There’s something that I’ve been wondering about for awhile now. We all know how incredibly the ERP market has expanded in recent years. There are a number of ERP competitors who have seen themselves grow a hundredfold since their lean years.
The promise of the ERP solution has always been enticing. After all “Enterprise Resource Planning” holds even in its title the promise of something all encompassing. Many ERP vendors promised to deliver all key corporate computing functionality from a single source. If you look back two to three years at ERP marketing campaigns, you’ll find a leaning toward offering everything from the same vendor. For some organizations and some management people, it was the holy grail of computing environments.
If you’ve worked on an ERP solution implementation team, you already know the drive toward keeping the entire solution inside one box as long as is possible.
Ok. It sounds wonderful. So what have I been wondering about? I’ve been thinking, that if the promise of these ERP vendors was to offer “everything” themselves, why have so many ERP vendors created so many alliance partners?
Stop by any of the majors; SAP, BaaN, PeopleSoft, JD Edwards and Oracle and you’ll find a plethora of add-on products, third party solutions, enhanced functionality and more. Some of the solutions you’ll see are already listed in the functionality of the ERP product.
There’s no mystery why these products exist. With the ERP market so dynamic, many firms (my own included) have placed a high priority on creating ERP add-ons. The mystery is why the ERP vendors agreed to assist these firms with marketing by putting them onto websites and listing them in catalogs.
When you think about it for a moment though, the source of the phenomena is obvious. Actually implementing a complete replacement of a corporate computing environment is a stunningly complex project. No matter how elaborate the project schedule, how extensive the planning and preparation, there is simply no way to turn on such an extensive system on a given day and from then on simply operate on the new system. Even in the simplest of implementations, the system must be installed in phases.
With many ERP systems, it is the core financials which are implemented first. This includes the General Ledger, the Accounts Receivable and Accounts Payable. Sometimes there are other essential ledgers which must be established at the same time. The secondary functions such as inventory, manufacturing, project control and other ancillary systems are scheduled for once the essential financials are stable. Tertiary functions are held off until all else is complete.
I’d be fascinated to see statistics on how many organizations who have purchased complete solutions have only completed the core first phase and have now elected to postpone or even cancel subsequent phases.
It makes some sense to figure that this must occur in some firms. The source of many firms wanting to switch to a completely new financial system is routed in the Y2K problem. With massive costs of upgrading systems that had evolved over time, the incentive to switch to something already written is huge. Add to that the “gravy”; the complete solution that was held out by such vendors in taking over everything else and you’ve got a good case for selling some software. The problem has never been in selling the solution, it is in implementing it.
Such systems can only be sold in a centralized manner. After all, they cover so much of the company that only highly placed executives will have the authority to purchase and start implementation of such a system.
Deployment of the core functionality is restricted to the key financial people who were probably involved with the initial evaluation of the system. Once the initial implementation is complete, however, the deployment of the balance becomes much, much more complicated.
Each additional module will have targeted a particular area of functionality. Some of these areas will be restricted to individual departments, others will be broad band. In both cases, many of the people involved with the deployment of these modules will not have been involved in the initial evaluation. Implementing a solution for such a module will require additional effort. It’s like attacking a village; house to house. Even with unlimited resources (and who has those?), all these secondary and tertiary systems cannot be implemented simultaneously. For one thing, some modules depend on the data from others. Much more importantly though, even trying to implement too fast is just too much culture shock for many firms.
It’s no wonder that the further you go from the centerpoint of the system purchase decision, the more likely it is that some departments will be looking for at worst interim solutions and, possibly permanent solutions for their particular function.
Not too surprisingly, as the ERP vendors themselves have had a lot of opportunity to see their original product implemented over time, some of them have found that there are ways of doing business that simply haven’t been allowed for in their system.
Sometimes third party solutions can be found which enhance existing functionality from the original ERP system. Sometimes, a third party tool simply does something more effectively than the internal tool.
Purists may take issue with inviting the consideration of third party tools but I think it’s inevitable. It’s now a given that a phased-in approach to implementation of such a system is more effective than trying to do it in one big bang. If the solution is being implemented module-by-module anyway, why not look for the “best of breed” for each of these modules as it comes time to implement them.
I have no doubt that this ERP “after-market” is not only growing but that it will continue to grow well after the millennium clock has ticked over. ERP vendors and the suppliers of 3rd party tools which are linked to ERP systems have tremendous potential for growth as these “core-financial” installations move into their second and third phases.
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