With a chequered history, stagnant sales and one of the mostturning to the mid-market to maintain some sort of consistency in sales. And they're relying on the guiding hand of the channel to point the way. unprepossessing three-letter acronyms in the business, enterprise resource planning (ERP), which brings all business functions under one roof (see box, page 59), seems to be in a bad way.
A survey last year by the Standish Group in the US found that only 26 per cent of ERP projects were unreserved successes. Forty-six per cent were challenged - completed late and over budget - while 28 per cent were outright failures.
Even the vendors admit ERP hasn't always delivered the goods. Richard Horsman, UK sales director at ERP vendor Baan, says: 'People associate ERP with high costs and long implementation times - they don't associate it with value. They associate supply chain optimisation and customer relationship management with high value and regard ERP as a necessary evil.'
Sales growth has faltered for ERP vendors, as Nigel Wood, research director at Gartner Group, explains: 'Year 2000 and the euro have pulled forward a lot of developments and frozen acquisitions. Since the last quarter of 1998, we have seen the bottom fall out of the main players' licence sales.'
If the problems continue in the long term, the damage to vendors' reputations could be serious. 'People tend to buy from vendors in which they have long-term confidence,' says Trevor Salomon, UK marketing director at vendor JD Edwards. 'If a vendor isn't making money and is perceived as going backwards, people won't buy from it.'
Not surprisingly, therefore, vendors have been scrabbling for ways to broaden their reach and enhance their appeal. One solution, suggests Horsman, is to extend ERP beyond its traditional roles of accounting, manufacturing and human resources to functions such as supply chain automation and customer relationship management (CRM). They mark the beginning of integration between data-crunching back office functions and front office functions that support competitive advantage - for example, by linking call centre agents, roving salespeople and customer support engineers directly into core stock, accounting and planning systems.
Another way for embattled vendors to expand is to appeal to medium-sized businesses - those with a few hundred staff and turnover measured in tens of millions, many of which have outgrown the small business software on which they were originally based. Many have turned to ERP after year 2000 appraisals, having found they have five or six disparate systems - many or all of which need upgrading - and decided to replace them with an integrated system.
The key vendors have little or no experience of selling to SMEs and many SMEs wouldn't want to buy directly from them, preferring a one-stop system from a reseller. So, four of the five top-selling ERP vendors - SAP, Baan, JD Edwards and Oracle - have set up indirect salesforces. Only PeopleSoft sells exclusively via a direct salesforce, but 85 per cent of its implementations are handled by third parties.
'The channel has a much better knowledge of how to sell in the SME market than the ERP vendors,' says Neil Thubron, general manager of the JD Edwards division at reseller Catalyst Solutions. 'Some companies would much rather be a big fish in a business partner's small sea than a tiddler in JD Edwards' large ocean.'
Catalyst has had a good response to ERP, from existing customers and other SMEs. Thubron has found that selling a ERP product is no different from selling the functional elements from which it is made up - accounting, manufacturing, human resources - and margins are healthy.
Vendors partition the market by company size. The direct salesforce takes the larger customers and resellers the smaller ones. Oracle marks the cut-off point for resellers at up to £200 million turnover, JD Edwards at up to £150 million and SAP at up to £150 million or 1,000 staff - so customers that fulfil either criterion are the reseller's patch.
Oracle and SAP have a dozen resellers each, mostly large Vars or niche market specialists. JD Edwards, which established its channel in February, has so far recruited half a dozen. Baan has more and ultimately aims to generate half its revenue through resellers.
Most vendors envisage good prospects for their channels. Andy Menzies, divisional sales manager for Vars at SAP, says: 'We increased channel business last year by 300 per cent. There will be huge opportunities out there this year, especially in the fourth quarter.'
Conventional ERP implementations cost upwards of £100,000, with 15 per cent annual maintenance contracts on top, so if ERP is to appeal to SMEs, it needs to be cheaper and simpler. One answer could be hosted services, which failed to catch on in the US. Earlier this year, SAP signed an agreement allowing BT to sell hosted R/3 systems under the BT Business Manager brand name. These would be predominantly for companies with less than 10 users, who would dial into a BT server to access their data.
Packaged implementations are also appearing. Earlier this month, Catalyst launched Fiscal Express - consisting of the accounting and address book functions of JD Edwards, plus hardware, installation and consultancy - for less than £100,000, targeted at firms in the £5 million to £50 million bracket. Customers could stick to the accounting functions or add other JD Edwards modules later.
Mindful of their reputation for being over-time and over-budget, vendors have taken steps to simplify and speed up implementation for customers of all sizes. Baan has automation tools and templates that claim to handle up to 80 per cent of implementation tasks. SAP has methodologies with samples of project plans, meeting agendas, presentations and user manuals, and Oracle claims its Fast Forward programme can implement complete systems in less than 11 weeks.
Full-scale ERP implementations generally take between six and nine months.
Even though many are finished late and some are dropped, project management is becoming easier. Vendors are more experienced and customers are more realistic, prepared to meet the software halfway rather than expecting it to fit their existing ways of working.
Laurent Lachal, senior analyst at research firm Ovum, says: 'Some users are never satisfied and receive huge implementation bills. If they accept the way the system does things, they tend to get return on investment (ROI) much more quickly and they often find the software's way of doing things isn't so bad after all.'
Indeed, the vendors claim their working methods are examples of best practice and can be quite shirty when customers fail to acknowledge it.
'My pre-sales staff get frustrated when customers say, this is how we do things and we want to keep it that way,' says Salomon. 'But most people are open-minded and quite flexible. They want ROI and know they won't get it merely by automating today's processes.'
A couple of years ago, ERP was under threat from best-of-breed suppliers, which caricatured vendors as jacks of all-trades. But the improving quality of modules - many of which qualify as best-of-breed in their own right - combined with the difficulties of integrating best-of-breed systems from disparate manufacturers, have ensured that the vendors have won, at least for the time being. 'The market has voted with its wallet for integrated software,' says Lachal.
The prognosis is a lot healthier than the past few months might suggest.
'I don't think we'll see the super-heated growth of 1997 and 1998 again,' says Wood. 'But sales will start up again in the second half of 2000, with an upswing in enquiries late this year.'
LOOKING AT THE WHOLE PICTURE
End-to-end ERP systems are usually found in large manufacturers, but partial implementations can turn up anywhere. Local government and financial services companies were late starters, but now only central government remains to be won over.
The function sets offered by key ERP vendors, either within their core products or via partners, are increasingly similar. Many individual modules can legitimately claim to be best-of-breed, such as SAP's accounting or PeopleSoft's human resources.
ERP has essential value over the basic data processing functions of the MRP (materials resource planning) systems that preceded it, particularly because it gives an integral picture of the whole organisation. 'You can extract key management information from your transactional systems,' says Dave Anderson, applications director at Oracle UK.
Moreover, the information is likely to be consistent because it all comes from the same data set, and up to date because it is drawn in real-time from the organisation's live systems. Used properly, it should give managers a much better view of the end-to-end processes within businesses, plus the ability to answer multi-disciplinary questions and drill down to look at the detail whenever required. With a good ERP system, there really is nowhere to hide.
ERP can also benefit junior staff, giving them a wider perspective by letting them view the processes either side of their own narrow job functions and even empowering them by driving responsibility down the organisational chain. 'There is no reason why every employee couldn't use some part of an ERP system,' says Peter Robertshaw, UK product manager at SAP.
As ERP is extended to include supply chain automation, the same benefits will accrue to entire value chains, because trading partners can review stock availability or product information on each others' systems. 'It really does break down the old divisions of businesses,' says Nigel Wood, research director at Gartner Research.
ERP - IT'S GOT POTENTIAL
The idea of enterprise resource planning (ERP) is to bring together as many business functions as possible under one virtual roof. Peter Robertshaw, UK product marketing manager at SAP, explains: 'Rather than the stove pipe approach, where there is separate information for each part of the business, you share the same processes and information, while information flows automatically through the system.'
Enterprise resource can cover more or less anything, from stock, raw materials and machinery to people, money and intellectual capital. The potential is almost limitless, but most systems focus on the core functions performed by all or most businesses. These include:
- Accounting, including ledgers, order processing and invoicing
- Human resources, including manpower scheduling and payroll
- Manufacturing, including materials resource planning and process control
- Logistics, including stock control, warehousing, distribution and procurement
- Strategic and tactical planning, including optimisation.
Functions are being added all the time, including:
- Supply chain automation
- Customer relationship management
- Call centre and sales force automation
- Business intelligence, including knowledge management, data warehousing, strategic enterprise management and enterprise performance management.
A full ERP implementation can support the end-to-end processes of a business, from procuring raw materials, manufacturing the product, storage and delivery, to taking the orders and receiving the money, interfacing with suppliers and customers, supporting staff and allocating manpower.
Most ERP systems are modular. They allow customers to buy or use one function first and then bolt on or activate others as their needs change or they become more confident with the software. Many customers begin with accounting functions, although manufacturing and human resources are also popular for first implementations.
THE BIG FIVE
Hundreds of vendors claim to offer ERP in the UK alone, but the lion's share of the market belongs to five vendors - SAP, Baan, JD Edwards, Oracle and PeopleSoft, colloquially known as JBOPS.
SAP: Based in Germany, SAP is the market leader and is credited with inventing ERP as it evolved from older MRP and MRP II systems. SAP's ERP product is now in its third incarnation - hence its name, R/3 - and it is one of the most all-embracing in terms of function. SAP has recently expanded R/3 to include supply chain management, customer relationship management (CRM), e-commerce and business intelligence.
SAP has a reputation for reliability, tempered by inflexibility. Unusually, it sells the whole package rather than individual modules, although unwanted functions can be deactivated. 'It's no good saying the strength of our product is the flow of information, if you discover halfway through the project that you wish it flowed on a bit further,' says Peter Robertshaw, UK product marketing manager at SAP.
JD Edwards: The US vendor is at the opposite end of the spectrum, with a heritage in AS/400 - not mainframes - and it tries to provide the backbone of a corporate system rather than the whole skeleton. JD Edwards' modern, object-oriented OneWorld software is considered promising but unproven.
OneWorld's key attribute is flexibility, after installation as well as during development.
'It is designed to be changed on the fly by the people who run and use it,' says Trevor Salomon, UK marketing director at JD Edwards.
Baan: Another German vendor, Baan had a torrid time last year, due to a combination of over-ambitious acquisitions and unfocused management. However, it appears to have resolved its main problems and is clawing its way back into the market. Baan's latest initiative, the Baan Enterprise Software Agreement (BESA), is a subscription service designed to iron out fluctuations in the cost of ERP ownership.
The Baan series of products offers all the basic functions and is branching out. 'We've suggested that ERP becomes the backbone for a supply chain and enterprise management system and we've added a significant number of components for supply chain optimisation, CRM and so on,' says Richard Horsman, UK sales director at Baan.
Oracle: The last company to join the JBOPS quintet. Oracle's Applications suite, now at release 11, includes all the main functions and has integrated back and front office functions to enable functions such as CRM. The architecture relies more on customers with a suitably modern infrastructure.
A key aspect of release 11 is the introduction of 'self-service' applications, such as the maintenance of human resources records, allowing staff to input data directly into the system. The vendor's Fast Forward programme sells shrink-wrapped products for smaller businesses that can be implemented in less than three months.
PeopleSoft: After starting life selling personnel software, PeopleSoft remains one of the world's leading human resources system vendors and its accounting functions are also strong. More recent additions include manufacturing and supply chain modules, and the vendor has invested in decision support functions such as enterprise performance management and balanced scorecard.
Despite its human resources heritage, PeopleSoft is the most ordinary of the JBOPS group of five. The vendor used to be criticised for its support, but this side of the business appears to have improved.
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