ERP: paradigm shift in a box

ERP: paradigm shift in a box


ERP is increasingly representing an opportunity for Australian integrators and enterprise resellers. Lisa Terry investigates.

The breeze that just whooshed past your ears came from the pendulum swinging away from best-of-breed niche software and moving toward enterprise-wide integrated systems. This transition is transforming some of the tools, skills, and business models that went along with the best-of-breed approach - and opening up new opportunities for integrators.

Chief among these reborn practices is business-process re-engineering (BPR), that often lengthy, white-board-focused exercise that to many has been synonymous with downsizing. As Mark Twain can relate, reports of its demise are definitely premature.

BPR, now known in some circles as BPI (business-process improvement), is alive and well and living in an enterprise resource planning (ERP) implementation near you. It has been wrested from the hands of the fast-talking consultants who simultaneously helped create and nearly destroy it.

Packaged ERP short-circuited the old way of doing BPR. Customers once hired high-priced consultants to help define current practices, design new ones, and then find an integrator with best-of-breed software to put it all in code. Now it's the integrators that are selling customers on the benefits of adopting the best practices incorporated into ERP packages.

Changing business models

The fusion of BPR and application development is reflected in the changing business models of countless SIs - to the tune of millions of dollars in new business. Whether they're hiring people with business-consulting skills or retooling their own staff as BPR experts, many integrators are chasing a slice of the fattening ERP market. And why shouldn't they?

With packaged ERP, integrators can do more business in less time, increase billable hours, keep a handle on their own costs, and effectively strengthen and better estimate customer ROI.

Integrators realised that "process re-engineering and implementation can be combined, which dramatically shortens the steps, gets a much better match at the end, and gets benefits faster," says Jim Shepherd, vice president for research with AMR Research.

Integrator sales opportunities in the white-hot ERP space remain vast. "Less than 20 per cent of potential companies worldwide are in the process or have already done ERP," says Shepherd. Research firm Gartner Group values the enterprise services market at a whopping $US19 billion, with a healthy 24 to 25 per cent annual growth rate.

What's behind the growth? On the technology side, many customers turn to ERP to fix existing Y2K problems or to replace aging legacy systems. On the business side, management is always in need of not just more but better information and greater control over internal operations. The ultimate goal: to cut costs while improving customer service and satisfaction.

So who's most likely to come looking for ERP? Researcher IDC projects the biggest growth will be in the midmarket - that is, firms reporting annual revenue of $US20 to $250 million. Manufacturing industries such as electronics, automotive, industrial equipment, chemicals, and pharmaceuticals already have been active in ERP, Shepherd reports. Newcomers include aerospace, defence, food, consumer-packaged goods, public utilities, government, and retail.

One of the biggest challenges in selling packaged ERP is convincing customers to adapt their businesses to the best practices articulated in the software. But most customers find that the trade-offs they make are worth it.

Not everyone who buys an ERP system is looking for a complete overhaul, though. That's fine with most integrators, since the groundwork they lay can expand easily into other parts of the business later on.

In most ERP implementations, package-enabled BPR represents the first step, accounting for one-quarter to one-third of total project time. As integrator and client define current practices, they can use ERP tools to document workflow on-screen.

Compare plans

The team can then compare plans to ERP models and templates for the appropriate industries and build prototype processes to test and then modify. The end result is a set of processes that can be automatically incorporated into code and form a blueprint for implementation and training.

That approach also helps settle the non-technical organisational issues up-front.

What's more, speedier BPR means more accurate BPR because the business situation hasn't changed before the job is finished. And by getting the client into the implementation early, people get excited and involved, which helps with buy in and rollout.

Whenever a mini-industry springs up around a new product or trend, it usually creates plenty of room for specialisation. ERP is no exception. Many integrators have struck gold helping customers pick the right ERP package - but they pass when it comes to the actual implementation work.

Sometimes clients develop ERP ROI expectations on their own while justifying the capital expense. But often they need help fine-tuning these goals and determining how to measure the results.

However, some integrators report that this type of opportunity is fading.

"We encourage our clients to not do lengthy, expensive package comparisons, because the packages are robust and can satisfy the back-office functions," says Jane Vaughan, managing partner and global director, SAP services, for Ernst & Young International. "The market is a lot smarter about which packages make the most sense, particularly in certain industries."

For integrators focusing on implemen-tation, there are plenty of ways to make money.

Some of the services include data conversion, integrating other applications with ERP software, and post-sales support and maintenance.

Successful ERP implementers tend to excel in three areas: BPR knowledge, ERP knowledge, and specific vertical-industry knowledge. Technical knowledge, particularly of client/server systems, works as the basic ticket for admission.

Some integrators even do a little best-practices packaging of their own by creating unique ERP implementation methodologies. Some SIs report that this move provides the competitive advantage, that the wrong methodology can break a rollout, and that customers consider methodology in integrator selection. Other SIs insist that methodologies are an important but internal concern.

Another trend playing out in the ERP space is the rise of risk-sharing contracts, which are displacing the traditional time-and-materials job.

Many integrators have yet to embrace this risky approach, however.

ERP sales cycles vary from several weeks for a well-prepared buyer to years for the risk-averse, integrators report. An average project's duration is three to six months.

Integrators say that once they are combined, ERP and the new processes it produces attain almost immediate ROI - and it continues into the future. Inventory, procurement, and supply-chain processes often experience the most dramatic impact.

The 10 Commandments of successful ERP

Many of these rules are nothing new, but the frequency with which people break them might surprise you.

1. Ensure enthusiastic top-level support.

2. Commit the proper resources - involving both integrator and client - and appoint consultants whose personalities, skills, and talents complement those of team members.

3. Engage user departments, not MIS, as the driving force.

4. Take the client team off-site to eliminate distractions.

5. Empower the steering committee to remove obstacles.

6. Maintain strong project-management and communication skills.

7. Foster creativity and openness to change.

8. Keep the project within its original scope.

9. Train, train, train.

10. Measure results and conduct regular post implementation reviews.

ERP spending doesn't end at application rolloutby Robert L ScheierInformation technology managers are fooling themselves if they think the spending stops when they finally roll out a major enterprise resource planning (ERP) application.

That's the opinion of Gartner Group analyst Bruce Bond, who told attendees at Gartner's Symposium/ITxpo '98 that ERP customers should plan on spending 15 per cent of the project's original implementation cost every year to keep their ERP systems up to date. That means keeping up with current releases of the software as well as moving along with changing business conditions.

"ERP is a fundamental piece of business infrastructure," Bond said. "Be prepared to fund its maintenance."

Too many customers disband their ERP implementation teams quickly, relieved that a multiyear, multimillion-dollar ERP rollout has ended, Bond said. Not only does that raise the risk that these employees will take their ERP experience to a competitor, he said, but it also makes it harder for companies to make ongoing changes needed to get the full benefit of the ERP software.

Bond also said ERP vendors and customers are mistaken if they think an ERP application such as SAP AG's R/3 can become the backbone of a company's IT architecture.

For example, he said, ERP applications lack the configuration tools that would allow customers to easily roll out ERP upgrades worldwide and simultaneously maintain country-specific configurations tailored to local markets.

Bond also said that today's ERP tools are limited by the scalability and flexibility of the databases on which they run. ERP software will eventually become much more powerful and flexible, he predicted, but only when its "database-centric" design is replaced by a messaging-based design that allows data and updates to be easily replicated among multiple databases.

Avoid bad-karma clients

When a client is close to signing a contract, everyone's an optimist. But do yourself a favour and pay attention to the warning signs of ill-fated deals:

Corporate cultures that resist change or allow individuals to reverse decisionsClients who are not forthright in initial meetings or who say "we'll be nice after vendor selection"Projects that don't involve the VP of operations or financeClients seeking shortcuts, andClients intending to manage projects themselves.

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