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Leaving Well Enough Alone: Criteria for Sticking with your ERP vendor or Going BoB

Dr. Katherine JonesResearch Director

Empowering the EnterpriseAberdeenGroup

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Agenda

The technical, competitive and economic

ramifications of: • integrating disparate software point solutions

• purchasing the majority of business software from a suite

provider

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What constitutes competitive advantage?

Is there a competitive advantage in being an adopter of single-function software, or does the cost of implementation and integration outweigh the short-term effect of the software as a critical business differentiator?

Will a business suffer more from not having this software immediately than if it waits until an enterprise vendor makes it available?

The decision to adopt “Best of Breed” point solutions versus focusing IT investment resources on an integrated product suite from a single vendor is one of the most strategic decisions facing an enterprise.

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The Cost of Integration

The percentage of enterprise IT budget

committed to application integration is

on average 40% — and may rise to as

much as 70% in certain situations

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HistoryThe rise of the ERP suites: early 1990s, largely

triumphed over point or stand-alone solutions.

New e-business application vendors emerged in

the late 1990s with single-function solutions, re-

creating the moniker “Best of Breed.” • Examples: Ariba and Commerce One in

e-procurement, Broadvision and Siebel Systems in CRM, i2

and Manugistics in SCM

• “First to market” advantage

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The Decision-Maker’s Dilemma

• Integrate these new stand-alone

applications

or

• Wait for (and trust) the already

integrated equivalent in their vendor’s

infrastructure solutions

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The Toss-up: Strategic vs. Tactical? Strategic:

• Total Business Process Reengineering (BPR) = tremendous challenge

Tactical

• A point solution — perhaps a more controllable project — is perceived to increase short-term realization of benefits and decrease risk

• Late ’90s perception of immediate need for competitive advantage

• Fast ROI, seeking dramatic results in a short time frame — with complete implementation measured in months, not years

• This perception was driven by fear — specifically, a belief that new economy Darwinism would ensue if they were too slow to react

In fact, it may lead to a protracted return on investment (ROI)

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The Fiscal Concerns in Evaluating the Integration of Multiple Applications

Initial product purchase and implementation

Integration of the application with one or more other application across the enterprise

Ongoing upkeep of the points of integration and data fields as the products change over time

Issues of timing: In a multi-application environment, new releases and patches appear sporadically, adversely affecting the ability to plan upgrades strategically

Cost of user training and retraining on multiple interfaces

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The Solutions Providers (aka Vendors…)

On average, a two- to three-year lag between the appearance of stand-alone, third-party applications supporting new business processes and the delivery of similar functionality by the integrated enterprise application suite vendors

Releases are usually less mature than their third-party competitors

It often takes up to three years for the integrated software vendors to get to functional parity with the point solution vendors

But when the integrated solution vendor’s applications finally “arrive,” they generally have higher levels of business process integration, and, as a result, a higher potential benefit stream

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ROI Balancing Act Complicated ROI analysis that must

evaluate and effectively gauge the level of benefits and costs for each option and then discount them for time-to-benefit, cost distribution over time, and the risk associated with each option

Difficult integration follows early adoption of a recent market entrant; easier integration stems from a product created in the context of an enterprise suite that may be slightly later to market

Once the enterprise vendor offers the same solution as the point product supplier, integration of the solution into the production environment is both faster and easier, delivering a more rapid ROI

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Hidden Cost Effects of Integration on Cumulative Benefit Stream

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Comparative Cost of Implementing Integrated Suite Solution vs. Integrated Point Solutions (per $1 of Software Expenditure)

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Integrating to the Infrastructure — Effort of Point Solutions vs. Additional Suite Modules over Time

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Adding an ERP Module to the Existing Solution vs. Adding a New Point Solution

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Primary Issues In Considering Software Integration Across Various Vendors

Variation in data models among discrete products

Incompatibilities in workflow and internal communication techniques across multiple products

Discrete development and delivery cycles of the separate applications; upgrade and patching issue stemming from separate software release cycles

Cross-product business process integration

The lack of standard open and persistent interfaces

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Issues of Third-Party Integration for IT Inconsistent software installation and upgrade procedures

across disparate products

Costly external and internal consultants for integration efforts

Ongoing maintenance of the integration solution (time, staff skills)

Uncoordinated development agendas and varied development cycles from various vendors, resulting in varied release schedules

Multiplicity of skills required to develop, deploy and support multiple applications and their various architectures

Maintaining global operations means that problems multiply

Multiple databases, operating systems and server types may have to be maintained

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Issues of Third-Party Integration for Users

Disparate user interfaces increase training time and decrease ease-of-use over multiple applications

Inability to consistently retrieve data from multiple applications

Incompatible product workflows can disrupt business practices

No 360-degree view of customer

No global view of information

Inconsistent data

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Issues of Third-Party Integration for Vendor ManagersProject management issues stemming from multi-

vendor contacts

Lack of vendor accountability can lead to finger-pointing as issues arise

The point solution suppliers’ partnering relationships may fail

Multiple points of contact for support — with no defined escalation process

Bug fixes, unplanned upgrades, unsuspected incompatibilities all can lead to production delays

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Issues of Third-Party Integration for the Business

Recurring high costs of spot solutions’ licenses

and maintenance

Recurring cost of product(s) integration

Potential protracted time to ROI

Potential adverse effects to the business from

misaligned or incompletely integrated solutions

Unpredictable TCO over time

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Integrating to the Infrastructure — Effort of Point Solutions vs. Additional Suite Modules over Time

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Advantage Dissipation over Time

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Or “Roll-Your-Own”….

Is competitive advantage derived from

software decisions?

Role of custom applications:

• Designed to attack the heart of business

strategy for a specific market

• Expensive to develop

Requires skilled developers to support and

maintain the code over time

• These applications are not commercial point

solutions nor are they usually reasonable

additions to an enterprise vendor’s solution

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In Conclusion: Michael Porter

“Today, nearly every company is developing similar types of Internet applications, often drawing on generic packages offered by third-party developers. The resulting improvements in operational effectiveness will be broadly shared, as companies converge on the same applications with the same benefits. Very rarely will individual companies be able to gain durable advantages from the deployment of “best-of-breed” applications.”

“Strategy and the Internet,” Harvard Business Review (March 2001).

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