By Adrian Mello
People often view the large enterprise resource planning (ERP) software vendors as slow-moving behemoths—too dense to grasp the implications of the Internet and e-business and too rigid to adapt to the new realities.
Although the big ERP vendors (which include SAP, Oracle, PeopleSoft, and perhaps, J.D. Edwards) may be slower than smaller, newer enterprise software vendors such as E.piphany, Alventive, FreeMarkets, Plumtree, and SeeCommerce, it's wrong to think that the big guys have missed the significance of e-business.
These big vendors have all moved beyond the traditional confines of ERP to offer a broad range of e-business applications, including those for business intelligence, customer relationship management, e-markets, portals, and supply chain management. Because they are adapting slowly—but surely—to the technologies made possible by the Internet, it's likely these vendors will become an increasingly important resource for enterprises that are expanding their e-business operations.
A recent Morgan Stanley survey of CIOs indicates that despite overall reductions in IT spending, large enterprises continue to place ERP software in the top five IT spending categories. Giga Information Group recently forecast that software license fees for core ERP applications, such as financials, human resources, and manufacturing, will grow from $4.3 billion in 2002 to $5.4 billion through 2006. Giga also forecasts that license revenues for expanded ERP applications will increase 9.3 percent through 2006 vs. an increase of 4.8 percent for traditional ERP applications, and that by 2005, the newer applications will represent more than half of the license revenues of the big ERP vendors.
Legacy rap against ERP
One of the biggest criticisms of ERP vendors is that integrating their software is difficult and expensive. This is certainly a valid criticism, but there's no practical alternative. Deploying a patchwork of "best-of-breed" applications usually creates even greater integration problems than dealing with the integration headaches posed by big ERP packages. And although the big ERP vendors are gradually embracing Web services standards as a way to integrate such a broad collection of applications—just as they adopted component-based software architectures in the 1990s, such as COM (Component Object Model), CORBA (Common Object Request Broker Architecture), and JavaBeans—Web services technology doesn't standardize the content of business processes, which is vital for performing real work within and across enterprises.
The difficulty of software integration is actually the best argument for standardizing on one or two large software vendors. The big ERP vendors may not offer so-called "best of breed" e-business applications in most categories, but what they do offer is likely to work reasonably well with their core back-office applications. Furthermore, the big vendors will continue to upgrade and support these applications long after some smaller companies—due to mergers, acquisitions, or business failures—disappear from the scene.
That's not to say that enterprise customers shouldn't consider those smaller ERP vendors or smaller vendors that offer specialized applications. In some markets and circumstances, these vendors are a good fit for some enterprises or specific divisions within an enterprise. Even if a large enterprise has standardized on a couple of big ERP vendors, it may still have reason to turn to a limited number of smaller software vendors for highly focused tasks. The trick is judging when any vendor's products and services provide the best overall fit with enterprise business objectives.
According to Giga Information Group Vice President Byron Miller, enterprise customers, making a strong push to reduce the number of vendors they rely upon, are paying more attention to big vendors that offer e-business applications in categories that were once only served by small, pioneering technology vendors. Miller says that the number of vendors should depend on how fundamentally diverse a company is across its different divisions. "Where the company is extremely homogeneous…standardizing on a reduced number of vendors makes a lot of sense. Where a company is very diverse, there is a case for having multiple vendors," he said. "However, there is seldom a case for dealing with multiple vendors when different parts of the same company are using the same process."
Although enterprise customers need to be aware of the weaknesses of working with the big ERP packages, dismissing them out of hand is imprudent. Despite their flaws, the big ERP vendors are still the best available alternative for the majority of large enterprises. That's why they are likely to play an increasingly important role in e-business software for years to come.