Gartner touts the ERP II vision

Analyst group Gartner is attempting to redefine the enterprise resource planning (ERP) applications arena – a term it invented in the mid-1990s – and if it is successful, we will soon be talking not about ERP, but about ERP II.

At first sight, this change in nomenclature might sound ‘under-whelming’, but the generational change it heralds is massive. As with the cry “The King is dead, long live the King!” the apparently identical title masks a huge difference.

Gartner has gone to a lot of trouble to define the nature of the difference between ERP and ERP II. But much of what it offers parallels its major exercise in redefinition during 1999, when it argued that ecommerce would be succeeded by c-commerce, with the ‘c’ standing for collaborative.

The basic point is that as companies open their systems up to other companies, be they suppliers or customers, the inward looking nature of core ERP systems, and the ‘one vendor owns everything’ philosophy, breaks down.

Core systems now have to be redefined and extended to embrace the internet, new virtual supply chain models, customer relationship management (CRM) systems and the new business-to-business (B2B) and business-to-consumer (B2C) ecommerce models.

But many people outside of Gartner were saying much the same sort of thing about ERP by the middle of last year more or less unprompted. The whole ERP scene had a decidedly old feel to it.

By the start of 2000, companies were dumping any remaining ERP implementations in favour of a somewhat hysterical stampede to the internet and B2B or B2C. As this might suggest, many new e-ventures had only tenuous links to the back-office fulfilment processes provided by traditional ERP systems.

Horrendous latencies
The results were predictable. E-fulfilment became synonymous with non-fulfilment and companies that should have known better discovered that their existing systems were shot through with some fairly horrendous latencies, making for some very poor customer relationships and a disturbing slippage in brand value.

By mid-2000, many companies, bricks and mortar businesses as well as dotcoms, had come to regret the inevitable gap that opened up between their web-based front-end processes and their back-end systems.

So Gartner’s new vision is an attempt to articulate what ERP has to go through if IT is to fully support the new business models of the 21st century. The change, it argues, will be profound enough for next generation ERP to be worthy of a Mark II stamp.

With ERP II, the role of ERP systems expands, in Gartner’s words, from an attempt to optimise enterprise resources to a focus on “exposing the information involving those resources to other enterprises within a community of interest”.

While ERP began in the worlds of manufacturing and distribution, ERP II involves all business sectors. Moreover – and this is a key point in Gartner’s analysis – “The web-centric, designed-to-integrate architectures of ERP II products are so different from ERP architectures as to eventually require a complete transformation.”

This last point is crucial since it indicates Gartner’s vision that true ERP II systems – which is to say, systems that can properly cater for trading communities rather than for single enterprises – will be a long time coming, and will not properly be in place much before 2004.

As Gartner analyst Nigel Woods notes, this view is predicated on the belief that existing ERP vendors are going to have a hard struggle adapting their systems to conform to the ERP II promise.

User organisations will still want the broad, cross-sector functionality of ERP such as accounting and costing capabilities, but they are going to want much deeper industry-specific functionality.

This means adding sector-specific, fine-grained, front-office capabilities such as CRM and sector-specific applications strengths such as billing for utility companies. But these capabilities will need to be deeply integrated and highly sector-specific.

The natural tendency of ERP vendors such as SAP, Oracle, Peoplesoft and JD Edwards, Gartner claims, will be to build sector-specific business units around targeted industries and industry segments.

To date, user organisations have been prepared to plug the holes in ERP architectures and product offerings with third-party point solutions. But in a true collaborative commerce ‘trading community’ scenario, complete integration, with no barriers to data flows, are fundamental to success.

As a result, Gartner predicts that existing ERP vendors are going to have to make some tough choices to cope with the scale of investment required to attain the high level of sector-specific, fully integrated functionality required.

Doing everything for every sector won’t be feasible, so suppliers will have to decide which industries and segments they are best suited to.

A number of so-called ‘point solution’ vendors are going to find this view hard to swallow, since it seems to leave little place for them in the picture. Yet as Woods points out, an overwhelming differentiator for trading communities will be their ability to deliver on the promise of true collaborative commerce with near zero latency.

Keeping hold of customers
The message will be: give customers what they want, when they want it, not when your processes allow you to finally schedule fulfilment. If customers can buy from anywhere, a company that is able to have a van at the door in an hour will generally win business from a rival that promises delivery in three days.

In Gartner’s view, this kind of zero latency response can only come from deep levels of integration across a trading community. Systems with multiple vendor products cobbled together will develop bottlenecks and break points that will create delays in the fulfilment process.

However, some may argue that a potential flaw in Gartner’s vision is that even in its Mark II incarnation, ERP (and by extension, the lead ERP vendors) keeps its starring role. The focus somehow seems to stay on processes and a generalised view of information flows.

But there is an alternative picture, presented on the one hand by the likes of Siebel on the CRM front, and on the other by the new wave of e-consultancies such as Scient and Razorfish.

This view starts with the customer rather than with the enterprise, and is highly geared to mapping and tracking such customers. In a sense, the ideal enterprise for these vendors is one that can metamorphose and flex with sufficient subtlety to snare the fickle, promiscuous e-shopper.

As Charles Blackburn, a senior consultant with Scient and a former consultant with Arthur Andersen, notes, the e-consultancies working in this space are not hanging about waiting for the development of some ideal ERP Mark II system.

“Solutions in this space are built on the fly by 20 to 30 people, each with deep skills in a particular technology. Where we need core ERP skills, we look to the underlying technology vendors to provide additional consultancy support, but we build the whole of the middle- and front-end customer facing side ourselves,” he said.

“We are still working out with our clients what the underlying rules of the game are – and we are way ahead of the traditional consultancies in this process. We have some great sites and some great learning experiences over the past two years and this is what businesses are looking for now,” he added.

In other words, Blackburn believes that the great e-systems with sophisticated, customer facing capabilities are being built today, and they are not being built by ERP vendors – although their products play a part.

“Everyone in our organisation can see how technology can be deployed down multiple channels and can extend the client’s business in a variety of ways. We all know we are working with massive complexity. The trick is to know what you are capable of delivering and what you need to partner to deliver,” he explained.

The three key disciplines here are CRM, deep technology know-how and business strategy capabilities. Tools are evolving all the time, and whether SAP or Oracle manages to add this or that additional capability to their offering is really just a small part of the game, at least in the Scient vision of the universe.

If they do, fine, if they don’t, too bad. The latency issue will be solved using great middleware and possibly through standards initiatives such as XML.

The c-commerce vision
Phil Robinson, European director at Siebel Systems, takes a similar view. The company has completely bought into the c-commerce vision, and is itself a model case study on how to partner and prosper, he attests. And partnerships with other organisations such as Accenture (formerly Andersen Consulting), Compaq and JD Edwards lie at the heart of Siebel’s success.

Not surprisingly, though, his claims as to where things are going are significantly different in emphasis from Gartner’s. The future is not about ERP Mark II, unless you define it to mean new age CRM. For Siebel, the real differentiator in future – the only differentiator that is really going to matter – will be customer satisfaction.

The internet commoditises everything, Robinson argues. This means that the only thing companies have left to base their brand differentiation on, and to build customer loyalty with, is their ability to generate customer satisfaction.

Of course, traditional back-office ERP systems are important in this process, but the real differentiators are in the front-end personalisation, content management and customer tracking side of an operation.

“You still need to run your back-office systems and processes, but this is just something that everyone has to do. There are natural points of integration between ebusiness and the back office and we work closely with vendors to achieve a tight integration. However, the bleeding edge is not in the ERP camp, it’s with us,” Robinson claims.

It is no accident, he continues, that Siebel is now the fastest growing applications company in history, while the ERP vendors are grinding through a period of zero or negative growth. “We’re bigger than Oracle’s applications division and second only to SAP. Their market is growing at 25 per cent per annum at best, ours is more than double that, and we are doing double the CRM market growth rate,” he attests.

Businesses are not hanging around waiting for ERP vendors to break their gigantic product sets up into components so that they can achieve perfect integration with every new age front-office package on the market, he said. They’re buying applications right now and by 2004, the game will have moved on dramatically. Playing catch-up is going to be extremely difficult.

The response from Gartner’s Nigel Wood is that CRM vendors, including Siebel, need to be careful when they downgrade the importance of ERP vendors in this game. “The bottom line reality check in all this is that CRM vendors need ERP vendors rather more than ERP vendors need any particular CRM vendor,” he said.

CRM, by definition, can only deliver the customer experience, it cannot deliver the goods and transactions that underwrite that relationship.

The second crucial point is that, while CRM applications are hard to write properly, ERP applications are an order of magnitude more difficult to develop. This means that in the medium term – within 12 to 18 months by most people’s reckoning – SAP and Oracle will have very competitive CRM systems.

No CRM vendor, on the other hand, is anywhere near beginning to crack the task of writing their own ERP suite.

“The principle for ERP II is that it is a back-office kernel that all the other products bolt onto. So it may not matter whether SAP manages to develop its own front end or not, or whether it partners with Clarify or Siebel. At bottom, they will always need each other, and the future is between these two groups working together,” Wood concluded.

Related reading

HMRC banknotes