Will e-business energise the ERP arena?
Corporates are re-looking their ERP systems with a view to implementing e-business initiatives. But can today`s ERP vendors ensure these initiatives deliver more value than the original installations did?
The local ERP market is on a comeback trail after being recognised as a backbone for e-business, says SA-based research house BMI-TechKnowledge.
According to a South African ERP Market Overview released by BMI-T in 2001, the local ERP market - worth R519 million in 2000 - is "expected to grow at a compound rate (CAGR) of 11.6% in the 2000 to 2005 forecast period. The value of the ERP market is expected to transform into a R904 million market in 2005."
That`s good news for ERP vendors. But will this resurgence translate into good news for SA businesses as well? Or will local companies see a repeat of the 1990s, when millions were thrown at ERP implementations with, according to BMI-T, Gartner and other research houses, very little value-add being recouped by customers?
Among those asked by ITWeb to comment on why the ERP market had seen so many high-profile, expensive ERP implementation failures, was Software Futures MD Derek Hughes. Software Futures is a wholly owned subsidiary of the JSE -listed MGX.
Hughes says the really big failures on ERP implementations occurred due to vendors and corporates trying to fit packaged solutions to the business, rather than the other way around.
"Packaged solutions are there to accommodate standardised requirements. Expecting them to do more than that was asking for trouble."
And this is often trouble with a capital T. Says Hughes: "Typically large implementations were only scrapped years into the project, when more than 200% of the original budget had already been spent."
Typically large implementations were only scrapped years into the project, when more than 200% of the original budget had already been spent.Derek Hughes, MD, Software Futures
He says other notable failures were those where corporates insisted on building a solution from scratch, instead of installing a packaged application that could have effectively met their requirements.
"Too much customisation is never a good thing," says Hughes.
"Also, the sheer size, scope and complexity of some large ERP installations seemed to have been completely overwhelming. Bear in mind that the software industry often doesn`t deal in absolutes but rather in wishes, ideas and thoughts. Defining these remains difficult, particularly on really large implementations."
Andre de Meyer, technical director at DMK, an enterprise application developer specialist, says ERP system failures occurred most commonly due to initial incorrect parameter settings and data collection methods, based on a lack of prior understanding of the original purpose of the system.
The true measure of an ERP solution`s effectiveness, says De Meyer, is its ability to enable a company to make decisions on operational issues on a day-to-day basis.
So, has anything changed significantly in terms of getting ERP solutions to do what they`re supposed to do? Roger Mayes, sales consulting manager of applications at Oracle - which supplies a complete e-business suite of Internet-enabled business applications - says he believes that even in today`s business environment, management teams are still getting themselves wrapped up in technology choices rather than identifying their business requirements and addressing those.
According to the BMI-T report, however, SA organisations are increasingly demanding a clearer justification of any IT solution in terms of savings and efficiencies over time. The report adds that it is the promise of a return on investment, rather than technology adoption, that is increasingly driving IT investments.
Whatever the case may be, ERP vendors are adamant that a tightly integrated, effective ERP system is a ''must-have" for a successful e-business initiative.
Dean Griffin, GM of marketing at e-business and ERP software solutions provider SAP Africa, puts it quite bluntly: "If you don`t have an effective ERP system, you can`t do e-business."
If you don`t have an effective ERP system, you can`t do e-business.Dean Griffin, GM of marketing, SAP Africa
Says Hughes: "A lot of what we do when implementing e-business initiatives involves e-enabling the back-end - such as the ERP system - to create new channels, all of which must also communicate with the existing systems. This is the most powerful part of e-business for me - allowing old technology to talk to new technology and create new business opportunities. Fundamental to the success of this process is ensuring the existing back-end is doing its job properly."
Software Futures, which traditionally developed and delivered business software solutions, has now expanded its offerings to include the implementation of packaged solutions. It`s currently Oracle`s largest local partner in terms of development and integration capacity, and has also teamed with Microsoft Great Plains.
Mayes states that "e-business is a major component of a corporate`s infrastructure, as it holds everything together in much the same way as ERP systems are supposed to. You must wring every ounce of benefit out of your ERP system before you start looking at e-business initiatives."
In his experience, claims Mayes, most SA companies currently fall into two categories. They have either installed an ERP system that hasn`t been able to stay in step with their technology requirements or they have installed a good product but have yet to start using it to its full effectiveness.
As an industry, we`re getting smarter at installing ERP systems.Roger Mayes, sales consulting manager of applications, Oracle
He points out that e-business consists of several components and shouldn`t be viewed as simply access into companies` systems via the Web. "It means self-service for everyone - internal customers, suppliers, business partners and external customers." It also encompasses sharing information and systems, "super" integration of this information and these systems, and the need for a highly effective business intelligence application.
Too many companies, says Mayes, are simply adding customer relationship management and supply chain management modules to their existing ERP installations, developing Web interfaces and assuming they have created an efficient e-business environment.
Simon Griffiths, national marketing and alliances manager at JD Edwards, was a little kinder about the local market`s approach to e-business initiatives. He believes there is already a "very real recognition that before going anywhere near the Web and an e-business strategy, you need to make sure your ERP system is working well".
Get better at installations
His company, he says, is constantly refining its approach to installations to ensure greater benefits for its customers. A major emphasis is already being placed on shortening implementation times through improved project management.
Hughes confirms that Software Futures is also far more focused on project management than ever before. "We begin by focusing on the customer, not the technology, avoiding the whiz-bang stuff and accelerating value by deciding on the immediate priorities and delivering on these as soon as possible."
He says his teams are particularly concerned with managing delivery, saying they understand how vital it is to know not only how close they are to reaching targets but also how far they may be behind. The culture around big projects is also starting to change, with customers now willing to be a lot more pragmatic about what solutions can deliver and what they cannot.
Players in the ERP market require a host of in-house skills - from Cobol through to Web development and including middleware development skills.Derek Hughes, MD, Software Futures
Software Futures has, he claims, responded to this by remaining innovative throughout the course of any particular e-business implementation. "This doesn`t mean chucking everything out and starting from scratch. Rather, it could mean finding a new way to use old technology instead of replacing it."
Mayes says that "as an industry, we`re getting smarter at installing ERP systems," adding that most vendors can now get their products installed quicker and at a lower cost than was previously the case. "There`s a big sense of urgency behind e-business implementations, hence the development by vendors of pre-packaged solutions which go in quicker and add value sooner."
Suffering from skills shortages
All of this, however, demands a complex mix of IT skills. As Hughes points out: "Players in the ERP market require a host of in-house skills - from Cobol through to Web development and including middleware development skills."
According to the BMI-T report, while SA does suffer from a shortage of IT skills and is increasingly losing skills to international firms, the country retains a strong legacy of software development. "Years of isolation have resulted in a very competitive and innovative local software development market," says the report. Nevertheless, it has identified limited resources as a possible inhibitor for ERP vendors.
Some of these vendors responded to the skills shortage by initiating their own training divisions. SAP Africa, for example, has its own training academy.
According to Griffin, there is not "exactly a plethora of people out there who are experts in e-business. But we are and have been training people up so we have built up resources."
In SA, we see that most organisations we deal with are still in the investigation phase, but over the next two to five years we expect it to grow here as well.Simon Griffiths, national marketing and alliances manager, JD Edwards
Griffiths says one of the biggest challenges facing his company during the coming year will be sourcing additional staff.
As to where the new business is coming from in the ERP arena, vendors are in complete agreement that e-business has definitely rejuvenated the industry.
The majority of Oracle`s new clients in the top end of the market are those, says Mayes, either going back to ensure their ERP systems are functioning effectively or those switching from one product to another. In both instances, their actions are being driven by the desire to introduce e-business initiatives. He believes the rush to implement new systems prior to Y2K saw many corporates slapping ERP systems in to survive the turn of the century, rather than taking time out to establish how to maximise the benefits of these systems.
E-business equals revenue
Griffiths says e-business has already turned into a significant revenue stream for vendors in the US. "In SA, we see that most organisations we deal with are still in the investigation phase, but over the next two to five years we expect it to grow here as well."
He says the local ERP market saw "two waves - one pre-Y2K and one post-Y2K. Now companies are looking for help with SCM and CRM".
Griffin at SAP Africa says there was a "huge switch in the market in 2001 as customers began to understand more about e-business and recovered from the dot-com hype.
"We`re seeing an incredible amount of activity in the CRM and SCM areas at the moment. Also generating significant interest are portals and we should start seeing some activity here in the near future."
Griffin says there`s also a big push on the HR side and that this trend is likely to continue for some time. SAP Africa is, he says, drawing new customers from both the top end and the mid-range market.
He believes Y2K slowed the ERP market down considerably as corporates chose not to expand the functionality of their systems but rather to avoid any potential non-compliance issues.
"The first quarter of 2001 was slow, but business picked up rapidly. The slow start may have been attributed to a level of fear, suspicion and concern surrounding the dot-com fallout."
The next chapter
Gartner claimed in October 2000 that "the next chapter in the enterprise resource planning saga is beginning and it is entitled 'ERP II`". This research house says companies began to transform themselves from vertically integrated organisations focused on internal efficiencies into businesses striving to better position themselves in the supply chain and value networks.
Gartner has defined ERP II "as a business strategy and a set of industry-domain specific applications that build customer and shareholder value by enabling and optimising enterprise and inter-enterprise collaborative operational and financial processes", ie what most vendors view as e-business in the ERP arena. It believes that by 2005, the need for enterprises to publish critical information for e-commerce purposes within communities of interest will cause "ERP II to supplant ERP as the primary enabler of internal and inter-enterprise process efficiency".
The next chapter in the enterprise resource planning saga is beginning and it is entitled 'ERP II`.Gartner, ERP is dead - long live ERPII, October 2000
However, says Gartner, caution is in order - the transition to ERP II will challenge the ERP vendors.
Only time will tell whether the vendors are truly up to the challenge. If anything, the advent of e-business in the ERP space will only serve to complicate already often-difficult implementations for local corporates. However, the message from these vendors to new and existing customers venturing into e-business in the ERP market is clear: "Go back to basics, define your requirements carefully and be prepared to accept the limitations posed by your budgets."