ERP Modernization: A Top Priority for Midsize Companies
Recently Larry Simcox, Sr. Director of the Oracle Accelerate Program Office, hosted a webcast discussion of current market and technology trends that are driving midsize companies to upgrade or replace legacy enterprise applications now. Joining Larry were three experts on this topic: Eric Kimberling, President of Panorama Consulting Solutions; Lyle Ekdahl, Group Vice President and General Manager of Oracle's JD Edwards product family; and Jeanne Lowell, Vice President of Oracle's E-Business Suite Strategy.
This four part series provides a recap of this interactive discussion.
Trends and Market Factors Driving Modernization
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What technology trends are driving the modernization of ERP by midsize companies?
Kimberling: First, companies now more than ever have more deployment options. In addition to the traditional on-premise model, there are Software as a Service (SaaS) subscription and 3rd party offsite hosting options. Second, companies are just trying to get more out of their investments in existing systems—whether it's through better organizational change management, training, definition of business processes, or implementing some third-party or edge applications to augment their core ERP systems. They're looking at where they can get the most bang for their buck and positive Return on Investment (ROI).
What are you hearing from Oracle customers regarding the budget pressures and volatility they may be experiencing?
Lowell: An increasing number of companies are focusing on how to support growth and competitive advantage while managing costs within the constraints they're experiencing. How can IT help deliver the expected return on an acquisition? How can IT enable them to actually take advantage of current economic conditions through global expansion, product or process innovation, or added products and services? And, do their current IT systems support what they're looking to do? Perhaps their acquisition strategy has left them with many different systems, which doesn't really give them the efficiencies that they expect and need. Also, we're seeing more pre-IPO situations where companies are preparing for high growth and equity firms are examining the IT systems they have in place. Customers are looking for visibility and agility in their business, and want technology to enable that. When customers decide to invest in technology, they want a solution with rapid time to value, and that will scale and adjust with their business.
Is there now an even greater need for low Total Cost of Ownership (TCO) for ERP systems?
Ekdahl: Many companies end up spending about 70% of their IT budget on care and feeding of existing systems. I hear from business leaders at midsize companies that, given the challenges of limited capital or decreasing access to capital, they want to turn that 70/30 proposition on its head—free up funds to use technology to streamline new processes or fuel innovation for future growth. Technology can be a potential equalizer for them when competing with large multinationals and nondomestic competition.
The Evolution of ERP
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Have midsize companies changed their expectations of ERP from what they were 5-10 years ago?
Lowell: Midsize companies' operations have become more complex as they compete in the global economy. Companies that have historically operated domestically using their own resources and facilities, now operate globally in which they sell to customers around the world, source products and services globally, and outsource manufacturing or logistics. Given this, midsize companies expect the role of modern ERP to handle these complex needs, which are broader than that of the systems they're currently using from a business process perspective. They expect ERP to truly be a complete, integrated global, enterprise-wide system that manages all of these processes across their global enterprise—not just for back office functions like financials, manufacturing, and order taking. Many customers want to extend their current ERP deployment to add new processes as their business changes and grows and as users demand it. Oracle's enterprise applications enable this strategy with deep industry specific functionality within each suite, with integration with Oracle's other industry leading applications, and with services to integrate with third party solutions. On top of this, customers want visibility to their global business operations with strong business intelligence, which enables them to be more agile in the competitive global economy.
Are midsize companies moving away from customization and toward packaged applications?
Kimberling: 95% or more of clients we work with in the evaluation, selection, and implementation processes are very opposed to the idea of customization. In the late '90s, a lot of companies went down the customization route in preparation for Y2K. Many were burned and have seen the dark side of customization. It's become a dirty word in the industry. A lot of project failures can be directly attributed to high levels of customization.
Companies now look for software providers that provide flexibility such as there is in the new release of Oracle E-Business Suite. Midsize companies are also looking for a best of breed approach—having a core ERP system plus some outlying products. For Oracle customers, that might be Siebel, Demantra, and Hyperion products that address non-core ERP areas but still support an integrated model supported by one vendor that provides the best of both worlds.
Ekdahl: ERP prior to Y2K was often designed and positioned to support customization. The underlying tools made it possible for the customer's IT staff to meet specific requirements or mimic older legacy systems. And, frankly, to fill feature and function gaps that may have been present in initial releases of software or to adapt to changes in business and business process. In some cases, the configuration capability provided within the systems was actually abandoned for deep, deep customizations that and touched core objects in the system. Some of that was due to lack of knowledge of the system but more commonly this happened due to strong business pressures and because it was possible to do it with the tools provided. In any case, the IT staff became responsible for supporting and maintaining custom features, which just adds to TCO. The trend we now see in the JD Edwards installed base in recent deployments is to stay as vanilla as possible—use the best practices offered in the packages, or through partners using Oracle Business Accelerator templates.
Lowell: Our E-Business Suite customers also want to use vanilla software, and leverage the configuration and personalization available in the products. As customers move forward to the latest releases, they are working to get rid of customizations and take advantage of expanded native functionality as well as the flexibility to configure how a process runs and the corresponding user experience. This puts them on track to keep up with our latest releases without having to make code changes. They take advantage of new functionality and lower their TCO.
Are midsize companies now willing to do a paradigm shift in their business processes when they upgrade or replace their ERP?
Kimberling: Yes, absolutely because business has changed so much over the last 5 to 10 years. Most companies have been under a financial duress. Maybe they've gone through mergers and acquisitions, retrenched from some markets, expanded operations overseas, or started outsourcing manufacturing overseas. Suddenly there's a mismatch where the company has changed but they haven't invested in their core enterprise systems to keep up. Sometimes it's easy for end users to blame the software when it doesn't do what they want it to do. They're not likely to put it in the context of, "hey…are business has changed a lot and we haven't upgraded the software in seven years". Typically when we go through an evaluation with a client we find that it's not the software's fault. And the first thing we evaluate is whether the client's objectives can be met by upgrading their existing systems. This is certainly true for Oracle clients since Oracle is constantly coming out with new releases. Customers can usually gain a lot by just simply upgrading the software.
As companies start to evaluate solutions they will see that enterprise applications are now much more robust, especially in areas such as CRM, Business Intelligence, and capabilities for complex manufacturing models. They may realize that by upgrading or replacing their current systems, a lot of the needs created by the changing business climate can be filled—basically, letting the software catch up to where the business is.
Lowell: We're also finding many midsize customers that are moving to our enterprise-class applications, which provide more value and costs less than upgrading their legacy Tier 2 or Tier 3 systems. With implementation tools and expert partners, along with hosting and managed services—and Oracle Financing—we've made it cost effective for even smaller companies under $200 million to deploy top tier Oracle solutions. For them, it's about investing in an enterprise class system to have the scalability and flexibility for the future, and meets their time to value and cost requirements now.
Kimberling: Sometimes people think that midsize companies operate in some alternate universe. They don't. They have to compete in the same marketplace as their larger brethren that are using enterprise class solutions. Many midsize companies are more complex than large enterprises. They may be more likely to use technology as a competitive differentiator and need to take advantage of what only Top Tier applications can provide in areas like B2B (Business-to-Business) and B2C (Business to Consumer) commerce.
The ERP User Experience & Data Management
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How do you see ERP business users changing in the way they interact with enterprise applications?
Ekdahl: Business users form a matrix of user types that are defined by such things as organizational levels or frequency of interaction. In midsize companies users may span roles with multiple user types. The role of IT systems within the business may have also evolved from being purely repositories of information to enabling a business process. An IT systems' role might also be some combination of those two plus data used to drive trend analysis or pattern-based decision making.
The average system user in today's workforce has used technologies and business applications for the better part of their life. They are using cell phones, the Internet, and very sophisticated and increasingly simple-to-use consumer electronic entertainment and devices. They demand more intuitive, user-friendly applications similar to what they use as consumers. This more sophisticated business user wants more control in system interaction and its behavior—not just in providing IT the requirements but also in configuration and personalization, interactive report and analysis construction, and workflow maintenance.
How do midsize companies make sense of all the data they can collect with modern ERP systems?
Kimberling: Many companies struggle with how to make sense of all that data and not let the flexibility of a system get the best of them. Companies, especially smaller ones, can get overwhelmed by the vast amount of flexibility and options—the different ways, different processes that can be set up. The flexibility is great because it enables companies to deploy an off-the-shelf software solution like Oracle without customization. It's more of a strength than a weakness but companies have to mitigate the risk. They implement in a way that doesn't give users free reign over how they conduct business processes or how the business is run. They need to keep structure in place behind the solutions and technology. Finding that balance can be a struggle.
With Tier 1 solutions like Oracle, chances are the software can handle what customers want it to. It's just a matter of clearly defining what they want. Business intelligence and business processes set up in the system are key components. "How do we make decisions with all this data we have now? What do we do with it? What are the reports that we want to look at? What's important to us? What are our KPI's (Key Performance Indicators)? How are we going to run the business?" Technology and automation haven't replaced the human brain in terms of making decisions and determining how to run a business. All this has to be part of the ERP replacement or upgrade process to make sure a company gets the most out of its investment.
Oracle's Development Strategies for ERP Modernization
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How is Oracle development helping midsize companies modernize their enterprise application systems?
Ekdahl: Midsize companies need enterprise class functionality at a low TCO. We continue to release major updates to both the JD Edwards EnterpriseOne and World applications suites. We've done at lot of things at the tooling layer of EnterpriseOne to make that system more robust in terms of configurability, usability, and lowering administrative costs—all of which contribute to maintaining our low TCO. We continue to build integrations to Oracle's best of breed products like CRM and Business Intelligence so Oracle's customers of all sizes can take advantage of those strong products.
Lowell: Oracle continues to invest in all our acquired product lines as part of our Applications Unlimited strategy. This approach is fundamental to enabling customers to continue on with the product in which they've heavily invested. Customers continue to have a choice in terms of how they take advantage of both the products they currently have and other complementary Oracle technology and application products.
Ekdahl: Oracle's midsize customers benefit from the synergies across Oracle's enterprise product suites, best of breed products, and middleware. We've rationalized that middleware layer to provide best in breed technologies that cover everything like reporting and business intelligence and yet go deeper into more administrative, identity management, and single sign-on activities. When JD Edwards was a smaller, independent company we had to worry about all those pieces in the technology stack but as part of Oracle we can leverage teams of talented people—like system architects and database and middleware guys.
How is Oracle development supporting the changing roles of ERP users?
Ekdahl: We have a very concentrated investment in user interaction and user performance through process streamlining—bringing just the right functionality to the right user at the right point of process. This supports diverse deployment options, like where you have an ERP backbone on premise, but subscribe to additional services in a public or private cloud that can be quickly accessed at that point of process. We're exposing easier-to-use capabilities for business users in the areas of process innovation, personalized configuration, and application flow. This investment is not only in our next-generation set of applications, but is also being delivered across the entire enterprise application portfolio. When you look at E-Business Suite, PeopleSoft Enterprise, Siebel, or JD Edwards you're going to see these new capabilities enable the new roles of business users.
Lowell: Global business has expanded ERP users to go beyond a company's employees, and include customers, suppliers, and partners. Oracle E-Business Suite provides self-service functions for such users - suppliers, customers, and partners - related to sourcing, orders, invoices, supply chain planning, and more. Expanding what Lyle noted earlier, it's about bringing the right functionality to the right user at the right point in the process - inside and outside of your enterprise.
What does the future hold?
Lowell: The Oracle E-Business team is centered on continuing to deliver global, integrated enterprise-class capabilities, and helping our customers to take advantage of these latest capabilities. We're also focused on how our users access and gain insight from the integrated data, accessible through the right device for people doing a specific job. Along the way we have to make sure we keep everything cost effective. We are taking advantage of latest technology to reduce cost and effort for companies to run and deploy our applications, either by themselves or through other deployment options. Fundamentally, we continue to build upon the strength of EBS, and deliver innovation that provides business value in today's changing world.
Ekdahl: At JD Edwards, we hear from customers that we need to continue to move functionality out to the point of process, usually through an alternative device such as a tablet or a smart phone. Customers are looking for ways to quickly access new capabilities and that might mean looking at alternative deployment options—private, public, or hybrid clouds. This is where Oracle's engineered systems approach is really going to take us to an age of mass simplification. In some way technology will come full circle. Early in the history of JD Edwards everything was on System 38-all in one box. Oracle is uniquely capable, given the assets we've amassed, to really engineer simplicity across the stack and across all options to just make it easier and at a lower TCO. It's the culmination of collecting, verifying, sorting, and prioritizing feedback with an eye to the horizon. The wants and needs of customers are our lifeblood. We reach out to our partner ecosystem as well as a fairly well-established pyramid of customer interaction that includes tactical user groups as well as strategy councils and CIO/CFO forums. This is how we pull together the overall strategy of where we need to invest and how.
All Oracle development organizations, including JD Edwards, dedicate research and development resources to engineering simplification across the tech stack, lowering administrative costs and making it easier and less expensive to deploy solution through mechanisms such as Oracle Business Accelerators. At the same time, we're working with new breakthrough technologies—such as mobility, collaboration, and embedded analytics—to offer strategic business value.
As a 3rd party consultant how do you see that Oracle is helping meet the business requirements of midsize companies?
Kimberling: Oracle's role is to bridge the gap between technology capabilities and their adoption. All this great new technology we've talked about—rich functionality and flexibility—is great and it works. But technology doesn't mean anything unless the users and the larger organization can adopt it. In some ways, Oracle has been a front runner and visionary in defining or developing tools in addition to the technology itself that helps users adopt the software. Examples include the User Productivity Kit and Oracle Business Accelerators. At the end of the day, companies like Oracle need to take a step back say, "Okay…we've got the technology—now how can we ensure that our clients and customers adopt the software in a way that's going to be meaningful and deliver business value".