Enterprise resource planning (ERP) applications are the complex, multimodule suites of business management software that handle accounting, distribution, manufacturing, human resources, and payroll. Typically targeted at Fortune 1000-level enterprises, these are the applications that, before client/server, would have been run on IBM mainframe, AS/400, DEC, or HP minicomputer platforms. Today, ERP vendors are focused primarily on the Unix platform, and the market is dominated by six major players that account for over $4 billion in software and service revenues collectively. (See Table 1.) In this article, I discuss trends indicating that ERP vendors are extending their reach from both an application and a market perspective.

Reaching New Markets

As larger enterprises become saturated with new-generation client/server ERP systems, vendors are being forced to find new markets for their product suites to continue to drive their growth. This pressure is causing ERP vendors to increase their appeal to " small business" clients--businesses with less than $500 million in annual revenues--through a number of initiatives. These initiatives include supplementing their direct sales force with a fledgling reseller channel, lowering the entry price point of their software to make it financially viable, stratifying their software offerings to appeal on the basis of reduced functionality, improving their implementation methodologies for faster deployment, and porting their products to less costly platforms, such as Microsoft Windows NT.

New Channels

Vendors such as SAP AG Inc., Oracle Corp., and Baan Co. have been quietly building reseller channels--both in the U.S. and worldwide--to reach the smaller businesses that are looking for complete " one-stop" shopping for their ERP solutions. This, of course, places them in direct competition for quality resellers along with the next tier down--middle-market client/server accounting vendors who primarily sell through channels. The ERP software is made more financially attractive by lowering the entry price point for each module and ramping up the total costs by pricing based on user licenses. Oracle is being particularly aggressive in this respect with software pricing that compares favorably with middle-market client/server offerings from companies such as Platinum Software and Great Plains Software. Although J.D. Edwards ventured in these waters by complementing its OneWorld suite with a lower-cost line called Genesis, most of the vendors have avoided producing less-expensive " lite" versions of their software. SAP abandoned its SAP Lite project some time ago, and it looks as if lite versions will have to wait until the ERP suites become truly componentized.

Faster Implementations

All ERP vendors have suffered from the perception that their software is difficult and costly to implement. This perception has provided a windfall bonus for the " Big Six" accounting firms that have generated billions in fees from their ERP software implementation " practices." While it is true that some implementations have been measured in years and in millions of dollars of consulting costs, the fact is that implementing these applications is difficult. An ERP system may consist of dozens of modules that are deployed on a multinational basis to service hundreds of users from many different business departments. There may also be a complete change of IS infrastructure--say from a mainframe to a Unix platform--while a number of core business processes are being simultaneously reengineered. ERP vendors have thus begun to focus their effort on making the implementation process easier by providing more effective tools and methodologies to speed up the process, creating consulting " swat" teams to intensify resources when required, and using model-based approaches and opening up their systems for easier integration.

SAP has introduced a program called AcceleratedSAP (ASAP) that takes the knowledge gained from thousands of R/3 implementations to date and encapsulates this expertise into a product called the Business Engineer. This product helps implementation teams configure the SAP modules to conform with the processing style of some 100 business operating scenarios. Methodologies such as ASAP help reduce SAP implementation times to less than six months in many cases. Oracle recently introduced a similar program called FastForward, to help speed up implementations of Oracle Applications suites and nail down the costs up front.

Despite the availability of new channel partners and Big Six implementation practices, ERP systems have often been difficult to implement because of a dearth of skilled consulting resources. As a result, initiatives such as Oracle's OracleOne or SAP's Platinum consulting services are leading the way in creating consulting "swat" teams and are charged with delivering fully trained and experienced consultants on a worldwide basis to push implementations through faster.

Models and BAPIs

Using products such as Intellicorp Inc.'s LiveModel, implementation teams can review and simulate changes to the SAP R/3 application Reference Model that provides views of R/3 processes, data models, and functions. The Reference Model and any changes made to it are stored in the LiveModel repository and can thus be audited and changed on demand. Furthermore, because LiveModel is OLE compliant, the R/3 models can be manipulated and documented through desktop OLE applications such as Microsoft Word. In a similar manner, Baan provides an offering called OrgWare that is based on the use of a tightly integrated business-modeling tool combined with business-specific templates that help automatically configure the software to suit specific operational needs. Baan is currently in the process of enhancing this tool with new setup wizards to accelerate software implementation on the Windows NT platform.

SAP has attacked the notion that the R/3 system is not open by releasing the specifications for some 170 business application programming interfaces (BAPIs), which help third-party applications interact with R/3 directly. BAPIs are simply sets of methods that allow external applications to collaborate with specific R/3 business objects, such as customers, accounts, or employees. The fact that what is under the covers may not actually be a true business object seems to matter less than the fact that some R/3 data is addressable through these callable methods. In any case, real business objects could simply be slotted in at a later date and provide compatibility with the existing BAPI methods when SAP eventually componentizes the R/3 applications.

Convergence on NT

Meanwhile, the argument to support the Microsoft BackOffice platform has been as persuasive to ERP vendors as to all other application vendors. SAP R/3 has been available since April 1994 on NT and since October 1995 on SQL Server, while Baan, Oracle, and PeopleSoft have announced the general availability of their applications on the BackOffice platform as of 1997.

Each vendor has a spin on its NT story. SAP claims to have over 2,000 R/3 installs on NT and holds Microsoft itself up as the company's trophy customer. Baan highlights its "Designed for Microsoft BackOffice" certification. Oracle touts its support for its own NT-based clustering technology, and PeopleSoft shows off its recent switch to BackOffice as its primary development and initial rollout platform. As Microsoft scales up its "enterprise" versions of NT and SQL Server to support more processors--as well as failover clustering and row-level locking--BackOffice is simply becoming a more viable platform for running demanding ERP applications. The BackOffice platform is already the platform of choice among the middle market vendors of accounting and distribution software with the NT/SQL Server combination grabbing mindshare from the popular Novell/Btrieve platform.

Application Platforms

ERP vendors already deliver comprehensive suites of application modules that support multinational deployment and Year 2000 compliance, and they are preparing for the introduction of the Euro (European single currency). But each vendor is trying to extend the reach of its software and make it more like an application platform than a suite of modules. SAP is already ahead in this race; its R/3 product is one of the few that can be centrally managed using popular platform management tools from vendors such as CA (UniCenter TNG) and Tivoli (TME).

All the ERP vendors can deliver specialized variants of their applications to service vertical markets such as government, healthcare, financial service, or retail environments. Some vendors are also moving into more specialized areas, such as supply chain management and demand forecasting or sales automation and marketing. PeopleSoft bought Red Pepper Software to enhance its supply chain offering, while Baan recently acquired Aurum Software for its Aurum Customer Enterprise suite of customer relationship management tools. To strengthen its financial modules, Baan also teamed up with Hyperion Software to link Hyperion's financial accounting, budgeting, and reporting solutions to Baan's distribution and manufacturing modules.

Improving decision support has been another focus of almost all the ERP vendors. Baan is linking its applications to the Gentia product from Gentia Software Inc. to provide OLAP capabilities and for the setup and monitoring of key performance indicators. J.D. Edwards teamed up with Information Builders to deliver a data mart based on Information Builders Inc.'s SmartMart suite of database access middleware, data transformation, reporting, and OLAP tools. Oracle provides a data mart designer and builder tool for creating data marts, and Oracle also offers Oracle Discoverer, an end-user tool for querying, charting, and reporting data from Oracle's Applications suite. The next version of PeopleSoft will include closer integration between PeopleSoft applications and both the client-based Cognos Corp. PowerPlay multidimensional OLAP tool and Arbor Software Corp.'s multidimensional Essbase server. SAP has also previewed its own Business Information Warehouse product for synchronizing the R/3 transaction system with a data warehouse that can manage both R/3 and non-R/3 data through use of a metadata repository and a front-end OLAP engine. You can also expect each of these vendors to examine Microsoft's OLAP server when it eventually sees the light of day (more than a year after the technology was acquired from Panorama Software Systems).

Web Enabling

As with every other software market, ERP vendors are being forced to move from a client/server to a browser/server architecture to Web-enable their software and thus deliver self-service and electronic commerce capabilities. Baan is working to deliver a Java-based Web interface to all its products. The company is also focusing on the automation of supply-chain relationships via the Internet, on e-commerce via the Microsoft Merchant Server (now known as Site Server), and using Hyperion Software Corp.'s Spider-Man technology for report and alert distribution across the Web. PeopleSoft is set to deliver its Universal Applications--Java-based self-service applets--with its PeopleSoft 7 release in late 1997. J.D. Edwards is also using Java to allow its OneWorld functionality to be available either through a Windows client or a Web browser, while Oracle has used Java to deliver its Oracle Web Employees, Oracle Web Customers, and Oracle Web Suppliers modules. (SAP has previewed various Web-based applets, which are slated for general release later in 1997.) In 1997, SAP released 25 Web applications for version 3.1 of the R/3 and recently previewed links to online catalogs for Web-based procurement. Unlike the Microsoft-centric middle market applications, the ERP vendors are all using Java, rather than Microsoft's ActiveX, for their first generation of Web-enabled applications. (However, Baan is one ERP vendor that has committed to support the Microsoft initiative of Application Foundation Classes [AFC] for Java.)

Client/Server, Objects, and Tools

Not all the ERP applications that support three-tier client/server deployment are truly object-oriented in design or offer the ability to customize their features using commercially popular tools. PeopleSoft will offer three-tier client/server in PeopleSoft 7 through the use of the BEA Systems Inc.'s Tuxedo transaction monitor and middleware messaging component. System Software Associates (SSA) is one of the vendors furthest ahead in delivering real object-oriented applications with its CORBA-compliant BPCS client/server suite, and it recently endorsed the Unified Modeling Language (UML) proposal submitted to the Object Management Group (OMG) by Rational Software Corp. The road to objects has not been easy, and SSA is just beginning to recover from a difficult fiscal year in 1996 when customer take-up of SSA's object vision did not meet the company's financial expectations. While there is a great deal of marketing talk among ERP vendors of objects and business objects, none has truly componentized its systems. Nobody is selling applications in the more granular--rather than modular--form which, after all, is the hallmark of a true "assemble-to-fit" component-based application.

The move by the ERP vendors to embrace Java as a means to deliver and deploy their Web functionality is the first move away from proprietary technologies to more open tools. One reason implementing solutions from SAP and PeopleSoft can be expensive and demand hard-to-find resources is because the tools for customizing their products--ABAP4 and PeopleTools--are proprietary. Whereas many lower-tier software vendors have built their application front ends using popular commercial tools--such as PowerBuilder, Microsoft Visual Basic, or Microsoft Access--the ERP vendors have not taken this route. As a result, you pay a premium for ABAP4 and PeopleTools programmers instead of leveraging the PowerScript or VB expertise you may already have in-house. Because Oracle is already a tool vendor, the company "eats its own dog food" by using Oracle Forms, Developer 2000, and Designer 2000 to develop its Oracle Applications--these are tools that you would, logically, expect to use in Oracle database shops.

Market Snapshot

Even with zero growth at SAP, it would still take any competitor a couple of years of triple-digit growth to overtake the German dreadnought. PeopleSoft hasn't made a wrong move so far, and Baan is also showing that it has the mentality and results to become a top-three player. Oracle has focused more attention lately on its applications business as a growth engine and seems to be reaching most aggressively into the territory targeted by the middle-market client/server accounting players. SSA, and even J.D. Edwards (which operates as a private company), seem to be in the most vulnerable position with their continued reliance on the momentum of IBM's AS/400 line coupled with their need to transition to new product lines and platforms where their previous market-leading positioning was less than clear cut.

Meanwhile the integrated-ERP vs. best-of-class argument rages on, but a chasing pack of best-of-class vendors such as FlexiInternational Software Inc., Lawson Software, and SQL Financials International Inc. looks unlikely to be able to gain much on the ERP juggernauts without a significant injection of funds that only an IPO can bring. The previous software generation's closest match to a leading ERP icon, Dun & Bradstreet Software, lost its way and was acquired last year in a fire sale by Geac Computer Corp. Ltd. Now known as Geac SmartStream, the company and its software assets have been pared back and it seems unlikely that SmartStream will present much trouble to ERP vendors in the near future.

ERP vendors are definitely extending their reach as they fight to maintain their growth momentum during the transition from client/server through browser/server to the promised land of distributed components. We can expect to see many more acquisitions along the lines of the Baan/Aurum deal, an increasing focus on the Microsoft BackOffice platform, and ERP packages turning up more and more in businesses that previously could just envy functionality available only to those with deeper pockets.