What This Article Covers
- How Competition in Enterprise Software Works
- The ERP System and Horizontal Enterprise Software Competition
- Industry Consolidation
- Ignoring The Reduction in Choice
- What is Account Control?
- The ERP System as the Queen
- ERP-Centric Strategy?
This history of enterprise software is a highly interesting topic. Enterprise software is an area with an enormous amount of hype, and while some of the hype works out and becomes real, most of the hype does not. That means that most of the hype people are currently exposed to now will not work out. And when I mean “work out,” I don’t only mean won’t become popular — because some things can come popular, but don’t work out in that they don’t add value over what they replaced.
After the ERP system had been purchased, it started gobbling up the IT budget.
It also, and very importantly, narrowed the options of the buyer and put into place a series of false assumptions. That was that the purchaser needed to perpetually consider and give preferential treatment to the ERP system when making all other enterprise software purchases.
Using the ERP system to preference purchases for other software the ERP vendor offers is what I call horizontal competition, as it is competition within one layer. (For those with an economics background you will recognize the relationship to horizontal integration.)
How Competition in Enterprise Software Works
However, competition for software sales moves vertically as well as horizontally.
For instance, Oracle has used its high market share of the database market as a wedge to get into applications (by acquiring many applications vendors and by leveraging its already account management). SAP is currently using its dominance in many of its customers in the application space to push Oracle (and others) out of the layer below by introducing its database.
And a great deal of misinformation about the centrality of ERP systems has been built up over time which was never proven but merely became part of a set of unexamined assumptions that continues to drive enterprise software purchases.
The ERP System and Horizontal Enterprise Software Competition
In my view, one of the worst things in the history of enterprise software decision making was due to the introduction of the ERP systems in the mid-1980s. Before this time, systems that made up ERP were sold by different vendors.
ERP caused lots of consolidation, so much so that after the 1980’s it was uncommon to find MRP vendors that had not been gobbled up and incorporated into an ERP suite.
Ignoring The Reduction in Choice
This was sold as a good thing. However, it reduced the choice available to customers because they now had to select an ERP suite where the various selections had been already made for them. This feature of ERP systems went seemingly unnoticed by IT analysts. There was a tremendous amount of money paid to analysts like Gartner, and they never provided a 360-degree view of the implications of buying so much functionality from a single vendor. Gartner and other analysts promoted the trend to the moon.
Now, I am not making a comment here as to whether ERP systems are necessary or not necessary. Instead, I am making a particular comment as to how ERP systems have been and continue to be used in what is referred to as “account control.”
What is Account Control?
Account control is a term coined by IBM decades ago which describes how IBM would use a customer’s previous IBM purchases to control its future purchases and to steer them towards buying more IBM products. Its not something IBM talks about in public, but it is part of the public record that they discussed this strategy on many internal documents.
The ERP System as the Queen
Quickly following their introduction, ERPs became the queen of the enterprise software chess board, and once captured, the software vendor who captures this piece was in a position to dictate much of the rest of the game.
This is at its essence anti-competitive behavior because the ERP company is no longer simply competing on a level playing field, but is proposing that it’s other applications be given preference because they “integrate better” with the already purchased ERP system. Every monopolist going back since before John D Rockefeller has used control of one area, to establish control in another, most often connecting area.
ERP vendors used the ERP systems to steer purchases to applications that in a freely competitive arena would have never been bought, and it has set back enterprise software decision ever since. And while it did this, it established a faulty thought pattern in enterprise software decision makers — and ERP-centric thinking is a consequence of this.
I lampooned this way of thinking, which I likened to a medical condition in the article Do You Suffer from (ECS) – ERP-Centric Strategy?
The first book to tell the unvarnished truth about ERP systems, as well as the first book to perform a meta-analysis of the academic research into the benefits of ERP. Many companies were told, and continue to think that ERP systems were critical to their IT infrastructure and to receiving a good ROI. This turns out to more a marketing fiction created by ERP companies than a natural law of enterprise software. In fact, most of the statements regarding ERP that are commonly stated with high confidence turn out not to be true when researched.
Table of Contents
- Chapter 1: Introduction to ERP Software
- Chapter 2: The History of ERP
- Chapter 3: Logical Fallacies and the Logics Used to Sell ERP
- Chapter 4: The Best Practice Logic for ERP
- Chapter 5: The Integration Benefits Logic for ERP
- Chapter 6: Analyzing The Logic Used to Sell ERP
- Chapter 7: The High TCO and Low ROI of ERP
- Chapter 8: ERP and the Problem with Institutional Decision Making
- Chapter 9: How ERP Creates Redundant Systems
- Chapter 10: How ERP Distracts Companies from Implementing Better Functionality
- Chapter 11: Alternatives to ERP or Adjusting the Current ERP System
- Chapter 12: Conclusion
How about when there are multiple ERP systems to be connected to one another? This book covers the most topical areas of ERP architecture today, the two-tiered ERP design. For anyone understanding how two-tier ERP can be applied, some questions deserve to be answered.
Table of Contents
- Chapter 1: Introduction
- Chapter 2: What is Two-tiered ERP?
- Chapter 3: The Reasons for the Rise of Two-tiered ERP
- Chapter 4: Analyzing (Some of) the Logic Used to Sell ERP
- Chapter 5: Analyzing Two-tiered ERP
- Chapter 6: Apply the Concept of Two-tiered ERP to Your Company
- Chapter 7: Conclusion