Robert Digings (debate chairman) It’s clear that the terminology used by software developers to describe their products tends to make them complicated to buy. So this debate is an attempt to get to the heart of what the purchasers of financial and business software really need and want from those products. By getting closer to the buyer’s point of view we hope to understand more objectively what the challenge is for business software developers beyond the year 2000, beyond the euro and beyond the fad for calling this the “ERP business”. Can we have the first question please? John Cosgrove (London Catering Services) I nearly went home because I overheard one of the panel talking outside and I didn’t have a bloody clue what they were talking about. So my question is actually quite simple. I have learnt on my way here that ERP stands for Enterprise Resource Planning. Can the panel please explain what Enterprise Resource Planning is? Digings (chairman) That’s a great question! Whether or not we will agree on the answer is open to debate but, Jyoti Banerjee, would you like to attempt a definition? Jyoti Banerjee (TBC Research) ERP stands for enterprise resource planning. If you take that literally, then ERP is supposed to be software that covers the needs of an entire enterprise. It is supposed to allow an organisation to optimise and plan the way it uses its resources, whatever they may be – money, people, raw materials, inventory, and so on. I don’t believe ERP ever did all that, though. What it has delivered is a rather smaller package, a means for tracking transactions across a business in an integrated manner. But what it doesn’t seem to have delivered as yet is the ability to optimise resources, to plan. In fact, as far as I’m concerned, the P in ERP is fiction, at this point. Cosgrove (London Catering Services) It just seems to me that ERP is computer industry jargon, put together as a clever way of selling more product. Digings (chairman) Is that what you’re doing, Raj Patel? Raj Patel (Exact) To expand on what Jyoti Banerjee gave as a definition, to me ERP applications offer a total integration of all the business processes that can be automated. The aim is total integration of the finance departments, the sales departments, the HR departments, the accounting departments, etc. That’s what we, as vendors, see as ERP. What of the efficiencies in ERP applications? If we look back to the ’80s, what we saw then was that if you took a typical business, it had multiple systems from multiple vendors, and we couldn’t really integrate them. Now, ERP should mean dealing with one vendor providing only one application, which is fully integrated. Robert Sinclair (Ernst & Young) ERP is actually, I think, a phrase that was coined by an organisation called the Gartner Group and, very strictly, applies to manufacturing companies. I think we’re all guilty of abusing the term quite often, because what it really means to a lot of people is an integrated suite of software products, exactly as Raj Patel described. ERP is a rather fancy phrase to describe what is a relatively simple concept. Digings (chairman) Tony Kelly, do you think there’s confusion? Tony Kelly (Cap Gemini) If you are in a small- or medium-sized business, I’m sure that you have embraced financial software for some years, without it being integrated in a sophisticated way with the production or distribution parts of your business. The origins of packaged software in the finance areas of businesses – and those finance packages getting more elaborate in their functionality and what they could cover – is one stream of development of ERP. Another stream of development came from the manufacturing community, which started by managing materials on the shop floor with MRP (materials requirement planning – what bits, what widgets do we need today to fulfil the orders this week?). That was in the ’60s and ’70s. By the ’80s and ’90s, we have that footprint extending past the factory and into the enterprise, linking up with the financials. The big ERP vendors are now having to re-invent the way they’re going to market, to address a marketplace that is more price-sensitive, and more interested in a faster return on its investment. Digings (chairman) Nick Horslen, Microsoft hasn’t got where it is today without clearly defining its products. Is ERP, in your opinion, badly defined? Nick Horslen (Microsoft) ERP is defined in many different ways – from players that offer accounting applications with a certain level of peripheral functionality around them, all the way through to the largest ERP vendors, that provide you with wall-to-wall solutions. Digings (chairman) The question about definition was also asked by Bill Macklewraith, financial controller at Explore Worldwide Limited. Bill Macklewraith (Explore Worldwide) Integration is effectively what I’m after, without a doubt, because my company has five different IT systems, with massive use of spreadsheets. I guess the concern I have is that my company is comparatively small in turnover. It seems like this ERP is applying to huge organisations. Sinclair (Ernst & Young) One of the things you have to bear in mind is that ERP grew up in the corporate sector. Therefore those products are complex. If you try and take a product like SAP and implement it in a company with a turnover of $200m or less it can be a struggle, because it was designed to go into companies with billions of dollars’ worth of turnover. Therefore the cost of ownership outweighs the benefits for a small company. Not all the ERP products are like that, however; there are those that offer you fewer choices. My perception is mid-size companies are prepared to live with fewer choices. Horslen (Microsoft) Raj, we see the market very much as being driven from both ends. You’ve got the big players wanting to move down into the middle market, and you’ve got the smaller players, who are adding more and more functionality, coming the other way. Patel (Exact) I would say that we provide a service. We’re basically a service organisation, and we are providing products and a service that solves business problems. I would like to see ourselves as mid-market players and not as ERP players. The term “ERP” has too much baggage attached to it, such as cost, complexity, return on investment, cost of ownership, etc. Kelly (Cap Gemini) I guess something else that I can see happening in the ERP market is that the larger vendors are getting quite imaginative about how they address mid-size companies. Already we can see in Europe and in the US the growth of companies which are offering applications and service provision where the licence is held by a third party service provider, and access to it is by rental by the month – or pay per click or pay per transaction. This is the kind of imaginative approach that is going to be part of the mid-market mix over the next year or two, and will help reduce costs for companies where that cost is a significant issue. Banerjee (TBC Research) I’d say that the trouble with being accountants or business professionals today is that we need to use technology. The problem is that quite often technologies are purchased by technologists who don’t understand the business problems, and those purchases are ratified by business people who don’t understand the technology they’re buying. We need a new breed of people who are business-aware and technology-aware, because that is the reality of the world we live in. At mid-market, there are hundreds of suppliers, and the issues for you are: – how do you work through those hundreds? – how do you know which of those hundreds will become a leading player? and – how do you know what is the right money to pay for a particular solution from them? Digings (chairman) Paul Gray, who is an account director for Marketforce Communications, has the next question. Paul Gray (Marketforce) I suspect that this question is difficult to answer because there are so many definitions of ERP, but what is it generally that ERP systems lack? Patel (Exact) I think that, with the large players, their packages simply don’t always work. There was a recent case in Asia where the Acer organisation (a computer hardware manufacturer), decided to implement an ERP application from one of the large ERP vendors. Implementation took three-and-a-half years, and one month before they were going live, Acer went bankrupt. They took the ERP vendor to court and won the case. If I look at the mid-market, what we do not provide today is the planning part of ERP. We provide transaction-based systems. We are looking at transactions for accounting, logistics, manufacturing. There are very few mid-market players that really offer human-resource applications. Digings (chairman) Okay, thank you. Tony, how would you address the question of what’s lacking in ERP? Kelly (Cap Gemini) I’m not so sure I would wholly agree with Raj’s statement about failures. One of the classic examples of the sort of end-to-end process integration that incorporates ERP is Cisco. Cisco is a $7bn-a-year operation, but it takes something like $20m a day of business through its Internet site; and that would come to nothing without its front office systems being integrated with its Oracle back-office ERP system. When orders are taken, Cisco has a streamlined end-to-end flow of business straight into its back-office transaction processing – an efficient transaction-processing engine that its ERP system provides. This enables Cisco’s front-office people to provide information over the telephone and it’s checked right back to the factory. Can we make it? Yep. Can we deliver it? Yep. Fine, order taken, end of story. And the linkage goes all the way back into Cisco’s top 100 suppliers, so the suppliers can see what’s happening downstream in the process. The annual benefits identified against that implementation are $550m per year. That’s a success as far as I’m concerned. Patel (Exact) I’m not saying ERP applications have failed. What I am saying is that we have failed to provide sufficient applications to the market in which we’re offering them. Kelly (Cap Gemini) You could take a perfectly well-engineered ERP product that is richly configurable to fit a wide range of commercial environments – but the way that you implement it, that you configure it, that you deploy it, that you train the people, that you roll it out across corporate boundaries and geographic boundaries, is dramatically different from one case to another. Much of the failed return on investment that we see in the ERP market is due to poor implementation of rather well-engineered products. Horslen (Microsoft) Any company that takes three or four years to decide what it’s doing is in grave danger of taking its eye off the ball, and therefore losing out in the market. What’s important is how quickly you respond. Quite often the speed of an implementation is a reflection of the company, and a reflection of senior management’s decision-making capabilities. Digings (chairman) What is your experience of ERP, Paul? Gray (Marketforce) The company uses Sage at present because of the size of the business. I suppose the supplementary question is: if no-one has got it right so far, who is going to get it right – and when? Banerjee (TBC Research) Most of the emphasis in getting our computer systems to work up to now has simply been to get the numbers right. In many systems, until the last five to ten years you couldn’t be sure that your trial balance would balance, you couldn’t be sure that the numbers that were in your management accounts were correct. Today we have a greater degree of comfort in the transaction end of the system, but, having sorted out transactions, we then start moving on to the next stage, which is to say: let’s sort out our processes? It’s only this year that we’re seeing products coming through from the large ERP providers which are working with issues like performance management, and building measures like the balanced score card, activity-based costing and that kind of stuff, into the context of an integrated business system. Then you start moving beyond that and say: I want to build planning into my organisation; that is something that at the moment ERP systems haven’t really done. ERP systems – whether large or small – are just at the transaction layer really; they need to progress through performance measurement and management, into planning and into the interaction between the back office and the front office. Digings (chairman) There is one other question I’d like the panel to address, and it comes from Paul Semas, who’s with Nestle. Paul Semas (Nestle) What I would like to ask is: What are the key competitive drivers between the major ERP vendors? We have talked in a general way about how the ERP market will develop, but, more specifically, in the next five years – what have the various vendors got going for them? Banerjee (TBC Research) The large ERP companies are called JBOPS. This acronym represents the five major software providers in the ERP space: JD Edwards, Baan, Oracle, PeopleSoft and SAP. Andersen decided they wanted to be fair, so they put it in alphabetical order, and it became BJOPS – which is rather more unfortunate, I think. All five have issues to deal with. For four of them, the biggest issue is that the company at the top is bigger than all of those four combined. That is a big problem for everyone but SAP. SAP is a large business; its R&D every year seems to exceed the annual turnover of most of its competitors – so it is pretty hard playing against what in marketing jargon is an 800lb gorilla in your backyard. Each one has some specific problems as well. Baan is working with viability problems in terms of its finances at the moment. It suffered by being pretty rash in its acquisitions and also in not paying much attention to the propriety of its accounting, and it’s had to backtrack on a lot of things. In the last quarter of 1998, Baan made a $310m loss. According to our studies, at the moment it is really suffering in terms of people looking at and evaluating its product, because of those financial problems. Oracle has traditionally been a company that is regarded as being more focused on its database than its application. It has never been high on their priority list, but that has changed. If Oracle wants to grow its business at the kind of rate at which it has been, it is the application that is going to be important. So there’s been a renewed emphasis over the past year on that. PeopleSoft has grown from nothing to a turnover of over $1bn in 10 or 11 years. But its product set is quite limited in some of the spaces that are important to competitors such as Baan and SAP, which are in heavy manufacturing. It does have heavy engineering customers – Ford, for example – but the challenge for PeopleSoft is: how does it change the perception that people have of it being an HR company that has grown into ERP? JD Edwards is probably the only AS400 vendor to really make the transition to the mainstream. But its product is behind some of the other companies because it’s newer. It needs to mature, but it has probably got the best reputation in customer service. So it has a tremendous opportunity to move forward. SAP has the opportunity like no-one else to continue to succeed in the marketplace. But it has the problem that its technology is now getting dated. There are thousands of people out there using its products and, if it starts updating them, that could be an expensive process. This could also hold the company back. It’s going to be really interesting seeing how SAP makes the technology transformation to a more modern, more open, more component-based software provider. Sinclair (Ernst & Young) What we may well see in the middle market is some new entrants that exploit the newer technologies, such as the Internet, producing exciting new products, which small companies will take up. But I think at the big end we’re in for a slugging match for the next five years, whilst they sort out which new markets they’re going to go for. SAP has run out of very large corporates to sell its product to, and it is now stamping on everybody else’s patch. The one piece of the market it hasn’t been successful in yet is the middle market – and I think it will continue to struggle there. Semas (Nestle) Will companies such as SAP and Oracle come down to the mid-market? Sinclair (Ernst & Young) I think Baan already has. I think it has given up at the corporate end, certainly in the US, and it has moved down into the next tier because it has been beaten. Digings (chairman) Nick, what would you say the next five years hold? Horslen (Microsoft) Internet technology is really one of the most fundamental things that will drive change in the next five years – not just in the ERP space but in IT generally. So I think that the ERP vendors will increasingly define themselves as the “portal” for an enterprise. (If ERP is the portal for a company, this means that all its employees interact with the company through the ERP system, whether they are working on accounts, budgets, strategic plans, design and engineering, information research or even sending email.) Kelly (Cap Gemini) The mid-market is going to benefit from the muscle, R&D investment, marketing dollars, huge energy and machinery of the big players of the market. They will drive down into the mid-market space because they need to get there to sell more licence. Integration is probably the new battleground, and ERP functionality will increasingly become relatively commoditised, reliable, stable, tried and tested. The issues are going to be around the business processes and how you integrate these components and functional areas into real competitive advantage, using various technologies to create a best-of-breed solution. Patel (Exact) The driver of the mid-market over the next five years will be first of all a consolidation into the hands of no more than 10 players. The critical mass is important to reduce the cost of R&D. Another vital factor is that service will differentiate us. The typical clients that we deal with are organisations that cannot afford to have 15 people in the IT department. They use our support desk, and they use us as a support department. We’ve talked about a lot of financial scenarios for the top players today in the top market. The same applies in the mid-market to other players that are visible today: – what is their financial viability? – what are their service factors? – what number of users do they have? – are they an international player? If you are tailoring products, then these products are not standard, so you need to have vast amounts of implementation skill and there is huge cost of ownership. Looking at the mid-market, products are standardised; that’s how we get our volume and that’s how we can give the right level of service. So standardisation will be key here. I would say this market is going to be in real chaos in the coming five years; we ain’t seen nuthin’ yet! Information and copies of the transcript of this event are available from Jeremy Langham of Exact Software, on 01784 895218, or at www.exactsoftware.com. THE PARTICIPANTS … – Robert Sinclair is a partner with Ernst & Young and a founding member of the SAP UK Partner Advisory Group. He has implemented SAP into several mid-market companies. – Raj Patel is director of international subsidiaries for Exact Software. – Tony Kelly is director of ERP business development for Cap Gemini UK. He has 12 years’ experience in the ERP industry. – Jyoti Banerjee is co-founder and chief executive of TBC Research and a well known authority on business software. – Nick Horslen is ERP industry manager for Microsoft EMEA. – Robert Digings is a professional compere and presenter.