The Beat Goes On

Y2K-ready or not, ERP systems probably represented an improvement over the nonintegrated hodgepodge of homegrown and -packaged legacy systems that made up the software portfolios of most large companies at that time. The ERP systems not only integrated the most advanced functionality at the time, but they also incorporated what amounted to best practices. If you molded your business process to fit the software, you would at least be assured a proven, effective process. Most organizations, however, chose to change the software rather than change their practices, which led to a lot of ERP customization, wildly expensive implementation projects, and, ultimately, failed or partial implementations. Large enterprises soured fast on big ERP.

When 2000 dawned, these same organizations dropped their ERP  initiatives in midstream and turned their attention to the Internet and e-business faster than you could say Amazon.com. The race to business B2C and B2B Web sites, Internet portals, and on-line exchanges had begun.
Today, it is the Internet that has lost the luster. Amazon.com isn't likely to out-Amazon anybody except maybe some struggling bookstores that were having trouble competing against the brick-and-mortar chains even before B2C burst on the scene. Independent on-line marketplaces flashed across the business horizon like a comet and mostly disappeared before they even started to reshape the supply chain. Although private and consortium exchanges and Web portals still hold promise, the vaunted first-mover advantage has proven to be no advantage at all. With stock prices far below their highs of a year ago and the economy seemingly in a tailspin, managers are digging in for a rough time and focusing on business survival basics — cost reduction and efficiency. Suddenly, they are noticing all that ERP work they left unfinished.
"Pre-Y2K, there was a lot of interest in ERP but few companies were implementing globally. Now, they are resuming what they started," says Brad Callahan, CGE&Y vice president. Adds Bruce Myers, another CGE&Y executive: "We started noticing a pickup in ERP during the fourth quarter of 2000. And it is continuing."

The news that ERP is back doesn't surprise International Data Corp. (IDC) research manager Andrew Goloboy: "Companies still need to process transactions internally. There is a big need for internal systems like ERP." With or without the Internet, companies still have to ring up sales, schedule production, and move materials and finished goods in and out of inventory and through warehouses.
The Internet and on-line business actually put even more pressure on companies to perform well. "Companies have realized that they can't just have the Web and CRM and SFA. They need an integrated enterprise, a connected enterprise," says Taormina. And such a connected enterprise features an ERP system at its core.

IDC pegs the ERP software market at $21.5 billion in 2000 and projects it to hit $46.1 billion in 2005. This is good news for consulting companies that help with ERP implementations, he continues, noting that the consulting, implementation, and integration components of ERP projects typically run two to three times the cost of the actual software.
ERP's revival follows the bashing it took during the dot-com mania. At that time, ERP was portrayed as too cumbersome and too inward-facing, especially at a time when companies wanted nimble, external-facing systems that could connect with suppliers and customers. The ERP software also was proprietary and costly. "All the criticism of ERP was half-true. But the reality is that there is still no better solution for what it does," says Goloboy.
But the ERP solutions today are different from the pre-Y2K systems that have been heavily criticized. SAP, for example, comes as a portal, MySAP. The ERP systems have become more externally accessible, and the large ERP vendors — SAP, PeopleSoft, Oracle, J.D. Edwards — have extended their core offerings with CRM, SFA, Web, and various supply chain functionalities. "The ERP vendors themselves are expanding into supply chain, portals, CRM, and the whole B2B space," observes Myers.

Also different is the type of consulting engagement surrounding ERP implementations. Most of large organizations already have an ERP package of some sort, maybe even more than one, but the implementations are limited. "A lot of the original scope definitions were quite extensive, but the companies made concessions for time," says Duray, referring to the pressure to meet the Y2K deadline. "Now, they want to go back and finish and add in new e-business capabilities." Where vendors have multiple ERP systems, they now want to consolidate on a single system, adds Myers. Often they want to follow up with the process re-engineering they skipped in their rush the first time through.
"In the past, companies were focused on just getting ERP in place. Now they are looking at where ERP falls short and want to fill in the gaps," says Brent Habig, president, Tigris Consulting, New York City. Most of those gaps, Habig continues, revolve around "the Webification of ERP" and provide access to ERP data and functionality for suppliers or the sales force. Integration also has emerged as a major focus of ERP consultants. Companies want their ERP system to work seamlessly with their Web sites, portals, e-business, CRM, SFA, and other systems.
The size and scope of the new ERP engagements have changed, too. Gone are the juicy three-year, $100 million ERP implementations. "Companies don't want a Big Bang implementation," says Taormina. The Big Bang projects greatly increased the risks of failure; what business today can accurately predict what its needs will be three years down the road or is willing to wait years to see a return on its software investment?
Instead, consulting firms are being asked to break ERP projects into small deliverables. They are being given three months, six months, or nine months at most to implement a specific set of capabilities. Even when ERP was big in the run-up to Y2K, there was a clamor for faster, cheaper implementations that could deliver a quick, tangible payback. This led each of the vendors to launch fast implementation programs that usually revolved around templates and a set of preconfigured settings instead of the zillion switches, settings, and parameters that ordinarily need to be set. Typically, these packages were aimed at specific vertical markets.

About the same time, ERP customization came under increasing scrutiny. Large companies would customize — actually add to or alter the underlying code — to shape the package to meet some very specific need unique to the organization. However, managers began to recognize that whatever advantage they gained through customization came at an enormous cost, which included both that of the original custom coding and that from the delays the customization invariably entailed.
But there was also an ongoing cost. Every time the company moved to a new release of the ERP application, it had to code the customization all over again. As huge customization bills mounted, managers sought to limit customizations to those that were absolutely critical and would deliver a big payback. Otherwise, it really was smarter and cheaper to change the business process in most cases, even with all the change management, retraining, expense, and hassle that entails. So, the consulting industry's customization gravy train was already slowing down, even if not actually grinding to a complete halt.

When Oracle launched a somewhat self-serving blast at ERP customization this spring, it wasn't exactly breaking new ground. The ERP vendors and consulting firms already had been moving in this direction. However, it is not likely that any large organization will take Oracle seriously in this regard. "This is an 80/20 approach, and the reality is that this is not how business works," says Taormina. "Large companies need to determine their own best processes and adapt their software so they can innovate." Adds Callahan: "This would work for a small company or a new company, but it would be hard for a large company with an established culture and practices."
For consulting companies, the ERP business is as big as it ever was, and maybe even bigger. But it is not just ERP anymore. Under the new enterprise application label, ERP work might involve a bit of everything — classic ERP, business process re-engineering, supply chain, Web work, CRM, and more — delivered as a steady stream of fast projects.

Sidebar: In the Blink of an Eye

With the large enterprise market pretty well saturated with ERP, much of the action is shifting to the midmarket consisting of midsize companies — those with revenues running from $50 million to $600 million. Here, too, it is Back to the Future for ERP. "We have seen a resurgence in ERP, but not in the traditional sense," says Ann Browne, director of marketing for professional services for Lawson Software. Instead, the company is finding renewed interest in total solutions that address the full business processes.

Like their Fortune 1000 counterparts, midmarket managers want to use ERP to increase efficiency in their operations. But "unlike ten or even five years ago, businesses are also looking for ways to leverage the Internet to collaborate with customers and suppliers in the supply chain," adds Perry Moss, J.D. Edwards, director/technical marketing. Again, ERP will have to integrate with and support all of these other initiatives.
In the midmarket, consulting firms also are playing a central role. J.D. Edwards, for example, boasts of over 300 partners, including Accenture, CGE&Y, KPMG, PwC, IBM Global Services, and Deloitte. Lawson touts a long list of global, national, and regional consulting partners, including many of the same firms.

As with large organizations, fast implementation is critical for businesses in the midmarket, which are scrambling to meet the demands of their large enterprise customers, Moss reports. Under pressure to streamline the implementation process, the vendors are turning to prepackaged, template-oriented solutions.
Midmarket managers, however, understand that software alone isn't the answer. "Many organizations are realizing that simply throwing a system into the mix of the business is not the solution. They are looking for integrated solutions that can help them move toward best practices," says Browne. Consultants, she continues, have been at the forefront of this focus on business process, encouraging organizations to adopt best practices and not rely solely on "hope and free doughnuts" — although the free doughnuts do sound good.