Under Pressure, ERP Giants Struggle to Innovate

Will upcoming “dynamic” applications from Microsoft, Oracle and SAP add options and flexibility to ERP suites? Yes, says Paul Hamerman, VP of business process and applications at Forrester Research: We are now in an era where the large software vendors are investing in innovation. Those vendors are feeling the pressure from upstart rivals and, to some extent, are finally hearing CIOs’ demands (or, perhaps more accurately, complaints), he says. “Customers are demanding better usability, easier access to information, more flexibility and lower cost of ownership,” notes Hamerman in his 2007 report, “ERP Applications 2007: Innovation Rekindles.”

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But just how quickly the ERP giants will be able to cook up those innovative products remains a big question.

Analysts often note that the enterprise software space is predictably cyclical. Boom times with huge investment in software innovation are followed by lean years of R&D spending and overreliance on software’s fat margins. And then, every so often, a competitor comes along, threatening the giant enterprise software vendors, and the giants quickly earmark funds for “innovation”; Salesforce.com’s emergence and Oracle’s Siebel CRM On Demand response leap to mind.

At the moment, that innovation urge has struck, Hamerman notes in the report. Hamerman focuses on innovative applications for ERP suites that have just arrived, or will soon, encompassing a broad range of functions, including finance and accounting, procurement, human resources, customer relations, order management, inventory and supply chain activities.

Even with the glut of mergers and acquisitions that have occurred during the last two years, Hamerman claims, “substantial innovation is under way.” He terms the new breed of enterprise applications “dynamic” and says that they have resulted from the convergence of four technologies: content and collaboration, business process management, service-oriented architectures (SOA); and business intelligence.

Combined, he says, these four factors make new applications dynamic because they are user-centric with lots of personalization; have business process management (BPM) capabilities; are more flexible and configurable, thanks to SOA; and allow for real-time collaboration. These apps can also extract BI data in real time, and not just for after-the-fact reporting. Finally, they’ve been built with software-as-a-service usability and flexibility in mind.

What kind of applications are we talking about? Microsoft, he notes, has been focusing on role-based user experiences. With its aptly named Dynamics product line—which covers financial, CRM and supply chain management software products—the company “is on a path to innovate the user experience in a way that will create differentiation in the marketplace,” he writes. Microsoft has already given a “user interface facelift” to the latest releases of the Dynamics suite that incorporates some of the familiar usability models from Microsoft Office, he notes, as well as using content and collaboration features from SharePoint. “Perhaps the most innovative aspect of Dynamics is the development of role-based and process-oriented experiences, which will be more visible in future releases,” Hamerman writes.

In terms of flexibility, however, Hamerman says Microsoft still has some work to do, “since the applications still tend to be customized with nonstandardized tools. SaaS is still a few years off for Microsoft’s ERP products, but it is nearing availability for its CRM product.”

Oracle’s big play has been its years-long march toward its next-generation Fusion applications. The saga surrounding Fusion has been well-documented—including many stops and starts since its announcement in 2005. Oracle has recently asserted its 2008 initial release date, even with a recent corporate shake up. “The Fusion applications package appears to measure up to the dynamic applications capabilities related to its process orientation, SOA-based flexibility, information, collaboration and an enhanced user experience, but these capabilities are still largely theoretical at this point,” Hamerman writes. “One thing that we have not seen from Oracle is a commitment to deliver a SaaS-based ERP offering, a significant omission that is likely to hamper its efforts to compete in the lower mid-market.”

And SAP is making a bold move for midmarket customers with its Business ByDesign on-demand product, Hamerman says. Since SAP announced the product in late 2006, executives have been positioning it as “a SaaS offering that will feature an innovative application configuration environment for rapid deployment without customization,” he writes. “This product offering is initially aimed at the lower midmarket, and it will also feature enhanced usability, embedded BI graphics and process management, as well as integration via the SOA-based NetWeaver middleware platform.”

Another critical reason for the recent influx in investment by the big boys: Smaller software vendors are offering robust applications that are forcing the SAPs of the world to beef up and broaden their product offerings. Vinnie Mirchandani, an IT industry veteran whose Deal Architect consultancy counsels CIOs during negotiations with enterprise software vendors, says he sees most of the truly innovative software development happening outside the stratosphere of SAP and Oracle.

“There is so much innovation going on that is not coming out of the big software vendors,” he says. Mirchandani points to innovations in software as a service and social networking mapping technologies (called “corporate X-rays”), sensory networks that rely on RFID and GPS technologies, and predictive analytics, just to name a few.

His biggest gripe is that CIOs have historically put up with this lack of innovation from the big boys. “My point to a lot of CIOs is: You’re not getting this [kind of innovation] from the Oracles and SAP,” Mirchandani says. “So what exactly are you paying these big guys for?”

Forrester’s Hamerman does acknowledge one David that’s been challenging the Goliaths: Workday. The company has received a lot of attention, he says, in part to the fact that it was formed by David Duffield and other veterans of PeopleSoft. “Initially starting with a SaaS human capital management suite that is currently in its first release, Workday will follow with applications for finance, resource management and revenue management, which is a mix that should support many types of services organizations,” Hamerman notes. “Without the burden of traditional ERP designs, the user-centric orientation is appealing, and the application suite promises advanced configuration flexibility and embedded business intelligence.”

So, where does this focus on innovation leave CIOs? During the past couple of years, one could make a case that enterprise application vendor “innovation” has seemed more like how “innovative” can the big players be by swallowing smaller vendors that are bringing some really cool technologies to market.

“So, SAP buys Business Objects: What good does it do a buyer? It’s a Wall Street play,” Mirchandani says, also mentioning Oracle’s recent overtures for BEA Systems. “The tech industry is listening to investors and not buyers right now.”

In addition, Mirchandani points out that while an ERP system may seem like a commodity piece of infrastructure these days (everyone has to have one), the reality of systems management in 2007 makes it a bit more complicated. “The reality is that in other commodities you have a lot of choice to swap out activities. It’s not that difficult,” he says. “But it’s not that easy to fire Oracle or SAP. The lock-in with software is much more dramatic. You can fire Accenture or IBM. You can swap your hardware—in six months you can get it done. And you can get rid of Verizon or AT&T. But it’s much, much harder to fire Oracle.”