Best of Breed vs. Integrated ERP

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:

Advantages and Disadvantages with Best of Breed vs. Integrated ERP

Advantages and Disadvantages with Best of Breed and Integrated ERP

Allow me to expound on a few key facts expressed above:

  1. Integrating a best of breed application with ERP software will result in additional cost and maintenance (ex. dual upgrade and maintenance cycle).
  2. 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:

Outlining considerations for best of breed and integrated ERP

Building the Case for Best of Breed vs Integrated ERP

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.

Integration points for Best of Breed with ERP

Integration points for Best of Breed with ERP

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:

Costs required to integrate a best of breed software with ERP

Total Integration Costs for business software

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.

Summary

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.

ERP is Only Part of a Business Solution

Back in the 80s Enterprise Resource Planning (ERP) was deemed the panacea for business pains caused by operational inefficiencies and disjointed applications.  Then came the realization that ERP was not the final solution but just one piece of the puzzle.  In addition we learned that change was not just a software issue, that implementation is not the same as installation, and that the cost of ERP is not a one-time expense.    Above all we learned that ERP is only part of a business solution.

 Business Solution Defined 

 I like to view a business solution as three components:

  1. People
  2. Processes (business processes)
  3. Technology (software & technical infrastructure)
ERP Business Solution

Business Solution Defined

What is the most important component of a business solution? 

Now here is something interesting to consider, “Do we need all three components to have a solution for business?”  Let me rephrase it this way “Do we need software in order to conduct business?”  I am persuaded to say that the answer is no.    Business was being conducted before the invention of the computer.  However, I am quite aware that not having software a part of your business is impractical given today’s competitive marketplace.  I do want to demonstrate that software only supports and therefore can only have a certain level of benefit to a business. ERP software does not have the capability to make key business decisions.  It is key business decisions that drive business results.  Business software like ERP can provide information and data to assist people in making business key decisions.  Seen in this light we can conclude that people are the most important component of a business solution and people have the greatest impact on the success of a business solution.  Funny how it is interesting to note that the majority of ERP implementations mostly focus on products and technology.  Let’s dig a little deeper and spend some time speaking about each business solution component.

Business Solution Component: People 

People are the single most important factor that will determine whether a business solution is a success or a failure.  People can also be the most challenging component to deal with in a business solution.  Let’s be honest, you can hardcode software to do exactly what you want that product to perform, people are a different story.  The upside to keep in mind is that people have the potential of generating the greatest value in the context of a business solution. 

 Business Solution Component: Business Processes 

What is a business process?  I have seen many definitions but I like the definition provided by Howard Smith and Peter Fingar in their book Business Process Management – The Third Wave (Meghan-Kiffer Press – 2002)

 A business process is the complete and dynamically coordinated set of collaborated and transactional activities that deliver value to customers.

Let us look at the some of the characteristics of business processes that is highlighted in the above definition:

  • Complete: there is a beginning and end to a business process.
  • Dynamic: responding to changing customer demands and market conditions.
  • Result-Oriented: value is generated to your external customer.

 These basic characteristics must be addressed during business solution implementations in terms of needs assessment, requirements management, and validation (testing) of a business solution.   We should not be surprised when business requirements change during an ERP implementation and we should plan for it accordingly.

Business Solution Component: Software and Technology 

Software and technology encompasses the technical infrastructure, networking resources, and ERP software that will support the business solution.  With ERP software there are inherent advantages and disadvantages as listed below. 

ERP Pros and Cons

ERP Advantages and Challenges

 An effective ERP implementation strategy will maximize the inherent advantages of ERP while addressing or minimizing the inherent challenges. 

Summary

ERP is only one component of a holistic business solution.  ERP can be a great platform for addressing business challenges as long as the technology is correctly applied.  At the end of the day it is People, Business Processes, and Technology working together in unison to generate business results.  Only when these components are judiciously utilized are business results maximized. 

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