The Future of ERP (Part II)
Got Data? Making Sense of It All
From Thomas Wailgum
Since the dawn of automated, electronic capture of corporate financial, operations, supply chain, HR and sales information data—what’s become, more or less, ERP—companies have cumulatively spent billions, if not trillions, on managing and trying to extract value from their vast data repositories.
Accenture‘s Jim Hayes, the global managing director of its Oracle practice, says companies know what they want to do—they see the value of business intelligence and analytics output for their users—but they’ve often been stymied. “We know how to do transaction processing. We know how to close the books, capture orders, do pricing, allocate stock and support business with ERP,” he says. “But the real promise was: How could we take this data and turn it into information? A lot of clients were asking about how we could help them unleash the value of that data. And then the [economic] meltdown happened. All of the sudden, there was a dramatic shift to: Cost reduction.” And many of those “unleashing the value” projects, he adds, have been put on hold.
Enterprises today are deluged with terabytes of data: their own internal data; customer and partner data; as well as new “unstructured” data flows—from Internet-based social networks and mobile devices. But guess what? We ain’t seen nothin’ yet. During the next five years, Gartner predicts that the amount of enterprise data will grow by a jaw-dropping 650 percent. And the vast majority of that data will be unstructured, meaning not included or tied to any particular database, Gartner points out. This head-scratching growth, noted David Cappuccio, Gartner’s chief of research for the infrastructure teams, in a CIO.com article, “is going to cost us dearly if we don’t pay attention.”
Philip Say, vice president for SAP Business Suite, says that this area is, in fact, “one of the most exciting areas of innovation” going on at the company. “The depth, the volume, the detailed sophistication of all the data being generated—from enterprise systems, e-mail and other corporate systems—it’s as if we’re reaching a point where it’s almost unmanageable for the end user and there’s no question for the enterprise,” Say adds. “As we look to the future, this is one of the more vibrant areas SAP is investing in.”
Say points to the acquisition of Business Objects and those analytics applications, tools and developers working on solving this challenge. He also notes SAP’s new in-memory tools and techniques that aim to manage huge chunks of enterprise data in fast, intuitive and easier ways than in the past. “This is ushering in a new definition of what we mean by ERP,” Say adds.
But all of this unstructured data could also be a huge opportunity for other, non-traditional ERP players to move into the market. For example, the unstructured data market is virtually owned and operated by Google. What about a Google play in the business applications space? At the Gartner IT Symposium 2009, CEO Eric Schmidt made no secret of the fact that Google has designs on the enterprise market space. Schmidt thought that the enterprise business for Google can be a multibillion dollar one—terming it “humongous.” The 11-year-old company has its sights set on Microsoft; it has recently made its hosted Google Apps suite more enticing to large government users by announcing plans to tailor its cloud computing services for various federal agencies, according to a Computerworld.com article. Google Wave has taken dead aim at the collaborative apps space (hello, Microsoft Sharepoint), and Android is going after the mobile space by extending the enterprise into portable devices. Still, for many CIOs, at least now, Microsoft is the devil you know, rather than the one you don’t.
Jon Reed, an independent analyst, SAP Mentor and blogger at JonERP.com, has trouble envisioning Google building an ERP suite or acquiring an ERP company—”that’s extreme,” he says. However, “if a Google type of company can present a way of pulling together all this unstructured information in a cloud-based environment, and then somehow connect that to a structured platform—uniting the unstructured and structured information—then that’s a big, big thing,” Reed says. “Think how pathetic these big companies are right now. They have no visibility into that.”
Adds Accenture’s Hayes: “We will we look back five years from now, and realize that the unstructured data [issue] was another disruptive force that will have to be reckoned with.”
The Future of the Supervendors
Behold the Supervendors! It sounds like something out of a Transformers movie—There’s OptimusOracle, IBM-Bot, MicroScream and MegaSAP. (Don’t ask whose “side” they’re on.)
High-tech juggernauts Microsoft, IBM, SAP, Oracle and HP (collectively known as “MISOH”) have reshaped the enterprise software industry with bold, strategic and expensive acquisitions that have led to massive consolidation. As a Forrester Research figure below shows, in the ERP space, SAP and Oracle outpace the other vendors
Oracle, in particular, has never shied away from making a splashy purchase (leading one financial industry observer to call Oracle the New York Yankees of the enterprise software industry). With $8.8 billion in cash on hand and “good deals” still to be had, one can expect Larry Ellison & Co. to make more shrewd acquisitions.
Forrester principal analyst Paul Hamerman, in the report The State Of ERP 2009: Market Forces Drive Specialization, Consolidation and Innovation (subscription required), is confident the consolidation trend will continue for Oracle and its peers. Here’s why: To boost recurring revenues (from new customers and maintenance fee streams); to eliminate the competition (see: Oracle’s hostile PeopleSoft acquisition); to establish a presence in new markets (to get into new industries, vertical plays, customer segments or geographies); to complement platforms and services (in which IBM would buy ERP applications); and to find “technology gems” (i.e. “undercapitalized software firms with valuable intellectual property”), Hamerman writes.
Are there still enough enterprise software firms out there to acquire? While the number has dwindled since the turn of the millennium, there are still more than a dozen targets available. (See Forrester figure below.)
Acquisitions aside, how will the cadre of ERP vendors approach the future? Like those robots in the Transformer movies, the “MISOH” cartel and other traditional ERP entities will have to change their “shapes,” and alter their strategies to stay with the times (and already have, to some degree). That means embracing—rather than resisting—on-demand and SaaS-based computing software-delivery models. And you can bet you’ll be seeing fewer and fewer “cloud computing” rants from Big ERP execs, like this one that Oracle’s Ellison gave in fall 2009.
For example, in an odd 2008 interview with ZDNet, Lawson Software CEO Harry Debes proclaimed that the SaaS industry would “collapse” in two years. In the interview, Debes also noted that Lawson was a happy Salesforce.com user. In fall 2009, during an interview with CIO.com, Debes stands by his comments, saying that the feedback from Lawson’s customers at the time, which was that they did not want a SaaS solution, “was compelling.” That’s changed. And today, Debes says, “I’m a very big fan of cloud computing,” though his on-premise business still has a bright future, he contends.
Industry leaders SAP and Oracle are feeling the heat—from NetSuite, Workday, Salesforce.com and other vendors offering solid alternatives. SAP’s on-demand Business ByDesign mid-market offering has, for all its technological promise, been a bit of an enigma. SAP stumbled out of the gate, at least from a marketing perspective—execs either overpromised and underdelivered or did a poor job of managing customers and partner outsized expectations: limiting the service to a relative few of its customers. That said, SAP has added new features and enhancements (integrating tools from its Business Objects acquisition, for instance). If all goes according to plan, 2010 will be the “coming out” party for Business ByDesign.
For Oracle, its next-generation Fusion Applications Suite is either going to be a competitive game-changer or a money pit for its customers. But again, like Business ByDesign, questions still surround Fusion Apps as we enter into 2010. According to a recent report by 451 Group analyst China Martens, those include: How will Oracle price Fusion Apps licenses? Oracle has said the apps will be “SaaS ready,” but what does that actually mean? How will the Sun Microsystems acquisition impact Fusion Apps? And what will happen to Oracle’s existing customers who choose not to go the Fusion Apps route? (Oracle declined numerous requests for an interview about the future of Oracle’s ERP offerings.)
“Each time Oracle or SAP talks about their SaaS ERP endeavors, it’s as though they’re putting a little more meat on the bones of their projects,” writes Martens in her November report on SAP and Oracle. “There’s plenty more fleshing out to do before it’s possible to judge whether we’re looking at swans or turkeys.”
As the decade wound down, many vendors finally uncovered their ears to hear what their customers were actually saying. But there’s another, more powerful set of masters to serve: shareholders. As such, the future of ERP will be dictated not only by customer wants and needs but also vendors’ ability to satisfy shareholders, grow margins and pay dividends. It’s not personal, after all. It’s just business.
CIOs: Bringeth the ERP Analytics!
Sure, traditional on-premise vendors face pressure to diversify their software delivery mechanisms. But CIOs face an equal amount of pressure—maybe even more—as the new millennium dawns. “Rapid proliferation of SaaS solutions inside the organization requires strong CIO leadership in coordinating data, business process and meta-data integration strategies,” writes Ray Wang, Altimeter Group’s partner for enterprise strategy, in a August 2009 blog post.
In particular, the business is crying out for easy-to-digest, highly usable and meaningful analytic data on enterprisewide business functions. A 2009 IBM study of more than 2,500 global CIOs found that “leveraging analytics to gain a competitive advantage and improve business decision-making” is the top priority for CIOs. A whopping 83 percent of survey respondents reported that BI and analytics—”the ability to see patterns in vast amounts of data and extract actionable insights”—as the way they will enhance their businesses’ competitiveness.
Inside too many businesses today, a paradoxical data situation exists: While the struggling economy has forced businesses to attempt to cut costs and “do more with less,” that often means leaving this data store largely untapped, which creates the risk of “more is less,” notes a July 2009 Aberdeen Group report (registration required). “The ability to provide better decision support with integrated enterprise data is an important factor in turning data into actionable intelligence,” write the Aberdeen analysts. “The synergistic relationship between ERP and BI can indeed be the perfect storm, igniting improved performance and visibility.” (For more on this, see ERP and BI: A Match Made in Heaven, If You’re in Data Hell.)
ERP analyst Hamerman writes in the Forrester report that embedded analytics represent a key functionality in the future: “Rather than having to leave the application and launch separate reporting and analytics tools, ERP applications are moving toward embedding analytics within the context of the application itself,” he states. “This can be seen in a number of products including Epicor 9 and the yet-to-be released Oracle Fusion Applications.” Plenty of enterprise vendors are targeting these fertile grounds (some estimates top $100 billion). IBM, for instance, is making a huge push into the analytics market, using the combination of its SPSS acquisition and its hardware, software and services business lines.
So how are CIOs dealing with the ERP and BI demands? Nectarios Lazaris, CIO for Woods Bagot, an architectural design firm with offices in Dubai, Bangkok, London and Hong Kong, seems like he’s coping the best he can. “We need an ERP system to do a lot of predictive forecasting, and output different [project] models and business scenarios for us,” Lazaris says. He describes the complex process of how Woods Bagot vies for new business and how these global projects typically run their course—covering structured and unstructured data from all over the globe and how best to “visualize” that data.
Is he getting that now? “With a great deal of difficulty and I guess a lot of skepticism in the output,” he says. In fact, Lazaris laments that users still sometimes have more affinity for Microsoft Excel than the ERP system (which he declines to name). “Sometimes [as the CIO] you have to take it on the chin from your users,” he says. “You go back, you try to talk to the account exec at your ERP vendor, and you try to get it across that you hope the next release is better. But [my] people will say: Why can’t an ERP system be as powerful as Excel, which is ironic.”
The future of ERP, this is not. But it just might be the reality for too many CIOs as 2010 dawns.
Talkin’ ‘Bout the Next Generation
More than any time in its nearly four-decade history, change is swirling in the air of the ERP ecosystem: new software-delivery models, new licensing arrangements, new user-interface offerings, new support options, new emphasis on value. All of this change is a very good thing, analysts say. “Now, it’s all about the value,” says Accenture’s Hayes. “With all of these different future trends out there, CIOs need to be more adept at describing the value: Here’s the TCO and here’s the revenue uplift; here’s the day sales outstanding improvement; here’s the business value we’re going to get by using this application.”
It’s not that companies are cutting spending on ERP-related systems; in fact, quite the opposite: ERP investments still top the list of corporate IT investments and in 2009 were almost “recession proof.”
It’s just that the recession and years of questionable return have forcefully introduced a new strategy: Leave the commodity ERP processes to the back office (such as payroll and HR), but make damn sure that front-line users are freed from the banality and inflexibility of the Ghosts of ERP Past.
Industry consultant Reed sums it up this way: “‘Empower me. Give me the tools to create differentiating processes that allow me to define myself from my competitors. And make sure that it’s easier for me to do, so I don’t have to hire 100 programmers. Give me the building blocks to put that together quickly, so that it’s just humming in the background, and leave me free to focus on what makes us better than other companies.’ That’s what customers are expecting now and really want.”
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