The ERP Market 2001 And Beyond – Part 5: Recommendations

Part 5: Recommendations
P.J. Jakovljevic - October 15, 2001

Executive Summary 

Enterprise resource planning (ERP) integrated software solutions have become synonymous with competitiveness, particularly throughout the 1990's. ERP systems replace "islands of information" with a single, packaged software solution that integrates all traditional enterprise management functions (transactions) like financials, human resources/payroll, and manufacturing & logistics (See Essential ERP - Its Functional Scope for more details). We also believe that having an ERP system is a prerequisite in most business environments to fully take advantage of the latest business information processing trends, such as collaborative e-Business and customer relationship management (CRM).

For a list of the major ERP vendors and their market share, see Figure 1.

Figure 1.

This is Part Five of a five-part article. This part contains recommendations for vendors and users. Part One contained an overview of the ERP market and how ERP is expanding to included SCM, CRM, and e-procurement. Part Two discussed the vendors' reaction to market changes. Part Three briefly analyzed some of the major ERP vendors. Part Four contained market predictions. This part contains links to the preceding parts.

Vendor Recommendations  

While competitive costs (low and flexible software license pricing and implementation costs) and outstanding global service (proven fast implementations and customer loyalty) will remain important requirements for success, particularly in the lower end of the market, vertical focus will be the key factor for survival. Vendors that will weather the next three years will have focused their business and product on particular industries, preferably those with a current low penetration (e.g., healthcare, insurance, utilities, transportation, government institutions, food & beverage, chemicals, pharmaceuticals, etc.), instead of a more generic, horizontal approach.

Winning ERP products will demonstrate deep industry functionality and tight integration with best-of-breed 'bolt-on' products in a particular vertical. This also means adding sector-specific, fine-grained front-office capabilities such as billing for utility companies. Seamless interfaces to other vendors' products will be a matter of course (to achieve real-time collaboration among business partners' disparate systems, as well as to more easily penetrate a competitor's client base with their 'bolt-on' components), as well as growing partnerships with renowned system integrators, consulting companies, and application service providers (ASP).

Product Architecture Is Getting Ever More Important

With increased competition, deregulation, globalization, and mergers & acquisition activity, buyers increasingly realize that architecture plays a key role in how quickly vendors can implement, maintain, expand/customize, and integrate their products. The product architecture is going to do much more than simply provide the functionality, the user interface, 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 increasing user requirements.

An adaptable architecture is the least common denominator for a flexible and agile ERP system. Although a component-based architecture is not an explicit requirement for ERP flexibility, component-based applications generally provide greater flexibility than their monolithic counterparts. Further prerequisites for flexibility will be the abstraction of technical complexity (manifested via the use of intuitive tools, aids, or wizards that guide the user through a set of steps to achieve a desired end result), intelligent messaging and workflow architectures, and an intuitive, easy-to-use user interface.

Componentization proves to be crucial to enable ERP systems to support e-business activity since the new e-commerce capabilities are being delivered as individual components. Componentization also helps the vendors extend the core ERP system with SCM, CRM, and other ERP-adjacent solutions. While ERP customers may not be fully aware of the benefits of componentization as yet, they have been embracing the more open interfaces and improved integration capabilities that the vendors are providing, capabilities also intended for the componentization effort.

Functionality That Still Wins Orders 

Multi-national financial capabilities (including consolidation and support for the Euro), advanced planning and scheduling (APS), product configurators via the Web, sales force automation (SFA), e-procurement, integrated business intelligence (BI) and performance measurement, a built-in business process modeling tool, workflow management, Web-enabled self-service capabilities, document management, and component-based (object-oriented) architecture will remain the order winners for the next two years. After that period of time, we believe these functional and technological features will be demoted into commodities (order qualifiers).

During the same period of time, the offerings of some leading ERP vendors will become so close to best-of-breed capabilities that most users will not need to look for multiple vendors' offering. What will differentiate the leaders from the rest of the ERP pack will be the breadth, depth, and diversity of plant-level and distribution centers requirements (e.g., flow-based manufacturing, work instruction, dynamic dispatching, etc.). Supply chain planning functionality will have to extend to the shop floor and/or distribution center level, whereby manufacturing and distribution functions will become intermingled.

The large vendors have inherent advantages and incentives to develop needed competencies: their installed base, their market clout, and their ability to commit resources to development. To separate themselves from the rest of the pack, they will either (1) have to use those internal resources to develop their own extended products and capabilities, or (2) have to buy/use someone else's superior technology/product, particularly during these days of bargain market values in the technology sector.

Small vendors should either (1) try to develop the above mentioned required competencies and build up as much market share as possible, either under their own steam or by means of mergers & acquisitions, thereby strengthening their position, or (2) align themselves with a major vendor.

User Recommendations  

While ERP remains the information backbone for contemporary enterprises, today's ERP systems are required to address more than the processes taking place within the walls of an enterprise. They must be able to address the players and processes involved in extended enterprise - the people and partners that the manufacturers collaborate and coordinate with in their supply chains. While the Web and e-collaboration will continue to be a major ERP direction, we foresee more ERP trends will appear on the radar screens of industry observers and IT managers. Easier enterprise applications integration (EAI), more flexible pricing, reduced need to customize an application and easier customization when needed, product design collaboration/product lifecycle management (PLM), tools for business process change analysis (beyond a mere business process modeling), and embedding analytical applications and knowledge management are some of the best prospects among the next wave of ERP hot-buttons.

Users' need to understand their business requirements and critical business processes can never be overemphasized. Not knowing their present business state of affairs as well as their strategic intent and direction will disqualify any future ERP system implementation from being a success. Is the customer a multinational corporation that requires sophisticated methods of dealing with multinational currency? Is the customer a very large corporation that will have to provide for a significant scalability and multi-byte character strings (MBCS)? Answers to these questions and a myriad of similar ones should help users create a long list of vendors to include in an ERP package selection. Precedence should be given to vendors with a proven vertical focus on the user's industry. Another frequently forgotten, but important aspect in software selections is detail. Selections that fail to consider requirements at a sufficient level of detail inevitably produce costly surprises during subsequent implementation.

Focus On The Selection Process 

However, given that within a specific client size range and vertical industry, many of the well-known applications packages are reaching a functional parity (convergence), users might be better off by skipping the painstaking process of RFP preparation. This would eliminate the staring confusedly at vendors' responses, trying to figure out who has the most pluses regardless of the individual importance of the functionality criteria. Organizations should, therefore, rather focus on the handful of business objectives they need to achieve and the ways to measure their success. They may benefit from turning to an objective third party expert that has an ability of translating these strategic business objectives into tactical functional and technological requirements, and, in almost no time at all, recommend only two or three most suitable candidates. The organization could then proceed straight to the software demonstration phase (see Knowledge Based Selections).

Users should also be aware of consolidation in the ERP market, and corporate viability should play a prominent role in every selection process. Virtually all software selection teams appreciate the importance of product functionality and product technology requirements in making the right decision. Too often, however, these are the only criteria that play a role in the decision-making process. Other often overlooked factors can determine the eventual success or failure of a new system, including vendor corporate strategy, global service and support capabilities, financial viability, and, of course, cost.

We strongly advise users to exercise their prerogative of "scripted scenario" software demonstrations, in order to further distinguish between the vendors who made the short list. "Scripted scenarios" are detailed sequences of business activities that need to be supported by the software. Vendors present these business scenarios on their live products - tailored to the way the organization does business as defined in the scenarios. These scenarios allow the organization to see how the live product operates in their specific environment, according to the critical business processes outlined by the selection team. In addition, the users gain an understanding of the extent to which the vendor would be able to modify the software to accommodate the users' special needs. When doing this insist on vendors unequivocally showing you how their system will help you achieve the desired objectives. Do not let the vendors take charge of the demo so they can put on their 'dog and pony' shows. (see Demonstration Post-Mortem: Why Vendors Lose Deals).

Perform Sensitivity Analysis 

After receiving the final proposal from each of the vendors included in the negotiation stage, users are advised to perform sensitivity analysis to determine the ultimate vendor of choice. This analysis should not be based strictly on price, but also on a head-to-head comparison of the functional and technical capabilities of the products, quality of initial implementation and ongoing service and support quality, the vendors' relative financial stability, and their strategy for improving their products and services over time. These factors ultimately lead to the appropriate vendor choice.

At this point, users may want to put into action any counter-proposal or negotiation steps, which may include a combination of the following: a request to lower initial software costs, inclusion of free consulting or training resources, reducing the scope of the services offered, a decrease in maintenance fees, negotiating the license fee per module, negotiating discounted license fees for casual users, provision for future incorporation of "extended ERP" components by bundling them into the contract now at negotiated license fees, etc. 'Bolt-ons' should be selected only from official business partners of the primary ERP vendor, after making sure that partnership is not a mere marketing pitch.

Get Written Contractual Commitments 

Finally, users should ensure that their critical requirements are unequivocally spelled out in a contract with a selected ERP vendor. Future clients are also advised to request the vendor's written commitment to promised functionality, length of implementation, and seamless future upgrades, particularly for recently released products and products whose release date is due in the near future.

Remain firm on the value proposition you identified and do not fall prey to euphoric vendors sales representatives' attempts to sell you more functionality than you need, particularly if that is only at the 'vaporware' or 'brochure-ware' stage. System integration service provider selections and project planning should involve the same amount of due diligence as business IT strategy definition and software evaluation.

This concludes a five-part article on the ERP Market 2001 and Beyond. Part One contained a market overview. Part Two covered how vendors are reactive to market changes. Part Three analyzed the major vendors in terms of Market Leaders/Winners, Challenger, and Losers. Part Four contained Market Predictions. Part Five contained recommendations for vendors and users.