In-Depth

IBM Teams with ISVs to Extend ERP Reach

• 01/01/1999

The term "package solution" may conjure up images of a quick and easy fix for outdated legacy systems, but the reality of enterprise resource planning (ERP) package deployments usually runs counter to that perception, often producing more pain and less gain than organizations originally anticipate.

As a result, major ERP providers, such as SAP, JD Edwards, Baan, PeopleSoft, and Oracle are partnering with companies like IBM to deliver total solutions that boost the benefits and minimize the anguish of converting to an ERP platform. "It’s such a wonderful opportunity for us," says Greg Corgan, general manager, Global ERP Solutions, IBM ERP Solutions Unit. "This whole marketplace is growing substantially - 35-to-45 percent a year depending on what numbers you’re going with. In and around these projects there is a lot of opportunity for hardware, software, outsourcing, financing."

From IBM’s point of view, growth in deployment of ERP packages has helped the company consolidate its efforts in that space. "The package solution arena - there are a number of them - but ERP is clearly at the most critical level," Corgan explains. "It does allow us a chance to pull it all together and put some of our offerings in a more seamless fashion. The thing that’s difficult in some cases is we don’t actually own the software - now that’s both good news and bad news. The good news is that we play with all the suppliers and have an opportunity in all the projects. The bad news is you don’t have the software asset."

ERP packages are growing in popularity in large part because they can provide an integrated view and reporting of information from all areas of an enterprise. These applications also reduce costs, improve business processes as well as replace legacy, non-Year 2000-compliant custom applications. Driven by the need to transcend the limitations of outdated legacy systems and applications, organizations are continuously embracing ERP packages as a way to kill the proverbial "two birds with one stone." First to upgrade their business processes to achieve lower operations costs and greater efficiency, all while developing a cutting-edge IT platform that will position them for new opportunities, such as electronic commerce.

These two dynamics are the market-driven operational strategy and the emerging opportunities strategy, explains Paul de Janosi, partner, Cambridge, Mass.-based Benchmarking Partners, Inc. In the market-driven area, there are four reasons companies opt for an ERP deployment, he says. First, the company is in a mature market and is looking for cost-cutting opportunities because their top line is only growing in the single digits. The way this type of company makes money is by driving the bottom line on the cost side.

The second type of company is in a high-growth, dynamic environment. They are looking to build out processes that will give them the foundation upon which to build their business. The third area de Janosi dubs "market activity" - companies that are going through mergers and acquisitions. These companies are looking to build up an architectural IT architecture that allows them to either assimilate or divest companies. The fourth area is companies that are going through some form of regulatory change - privatization or otherwise, such as organizations in the utilities industry, which now must compete and bring to bear a different type of business process.

There are three phases to the emerging market strategy - internal integration, supply chain optimization and collaboration, de Janosi says. "There’s a recognition that there are opportunities that get facilitated by having put in an ERP infrastructure, and there’s three phases that we’re seeing companies go through in that recognition," he remarks. "The first phase is the internal integration phase, and they use ERP to help them facilitate that integration. It’s a way to break down the functional barriers and improve the processes to allow electronic information to be passed back and forth.

"The second phase that we see companies go through is what we call the supply chain optimization phase," he continues. "What they’re doing is they are going beyond their traditional [electronic data interchange] EDI connections to now share information with suppliers and customers. And the third area is what we call the collaboration phase where people are deploying much more concentrated usage of electronic commerce tools and the Internet, and other sort of infrastructure-related things and actually redefining how their businesses are interacting with their customers and suppliers and the ultimate consumers."

In an effort to maximize the opportunities in the ERP space, IBM has partnered with many major ERP providers, including SAP, Baan, PeopleSoft, Oracle and JD Edwards. In September, IBM formally unveiled its Global ERP Solutions Unit, which aims to work closely with ERP vendors to design complete industry-specific solutions around their products based on IBM technologies that accelerate time to benefit for ERP customers.

The new unit combines IBM offerings - both from a market experience and an internal product use standpoint - to help its customers develop their own ERP strategies. The unit offers IBM business consulting and implementation services, e-business and supply chain extensions to ERP, industry extensions to ERP, all four families of scalable IBM servers; IBM middleware, database, groupware and transactional software; PCs and NetworkStations; storage hardware; and IBM financing.

At SAPPHIRE ’98, IBM rolled out a new and enhanced menu of products, services and integrated solutions aimed at providing SAP R/3 customers accelerated time to benefit from their R/3 solutions. The offerings included SAP Ready-to-Run R/3 (RRR) and SAP Accelerated Solutions pre-loading R/3 on IBM Netfinity and AS/400 brand servers and Smooth Services for R/3. IBM’s extensions of R/3, like Lotus Notes/Domino, Tivoli TME/10, DB2 Universal Database, Net.Commerce, SecureElectronic Transactions (SET), VisualAge for Java and MQ Series, aim to provide e-business benefits.

At BaanWorld Europe ’98 in October, IBM announced IBM Global Services, scalable servers, complementary software products and industry solutions for companies of all sizes to support the Baan Company’s ERP applications. The announcements included the launch of the IBM Baan Implementation Factory, an IBM Global Services package of implementation services to be available next year in both the U.S. and Europe. The companies also announced the general availability of Baan applications on the IBM S/390 and AS/400 server brands, and general availability of the IBM DB2 database for use with Baan enterprise applications.

IBM is approaching the ERP marketplace from five different directions — the end-to-end market, the transaction base, the extended solution piece, targeting small-to-medium businesses and partnering with ISVs, Corgan says.

With the end-to-end market approach, IBM is building consulting and sales skills that can engage with the customer at the front end of the selection process. It can then advise and guide them on business process reengineering and drive IBM’s influence downstream when these customers choose a service provider, hardware provider or software provider. In the transaction base approach, IBM is looking to provide one or more pieces of the solution where the company has already selected the ERP package and other components.

The extended solution piece focuses on providing assistance and products to expand the capability of an ERP platform that a customer has already installed. Given the vast opportunity in the deployment of ERP systems by SMEs, IBM is targeting these companies with cost-effective solutions. IBM also is working very closely with the ISVs themselves and sees these alliances as a key element of its overall strategy in the ERP space.

"First of all, we go with them into customers and in many cases they’re the last piece of the total solution," Corgan says. "We provide our services and our hardware and our software with an SAP application platform or a Baan application platform and bring to the customer a track record of having done some of these things that makes them a little bit more comfortable about the whole process. For us, it allows us to complete the picture, it also allows us in many cases when we work together to get into opportunities that we might not be in and vice-versa with some of these ISVs and ERP application vendors. They have very good customer relationships and they like to work with us and through us to drive opportunities for them and to have a partner that can provide a lot of the things the customers are looking for."

ERP software vendors also see value in teaming with vendors, such as IBM on major projects. "With IBM we are partnering very strongly with their Global Services group for the implementation support," says Mark Peterson, Director of Strategic Alliances, JD Edwards. "We are partnering very strongly with their two hardware divisions to provide solutions there with our software. The AS/400 and Netfinity are at this point the best performing platforms for our One World product — very high utilization with a large number of users; but, we had adopted the strategy that we are a software company and we will still do a percentage of implementations either ourselves or in conjunction with our partners. We absolutely want to partner with people like IBM around the world to have them develop large implementations."

"PeopleSoft has long-standing relationships with business partners that are continually evolving and enhancing," says Howard Klein, Manager PeopleTools Product Strategy, Pleasanton, Calif.-based PeopleSoft. "PeopleSoft has entered into partnership discussions with hardware vendors, such as IBM, and software vendors in order to find solutions to customer needs that are above and beyond the scope of the current PeopleSoft application suite. When it makes sense, we will leverage the expertise of a partner to help in the development of key or adjunct application modules. Our goal for such alliances is to meet the customers’ requirements more rapidly, while lowering their total cost of ownership."

The move toward tighter alliances between independent software vendors (ISVs) and companies like IBM is consistent with a growing body of research. In two recently released reports, Framingham, Mass.-based International Data Corp. (IDC) outlined a number of emerging trends in the ERP software market. According to IDC, almost all the major ERP vendors are stretching well beyond the Fortune 1000 and either have launched or announced a marketing campaign that strategically targets the small to medium enterprise (SME) segment. In addition, ERP vendors have restructured their organizations for vertical alignment, recognizing that vertical markets have differing application requirements.

A third key strategy has been in the area of partnerships and alliances. According to IDC, ERP product functions have been improving consistently in the past several years, and an increasing number of strategic business partnerships are being forged between the ERP application vendors and systems integrators, consulting companies, and distribution channels.

These alliances and partnerships are particularly important in two areas — extending the technical functionality of the ERP platform and by bringing to bear consulting and other support services to remove more of the pain from ERP deployments. There also is a hefty amount of money to be made in providing these services. IDC estimates that the worldwide ERP consulting and integration services market is expected to expand at a compound annual growth rate of 17 percent, while the client/server segment will grow by more than 25 percent annually over the next five years.

"We work with partners, such as IBM, to create a symbiosis, whereby the partners offer their expertise for hardware solutions to complement our software. In order to facilitate such relationships, PeopleSoft has established the Alliance Solution Center (ASC), where the partners, in conjunction with PeopleSoft, develop customer solutions for sizing, tuning and providing the means for early adoption of new technologies," says Klein.

Since training must be conducted as an integral part of the ERP project, the earlier the knowledge transfer occurs in the implementation process, the better the chances for successful ERP adoption. IDC estimates that the U.S. ERP education and training services market was $770 million in 1997 and will exceed 30 percent growth over the next five years. ERP training market growth will be fueled by the success of ERP applications, as well as by the strategic recent move of leading ERP vendors into the mid-market and the end user training arena.

To succeed in these two new market segments, IDC researchers believe ERP vendors must offer flexible technology-based alternatives to their traditional technical classroom training programs. IDC recommends that ERP services providers and their clients have a clear understanding of the business objectives of the project. They must define business processes in the context of package chosen; manage expectations; obtain executive sponsorship and internal communication, establish clear project plans and responsibilities; and build training as an integral part of the project.

In intensive surveys of companies’ critical priorities, Benchmarking Partners found that although technical issues are not initially the most critical issues in an ERP deployment, that changes over the longer term of the business lifecycle. "It’s a big issue ultimately for these big implementations because, even though everyone talks about the non-technical issues during implementation, at the end of the day the right architecture can make a huge difference. Not just during the implementation, but the ongoing ability for this company to respond to the market," de Janosi says.

In the course of two in-depth studies of ERP deployments among 300 enterprises, Benchmarking Partners found that user organizations’ critical priorities change at different stages of the process, requiring that a different skill set be brought to bear to ensure success. During the ERP implementation itself, the companies’ critical priorities in order of importance were: strong project management, executive management support, rollout training, managing change, choosing the right partner and using business process re-design effectively.

In the second study, which was completed recently and analyzed companies who have had ERP platforms in place for greater than 12 months, technology becomes more important, de Janosi says. "Technology is not the issue during implementation," said de Janosi. The right technology and the right infrastructure are critical success factors after the implementation, more so than during the implementation. People and process critical success factors are most acute that first 12 months after the implementation, but then they tend to yield to technology concerns.

"It’s not just the partnership during implementation, it’s the partnership after implementation that’s an important factor," de Janosi explains. "One logic that you can try to apply is the company that has been involved in the implementation, but also has an ongoing business life cycle relationship with you is potentially a better partner. In other words, someone who has an infrastructure-related element of your business that’s in there for the long haul is potentially a better partner."

"The other dimension to what IBM’s doing is, even though it says ERP on the front end of that strategy, within the ERP scope they’re including after the customer goes live, so they’re having a lifecycle mentality, de Janosi continues. "After people have installed the system, what service offerings and what role can they play in the company?" IBM is "recognizing that companies are going through a lifecycle and that first wave is just one element of it during the implementation. That is potentially unique. IBM wants to be in that account, always helping them get to the next level of business performance and it can be varying combination of services, software and hardware over the course of these different lifecycles."

JD Edwards’ Peterson sees the alliance with companies like IBM as a win-win. "I think what we can do for each other is help provide a total solution to a customer," Peterson says. "They bring a certain set of skills both on the hardware and the structure and the applications. We bring skills on the applications. We bring the software and a customer by buying a partnership like this — it’s really more than just ERP, it’s really supply chain ..."

"I think especially in a large segment of the market that’s what they’re looking for," he continues. "They don’t want to have to partner with five different vendor organizations. I think a large portion of the market is looking for more of an integrated, not single source, but certainly a limited number of partners that provide a total solution."