SOA and web services revitalise best-of-breed apps

ERP vendors were expected to clean up niche suppliers but business and technology change is revitalising the specialists

If there was any question about whether the ERP market was in turmoil, the recent shakeup in senior management at ERP stalwart SAP that pushed out rising star Shai Agassi should have answered it.

If you recall, Agassi was denied a job as co-CEO after SAP chairman Hasso Plattner asked current CEO Henning Kagermann to retain his position until 2009 instead of leaving the job this year. According to reports, Plattner wanted Kagermann’s hand on the wheel as SAP readied the launch of new products in the coming year.

That didn’t sit well with Agassi, the mastermind of SAP’s NetWeaver and OnDemand offerings, who was recognised as a visionary thinker willing to embrace technologies such as SOA and web services.

The shakeup at usually sedate SAP underscored the frayed nerves in the corporate boardroom of many leading ERP vendors, as technologies such as SOA and web services enable enterprises to turn to smaller vendors and service providers who can deliver applications that meet their demands for speed, flexibility, and low overhead.

Remembering the good ol’ days

It wasn’t always so. Back in the early to mid-90s, ERP was all the rage and there was little choice or debate about how to spend millions of dollars to implement applications such as SAP’s R 3 ERP system. Soon, companies were swapping war stories about the complexity and disruption of ERP implementations and wearing their tribulations like a badge of honour. Why? Because ERP was worth it, the thinking went. And implementing it meant your company was not only on the cutting edge, but it had the competitive edge over its rivals.

Today that kind of thinking is out of step with the market, which is all about the add-on applications companies are willing to deploy to augment ERP. In response to that shift, Oracle has been buying up everything in sight to expand its core. SAP, meanwhile, has a two-fold strategy: products such as Duet, in partnership with Microsoft, and its governance, risk and compliance solutions — one of SAP’s top new money-makers — extend the core while its A1 (All-in-One) solution for the midmarket expands its base. It is probably fair to say that ERP software is racing to stay ahead of the commoditisation of its basic functionality, with additional pressure coming from companies such as NetSuite and its hosted solution, as well as from open source and on-demand.

“ERP is no longer strategic,” says Josh Greenbaum, principle at Enterprise Applications Consulting.

In fact, just as Oracle and SAP are trying to convince customers they have what customers need, word on the street is that ERP is nearing its limits in terms of the overall value it can bring to customers by itself. To stay competitive and to adapt to changing business conditions, companies are looking to plug in highly tailored, best-of-breed solutions, according to Vance Checketts, vice president of Global Supply Management Research at the Aberdeen Group.

Stack attack

The superior functionality and evolving technical capabilities — especially in integration — that best-of-breed applications now boast takes the main argument of single stack vendors such as Oracle and SAP off the table, Checketts says. And the claim that integrating and supporting a whole other technology stack is too difficult and expensive if you go the best-of-breed route is very much at odds with the reality of SOAs and the web services that these new applications are built on, he adds.

But Philip Say, vice president of ERP Solution Marketing at SAP, says that, despite the hype around SOA and web services, not that much has changed. If a company wants to do more advanced processes, they need to build on a solid foundation.

“The smart companies are asking themselves, ‘Do I want to build this on a fragmented environment that is unstable, that could break, or a tightly integrated set of systems that is proven and has a history in terms of performance?’” Say asks.

But the argument in favour of SOA and web services is not lost on Shai Agassi, who up until March was the de facto spokesman for technology policy at SAP and a force behind the changes that have taken place at that company, before the leadership shakeup mentioned above forced him to leave.

“My view is that with the service enablement, as we have performed through the introduction of Enterprise SOA at SAP, ERP, in combination with a middleware platform like NetWeaver, becomes the next enterprise platform. In a sense, this combo ‘ERP Platform’ [called Applistructure or BPP by the analysts] becomes the enterprise equivalent to Windows for the back-end processes,” Agassi said in an email response.

Strategy and the stack

But platform is only one of the issues that threaten ERP’s continuing relevance today. The other is the question of who gets to supply the enterprise with the next round of strategic applications.

According to Checketts and Greenbaum, line-of-business executives in mission-critical areas like supply chain, spend management, procurement and retail believe the disparity in capabilities between what an ERP vendor can offer and what a best-of-breed vendor can offer is large and the ROI big enough that it makes sense to buy best-of-breed. For example, ERP applications don’t do well with applications related to the procurement of complex services that rely on sophisticated requirements that resist easy cataloguing, Checketts says. Smaller vendors that really understand their space, however, can address such challenges using SOA to build certified applications that integrate with SAP, Checketts says.

Core strengthening or brain surgery?

E2Open is one example. The best-of-breed supply chain management company offers a SaaS-based extended supply chain, inter-company solution that Oracle and SAP don’t handle as well, Greenbaum adds.

Fundamentally, ERP and the back office focus on core data objects that, over time, they perfected. Human Resources has as its core data object the employee record. ERP itself has the bill of materials. Finance has the general ledger.

There are a lot of core data elements, however, that have never been automated, Greenbaum says. If you are a big box retailer or a Starbucks and your business depends on growing the number of retail outlets, then the retail contract for the lease and lease management turns out to be a key strategic object.

“Nothing in the ERP system touches that,” Greenbaum says.

But Agassi sees a danger in going off the reservation. “Core processes require a certain semantic consistency that is certified by a vendor and compliant with authorities. You do not want your general ledger going out of whack just because you connected a web service the wrong way to a process that was assembled from multivendor pieces.

“Think of the set of core processes and the master data they require as the part of the brain that takes care of the involuntary actions of our body — like breathing and digesting. You do it, but you don’t think about it, and you definitely don’t want anything messing around with that part of the brain.”

And Agassi may have an ally among one of the largest enterprises in the world.

Raymond Repic, chief technical architect for Coca-Cola Enterprises (CCE), understands the move to best-of-breed on a number of levels. Repic notes that disparate application integration used to translate into expensive propositions but that options now exist to help ease this pain. The other driver for best-of-breed is increased competition.

“The overall numbers may be moving towards best-of-breed as more and more enterprises depend on more and more enabling technologies to differentiate in their markets or support internal growth initiatives,” Repic says.

For companies that don’t require bleeding edge technologies to support required business operations, though, the trusted partner model may be preferred. In this model an enterprise selects a small handful of technology companies to become business partners for IT solution enablement. When they have a new business need that comes up, they first talk with those partners on how to provide for the need. If that partner can provide for “mandatory requirements”, then they would look to proceed with their partner, assuming financials are all in alignment, according to Repic. “I don’t envision CCE moving away from its ERP decisions any time soon.”

Timeliness next to godliness

There is also the issue of timeliness that also haunts ERP: companies don’t want to wait a year or 18 months for SAP or Oracle to catch up with what the best-of-breed applications vendors can offer now — especially with integration getting easier thanks to SOAs and even SaaS, Checketts notes.

And if buying into a best of breed isn’t difficult, big ERP’s argument that a company is better off with a single code base from a single vendor gets harder to swallow.

In the domain of spend management, Rick Collison, director of solutions at Ariba, says that timeliness was a key issue for his company, which has to make sure that its customers can deliver savings every quarter, every year. “The technology has to keep up with that kind of cadence,” Collison says.

And SaaS vendors like Salesforce.com are doing a lot more today than just offering software revisions four times a year. For example, Salesforce is inviting customer feedback in a collaborative, social networking environment called AppSpace.

Companies can communicate directly with business partners, customers and with Salesforce.com, which is using AppSpace to take suggestions from customers and incorporating those suggestions in the very next release — a capability ERP vendors are unlikely to have any time soon.

ERP ROI...RIP

All of this is changing the way line-of-business executives look at the ROI of traditional ERP solutions and the best-of-breed competitors. In spend management and procurement, for example, Checketts says ROI can be as high as 600%.

“If you have a CPO [chief procurement officer] who can save 600% with a best-of-breed application, then if it costs US$2.5 million (NZ$3.36 million) to run the operation it’s a good return,” Checketts says.

The problem ERP vendors are facing today is one of relevance in a rapidly changing environment where flexibility and speed have almost as much value as stability and depth. On top of that, point solutions have a better integration story with SOAs and XML interfaces. Although it is also true that many companies don’t have that infrastructure yet, the consensus is getting broader.

No longer the must-have partners for enterprises, ERP vendors cannot afford even the appearance of being any less relevant than they were in the ‘90s, not with SaaS vendors and best-of-breed vendors chipping away at what Agassi calls ERP’s original strengths: transparency, compliance and global scale.

What is driving the enterprise today, Agassi admits, is a new set of values: consolidation, networked value chains, and increased speed of process change. Just about everyone can agree on those goals. The only question is how you get there.

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