March 22, 2006
Within a few years, the ongoing consolidation of the enterprise software business will force companies to make major changes to this part of their IT infrastructure. Faced with increasing obsolescence of installed software produced by vendors that are no longer in business, companies will have to migrate. How they manage this process will affect their organization's strategic position and determine the cost of making the move. Ventana Research advises companies to begin planning for it today.
Most Global 2000 corporations will be dealing with an unpleasant fact of life over the next three-to-five years: They will have to make a major change in their enterprise resource planning (ERP) system. Over the past five years, that industry has consolidated, and most systems in place were purchased from a company that has since been acquired. Consequently, user companies will be forced to consider a major migration of their business software. Even though they have been promised continued support of their existing software, it will become increasingly obsolete as the new owners invest less and less in adding capabilities and keeping it up to date. In other words, they will be able to stay at the cocktail party and enjoy the company, but only if they are willing to do without the hors d'oeuvres and drink only club soda. Looking at the technology roadmaps of the surviving company systems (Oracle, for example), even users of systems from surviving companies will see major changes and face a "forklift migration" – a nearly complete removal and replacement – to stay with their current ERP vendor.
Executives who endured a painful and costly switch from a mainframe system or an expensive migration forced by Y2K considerations are probably dreading any major work on their ERP system. And they should expect the process to involve a major investment of money and time. But the good news is they can schedule it to take place at their own timing and pace, and it probably will be less of a drain on corporate resources than the migrations of the 1990s.
Moreover, we think executives, managers and employees will be happier with what they get in their new systems. The emerging generation of business applications will be constructed around service-oriented architecture (SOA). While software vendors have a long way to go in translating their press releases into a practical reality, the idea of SOA is to make it easier for companies to implement, integrate and maintain software. This has the potential to reduce substantially the cost of deploying and owning business applications. It also holds the promise that corporations will be able to organize their software around business processes rather than the other way around. Being able to define and modify business processes to support operational and market requirements, and yet easily support these processes with packaged software, would go a long way toward fulfilling the original vision of ERP. Supporting end-to-end, cross-department collaborative processes such as order-to-cash, recruitment-to-retirement, procure-to-pay and others would become much easier. So would industry-specific requirements such as lot or batch tracking, statutory costing methods and measurement units, as well as the processes associated with them.
Companies that understand the possibilities in the new business application environment will be able to rethink how to restructure their processes to meet business requirements and not just conform to the limitations of their software. Organizations that adopt this approach can gain a head start of several years over their competitors.
Senior executives – especially CFOs – treat changing major IT systems as if it were painful and expensive surgery, so they put it off as long as possible. This may be a sensible approach up to a point. However, we think companies need to do something they have not done well in the past: Prepare for the move and base this decision on business opportunities. Information technology by itself is never the source of sustainable competitive advantage. Then again, neither is the telephone. But both are indispensable to supporting innovative business strategies, cost-cutting process innovations and the like. The next system migration will be about much more than IT architecture, features and functions. Choices made about systems will have major impacts on companies' abilities to manage effectively, to innovate and to respond to competitive threats. This strategic decision requires a truly cross-functional approach, with finance, operations and IT all involved and engaged in the discussion.
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Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
© 2006 Ventana Research
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