ERP Vendors Embrace CRM
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 last year in a $433 million transaction, and their mutual competitors have made their own moves to enter the expanding CRM market. Each of these companies is implicitly or explicitly promising 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.
"If you ask SAP, Oracle, PeopleSoft and Baan, they would say 'That's the best strategy--buy from one vendor, one-stop shopping," says Laurie Orlov, research director of e-business applications at Forrester Research.
The reality is that CRM and ERP have been converging for some time, even without heavily publicized corporate mergers or high-end integration toolkits. 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, presuming they've done any kind of job," says Liz Shahnam, vice president of Infusion:CRM for research firm META Group. "That being said, there are other ways to achieve integration."
Patric Timmermans, director of product management for Baan Front Office, reflects on the 1997 acquisition that started a trend. "Baan saw quite early that there was a big interest in externalizing ERP functions to supply chain and CRM functionalities," he says. And more importantly, the company came to realize that customers were growing frustrated with trying to measure ROI on efficiency-saving ERP projects, and were increasingly turning to revenue-generating CRM solutions to build measurable business value.
"These days, with the technological shifts the Web has provided, customers want direct access to information through Web sites," says Ed Schreyer, vice president of CRM product marketing at PeopleSoft, "and it's not just traditional front-office information they're looking for." 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 year-to-year profits plummet, and Baan had a positively 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, not ERP applications, and the company's spirits--if not its bottom line--was boosted by a small but rapidly growing CRM business.
It has increasingly become clear that ERP alone may not sustain a vibrant company. "The big picture is the dollar," says Bruce Bond, group vice president of the enterprise supply chain management practice at GartnerGroup. "The ERP vendors are in a market that has become dull. The market for ERP was hot a few years ago, it no longer is, and they have suffered accordingly."
Forrester's Orlov is less charitable. "I think the ERP vendors have no choice," she says. "The ERP market went flat, 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 'I'll sell you CRM and I'll throw in ERP.'" Facing a market less than enthusiastic to embrace ERP, 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 companies] got distracted from CRM with e-business," says Gartner's Bond. "They have to have some kind of e-business mindshare. It's a survival issue." ERP vendors such as SAP (with their MySAP.com initiative) and JD Edwards are styling themselves as top-tier B2B enablers, but have yet to replicate the market success of companies such as Ariba and Commerce One.
If this is such a great idea, why is the migration coming exclusively from ERP companies moving into CRM, through development and/or acquisition? Why aren't CRM firms engaging in ERP development, or even acquiring entire ERP suites to create their own vaunted "end-to-end" solution? After all, there are certainly CRM companies with stock market valuations that compare quite favorably against ERP firms.
"We joke about that, saying 'When is Siebel going to buy PeopleSoft?'" says Orlov. "It wouldn't surprise us, looking at the market capitalizations. 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. If you've got money to spend to acquire a company, why don't you buy an e-business company that's running an online trading exchange?" With no signs of a major ERP renaissance on the horizon, entering the ERP market could prove a wasted investment.
"The CRM vendors are holding the cards," says Deanne Moore, formerly a research analyst at Yankee Group. "Why should they pick up companies that aren't necessarily forward-looking?"
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 do what I'm doing well, which is 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, and the $2.1 billion deal that saw Nortel Networks acquire Clarify shows that it's not just the ERP companies who are willing to pay a premium for CRM technologies. Add to that the big-dollar merger mania among pure Internet CRM start-ups, such as the $3 billion blending of E.piphany and Octane Software, or Kana Communications' $4 billion purchase of Web CRM infrastructure company Silknet, and you see the problem for old world ERP vendors.
"I think there are some vendors who need to step up and make some decisions" about whether or not they plan to jump into CRM via acquisition, says Gartner's Bond. But with multi-billion dollar valuations for some CRM start-ups, "a lot of them can't do it--they don't have the money," he says.
Not all of the major ERP vendors who potentially have the means to pull off a CRM merger of some sort are taking action--most notably JD Edwards, which appears content to stand pat with a strategy of focusing on ERP while building partnerships with CRM companies such as Siebel to provide connectivity. While perhaps commendable for recognizing their core strengths, they may wind up on the outside looking in if their competition continues to expand their feature sets. "If there was a level playing field and JD Edwards was competing head-to-head with PeopleSoft, I would say PeopleSoft would have a better shot," says Orlov, and with feature advantages like CRM, "it isn't always a level playing field."
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. Self-promotion is a fine thing, but they can't all be right.
"I think we can learn from the SAP example that it's probably not the best approach to try to build all this up yourself," says META Group's Shahnam. "SAP is at least two years behind schedule, I would say."
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 proved less effective on CRM customers than it has in the ERP market. "My personal opinion is that SAP is missing the wave," says Bond, "and for that reason vendors like Oracle and Baan have done reasonably well."
A recent Yankee Group report and other analysts do 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, if not a world-beating product.
"They know they're going to lose some market share for a while," says Bond, "but they believe their own installed base is eventually going to come around to their product because of the integration. They'll lose some deals to Siebel and Vantive/PeopleSoft, but they see that as a short-term problem." Bond went on to say that if SAP turns around their execution, he agrees that it will be a short-term problem.
Oracle has chosen to acquire component software from companies like Versatility and Concentra to create their CRM suite. "It's a robust, integrated suite developed by Oracle," says Lisa Arthur, vice president of e-business suite marketing for Oracle. "We acquired key technology components that we could bring in to maximize our delivery across multiple channels."
Pending a late spring delivery of their CRM 11i product, 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.
While Baan has done little but struggle since acquiring Aurum, analysts are cautiously endorsing PeopleSoft's mirror strategy of buying Vantive to add CRM capabilities. "I think PeopleSoft's got hope," says Forrester's Orlov. "I think they did the right thing."
Vantive's intense penetration within PeopleSoft clients factored heavily into the decision, and PeopleSoft liked what they saw. "The customer base that Vantive has is tremendously loyal," says Schreyer.
"There is the risk that the Vantive application will be essentially quashed by PeopleSoft's potential to not make a decision about what they want to do with Vantive," warns Shahnam. "PeopleSoft has not had a great track record in terms of integrating its acquired companies."
Schreyer says that independence and flexibility will be the key to avoiding the problems Baan had incorporating Aurum into their business. "We have an entire product division accountable for the success of CRM," he says. "It's not that the business of creating and marketing CRM has been diluted into PeopleSoft. We have relative autonomy to go out into the marketplace."
For Better or Worse
You would be justified in thinking that the various and well-documented struggles of ERP companies to embrace CRM technologies and mentalities might have dampened enthusiasm for this technology combination. But everyone seems to remain convinced that they're on the right track.
Despite industry criticism of their time-to-market, SAP believes they're doing the right thing by developing their CRM functionality from within. "Interfacing engines do not work as pure process integration," says George D'Auteuil, vice president of CRM for SAP America. "MySAP is giving us the opportunity to change how people and organizations work together from a process standpoint." D'Auteuil points proudly to a recent announcement of some 200 SAP CRM customers as evidence that their approach is working.
"There is still interest in stand-alone CRM solutions, but we firmly believe that will be changing," says Baan's Timmermans. "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."