ERP suites feature substantial best-of-breed functionality, especially in performance management and the financial value chain. But BOB vs. ERP purchasing decisions remain complex.

At first glance, United Asset Coverage, a $30 million-a-year provider of telecommunications maintenance services, doesn't look like an organization that would be interested in the offerings of large enterprise resource planning (ERP) software vendors. When the fast-growing Naperville, Ill.-based company needed a new financial system last year, its most pivotal requirement was contract management functionality -- a quintessentially

best-of-breed (BOB) capability. Yet the search for that feature led United Asset to Oracle. "We're probably not the most likely candidate to seek out an Oracle solution," says CFO Mario Christopher. "We sought out a key component, contract management, and we anticipate that we will soon be at a size where we will leverage Oracle's full suite in a big way."

Manulife Financial Corp., the $10.5 billion-a-year financial services giant, might seem a more typical ERP customer. Yet when the Toronto-based company chose to upgrade its Lawson Financials enterprise suite to Lawson's Series 8 in February 2002, it did so, in part, because of the ease with which some BOB applications can be knitted into that system.

What's going on here?

ERP vendors are working hard to lift a page -- or several pages -- from their BOB competition's playbook. Some of their marketing efforts sound increasingly like those of BOB vendors, and their products are encroaching on traditional BOB functionality. But the shift is a cagey strategic move rather than a reinvention. ERP executives still chant their mantra of "seamless integration" and remain as vigilant as ever in pointing out the limitations that they say plague the best-of-breed approach.

What's more, ERP offerings have evolved significantly in the past 12 months. Development has been most pronounced in interenterprise collaboration functionality. And through new performance management features, ERP vendors' latest offerings address two issues that are high on CFOs' list of concerns: Sarbanes-Oxley compliance and the weak economy.

'Best of Suite'

Manulife Financial had compelling reasons for its decision to take the enterprise software route, says Lynda Sullivan, vice president of financial systems and processes. The Lawson system meets Manulife's cash-processing needs, and it can handle the internal and external financial and expense management reporting requirements of a global financial services company. The system's out-of-the-box functionality, which offered an opportunity to achieve early benefits during the implementation process, was attractive. And the Lawson suite is flexible enough to handle a large volume of transactions and integrate with applications Manulife expects to add in the future, Sullivan reports.

Those benefits reflect most of the traditional areas of differentiation that enterprise software vendors emphasize in the ERP vs. BOB debate. But another key factor in Manulife's decision, according to Sullivan, was Lawson's alliance with BOB vendor Hyperion Solutions Corp. And that's a distinctly nontraditional ERP selling point.

Lawson is not alone in playing both sides of the ease-of-integration argument. SAP, for example, would not dissuade users of its R/3 financial software from using a customer relationship management (CRM) application from a best-of-breed vendor, according to Michael Park, vice president of strategy and innovation in SAP's New York City offices.

"If they've already made a multiple-million-dollar investment in that system, we certainly don't want them to rip it out and put in our system," Park says. "We can say, 'You can build the integration points between your CRM point solution and the SAP solution, and we can help you manage that.' " Of course, SAP's appreciation for best-of-breed ROI is limited. "When you're tired of managing those interfaces," Park says, "understand that we have the capability -- literally at the click of the switch -- to provide the same or better capability in a seamless fashion."

Brad Benson, senior vice president of product development with Lawson Software in St. Paul, Minn., echoes other ERP executives' messages when he lists the reasons companies choose enterprise systems over BOB: easier integration, less data replication, better security and support, and a simpler user interface.

Steve Miranda, Oracle Corp.'s vice president of development, says that no amount of "expensive integration" -- and he encourages CFOs to keep in mind the total cost of BOB solutions -- can "provide truly real-time analytical information."

SAP refers to its integration strategy as "best of suites." The company intends to compete with leading best-of-breed brands in their own territory by promoting what Park describes as an "integrated-by-design" solution.

What a CFO Wants

By emphasizing integration and real-time access to business information, enterprise software providers hope to counter the success of best-of-breed performance management solutions. And ERP vendors are gaining on their BOB competition in that arena. In a recent ranking of performance management solutions by IT research and advisory services firm Meta Group in Stamford, Conn., offerings from best-of-breed vendor Hyperion and enterprise software provider PeopleSoft placed first and second, respectively. Although SAP and best-of-breed provider Cognos were not included in the evaluation, John Van Decker, Meta Group's senior program director, application delivery strategies, says he would add those solutions to the top of the list as well. Other large enterprise vendors, including Oracle, J.D. Edwards and Lawson, are increasingly focusing on performance management.

That strategy speaks directly to the biggest issues CFOs face this year. Coping with the struggling economy demands more agile forecasting capabilities, which in turn require quicker, more accurate performance management systems. To comply with Sarbanes-Oxley and its rules on disclosure, internal controls documentation and financial statement certifications, companies need fast access to financial and business information -- a key component of what performance management technology delivers.

When asked to identify CFOs' most pressing needs this year, PeopleSoft's vice president of product marketing Susan Foley Kane sounds as if she's leafing through the new law. She ticks off Sec-tion 404 (documentation, reporting and attestation of internal controls); Section 409 (real-time disclosure of material changes); financial statement certification; and the tighter deadline for quarterly reporting. PeopleSoft's Investor Portal and CFO Portal products offer compliance support, as do specific Lawson and Oracle solutions.

Enabling the Financial Value Chain

C. Cristian Wulf, a Seattle-based partner in Accenture's finance and performance management service line, believes that many companies have yet to fully realize the value of their ERP installations, particularly in reporting and information delivery. "The need for improved clarity, accuracy, timeliness and transparency in all aspects of enterprise operations is prompting CFOs to take a long look at financial policy, process and -- yes -- the related technology improvements," he observes.

But Bob Rugare, vice president of technology consulting for Cap Gemini Ernst & Young in Atlanta, believes the majority of ERP users have already extracted as much value as possible from their systems. "The next logical step is to extend that out to trading partners," he notes. "The aggressive movers in that space are further lowering their costs and conducting quicker transactions, which is making the business flow better."

Van Decker calls that terrain the financial value chain. He says that, with the exception of performance management, functionality related to the financial value chain is the primary focus of innovation for enterprise software vendors and their customers. When executed effectively, that functionality helps corporate finance maintain discipline and consistency and boost visibility. "With CRM and supply chain solutions there are corresponding financial management processes that need to be dispersed appropriately to where the transactions occur within the organization," Van Decker says. "Collections, for example, has typically been conducted by a couple of folks in the back office. I think an appropriate way to handle collections is to have those folks integrate the sales force into the collections process. That way, you can have visibility into payment history from your CRM solution."

Oracle offers a way to do just that with its new revenue and receivables function. At SAP, Park talks about "extending the footprint of an ERP solution" across the organization and beyond it to customers, partners and suppliers. Such extensions of ERP functionality are "probably the hottest value drivers of all the IT implementations" in recent months, says Rugare.

The growing interest in financial value chain solutions translates to a greater focus on portals. In basic terms, portal technology enables a company to give different constituencies (e.g. customers, suppliers) access to specific sets of corporate information. A portal provides single-sign-on access to systems and data at defined security levels. Web services, such as IBM's WebSphere, enable the collaboration. It doesn't matter, for example, if a supplier's computer runs on a different platform from that used by a buyer's system, so long as both companies conform to a Web services standard. To function effectively, a portal needs the support of secure, accurate, user-friendly financial processes. "From a financial perspective," says Rugare, "that includes all of the order-to-cash subprocesses."

Nonenterprise software vendors took the lead in designing portal products that helped extend ERP systems. But Oracle, SAP and PeopleSoft have all unveiled new or updated portal products in the past 18 months to 24 months. These ERP vendors, together with systems integrators like Cap Gemini Ernst & Young, recognize the value of customizing their offerings as much as possible to reduce implementation time. "If they want a portal to, say, front-end their finance function," Rugare says, "I can get them up and running quicker than they can do on their own or than they can do by going with a technology vendor [exclusively], because I have an end-to-end solution for that particular suite."

SAP has developed various sets of financial value chain capabilities to address industry-specific needs. Instead of selling a generic CRM solution, for example, the company can provide a "trade promotion management" offering tailored to a specific industry, such as consumer packaged goods. "I think you're going to see more of the software industry moving to integrated business scenarios," Park says. "That addresses two of the most important factors driving software decisions today: How do we get more for less? And how do we take advantage of the dollars we've already invested?"