Why ERP Is Cool Again 2

IT teams aren't so much begging for money as they're begging for relevance.

Asked to rank 10 developments that would most improve IT productivity, the 314 business technology pros who responded to our InformationWeek Analytics 2011 Enterprise Applications Survey picked as their top three:

>> More support from top executives to implement new policies or procedures

>> Better input from end users in gathering requirements

>> Better guidance from business leaders on the most important processes, measures, and metrics.

There's a common thread here: What IT organizations want most is more engagement and support from business leaders and colleagues. Bigger IT budgets and better training are farther down their priority lists.

As we look at the state of enterprise application strategy, findings like these provide the critical backdrop. IT can't just align projects with the business; those projects must be the business. Relevance means implementing a software project the CEO wants constant updates on, not one that requires you to ambush a product manager in the hallway just to get some feedback.

The good news from our survey is that IT's top investment priorities are in areas that will be highly visible to business leaders. Mobile applications are the most often cited software priority, for both on-premises software and software-as-a-service projects. Putting dashboards, reports, and alerts right in front of business executives on their smartphones and tablets gives them access to information in an entirely new way.

Financial management and performance management are the next-highest priority for on-premises software. You can't get much closer to the heart of the business than budgeting, planning, and profitability analysis. Customer relationship management is tied at No. 2 in the priority ratings for on-premises and SaaS projects. CRM, a perennial business priority tied to driving more revenue, is now also closely tied to attitudes and interactions expressed in social media, trends getting a lot of attention from sales and marketing. CRM's integration with other apps is often as important as the implementation itself.

Mobile apps and social-savvy CRM are rather trendy, of course, so execs with mobile and social on their wish lists may look like they're just keeping up with the Joneses. However, IT leaders can make sure these projects provide more than flash, by discerning between wants and needs and focusing on usability so employees get some real value out of mobile and social media projects. IT's in a position to push beyond the initial vision--"let's deliver this report to a smartphone"--by helping to build a software platform that spurs more innovation. These kinds of high-profile projects let IT set a new tone and get out, once and for all, from being just a service department.

Get Visible

For some software projects at Cimarex Energy, an $8 billion-a-year oil and gas exploration and production company, the biggest roadblocks are "corporate decision makers and departments leaving us hanging," says Ken Foster, director of application development. "We have to hide behind the potted plant in the hall waiting for them to come by to get answers."

When it comes to ERP and mission-critical drilling applications, however, the business knows they are core and "we have visibility at the top," Foster says. A specialized energy industry ERP system from Enertia serves as Cimarex's core financial and accounting system, and custom drilling applications track and report on progress getting oil and gas wells into production. It costs some $8 million to drill a well, and Cimarex makes that investment hundreds of times each year throughout the Southwest U.S. "There's serious money involved, so my guys stand on their heads to make sure those applications are working every day," Foster says.

Our research shows a small shift in the top business drivers. A year ago, 37% of survey respondents cited improving efficiency to cut costs. This year, improving efficiency still was cited most often, but by only 30%. Developing innovative products remains No. 2 (23%), but the big mover is increasing customer satisfaction, which leaped from 12% in 2010 to 20% this year.

Foster has seen how, when applications have less immediate business impact, the old business-IT divide reappears--like when he recently implemented a workflow system to track who approves and modifies documents in the course of finalizing plans for drilling a well. That project was "like rolling a boulder up a hill," he says, in part because the company is so distributed. The project was important to the board for auditing and compliance reasons, but it wasn't top of mind for busy executives and managers in the middle ranks.

The worst cases are when a department tries to throw a complex problem over the wall for IT to sort out. "I'll say, 'There are business processes here that are busted, and we can't get them solved until we sort that out,'" Foster says. "I'll do my part, but there are covenants you make with each other, and the business has to do its part, too."

Mobility Rises To The Top

The fact that providing mobile apps is the No. 1 investment priority for IT organizations reflects the "consumerization of IT" trend, whereby employees expect business apps to mimic the ease of use and pace of change of their consumer software. Companies' mobile sales and service personnel have been able to look up contact information and basic customer info for years, but now that smartphones are commonplace, IT is under pressure to let employees access core business app transactional capabilities from these devices.

We're not there yet. Only 27% of manufacturing companies surveyed in June by analyst firm Mint Jutras (commissioned by ERP vendor IFS) give their employees mobile access to ERP, CRM, supply chain, or enterprise asset management apps. And only 3% of them rate their mobile CRM interfaces as excellent.

Employees are no longer content to just look up information and receive alerts on their smartphones and tablets. They want to interact with back-end systems. Starbucks, for instance, is testing a mobile business intelligence app from MicroStrategy designed to analyze and report on data from back-end systems, and help users take appropriate action based on the analysis.

If the project works as advertised, store managers will use a mobile device to input data on weather patterns, local events, and other scenarios; examine inventory and employee scheduling data from the coffee chain's SAP supply chain and human resources apps; and then adjust products and staffing accordingly. So if it's going to be 95 degrees and there's a big convention in town, a store manager could use a single mobile interface to order more frozen Frappuccino ingredients and schedule more baristas to be on hand.

Starbucks hasn't settled on which mobile devices it will use, but Tom Ball, the lead executive for BI platform development, says the company will likely deliver exception-based reporting on smartphones and richer analytics and transactional capabilities, like those envisioned for store managers, on tablets.

Why launch transactions from a BI interface, when ERP systems and other apps have their own dashboards, alerts, and mobile options? "We look at BI as the hub where we correlate information from many different systems," Ball says. "To move the analytic action to SAP or another app takes us back a step."

IT's impact can be huge with these kinds of analytics and dashboard projects. Some 40,000 Starbucks employees already use dashboards to gain insight into overall sales and product-by-product performance by store, territory, and region, using data drawn from multiple apps.

The Integration Imperative

Mobile and social networking apps get all the glory these days, but Starbucks' BI work is a prime example of why application integration projects are among the most critical. Nearly two thirds (64%) of respondents to our survey cited "ability to integrate with existing systems and infrastructure" as the most important quality they look for from enterprise applications vendors. The next most cited quality, responsive service and support, is at 38%.

That's why so many enterprise application vendors--SAP, Oracle, Infor, Salesforce.com, Workday, and NetSuite among them--have acquired or developed BI modules or comprehensive BI suites. Using an enterprise vendor's own BI app in theory simplifies integration, but in reality it makes things only marginally easier. Enterprise app vendors simply want to have their software at the center of the action, and BI is eclipsing ERP in terms of visibility.

IT leaders must consider integration as they evaluate their mobile strategies. They can't just think about mobilizing a single app, even one as powerful as CRM. Apparel retailer Guess, for instance, introduced a mobile app last year integrated with its point-of-sale system that lets salespeople use an Apple iPod Touch, connected by Wi-Fi and fitted with bar-code readers and credit card scanners, to check out customers so they don't have to stand in lines at conventional registers.

Guess's line-busting app was an instant success, but store managers and employees soon asked for the ability to check inventory and shipments, look up customer loyalty card information, and incorporate other features not included in the original application. These requests demanded integrations well beyond the point-of-sale system.

The Financial App Bolt-On

ERP itself isn't a hotbed of innovation. But tacking software onto ERP that can improve analysis of budgets, profits, and operating performance is hot, and it puts IT side by side with the CFO and business unit leaders.

In our survey, the No. 2 investment priority cited for on-premises software is financial management and performance management applications. Performance management apps provide sophisticated financial and operational management analysis, and the apps are invariably integrated with the ERP system, from which they draw data. Asked to rate their organizations' likelihood to invest in specific performance management software over the next 12 to 24 months, survey respondents with direct or indirect responsibility for performance management apps said:

>> Budgeting and planning

>> Profitability and cost management

>> Operational-performance tools, such as scorecards and key-performance indicators.

Under Armour, the fast-growing sports apparel maker and retailer, realized amid the recession that it needed better budgeting and planning apps. The company grew sales even through the downturn, but its profits and margins declined. Because of its labor-intensive budgeting process, when the company needed revised forecasts, it took two finance managers eight weeks to gather the needed data using spreadsheets and email, and then deliver a revised budget. In 2009, Under Armour implemented SAP's Enterprise Performance Management (EPM) apps, hoping to speed that process up.

Forecasting now takes Under Armour about two weeks, in large part because line-of-business directors, sales managers, and operations managers are hands-on users of the EPM budgeting, planning, and financial consolidation apps, in which they can load data and projections. Gone are the disparate spreadsheet formats, version-control problems, and vagaries of email communications. "That gives us confidence in our budgets because the people that provide the information are much closer to the details," says David Roberts, senior manager of corporate planning at Under Armour.

More than 40 people contribute to the company's budgeting and planning through EPM, and another 110 employees can view final budgets and plans. The EPM apps also help regional sales and merchandising managers adjust to market conditions. As the retail sector started to rebound in 2010, Roberts says, reports from the planning app pinpointed regional and product-line hot spots. Stores west of the Mississippi River weren't doing as well as those in the mid-Atlantic at one point last year. But the reports also showed which products were selling well in the West, so the company restocked to better meet that regional demand. Under Armour also expanded its retail stores rather than introduce a lot of new product lines last year because its EPM analyses revealed higher revenue and profit potential there.

New ERP Approaches

For some companies, the big push has been to consolidate their many ERP systems, even down to one global instance of the software, but getting every operation on one version and keeping it in sync can become a nightmare of diminishing returns. So we're starting to see companies buck that consolidation trend and move toward two-tier ERP deployments. In this mode, multinational companies update financial management capabilities at subsidiary and satellite operations using simpler, lower-cost ERP applications than the Oracle and SAP apps used at headquarters.

SAP shops in particular are the target of smaller application vendors, including Microsoft and its Dynamics ERP and NetSuite and its SaaS-based ERP with specific integration with SAP. SAP has responded with its own integration option that lets customer subsidiaries use its Business ByDesign SaaS suite, originally aimed at small businesses, to sync with their on-premises SAP suite at headquarters.

Time To Get Social

In our survey, CRM tied as the second most likely application investment over the next 12 to 24 months, both on premises and as SaaS deployments. The biggest growth in CRM is on the SaaS side, though, with Salesforce.com leading the way, including related products for collaboration and social media analysis.

Salesforce, for example, added Facebook- and Twitter-oriented applications this year that let companies and employees monitor and respond to business friends and followers on these social networks. In May, Salesforce acquired social media analysis company Radian6, which offers technology for monitoring and understanding what's being said about brands and products across social sites, such as Facebook, Twitter, and YouTube, as well as across websites, blogs, and discussion forums.

Meantime, dozens of analytics vendors offer applications for customer sentiment and social media analysis (what are customers and others saying about my brand/product?) and social network analysis (who said it, who are they saying it to, and are they influential?). Radian6 is one of those companies; other pioneers include Converseon, Cymfony, Lithium, Nielsen Buzzmetrics, and Visible Technologies.

CRM is another place where enterprise applications are colliding with BI and analytics, for customer segmentation, up-sell and cross-sell campaigns, and anti-churn initiatives. CRM is also intersecting with financial and performance management apps, letting companies examine customer profitability and analyze costs.

SaaS Holdouts

A surprisingly low 43% of the respondents to our survey with direct or indirect responsibility for enterprise applications say their companies are using SaaS apps. Data security is the biggest impediment, cited by 28% of those not using SaaS or unsure of their companies' use of it.

But SaaS customers are more satisfied with their providers than on-premises software customers are. Asked to rate their satisfaction on a 1 to 5 scale (5 being "very satisfied"), SaaS customers rate ease of implementation an average 3.6 and service reliability a 3.4. At the bottom are ease of customization at 3.1 and ease of integrating at 3.0. Yet even that lowest figure is neutral.

For on-premises software, the highest satisfaction is with availability of technical expertise from vendors and software reliability, both at 3.4. But dissatisfaction creeps in with ongoing maintenance and support cost at 2.7 and initial software cost at 2.6.

As the cautious adoption of SaaS shows, no companies are saying goodbye entirely to their legacy software. More than half our survey respondents cited upgrading or optimizing existing applications as the activity that consumes most of their time. About half the respondents also consider those apps a barrier to success.

If there's a lesson we've learned over the past decade or more, it's that companies place big bets on enterprise software vendors and want to make the most of them over the long haul, even amid unsettling industry consolidation (Oracle buying Siebel, PeopleSoft, BEA, and Sun; SAP buying Sybase; Infor buying Lawson; etc.).

Businesses run on a core of enterprise applications, and most will continue to run on them. IT teams can innovate around that core by building mobile, analytic, social, and collaboration capabilities--but only if they truly understand what their business colleagues need.

Write to Doug Henschen at [email protected].