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ERP Innovation – Is that all there is?

 

September 1, 2011

Doug Hadden, VP Products

Technology columnist and blogger Josh Greenbaum reflected on a question: which of the two leading Enterprise Resource Planning (ERP) vendors is the most innovative.  My view, as captured in my comment to the post, is that neither of these software vendors is particularly innovative. Any recent innovation seems to come from company acquisitions, not generated from internal research and development.

Theory of Technology Innovation

Harvard professor Clayton Christiensen has written the book on technology innovation. More specifically, many books on innovation. Christiensen describes the differences between disruptive innovation and sustaining innovation. Successful leaders in any category become unlikely to challenge the status quo through disruptive innovation because it disrupts business models.

Where is ERP Innovation?

[Note: we don't consider FreeBalance to be an ERP vendor. We've been ERP-free for almost 30 years focused exclusively on government.]

This seems to be a trend in the consolidating ERP market where acquisitions become the primary tactic to achieve growth to support the strategy of building a large maintenance annuity.

My view is that the current “innovations” touted by major ERP vendors come via acquisitions or aren’t innovations at all – just market following to maintain market share (and the maintenance revenue business model).

Analysis of recent ERP “Innovations”

Government CIOs and public financial management professionals should be wary of these so-called  innovations.

Innovation: Cloud services: major ERP vendors provide software on the “cloud”

Assessment: Slow Follower

  • ERP vendors have fallen behind the major CRM, ERP and HCM cloud vendors with little uptake. One of the major vendors seems to have gone back to the drawing board so many times that it’s hard to keep up.
  • There has been a lot of noise about which vendor has the best technology for cloud deployment. As analyst Ray Wang pointed out in a recent tweet, even the cloud leaders are using rather old technology. That’s the rub. Get under the facade and what do you find? Legacy client/server technology – 15 to 30 years old.
  • The use of legacy technology makes it more expensive to deploy: maintaining old code, translation between legacy and web, shoe-horning something not meant for the purpose, adapting to meet customer requirements, larger technical footprint requiring more equipment resulting in power consumption etc.

FreeBalance Approach

  • We took the approach of re-writing software in a completely web-native FreeBalance Accountability Suite. We used good software design practices to develop a technology built for the government domain.
  • At the time of design, particularly in late 2006 and early 2007, we didn’t think that this was a particularly innovative approach. We’d tried the traditional approach of wrapping legacy technology and realized that it wasn’t sufficiently extensible and that the costs of maintaining this “kludge” would need to be passed on to customers. So, we thought that it was only a matter of time before the large ERP vendors introduced web-native applications. We hoped for a temporary “leapfrog” window of opportunity that would end by about mid 2011. And, we thought that we were taking our time!

What does this mean for government?

  • Government organizations are accused of holding on too long to “rust”. Legacy systems require more maintenance over time. These systems become resilient to change – hold governments back from leveraging technology change. The web facade not withstanding, many government organizations are investing in the new rust.
  • Governments who are looking at doing more with less. Creating efficiency, saving money. One technique for public financial management is IT shared services deployed as a government private cloud. The premise is that economies of scale can be achieved in this method. But, governments are finding that technology not designed for this purpose does not generate the expected efficiency – often adds complexity, reduces agility – all at a high cost to migrate and maintain.
  • That’s why FreeBalance developed the technology from scratch to support shared services and shared services migration to standards

Innovation: Business Layer Middleware to enable intra-suite integration

Assessment: Laggard

  • This is a bit of a variation on the above. Many ERP vendors have created or announced technology that enables integrating software packages from acquisitions. The notion is that it can provide implementation and maintenance benefits.
  • Yet, the realization of these projects (and some of these projects seem to have disappeared) provides no particular innovation. It’s just a better way to get parts to work together. And, there seems to be a challenge to get all the parts working together to get the best possible solution across the vendor product suite.

FreeBalance Approach

  • As described above, we used modern technology. We support web services. Reuse of business objects that we call government entities. Granular access to these objects. Designed to integrate with modern technology.

What does this mean for government?

  • Integration is becoming an increasing opportunity in government. Government organizations need to “act as one”. Software vendor focus on intra-suite integration and use of legacy technology limits government agility to integrate technology to provide better value to people and better citizen services.

Innovation: Corporate performance management, real-time analytics and dashboards, in-memory databases

AssessmentFast Follower

  • Don’t get me wrong, there are some compelling performance management technology coming from ERP vendors. However, these all seem to mainly come from acquisitions: the three largest Business Intelligence companies were acquired by larger firms. As were in-memory databases. (Not that there haven’t been embedded databases for at least 20 years).

FreeBalance Approach

  • We’ve worked with our government customers to understand what is needed in government performance management. Although we do not innovate on the “bells and whistles” and integrate with reporting and analytical tools, we’ve come up with a government-specific approach.
  • Government performance is different. It’s budget-centric because the budget is the legal embodiment of government policy. Outcomes and outputs are not inputs to performance, as in the private sector – rather the results. This is much more difficult to conceive.
  • Transparency and open data have become key government needs. Although many of the ERP vendors provide some toolkits, few are integrating front and back office transparency for 10 years of budget transparency like our customer, the Government of Timor-Leste.

What does this mean for government?

  • Government CIOs can distinguish between the visualization tools and the performance integration tools.

Innovation: Vertical market “quick starts”, change management software, BPM integration, call-outs, upgrade kits

AssessmentLaggard

  • There are significant costs to customize ERP and maintain those customizations in ERP software. Methods to mitigate these high cost problems are somewhat commendable, but this seems to be overcoming a design flaw.

FreeBalance Approach

  • Our software was well-known for the ability to configure to meet most government requirements. We customized the software to meet government requirements. This meant that the new code became part of the main line and was fully supported by FreeBalance. No need to maintain BPM scripts, call-outs, custom code when upgrading.
  • We recognized in 2006 that this configuration ability was a core differentiator. So, we extended it further to provide more flexibility and adaptability without the need for our government customers to write a single line of code.

What does this mean for government?

  • Governments cannot accomplish “business process re-engineering” and adapt to many “best practices” without changes in legislation. Mandates change frequently. And, there are new demands for reform that requires future changes. Hence, an approach of low-cost progressive activation significantly reduces the Total Cost of Ownership (TCO) – even relative to these ERP work-around techniques.
  • For added measure, Version 7 enables upgrading from any version from version 7.0 to any subsequent version with a single step.
  • Oh, and we don’t force upgrades and support many more versions than industry standards (kudos to Infor for having a similar policy).
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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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