ERP Gets a Complete Makeover

No one questions the need for change in a market known as much for its failures as its many successes. The challenge for ERP vendors is to deliver software that supports business process improvements without all the frustrations of the past. They must do more than put a pretty face on the same old problems.

The Big Three's multiyear development efforts involve moving code and functionality from existing products into applications that are more contemporary in design and appearance, and hopefully easier to deploy and manage. SAP, for example, is emphasizing the plug-and-play nature of components in its recently shipped mySAP ERP 2005--a godsend to anyone who wrestled with the hulking R/3.

Disaster Lore
The tech industry is rife with ERP-gone-awry stories, from the infamously problematic $112 million SAP R/3 implementation at Hershey that led to disastrous order-fulfillment errors just before the critical Halloween season in 1999, to a problem-plagued Nike installation of i2 Technologies' supply chain applications that resulted in shortages of some footwear and excess stock of other inventory in 2001. More recently, medical products maker Invacare's botched implementation of Oracle's E-Business Suite was blamed for a $30 million revenue shortfall in the fourth quarter of last year.

Most ERP projects don't go so badly, but challenges are inevitable. First-generation ERP software was monolithic and inflexible and didn't scale well, says Barry Libenson, CIO at industrial equipment maker Ingersoll-Rand, an Oracle ERP shop. IT departments have been forced to evaluate dozens of application modules, integrate data from many different systems, and fine-tune the software to suit their needs.

ERP code hasn't always been squeaky clean, either. Oracle's 11i E-Business Suite was riddled with bugs in 2000 and 2001, requiring more than 5,000 patches. Nike blamed i2's demand and inventory management application for the snafus it encountered five years ago, saying the product failed to meet performance and functionality expectations. I2, in turn, blamed the problems on Nike's customization of the software.

The biggest gotcha: Companies must make sweeping changes to their business processes to match the software. "The most time-consuming activity is the training and change management process to move people in the various line offices and departments from one way of doing business to another," says David Ernst, CIO and assistant vice chancellor for IT services at California State University.

Time-consuming indeed. CSU is still a year away from completing installation of PeopleSoft finance, human resources, and student administration applications at its 23 campuses--a project begun in 1999 that will cost $400 million by the time it's over. "It's right on schedule," Ernst says. Amazingly, that's eight years from start to finish--reason enough for the remaking of ERP.

Consolidation Conundrum
SAP and Oracle are the two largest ERP vendors, and Microsoft is making a major push with its Dynamics applications. Other players include Infor (in the process of acquiring SSA Global Technologies), Sage Group, and Lawson Software, which acquired Intentia International in April. The market is mature: ERP license revenue, at just over $6 billion last year, will grow about 5% annually this year and next, according to Gartner.

Industry consolidation has made product selection harder than ever, as the threat of obsolescence hangs over applications that move from one vendor to another. Oracle's portfolio includes applications from JD Edwards, PeopleSoft, and Siebel in addition to its own E-Business Suite, all of which are being mashed together under a project dubbed Fusion. Microsoft sells four acquired suites--from Axapta, Great Plains, Navision, and Solomon--which are being rolled together under the Dynamics brand name.

A key question is whether all this development work by the vendors will translate into a better customer experience, both for those diving into ERP for the first time and those embarking on upgrades. Will projects be completed faster and at lower cost? Vendors suggest they will--though we'll believe it when we see it. Will employees find the new applications more useful and better integrated with their other desktop tools? Almost certainly. Microsoft already has tied its Outlook E-mail client into the Great Plains suite, and connections between Microsoft's Office applications and other ERP apps are planned. SAP, with Microsoft's help, is going in the same direction.

All three vendors are moving their ERP apps to Web services and service-oriented architectures. That means their forthcoming ERP applications should be easier to deploy and integrate with other vendors' software, so IT departments can react more quickly when business units need new functionality. Companies looking to add features to their core applications should be able to choose from a richer menu, in contrast to when they had to install the whole darned application module whether they wanted the bells and whistles or not.

The vendors are talking a good game. Upgrades from SAP's aging R/3 to mySAP ERP 2005, for example, can be done in 60 days, says Shai Agassi, president of SAP's product and technology group. Early reports of successful upgrades among SAP customers bear that out, says Mike Perroni, president of the Americas' SAP users group and a VP at Halliburton in charge of that company's applications team.

But anyone expecting a one-button install will be disappointed. The new-generation ERP apps will include gobs of new technology--Web services, integrated analytics, business-activity monitoring, portals, data hubs, and repositories--all of which must be mastered to be used effectively. Joshua Greenbaum, a principal at Enterprise Applications Consulting, says the hassle of integrating new ERP apps with older ERP apps and legacy systems "won't go away for a long time."

Because ERP systems can touch practically every employee and process at a company, there's no escaping the fact that implementing or upgrading those systems means having to change business processes and retrain employees. "It's the change management that causes all the pain and agony," says Autumn Bayles, CIO at Tasty Baking, an SAP software user. "That's what costs all the time and money." Nonsoftware costs--labor, consultants, systems integration, and training--can run four or more times the price of the software license.

ERP projects aren't as difficult as they used to be, partly because the software already has gotten better, some CIOs say. Ingersoll-Rand's Libenson still compares an ERP rollout to a minor root canal: The operation isn't so severe, but unpleasant nonetheless.

Vendors Knee Deep
Of the big three, SAP is furthest along in its ERP overhaul. It completed a milestone in its Enterprise Service-Oriented Architecture project in May when it released mySAP ERP 2005. Oracle plans to debut its Fusion applications in 2008 while continuing to update its existing apps. Microsoft's Dynamics project, previously called Project Green, will give the Axapta, Great Plains, Navision, and Solomon applications a common interface, links to Microsoft Office apps, and a Web services layer this year and next before ultimately merging the four suites into one several years from now.

IT managers aren't exactly clamoring for these new software packages. While some components of next-gen ERP are available now, and more are due over the next two years, most customers aren't likely to upgrade until 2009 or 2010. Some analysts think it will be late in the decade before the new applications are stable, with all the bugs worked out.

Many businesses just don't need to move up for a while, says Forrester Research analyst Ray Wang, noting that many SAP customers upgraded to R/3 4.6 and 4.7 in recent years, and lots of PeopleSoft and JD Edwards customers took advantage of upgrade deals those vendors offered in 2003 and 2004 while fighting--unsuccessfully--Oracle's takeover. Oracle's April announcement of an Applications Unlimited plan, under which it will indefinitely maintain, enhance, and support PeopleSoft, JD Edwards, and Siebel applications, as well as its own E-Business Suite, means there's less pressure on customers to jump to Fusion. "We're not going to force people to move to a next-generation technology," says John Wookey, Oracle's senior VP of application development, who oversees Fusion.

California State University has "every intention to move to Fusion as it's currently described," says CIO Ernst, but since Oracle has said it will support PeopleSoft apps beyond 2013, the university can wait several years. Ditto for Ingersoll-Rand's Libenson, one of Oracle's biggest customers and a user of Siebel CRM applications. Upgrading next year to Oracle E-Business Suite 12, the next major release, is his more immediate plan. "Then we'll think about Fusion," Libenson says.

Some have questioned Oracle's ability to deliver Fusion in 2008, especially since the acquisition of Siebel Systems, completed in January, gives it yet another set of applications to incorporate. But Libenson spent several hours in May meeting with Wookey and Oracle CEO Larry Ellison and came away convinced the company is on the right track. "They have mustered the resources and are intent on getting this done," Libenson says. Yet he's quick to add: "It's still early in the game."

No Revolution
The new ERP systems will be more evolutionary than revolutionary, some analysts think. Unlike the move to client-server computing, businesses won't have to rip out their installed IT systems. SAP, Oracle, and Microsoft promise to usher customers along with incremental steps to their next-generation apps.

At the heart of all three vendors' ERP redevelopment efforts is the adoption of service-oriented architectures, Web services standards, and business process management technology. SOA and BPM, the vendors say, are critical to making their applications more modular and easier to adapt as needed--say, when two companies merge--something that's been sorely lacking in ERP software.

In May, SAP debuted mySAP ERP 2005, which company officials describe as a stepping stone to Enterprise Service-Oriented Architecture because of the 500 Web services that are now available. SAP has built core functions such as finance, HR management, logistics, and procurement--previously offered as separate applications--into the core of mySAP ERP 2005. Using Solution Manager, a tool within its NetWeaver integration platform, the core applications are linked with function-specific Web services such as employee recruiting and collections management. While the 500 services SAP announced in May are available online, a new version of NetWeaver called the Business Process Platform, due next year, will include a repository with Web services built in. SAP also will incrementally add the Business Process Execution Language (BPEL) to its apps for defining business pro- cesses. Together, the changes will give SAP applications a kind of do-it-yourself flexibility that ERP systems have lacked, says SAP marketing VP Jeff Stiles.

Version 12 of Oracle's E-Business Suite will include Web services and XML reporting capabilities, technology that will become part of Fusion, making it easier for customers eventually to jump to those applications. While Fusion applications are still far down the road, Oracle has been laying the foundation by building up the SOA and business process management capabilities of its Fusion middleware products. In January, it debuted the Oracle SOA Suite with tools for deploying and managing SOA systems, including BPEL Process Manager for defining and executing business processes, the Web Services Manager console for defining and managing Web services, a business rules engine and business activity monitoring software, plus Oracle's JDeveloper 10g toolset. Businesses can use the BPEL tools to customize Oracle's applications or isolate application components and make changes without breaking the entire application, Wookey says.

Microsoft is adding Web services capabilities to its Dynamics applications as it updates them. Dynamics GP 9.0 and Dynamics AX 4.0 have been released as part of the first wave of Microsoft's ERP overhaul. Dynamics GP, for example, has a new Web services engine and XML programming interfaces with Web services access points supporting 20 business processes.

Buzz Off
But while SOA and Web services are driving the vendors' ERP redevelopment efforts, they draw a yawn from some IT managers, particularly those at small companies like Tasty Baking. "It really doesn't mean anything to me right now," CIO Bayles says. "I don't have 100 applications I'm trying to integrate."

SOA is low on the IT priority list at some large companies as well. Ingersoll-Rand's Libenson calls service-oriented architecture "the buzzword of 2006," adding that his company doesn't have detailed plans for adopting Web services. He sees them mainly as a way to link ERP applications to legacy systems, adding, "My goal is to find a way to get rid of our legacy systems."

Libenson is more interested in what Oracle is doing with BPEL in its Fusion applications, as a way of reengineering business processes and simplifying the job of implementing ERP software. But Forrester's Wang says BPEL provides only general standards today; the ERP vendors will have to provide their own industry-specific definitions. How well Oracle and SAP do that will determine how useful business process management technology will be in simplifying ERP installation and management.

Improving the user interfaces of their ERP software and their links to familiar desktop applications is also a major element in the vendors' overhaul plans. "If you can't get people to use the software, it doesn't matter how well the business process has been designed," says James Utzschneider, who oversees Microsoft's Dynamics products.

SAP, whose applications were once notoriously user-unfriendly, last month began shipping Duet, software developed with Microsoft that connects SAP processes with Microsoft desktop applications. That integration lets users access SAP HR management tasks from Outlook, for example, or pull HR data into Excel.

That's a big deal for Bayles. Managing IT for a small company, she has to pay close attention to holding costs down by keeping things simple. Tools like Duet break down barriers between enterprise and desktop apps, improving productivity and reducing costs.

SAP also is improving the usability of its applications by developing role-based interfaces under what's known as Project Muse. The GUI technology, developed with Macromedia using its Flash authoring software and Flex methodology for building interactive Web sites, will be rolled out for a variety of industries over the next 18 months. Oracle and SAP also are adding visual-modeling tools that will make it easier for users to make workflow changes to the applications rather than having to rely on IT to do it for them.

A big part of Microsoft's ERP redevelopment is making its Dynamics applications look and navigate more like the Office desktop tools. Microsoft is tailoring reports, forms, and other documents in Dynamics to more than 60 business roles. Oldcastle Precast Group, which makes precast concrete products, is installing Dynamics AX 4.0, and CIO Bill Blyth says links with SharePoint and SQL Server Report-ing Services "give us a whole different way of publishing information."

Head Games
All three vendors are rushing to get their SOA-based applications out the door. "This is a mind-share marketing game right now," analyst Wang says. IT managers should resist any pressure to upgrade until they've assessed their needs and given the new applications time to mature.

With ERP vendors taking different approaches to SOA, IT management also must understand how those approaches fit, or conflict, with their own SOA direction, says Christopher Beiswenger, who leads CSC Consulting's federal ERP practice. He warns against buying into the idea that SOA is a panacea. "Software-as-a-service can go only so far," he says. "ERP systems still require a lot of configuration and changes as businesses change."

That's not to say ERP isn't worth the effort. Some of the heavy-duty process changes Tasty Baking had to make, such as adopting SAP's more disciplined approach to inventory management, proved to be valuable, Bayles says. "The things that were the most difficult," she says, "were the things that have paid off the most."

But wouldn't it be nice to have the payoff without the pain? That's the challenge ERP vendors must now deliver on.

Illustration by Mick Coulas

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