The future of ERP: Why the 'big ERP' approach is dead

The traditional big ERP paradigm has reached its end. Instead, expect ERP systems to become modular, distributed, and a lot more nimble as they break apart

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Jim McGeever, the CFO of NetSuite, pays homage to Google for sticking to its uncomplicated homepage when the search world was morphing into portals in the late 1990s. Google's success is, in part, a validation that easy to use, intuitive Web apps are critical to the future of ERP, McGeever contends. NetSuite's "anytime, anywhere access" mantra is the manifestation of the 11-year-old vendor's strategy that embraces UI simplification.

By the end of 2009, Gartner forecasts that global SaaS revenue will reach $7.5 billion, which is an 18 percent increase from 2008 revenue of $6.4 billion. For SaaS ERP apps, in particular, Gartner projected a small increase in worldwide revenues: from $1.17 billion to $1.24 billion in 2009. "Adoption of the on-demand deployment model has continued to grow as on-demand vendors have extended their services through alliances, partner offerings, and more recently, by offering and promoting user application development through platform as a service capabilities," noted Sharon Mertz, research director at Gartner, in a report. "Although usage and adoption is still evolving, deployment of SaaS still varies between the enterprise application markets and within specific market segments because of buyer demand and applicability of the solution." Looking out even farther, Gartner predicts that the SaaS market will show consistent growth through 2013 when global SaaS revenue will total more than $14 billion for the enterprise software markets.

SaaS vendors have had to fight the niche product label from the get-go; AMR's Richardson says the perception is that "SaaS guys continue to nibble at the edges." It's likely that they will have to wage even more fierce battles in the future, according to data from market researcher Saugatuck Technology. Despite continued and sizable investments in SaaS development and adoption around the world, SaaS "will not become the primary IT standard and practice by year-end 2012," notes the report, "An Endless Cycle of Innovation." Instead, notes the report, SaaS will be viewed primarily as an important "agent of change" through this period. Two years from then, in 2014, is when Saugatuck predicts big change: "SaaS will become integral to infrastructure, business systems, operations and development within all aspects of user firms, with variations in status and roles based on region and business culture."

The research houses are equally bullish on cloud computing's future: David Cappuccio, Gartner's chief of research for the infrastructure teams, ranked it as one of the top trends affecting companies' technology use during the next five years. IDC's cloud services revenue forecast jumps from $17.4 billion in 2009 to $44.2 billion in 2013.

All projections and speculation are subject to change without notice, of course, but once loyal on-premise companies get a taste of SaaS and cloud-based services, they typically come back for seconds, however small a bite it may seem to the big ERP vendors, analysts say. NetSuite's McGeever boasts that the vendor "gets more incremental revenue from selling to our installed base than we do from new business." (See "5 Questions with NetSuite's CFO.")

Converts are proclaiming their newfound faith more and more. Todd Pierce, CIO of Genentech, a $13 billion biotech company, among other initiatives, purchased a Google Apps suite for 18,000 accounts and has moved ERP functionality to iPhone apps. In an interview with Abbie Lundberg (a former CIO magazine editor-in-chief), Pierce offers a convincing overview of the huge savings, benefits and "revolutionary" usability factors that Genentech has experienced by moving enterprise software apps to Web-based and cloud computing software-delivery models.

"There are many things happening here that are good for users, good for the IT profession, good for business. It's just good, good, good," Pierce says. "You know, what's slowing this adoption are all the priests of the past -- all the preservationists. All the interests that are built up around the edifice that is enterprise software. ... Cloud computing is a dream come true."

Got data? Making sense of it all

Since the dawn of automated, electronic capture of corporate financial, operations, supply chain, HR and sales information data -- what's become, more or less, ERP -- companies have cumulatively spent billions, if not trillions, on managing and trying to extract value from their vast data repositories.

Accenture's Jim Hayes, the global managing director of its Oracle practice, says companies know what they want to do -- they see the value of business intelligence and analytics output for their users -- but they've often been stymied. "We know how to do transaction processing. We know how to close the books, capture orders, do pricing, allocate stock and support business with ERP," he says. "But the real promise was: How could we take this data and turn it into information? A lot of clients were asking about how we could help them unleash the value of that data. And then the [economic] meltdown happened. All of the sudden, there was a dramatic shift to: cost reduction." And many of those "unleashing the value" projects, he adds, have been put on hold.

Enterprises today are deluged with terabytes of data: their own internal data; customer and partner data; as well as new "unstructured" data flows -- from Internet-based social networks and mobile devices. But guess what? We ain't seen nothin' yet. During the next five years, Gartner predicts that the amount of enterprise data will grow by a jaw-dropping 650 percent. And the vast majority of that data will be unstructured, meaning not included or tied to any particular database, Gartner points out. This head-scratching growth, noted David Cappuccio, Gartner's chief of research for the infrastructure teams, "is going to cost us dearly if we don't pay attention."

Philip Say, vice president for SAP Business Suite, says that this area is, in fact, "one of the most exciting areas of innovation" going on at the company. "The depth, the volume, the detailed sophistication of all the data being generated -- from enterprise systems, e-mail and other corporate systems -- it's as if we're reaching a point where it's almost unmanageable for the end user and there's no question for the enterprise," Say adds. "As we look to the future, this is one of the more vibrant areas SAP is investing in."

Say points to the acquisition of Business Objects and those analytics applications, tools and developers working on solving this challenge. He also notes SAP's new in-memory tools and techniques that aim to manage huge chunks of enterprise data in fast, intuitive and easier ways than in the past. "This is ushering in a new definition of what we mean by ERP," Say adds.

But all of this unstructured data could also be a huge opportunity for other, non-traditional ERP players to move into the market. For example, the unstructured data market is virtually owned and operated by Google. What about a Google play in the business applications space? At the Gartner IT Symposium 2009, CEO Eric Schmidt made no secret of the fact that Google has designs on the enterprise market space. Schmidt thought that the enterprise business for Google can be a multibillion dollar one -- terming it "humongous." The 11-year-old company has its sights set on Microsoft; it has recently made its hosted Google Apps suite more enticing to large government users by announcing plans to tailor its cloud computing services for various federal agencies, according to a Computerworld.com article. Google Wave has taken dead aim at the collaborative apps space (hello, Microsoft Sharepoint), and Android is going after the mobile space by extending the enterprise into portable devices. Still, for many CIOs, at least now, Microsoft is the devil you know, rather than the one you don't.

Jon Reed, an independent analyst, SAP Mentor, and blogger at JonERP.com, has trouble envisioning Google building an ERP suite or acquiring an ERP company -- "that's extreme," he says. However, "if a Google type of company can present a way of pulling together all this unstructured information in a cloud-based environment, and then somehow connect that to a structured platform -- uniting the unstructured and structured information -- then that's a big, big thing," Reed says. "Think how pathetic these big companies are right now. They have no visibility into that."

Adds Accenture's Hayes: "We will we look back five years from now, and realize that the unstructured data [issue] was another disruptive force that will have to be reckoned with."

The future of the supervendors

Behold the supervendors! It sounds like something out of a Transformers movie -- there's OptimusOracle, IBM-Bot, MicroScream and MegaSAP. (Don't ask whose "side" they're on.)

High-tech juggernauts Microsoft, IBM, SAP, Oracle, and HP (collectively known as "MISOH") have reshaped the enterprise software industry with bold, strategic, and expensive acquisitions that have led to massive consolidation. As a Forrester Research figure shows, in the ERP space, SAP and Oracle outpace the other vendors.

Oracle, in particular, has never shied away from making a splashy purchase (leading one financial industry observer to call Oracle the New York Yankees of the enterprise software industry). With $8.8 billion in cash on hand and "good deals" still to be had, one can expect Larry Ellison & Co. to make more shrewd acquisitions.

Forrester principal analyst Paul Hamerman, in the report "The State Of ERP 2009: Market Forces Drive Specialization, Consolidation and Innovation" (subscription required), is confident the consolidation trend will continue for Oracle and its peers. Here's why: To boost recurring revenues (from new customers and maintenance fee streams); to eliminate the competition (see Oracle's hostile PeopleSoft acquisition); to establish a presence in new markets (to get into new industries, vertical plays, customer segments or geographies); to complement platforms and services (in which IBM would buy ERP applications); and to find "technology gems" (that is, "undercapitalized software firms with valuable intellectual property"), Hamerman writes.

Are there still enough enterprise software firms out there to acquire? While the number has dwindled since the turn of the millennium, there are still more than a dozen targets available.

Acquisitions aside, how will the cadre of ERP vendors approach the future? Like those robots in the Transformer movies, the MISOH cartel, and other traditional ERP entities will have to change their "shapes," and alter their strategies to stay with the times (and already have, to some degree). That means embracing -- rather than resisting -- on-demand and SaaS-based computing software-delivery models. And you can bet you'll be seeing fewer and fewer "cloud computing" rants from big ERP execs, like this one that Oracle's Ellison gave in fall 2009.

For example, in an odd 2008 interview with ZDNet, Lawson Software CEO Harry Debes proclaimed that the SaaS industry would "collapse" in two years. In the interview, Debes also noted that Lawson was a happy Salesforce.com user. In fall 2009, during an interview with CIO.com, Debes stands by his comments, saying that the feedback from Lawson's customers at the time, which was that they did not want a SaaS solution, "was compelling." That's changed. And today, Debes says, "I'm a very big fan of cloud computing," though his on-premise business still has a bright future, he contends.

Industry leaders SAP and Oracle are feeling the heat -- from NetSuite, Workday, Salesforce.com and other vendors offering solid alternatives. SAP's on-demand Business ByDesign mid-market offering has, for all its technological promise, been a bit of an enigma. SAP stumbled out of the gate, at least from a marketing perspective -- execs either overpromised and underdelivered or did a poor job of managing customers and partner outsized expectations: limiting the service to a relative few of its customers. That said, SAP has added new features and enhancements (integrating tools from its Business Objects acquisition, for instance). If all goes according to plan, 2010 will be the coming-out party for Business ByDesign.

For Oracle, its next-generation Fusion Applications Suite is either going to be a competitive game-changer or a money pit for its customers. But again, like Business ByDesign, questions still surround Fusion Apps as we enter into 2010. According to a recent report by 451 Group analyst China Martens, those include: How will Oracle price Fusion Apps licenses? Oracle has said the apps will be "SaaS-ready," but what does that actually mean? How will the Sun Microsystems acquisition impact Fusion Apps? And what will happen to Oracle's existing customers who choose not to go the Fusion Apps route? (Oracle declined numerous requests for an interview about the future of Oracle's ERP offerings.)

"Each time Oracle or SAP talks about their SaaS ERP endeavors, it's as though they're putting a little more meat on the bones of their projects," writes Martens in her November report on SAP and Oracle. "There's plenty more fleshing out to do before it's possible to judge whether we're looking at swans or turkeys."

As the decade wound down, many vendors finally uncovered their ears to hear what their customers were actually saying. But there's another, more powerful set of masters to serve: shareholders. As such, the future of ERP will be dictated not only by customer wants and needs but also vendors' ability to satisfy shareholders, grow margins and pay dividends. It's not personal, after all. It's just business.

CIOs: Bringeth the ERP analytics!

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