Fed Helps ERP

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It has been a tough year for enterprise resource planning vendors.

In the face of slowing or declining license revenue, the four largest firms ? PeopleSoft Inc., SAP America Inc., Oracle Corp. and J.D. Edwards & Co. ? each lost at least two-thirds of its stock value. Only PeopleSoft has shown signs of recovery.

It is even worse for the smaller firms, with many seeing their stock values drop by as much as 90 percent.

While some of the fall can be attributed to the maturing of the ERP market, the popularity of outward-facing systems, such as customer relationship management (CRM) and supply chain management (SCM), has also gobbled up market share.

It is likely, however, that ERP will rebound. Based on the experiences of e-commerce and e-government initiatives, CRM and SCM only function well when backed up by the solid internal records system that ERP provides.ERP has acquired a reputation for being expensive and hard to implement. Nevertheless, the federal government spends more than $3 billion on ERP and CRM software and related services, according to the market research firm Federal Sources Inc. of McLean, Va.

With the General Accounting Office's assessment that a third of all federal employees will retire over the next four years, upgraded enterprisewide applications appear to be the best way to prevent civic paralysis.

"Clearly, the public sector is looking to take advantage of many of the promises of ERP," said James White, senior vice president for public sector, aerospace and defense and airlines for i2 Technologies Inc. of Dallas. The promise includes a "reduction in the often significant costs associated with outdated legacy systems, as well as the potential for commercial best practice implementation," he said.

The past year has seen a number of large-scale ERP projects get under way. The Department of Veterans Affairs replaced a variety of legacy financial systems with Oracle's U.S. Federal Financials and Federal Purchasing modules, as well as adding Internet procurement.

Oracle of Redwood Shores, Calif., has also signed major contracts with the Small Business Administration and the National Institutes of Health.

Over at the Department of Housing and Urban Development, PeopleSoft of Pleasanton, Calif., is implementing Financials for Education and Government and e-procurement applications, with human resources and payroll to follow. Further, the replacement of the agency's central accounting systems is expected to begin within the year.

Meanwhile, logistics applications from SAP of Newtown Square, Pa., are being used in the Army Wholesale Logistics Modernization Project and by the Defense Logistics Agency to bring best commercial practices to the military logistics sector. NASA is implementing SAP Financials, and the U.S. Postal Service has selected SAP to improve human resources administration.

"The federal ERP market is definitely on an upswing," said Steve Perkins, senior vice president and general manager for Oracle Federal. "The new administration is demanding modern systems that meet the needs of the American people. To accomplish this, the government must turn to ERP and [off-the-shelf technology,] because they need these systems now."
Gone are the days when agencies constructed large-scale systems from scratch. Even without the extreme shortage of tech personnel, the inefficiencies and liabilities of in-house stovepipes are sending such systems into early retirement.

"Huge savings can be achieved by automating historically paper-driven business processes across large governmental enterprises," said Paul Maherman, an analyst with Giga Information Group of Cambridge, Mass. "Similarly, fragmented, homegrown, maintenance-intensive systems are being migrated to vendor-supported packages, achieving significant savings in systems support costs."

For many, moving to an off-the-shelf system makes both financial and operational sense. With commercial systems, the development costs are spread among all software users. This large installed base also allows for a greater aggregated experience, resulting in higher-quality products.

SAP, for instance, has been in the business since the 1970s and has 20,000 ERP systems installed worldwide. Oracle has over 1,200 employees devoted solely to the federal market. These resources allow for continuity in development and upgrades.

"Agencies are moving more and more toward [off-the-shelf] solutions as it is becoming flexible enough to address the uniqueness of federal requirements," said Richard Lemoine, regional vice president of interBiz, the e-business applications division of Computer Associates International Inc. of Islandia, N.Y. "To be successful, there must be that balance of leveraging the existing technology that a [commercial] solution brings, without having to customize the solution to the degree that it is not recognizable in its original form."

Increased federal adoption of ERP suggests the technology has successfully made the leap from a commercial to a government setting. Now, major ERP vendors provide procurement software that works with GSA schedules, human resource systems that align with military or general schedule pay rates, and financial systems that comply with Joint Financial Management Improvement Program practices for government financial systems.

Thomas Shirk

While the basic functions of ERP remain the same, their mode of delivery is changing dramatically. Instead of client-server systems, vendors such as Oracle, PeopleSoft and SAP are moving to an Internet-based platform.

This approach allows for a quicker and simpler implementation, because client machines don't have to be configured. An agency either installs software on its own intranet or rents it via an application service provider.

Another change affecting the ERP sector is that the Internet, collaborative systems and e-government have caused a widening of the "enterprise" to include suppliers and customers or constituents.

"Benefiting from mistakes made in the private sector, governments are reacting swiftly to put in the back-office infrastructure," said Thomas Shirk, president of SAP Public Services. "But in doing so, [governments] are using the outside-in approach, aligning back-office systems with CRM, business-to-government and Internet technologies as part of the overall blueprint, instead of managing as two separate projects."

While CRM and SCM were first offered as add-ons by other firms, the major ERP firms now have bought out or struck partnerships with CRM or SCM firms in order to incorporate these functions into their product offerings.

E-government, with its need to extract usable data in a timely manner across several agencies, is also driving the adoption rate of ERP.

"Government agencies are looking to ERP vendors to provide a comprehensive view of their operations," said Jim DeLorenzo, program manager of the federal solutions team for the consulting arm of Hewlett-Packard Co., Palo Alto, Calif. "Externally, they want to respond to increasing customer demands for e-government-type services. Internally, they are looking to ERP vendors to provide a unified picture of their data that can deliver integrated agency decision support and analysis improvements."

Computer Associates' Lemoine agreed. "The ability of most federal agencies to operate more like a commercial organization requires them to have real-time knowledge management systems in place," he said.

Such business intelligence applications integrate well with ERP, and can also extract data from legacy systems.

"Many of those systems hold years of valuable information that would be very difficult to duplicate," Lemoine said. "The key will be to leverage those systems and that information while having the ability to overlay new technology."

Caroline Rapking

Now that the federal ERP market is becoming well-established, greater penetration of the midsize market is necessary if e-government data-sharing initiatives are to gather momentum. After all, federal agencies regularly contract with small or disadvantaged businesses and rely on state and local government for much of their information and program implementation.

Consequently, for vendors to fully implement ERP and e-government systems at the highest levels, they will have to offer compatible products for smaller entities. Fortunately, states are another sector where ERP is experiencing significant growth.

"Taxpayers are demanding the same rich functionality and streamlined performance that for-profit, e-commerce sites provide from their own state and local government," said Caroline Rapking, a vice president in the state and local government group of American Management Systems Inc. of Fairfax, Va. "This demand is crucial in driving ERP needs, as ERP often provides the foundation for the customer-facing service delivery systems."

Rapking predicts a 15 percent surge in ERP adoption at state and local government levels over the next two years.

Far from following the federal lead, though, some jurisdictions are going a step further by considering all government operations and functions as one distinct enterprise. AMS, for example, is finishing up SAM II, Missouri's statewide ERP implementation. Missouri has embarked upon an ambitious ERP scheme that will act as the cornerstone of e-government.

"This is the first time any system has been implemented in Missouri with the participation of all departments and all three branches of government," Rapking said. "The benefits of the implementation continue to grow even after systems are installed."

With the added features that are evolving, government ERP systems are starting to look very different from the manufacturing logistics systems from which they came. To some, this is a sign of ERP's maturity, but others feel the change is so marked, it merits a new name.

Accordingly, GartnerGroup has coined the term "ERP II" and Technology Evaluation Corp.'s P. J. Jakovlievic proposes to call it "iERP." Whatever the label, it is certain ERP will play a major role in the evolving blueprint for citizen-centric government.

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