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Enterprise Resource Planning (ERP) - EARLY DEVELOPERS OF ERP SYSTEMS, IMPACT OF THE INTERNET ON ERP SYSTEMS

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Relied upon by more than 90 percent of Fortune 100 companies, enterprise resource planning (ERP) systems integrate accounting, human resources distribution, manufacturing, and other back-end process-es—those that do not directly involve customers—for businesses of all sizes. In recent years, they have also evolved to include front-end processes—those that involve customers—such as customer relationship management (CRM), supply chain management, and e-commerce. In the early 1990s, most major corporations began upgrading their mainframe systems with the new client/server-based ERP systems developed by industry leaders like SAP AG, People-Soft Inc., and J.D. Edwards & Co. As the World Wide Web began to replace client/server platforms later in the decade, ERP firms began working to enable their technology to operate via the Web. Although some analysts predicted that the rise of the Internet as a business platform would render the $20 billion ERP industry obsolete, others believed that ERP and e-commerce technology vendors would likely work together in the early years of the twenty-first century to create new e-business applications.

SAP AG

The world's largest provider of ERP software, Germany's SAP AG, was founded in 1972 by five German engineers working for a branch of IBM. SAP's first project was to develop integrated enterprise software applications that could run on a mainframe; the five engineers had been working on a similar project for IBM, and when IBM moved the enterprise software project to a different unit, the partners decided to form their own company and continue working on the software. Originally, SAP was an acronym for systems analysis and program development; however, the wording was later changed to systems, applications, and products in data processing.

Within six years, SAP had secured 40 corporate clients. The firm began working on a real-time, mainframe-based business software suite to integrate accounting, sales and distribution, and production processes for corporations. The new product, known as R/2, allowed users to unify financial and operational data into a single database; it also eliminated paperwork and streamlined data entry processes. R/2 was formally introduced in 1979, and SAP found itself attracting clients such as Dow Chemical and Bayer. In the early 1980s, many competitors to SAP's clients began purchasing the software in an effort to keep pace with their rivals. SAP expanded outside of Germany for the first time in 1985. Two years later, the firm formed an alliance with IBM Corp., agreeing to help IBM standardize all of its systems and platforms to increase the compatibility of SAP and IBM products. International expansion continued with a unit in Switzerland. In 1988, SAP moved into the U.S. for the first time, creating an office in Philadelphia, Pennsylvania. To fund future research and development efforts, the firm conducted its initial public offering (IPO) that year.

By the early 1990s, R/2 had become the European standard for integrated business software. SAP unveiled R/3, which had been a work in progress since the late 1980s, in 1992. An ERP for the burgeoning client/server market in which data was processed via a networked server linked to multiple clients, such as personal computers (PCs), R/3 operated on IBM's OS/2 platform; it utilized IBM's DB2 database program, as well as several application components manufactured by SAP. Many of the businesses looking to streamline operations in the recessionary economic conditions of the early 1990s turned to SAP for the R/3 system. In 1993, R/3 accounted for 80 percent of SAP's total revenues. Sales grew by 66 percent the following year, and Microsoft Corp. convinced SAP to manufacture a version of its software compatible with Windows NT, SQL Server, and other Microsoft products.

By 1995, SAP had installed R/3 for more than 1,100 billion-dollar companies; installations for small and mid-sized clients reached 1,300. Complex R/3 installations cost up to $30 million, although the cost for an average client, not including consultants' fees, was $1 million. North American sales garnered nearly one-third of total revenues by then. That year, Microsoft selected R/3 to integrate its global finance and accounting system. Sales grew 48 percent to $1.35 billion. SAP was considered the most valuable company in Germany in 1996. Its stock had grown roughly 1,000 percent in the eight years since its IPO. R/3 was offered in 14 different languages as international operations grew to include South Africa, Malaysia, Japan, the Czech Republic, Russia, mainland China, and Mexico.

PEOPLESOFT, INC.

One of SAP's first true rivals in the ERP market emerged in 1987, when software developers Dave Duffield and Ken Morris left their posts at Integral Corp. to establish PeopleSoft, a maker of human resources software that could run on the increasingly popular client/server computer systems. The following year, the company introduced People-Soft HRMS, the market's first viable human resources software application for a client/server platform. Eastman Kodak became the first large client to purchase HRMS. Sales in 1989 reached $1.9 million as PeopleSoft products gained recognition for their ability to assist companies undergoing reorganization, as well as companies looking to cut costs by streamlining operations. Sales jumped to $6.1 million in 1990. Expansion into Canada helped boost revenues to $17 million in 1991, and earnings exceeded $1 million for the first time. With a 40 percent share of the human resources applications market, People-Soft began working on financial management programs in 1992. To generate funds for additional research and development efforts, the firm conducted its IPO that year, raising $36 million. International expansion efforts intensified in 1993 as PeopleSoft opened branches in Sydney and Melbourne, Australia. The firm also began selling its products in France, England, and South America. Earnings grew nearly twofold, to $8.4 million, on $320 million in revenues. In 1994, the firm launched PeopleSoft Distribution and PeopleSoft Financials products. Expansion into Mexico took place in 1995 with the establishment of a subsidiary there.

In 1996, PeopleSoft began to compete directly with SAP when it acquired Red Pepper Software Co., a maker of ERP software, which it folded into its new PeopleSoft Manufacturing unit. New product releases that year included PeopleSoft Human Resources for Federal Government.

J.D. EDWARDS & CO.

An ERP systems provider targeting smaller clients than SAP and PeopleSoft, Denver, Colorado-based J.D. Edwards was founded in 1977 by Jack Thompson, Dan Gregory, and Edward McVaney. Originally a designer of software for small and mid-sized computers, J.D. Edwards evolved into a developer of ERP systems after it began focusing its efforts on software for IBM's System/38 machine in the early 1980s. The firm's flagship ERP product, WorldSoftware, eventually ran on IBM's AS/400 computer. The application was designed to integrate the back-end functions, including accounting and manufacturing, of businesses with $50 million to $1 billion in sales.

In 1996, after recognizing that its software's dependency on a single platform was limiting its reach, J.D. Edwards released OneWorld, a client-server-based suite of applications that could run on a variety of platforms, such as Unix and Windows NT. The firm completed its initial public offering (IPO) the following year. By then, customers exceeded 4,000.

As early as 1994, SAP began working to upgrade its flagship R/3 product with Internet capabilities; the move reflected SAP's desire to compete with increasingly popular "intranets," the in-house data networks similar in structure and appearance to the Web that were adopted by many corporations. However, despite these early efforts toward integration with Internet technology, SAP found itself lagging behind rivals in the late 1990s. For example, PeopleSoft unveiled a series of self-service, Internet-based applications in 1997. Also, database giant Oracle Corp., which diversified into ERP software in the late 1980s, became the first ERP vendor to move its client/server applications to the Web that year. According to a July 2001 article in BusinessWeek Online, upon receiving the news in early 1999 of SAP's less than desirable position, CEO Hasso Plattner, "reacted like a man shot out of a cannon. In a matter of days, a series of frenetic brainstorming sessions yielded a brand new strategy, which he personally christened mySAP.com. SAP's array of software programs would be made Net-ready before the end of the year, and millions of office workers from Berlin to Bangkok would tap into the Net and their own companies' networks on computer screens with SAP's logo on them." Plattner believed mySAP.com could become a major online gateway for businesses, reaching the business masses in the same way online services provider America Online (AOL) had reached consumer masses.

What SAP eventually realized, however, was that making its products compatible with the Web was not enough to reposition itself as a business systems leader in the rapidly evolving ERP market. The firm also needed to reconsider its tradition of developing all of its own software in-house and seek out partnerships as a means of gaining quick access to new technology. For example, the firm began using Commerce One Inc.'s business-to-business (B2B) software when it created a U.S. subsidiary, known as SAPMarkets, to build and operate e-marketplaces. SAP also forged an alliance with Siemens AG to offer mySAP.com via Siemens's mobile devices.

While SAP was undergoing its metamorphosis, competitor PeopleSoft also continued working to stay abreast of cutting edge technology. In 1999, People-Soft paid $600 million for Vantive Corp. to gain access to CRM technology for the first time. The firm also began licensing procurement software leader CommerceOne Inc.'s BuySite application. PeopleSoft released PeopleSoft 8, a suite of e-business applications that was designed to put all the back-end and front-end operations of a business on the Web, in 2000; by the end of the following year, roughly 1,500 clients had signed up for the new package.

J.D. Edwards also spent the late 1990s and early 2000s retooling itself. The firm made its first acquisition in 1999, paying $12 million for The Premisys Corp., a sales automation software provider. The firm also purchased supply chain software provider Numetrix, eventually adding supply chain functionality to its OneWorld suite. J.D. Edwards also pursued deals with Siebel Systems Inc. for access to its CRM applications and with Ariba Inc. for B2B e-commerce technology. Although the alliance with Siebel Systems eventually proved fairly fruitless, the firm did eventually acquire CRM technology via its September 2001 purchase of Youcentric Inc. Late in 2000, the firm unveiled OneWorld Xe, which used the Web's extended markup language (XML) technology to allow clients to electronically connect to business partners using other platforms and software applications.

According to an October 2000 article in Internet-Week, what companies like SAP, J.D. Edwards, and PeopleSoft were doing entailed "the Webification of enterprise resource planning software, a migration long promised but only recently realized. The core ERP applications, which until recently meant back-office functions such as accounting, human resources, payroll, and fulfillment among others, are expanding to embrace strategic functions such as e-business relationships (EBR), supply chain management (SCM) and e-commerce services." According to many industry experts, however, adding front-end applications and Web functionality to their products only scratches the surface of what ERP vendors must do to stay afloat in constantly shifting e-business landscape. Although many firms have moved toward developing a comprehensive end-to-end enterprise management system that fully integrates all business functions, several analysts argue that such a system has yet to be developed.

FURTHER READING:

Borck, James R. "Enterprise Strategies: ERP Faces Rocky Road." InfoWorld, May 14, 2001.

Chiem, Phat X. "ERP Vendors Make Move From Back Office to Front." B to B, February 19, 2001.

J.D. Edwards & Co. "J.D. Edwards Corporate Backgrounder." Denver, CO: J.D. Edwards & Co., 2001.

Hamm, Steve. "Meet the New Hasso Plattner." BusinessWeek Online, July 9, 2001. Available from www.businessweek.com

Mullin, Rick. "ECM: Where ERP Meets the Web." Chemical Week, April 25, 2001.

Pender, Lee. "J.D. Edwards Shifts Its Focus to Front Office." PC Week, March 1, 1999.

Schaff, William. "J.D. Edwards Breaks Out." Information-Week, June 8, 1999.

Stein, Tom. "Beyond ERP—New IT Agenda—A Second Wave of ERP Activity Promises to Increase Efficiency and Transform Ways of Doing Business." InformationWeek, November 30,1998.

Stevens, Tim. "ERP Explodes." Industry Week, July 1, 1996.

Sutton, Neil. "JDE Buys Into CRM Space." Computer Dealer News, September 28, 2001.

Sweeney, Terry. "ERP Takes On E-Business." InternetWeek, October 30, 2000.

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over 1 year ago

i see you got really very useful topics I have found this article very exciting. Do you have any others on this topic? I am also sending it to my friend to enjoy your writing style.

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over 2 years ago

Oracle Oracle Oracle Oracle... there, now it's been said. Nice tip-toe job there

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over 3 years ago

I am South African 37 year Warehouse Controller interested and completely captivated by the different business software packages yet I have only J.D.Edwards theory knowledge.Please can someone out there in the Business world assist me as I am unemployeed and have 3 week old baby girl.I have the ability as I have completed my senior secondary school and studied a cerificate course in Transportation at the Univ.of Johannesburg.Help a man totally lost in Business systems.

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over 3 years ago

I am South African 37 year Warehouse Controller interested and completely captivated by the different business software packages yet I have only J.D.Edwards theory knowledge.Please can someone out there in the Business world assist me as I am unemployeed and have 3 week old baby girl.I have the ability as I have completed my senior secondary school and studied a cerificate course in Transportation at the Univ.of Johannesburg.Help a man totally lost in Business systems.

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over 3 years ago

Every one acknowledges that humen's life is high priced, however we need cash for various stuff and not every man earns big sums cash. Thence to get good business loans and just college loan would be a correct solution.

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over 3 years ago

In fact the very first ERP product in the world was developed when it was just integrated Financial, Distribution & Manaufacturing software by Professional Computer Resources (Oakbrook, IL) in 1978. The product was Resource Manufacturing System (RMS) written in RPG11 for the IBM System/34 and later rewritten in RPG111 for the System/38 which later became the AS/400.