Dec 28, 2005 (08:12 AM EST)
From Monolithic to Business Process Applications

Read the Original Article at InformationWeek

VentanaMonitor™

Summary
SAP laid out its market strategy while meeting with analysts in early December. The company says it will seek to increase its market share lead by changing the orientation of the enterprise application from database tables to the business process and its focus from IT architecture to end users. Ventana Research believes this approach is an important and necessary evolution beyond the data-centric approach so common in the enterprise software universe — one that is epitomized by the three-letter acronyms commonly used for functional applications such as ERP, CRM, SCM and so on. From a business perspective this current architectural approach is artificial, so instead SAP proposes to focus on reducing substantially the frictions of executing business processes. In our judgment, SAP’s conceptual approach represents the wave of the future; it also differs from other service-oriented architectures in its potential to deliver practical enterprise applications. While we do not expect it to change the applications business overnight, SAP’s direction does suggest how mainstream Global 2,000 organizations will use packaged applications by early in the second decade of the century.

Assessment
Since the introduction of packaged client/server software in the early 1990s, the business software industry has organized around applications that bring together logical groupings of data and processes in a way that had not been feasible in the mainframe world. Many of these applications were known by three-letter acronyms (the term itself was shortened to TLA). For example, rather than needing separate applications and data tables for inventories, accounts payable, fixed assets and similar data, enterprise resource planning (ERP) tools brought together related transaction-recording tables into a single application. Similarly, customer relationship management (CRM) tried to have a single customer-focused record-keeping system that could present a unified view of customers across the range of sales and support activities; supply chain management (SCM) organized the flow of physical goods in from suppliers and out to distribution channels and customers. This approach was a breakthrough at the time. 

Packaged enterprise applications from SAP, Oracle, PeopleSoft and others have had a positive impact on the productivity of corporations, substantially cutting the cost of finance and administration while improving inventory and asset productivity. That, however, is no longer enough. Today technology can deliver more. The nearly total adoption of the Internet by business has created a universal network. This, along with fast processors and cheap memory, finally has made it feasible for people to interact with systems in business terms, rather than bending business processes to fit the way technology works.

Ironically, making the architecture disappear from a user’s perspective requires a lot of software engineering. (And, we admit, it is not likely to do away with the industry’s penchant for three letter acronyms.) For SAP, its Enterprise Services Architecture (ESA) means creating a focused set of process, business object and integration scenario components, and making them available to partners and customers. ESA goes beyond service oriented architecture (SOA) by providing the business semantics necessary to organize and execute business processes. The resulting composite applications match more closely the familiar business processes that people use either alone or in collaboration with others.

ESA permits much more automation of repetitive work, which in turn increases efficiency, shortens the time needed to complete tasks and reduces risks of error and fraud. And this approach should make it feasible to organize the execution of business processes in a way that makes business sense. Software systems no longer will limit where these activities take place and who executes which steps. Thus, corporations should be able to increase the number of shared services they use internally to increase efficiency, or to outsource more easily functions (such as payroll) that service providers can execute more efficiently.

The ESA approach also can reduce the amount of effort needed to put an application in place. TLA systems usually required Global 2,000 companies to spend two to five times the cost of the software to implement them, and an ongoing maintenance cost accompanied these modifications. SAP and other firms attempted to reduce the modification burden by verticalizing their offerings, adding industry-specific process and data structures. The new architecture takes this idea one step further. With ESA, companies no longer will need industry-specific add-ons, so it will be possible to have software that performs end-to-end processes using the specific idioms and methods associated with that industry.

It is still early in the evolution beyond monolithic applications. SAP has taken substantial steps, but much more work remains to be done in fleshing out its products and getting others to participate in this vision. Certainly, SAP must demonstrate that its approach meets the performance, scalability and availability requirements of its most demanding customers. SAP also has studied history, and recognizes that the extensive migrations required in the shift from mainframe to client/server applications were far too painful for too many companies. It intends this shift to the next generation to be as gradual or as rapid as companies desire. Ventana Research asserts that true success of the new strategy will be measured not by “customer success stories” but by the frequency with which CEOs and CFOs recommend SAP’s approach to their peers in private conversations.

Market Impact
SAP has put its substantial resources behind redefining the terms of engagement in the enterprise packaged applications business. It is positioning itself chiefly against Oracle (which will unveil an entirely new enterprise package when it announces the result of its Project Fusion in 18 to 24 months) and indirectly against IBM (with its Service-Oriented Architecture, or SOA.) As the market leader, SAP’s challenge is to accelerate adoption of its process approach as much as possible. In making its ESA an “open” standard, it has the right idea, although “open” in this case is a matter of degree, since by necessity SAP will be calling the basic infrastructure shots. Oracle’s challenge will be to deliver a similar degree of process orientation in Project Fusion, rather than a warmed-over version of 1990s-style enterprise applications, particularly as it fits Siebel into its applications tent. As important, Oracle will have to talk the talk of business process, not technology. Smaller software companies will find threats and opportunities in this new environment. Buying into the SAP-defined architecture, they should be able to market parts or all of their software to companies more readily — but only if their offerings surpass or complement SAP’s. Smaller vendors also will find a receptive audience for a decade or more among customers that prefer to wait until most vendors have moved to the new approach. 

Recommendation
Visions for the longer term should play only a minor role in making major near-term decisions. Yet Ventana Research advises all Global 2,000 companies to understand SAP's strategy and its implications for their enterprise application investments. SAP customers must manage their upgrade and consolidation decisions with ESA in mind. Oracle, PeopleSoft, JD Edwards and Siebel customers should understand both SAP’s vision and their longer-term options in case Project Fusion turns out not to their liking. SAP’s product transition from a monolithic and TLA-centric solution to a true business process application is underway and should provide the company with an opportunity to shape an innovative future for enterprise applications.

About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm.  By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.

© 2005 Ventana Research