Evolving Enterprise Applications 2009 - Increasing the Business Value of Investments in ERP and CRM

CATALYST
Enterprise applications are functionally mature at the core but remain immature in the value generation area. Technology changes are opening up more opportunities for value maximisation at the business level but are also increasing complexity so that, more than ever, enterprise applications need to be viewed and managed from the multiple perspectives of architecture, process ability, and delivery, under the banner of cost and value to the business.
ANALYSIS
Introduction
Enterprise applications – integrated suites of applications used to run a large part of an organisation’s core business – are highly mature in terms of functionality, with some aspects qualifying as commodity operations because there is little differentiation between the various offerings. They are far from being commodity items in their entirety however because of their role in automating, standardising, and executing the critical operations needed to run a business. Investment in enterprise applications is a consistently high priority for organisations but the unfortunate aspects of their cost and complexity make them a prime target for cost cutting during recessionary times.
While constant evolution could be interpreted as a sign of weakness, it is more an indication of their strategic value and a reflection of the cost and intellectual capital tied up in them. Indiscriminate cutting will undermine value and increase risk to the business; strategic investments to improve efficiency or better manage interactions can release the value from existing investments, and generate new opportunities.
Business Issues
Business has a dynamic and momentum that sometimes defies logic but cannot be ignored and IT plays a critical role in enabling organisations to function effectively. While applications contribute through their transaction, data management, and automated process execution abilities, the key to unlocking their value lies in aligning them with business goals and being able to rapidly and cost-effectively change them in line with business change.
While technology plays a vital part in enabling this, an integrated mindset is also an important consideration, whereby applications, processes, infrastructure, management, people, and business objectives are viewed as inter-related components not siloed projects. A collaborative approach supported by formal methodologies and frameworks such as Enterprise Architecture, Business Management Modelling, Value Management, and benchmarking for health and fitness for purpose are routes towards a better understanding of both costs and value-generation opportunities, and towards enabling more proactive use of IT and enterprise applications to improve the business.
With the world economy scaling down, 2009 may not be the time for wholesale new investment, but strategic spending is advisable to maintain the value of existing enterprise application investments, streamline and improve business operations, and enable organisations to take advantage of fresh opportunities. This can be achieved through application extension; not by loading up on transactional-type functions, but by focusing on “intelligent” extensions – those geared towards providing insight and analysis; enabling group, enterprise, and partner-wide collaboration; improving customer interactions; or driving more efficient processes which can directly affect the amount of business that can be done, or the margins achieved.
Small, focused investments that leverage existing implementations can deliver substantial benefits. Improvements in production planning that reduce waste by a few percentage points can deliver significant financial returns for example; abandoned online shopping carts could be indicative of a poor process – reducing the number of clicks needed to complete an online purchase may increase the number of sales and any improvement can be readily measured. At a deeper level, providing analytics as a shared service across the enterprise and feeding insight into operational activities is a prime example of a value-generation strategy.
Every system has a limit in terms of modification and top-down extension, and when the cost and complexity of change starts to hold the business back a more radical approach is needed that may involve an upgrade. Always more difficult than they should be, the next round of upgrades will be even more taxing because they will include an architectural change to a SOA and need to be committed to on a “spend now, benefit later” basis. Once there, organisations are being offered the prize of applications with modularity, application flexibility to support business agility, and better business management plus shorter and easier upgrades, but to achieve these benefits a major upgrade initiative is required. While vendors are providing tools to make upgrading easier, they generally only apply to the modern versions of their applications.
Spending in strategic areas can be offset by savings in others. The cost of maintenance is a drain on budgets but there are strategies for managing costs. While the cost of maintenance fees paid to vendors is rightly an area of concern and there are ways to reduce the cost, internal maintenance costs tend to be higher and provide more scope for reduction from increased use of standard components to application consolidation.
Opting for an alternative application model such as SaaS can be an effective way of managing the cost of applications and improving business operational efficiency. The online delivery and subscription payment aspects are important because they describe a low-cost, rapid-deployment scenario, which can be all important for organisations looking for a rapid return on investment and the ability to alter business operations to enable them to quickly act on a business opportunity. However, the key to uncovering its full value is to understand its capacity for flexibility and how that flexibility complements each organisation’s need for an adaptable, agile, business.
Technology Issues
Change is always a difficult time and the degree of current change at both the application and underlying architecture levels is compounding the issue. All architecture roads seem to lead to SOA: vendors are rearchitecting their applications around SOA, the framework is altering the way applications are constructed, SaaS providers are building to a SOA model, and organisations are under pressure to make the transition. Yet that transition is no minor matter and the implications stretch beyond the technology sphere.
SOA is a response to the lack of agility in previous generations of applications that locked business into a rigid way of working because process knowledge and business rules were hardcoded within the applications. By delivering functionality as a series of services aligned with identifiable business operations and able to be loosely coupled together to create processes and applications, it is changing the way applications are constructed and provides an architectural approach to enabling the application agility needed to adapt to changes in the business environment.
Understanding where SOA fits with existing architectures and implementations, and how it can add value, is one of the major challenges facing organisations. It can be retrofitted into existing environments, playing a role in integration, extending their capability and providing access to new types of technology and functionality that existing systems are unable to support. As such it can extend the life and value of existing systems while providing a bridge to a new generation. However, it is an inherently more complex environment so it demands strict governance. As with anything new, it resolves some existing problems but presents a different set of challenges.
The application environment is also being redefined through the use of BPM, which plays an important part in opening up locked-away functionality and carrying out integration across disparate applications. Another of its value dimensions is its ability to focus on the external, providing an architecture for inter-company operation. BPM can also contribute to Master Data Management (MDM) initiatives, which provide another approach to management and integration across and outside the enterprise and play to the business need for an integrated mindset and architectural base.
The other dominant technology change is around SaaS of course. SaaS has expanded beyond CRM. Platform-as-a-Service has delivered highly accessible development, customisation, and integration capabilities within the context, and with the cost and usability benefits, of a service-based model. SaaS no longer means having to take what you are given.
Different SaaS architecture models have emerged and this impacts issues such as security, performance, and interoperability. The ability to integrate SaaS applications with each other and with on-premise applications has been key in raising the value proposition of the model and making it attractive to larger enterprises as well as small and medium-sized businesses. The SaaS model encourages organisations to subscribe to multiple services from multiple vendors, and even to become a provider of whole or component services. While this can pay dividends in enabling flexibility and business innovation it opens up new areas of risk to the business, both technically and legally, necessitating the need for management policies, strict governance, and stringent security.
Market Issues
The enterprise applications market has passed through its phase of febrile acquisition activity and settled into a consolidation and development mode. That has done nothing to lessen the dynamism within the sector as the vendors work on updating architectures and application structures, and integrating their acquisitions. Although acquisitions will never cease, it looks like most of the major ones have been completed. The next round will revolve around the Web 2.0 vendors and the specialist SaaS providers.
The economic situation has changed the balance of power in the vendor-customer relationship with customers in a stronger position than during the boom years. Vendors’ heavy investments in acquisitions and developments mean they are under pressure to recoup their costs via increased sales, but with budgets being cut or remaining static they are struggling. As a result customers are being offered rather more in the way of carrots than sticks as indicated by vendors’ willingness to offer substantial licence discounts, defer increased maintenance charges, and engage with user groups to start tying maintenance to value and deliverables.
There is also an increased focus on providing highly focused productivity and application modules that can be implemented rapidly for a quick ROI, something that fell by the wayside in recent years as vendors concentrated on architectural developments. Some of the new modules are actually components stripped out of larger existing modules that have been repackaged and tweaked to address a specific operation. While there is an element of buyer beware – check that you don’t already have the function – it is an indication of the potential value that can be delivered through fine-grained modules.
Economics, customer power, new architectural models, and disruptive delivery models, have opened up the market and shown that there are alternatives to the traditional enterprise application format. However, there is a risk of vendor lock-in (in a strategic more than a technical sense), as a result of each of the major providers offering both applications and middleware, and in some cases the data infrastructure and hardware too. Taking advantage of end-to-end stacks can be beneficial for harmonisation across global operations but it has to be a conscious and strategic decision.


Report Highlights
KEY FINDINGS
• Enterprise applications are an easy target for cost-cutting initiatives but inappropriate cost cutting of the core applications that run the business undermines value and increases risk.
• Breaking down organisational silos, particularly between IT and business units, is fundamental to exploiting the innate value of enterprise systems but requires a collaborative culture and enterprise architecture approach.
• Applications are in a state of change – restructuring around a series of platforms and tasked with delivering process standardisation.
• Application extension is not just about adding new functionality but providing tools for insight, analysis, and collaboration.
• The Software-as-a-Service (SaaS) model brings its disruptive influence to bear on the integration, ERP, and application development areas.
• Under-utilisation of existing systems is a significant issue – 50% of standard functionality regularly goes unused.
• Standardisation is a major contributor to unlocking value and reducing costs.
• Strategic maintenance management can improve operational costs and release resources for value-generating initiatives.
• The next round of upgrades will be more challenging than normal technical or functional upgrades but is necessary in order to support the quest for business agility.
• Stability and flexibility appear to be mutually exclusive, but architectural change is starting to provide a solution, thereby providing a business case for additional investment.
• Service Oriented Architecture (SOA) and Business Process Management (BPM) are edging systems towards the much sought after alignment between applications and business objectives and application agility.
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Contents – July 2009

Section 1: Management Summary 7
1.1 Management Summary 9
Section 2: Business Perspectives 13
2.1 Report Objectives and Structure 15
2.2 Business Drivers 16
2.3 Technology Change Points 21
2.4 Reducing Costs, Maximising ROI 25
2.5 Extending Application Boundaries 33
2.6 Enterprise Application Evolution 41
2.7 Application Portfolio Management 45
Section 3: Architectural Considerations 49
3.1 The Impact of Service Oriented Architecture 51
3.2 Application Consolidation 60
3.3 BPM in the Application Environment 65
3.4 Common Data Models and MDM 69
Section 4: Application Delivery 75
4.1 The Software-as-a-Service Model 77
4.2 SaaS Architecture 80
4.3 SaaS Integration 86
4.4 Distributed Services – Risk and Management Considerations 89
Section 5: Application Upgrades 95
5.1 Application Upgrade Considerations 97
5.2 Critical Points in the Application Upgrade Programme 102
5.3 The Case for Application Modernisation 107
Section 6: Application Maintenance 111
6.1 Identifying Maintenance Value 113
6.2 New Maintenance Models 120
6.3 Strategies for Reducing Maintenance Costs 124
Section 7: Vendor Strategies 129
7.1 Vendor Strategies 131
BT CRM Services 131
CODA 132
Consona 133
Epicor 134
Exact Software 135
IFS 136
Infor 138
Lawson Software 139
Microsoft Corporation 141
NetSuite 143
Oracle Corporation 144
QAD 146
RightNow Technologies 148
Sage 149
Salesforce.com 150
SAP 152
SugarCRM 154
Unit 4 Agresso 155
Workday 155
7.2 Case Studies 157
Section 8: Glossary 163
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