InformationWeek: The Business Value of Technology

Baan, J.D. Edwards, Oracle, PeopleSoft, and SAP are all developing or have developed portals as easy-to-use gateways to ERP applications and data for professionals supporting E-business operations. Several vendors are setting up online marketplaces, where businesses can purchase goods. They're also adding supply-chain and Web transaction software in a bid to provide across-the-board E-business capabilities.

The ERP providers hope to boost sales, which have slowed this year, by selling IT departments on two concepts: ERP systems can handle high-volume Web transactions and ensure that orders are fulfilled; and companies can avoid the high integration costs associated with third-party E-business software by purchasing preconfigured applications that integrate smoothly with existing ERP systems.

Westell Technologies Inc. finds the arguments compelling. The $20 million telecommunications equipment company in Aurora, Ill., has turned to SAP to provide an infrastructure to sell digital subscriber line modems to consumers on the Web, because SAP can provide both the Web storefront and back-end fulfillment applications. "Anyone can take an order over the Internet," says Westell CIO Brian Marshall. "What happens when you have to fulfill that order?"

But the ERP vendors have some major obstacles to overcome before they can become primary providers of E-business applications. They face stiff competition from nimble startups; their strategies are unproven; and the complexity of their systems may make them poorly suited for the rapidly changing environment of E-business. What's more, many of their E-business products are still in development.

ERP vendors' strength is in automating companies' internal operations, but the focus of E-business is external-on customers and suppliers. The fast-growing market for software that presents Web-site visitors with products based on personal interests has been staked out by startups such as BroadVision, InterWorld, and Open Market.

Analysts point out that ERP vendors have yet to prove that they can deliver on their promise of integrating E-business applications with their back-office apps. "CIOs are cautioned to complete due diligence in determining if their ERP vendor is offering a vision or a reality," writes Ron Exler, an analyst with the Robert Frances Group, in a recent report on the subject. Few IT managers seem to even think of ERP companies when shopping for E-business software and systems. In a study by InformationWeek Research in April, IT managers ranked only Oracle among their strategic E-business vendors (see chart).

Slow Adaptation
One concern IT managers have with ERP vendors as E-business partners is their ability to modify their systems to respond to changing business models and support new processes inherent in doing business on the Web. E-commerce processes, such as build-to-order production, one-to-one marketing, and online customer service are new to ERP systems, according to analysts. "The very business processes embedded in the software must evolve to the needs of E-business," says David Caruso, VP of enterprise application strategies at AMR Research.

ERP systems aren't easy to reconfigure as business processes change, according to analysts. "SAP has difficulty with how it structured R/3 to enable quick reconfiguration of business processes," says Jack Maynard, an analyst at Aberdeen Group. He adds, however, that SAP is trying to change that by integrating the Extensible Markup Language and online workflow technologies into the R/3 architecture.

This week, SAP will introduce what it calls business scenarios-Web-ready software components that handle specific business functions, such as linking suppliers to R/3, purchasing production materials, and managing orders. The components, which can pull data from other SAP applications, are designed to be cost-effective and easy to implement. "We're trying to move away from the old monolithic product perception of R/3," says Kevin McKay, CEO of SAP America. "With business scenarios, you no longer need the whole ERP package."

SAP will also formally unveil MySAP.com, its portal, and MySAP.com Marketplace, a Web site where SAP customers can buy and sell business materials online.

Make It Simple
Oracle, the first ERP vendor to focus on the Web, is now trying to make E-business simpler and more flexible for midsize businesses. Next week, it will unveil Oracle FastForward Web Store, which consists of applications for creating an online store and handling transactions and services designed to help midsize companies quickly establish online stores and trading communities that can stand alone or be linked into Oracle's ERP applications.

The company is also expected to unveil Oracle Applications 11i later this month. With Oracle11i, ERP and E-commerce applications share the same database for the first time, resulting in better integration between Web sites and back-office applications. Oracle11i also adds more E-business features to Oracle's ERP system. A supplier-management portal will let companies link suppliers to their Oracle ERP systems. A feature called one-button invoicing, for example, will automate payment for suppliers, and the portal will provide suppliers with company information, such as inventory levels, long-term forecasting, and production schedules.

Like SAP, Baan is pursuing a strategy of packaging software in smaller pieces. To make its ERP system faster and easier to implement, it plans to offer "thin" versions of its ERP applications for managing a supply chain and handling logistics, procurement, and product configurations.

In addition, Baan is expanding its new E-Enterprise platform, a set of online E-commerce applications for sales, configuration, and business-to-business collaboration that integrate with its ERP and front-office applications. Baan will add a procurement module in December, and it plans to release early next year a portal that will give employees an interface to its business-intelligence suite.

Baan customers say the new approach gives businesses a quicker way into E-business, especially if their suppliers don't already have a Baan ERP system. Diebold Inc., a North Canton, Ohio, company that makes ATMs and software, says such applications could make interactions smoother with its customers, with whom it currently communicates via electronic data interchange.

Some of Diebold's suppliers have to process at least part of the transaction manually because the EDI system doesn't connect to their applications. But the Baan software would link directly to suppliers' systems, regardless of whether they have a Baan back end. "You could get together with them on a procurement application," says Rick Lindenberger, Diebold's director of IT planning. "It gives us the automation that we're looking for."

J.D. Edwards next week will roll out a series of Web applications, including an Internet store where business customers can make purchases and check order status. The Web apps will link to back-end ordering and inventory systems. And PeopleSoft plans to begin delivering its PeopleSoft 8 suite of accounting, human resources, and supply-chain applications later this year. The suite will centralize processing functions on servers, and users will access applications from a Web browser, which PeopleSoft says is consistent with companies' E-business needs for ubiquitous access over IP networks.

ERP suppliers are aggressively targeting the E-business applications market because it's taking off just as growth in ERP sales is slowing. AMR Research predicts that the ERP market will grow 36% next year, to $27.7 billion. By comparison, sales of business-to-business E-commerce applications are projected to soar nearly 80% to $93.2 billion in 2000, according to Zona Research.

Moreover, E-business has become so central to many companies' strategies that ERP vendors fear their software will become the next legacy systems if they don't act quickly. "Enterprise applications are at the most important inflection point in history," says AMR's Caruso.

"E-business isn't just about a technology shift; it's a fundamental change in the way companies do business."

Some analysts say business- process integration, traditionally the biggest selling point for ERP, is a good reason to use E-business applications from ERP vendors that integrate with their systems. "The big challenge for IT departments is integrating this stuff end-to-end," says Aberdeen Group's Maynard. "Buying from one vendor starts to look good to them."

But the slow process of implementing an ERP system can hinder companies looking to move quickly to seize E-business opportunities. That's a dilemma facing Haworth Inc., a $1.54 billion international producer of contract office furnishings in Holland, Mich. The company is in the middle of a global implementation of Oracle applications for accounting, manufacturing, and HR. Micheal Moon, VP of information systems at Haworth, says the Oracle implementation will form the foundation of its E-business processes. But due to the size of the ERP project, the company has decided to wait until its completion in the first half of next year before implementing Oracle E-business applications to replace custom-built software that lets its dealers check the status of orders on the Web and lets customers, dealers, and salespeople collaborate on product development online.

The vendors' new component models are supposed to eliminate lengthy implementations, but some IT professionals question their viability. Motts North America, a Stamford, Conn., $500 million producer of applesauce and other packaged foods, plans to open its SAP ERP applications to suppliers and grocery stores over the Internet to operate its goods distribution in continuous-replenishment mode. Jeff Morgan, VP of information technology for Motts, says tight links between E-business and ERP applications will provide assurances that Motts can fulfill and deliver orders on time.

But Morgan questions whether SAP should really be spending time and resources on non-core applications, such as its business scenarios. "Can they really execute all of those separate pieces in a way that maintains the integrity of the R/3 system?" he asks.

Specialists providing E-business applications may have an advantage because that's all they offer. More.com, a San Francisco Internet company that sells health products, recently implemented Oracle's Web-enabled suite of accounting, inventory, purchasing, and order management applications, but chose online customer interaction software from Acuity Corp. instead of Oracle's customer relationship management product.

More.com sales reps have to use different screens to access data from the Acuity and Oracle systems, but the Acuity application offers specialized features that the Oracle system doesn't, such as live interactive chat sessions between service reps and customers. The functionality in Acuity was worth the extra integration work with Oracle, says Andy Felong, VP of engineering at More.com.

For their E-business strategies to succeed, the ERP vendors need more than just the right products and the ability to integrate them with existing packages. They must also become more responsive to the needs of IT departments, says Mike May, VP of IT at furniture maker Teknion Corp. in Toronto, Ontario. "Because of the rate at which the world of E-business changes, it's absolutely critical that the vendor respond to customer needs," he says.

Teknion recently purchased Baan's E-enterprise system, but nearly abandoned the implementation because of major bugs. Baan sent a team of troubleshooters to fix the problems. That, combined with the vendor's sound application strategy, has given Teknion the confidence to embrace Baan as its

E-business provider and purchase millions of dollars worth of new applications.

May stresses that E-business can't be a sideline for the ERP vendors; it has to become their core business. "Can they do it? I don't know," he says. "But if they don't, they jeopardize their business."