Open Source Strategies

A blog about open source software and business models, enterprise software, and the opentaps Open Source ERP + CRM Suite.

Sunday, February 12, 2006

Enterprise Software is Not a Refrigerator

The common mistake people make when selecting ERP/CRM software, and how to avoid it.

Buying a Refrigerator

How do people buy refrigerators?

Chances are, a family sits around the kitchen table and decides what features they'd like. One wants stainless steel exterior, 30.0 cubic feet of capacity, and separate drawers for fruits and vegetables. Another wants a wine rack. Someone else wants an ice maker. An ice cream tray. A water purifier. Thus a requirements list is born.

Then you go shopping. This one has all the features but costs $1,200. That one doesn't have the water purifier or wine rack but is $300 less. Which is better? You think about it.

Is it a popular brand? What do the analysts at Consumer Reports say? How is the warranty? Do my friends use it? Do they like it?

You make a decision.

Enterprise Software is Not a Refrigerator

Usually, people buy major enterprise software, such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM), the same way. They gather up their corporate family and create a committee of Sales, Operations, and Finance. Each draws up and prioritizes a list of features. They then go shopping: Compare vendors' offerings, prices, and support contracts. Check references. Ask other companies. Hopefully, they make a decision.

The problem, of course, is that most people know more about the refrigerator they just bought than the ERP or CRM software in which they are about to invest millions. They had a chance to open the fridge up and peek inside. Most commercial ERP/CRM vendors won't let you do that.

More problematic, though, is that this whole approach is wrong. Enterprise software is not a product you buy and use. It will become the DNA of your company. Your family will continue to cook the same food no matter which refrigerator you but (never mind what that salesperson tells you.) Your company, though, will run the way your software allows it to.

Since most companies plan on keeping their ERP/CRM software for five to ten years, sometimes longer, that software must be able to change as the companies' business does. Can an online retailer open stores successfully? Can a retail chain get online successfully? Can a retailer manufacture a private label line? Would you be ahead or behind the curve as your whole industry shifts from products to services business models, or from sales to subscriptions? You can if your software lets you.

Think these are hypotheticals? Then why did BlockBuster take so long to respond to Netflix? Why did Siebel take so long to respond to

The biggest risk of enterprise software is not a headline-grabbing failed implementation. Rather, it's an inflexible package that "succeeds" but then traps you in an outmoded business model and leaves you further and further behind as your industry or business changes.

How to Make Sure It Doesn't Happen To You

There are a few things you can do differently when shopping for enterprise software. First, you can make flexibility a priority. Ask your vendor how flexible it is. Don't take their "Yes" for an answer. Research it a little more: what is considered best practices for application architecture in the industry right now?

Indeed, there is a fundamental change going on in enterprise software right now, and that is the shift away from monolithic database-driven ERP/CRM software to a more flexible Services Oriented Architecture (SOA). SOA can (and does) fill its own books and conferences, so I'll leave details to the experts.

Better still, find out who else is using it. Instead of what you'd usually do, though, find out about companies very different from yours which are using it. If you're a manufacturer, ask about services companies using it. If you're a chain store, are there any big online retailers using it?

Then ask yourself: is this vendor flexible? Are they just responding to demand and putting in features as customers ask for them? If so, then you'd always be "in the middle of the pack." Or is your vendor actively thinking about where your industry is headed and coming up with solutions ahead of the curve to address those changes?

This is where open source may give you an advantage. Open source communities are fundamentally innovative because they can draw in ideas and contributions from a large user community. Further, you have the source code, so you can make your own modifications if your business changes. But open source is only as good as the code it produces, and that code must be built in a flexible way, following the best architecture patterns of the industry.

Remember . . .

You may never need to make toast or watch TV with your refrigerator, but you may have to run a completely different business with your ERP/CRM software in a few years.

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