ERP makes a comeback
Most big companies rolled out their first ERP systems more than a decade ago. Now one in four businesses plans to upgrade or roll out a new ERP system
They couldn't put it off any longer. The ERP system for the Electric Power Research Institute (EPRI) had reached the end of its useful life.
No wonder. EPRI -- a California nonprofit institute that conducts research on the generation, distribution, and use of electricity for utilities in the United States and abroad -- had implemented its ERP system way back in 1999. Driven in part by the race to beat the Y2K deadline, the system had been designed for a time when EPRI used a combination of mainframes, minicomputers, client server systems, and desktop PCs -- an architecture it abandoned years ago. Worse, the organization's original ERP vendor had been swallowed by a competitor, and support for its legacy product was coming to an end.
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It was time to make a painful choice. But unlike in the late 1990s, EPRI had plenty of options. It could stay with a large on-premise vendor like Oracle or SAP. It could go for a smaller but nimbler SaaS solution like NetSuite or Plex Online. Or it could go for an on-premise solution hosted and managed by a third party.
EPRI chose the last, going with a brand-name solution and a third-party host. Why?
"Their solution offered a contract lifecycle management module, which we needed," says Michael Dotson, senior manager of business operations for EPRI. "And the hosting company had more experience with the software. We thought it would be faster to roll out and easier to upgrade, especially if we needed to customize it later."
An ERP boomlet, born of necessityFor the past decade, ERP has been the poster child for IT projects that overpromise and underdeliver. It was notorious for painfully complex rollouts that took years to implement, required massive customization, and were often only partially realized. Billions of dollars were spent just trying to get ERP systems to work as advertised.
Now ERP is back -- and not just for big enterprises looking to refresh legacy systems. According to surveys by Forrester Research, roughly one out of four SMBs and enterprises plans to either upgrade their existing ERP solutions or implement a new one over the next 12 months.
Many of these are small to midsize companies that have been getting by for years with QuickBooks or Peachtree but now need to take managing their businesses to the next level, says Forrester Research analyst China Martens.
"Their businesses are becoming more complex, they may be growing very fast or have operations in more than one country, and they need to bring more discipline to their business processes," she says. "We're seeing more SaaS deployments, where SMBs don't have to get their limited or nonexistent IT staff involved. That makes it a bit easier for them to make that move."
But even large-scale ERP vendors have become more responsive, promising faster and smoother rollouts, hoping to put the multi-million-dollar failures of the past behind them.
Speed vs. strengthFor years, Recovery Healthcare Corporation (RHC) used QuickBooks to help manage its operations, which provide support services for the Texas criminal justice system.
But four years ago, the then-15-person firm moved to NetSuite. The reason? Simplicity, says Vickers L. Cunningham, a retired criminal district judge who is now COO for RHC.
"We are in the people business," says Cunningham. "We don't want to own servers; we don't want to worry about backups and maintenance. We don't have an IT department and we don't want one. We just want to plug into the Internet and go."
With more than 100 employees in 16 offices, RHC is now approaching the $10 million mark for revenues, but Cunningham says it has yet to fully tap the capabilities of NetSuite.
To compete with SaaS solutions like NetSuite, on-premise ERP vendors have had to become faster and more flexible. SAP has begun marketing what it calls its Rapid Deployment Solutions (RDS), which promise to get a viable ERP system up and running in as little as 90 days, says Bill Bowers, VP of Global Field Enablement for SAP Rapid Deployment.
"Today's ERP customers want bite-sized, predictable solutions that provide predictable value," says Bowers. "They want to know they're going to get what they paid for. With RDS, we're coupling ERP with more content in the box about how to discover, understand, and enable our solutions."
Bowers says SAP is also working more closely with integrators and hosting providers to offer hybrid solutions -- attempting to combine the power and customization of on-premise solutions with the flexibility of on-demand.
"The obvious question is: How can we make on-premise solutions more affordable and easier to deploy?" he asks. "We're looking to reduce the software-to-service ratio to be more in line with companies like Salesforce.com."
But getting complex, customized solutions in place remains far from a trivial task, warns Forrester's Martens.
"The key argument for SaaS is that it's faster to implement," she says. "On-premise vendors need to be able to demonstrate they can move fast and deploy a system in six to nine months, so they're coming in with more milestones, sitting down with customers at the beginning to understand their business processes and how those relate to ERP processes. RDS can offer the ability to start the process with everyone understanding what's going on. But whether they will actually get where they say they're going and on time is debatable."
On the other hand, says Martens, SaaS comes with its own challenges: "Companies going the SaaS ERP route need to have confidence that the apps can support and carry through the kind of customizations they're used to making to on-premise ERP." In practice, that's not always possible.
Lessons learnedImplementation and delivery options aren't the only things that have changed over the last 12 years.
Enterprises have learned a few things, too, about what practices to follow and pitfalls to avoid. And though EPRI's original ERP rollout was a success, says Dotson, it's doing some things differently the second time around.
For example, EPRI is starting with a clearer idea of what its business processes are than it did 12 years ago. It engaged a well-respected consulting firm to help it steer clear of common ERP traps before getting too deep into the process. And all of EPRI's stakeholders have been actively involved in whittling the choices and picking a winner (whom, given EPRI's nonprofit status, Dotson is unable to name).
"It wasn't just an IT decision," he says. "We had a lot of people engaged in looking at it. Ultimately business and IT came together and decided on the same solution."
At RHC, Cunningham says he met with the NetSuite team for 90-minute conference calls twice a week for six months, mapping out all of his firm's processes before making the move.
"They really got to understand our business flow," he says. "And that gave us time to think about what we were trying to do, too."
Dotson says EPRI is on schedule to roll out the core components of its new ERP system in July, about nine months after initiating the deployment. HR and CRM components will be added at a later date.
"We're already starting from a better point," he says. "We fully anticipate to be equally successful this time, too."
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