I received a very interesting question by email today from Ephraim Schwartz, editor-at-large at InfoWorld – “Does ERP matter?”
The arguments he was quoting were swaying more towards the “Matters – but much less” corner, and my SAP instincts made me jump up and down and say “Matters – more than ever”, but why? Interestingly, both my and his answers used the same reasoning as root cause for the answer – SOA infrastructure will change the landscape so that ERP matters more/less (pick your opinion here).
So, I stayed up Friday night (I didn’t have to wake up early Friday for a board call any more…) and decided to write this answer as my next blog entry, and send it to Ephraim as a public answer. You can read his column here to see what became of that answer in the broader context of his views, but read all the way through to see my view.
I was always a believer that SOA will not lead to small Lego blocks that will be aggregated on the fly by the consumer as some opinion leaders discussed in the past. 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 multi-vendor 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.
On the other hand, around that set of core processes we see a very large collection of edge processes that can be considered either ERP+ (such as employee performance management), or the other parts of a business suite (like advanced supply chain forecasting and optimization.) Some of these will be delivered as service oriented engines, with loose coupling to the core ERP, others will be composites that will be built and supplied on top of ERP and some other engine, sometimes these are shared engines while other times they are dedicated engines for that composite. In a sense these edge processes are the parts of the brain we educate after we are born. Some are more essential to the business – like CRM (try to get money without providing good service these days and see how essential CRM is), others are more optional but become essential over time (my favorite is emissions management – every company should implement it now and reduce emissions!)
So, is ERP essential or are the edge applications more important? Given your ERP will become service enabled or service oriented, will it be more or less valuable? 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. Using that same metaphor the question translates to “Does Windows Matter?” and the answer is fairly simple – Windows became the invisible power behind the scenes, enabling a portfolio of applications, all standardizing on the same set of APIs. In that scenario an ERP platform not only matters, it becomes essential to the business.
So the question remains, why would customers go through this kind of implementation? Aren’t they tired of always getting to the next wave, and what is the return? The last waves of mass adoption happened as result of the need to get better transparency, compliance and global scale. If you did not have a resource planning application, you just didn’t know where your assets were and could not convert them from intangible assets to tangible assets (if you don’t know what you are manufacturing you cannot optimize your inventory or your manufacturing plan for the most profitable products). Compliance means that you have to have similar processes and controls across your entire company or else it is really hard to sign a sarb-ox statement that states you do things in a certain way. Finally, if you do not carry those processes to every geography around the world it is almost impossible to scale, especially in a rapidly flattening world.
I claim that the coming wave of implementations will be driven by the need for consolidation, networked value chains and increased speed of process change. Companies had gotten much bigger as result of organic growth and acquisitions. They have multiple instances of ERP applications, with a higher degree of variation amongst those instances. The cost of maintaining these separate instances escalates rapidly over time, and the urge to consolidate (take the hit on short term) becomes higher than the desire to stay on what you have (and take the smaller hit on productivity and maintenance every budget period). The desire of the CEO to have a faster changing company, regardless whether you are reacting or disrupting an industry, clashes today with the CIOs ability to respond to such change, unless they go to a well separated “ERP Platform”. The rapidly connecting world of complex supply chains requires well agreed and externalized APIs that carry data and process outside the boundaries of a single enterprise or a single industry. As such, an ERP platform becomes an essential part of the corporate strategy, not even the corporate IT strategy. It is essential to the corporate process and innovation strategy.
What we still need is a significant investment by the vendors (I love this new-found ability to say “the vendors”…) to simplify the implementation and operation of this ERP platform. The target should be a sub 100 days implementation (in the case of mid-market companies sub month) and more importantly – the ability to continuously modify the edge processes every 100 days. The core should not be touched, or if it is reconfigured (notice – not re-coded!) the implementation should recommend a battery of self tests that will re-certify the implementation as “still valid and working well” without manual labor or long down time.
Around that ERP Platform, many other products from the vendor and the partners can be loosely plugged and the overall system can stay compliant – as long as all products are adhering to a single eco-system set of rules. That is the vision of Enterprise SOA, and SAP is a few years ahead of the industry on the delivery of such vision.
ERP platforms matters more than ever.