ERP Vendors Caught in Web of Their Own Making - Industry Trend or Event

Computer Technology Review, Oct, 1999 by Joshua Piven

If the Web is the most significant empowerment tool for the ISV since, well ever, then for the big ERP vendors, it's been something rather less than a walk in the park. Of all the applications the Web has plastered with browser-based, Internet-enabled interfaces, ERP software--traditionally incredibly expensive, highly customized, and shackled tightly to particular applications--has bucked the trend.

Recently, however, there have been signs--and lots of whispers--that ERP vendors are finally beginning to embrace the Web in their business technology models and software development strategies. And, of course, they can't afford not to: upstarts like Netscape and Yahoo! are seeking to expand their portal services to corporate clients, linking the Web to in-house apps--and in the process unseating established ERP vendors too slow to catch the Web wave.

ERP Evolution

In order to understand the problems and possibilities of so called ERP portals, it helps to understand how ERP software has evolved. In its earliest incarnations, ERP applications were used mostly in vertical markets--primarily manufacturing--to better integrate the needs of the supply house with those of the front office. The idea was to create an overarching view of company resources: supply, demand, replenishment/resupply schedules, price fluctuations, and so on, and integrate these with purchasing and inventory management. Think of it as a manufacturing implementation of the direct PC (or, for that matter, the direct bookseller) model: if you can keep just the materials you need on hand, you can reduce time to market, react quickly to market fluctuations, and reduce storage and inventory management costs.

In the '80s, ERP companies began to recognize the potential of their own products. If software could connect inventory and purchasing to the front office, couldn't it also integrate business-critical systems such as payroll, accounting, HR, sales, and distribution? In fact, it was this integration that allowed big companies like SAP to make huge profits by streamlining business processes for enterprise customers, giving them unprecedented control and management of their resources. The expense, of course, was enormous: thousands or tens of thousands of seats; well-entrenched legacy (especially mainframe) applications; mixed platforms, and vertical markets meant huge investments were necessary to keep systems up and running. In order to stay on top of market changes--and technology innovations--regular upgrades were necessary.

Now fast forward to the '90s. The Web arrives and applications and business processes are suddenly all about connectivity and integration. Want to connect the front office with purchasing? Use an intranet. Want to connect sales and distribution? Connect that database to the Internet. Want applications to share data across the enterprise? Use HTML and a browser interface. Of course, this is a bit of an oversimplification: not all systems can instantly--or inexpensively--be migrated to IP and HTML. But the possibilities for the enterprise are incredibly appealing. What better way to provide resource planning than by unifying reporting and management tools under the HTTP flag?

This is the conundrum that ERP vendors are facing today. Most spent huge sums in the late '80s and early '90s to adapt their products to client/server platforms--only to see c/s take a backseat to Web server/client browser architectures. Throw in such recent developments as e-commerce, Web-based distribution, and extranets and you have both huge opportunity and huge risk for ERP software providers. Bringing the Web into the enterprise can be a complex process: new HTML-based applications and IP-based communication mean a paradigm shift for large enterprise customers, many of whom have relied on proprietary business tools; therein lies the opportunity. But the elegant simplicity of IP means that companies can more easily connect, integrate, and manage their applications in-house--or at least contract management to a VAR or integrator with the expertise; therein lies the risk.

And, of course, there is another problem: Internet time. Traditional ERP tools are not exactly known for their speed in adapting to change: large deployments take years and require teams of in-house application experts and vendor-supplied manpower. Such expenditures of time and personnel are not conducive to the rapidly changing world of Internet technology, where product lifecycles can be measured in months.

Web-Enabled ERP Apps

The final straw for ERP vendors probably came when they began to see their customers Web-enabling their applications in-house, or using integrators to do so: creating forms, scripts, and database connectivity to allow employees and business partners to access and manage data. Another problem has been scalability. Companies like Baan, PeopleSoft, and SAP have had difficulty scaling their enterprise-based frameworks to smaller components that can be used by mid-size companies with more limited resources. In addition, the Y2K crunch has limited investment in ERP infrastructure upgrades, at least until after the new year.