ERP, CRM, and supply-chain management systems are still costly and difficult to implement, according to the 485 business technology professionals we surveyed. But they also doubt that next-generation apps will be any easier to deal with. Most enterprises have yet to fully embrace service-oriented architecture, software as a service, or business process management. Oh, sure, they're using these technologies here and there, but few survey respondents are confident that SOA, SaaS, or BPM can handle everything.
What's clear is that they're likely to combine software and either on-premises services or cloud-based services, depending on their sophistication and security concerns. The recession has put a damper on SOA and related internal composite application development initiatives. The focus has shifted to using SOA to integrate, customize, and extend existing components, particularly vendor-supplied applications.
There's plenty of growth in the use of SaaS and cloud computing, but mainly for e-mail, collaboration, and CRM. Mission-critical apps like ERP are seeing slower growth in the cloud, as many organizations aren't ready to put sensitive financial records and transactional data in the cloud.
Respondents expressed keen interest in BPM software, with its promise of user-friendly, model-driven application development, business-IT collaboration (around those models), and the kind of flexibility and adaptability that on-premises applications haven't delivered. But the surprise is how keen respondents are to get BPM tools and capabilities from their existing application vendors.
The next act in enterprise applications has yet to be written, but it looks like conventional apps, whether you love 'em or hate 'em, will continue to play a lead role at most businesses. SOA, SaaS, BPM, and other alternatives will play supporting roles.
Deployment and customization difficulties, as well as overall inflexibility, still plague enterprise applications. Familiar problems came up when we asked the 405 respondents with responsibility for these apps about their biggest application- or process-management-related impediments (see chart, below). The top problem, cited by 44%, is changing, upgrading, or optimizing existing applications. Implementing, integrating, or customizing new applications was the second biggest issue, cited by 37%.
When we asked which of these challenges consumes most of their time, the responses showed up in the same order, with a whopping 54% citing changing, upgrading, or optimizing existing applications.
These problems persist despite the fact that enterprise application vendors like SAP, Oracle, and Infor have delivered--or are well on their way to delivering--services-oriented applications and middleware aimed at providing greater flexibility. SAP has NetWeaver and SAP Business Suite 7. Oracle offers Fusion Middleware, and its long-delayed Fusion Applications are expected this year. And Infor has the Infor Open SOA architecture.
Thirty-seven percent of survey respondents with responsibility for enterprise apps say they aren't convinced that next-gen apps will be any easier or less costly to implement and customize. An additional 21% are concerned that next-gen apps bring new training challenges and possible technical snarls. More than half of respondents have reservations about the next generation, while only 26% are enthusiastic about applications old and new.
In terms of their deployments, respondents say they're most satisfied with software reliability, giving it an average rating of 3.4 on a 1-to-5 scale, where 1 is "very unsatisfied" and 5 is "very satisfied" (see chart, below). They also rate the availability of technical and consulting expertise high, at 3.3. Respondents are least satisfied with initial software cost and ongoing maintenance and support costs, both of which scored 2.6.
SaaS Bolsters Enterprise Diversity
Overall, we see a significant change in attitude toward enterprise applications, with 38% of survey respondents saying, "ERP, CRM, or SCM systems are crucial, but we have a heterogeneous environment that requires an application-independent information infrastructure." That compares with 29% who said the same thing last year.
The recession is the most obvious reason interest is waning in services-oriented composite app approaches and in building and extending enterprise applications platforms. Many companies don't have the budget to make big new investments in enterprise apps and SOA infrastructure. "We won't be spending a penny that we don't have to until after 2012," one respondent says.
Also, SaaS applications and cloud computing are getting more attention because they promise faster deployment and lower costs. SaaS providers still have a small share of the total enterprise applications market, but leading vendors--including Salesforce .com, RightNow, and Workday--have reported strong growth while most on-premises software vendors have logged either modest growth or revenue declines.
Topping the list of likely SaaS investments over the next 12 to 24 months are portals, collaborative workplaces, and e-mail and shared calendaring environments (see chart, p. 38).
This is where Google has been making headway with its Google Apps. More than 2 million businesses are using Google Apps, the vendor says, though undoubtedly a lot of small office/home office customers are included in that number. Genuine enterprise deals in 2009 included a 30,000-seat deployment for the City of Los Angeles.
Microsoft has extended its software-plus-services strategy, which it announced in 2007, with online versions of Exchange, SharePoint, and the Office Communications and Office Live Meeting products. These services support more than 1 million paying customers, Microsoft says. It's important to distinguish "paying" customers, the company adds, because some competitors don't clarify whether customers are using free or paid versions of their services. (Gee, could they be talking about Google?)
Among SaaS-only providers, Salesforce recently introduced the Chatter collaboration environment to add social networking capabilities across its services portfolio. And Zoho claims more than 2 million registered users of its productivity and collaboration apps--though this includes on-premises offerings. Zoho's customers are mostly small businesses with 40 to 200 employees.
Looking at core enterprise applications (excluding e-mail and collaboration, which some would call infrastructure), CRM is one of the most attractive area for SaaS, our research shows. Gartner confirms this finding, saying that SaaS versions accounted for 20% of the $9.15 billion worldwide CRM market in 2008, up sharply from 15% in 2007.
SAP and Oracle are the market leaders in CRM, with 22% and 16% of the 2008 market, according to Gartner, but that's mostly on the strength of their on-premises software. Salesforce's SaaS-based CRM was third, with 10.6%. Microsoft, which offers both Microsoft Dynamics CRM and Dynamics CRM Online (on-premises and SaaS), was fourth, with 6.4%.
Respondents put SaaS-based ERP and SCM apps close to the bottom of their planned investment list. Mission-critical ERP apps would seem to be the last holdouts for SaaS-averse IT pros who don't want to "run the company" in the cloud.
That said, NetSuite, Workday, and other vendors are making headway with SaaS-based ERP. And on-premises vendors can't be counted out here either. Oracle has multiple ERP applications in its OnDemand portfolio, though those are hosted and managed services rather than SaaS offerings. SAP has yet to deliver its SaaS-based Business ByDesign to more than a small number of handpicked customers; a revamped version of the combined ERP, CRM, and SCM suite is expected in the second half.
When asked about emerging and alternative technologies, our survey respondents are more receptive to cloud computing infrastructure than open source software: 16% already use cloud computing infrastructure and the same percentage use open source software. Just over half say they aren't likely to consider open source, with another 33% still considering it. Only 39% say they aren't likely to consider cloud computing, and 45% are considering it. That's good news for SaaS apps as well as cloud-based storage and data analysis.
BPM Becomes A Feature Set
Business process management software continues to grow in adoption. Meanwhile, the market for related software is consolidating and morphing. BPM tools and capabilities are fast becoming part of the enterprise application and information management stacks.
Our research reveals that SAP, Oracle, and other application providers are well positioned to capitalize on growing interest in BPM. Of survey respondents with responsibility for process management, the largest share, 33%, say that BPM initiatives are limited to just a few applications. An additional 30% say they're "modeling core processes but just beginning to implement process orchestration/execution infrastructure."
Plenty of organizations have yet to fully embrace process management approaches. But the more telling finding is that 42% of respondents, by far the largest share, say their preferred source for BPM technologies is their application vendor.
Best-of-breed BPM vendors and middleware/integration vendors combined are the preferred source for only 35% of survey respondents. (Nearly 70% of respondents have IT and technology titles and less than 15% have business titles, but that wouldn't put middleware/integration vendors at a disadvantage.)
BPM systems have coexisted with enterprise applications for years. In fact, many BPM systems are seen as easier, faster, more flexible, and lower-cost environments than ERP in which to integrate, monitor, and control end-to-end business processes, such as order entry and tracking, application review and approval, and supply chain and manufacturing.
ERP apps like financials, human resources, and supply chain might handle big chunks of a total process. But BPM systems knit them together and add helpful tools, integration capabilities, and optimization features. BPM can deliver customized user interfaces, monitoring capabilities, alerts, and load-balancing and exception-handling processes. Reporting and simulation features let process managers use actual performance metrics to test and implement improvements, thereby "closing the loop" for Lean- or SixSigma-style continuous process improvement.
If that all sounds too good to be true, it probably is. We hear from some jaded BPM practitioners that after years of designing, optimizing, revising, and adding to their portfolios, those processes can become as cumbersome and spaghetti-like as legacy systems with layers of code patches.
Nonetheless, our research shows greater interest in investing in BPM than in any other technology we asked about.
You may not have formal processes for meeting business goals like improving efficiency, adapting to fast-changing business conditions, developing innovative products and services, increasing customer satisfaction, and improving the quality of products and services. But these are all process-oriented endeavors that will involve on-premises or SaaS-based applications at some point in the process. The bigger question where applications and larger process initiatives are concerned is what can and will business and IT agree upon?
We suffer from no delusions that BPM will solve all of these challenges, but we do advocate process-oriented analysis and business-IT collaboration. In selecting, deploying, and customizing enterprise applications, business and IT go through the same requirements-definition and collaboration steps required in a process management initiative. And leaders who embrace a process-oriented view actively look at the total process, including on-premises and SaaS apps, third-party systems, and human factors.
No doubt you've heard plenty of God, motherhood, and apple pie messages about business-IT collaboration. When asked to rank 10 productivity improvements, survey respondents were clear that better business-IT collaboration would help. They ranked "better input from end users" at the top of the list, "more direction from business leaders" third, and "a clearer sense of corporate strategy from top executives" fifth.
As one respondent says, "implementing business functional applications is only as good as the business requirements definitions. If we don't define them up front, we end up with expensive solutions that have gotten us nowhere, fast." In a more pointed barb, another respondent says, "Our top executives have the attention spans of 5-year-olds suffering from ADHD. The most meaningful advancement I could see would be the development of executive Ritalin."
Short of this prescription, our best advice is to get the business and IT versions of reality instantiated in some way. In application speak, that would be in a requirements document. Process-oriented execs and IT types would prefer models.
Ideally, we should use whatever approach gets both sides talking, collaborating, and, hopefully, agreeing on a common frame of reference. There's little doubt on-premises and SaaS apps, SOA, and process-management approaches will all be in the mix.