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There is dynamic tension between an organization’s ERP backbone and best-in-class applications in the overall portfolio. Organizations should evaluate (at least once a year) whether to replace best-in-class applications with similar ERP modules (or, more rarely, the converse).
META Trend: During 2004/05, post-“go live” ERP organizations will focus on total cost of ownership, value delivery, usability, continuous business improvement, and targeted extensions (e.g., supplier relationship management, channel management). ERP vendors will offer enhanced post-implementation services to maturing ERP customers. During 2004-07, ERP vendors will redouble their efforts to penetrate the midmarket, competing more aggressively with Microsoft and a shrinking set of small ERP vendors. By 2007, ERP vendors will embrace Web services to support inter-enterprise integration.
We have fielded numerous inquiries that take the following approach: “We have established an enterprise ERP backbone (e.g., SAP, Oracle, PeopleSoft) and have elected to install best-in-class software in one or more key areas (e.g., CRM, enterprise asset management, property and real estate management). We are not unhappy with our best-in-class application, but we believe that our ERP vendor is now more competent in this area. Should we shut down our current best-in-class application and install the ERP component?”
Through 2006, ERP vendors will opportunistically attack (and sometimes overtake) best-in-class vendors in numerous key areas (e.g., campaign management, recruiting), either by using brute force or by acquiring smaller vendors. Nonetheless, best-in-class vendors will continue to differentiate themselves, particularly by vertical excellence. By 2007, as application portfolio management becomes a mature discipline, organizations will have a more straightforward approach for an ERP versus a best-in-class analysis based on horizontal capability, vertical functionality, and underlying technology.
The analysis around swapping out best-in-class applications should consider the following dimensions.
“If It Ain’t Broke, Don’t Fix It”
The first thing to do is to survey the user base. Who is using the application? For what part of each day is the application being used? What value is being derived from the application? Does the application provide the key functions required? Has the vendor been responsive in terms of meeting the future requirements of the organization? If there is a satisfied user base deriving value from this best-in-class application, the organization must give strong consideration to leaving the application in place:
Cost implication: If the application is to be replaced, there will be significant costs for change management and the retraining of business users. Moreover, there will also be a disruption in the business benefits delivered through the application, which must be calculated. For example, an organization swapping out its real estate management program might lose track of three leases that it wished not to renew.
Who Is Asking?
In the “best” scenario, the request comes from the users themselves. Obviously, such cases need to be taken the most seriously. In other cases, the request may be ERP-centric (e.g., “We have spent all this money on ERP. Why do we keep all these other applications around?”). This is, in fact, a legitimate question and should lead to derivative analysis. The above notwithstanding, much like corporate legacy keepers, end users will demand that all existing functionality be duplicated in the ERP module, and then some.
What Does the ERP Module Do?
Here, the organization must do a straight-up comparison between the two products. What is the difference between horizontal and vertical functionality? The ERP module must be at least 80 per cent as functional as the best-in-class application. If that hurdle is met, then customizations will be required to meet the current functionality of the best-in-class application. The exercise must focus not only on business processes, but also on reporting and analysis, data captured and aggregated, and key performance indicators.
Maintaining the Application An examination must be made as to what it costs to maintain the existing application (and a similar estimate must be made around the ERP module). How many full-time equivalents are required to support the application? How much maintenance is paid to the vendor?
Computing the Savings/Costs for an ERP Swap
If we swap out the best-in-class application, there are some clear opportunities for cost savings:
– Real-time integration: Organizations must analyze the current approach for real-time integration between the best-in-class application and the ERP application. For example, if there are five integration points between the two applications, then this could easily lead to US$100K in cost/year in terms of maintenance.
– Business intelligence: The ERP vendor may have an advantage in terms of reporting and analysis. If the data is stored in the ERP transaction system, the ERP vendor often has the capability to drive that data into operational data stores, data warehouses, and application-specific cubes. However, the best-in-class vendor is likely to have this problem solved locally, and the overall power of the respective analytics solutions must be considered. Moreover, many clients maintain both an ERP-centered data warehouse and a custom data warehouse. Viewing the data from this specific application, the question must be asked as to whether that data is more likely to be co-mingled with the ERP data warehouse or the custom data warehouse.
– Underlying architecture: Most often, fewer is better. An analysis must be made of key technology components, including application servers, underlying languages, portals, user-interface generation, and workflow. Clearly, all these technical components must be supported by an application center-of-excellence staff, and two architectures are more burdensome. The above notwithstanding, the analysis must also compare the degree to which each application supports continuous business improvement. Often, application agility will be a point in favor of the best-in-class application.
– Upgrades: Upgrades are expensive and may represent a point in favor of the ERP solution. However, from users’ points of view, the key question is whether they can get their new features into production as quickly as they wish. User departments must take a reasoned approach (e.g., they will rarely get the same service they had with the independent software users), but the question is one of how much the difference is likely to be.
Bottom Line: Functioning best-in-class applications are often best left alone unless a compelling business case can be made for swapping over to a very competitive ERP product.
Business Impact: An annual review of existing best-in-class versus similar ERP modules will help organizations ensure that their portfolios are delivering high value at manageable costs.