1 ERP
Overview1 Information in large organizations is often spread across numerous
homegrown computer systems, housed in different functions or organizational
units. While each of these “information islands” can ably support a specific
business activity, enterprise-wide performance is hampered by the lack of
integrated information. Further, the maintenance of these systems can result in
substantial costs. For example, many of the older programs cannot properly
handle dates beyond the year 2000, and they must be fixed at a steep costor replaced. 2 While the Y2K bug has been fixed
over time (at an estimated cost of $600 billion worldwide), the lack of
integration is a pervasive problem. Consider, for example, Boeing, which relies
on hundreds of internal and external suppliers for the millions of components
needed to build an airplane. The goal of putting the right parts in the right
airplane in the right sequence at the right time was managed at Boeing by four
hundred systems that were designed in the sixties and were all but integrated.
Information inconsistencies were prevalent and the systems were not
synchronized. As a result, parts often arrived late, idling partially-built
airplanes on Boeing’s assembly lines. In 1997, as Boeing faced unprecedented
demand for its aircraft, these problems became unbearable, and the company’s
manufacturing ground to a halt. Boeing was forced to shut down two of its major
assembly lines and take a $1.6 billion charge against earnings. Boeing has
since replaced these systems by an integrated Enterprise Resource Planning
(ERP) system based on commercial, off-the-shelf software. With the advent of
E-Business and the need to leverage multiple sources of information within the
enterprise, ERP software has emerged as a major area of interest for many
businesses. Back-office enterprise software has its roots in the 1960s and
1970s, as computing power became affordable enough for companies to automate
materials planning through MRP and financial processing through payroll and
general ledger software. MRP, short for Material Requirements Planning, was
developed in the 1 January 2000. By Haim Mendelson, Graduate School of
Business, Stanford University, Stanford, CA 94305-5015, email
haim@stanford.edu. Research assistance by Korhan Gurkan and Anne Korin is
gratefully acknowledged. 2 early 1960s at IBM and had become the principal
production control paradigm in the U.S. MRP consists of a set of procedures
that convert forecasted demand for a manufactured product into a requirements
schedule for the components, subassemblies and raw materials comprising that
product. MRP is limited to controlling the flow of components and materials,
and does not lend itself to more complete production control and coordination.
The next generation of manufacturing software, known as MRP II, was developed
to address this shortcoming and to further integrate business activities into a
common framework. MRP II divides the production control problem into a
hierarchy based on time scale and product aggregation. It coordinates the
manufacturing process, allowing a variety of tasks such as capacity planning,
demand management, production scheduling and distribution to be linked
together. However, even MRP II is primarily a specialized tool designed to
serve the needs of the manufacturing function within a company. Its data and
processes are not integrated with those in the rest of the enterprise, such as
marketing, finance and human resources. ERP entered the scene to facilitate
information sharing and integration across these different functions and to
operate the enterprise more efficiently and effectively, using a unified data
store and consistent processes. I. What is ERP? ERP is a software architecture
that facilitates the flow of information among the different functions within
an enterprise. Similarly, ERP facilitates information sharing across
organizational units and geographical locations.3 It enables decision-makers to
have an enterprise-wide view of the information they need in a timely, reliable
and consistent fashion. ERP provides the backbone for an enterprise-wide
information system. At the core of this enterprise software is a central4
database which draws data from and feeds data into modular applications that
operate on a common computing platform, thus 2 This problem is known as the
“Y2K bug.” 3 In recent years, ERP system started supporting
inter-organizational linkages as well. 3 standardizing business processes and
data definitions into a unified environment. With an ERP system, data needs to
be entered only once. The system provides consistency and visibilityor
transparencyacross the entire enterprise. A primary benefit of ERP is easier access to reliable,
integrated information. A related benefit is the elimination of redundant data
and the rationalization of processes, which result in substantial cost savings.
The integration among business functions facilitates communication and
information sharing, leading to dramatic gains in productivity and speed. Cisco
Systems, for example, harnessed ERP to help it become the market leader in the
global networking industry. Cisco’s ERP system was the backbone that enabled
its new business modelGlobal Networked Businessbased on the use of electronic
communications to build
interactive, knowledge-based relationships with its customers, business
partners, suppliers and employees. In the process, Cisco doubled in size each
year and reaped hundreds of millions of dollars in both cost savings and
revenue enhancements. Autodesk, a computer-aided design software company,
reported a decrease in its order fulfillment times from two weeks to 24 hours
after installing an ERP system. Similar examples abound in today’s business
environment.5 Based on the promise of tightly-integrated corporate functions,
globally optimized decisions and fast and easy access to accurate information,
enterprise software has become an essential part of the operations of large
businesses in many industries. By 1998, over 20,000 firms around the world
spent $17 billion on enterprise software, following annual growth rates that
ranged from 30% to 50%.6 In addition to direct spending on the software itself,
companies often spend a multiple of licensing costs on services related to
implementation and maintenance. Companies are beginning use enterprise software
to automate front-office activities such as sales and marketing, call center
operations, product configuration, lead-tracking and customer relationship
management. 4 The database may be physically centralized, as in earlier
mainframe-based system, or it may be distributed, as is typically the case
today. 5 As discussed below, not all ERP implementations are as successful. 6
Source: AMR Research, ERP Software Report. As discussed below, the ERP market
experienced a substantial slowdown in 1999. 4 II. Growth of the Enterprise
Software Industry A number of trends drove the growth of the enterprise
software market. First, as discussed above, an integrated information
architecture improves business performance. Once a major company in an industry
adopts enterprise software, competitors may be compelled to follow suit to stay
competitive. Second, there has been a major shift towards the use of packaged
applications. This is partly related to the “Y2K bug” and the European Union’s
conversion to a single currency, which induced companies to replace their
legacy systems with packaged softwareeffectively “outsourcing” the solution to the ERP vendor. Third, many
companies were abandoning legacy software due to the demands of electronic
commerce and front office applications on the front end and linking to
suppliers and business partners at the back end. Similarly, the emergence of
ERP-based “vertical applications” that address the enterprise software needs of
a specific industry have caused many companies to purchase ERP packages.
Finally, rapid advances in computer and software technologies combined with the
explosive growth of the Internet have led many companies to rethink their
business practices, to put a greater Figure 1: ERP Software Market Revenues, 1993
- 1999 0 5 10 15 20 25 1993 1994 1995 1996 1997 1998 1999E $B 5 emphasis on
their use of IT, and to invest in a more robust enterprise architecture.7
Competition in the enterprise software business is fierce, with hundreds of
software producers fighting for market share. The market has both companies
that offer an integrated suite of applications and those that address specific
business process. The first group consists of five companies known in industry
parlance as JBOPS J.D. Edwards,
Baan, Oracle, PeopleSoft, and SAP AG. These companies attempted to create
“end-to-end” solutions for the entire enterprise, hoping that corporate
customers will purchase almost all of their critical enterprise applications
from a single vendor. The reasoning behind this strategy is twofold. First, it
is increasingly important for enterprise applications to communicate and
interact with each other seamlessly. For example, a company can commit to a
more reliable delivery time if its sales order entry and manufacturing software
packages are integrated; if the same vendor produces all of the software,
applications can integrate more tightly. Second, customers may prefer to rely
on one major vendor for most of their software needs, because having a single
vendor simplifies contracting and relationship management and creates a single
point of accountability for all software problems. On the other hand, scores of
companies that make innovative products compete to provide software solutions
for customer relationship management, supply chain management, electronic
commerce and purchasing. These companies offer software that can be “bolted on”
to the existing ERP backbone and, together, provide a flexible “bestof-breed”
portfolio of solutions in different areas. Players in the area of customer
relationship management include Siebel Systems, Clarify, Remedy, Epiphany,
Broadvision and Trilogy. These firms produce software to help with customer
support, product configuration, one-to-one marketing and sales-force
automation. Leaders in ecommerce software are too numerous to list (and the
list changes on a daily basis), but some examples are GE Information Systems,
Sterling Communications, Ariba Technologies and Commerce One. Supply chain
management software helps companies optimize their production processes and
logistics across the entire supply chain; i2 Technologies and Manugistics are
leaders in this area. The size of the packaged 7 Additional recent trends are
discussed in the last section of this Note. 6 application market by category,
and market forecasts for the years 2000 and 2003, are shown in Figure 2.8
Figure 2: ERP and ERP-Related Packaged Application Market, 1998-2003 0 1 2 3 4
5 6 Finance/Accounting Human Resources Manufacturing/Logistics Supply Chain
Management Customer Management Industry-Specific e-commerce $B 1998 2000E 2003E
The “end-to-end” and “best-of-breed” approaches are not mutually exclusive.
Some of the larger ERP companies are acquiring smaller players to fill the gaps
in their “end-to-end” solutions, whereas others focus on developing interfaces
at the front and back end of their ERP offerings. III. ERP Software Vendors
Throughout the nineties, SAP has been the ERP market leader with the four other
JBOPS vendors rounding out the top five. Figure 3 shows total revenues of the
top five ERP firms.9 These companies are briefly described below. 8 Source:
Forrester Research reports. 9 Source: Company annual reports and author’s
analysis. 7 SAP AG: The leading ERP package vendor, with a 32% market share in
1999, is SAP AG (SAP stands for “Systeme, Anwendungen, und Prudukte in
Datenverarbeltung” or Systems, Applications and Products in Data Processing).
SAP AG was founded in Germany in 1972 by five engineers who wanted to produce
integrated business application software for the manufacturing enterprise.
Seven years later, the company launched its first enterprise software, R/2,
which was designed around a centralized, mainframe-based database. SAP’s
client/software product, R/3, was introduced in 1992 and quickly came to dominate
the ERP software market.10 In 1999, SAP AG was the third-largest independent
software vendor in the world, serving over 11,000 customers (with more than
20,000 installations) in over 100 countries. Leveraging its leading position in
the ERP market, SAP developed vertical, industry-specific business solutions
for 19 industries. These industry “solution maps” provide functionality from
SAP and its partners for complete, end-to-end industry- 10 The structure of SAP
R/3 is discussed in the next Section. Figure 3: Sales of Major ERP Vendors 0 2
4 6 8 10 12 14 1991 1992 1993 1994 1995 1996 1997 1998 1999E ($B) Baan JD
Edwards PeopleSoft Oracle SAP 8 specific processes.11 SAP followed the lead of
focused niche players, and in 1999 it extended its ERP offering to include
customer relationship management, data warehousing and supply chain management
modules. SAP recast its entire set of offerings around the Internet, borrowing
the “business portal” concept (called mySAP.com Workplace in SAP parlance) to
organize all information around the user’s role in the enterprise, and adding
functionality for business-to-business and business-toconsumer electronic
commerce. SAP started the mySAP.com Marketplace, an electronic inter-company
trading community for buying, selling and collaborating within and across
industries. SAP’s new Internet-centric approach is shown in Figure 4. Figure 4:
The SAP Business Portal: mySAP.com (source: SAP, 12/99). Oracle: The
heavyweight of the database software market, Silicon-Valley-based Oracle is the
world’s second largest software company. It has built a solid enterprise
applications 11 Examples are SAP Automotive, SAP High-Tech, SAP Aerospace and
Defense, SAP Banking, SAP Insurance, SAP Utilities etc. company boundary Web
browser access Workplace industry-specific role-based personalized drag &
relate Workplace industry-specific role-based personalized drag & relate
Marketplace Marketplace single signon 3.1H R/3 4.6 FIFI LOLO HRHR CRM CRM KMKM
B2B B2B SEM SEM APO APO BWBW CFM CFM mySAP.com components open Internet
standards R/2 R/2 3rd non mySAP.com party 3rd party legacy legacy Partner
Partner SAP SAP inside outside mySAP.com Internet services other Internet
services Cockpits Cockpits 9 business, which accounted for $2.5 billion of the
firm’s $9.3 billion 1999 revenues. Second to SAP in the enterprise software
market, Oracle applications serve over 5,000 customers in 140 countries. Oracle
has been a leader in refocusing its ERP solutions around the Internet, and it
launched a barrage of electronic-commerce and Internet-based
business-to-business software applications while the other JBOPS companies were
slow to react to the changing marketplace. Further, Oracle was the first JBOPS
company to integrate front-office applications with its ERP offering.
PeopleSoft: Started as a software firm for human resource management in 1987,
Pleasanton-based PeopleSoft gradually expanded its software to cater to other
corporate functions. The company’s revenues grew to $1.3 billion in 1998up forty-fold from
$32 million in 1992
(sales are expected to remain flat in 1999). PeopleSoft’s ERP system provides
enterprise solutions for finance, materials management, distribution, supply
chain planning, manufacturing and human resources. In 1996, PeopleSoft acquired
Red Pepper, a producer of supply chain management software, and in 1999 it
acquired Vantive for its customer relationship management offering. J.D.
Edwards: Founded in 1977 by three partners from an accounting firm, Denverbased
J.D. Edwards addresses business processes in finance, manufacturing,
distribution/logistics and human resources, and encompasses the entire supply
chain from planning and scheduling through execution. Growing from $120 million
in revenues in 1992 to $944 million in 1999, the software maker has served over
5,000 customers in over 100 countries. Its OneWorld system is considered to be
more flexible than its competitors’, and the company made headway in smaller
enterprises. And, rather than build its own customer relationship management system,
J.D. Edwards developed tight integration with Siebel’s leading offering. Baan:
The Baan Company was founded in The Netherlands in 1978 making financial
software. Baan’s products have been simpler to use than SAP’s, leading to the
company’s growth in the early nineties. Today, the company operates in 80
countries, 10 serving more than 2,800 customers. Baan’s net revenues have
increased from $47 million in 1992 to $736 million in 1998. The Baan Series is
its primary enterprise system, which incorporates a variety of functionalities
from sale order management and manufacturing to supply chain management. Since
October of 1998, Baan suffered a series of setbacks including management
turmoil, accounting irregularities, multiple-quarter losses and CEO turnover.12
Choosing the right ERP package is not easy. The selection process starts with
an identification of system scope, business objectives and business processes.
Some ERP packages provide better solutions in certain functional areas. For
example, SAP began as manufacturing software and still excels along that
dimension. Moreover, different ERP vendors have experience in different
industries, and offer solutions that are geared to those industries. Figure 5
summarizes the recommendations of Benchmarking Partners’ consultants on
industries that are well-served by the different ERP packages. Figure 5: ERP
packages and the industries they serve Aerospace/ Defense Automotive Consumer
Packaged Goods Electronics Industrial/ Manufacturing Oil/Gas Pharmaceuticals Baan
Series • • • • J.D. Edwards One World • • • • • • Oracle Applications • • • • •
• • PeopleSoft • • • SAP R/3 • • • • • • • % ERP Penetration 10-15 5-10 35+ 40+
35 30 20 A major consideration in choosing a package involves the management
style of the firm. Even the most flexible ERP packages are based on a model of
doing business that may not align with the firm’s desired business model. For
example, Dell Computer 12 Baan had four different CEOs over the two years from
1998 through 2000. 11 found that the SAP R/3 system it had licensed would not
fit its highly decentralized management style. Time-to-implementation is
another issue that might be critical, especially in light of the impeding Y2K
date change. Technical issues ranging from the hardware platform that the ERP
package will run on to the set of currencies and tax rules supported by the
package need to be considered carefully, and the stability and future viability
of the ERP vendor are becoming important considerations as well. The
implementation of ERP packages is a major effort. Licensing the package is only
the beginningERP
implementation costs include consulting, process redesign, data conversion, training, integration
and testing. A Gemini Consulting survey of 220 companies in a wide range of
industries found that the average SAP R/3 implementation effort consumed 141
person-months and cost $7.5 million. While most companies surveyed were pleased
with the outcome, many ERP implementations are problematic, characterized by
cancelled or scaled-back projects, late deliveries, budgets overruns and
hampered processes. Hershey Foods, the US largest candymaker, went live in July
1999 with a companywide $112 ERP system13 that left many retailers
empty-shelved. Hershey incurred significant losses when its order fulfillment
problems could not be fixed in time for Halloween, then Christmas. Whirlpool
switched to a new SAP platform over the 1999 Labor Day holiday; the combination
of large order volumes and a software problem resulted in the loss of about 10%
of orders entered to the system. It can get worse. FoxMeyer Drug, once the
fourth largest distributor of pharmaceuticals in the US, went out of business
following its implementation of SAP. FoxMeyer bet its future on a massive SAP
implementation projected to save $40 million a year. After two-and-a-half years
and more than $100 million in costs, FoxMeyer could process less than 1/40 of
its orders—with multiple problems. In August 1996, FoxMeyer, once a $5 billion
company, went bankrupt. FoxMeyer’s bankruptcy trustee sued SAP AG and Andersen
Consulting, the systems integrator in charge of the effort, for half a billion
dollars each (both deny any misconduct). 13 The system included SAP R/3, Siebel
and Manugistics software, which went live simultaneously throughout the
company. 12 IV. The Leading ERP Package: SAP R/3 SAP R/3 is a general-purpose
platform with options that enable it to be configured for the specific needs of
each customer without changing the R/3 code. This does not mean that SAP R/3 is
a plug-and-play solution. In order to implement SAP R/3, the system must be
configured to specifically meet the organization’s process requirements. This
is a complex and lengthy process, which can take years to implement. The
organization, the business process and all transaction details must be
explicitly modeled and entered as settings in about 8,000 configuration
tables.14 The user defines precisely her organizational units, processes,
transactions, the different SAP R/3 screens, reports etc. SAP R/3 consists of
modules (discussed in detail below) that may be used separately or bundled
together. This enterprise system has an open architecture that allows
third-party solutions providing other functionality’s to be “bolted on” to the
SAP backbone. All the modules work in an integrated fashion, so different parts
of the enterprise use the same data at the same time. The software can also
link business processes between companies worldwide, for example between a
supplier and a customer in different countries. IV.1 Example: Integrated Order
Process Figure 6: SAP R/3 Order Process Stages 14 The tables have standard
default settings, but companies typically need to change them, and each change
has a ripple effect on other values and tables. 13 The SAP R/3 database integrates
all data items, so entire processes use the same data, seamlessly passed from
step to step. Consider, for example, how the order fulfillment process is
managed by SAP R/3. As seen in Figure 6, when a customer inquires about a
potential purchase (1), SAP R/3 creates a quote (2) including price and
delivery date. The quote takes into account what the system already knows about
the customer (3), about the item and about inventory and materials availability
(4), which are in the SAP R/3 database. As a result, the prices, delivery times
and delivery terms are based on up-todate information and may be specific to a
customer or an order. If the customer accepts the quote, SAP records a sales
order (5), including pricing and delivery terms. The order then goes into
production, triggering the entire order fulfillment process. SAP automatically
sends the relevant data where it needs to go,15 so delivery can be
automatically scheduled (6). The customer’s credit limit can be automatically
checked by the system, and the collection process can be managed through the
system as well (7). IV.2 SAP R/3 Modules16 SAP R/3 is composed of a number of
modules that are fully coordinated and integrated. The modules are: SD - Sales
and Distribution module supports sales and distribution processes, with
functions for pricing, order processing and on-time delivery. It has a direct
interface to the Materials Management (MM) and Production Planning (PP) modules
described below. This enables an integrated process that involves checking
customer credit, ensuring materials and production capacity are available to
satisfy an order at the time it is placed, executing the order, and automating
the billing process. This module also facilitates an analysis of sales and
delivery performance using standard metrics that are defined within SAP R/3. 15
That is, to the SD module. See SAP R/3 module description below. 16 Readers not
interested in SAP R/3 details may want to skip this Section. 14 MM - Materials
Management module is designed to support the procurement process and to
optimize the logistics pipeline within the enterprise. It enables automated
supplier evaluation and can lower procurement and warehousing costs with
accurate inventory and warehouse management, and integrates invoice verification.
The module is designed to support foreign trade processing, such as customs
declarations, as well. Tools for inventory control and purchasing information
help to identify trends and developments. PP - Production Planning module
supports production planning, manufacturing processe execution, analysis and
production control. This application covers the production process from the
creation of master data to production planning, MRP, and capacity planning,
right down to production control and costing. It supports a variety of
manufacturing processes including repetitive, make-to-order and
assemble-to-order production. Quality management, laboratory information
systems and data analysis functions are also available. FI - Financial
Accounting module collects all the data relevant to financial accounting, from
transactions to accounts, into an integrated General Ledger. It provides
comprehensive, consolidated financial reports and ties together the different
pieces of financial data, Accounts Payable, Accounts Receivable and Asset
Management. It also provides an up-to-the-minute basis for enterprise-wide
control and planning, giving a “snapshot” of the enterprise. The FI module
supports international accounting standards such as GAAP and IAS. CO -
Controlling module includes a variety of planning and control tools for
enterprise control systems, following a uniform system of reporting. It
provides comprehensive reports to support most common cost-accounting problems,
as well as the capability to put together additional reports. TR - Treasury
module is a comprehensive solution for financial/treasury management. 15 EC -
Enterprise Controlling module continuously monitors metrics and performance
indicators on the basis of specially prepared management information. IM -
Investment Management provides integrated management of investment projects.
Projects are tracked from planning through execution to settlement, including
preinvestment analysis and depreciation simulation. PM - Plant Maintenance and
Service Management module handles planning, control, and processing of
scheduled maintenance, inspection, special maintenance, and service management.
QM - Quality Management module monitors, manages and tracks all processes
relevant to quality assurance along the entire supply chain, coordinates
inspection processing and initiates corrective measures. PS - Project System
module coordinates and controls all phases of a project, in direct cooperation
with Purchasing and Controlling, from quotation to design and approval, to resource
management and cost settlement. The order process described above requires
coordination between different modules of SAP materials management (MM), production
planning (PP) and financial accounting (FI), which are fully integrated and use the same data
throughout the process. IV.3 Linking SAP R/3 to Other Applications: BAPIs SAP
does not solve everything. For example, the firm’s forecasting or customer
relationship management processes may not be modeled within SAP. Where SAP does
not provide a solution, it is possible to “bolt-on” another application to
attain the required functionality. SAP has an open, component-based
architecture that enables integration with other applications. This
architecture consists of two key elements: 1. SAP Business Objects are
essentially “black boxes” that contain SAP R/3 data 16 and business processes,
while suppressing the details of their data structure or specific
implementation details, and 2. BAPIs (Business Application Programming
Interfaces) define how the application links to SAP R/3. The result is a
standard method of communication between SAP R/3 and other applications.
Business Objects are the business-application versions of real-world entities,
such as a sales order or an employee. The core of the business object is the
actual data (for instance, an employee’s name and id number.) The interface is
a set of clearly defined methods, each specifying what operations can be
performed on this data (including the possibility of altering it). A BAPI is a
method of an SAP business object, which enables external access to SAP R/3 data
and processes. Figure 7 illustrates how business objects and BAPIs function.
For instance, if an application performs demand forecasting by exponential
smoothing, the application can examine quantity demanded in the past, product
by product, even if products have different data items. Figure 7: Interfacing
to SAP R/3 Figure 5 Interfacing to SAP R/3 17 V. From ERP to E-Business In the
last decade, ERP software has exploded into the global business landscape. To
remain competitive, companies must leverage their information assets across the
entire enterprise, and ERP packages promise to provide the required
enterprise-wide backbone. The unified framework provided by ERP packages and
the business processes they support are the result of a balancing act between
standardization and discipline on the one hand, and flexibility and agility on
the other. This balance is being tipped by the increasing emphasis on
front-end, customer-focussed applications, and by the growing importance of
electronic commerce and inter-enterprise business networks. As a result, the
traditional inward focus of the large, traditional ERP players had to change.
Oracle’s chief executive, Larry Ellison, put it bluntly as follows: We blew it
in the 1990s. By running applications on the client, client/server was meant to
put information at your fingertips. But all we did was to create distributed
complexity and fragmented data. CEOs have come to hate IT, because they can’t get
what they want from it. Burger King put an SQL Server database in every
hamburger store, but they still couldn’t answer the question, “how many
Whoppers are we selling each day?” ERP as an industry missed the boat. It
focused on automating processes, not on getting information to key
decision-makers… So how do we do it now? We’ve learned from the Internet that
you don’t put shared applications on the client and that you centralize
complexity. You consolidate your data. The unchanging appliance accesses the
dynamic applications of the network.17 With the advent of E-Business, companies
are using the Internet to make connections with their suppliers, customers and
trading partners. This shifts the emphasis from the traditional internal focus
of the ERP vendors to an external orientation, increasing the importance of
both Business-to-Business and front-office applications, which have been
traditionally “bolted on” to companies’ ERP backbones. The fortunes of the
leading ERP vendors changed along with the changing marketplace, and ERP
package sales significantly slowed down in 1999 (see Figure 3).18 Over the last
quarter of 17 Ellison’s comments (The Economist, June 26, 1999) refer both to
the leading ERP vendors and the Client/Server Computing paradigm they follow.
18 In addition to the shift from ERP to E-Business, the slowdown was caused by
the maturation of the ERP market (by 1999, about half of the potential
large-company ERP market had already been penetrated), as well as by the Y2K
problem, which caused IT managers to shy away from major new installations. 18
1998 and for most of 1999, the stocks of traditional ERP vendors were in a
tailspin, with the exception of Oracle19 (see Figure 8). By January 2000, an
investment in the ERP companies in August 199820 would yield a gain of 44% for
SAP and 678% for Oracle, compared to losses of 20% for JD Edwards, 11% for
PeopleSoft and 68% for Baan (the S&P 500 Index gained 50% over the same
period). The ERP package vendors promise to broaden their offerings to fulfill the
promise of E-Business, but only time will tell whether they will manage to
extend their architectures to satisfy the new demandsor whether today’s ERP systems will
become tomorrow’s legacy systems. 19 Recall that only a fraction of Oracle’s
sales come from ERP and, further, Oracle correctly foresaw the increased
importance of the Internet, front-line applications and business-to-business
connectionsand was the first to act. 20 When SAP listed
on the New York Stock Exchange. Figure 8: Adjusted Stock Prices for ERP Vendors
$0 $10 $20 $30 $40 $50 $60 $70 $80 Dec- 97 Jan- 98 Feb- 98 Mar- 98 Apr- 98 May-
98 Jun- 98 Jul- 98 Aug- 98 Sep- 98 Oct- 98 Nov- 98 Dec- 98 Jan- 99 Feb- 99 Mar-
99 Apr- 99 May- 99 Jun- 99 Jul- 99 Aug- 99 Sep- 99 Oct- 99 Nov- 99 Dec- 99 Jan-
00 Oracle SAP JD Edwards PeopleSoft Baan
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