Extended ERP: The path of least resistance?

It might surprise you to learn that the world's leading supplier of supply chain software isn't i2, Ariba or even Manugistics. In fact, sales of SAP's supply chain software outstripped all these companies in 2003. Now the German software giant, together with the other big enterprise software vendors, is muscling in on the customer relationship management market.

Hays Logistics had been using SAP to manage its business for three years when it signed a contract to manage distribution for fast-food giant KFC. The deal, involving shipping £400m of goods each year, meant Hays would need new software to handle telesales, order taking, marketing and customer service. Hays decided against using a niche CRM product, instead using a CRM module from SAP, says Nick Ensor, Hays' SAP programme manager. "We didn't even consider best-of-breed," he says. "Buying from SAP offered what we needed, at a good price, and it was simple."

Extended ERP
Hays' decision to implement SAP over more specialised applications might seem unusual given the reputation ERP has acquired as being expensive and unwieldy. But it's just one example of what Giga Information Group calls 'extended ERP' -- extended enterprise software suites incorporating functionality that was previously limited to best-of-breed suppliers such as supply chain management, procurement and customer relationship management. Giga found that of the 60 percent of companies rolling out CRM this year, 26 percent had bought the software from their ERP supplier.

The advantage of extended ERP is that it overcomes the integration headaches associated with best of breed. "Integration is a key issue for companies that want to cut IT spending," says Erin Kinikin, a research leader with Giga. "Vendors like JD Edwards or PeopleSoft offer a coordinated application that blends front- and back-office processes in a way that's very attractive, particularly to smaller companies."

Real-time information
That's certainly the experience of Sven Christiansen, a small office furniture manufacturer based in the West Midlands. The company uses the Microsoft Axapta ERP suite for everything from accounting to procurement, logistics and stock control. "We can get more or less real-time information from the system, and if we make a change to a customer record in one part of the system it changes everything down the line," explains Stuart Brown, the company's IT manager.

Generally, the functionality of extended ERP suites won't match up to the best-of-breed alternatives. But in many cases the functionality will be good enough. "If you buy best-of-breed you might get a better package but you have to get it all working together and build all the links," says Brown.

The ERP vendors are investing big bucks in bridging the gap between their products and best-of-breed competitors. In the three years that Sven Christiansen has been using Axapta the product has improved dramatically, says Brown, and the company has been able to customise the application in areas where it meet their needs.

Functionality shortfall
Any performance gap is minimal, believes Ray Barratt, head of CRM with SAP UK. "We're able to do the whole range of CRM, from call centres to portals and self-service -- with the added benefit that everything can be linked to the back office," he says. In addition, the current generation of extended ERP is more flexible and open than earlier products, Barratt believes. The current version of MySAP allows users to link into virtually any other Web service application and is compatible with J2EE and .Net, the two leading web service protocols.

For most companies, any shortfall in functionality is likely to be outweighed by the benefits of improved integration, says Chris Deacon, head of business process consulting at CSC. Deacon argues that in nine out of ten cases, companies simply don't need to look any further than Oracle or SAP. 'It's just so much easier to take the path of least resistance, and there's virtually no difference in functionality,' he says.

Over budget
But not everyone thinks the demise of best-of-breed is a foregone conclusion. A recent report from AMR Research found that the average cost of implementing extended ERP modules was $1.5m and that typical projects went $100,000 over budget. Only 13 percent of companies surveyed by AMR said extended ERP had saved them money – although the software offered benefits such as improved collaboration with partners.

If cost is a priority then best of breed might be a better option, says Le Roux Cilliers, a practice leader with Deloitte Consulting. "Best of breed has a vital role in providing short-term boosts for business," he says. "There is an enormous focus on delivering quick benefits to business today, and an ERP module is rarely the best way to achieve that."

Cilliers points out that a cheaper, best-of-breed package might only be in place for a couple of years without ever being integrated into the overall IT architecture. No matter -- by that time the software has done its job: "Often, best-of-breed packages offer functionality that mainstream vendors won't match for a couple of years so there is a short-term benefit to niche vendors."

When Royal Mail rolled out a new customer portal in 2001, the company opted for best-of-breed CRM software rather than an extended ERP module. The software from ATG was the only product that offered all the features Royal Mail wanted, including personalisation, scalability, traffic monitoring and market intelligence.

Software not a religious war
Integration isn't necessarily a problem when using best-of-breed software, believes Paul Kelsall, Royal Mail's IS director. The portal was built using Java, which was easily linked into the company's existing back-office systems in three, 90-day projects. Since the portal went live, Kelsall's team have added almost 40 new applications to the portal, including Bills Online, which lets customers view, pay and manage household bills over the Internet. "We've been able to reduce development cycles and increase the speed we can bring new services to market," says Kelsall.

In many cases, the decision whether to go best-of-breed or ERP is taken too seriously, says Kinikin. Although it's easy to assume the ERP giants are conquering the market, she believes that CRM is really fragmenting into several different markets -- with ERP companies selling into large enterprises, while best-of-breed providers remain popular in the service sector, where there is no real installed base of ERP software. "Rather than applying any business analysis, too many companies are adopting an '‘Oracle for us' or 'We love Manugistics' position," he says. "Don't forget -- this is software, not a religious war."