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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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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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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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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).