Feds, States Lean on ERP as E-Gov Pillar

By Lisa Terry, Contributing WriterEnterprise resource planning vendors are wagering that the coming years will see government agencies make a big push to purchase Web-based applications to amend or replace their legacy systems. Half of all U.S. federal, state and local government agencies still rely on such systems, and about 70 percent of those are looking to implement ERP in the next five years, according to research firm Meta Group, Stamford, Conn. Market leaders SAP Public Sector and Education Inc., Washington; Oracle Corp., Redwood Shores, Calif.; and PeopleSoft Inc., Pleasanton, Calif., have migrated away from client-server to Web-enabled versions. Another major competitor, American Management Systems Inc. of Fairfax, Va., is adding modules, such as e-procurement, to its government-specific accounting products.Changes also are afoot at some of these companies as they gear up for what they hope will continue to be a fast-growing market.SAP is about to announce Tom Shirk as the new president of its public-sector unit. Shirk, who has been with the company for 12 years, joins John "Jack" Carson, former Agriculture Department chief financial officer, who is vice president of federal business development.Carson, who joined SAP in June, dismissed the notion that the new regime was brought in to boost unsatisfactory growth. He called the change in leadership a part of "a natural growth process from entering this market three years ago."On Sept. 1, PeopleSoft shipped its federal and state and local versions of PeopleSoft 8, which has been re-engineered for the Web. The release adds a customer relationship management component, performance management, e-procurement, increased flexibility for business processes and compliance with XML standards, easing integration. The city of New York is to install the new version.Like other ERP vendors, PeopleSoft considers government "one of our hottest verticals," said Jon Gearhart, public-sector director for PeopleSoft. He cited the company's 930 public-sector clients, roughly a quarter of its international customer base.SAP and Oracle can count fairly equal numbers of customers, according to the Meta Group. Oracle said more than a fifth of its $10.1 billion annual worldwide revenue is derived from the public sector.Ray Bjorklund, vice president of consulting services for market research firm Federal Sources Inc. of McLean, Va., adds a word of caution regarding ERP. Although government spending on ERP has been growing at about 5 percent to 10 percent annually during the past several years, Bjorklund expects that growth rate to level off slightly, because ERP solutions are based largely on private-sector business processes that are not always applicable to the public sector."It's like putting a square plug in a round hole," he said.Bjorklund, who pegs the government market for ERP and related customer relationship management services at $3.4 billion in 2001, said that government spending on ERP "will continue to grow, but not as fast as it has been."Vendors continue to tailor ERP for federal, state and local government-specific needs, such as compliance with the Joint Financial Management Improvement Program. The vendors also are adding modules, such as property tax management, and are making other changes to streamline implementation and balance flexibility with the desire to minimize the need for customization. E-government initiatives are credited for much of the interest in Web-enabled ERP. E-government helps reduce training costs, requires a less burdensome technical infrastructure and, perhaps most important, brings the implementing agency political clout and prestige."These are high visibility wins," said Jim McGlothlin, regional vice president of PeopleSoft's federal government unit. E-enablement "gets these projects justified and sold."But according to Ken Mitchell, managing partner for Andersen Consulting's global government ERP practice, e-government is more of a future than a present-day benefit of many government ERP rollouts. Government turns to ERP initially for applications, such as human resources and payroll. Also, many governments already operate robust internal networks and lack widespread desktop Internet access, so Web-enablement is not required for employee access to applications, he added. According to Mitchell, requirements for better access to applications and information and improved reporting are more likely to drive government to adopt ERP. "It's the need for cross-jurisdictional communication and some sort of standard architecture that makes ERP essential," said Amy MacMillan, market analyst for Meta Group's electronic government strategies practice.Once these workaday ERP modules are in place, however, they will provide the foundation for e-government applications such as online permitting, procurement and licensing, because many of these need to interact with financial and HR systems."What we're seeing now is a significant appetite to buy a vision that they can migrate to over time," said Steve Perkins, vice president and general manager of Oracle Federal. SAP's Carson anticipates more enterprisewide ERP deployments at the state level than within federal agencies. "I think federal will be more piecemeal," he said, where "jurisdiction issues and multiplicity of committees will have an impact."Government adoption of ERP is in the middle of its growth curve; early adopters ? about 15 percent of government entities, according to the Meta Group ? have long since initiated their migration to ERP platforms and are ready for enhancements over the next two to three years.The Transportation Department, for example, expects to complete migration of its 14 operating administrations to Oracle Financials by 2001. The agency has already begun using the integrated Oracle iStore at its "Do It Yourself" Web site for functions such as applications and fines payment.For uninstalled government groups, "there are a lot looking to 2002 and 2003 to start pilots," said Meta's MacMillan.They soon may have another reason to choose ERP as vendors prepare hosted application service provider offerings. Observers disagree on the ASP model's suitability for large-agency adoption of ERP, but many agree these could be key to drawing smaller governments that lack the funding for large-scale investments."I think we'll see the ASP model come in more and more frequently," said Oracle's Perkins. That model could include hosting by third parties within government, such as the General Services Administration, he said. PeopleSoft, in the ASP market since 1998 through third parties and since March with an internal ASP service, is also seeing growing interest in hosting by federal agencies, company officials said.System integrators have handled a large percentage of government ERP implementations to date, but there are signs that ERP vendors are seeking their share of the pie. "They're looking to grow their practices," said Andersen's Mitchell.Government tends to deploy ERP incrementally, beginning with the neediest area. Some agencies resist ERP because of their monolithic image. For that reason, the term "enterprise applications that are best of breed" is gaining favor over ERP, said PeopleSoft's McGlothlin.