Introduction
Many
organizations are near, at, or past the end of their enterprise resource
planning (ERP) systems supported life cycles. These organizations might
be readily convinced of the need to upgrade and of the benefits associated with
remaining on a supported version. Yet, moving to a supported version of an already
existing system may not always be the best decision if that system is not future
compatible.
For
organizations that have opted to move to a supported version of their current
ERP system, this article takes a look at the future of enterprise business applications
and the requirements they will have to meet in order to be future compatible.
Our objective is to help organizations determine whether or not the investment
they are preparing to make will enable them to function in a world where global
processing capabilities are the norm.
To
understand why simply upgrading to the nearest supported version may not be
the best option, we examine old and new ERP business drivers. Examination of
these drivers brings into perspective the differences between the traditional
and current ERP eras. This understanding is important to define what is meant
by "future compatible" and why it is importance that user organizations not
merely look to remain on a supported version. If they have any intention of
protecting their business in the future, these organizations must ensure future
compatibility.
This
article has been sponsored
by SYSPRO
Old Business Drivers
In
the 1990's ERP emerged as a welcome enabler of enterprise-centric process optimization.
Since then, organizations have been on a continuous upgrade path that has seen
at least two major iterations of the ERP concept bring enterprise-centric improvements.
These iterations included "extended ERP," where vendors started adding the capability
to handle inter-enterprise transactions, and the "enterprise application suite,"
where vendors sought to provide rich-client functionality across the enterprise
desktop through partnerships, acquisitions or native product development.
The
move toward the enterprise application suite (EAS) took the lead up
to the year 2000. This was a period where the combined effect of Y2K compliance
initiatives and the technology bubble gave rise to the largest number of IPO's
and corporate acquisitions ever. There seemed to be no end in sight to the success
of ERP, and vendors' share value continued to increase as CEO's continued to
demonstrate increased earnings.
However,
this was also a period where the new concepts of e-business and e-commerce rose
to challenge the vision of ERP and where many organizations, disillusioned with
ERP, started to reduce their ERP investments in favor of the e-model. The seduction
of "e" combined with ERP disillusionment is one of the reasons why many organizations
have not upgraded their ERP systems beyond "extended ERP" and now find themselves
with an iteration of ERP that is about to become unsupported. The golden glow
of "e" has worn off, and there is a realization that "e" is only an extension
to ERP and in order to succeed, there needs to be a balanced approach to ERP
and "e"-model investments.
As
we know, the period leading up to the year 2000 was an incredible glut period,
driven in part by fear and part by an intoxicating euphoria as the gold rush
grew. Yet, we also know the glut was brought to an abrupt halt after Y2K, and
the bubble burst. As the dust started to settle, organizations which had invested
in Y2K and EAS started to take stock of what they had bought and looked to take
advantage of their newly acquired information technology capabilities. What
they found in their ERP was a monolithic, enterprise-centric, architecture that
was ill-suited to doing business in a world where the business drivers had changed.
New Business Drivers
The
new world organizations made demands that promised to render the majority of
today's ERP systems obsolete from an architectural standpoint and inadequate
from a business perspective. One can image that this would not only be a major
concern for ERP user organizations, but an even greater concern for ERP vendors
now finding themselves faced with having to justify both historical and future
investments.
The
new world requires user organizations and vendors to make a transformation from
a focus on internal resource optimization and transactional processing to a
new focus on process integration and external collaboration.
This
is being brought about as organizations cut back in the leaner economic climate
and retrain themselves to focus on executing their core-competency, as opposed
to trying to do and be everything to everyone. The result is that organizations
that once shaped themselves on traditional, vertical models where practically
everything was done internally are now delegating all that is not their core-competency.
Today the once vertical domains are being replaced by horizontal infrastructures
comprised of multiple entities communicating in a borderless, "always-on" environment
across the public domain of the Internet. Each is focused on executing core-competencies
within the body of an extended and collaborative business ecosystem.
In
an environment where everyone is focused on core-competency and acting for the
good of their community of interest, the new focus is on improving competitiveness
across the horizontal infrastructure. Faced with this new challenge, many organizations
found that they were not able to participate in the new ecosystem because of
the enterprise-centric and monolithic nature of their existing IT systems. So,
while they posses capabilities, these assets could not be leveraged, because
they could not be cost-effectively deployed and subscribed to by community members.
It
was the realization of this limitation that gave birth to what the Gartner Group
in 2001 first termed "ERP II." ERP II is the next iteration of ERP that expands
beyond enterprise-centric optimization and transaction processing to focus on
improving enterprise competitiveness. The vision behind ERP II begins as an
application strategy that sees all enterprise-centric business and "e-applications"
integrated without requiring a single vendor approach.
In
essence, ERP II means that the business processes, applications, and data of
all members in an ecosystem are integrated. The ability to interconnect key
business partners directly is one of the main capabilities of ERP II. However,
it is not the sole defining characteristic. ERP II expands ERP, extended ERP
and EAS in role, domain, function, architecture, and data.
The
drivers behind ERP II are both business and technological. From the business
perspective, ERP II is driven from the previous disillusionment with ERP when
it failed expectations. However, this failure may not have been a problem if
it were not for the emergence of the "Net Connected Enterprise" that gave enterprises
an insight into the ubiquitous power of the Internet as a tool via which to
do all types of business transactions not just those related to "e" models.
The
demand for collaborative commerce ("c-commerce") is being enabled by advances
in communications and protocols that enable the transportation of data across
the Internet and by extensible mark-up language (XML) to describe or
define that data. In addition, software development concepts born out of object
orientated methodology are now being employed in virtually every layer of the
system and not just in the development environment. This is giving rise to component
architectures, such as the "service orientated architecture" (SOA) and more
recently Web services architectures.
Future Compatible
By
this point, you should have a pretty good idea of where your organization in
situated in respect to where ERP is going in the future. It should also start
to be clear why it is important for user organizations to seriously consider
whether or not a "supported version" of an ERP is future compatible.
Simply
moving to a supported version that does not enable an ERP II deployment strategy
may be a costly exercise that sees the organization increasingly marginalized
as business partners, suppliers, and customers choose to adopt c-commerce strategies.
The end result may be that the organization is not able to speak with anyone
but itself, a situation that is not conducive to growing a business and in which
no amount of internal resource, process or transaction optimization will help
improve bottom line results.
Organizations
that embrace c-commerce and mobilize their IT capabilities in a manner that
enables ERP II deployment strategies will be in the best position to command
the "lion's share" of their market. Their organizations will have the benefit
of support from a community of interest that empowers them with capabilities
and expertise at a fraction of the cost required in the traditional, vertical
model.
In
addition to the direct benefits inherited from their membership in an ecosystem,
their adoption of ERP II will serve to increase organizational reach and provide
unprecedented ability to take advantage of and tap into global markets. What's
more, the value of real time information shared within the ecosystem will become
knowledge that will optimally position the ecosystem with the ability to react
with agility and velocity that is proportionate to the new, increased speed
of business in the new world. Enabling everyone in the system with an extended
and holistic view of the business will decrease the time required to react to
demand and opportunity. Conversely, it will increase resilience to those unforeseen
events that could spell disaster and so reduce or eliminate the overall risks
involved in doing business in an unpredictable global economy. Organizations
that do not have the benefit of these advantages will find it increasingly harder
going forward.
Some
may think that all of this is just a bit of "blue-skying" about the future—that
there is no urgent need to upgrade beyond the oldest supported version and that
a lack of ERP II capability will not impair performance. Let me assure you this
is not the case. User organizations are already feeling the pressure, and many
more are realizing that they will have to make a move toward attaining ERP II
attributes before year end 2005. To support this statement, I wish to point
skeptical readers to the following Gartner prediction. The need to support collaborative
business processes will cause some enterprises to perform an ERP migration simply
to achieve ERP II capabilities.
—Gartner
[Research Note COM-18-7378]
Conclusion
Upgrading
an existing ERP system for the sole purpose of remaining on a supported version
may not be strategically prudent, particularly if the new version does not enable
an organization to embrace ERP II deployment strategies in the future.
In
this situation a user organization may be better served by evaluating the most
up-to-date version of their chosen vendor's product to identify whether or not
they have any possibility for an upgrade path that will enable them to attain
ERP II capabilities.
If
this is not the case, then user organizations will be best served into the future
by replacing their current system with a product from another vendor that does
enable ERP II capabilities. This product should ship ERP II functionality as
an integral component of the core system. This will enable the user organization
to address current business requirements while they define, develop and gradually
start to incorporate ERP II capabilities into their overall business strategy
and corporate culture.
This
article has been sponsored
by SYSPRO
About
the Author
Sean
Wheller is an author, management consultant and the president of enbaya,
a consulting firm that assists hi-tech businesses as they chart a course and
get underway with new initiatives-products, markets, partnerships, and entire
businesses. Wheller is the author of the book "SYSPRO e.net
solutions - The Definitive Guide" which is available from SYSPRO. Over the past
fifteen years, he has been a consultant to leading European, American, Middle
Eastern, and African based information services and software firms. Prior to
founding enbaya, Sean held the position of CEO at MediaOneIT.
Currently, his clients include Lucent, Avaya, Nortel, IBM, Comverse, SYSPRO,
and numerous early stage technology firms.
He
can be reached at sean@enbaya.co.za