Research Publication Date: 25 July 2008 ID Number: G00158827 ERP, SCM and CRM: Suites Define the Packaged Application Market Yvonne Genovese, Jeff Woods, James Holincheck, Nigel Rayner, Michael Maoz Users interested in ERP are often seeking integrated functionality, evaluating traditional ERP-specific processes (such as finance) or using ERP as a short-cut name for business applications. Gartner often finds the latter to be an issue for users because packages available on the market today may not meet business requirements in industry or horizontal functionality. This research explores how the business applications market has expanded beyond ERP into focusing on business application suites. Users selecting or deploying packaged applications should understand the expanded definition of suites, of which ERP is only one instance, and how vendor suite strategies differ, and then incorporate it into their application strategies. Key Findings Packaged application suites are collections of integrated application functionality that solve a specific business need. Suites provide process, function, and data integration for one or more systems of record within an enterprise. Suites may be provided on a single application architecture and provide a consistent interaction model for users, but this is not consistent across all suites and all vendors. Some vendors acquire functionality that becomes part of the suite offering, but may not be tightly integrated (and may even exist on a separate technology platform). There are a range of viable suite-based options, and a view of the full-spectrum of suitebased offerings from CRM to supply chain management (SCM) to product life cycle management (PLM). Recommendations ERP suites may only meet a small part of your enterprise's need, and many other types of suites have emerged to encompass user needs from other organization areas. Users seem to look for ERP that: has integration ability; has traditional ERP-specific processes; and is a short-cut name for integrated business applications or suites. Users should understand their needs for process integrity across a range of functionality. Matching this to vendors' current suite offerings and the strategies for vendors' suites is important to creating a successful application strategy. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.
ANALYSIS The concept of tightly integrated, packaged application functionality is often associated with ERP because of the original definition of ERP. But 18 years ago, when the term ERP was first coined by Gartner, there was much less functionality available via packaged applications, and integration of the functionality was not as complex as it is today. As functionality available in packaged applications has grown, the need for more-extensive integration between processes has also grown well beyond what many ERP solutions provide in functional breadth and depth. Business and IT users often have an increasing thirst for integrated processes provided by vendors and, therefore, the notion of a complete suite that meets all the functional and process needs of an enterprise offered in a preintegrated suite continues to be the holy grail of packaged applications. Multiple application suites, such as SCM, PLM, CRM, supplier relationship management (SRM), human capital management (HCM) and corporate performance management (CPM), have emerged that often have similar integration capabilities as ERP suites integration of functionality, processes and data, targeted to solve a specific business requirement but with different target audiences. The nature of suites and the need for suites will continue to grow, but with so many types of suites available, and often with similar or overlapping functional elements, the risk for users in making the right "suite" decisions for their business needs has also increased. As the notion of suites has developed across these additional functional areas, several issues have emerged: The level of integration and process integrity within a suite and across suites differs by vendor, and even within a vendor across multiple suite offerings. Suites can often overlap in functionality even when sourcing from the same vendor. Vendor commitments of additional functionality within the suite, target markets of the suite, integration in the suite or across suites, and maintaining technology that supports the suite varies by suite and by vendor. Misunderstanding the need for process integration, a vendor's suite strategy (functional breadth and depth, integration, process integrity and technology) or not understanding that the vendor strategy is subject to change at any time can lead to unfortunate complexities, costs and lack of process integrity. Many enterprises made suite decisions (such as with ERP) so long ago that the processes defined in the applications have become synonymous with enterprise business processes. Because users believed that the suite would continue to grow to meet their demands, every upgrade has resulted in a greater dependency on the vendor and its definition of suite functionality and integration. Therefore, changing from one vendor's suite to another has significant costs when it comes to changing the processes, training the people and the technology. The end result is that inertia has taken precedence over ensuring that an enterprise has the packaged application solution that meets its needs. Understanding Packaged Application Suites Packaged application suites are collections of integrated application functionality that automate related business processes that share common master data. Suites provide process, function and data integration for several systems of record within an enterprise. A system of record maintains information about business activities and is validated as well as auditable (for example, posting a general ledger transaction, recording a new sales opportunity or following a customer order from entry to fulfillment). Publication Date: 25 July 2008/ID Number: G00158827 Page 2 of 7
Suites may be provided on a single application architecture and provide a consistent interaction model for users, but this is not consistent across all suites and among all vendors. When vendors acquire functionality, they will often claim that it is part of the suite, but it may have tight integration to the rest of the vendor's suite(s). It may even exist on a separate technology platform. In many cases, different types of suites can have overlapping functionality or responsibilities as the authoritative system of record. What distinguishes one type of suite from another is not a strict functional boundary, but rather it is the bundle of functionality and centricity of design around common elements. Examples of different types of suites are: ERP suites HCM suites Financial management suites CRM suites SCM suites Industry-focused suites It is important to note that these are not the only suites; other suites, such as marketing relationship management, PLM and supply chain execution, exist in the market and should be considered as part of the analysis of suites. ERP Suites The goal of an ERP suite is to enable adequate planning for the use of traditionally back-office enterprise resources to meet customer demand and report financial results to constituents. Gartner sees two categories of ERP suites: operational ERP suites and administrative ERP suites. The primary systems of record managed by ERP suites are the financial record and the inventory record, but customer, purchase order and sales order masters are also typically maintained in an ERP suite. ERP suites are often the "suite of suites," combining financial suites, HCM suites, manufacturing suites and/or inventory management suites. Although many enterprise application suites may concern themselves with inventory and financial records, the essential and defining element of an ERP suite is that the financial record update is tied to value-added operational transactions. Because people are also enterprise resources, the employee may be included as an ERP suite's system of record. Where these value-added operational transactions are tied to financial entries, Gartner refers to this as an operational ERP. We also refer to ERP deployments in which only administrative functions, HR, finance and procurement are deployed without direct links from operational transactions to these administrative functions as administrative ERP deployments. The user target for ERP suites operational and administrative is often the CFO (or anyone in the financial department) or the head of HR. Operations departments that manage inventory or fulfill demand can also be targets of operational ERP suites. The breadth of ERP suites also associates them with tightly integrated functionality, meaning that the vendor has eliminated the need for IT to integrate multiple pieces of functionality within the suite. This can result in lower IT costs and, therefore, an additional target for ERP suites is the CIO. Publication Date: 25 July 2008/ID Number: G00158827 Page 3 of 7
HCM Suites There are multiple levels of HCM suites. At the highest level is the HCM suite itself. It would manage the employee (or, more appropriately, person, since a contingent worker could be managed in an HCM suite) system of record. There are three subsuites that underlie the HCM suite: a core HR management system (HRMS) suite, a talent management application suite and a workforce management suite. The core HRMS suite encompasses personnel, benefits and payroll administration functionality, and manages the employee demographic data (the heart of the employee system of record). It is the source of employee (person) data for all other applications, including the other HCM-related suites. HR administrative users are the primary user target (with employee self-service targeting employees and manager self-service targeting managers, but administered by HR). The talent management application suite includes functionality to manage performance and compensation. It is not typically the system of record for employee demographic data (although sometimes it is used to consolidate data from multiple core HRMS solutions), but it is often the system of record for talent data because the data structure in the core HRMS suite may not be rich enough (see "Unlocking the Strategic Value From Talent Management Application Investments"). The workforce management suite includes labor scheduling, time and attendance, leave management and task/activity management (in certain industries) functionality. The primary user targets for this suite are the payroll department (this suite provides the necessary inputs into payroll) and operations (this suite provides the raw data for labor cost management). Financial Management Suites The system of record for financial management suites is the general ledger, and the target audience is the finance department and CFO. These applications provide visibility into an enterprise's financial position through automation and process support for any activity that has a financial impact. These applications also provide financial reporting data as needed by local and international regulations. The core of any financial application suite is the general ledger, accounts payable, accounts receivable and fixed assets. In addition, financial application suites may include "extended" financial functionality, including project accounting, treasury and cash management, commitment and budgetary control, and purchasing (which includes accounts payable and commitment management functionality processes in a simple procure-to-pay solution, but it does not include advanced procurement functionality, such as strategic sourcing). CRM Suites The system of record for CRM suites is the customer. Customer data integration systems are usually required to create the single view of the customer across three primary types of CRM suites the marketing relationship management suite, sales suite and customer service suite. The reality (although not the idea) of a CRM suite failed to succeed as larger vendors (such as SAP, Oracle and Infor) bought the core functional components for sales automation, customer service and marketing. Because customer strategies are highly customized by industry and geography, users are more likely to acquire a sales suite to manage the activity around a prospect/customer; a marketing suite to build campaigns to attract customers or understand customer needs; or a customer service suite to help clients with issues around enterprise products or services. Within each of these areas, the suite is integrated to serve a specific type of user who is focused on sales, marketing or customer service functions. In the sales suite, the user is the salesperson or sales executive. In the marketing suite, it's anyone in the marketing department. And in the customer service suite, it's anyone who provides service to enterprise customers as well as Publication Date: 25 July 2008/ID Number: G00158827 Page 4 of 7
Web self-service. In all cases, the customer remains the organizing principle around which a customer record is designed. SCM Suites In an SCM suite, the primary system of record is inventory, shipment orders and the supply chain plans. These systems of record are brought together to construct a view of the flow of goods throughout the multienterprise supply chain, and the ability of the supply chain to meet anticipated customer demand, rather than focusing on the costing of materials at any particular stationary point. These systems may reference customer or financial information, but they are not typically systems of record for this information. This suite typically spans the functions of sales and operations planning (S&OP), product performance management, operational supply chain planning, warehouse management, some order management (after the order is taken), transportation management and international trade management. The link to financials and costing within the enterprise is secondary to flexibility and the ability to traverse enterprise boundaries to accomplish supply chain objectives. That is, the trade-off between transactional financial integrity and functionality flexibility is most acutely seen in ERP, limiting the scope of functionality to within the enterprise; however, an SCM suite more easily facilitates interactions with other enterprises. The target is the supply chain manager, COO or other individuals associated with logistics. Industry-Focused Suites In several industries, business application suite strategies are emerging, and further research will detail how enterprise application suites in these industries will emerge. Examples of industryfocused suites are retail store systems, insurance billing, manufacturing execution suites and patient care suites in healthcare. Not all suites and vendors' suite strategies share the same strategy for process integrity and integration. Process integrity is comprised of process, data, interaction and integration integrity (see "Introducing Process Integrity: Critical to Business Applications, SOA Compositions and Processes"). Integration among these elements in a suite can vary dramatically by vendor. Understanding your integration needs within these elements will help in evaluating vendor offerings. Suites with tight integration have often been characterized as having inflexible processes, but low IT cost (because the vendor is packaging the integration); while suites with loose integration are often characterized as having flexible processes but higher costs, because users have to build and maintain their own integration. This blanket statement is often too generic and doesn't consider all the elements in evaluating suites. A few general types of suites have emerged each with its own way of managing process integrity through differing architectural foundational models. Users can use these as a general guide to the types and characteristics of available suites. Publication Date: 25 July 2008/ID Number: G00158827 Page 5 of 7
Table 1. Types of Suites Process Integrity Architectural Foundation Benefits Risks Engineered Suites Single or common system of record across an entire suite of tightly integrated functionality. Process models are generally implicit (meaning defined by the vendor), requiring the user to change his or her process flows to the vendor-defined flows; in some cases, processes can be flexible in the boundaries provided by the vendor. Single architectural foundation across a broad set of functionality. Common user interface and data management across suite functionality; when integration is required to the suite, it is usually easier and less costly because of the single master or system-ofrecord data. Process and data integrity is provided across a range of suite elements. Vendorprovided integration lowers IT costs; vendor maintains the process through upgrade cycles and in future enhancements. Lack of modularity forces large implementation/ upgrade cycles; high vendor lockin. Functionality provided in this type of suite is more limited because the increase in functional scope increases complexity for the vendor and user. Synchronized Suites Multiple systems of record with synchronization provided and maintained by the vendor; process models are likely implicit, but with boundaries at the edge of a module. The architecture may vary by module, but the vendor provides an overlay of a common architecture to maintain consistent process and data flows. Modular functionality enables users implementation and upgrade flexibility, while maintaining process and data flow consistency; vendor-provided integration lowers IT costs. Edge of integration among modules may not match user requirements; easy to "break" vendor integration; decreased vendor lock-in, but only if you break process integrity. Vendor-Branded or Best-of-Breed Suites Source: Gartner (July 2008) Multiple and overlapping systems of record; little or no integration or process integrity; some process flow and data integrity may be provided by the vendor, but the balance requires a do-ityourself integration model. Multiple architectural foundations among modules/suites in the branded suite likely will not have common processes or data flow. Modularity provides flexibility in implementing and upgrading; individual suites within a branded suite may have broad and/or deep functionality (usually associated with industry functionality). Do-it-yourself integration usually associated with a higher or unanticipated IT cost; overlapping systems of record and lack of process integrity unless usermaintained. The need to understand the business requirements for integration, process integrity, process flexibility and IT productivity will become more, not less, complex as new technologies and deployment models emerge in the packaged application market. Vendors are beginning to make Publication Date: 25 July 2008/ID Number: G00158827 Page 6 of 7
suites even more complex by bundling middleware and user productivity suites into their offerings (Oracle Fusion Middleware is bundled with its solutions, NetWeaver is bundled with SAP solutions, and Office and.net technologies are bundled with Microsoft solutions). High costs of moving to next-generation technologies and the saturation of users who are deploying packaged applications have pushed the overall market of packaged applications toward consolidation. Consolidation will continue; and as it does, vendor suite strategies will continue to be adjusted. Understand your need for suites, and build your own suite strategy and match it to vendors' suites strategies. REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 U.S.A. +1 203 964 0096 European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM +44 1784 431611 Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA +61 2 9459 4600 Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo 153-0042 JAPAN +81 3 3481 3670 Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, 12551 9 andar World Trade Center 04578-903 São Paulo SP BRAZIL +55 11 3443 1509 Publication Date: 25 July 2008/ID Number: G00158827 Page 7 of 7