Software Magazine - It's Still About the Process

Think ERP was the answer to cleaning up processes in the back office? Think again.

"There's the myth that the ERP projects undertaken over the past few years have truly solved end-to-end enterprise integration," says Andrew Goloboy, research manager at International Data Corp. (IDC), Framingham, Mass. "In fact, there's still a whole lot of opportunity to sell software out there."

This need—and opportunity—is driving the market for enterprise resource management (ERM), which goes beyond ERP. Providers of traditional suite-based enterprise packages are expanding the functionality of their applications to encompass accounting, human resource management, materials management, project management, and maintenance management, as well as traditional ERP functions.

According to Spex Enterprise Software, a Reston, Va.-based IT market research company, "Today's ERM offerings have an expanded range of functionality that better responds to the needs of global user organizations, covering multiple industry-specific requirements or applications. And yet, every package differs in its functional coverage, geographic coverage, technical architecture, agility, and so on."

ERM is an evolving market, and one that Boston-based Aberdeen Group calls "one of the strongest growth markets in the technology sector today." In a recent report, IDC predicted that ERM vendors would see worldwide revenues in their market grow to $24.8 billion by 2004. Starting from revenues of $14.5 billion in 1999, that's a compound annual growth rate of 11.4%. Other analysts expect the growth rate to exceed 20%.

In addition to addressing back-office processes, another factor driving the growth of ERM is the need to "Webify" the back office. "It's about bringing functionality out to casual users, whether they're employees, customers, or suppliers," says Goloboy. "There's still a lot of back-office integration and processing necessary to support those kinds of Internet-oriented, extended-user-base solutions that also drive adoption within the company."

The rapid creation of smaller companies, driven by the Internet economy, will continue to drive the growth of ERM revenues, Goloboy says. "The multitude of new Internet companies involved in business-to-business and business-to-consumer sales has heated up demand for sophisticated new order fulfillment software," he says. "Customers have little tolerance for delays and mistakes."

You Say ERP, They Say ERM...

Changes among products and feature offerings in this market have generated some conflicting definitions of ERM. IDC's definition includes products that offer accounting, materials management, maintenance management, and project management functionality—but not manufacturing or vertical, industry-specific, suite-based applications. (The IDC statistics cited above apply to vendors whose products fit this definition.) But according to the Aberdeen Group: "For an ERM application to be complete, it must integrate customer relationship management (CRM), HR, supply chain management, and ERP systems to enable knowledge and information sharing among enterprise constituents."

Stamford, Conn.-based META Group's preferred definition of ERM holds that: "'ERP' understates the operational content (e.g., financials, order management) of the enterprise-focused applications that track, report, and predict the resource needs of the enterprise. Therefore, ERM equals enterprise resource operations plus enterprise resource planning."

Gartner Group, also based in Stamford, Conn., tends to use "ERP/ERM," seemingly to cover all the bases; many people use the two terms interchangeably. Forrester Research, Cambridge, Mass., uses "eRM" to refer to "electronic Relationship Management," which that organization defines as a "Web-centric approach to synchronizing customer relationships across communication channels, business functions, and audiences."

This article uses ERM to encompass a broad spectrum of applications that manage the resources of an enterprise.

The Internet represents the next major technology enabler that allows rapid supply chain management between multiple operations and trading partners.

The Next Enabler: The Internet

The origins of ERM go back to the 1960s, when vendors began offering manufacturers customized software packages based on traditional inventory concepts. By the 1970s the focus had shifted to material requirements planning (MRP) systems. These systems, explains S. Shankarnarayanan, senior consultant with Baan Infosystems, India, translated the Master Schedule built for the end items into time-phased net requirements for the subassemblies, components, and raw materials planning and procurement.

In the 1980s, MRP-II (manufacturing resources planning) replaced MRP. MRP-II essentially extended MRP to the shop floor and distribution management activities. The early 1990s saw MRP-II expanded to cover things like engineering, finance, human resources, and project management. This drive to encompass all activities within the enterprise eventually morphed into ERP (a term coined by Gartner).

The Internet represents the next major technology enabler that allows rapid supply chain management between multiple operations and trading partners. Most ERP vendors are Internet-enabling their products so that customers worldwide can have direct access to their suppliers' ERP systems. ERP systems are building in workflow management functionality, which provides a mechanism to manage and control the flow of work by monitoring logistic aspects like workload, capacity, throughput times, work queue lengths, and processing times.

ERM applications are designed to replicate business processes (recording a sale, for example, or verifying hourly workers' paychecks) in software, to guide the employees responsible for those processes through them step by step, and to automate as many procedures as possible.

ERM software communicates across enterprise functions. With an ERP system, the financial software can cut an accounts payable check as soon as the loading dock clerk confirms that the goods have been received in inventory. Similarly, the accounts receivable module can generate an invoice as soon as the shipping clerk says the finished goods are on the truck to the customer. All this is done with a minimum of human intervention and paperwork.

Complicated Choices

Current ERM packages offer multiple functions, including proprietary modules as well as third-party options and tools (particularly in niches such as warehouse management, sales force automation, finite capacity planning, cash management, and even HR).

But finding the ERM product that best suits a particular organization's needs is more complicated than just picking through a list of the top players. It can be an extremely time-consuming and difficult process. These applications function as the backbone of an organization's information system, and implementing them can be a massive and potentially costly undertaking.

In his paper, "ERP Systems—Evolution," Baan's Shankarnarayanan advises those deliberating an ERM/ERP implementation to consider carefully the following points while evaluating the software:

Functional fit with the company's business processes.
Degree of integration between the components of the ERP system.
Flexibility and scalability.
Complexity and user friendliness.
Quick implementation and shortened ROI period.
Ability to support multisite planning and control.
Technology, such as client/server capabilities, database independence, and security.
Availability of regular upgrades.
Amount of customization required.
Local support infrastructure.
Availability of reference sites.
Total costs, including cost of license, training, implementation, maintenance, customization, and hardware requirements.

This last point is very important. In addition to the costs of the software itself, there are consulting expenses, process rework, integration testing, and a long list of other expenses an organization must incur. In a recent META Group study, Enterprise Application Ongoing Support Costs Unveiled, researchers tracked ongoing support costs for ERM initiatives. The study found that, although application-related costs such as licenses and configuration constitute the majority of ERM implementation costs, infrastructure represents the majority of ongoing support costs.

"Many companies are caught in a vicious cycle—not tracking ongoing ERM ongoing costs, and then being surprised by its impact on corporate financials," says Eran Grumberg, director of META Group's Enterprise Packages practice. "Organizations that do not carefully track these ongoing costs sacrifice a significant opportunity to manage and improve them in a disciplined fashion."

It's not uncommon for ERP projects to take a year or more to complete, and the impact of these complex software packages will be felt throughout the enterprise, crossing the boundaries of departments, from finance to manufacturing to human resources.

The Human Factor

Implementing an ERM package involves technical and organizational issues, but also human and political ones. It's easy to overlook the nontechnical side. But poorly defined business processes and rushed deadlines can thwart an ERM implementation. Ill-defined business procedures will result in constant changes to the ERM system during and after implementation; chances are the software will not be able to keep up with those changes. And rushed deadlines are all but out of the question. ERM applications are collaborative systems, and they demand forethought and planning. Experts say two to four months at the drawing board is not unheard of.

Failure to get upper management on board, project teams that don't understand the company and its business requirements, and communication breakdowns are examples of human-factor missteps that can sabotage an ERM project. And because these things take so long to implement, momentum, not to mention enthusiasm, can flag.

"Most ERM implementation problems happen not because the software didn't work," says IDC's Goloboy, "but because the human factor was not figured in."

John K. Waters has been covering the technology beat from Silicon Valley for more than a decade. His work has appeared in a wide range of publications, from Java Report to the San Francisco Examiner. E-mail him at john@watersworks.com.