ERP: Should You Stick with a Best-of-Class Software Strategy?

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Big ERP wants in on the IBM Power Systems; does best-of-class still have the edge?

 

In today's fast-moving business environment, organizations need to stay more agile than ever. Government regulation, competitive challenges, and consumer demands are changing at an unprecedented rate, forcing organizations to change along with them. Meanwhile, CIOs are under tremendous pressure to rein in expenses while increasing performance.

 

For IT staff in charge of IBM Power Systems, balancing those priorities means keeping critical business systems, like financials, up to date without disrupting legacy operational applications that have supported the business for years. For example, financial software must keep in step with new regulations, adjust to structural changes in the company, and, most importantly, serve as the company's primary reporting engine. The economic crisis has forced many CFOs to respond to an influx of requests for reporting and profitability analysis while cutting their accounting staffs—no easy task when they are also grappling with obsolete financial software. But updating legacy applications poses its own set of challenges, especially in the mixed-application environments typically found on Power Systems, which run everything from green-screen applications to Java-based Web applications under i, AIX, or Linux.

 

No surprise, then, that confronted with this unruly mix of applications, some IT professionals have been tempted by ERP suites like Oracle or SAP. ERP promises common user interfaces, end-to-end application suites on one platform, and, above all, native integration between applications. It's the default option for many industries on many platforms. But does it deliver the best value?

Historical Context

Vendors began offering integrated ERP suites in the early 1990s as a way to bring order to the fragmented world of enterprise software, with its confusing array of vendors, acronyms, and competing technologies and its lack of easy integration between systems. ERP promised to address the needs of finance, human resources, customer relations, supply chain, and warehouse management simultaneously.

 

It was—and is—an attractive idea. But in practice, ERP required teams of pricey consultants and substantial coding projects for even minor changes. On top of that, ERP vendors charged expensive ongoing maintenance fees, which substantially increased the total cost of ownership (TCO).

 

Meanwhile, the emergence of XML, Web standards, and other data exchange technologies greatly improved communication between best-of-class applications, reducing or even eliminating the problems that ERP was designed to address.

Best of Class on Power Systems

Fortunately, companies running IBM's Power Systems are relatively well-positioned to cope with change. The platform's unusual ability to handle a mix of operating systems and databases provides a real advantage in today's volatile business environment, allowing organizations to focus on applications rather than the underlying platform. Hence, many have built large catalogs of custom applications for their core business processes. In many ways, IBM Power Systems users have embraced a best-of-class approach from the start, buying or building a variety of applications and running them all on one integrated computing environment. That tendency has only been strengthened by the Power Systems' ability to manage Web services with tools like WebSphere. Now, even green-screen applications written in COBOL or RPG can be securely and easily interconnected with newer financial applications using Web services, with all of them still running on one box.

Is Best of Class Still Right for You?

So how can you tell if you're better off sticking with a best-of-class application? If you answer "yes" to any of the following questions, there is an excellent chance best-of-class is still the best option.

 

Do You Run a Mixed Operating Environment?

 

As an IT manager, one of your most important considerations is whether new software will integrate with your core and/or legacy applications, which could be running under different operating systems. Almost by definition, an ERP suite is less likely than best-of-class software to interconnect easily and affordably with third-party applications running in different operating environments. ERP systems come with their own platform architectures and specialized tool sets and tend to take over an IT environment.

 

The strength of ERP is the inward-facing integration on one platform; however, that strength can become a limitation if you are just trying to install a few modules into your mixed environment. By contrast, best-of-class applications, with their focus on communication and configurability, are designed to work with other applications (they have to). And since they are usually application-centric as opposed to platform-centric, they tend to put ongoing changes in the hands of their users. That means organizations can more easily connect different types of software together and keep their consulting bills down while keeping their core operational system in place.

 

Do You Frequently Need to Modify Your Business Systems?

 

Operational change is inevitable. It's just a question of how often you encounter it. Many IT decision-makers understand the up-front costs of buying and implementing ERP, but few consider the resources necessary to ensure the ERP system can change along with their business. ERP modifications often need to be made at the code, application toolset, or database level, making maintenance a costly proposition.

 

CFO Research recently commissioned a study, "The High Cost of Change for ERP: What Does It Cost to Keep Up to Date?", which found that most organizations spend on average more than $1.2 million per year just to manage, update, and maintain their system, factoring in consulting, maintenance, upgrades, and licensing costs.

 

Do You Have a Low Tolerance for Business Disruption?

 

In December 2009, IDC surveyed 214 business executives from a variety of organizations and industries. The resulting white paper, "Modifying and Maintaining ERP Systems: The High Cost of Business Disruption," measures the business downtime, or disruption, caused by interruptions due to routine modifications or system adjustments to ERP systems. The disruptions ultimately cost the surveyed businesses between $10 million and $500 million due to delays in product launches, mergers and acquisitions, and other activities. Respondents to the IDC survey noted other key results of business disruption, including stock declines, customer satisfaction erosion, and lost revenue. More change-friendly systems reduce downtime, minimizing business disruption and making it easier to main a solid bottom line.

 

Are You Competing in a Fast-Changing Business Environment?

 

For more and more companies, the answer to this question is "yes." Consider how many mergers and acquisitions your company has undergone in the past three years, how many new lines of business it has developed, and how many new products it has released. Does your current system support these strategic, enterprise-wide changes? Do you need to rely on outside consultants to adapt your systems for new day-to-day transactions? One of the chief advantages of best-of-class software is its ability to adjust to business change.

 

If your business changes all the time, the most important metric to measure might be the "total cost to change," or TCC. The cost of change can dwarf the cost of software, hardware, and maintenance as the IDC and CFO studies indicate. Whether you choose ERP or go the best-of-class route, you need to know what it will truly cost you over time.

 

Do Home-Grown Applications Give You Your Competitive Advantage?

 

Consider whether your organization has developed its own core business systems. For example, healthcare or logistics companies often create their own mission-critical software for core operations. In that case, a complex ERP installation could complicate your business practices, while a best-of-class tool with a focused set of functions could make a better fit.

 

Do You Need Top-Notch Financial Software?

 

The economic crisis has put intense pressure on companies' finance departments. Financial users are trying to respond to increased demands with outdated, inferior financial software in many cases and have come to realize they need top-notch financial application functionality. Functionality in ERP packages often lags behind that of best-of-class software, since the domain expertise and R&D investment in ERP suites is spread across a wide variety of applications and technology. Because of their focus and adaptability, best-of-class packages typically provide superior functionality in their area of specialization.

Final Thoughts

Change is a constant in every modern organization, regardless of industry, size, location, or public/private status. Despite its long lineage, the IBM Power Systems platform has an almost uncanny ability to accommodate new breeds of software, integrated in new ways. The latest generation of best-of-class software takes full advantage of the Power Systems platform's flexibility, making a "clean slate" move to ERP unnecessary for most Power Systems users. While ERP platforms provide value for many large organizations, they also present serious obstacles to change—exactly what Power Systems excels at. For users and companies who meet the criteria detailed above, the best-of-class model is usually the better option, delivering the highest return on investment in systems, processes, and people.

 

 

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