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ERP Vendors Embrace CRM
Through mergers and integrated solutions, ERP vendors struggle to find a place in a market dominated by CRM.
Posted Aug 3, 2000
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For the past three years, and with considerable fanfare, the mainstays of the enterprise resource planning (ERP) software marketplace have been staking claims in the CRM market. Unofficially, the era of ERP/CRM blending began in the summer of 1997, when ERP specialist Baan bought promising sales automation firm Aurum for $250 million in stock. More recently, ERP giant PeopleSoft snared Vantive at the end of 1999 for $433 million. Mutual competitors have since entered the expanding CRM market. Each of these companies implicitly or explicitly promises the enterprise dream: a front- and back-office software solution with seamless integration, unified support and all the latest features. And only one check to write.

In fact, CRM and ERP have been converging for some time. Web-based product availability and delivery information, field configuration and one-touch inventory are just a few of the common business applications that involve blending technologies from both disciplines. So turning to an ERP vendor for a complete business engine is not unreasonable, and may even alleviate some implementation headaches.

"Buying your CRM capabilities from your back-office vendor basically eliminates one of the areas of integration you would have to do yourself," says Liz Shahnam, vice president of Infusion:CRM for research firm META Group.

"With the technological shifts the Web has provided, customers want direct access to [both front-office and back-office] information through Web sites," says Ed Schreyer, vice president of CRM product marketing at PeopleSoft. Now, billing information, shipping and tracking details, or back-order status are all considered obligatory for e-business. And ERP vendors are finding CRM obligatory as well.

A Matter of Survival
1999 was not a good year for ERP companies. SAP and PeopleSoft saw quarterly profits plummet, and Baan had a miserable year, with layoffs, lost business, top management changes and a tumbling stock price. While Oracle fared better, most of their revenues are in database software and a small but emerging CRM division, not ERP applications.

It has increasingly become clear that ERP alone may not sustain a vibrant company. "The market for ERP was hot a few years ago, it no longer is, and [ERP vendors] have suffered accordingly," says Bruce Bond, group vice president of the enterprise supply chain management practice at GartnerGroup.

Laurie Orlov, research director of e-business applications at Forrester Research, is less charitable. "I think the ERP vendors have no choice," she says. "The Y2K changeover has eliminated the urgency for doing ERP and the Internet has created enormous demand for outward-facing, inter-company relationship management."

Orlov goes on to say that CRM capability gives ERP vendors different ways to attack selling existing products to new clients. "You get interesting pricing models: 'I'll sell you ERP and I'll throw in CRM for free,'" or vice-versa. Facing a flat ERP market, that bargaining angle may prove vital in an increasingly CRM-focused marketplace.

Further complicating matters for the ERP vendors is the growing perception that any enterprise software company must also position itself as a true business-to-business (B2B) e-commerce solution. ERP vendors such as SAP (with their MySAP.com initiative) and JD Edwards are styling themselves as top-tier B2B enablers, with only limited success.

One-Way street?
If this is such a great idea, why is the migration coming exclusively from ERP companies moving into CRM? Why aren't CRM firms engaging in ERP development, or even acquiring ERP suites to create their own "end-to-end" solution?

"It wouldn't surprise us, looking at the market capitalizations," says Orlov. "But I don't think the CRM people need the ERP people the way the ERP people need the CRM people."

"The back office is a very different market," explains Bond. But, more importantly, "the ERP market just isn't all that interesting anymore." With no signs of a major ERP renaissance on the horizon, entering the ERP market could prove a wasted investment.

Shahnam believes that CRM companies have a chance to co-opt the momentum of their new competitors. "The smart CRM vendors are going to be providing [ERP] integration themselves," says Shahnam. The plan sounds compelling: beat those ERP vendors encroaching on the CRM market by providing both a higher level of CRM functionality and better integration than the back-office vendors themselves can muster.

Orlov disagrees, saying that the real battle will be won on CRM functionality alone. "If I were a CRM vendor, I would continue to... focus on my functionality, make it better, find customers, partner with integrators and make sure I'm offering a consistent message," she says.

Either way, look for some serious consolidation in coming months. While in no danger of running out, the list of available top-tier CRM companies is starting to shrink. The recent multi-billion dollar mergers and acquisitions among CRM start-ups have made the CRM market seem out of range for old world ERP vendors. "A lot of [ERP vendors] can't do it--they don't have the money" to jump into CRM via acquisition, says Gartner's Bond.

The Secret of Success
Each of the ERP vendors interviewed for this story claimed that their CRM integration strategy and approach gave them a substantial advantage over their CRM-minded ERP peers. But they can't all be right.

META Group's Shahnam says that SAP tried to do too much on its own. "SAP is at least two years behind schedule."

Gartner's Bond feels that SAP attempted to "freeze" the CRM/ERP market with advance feature announcements that would give customers reason to wait for their offering, but that the strategy was more effective for CRM customers than in the ERP market. Vendors like Oracle and Baan had time to fill in the gap.

A recent Yankee Group report and other analysts concede that SAP's formidable customer base of some 12,000 major enterprises could be the saving grace that at least provides a payoff on their CRM development. Even if they lose some market share in the short term, says Bond, "their own installed base is eventually going to come around to their product because of the integration."

Oracle has chosen to acquire component software from companies like Versatility and Concentra to create their CRM 11i suite. "We acquired key technology components that we could bring in to maximize our delivery across multiple channels," says Lisa Arthur, vice president of e-business suite marketing for Oracle.

Oracle has so far not provided a great deal of integration with the rest of their application suite. Forrester's Orlov points out that much of the delay revolves around other Oracle products that need to ship first before integration can be achieved. "What does that tell you about their ability to be fleet-of-foot?" she asks.

Analysts are cautiously endorsing PeopleSoft's strategy of buying Vantive to add CRM capabilities. "I think they did the right thing," says Forrester's Orlov.

Vantive's intense penetration and loyal customer base within PeopleSoft clients factored heavily into the decision, says Schreyer.

Schreyer adds that independence and flexibility will be the key to success. "We have an entire product division accountable for the success of CRM," he says. "We have relative autonomy to go out into the marketplace."

For Better or Worse
One might think that the well-documented struggles of ERP companies to embrace CRM technologies might have dampened enthusiasm for this combination. But everyone seems to remain convinced that they're on the right track.

SAP believes they're doing the right thing by developing their CRM functionality from within. "MySAP is giving us the opportunity to change how people and organizations work together from a process standpoint," says George D'Auteuil, vice president of CRM for SAP America.

"There is still interest in stand-alone CRM solutions, but we firmly believe that will be changing," says Patric Timmermans, director of product management for Baan Front Office. "We believe that a majority of CRM customers will be looking for ERP integration, and for the mid-market, that has to be out-of-the-box."

Oracle is philosophical about the industry's experience. "We underestimated the complexity of the e-business suite," says Arthur, "but that has been a competitive advantage because we started early on."

In the end, ERP vendors may yet succeed in the CRM realm, if they can help their enterprise customers sleep easier at night. According to META Group's Shahnam, "Not only do [customers] value these pre-integrated solutions, but they're willing to pay a premium for them, because this integration is really hard."

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