This gives you time – at least a tad more time than the competition – to start refining and redefining what is going on. This in turn helps you to re-stake your claim to thought leadership in the industry, leaving rival analysts seething in your wake.
This is the game that analyst Gartner has been quietly engaged in for some months now. In October it broke cover and unveiled its new Big Idea to the world at a series of US seminars aimed at redefining the Enterprise Requirement Planning arena – a term it invented in the mid-’90s. November will see Gartner rolling out the European phase of this campaign. 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 underwhelming. However, the generational change it heralds is massive. As with the cry, “The King is dead, long live the King!” the apparent identity in terms conceals a huge difference.
Gartner has gone to a lot of trouble to define the nature of the difference between ERP and ERP II. Much of what it offers on this account parallels Gartner’s major redefinition exercise of 1999, where it argued that e-commerce will be succeeded by c-commerce, with the “c” standing for “collaborative”.
The basic point is that as companies open up their systems 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 impact of the Internet, the new virtual supply chain models, customer relationship management (CRM) and the new business to business and business to consumer models.
By the middle of last year, of course, many people outside Gartner were saying much this sort of thing about ERP more or less unprompted. The whole ERP scene had a decidedly aged feel to it. By the start of 2000 companies were dumping any remaining ERP implementations in favour of a somewhat hysterical stampede to the Net and B2B or B2C. As this might suggest, many new e-ventures were only tenuously linked to the back-office fulfilment processes provided by traditional ERP systems.
The results were predictable. E-fulfilment became synonymous with non-fulfilment and companies who 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 disturbing slippage in brand values.
By mid-2000 many companies, bricks and mortar businesses as well as dotcoms, had come to regret the inevitable gap this opened up between their web-based front end processes and their back end systems. Gartner’s new vision is an attempt to articulate what ERP has to go through in order for IT 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.
In ERP II, the role of ERP systems expands, in Gartner’s words, from an effort to optimise enterprise resources, to focus instead on “exposing the information involving those resources to other enterprises within a community of interest”. Where ERP began in 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 speaks to 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 be properly 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 the point that ERP II requires.
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 Customer Relationship Management (CRM) and sector specific applications strengths (such as billing for utility companies). But these capabilities will have to be deeply integrated as well as highly sector specific.
The natural course for ERP vendors like SAP, Oracle, Peoplesoft and JD Edwards, Gartner claims, is that they will tend to move 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.
However, in a true collaborative commerce “trading community” scenario, complete integration, with no barriers to data flows are fundamental to success.
As Gartner sees – that existing ERP vendors are going to face some tough choices facing up to the scale of the investment that is going to be required to attain the high level of sector specific, fully integrated functionality.
Doing everything in every sector won’t be feasible, so the vendors are going to 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 in true collaborative commerce will be a trading community’s ability to deliver on its promises with near zero latency. The message will be: give the customer 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 can have a van at the door in an hour will generally win business from one that promises delivery in three days. In Gartner’s view, this kind of zero latency response can only come from deep integration across a trading community. Systems with multiple vendor products cobbled together will develop bottlenecks and break points which will generate delays in the fulfilment process.
A potential flaw in Gartner’s vision, however, some may argue, is that even in its Mark II incarnation, ERP (and by extension, the lead ERP vendors) retains the starring role. The focus somehow seems to stay on processes and a generalised view of information flows. 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 like Scient and Razorfish, talks a different language.
This view starts with the customer, rather than with the enterprise, and is highly geared to mapping and tracking the customer. In a sense, the ideal enterprise for these vendors is one that can morph 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. “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. 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 says.
In other words, in this view, the great e-solutions with sophisticated, customer facing capabilities are being built today, and they are not being built by ERP vendors – though 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 says.
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, 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 like XML.
Phil Robinson, European director for Siebel, takes a similar view. Siebel entirely buys the c-commerce vision, and is itself a model case study on how to partner and prosper, he says. Partnerships with other organisations like Andersen Consulting, Compaq and JD Edwards lie at the heart of Siebel’s success. Not surprisingly, though, the spin he puts on where things are going is significantly different in emphasis from Gartner’s vision. The future is not about ERP Mark II, unless you define ERP II 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, he argues. All companies have left to base brand differentiation on and to build customer loyalty 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 things. “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 e-business 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,” he says.
It is no accident, he points out, 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 annum at best, ours is more than double that, and we are doing double the CRM market growth rate.”
Business is not hanging around waiting for ERP vendors to componentise their gigantic product sets so that they can achieve perfect integration with every new age front office package on the market, he says. They’re buying solutions 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 says.
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 originate. 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. However, no CRM vendor 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,” he concludes.
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