For Vendor Strategy Professionals

October 3, 2008

The Knowledge Economy Calls For A New Resource Management Perspective
This is the first document in the “Enterprise Resource Management” series. by tim Harmon with Peter Burris and Zachary Reiss-Davis

A New ERP For The 21st Century

Enterprise applications vendors successfully address users’ operations objectives in the pursuit of efficiency improvement. But companies’ executive and senior managers are focused on business transformation, which is not supported by today’s operations-oriented enterprise applications. This unmet need will give rise to a new class of vendor or an established vendor that can learn new tricks, i.e., that can structure solutions that support executive action-taking and not just information sharing. enterprise application vendors are staring down tHe barrel of a new economy Enterprise application vendors successfully address their customers’ operations requirements. However, Infor, Lawson Software, Microsoft, Oracle, and SAP, as well as niche enterprise resource planning (ERP), supply chain management (SCM), customer relationship management (CRM), supplier relationship management (SRM), and product life-cycle management (PLM) vendors, crafted their products during a competitive period when the economy was dominated by modestly integrated, regional manufacturing. Enterprise application vendors must now service customers that need to excel in an economy that is increasingly global, services-oriented, and virtual. Today, their customers’ competitiveness is tied to cost-effectively seizing opportunities. Operational efficiency is still required, but the most successful businesses will be the ones capable of rapid, targeted, and low-risk transformation to suit market, customer, and partner needs. A new class of enterprise application is demanded. Called extended-enterprise resource management (EERM), these systems will complement traditional resource management systems by adding capabilities for coordinating, recognizing, and optimizing the work of an enterprise’s most coveted asset — its people. executive and senior management is changing its move-the-dial resource focus Executive and senior managers are responsible for “moving the dial” — i.e., increasing revenue; profitability; and, subsequently, market share and market value, according to or beyond expectations. Significant movement on the dial requires executive and senior managers to renovate their brand (for example, building market credit for innovation, as Apple, General Electric, and the Tata Group have done) or transform their companies to enter new markets or take advantage of market opportunities. While optimizing the application of physical resources remains important, executive and senior managers are confronting new business models, involving new resources, for conducting business in the 21st century knowledge economy.
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and SAP have extended their ERP applications to support a broad range of enterprise function. But those enterprise application offerings remain transaction-based in support of dayto-day operations management. dramatically reducing the opportunity for most businesses to compete on the basis of ERP-based supply chain efficiency. They don’t address executive and senior managers’ needs in support of transformation management (see Figure 1). October 3. mostly through acquisition. including SCM. figure 1 Today’s Enterprise Applications Address Only The Operations Of A Company The EERM opportunity is characterized by role/resource dashboards with execution hooks into ops-level applications Executive management and senior management Executive and senior management depends on spreadsheets and email Operations management R&D Accounting Supply chain management Production HR Marketing and sales Service PLM 47014 ERP HCM CRM Source: Forrester Research. 2008 © 2008.A New ERP For The 21st Century For Vendor Strategy Professionals 2 erp vendors are still looking at the market through 90s-tinted lenses Oft forgotten is that ERP was designed to enable managers to optimize aggregates of resources. ERP vendors were successful — which means that these resources are now commonly managed. Microsoft. Reproduction Prohibited . Largely. raw materials. Inc. Forrester Research. the 1990s was the decade of supply chain optimization. and fixed assets — in the quest to effect supply chain efficiency for customers. Indeed. The original ERP vendors certainly haven’t stood still. inventory. SRM. Lawson. Oracle. Infor. Partly because of the emergence of ERP. and PLM. Inc. ERP vendors developed highly scalable applications capable of managing complex arrangements of physical resources — capital. CRM. not just individual classes of resources. enterprise asset management (EAM).

Coca Cola. Nordstrom. processes. involving outsourcers. as: The planning and management of people and the knowledge resources they apply to the transformation of the business from one state to another. Extended-enterprise resource management doesn’t displace community. that are most critical to moving the dial: · Workforce: The knowledge economy workforce is characterized by being increasingly globally · IP: IP resources extend far beyond their obvious legal forms — patents and licenses — to include ideas. and learning processes.0-enabled innovation. Forrester defines EERM. initiatives. October 3. and ecosystem — these are resources that can today be utilized more directly in the ideation. service providers. · Brand: Web 2. largely as a result of Web 2. which the Web has made transparent and omnipresent. it is those knowledge resources. marketing. involving Web 2. brands are now co-developed with — and sometimes misused. They’re moving beyond the goals of ERP. contingent labor. community. suppliers. sales. technology/systems. and partners. and models. and Volvo monitor and leverage their brands as strategic resources. and collaboration capabilities. As a result. · Relationships: Customers. Forrester Research.A New ERP For The 21st Century For Vendor Strategy Professionals 3 today’s Knowledge economy demands a new resource management system New business models. which are to optimize the work of machines and improve materials movement through the enterprise. specs. then. Clearly. partners. formulas. IP. enter extended-enterprise resource management ERP is the planning of how (physical-based) business resources are acquired and moved from one state to another. and brand — together in the context of a collaboration framework to create for executive and senior managers in support of business transformation what ERP did for operations in support of efficiency (see Figure 2). peopleoriented knowledge resources are surpassing supply chain-oriented physical resources as the dial-movers.0. Reproduction Prohibited . relationships. 2008 © 2008. and maligned by — the community. then. Companies like Amazon. Inc. distributed and virtual. people-based resources are the new dial-movers While capital certainly remains a critical enterprise resource in the knowledge economy. it will coexist with and complement ERP. are fueling the knowledge economy — which is about how people perform work.0 community-facilitated influence has led to the dissolution of brand ownership.1 Today. marginalized. brand management is a much more active and real-time function. there is a call to bring knowledge-based resource pillars — workforce.

Inc. BMW (differentiates on the basis of free maintenance). it has attained a P/E of 24-25). kept in check by an obstruction ready to give way at any moment. replaced by service-based industries that are constructed with people and IP assets.2 · Web 2. Contingent labor. and management are priming the pumps for enterprise resource management: · Service-based business models are fueling the economy. partners. Time Warner. and Vivendi). Web 2. tHe driving forces are being Held in cHecK . Inc. Forrester Research. Sony. Examples of services models include Google (as essentially an advertising service.A New ERP For The 21st Century For Vendor Strategy Professionals 4 figure 2 Business And Technology Attributes Of Enterprise Application Evolution 1980 1990 2000 2010 MRP II* Business driver Challenge Scope Tech catalyst Interaction model OLTP Transactional Get control over supply chain ERP CRM Establish a single view of the customer Unintegrated customer data Front office EERM Optimize allocation of knowledge assets Broken strategy-toexecution linkage “Whole” office Collaboration “Decisional” Unconnected internal processes Back office RDBMS Internet Transactional Note: ERP evolved from MRP II *MRP is manufacturing resource planning 47014 Source: Forrester Research. News Corporation. technology.0 technology opens and extends the enterprise. 2008 . . © 2008. Viacom. which is essential to compete in a global economy. for now The market for extended-enterprise resource management applications is like a racehorse at the starting gate — lots of pent-up energy raring to go. .0 technologies make it much easier for executive and senior managers to access and monitor resources outside their company’s walls. The demand for new EERM tooling simply is too high to be kept at bay for long. Manufacturing is fading as the engine of economic value. what’s driving eerm forward? Transitions in economic models. and the media and entertainment sector (Disney. Reproduction Prohibited October 3.

more steeped in technology utilization. For example. and responsive. Microsoft Excel spreadsheets no longer satisfy their technology appetite. October 3. most brand monitoring vendors don’t think about brand in terms of an enterprise resource to be applied to or balanced in aggregate with other strategic resources. younger managers. EERM will be built on a collaboration foundation. will usurp the ERP and CRM user-seat models. 2008 © 2008. and relationships can be more direct. are moving up the organizational ranks. which does not look like transaction engines underpinning ERP. IP. · Enterprise application vendors don’t have the right business models. the conventions for how to apply collaborative data models. Web 2. and dashboards to the extendedenterprise scope are lacking. whereby one group can adopt the technology one component at a time. and brand resources are relatively new. As executive and senior managers age and retire. small. Vendors with solutions that support workforce. · Demographics indicate that executive and senior managers are more tech-ready. personalized.A New ERP For The 21st Century For Vendor Strategy Professionals 5 and outsourcing providers can more readily jump into collaborative initiatives. risk sensitivity. interactive media will facilitate their success in making over their companies according to sense-andrespond models. IP and brands lend themselves to co-creation.0 technologies are delivered in the form of tools. and industry infancy are the obstacles that users and vendors have to overcome: · You can’t build EERM on ERP transaction-based platforms. relationship.0 collaboration frameworks are still in a state of infancy. not functional business applications. So soon after ERP and CRM implementations. Forrester Research. Moreover. Web 2. process structures.0-like viral business models. · Each EERM pillar is a distinct market category. Inc. More collaborative. and other operational applications. · Web 2. Reproduction Prohibited . and “point” in their thinking (see Figure 3). obstacles to overcome Transaction-based application platforms. most customers have neither the capacity nor the desire to take on another multimillion dollar enterprise application initiative. CRM. As a result of their experience.

Forrester Research. Vendors should enter into co-development agreements with management consultants to construct a new channel. Reproduction Prohibited . · m&a investment: There are a number of small Web 2.A New ERP For The 21st Century For Vendor Strategy Professionals 6 figure 3 Point Solution Categories In The Four Resource Pillars Of EERM Workforce IP Relationships Brand Project portfolio management Project team collaboration Business process management Time and attendance management Human capital management Contingent labor management 47014 Ideation management IP management Project portfolio management Product life-cycle management Prediction markets Wikis Customer analytics Contract life-cycle management Customer relationship management Supplier relationship management Social networks Blogs Brand monitoring Enterprise feedback management Enterprise marketing management Source: Forrester Research. they’ll also need to invest in a proportionate level of marketing to get executive and senior managers to begin thinking about how they can get their dials moving again. and M&A to serve the emerging EERM market. Larger application vendors should snap up the right ones. R E C O M M E N D AT I O N S get out tHe wallet and retHinK tHe business model Vendors and venture capitalists will have to invest more aggressively in R&D. 2008 © 2008. Inc. Startup vendors’ venture capital backers should fund a consolidation road map to merge vendors having complementary EERM pillar solutions. October 3. · r&d and marketing investment: The breadth and scope of EERM is analogous to ERP. · channel model: Strategic partners who have the ear of executive and senior managers are key to shepherding technology adoption. marketing.0 collaboration technology vendors. Vendors need to invest substantially more in R&D than the typical 8% to 15%. Inc.

Spigit. 47014 . and Total Economic Impact are trademarks of Forrester Research. visit www. Microsoft. RoleView. Forrester. 2 Forrester Research. IBM. Infor. Crimson Hexagon. contingent labor. Information is based on best available resources. advisory. Technographics. For more information. It plays no role in the general manager’s purview of allocating people (employees. Island Data Corporation. please email resourcecenter@forrester. Additional reproduction is strictly prohibited. Inc. To purchase reprints of this Opinions reflect judgment at the time and are subject to change. and partners) to work. TechRadar. Forrester clients may make one attributed copy or slide of each figure contained herein. © 2008. As of September 24. Forrester has been making leaders successful every day through its proprietary research. Forrester Wave. For additional reproduction rights and usage information. outsourcing providers. All other trademarks are the property of their respective companies. (Nasdaq: FORR) is an independent technology and market research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. events. SAP. Corporate Portfolio Management Association.forrester. Imaginatik. Forrester Research. go to www. 2008. endnotes 1 People resource management differs from human resource management in terms of how “human resource management” is contextually defined in human resource management systems (HRMS). and peer-to-peer executive programs. including Clarizen. For more than 24 years.forrester. All rights reserved. consulting. Inc. An HRMS application supports only the administrative HR and Source: Yahoo! Finance (http://finance.A New ERP For The 21st Century For Vendor Strategy Professionals 7 supplemental material methodology Forrester interviewed 20 vendor and user companies. and Tenrox through various interactions such as

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