Best of Breed vs. Integrated ERP
April 30, 2011 11 Comments
We have all heard the proverb “A chain is only as strong as its weakest link.” Applying this concept to business software, we would conclude that a business solution is only as strong as its weakest integration. Usually overlooked and underestimated, integration is one of the most important factors to consider as part of a best of breed vs. integrated ERP solution. The benefit of richer functionality is limited by partial integration. In the next sections, we will discuss all the factors to consider as part of making an informed decision regarding best of breed vs. integrated ERP.
Best of Breed versus Integrated ERP
The typical value proposition for best of breed software is the deeper and industry-specific functionality provided. This advantage is especially important for generating competitive advantage. It is vital that an organization’s revenue-generating business processes are competitive. However, it is not strategic to an organization to be competitive in non revenue-generating business activities. Consider the following:
Allow me to expound on a few key facts expressed above:
- Integrating a best of breed application with ERP software will result in additional cost and maintenance (ex. dual upgrade and maintenance cycle).
- Developing integration between a best of breed application and ERP software will not be as robust as the delivered ERP integrations between its applications. Part of result has to do with the total integration cost over the life of ERP and the other area is the simple fact that the underlying data models are different.
The question I challenge my customers with is “Will having a best of breed software versus integrated ERP worth the cost?” Will the additional investment generate a significant impact to competitive advantage?
Allow me to provide a real life example. I was working with a large insurance provider with their ERP implementation. As part of the ERP implementation, the customer was considering a best of breed software package instead of utilizing delivered ERP functionality to support IT project management activities. Following is the case I presented to advise the customer in making their decision:
Ultimately, the business makes the decision but as business technology advisors (IT, Consultants) it is our responsibility to present all the relevant information in the appropriate content so an informed decision can be made. There is one area in particular that is generally not fully elaborated – the true cost of integration.
The True Cost of Integration
When we think about integration between two different software packages we usually only focus on transactions. To continue with the example I provided in the previous section, following is a representation of the required integrations between ERP and the best of breed packaged software.
Each packaged software has business rules and control data (ex. Project types) that govern how software functionality supports business activities. Also, consider that the underlying data models for each packaged software are different. There must be a process (either manual or automatic) in place to keep the respective business rules and control data in sync. Business transactions must also be replicated between the ERP and the Best of Breed packaged software. It is worth considering the amount of data that must be replicated between the two software packages. I understand that replication sounds much worse than integration; however, when we need to integrate transactions between different data models, replication is typically the approach taken. Even when an ERP vendor indicates they have delivered integration with a best of breed packaged software we need to ask whether the integration is services-oriented or data-oriented (replicated).
There are also strategic considerations for a customer’s IT organization. Consider the following sources:
Making the decision to implement a best of breed approach for supporting business activities will increase the total cost of IT as well as put the underlying technical architecture is not flexible and adaptable to meet emerging requirements.
Does Best of Breed Make Sense?
Let me say this loud and clear “ABSOLUTELY”. ERP can be a good integrated solution to support revenue-supporting, compliance, and generally accepted best practices. However, ERP does not support competitive practices (if it did then the business practice would no longer be competitive because it is generally available to everyone). Generally speaking, a best of breed software vendor may be more open to active collaboration and co-development with customers in developing solutions for emerging requirements – which is the nature of revenue-generating business processes. Yes, there will be the additional cost and support but the payoff is far more significant in terms of the potential for increased revenue and market share.
Business processes, not individual business functions, generate business results. Too often, we only focus on business activities and the specific software functionality that supports these activities without holistically addressing the entire business process. This limited view typically results in a short-sighted decision resulting in a higher Total Cost of Ownership (TCO) and a less flexible software solution.
Best of breed software may be the best decision for supporting revenue-generating business processes. There are times were integrated ERP is the right choice given the potential return. What is most important to consider is which choice will enable the customer to be in the best position to take advantage of future opportunities.