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.