"There appears to be a bit of a paradox between the massive and recent consolidation in ES and the excitement for and growth of SaaS and E 2.0. If E 2.0 and SaaS are such great opportunities, why are vendors still consolidating?"

New Tech, New Life

Enterprise software (ES) is changing. Adoption of SOA, SaaS, and E 2.0 technologies is breathing new life into the ES market. This bodes well for firms seeking more ES flexibility and ease of use.

Old Model, Shrinking Opportunity

The recent consolidation in the ES industry shows that the market is approaching saturation. As ES tools and the attendant management practices diffuse across companies and industries, firms won't be able to generate strategic advantage from ES as easily as before.

Opening Statement

Over the last few years, the enterprise software (ES) market has undergone some dramatic consolidations. Large business intelligence (BI) vendors got swallowed up -- SAP bought Business Objects, IBM bought Cognos, and Oracle grabbed Hyperion. PeopleSoft ate smaller enterprise resource planning (ERP) rival JD Edwards, and, in turn, Oracle swallowed PeopleSoft. We now have just four big ES vendors: SAP, Oracle, Microsoft, and IBM. The nascent software-as-a-service (SaaS) industry is taking root and continuing to advance, just as cloud computing gathers more steam. And most recently, Enterprise 2.0 (E 2.0) tools, such as blogs, wikis, social networks, and crowdsourcing are also much discussed and starting to show up in major ES vendors' platforms. Where does this leave enterprise software?

In transition.

Since the dawning of material requirement planning (MRP) and manufacturing resource planning (MRP II) software in the 1970s and 1980s, ES has grown increasingly consolidated and complex. As I am defining the term here, "ES" includes ERP, customer relationship management (CRM), BI, supply chain management (SCM), and corporate (or business) performance management (CPM/BPM). Implemented, maintained, and serviced correctly, ES offers significant advantages. Firms that use ES to consolidate and simplify a critical mass of business processes and core IT architectures reap the benefits by saving money and allowing the business revenue to grow faster than the overall cost of IT and management administration. Most firms understand this benefit and have achieved it -- or are pursuing it -- with ES tools in place. I would suggest that the recent consolidation in the industry shows that vendors realize the market is approaching saturation.

Furthermore, with the rise of E 2.0, ES vendors are starting to incorporate this new class of technology within their suites. When this transition is completed, the industry will have evolved from five prior phases of ES to a sixth phase (see Table 1).

Table 1 -- Six Phases of ES

Certainly not all firms are at ERP III. Firms are still at varying stages of adoption of extended enterprise solutions (SCM and CRM), and Universal ES is yet to come. As I said above, I believe the ES market is clearly in transition.

A SHIFT IN FOCUS IS NEEDED

In this transition period, companies that procure and manage ES need to shift their focus.

In this issue of Cutter IT Journal, our authors touch on important aspects of this shift. First up, expert practitioners Jim Ritchey and Phil Hill point out nicely that companies may be basing ES purchase decisions on an obsolete assumption: that it is ES features that matter most. In this age of recent and rapid consolidation, Ritchey and Hill argue that companies should pay more attention to the underlying system design and the implications of the design. Web services, service-oriented architecture (SOA), and SaaS enable delivery of more and more features. What is needed, they argue, is spending time to understand the implications of the architecture embedded in the ES solution, which varies from vendor to vendor.

Some ES vendor products are more open and based on components. Other vendor offerings are monolithic and cannot always easily accommodate other ES vendor products. Ritchey and Hill recommend matching the ES architecture to the needs and skills of the company. The authors describe three case studies, each a little different, to show how these tradeoffs can be examined.

Our next author, Mingdi Xin, examines one of the hottest trends to hit the ES market in recent years -- software-as-a-service. Xin makes the case that while SaaS implementations may vary, adoption will increase over time. This is driven by the further modularization and standardization of business processes and the availability of IT architectures to support SOA. SaaS solutions differ from inhouse ES solutions in one particularly important respect. Because they do not have access to the core components of the SaaS solution, firms cannot make deep customizations to SaaS modules. Firms using SaaS have to closely coordinate their upgrade schedules with the SaaS vendor, which can be difficult. Xin examines several factors that may make organizations more -- or less -- likely to adopt the SaaS model. She hypothesizes that adoption of SaaS will be more likely for firms with:

• Less need for customizations

• More uncertainty about the demand for services delivered by SaaS

• A desire to manage commodity processes that are not part of their core competency

• A lower number of users to support

• Less extensive IT capabilities and less internal hosting experience

• More mature IT architecture

After reading Xin's article, I concluded that SaaS adoption will probably continue to grow among small and medium-sized businesses, startups, innovative business ventures, and commodity business processes, as companies seek ways to reduce startup costs and provide low-commitment ways of dealing with uncertainty in new or volatile markets. If this is the case, then SaaS is apt to remain a permanent feature of the ES landscape, but it will be least likely to affect core competency and very high-volume business processes. I suspect that if SaaS were to grow into these areas, the deep customization problem would need to be solved, and it may follow general data center outsourcing trends, where other infrastructure factors may dictate use of the SaaS model.

Another concept much talked about among CIOs and ES vendors -- and sometimes more as an armchair discussion -- is Enterprise 2.0. Practitioner and management consultant Tameem Farooqui looks at E 2.0 and sees continued inclusion of these tools and techniques across ES solutions. Like our other authors, Farooqui notices the contributions SOA and SaaS have made to the ongoing evolution of the ES market. He then touches on some of the recent moves by large ES vendors to incorporate E 2.0 tools in their ES suites, such as mashup abilities (which let users pull together content from a variety of sources to create hybrid applications) and collaboration tools.

Farooqui looks at these moves and concludes that ES solutions are starting to bridge the gap between the management of structured and unstructured data. Web 2.0 technologies, such as blogs, wikis, mashup and crowdsourcing tools, RSS, tagging, and social networking tools will be added to the constellation of ES suites, thereby bringing ES solutions fully into the unstructured data management world. This, he argues, will "challeng[e] the prevalent work culture" and pave the way for the "dawn of emergent collaboration" in ES.

There appears to be a bit of a paradox between the massive and recent consolidation in ES and the excitement for and growth of SaaS and E 2.0. If E 2.0 and SaaS are such great opportunities, why are vendors still consolidating? Normally, massive consolidation occurs around a stabilizing or shrinking market, as firms can't easily find new market opportunities. In my article, I contend that the consolidation in the ES market is driven by market saturation. Use of standard ERP and ERP++ (i.e., SCM + CRM + other bits) has grown dramatically over the past 20 years. The advantage of these tools lies in standardizing and simplifying business processes through the consistent and efficient management of highly structured data. Furthermore, adoption of ES for the management of structured data brings along with the ES a set of management practices. Together the ES technology and the management practices provide the source of advantage.

Management of structured data is hard. ES tools provide significant value, in and of themselves, in managing such data. E 2.0, on the other hand, promises new strategic benefits to firms in the management of unstructured data, which -- from an IT and CIO perspective -- is easy. I contend that E 2.0 advantages will be more closely tied to management practices than to the technology. Because of this, ES vendors are not likely to make large profits from E 2.0 additions to their ES suites.

Indeed, to take advantage of the new social and collaboration tools, firms will need to more actively manage their cultures and have transformational leadership capable of doing this. The new tools will be used to share critical and competitive knowledge and, in turn, to produce elite levels of performance in teams. In short, the new social and collaboration tools will shift the focus off the technology and onto a new set of management practices. In my article, I make the case that this new set of management practices will not be easily replicable. Firms that can learn and apply these new practices may develop a long-term advantage. But while the new tools may be necessary for this advantage, they are clearly not sufficient.

If this is the case, then it stands to reason that firms will derive less and less competitive advantage directly from their ES suites and more and more from nontechnical leadership and management factors. What we may be witnessing is E 2.0 hastening the transition of ES from a "strategic advantage" investment to a "must have" investment. Like electricity and the telephone, will ES be fully commoditized?

On a very different note, David Avila-Porro, Ben Light, and Rachel McLean tackle the ways ES vendors use Web-mediated interactions to engage their customers. Like many other industries, the ES industry has used the Internet to market, sell, and support its solutions. Like consumers of electronic goods, business buyers of ES suites research vendors on the Web, collaborate with each other, and share knowledge. As a practicing CIO, I see this myself, having had dozens of conversations with my peers as they have considered purchasing what I had already bought and implemented, while I quizzed them on whether their implementation of the ES solution I was considering was all that the vendor said it would be.

The authors rated about 25 different Web features along a single dimension, interactivity (from low to high), and then evaluated some of the big ES vendor sites. Not surprisingly, the authors noted that ES vendors emphasized sales features on their Web sites. However, SAP, Oracle, IBM, and Microsoft sites all have collaborative features now, so we are seeing vendors apply newer collaboration and E 2.0 technologies in their sites. It appears the doctors are healing themselves.

Despite these changes, ES vendors still don't use fully standardized language. As we all know, vendors like to take a term (such as E 2.0) and immediately stretch it to serve their marketing and sales purposes. The authors note that this is confusing to customers and time-consuming. I couldn't agree more. However, while I would greatly appreciate it if vendors could define terms consistently, I hold out little hope that this will happen, as ES vendors do compete on language. Warfare is often merely ontological.

IS THE ES MARKET TRANSITION GOOD, BAD, OR NEUTRAL?

Clearly, all our authors sense that the ES market is in transition and that this transition involves principally the rise of SOA and the adoption of SaaS and E 2.0 technologies. Interestingly, these three technologies may be contributing additional complexity to the ES soup. Large firms can add architectural complexity and perhaps spur unintended growth of redundant business processes through increased adoption of SaaS and E 2.0, which SOA enables. This may undermine the benefit ES suites produce, which is rooted in standardized and simplified business processes. Will this transition in ES take us backwards?

On the other hand, the transition may be beneficial. Perhaps the E 2.0 tools being added to ES suites will give rise to organizations that can more easily share knowledge and improve collaboration, despite any increased process and IT complexity. If so, then the transition will enhance firm performance and competitiveness and take us forward. The third option is that SaaS and E 2.0 will continue to grow, but by and large the promise of ES tools -- standardized business processes and efficient structured data management -- will continue, with firms slowly and steadily increasing their abilities over time.

Regardless of the final impact, the point is clear. This transition requires some attention. Firms should challenge some of their basic assumptions about their ES portfolio and reexamine the portfolio in light of recent consolidation and general advancements in the tools. How firms think about and select ES tools matters. How they choose to deliver their ES solution -- via inhouse hosting or a SaaS model -- may matter. The user-centric capabilities of E 2.0 also merit a close look. And the way firms will be deriving strategic advantage from ES is likely to shift, too. What firms do next will determine the collective outcome.

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