ERP, Web 2.0 adoption trends cry out for long-term plan

CIOs, set your strategy. A Forrester study says CIOs are upgrading their ERP systems, integrating apps and deploying Web 2.0 offerings in 2008.

CIOs allocate about one-third of their IT budgets to software-related costs. How are you spending your money in

2008?

According to a recent global survey from Forrester Research Inc., you are making major upgrades to your ERP systems. Integrating applications is a top priority, which means service-oriented architecture is hot. You remain cautious about open source software. But when it comes to Web 2.0 technologies such as wikis, blogs and discussion threads, you're hopping on the bandwagon. Large and small Web 2.0 deployments are planned in 2008.

"The simple fact that you get more information, more capability and more features on the Web to get work done than you do in your own company, is pretty much driving these Web 2.0 initiatives," said R. "Ray" Wang, a principal analyst at Forrester, in a phone interview this week. "Honestly, I can get better services outside of most enterprise companies today."

Fighting words for CIOs? Not at all, Wang said. Reality.

"We need to collaborate and we need a system in case our enterprise systems fail. Corporate IT departments are trying to figure out how to incorporate Web services, packaged app vendors are trying to figure out how to incorporate them, and users are just trying to figure out what they can do and still adhere to corporate IT policies."

The Forrester findings are from "The State of Enterprise Software Adoption," a report published Jan. 25. The Cambridge, Mass.-based firm surveyed 1,017 IT senior decision makers in 17 industry sectors for the study. Companies ranged in size from 1,000 to more than 20,000 employees, with the majority of respondents coming from organizations with more than 5,000 employees.

Polemics aside, Wang insists the main message from the study is that CIOs, more than ever, need a long-term software strategy.

"If we take all our survey data, we see people looking at integrating applications, people looking at upgrading packaged applications, people moving from a function to a business process perspective," Wang said. "Ultimately, this requires a long-term app strategy -- how to plan for these application deployments, how to think about upgrades, about consolidation of master data, about collaboration tools."

Where to begin when developing a five to 10-year strategy, given the complexity and the pace of change in software?

"The first place we tell customers to look at is the business drivers. What are the business projects and initiatives, start there, and understand how these tie back to people, how they tie back to the business process and, after that, think about technology you need," Wang said. "Finally, think about where the solutions will come from -- are you going to give it to a vendor, are you going to build it yourselves, or partner with someone?"

From function to process

So, how do the numbers break down? The No. 1 software priority for 2008 is improving integration between applications, cited by 33% of IT senior executives surveyed by Forrester. Upgrading packaged applications ranked second on the to-do list, cited by 18%. That number was a sharp increase from 3% in 2007.

"Shifting from a functional to a process orientation" was listed by 17% of respondents as the top priority, followed closely by "designing a five- to 10-year application strategy" (16%) and paying more attention to information management areas, such as enterprise content management (15%) and master data management (14%).

 

Companies looking to "shift from a functional to a business process orientation" will need a very long-term plan, and possibly a therapist on hand.

Business process management attacks people's egos, said Frits Bussemaker, founder of BPM-Forum Netherlands, in an email. "Where we used to be king of own little empire, we're now telling managers they are part of the value chain. Most people I know are not ready for this."

Most companies are organized by functions, such as sales, marketing, human resources and so on, said Janelle Hill, who heads the BPM practice at Stamford, Conn.-based Gartner Inc.

Companies have focused on optimizing processes within those functions. Aligning employee roles and responsibilities with a process, as well as function, can reap big benefits by giving employees visibility to the process from end to end. Having a common picture of how a process works "stimulates tremendous innovation and improvement," she said. "It's a new way of looking at your business."

Cold feet on open source

CIOs remain cautious about expanding their use of open source software. A top priority for just 5% of those surveyed, respondents cited security, as well as availability and support for open source applications, as major concerns.

"A lot of that [concern] is driven by the fact that there isn't a big vendor behind this, pushing for delivery of services, for helping to create ways to reduce the cost of implementation," Wang said. As for security of open source applications? "There are a lot of people testing it, but I think CIOs feel more comfortable with a vendor they can assign liability to should something happen."

Compiere Inc. in Redwood Shores, Calif., offers an "interesting" model in the ERP/customer relationship management arena, Wang said. And Red Hat Inc. in Raleigh, N.C., "has been doing its job for years. But there aren't as many success stories as one would have hoped for. We need more."

Industry trade groups and associations should do more to support open source, Wang said, "especially as maintenance fees continue go for the traditional packaged application vendors."

"Squandered"

While Wang and colleagues were encouraged that CIOs planned to allocate 25% of their software budgets to new development -- similar to 2007 -- they were dismayed by the 33% of the entire software budget that was still "squandered" on software maintenance.

"If you think about how much software licensing and maintenance is these days, we're running about 20% or 25%. That is the equivalent of every four or five years, paying for the same cost of your license," Wang said. In 10 years, the life of many major software deployments, "are you getting 2x the worth of that software in maintenance?" Wang asked. "For most people that answer is no."

Indeed, Wang said he wonders "why in the world" there are not as many third-party vendors as there were in the 1970s for hardware, when IBM and Compaq, for example, relinquished their stranglehold on maintenance, and a slew of third-party vendors competed to tend the equipment. When that market opened up, dollars were freed for new projects.

The alternative? "New customers need to demand lower maintenance fees up front, because the profit margin as we hear and as we understand from the vendors is anywhere from 60% to 80% by the third year of that software production, so there are extreme margins on maintenance and definitely not extreme value being given to customers."

 

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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