuware in the mid-market; and QuickArrow and OpenAir in the hosted SMB market.
However, ERP for service organizations require functionality for purely operational or transactional purposes. Vertical markets, such as health care, higher education, government, financial services, hospitality, and nonprofit, all fall within the ERP for services category by virtue of delivering primarily transactional or operational services (although these industries may at times demand project-oriented functionality). These markets demand standard, back-office functionality (such as human resources [HR] and financials modules) to interface with their industry-specific needs. Consequently, numerous ERP vendors have developed integrated systems that offer end-to-end solutions to various vertical markets. There are several good examples of growing service industries that the large ERP vendors are pursuing:
- Health care: Vendors are offering industry-specific functionality in patient management, health care portals, and clinical or medical document management. Vendors such as SAP, Oracle, and Lawson offer solutions specific to health care.
- Public sector: Numerous ERP vendors are offering industry-specific functionality in property management, asset management, utility or building management, and citizen relationship management. The government vertical market has attracted major ERP vendors such as SAP and Oracle, as well as smaller vendors like Hansen, Unit 4 Agresso, and CGI Momentum.
- Financial Services: Vendors are offering banking and insurance front-office systems, human capital management (HCM), and procurement. Vendors such as Epicor, Apptricity, and Oracle offer solutions in this vertical market.
Service organizations seeking functionality in their particular vertical industry should be aware of the shift in the services software marketplace. During the last few years, many best-of-breed service vendors have experienced consolidation. A good example is the PSA marketplace, where vendors such as Compuware and Evolve have shifted their focus away from PSA. As a result, users are faced either with smaller PSA vendors that have industry-specific expertise, or with larger ERP vendors that provide broad functionality for service organizations. In light of this choice, organizations must first identify the primary functional requirements relevant to their businesses in order to accurately assess the solutions available in the marketplace.
Organizations looking to find the missing links between their financial systems and their industry-specific requirements should still consider a best-of-breed vendor that has extensive experience in its vertical market. In most cases, these vendors have built offerings that integrate with disparate systems and that adequately consolidate the business processes of service organizations. In cases where users are seeking to replace or upgrade their existing systems, ERP vendors may be more than adequate in providing the industry-specific functionality required within a fully integrated system. Furthermore, as ERP vendors continue to gain market share in the services market, the large ERP vendors will eventually develop stronger industry-specific functionality, creating a more competitive landscape in the ERP for services marketplace. Consequently, the services sector should expect more consolidation between best-of-breed vendors and the large ERP vendors, which are slowly dominating the space.