Face it: Enterprise apps may no longer provide the strategic advantage they once did. Now what?

It used to be that companies saw enterprise applications as the glue that held together their most critical operations. How could you manage a company of any scale without the software necessary to, say, aggregate complex transactions, or track and manage all of your employees? But that pivotal value has come at a steep price: AMR Research says that companies worldwide poured $76 billion into ERP from 1999 to 2002, and that they're likely to invest another $89 billion from now through 2006. And that doesn't even include the cost of all the business process re-engineering and user training required to synchronize the processes and the software.

There was another reason companies were willing to foot that bill: Once all the parts were in place, companies expected they were also buying a competitive advantage. They assumed that those company-wide applications would give them a leg up on rivals whose operations weren't yet so highly automated. Part of that advantage, it was further assumed, came from choosing the strongest ERP vendor in the area most critical to the company's operations: Oracle Corp. in financials, SAP AG in manufacturing, and PeopleSoft Inc. in human resources.

But time has tarnished some of those assumptions. Today, most large companies have implemented some form of ERP, so simply having an ERP system is unlikely to be a key differentiator. Meanwhile, the functional differences between the various vendors' flavors of enterprise applications are rapidly dwindling, says Forrester Research Inc. senior analyst Jennifer Chew.

Though we're still several years from the day where technology can be purchased like power or water (see "The Simplicity Paradox," April 2003), enterprise software is increasingly commonplace. "We are going to have a commoditized world," predicts Dean Davison, vice president and director at META Group Inc.

What's an IT exec to do? Learn from other businesses, such as telecommunications and wide-area networking, where simply having a particular capability is necessary, but not sufficient, to compete. Begin by taking a hard look at which of your ERP's capabilities are critical to the way you do business, and consider what you can do to reduce the financial impact of everything that isn't at the core. Then do the homework necessary to determine whether it makes sense to keep managing those non-core components yourself—or to look for outside alternatives.

Ask Your Controller:

How much have we spent on ERP in the past four years?

Ask Your It Analysts:

What do we get from our current ERP vendor that we couldn't get from another?

Ask Your Business Constituents:

How much does our ERP software truly differentiate us from competitors?

This article was originally published on 06-16-2003
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