ERP: Sizzling or Stumbling?

orget about financial management systems. The latest buzzword is "enterprise resource planning," or ERP. But after making a splashy entrance into the federal market, the big ERP software vendors are finding the going a little slow.

Seventy percent of the nation's 1,000 largest corporations use ERP, it's widely reported, but it's hard to find a federal agency that has a complete ERP system today. "Clients [in federal agencies] are not really buying ERP wholesale, particularly on the civilian side," says Dale E. Luddeke, a business development director for Computer Sciences Corp.

An ERP system is an integrated, online management system with modules for specific functions such as accounts receivable and payable, materials management, personnel benefits administration, inventory management and budgeting. A complete system need not employ every module, but the idea is to unify today's stovepipe functions and systems.

In the federal sector, three ERP companies are competing for federal business. One is SAP AG, a German company that established a public-sector subsidiary in this country, SAP Public Sector and Education Inc., and opened a Washington office in the high-profile Ronald Reagan Building. Two entrants are from California's Bay Area: PeopleSoft Inc., which began as a human resources software company, and Oracle Corp., the database company that moved first into financial applications and now has expanded its offerings into a federal ERP suite.

Common Data

The ERP concept has its roots in the manufacturing automation and "just in time" delivery advances of the 1970s. Because all the functions share the underlying databases, information must be entered only once. For example, when a new employee is hired, the computerized records of his or her pay rate, benefits, retirement account, office location and phone number, and so on are available to human resource managers, financial managers, program managers, telecommunications managers and others who need the information.

ERP systems also provide the kind of information that agencies expect to obtain from decision support systems or executive information systems: reports on revenue and expenditure trends, project schedules, hiring and retention, and other resource issues.

For agencies that need to weave a set of balkanized, old-fashioned systems together into a unified whole so that managers can see the big picture and act quickly based on the information, ERP may make sense. The software itself and the system architecture-based on industry standards such as relational databases, the World Wide Web and standard servers and PCs-contribute to the seemingly seamless data flows, the kind most managers can only dream of.

What's more, ERP vendors say their systems embody contemporary best practices for federal offices and their corporate counterparts. Whether it's activity-based costing, managing for results, flexible benefits plans or employee self-service applications, you'll find it in ERP software. Agencies that have been struggling to reengineer their business processes can use ERP as a lever to speed change.

Do It Our Way

There's a downside to that benefit, though. As packaged or commercial, off-the-shelf (COTS) software, ERP systems can be inflexible. Adopters have a choice of modifying their processes to match the software or modifying the software to fit the agency's processes. Tim Clements, development manager at Federal Prison Industries, is beginning an SAP implementation. He says a difficult experience with an earlier generation of packaged systems taught his organization not to try to modify the software.

Changing the software can be costly, both in dollars and in time. But ERP implementation is a long and expensive process without customizing the software. For example, the National Security Agency modified less than 2 percent of the PeopleSoft human resources system it installed, and yet the implementation took 22 months-not an unusual period.

Also, users who modify the software lose at least some of the benefits of COTS. For example, they may find it more difficult to connect their ERP systems with other enterprise systems, and they won't be able to update their systems readily when improved versions of the software become available.

Now that SAP, PeopleSoft and Oracle have introduced certified federal versions of their software, however, less customization should be needed. For example, the Transportation Department is installing Oracle Financials and making every effort to use the system just as delivered. "Nearly two years into the project, we have not had a request [from users] for any customization," says David K. Kleinberg, deputy chief financial officer.

ERP has been marketed as a total solution for an agency's management needs, but few, if any, federal agencies have opted for a complete software replacement from a single vendor. The U.S. Mint comes as close as any, and it will be even closer if it proceeds to install PeopleSoft's human resources system, as Chief Information Officer Jackie Fletcher says the agency may do. Still, the Mint chose a marketing support system from another vendor, Smith-Gardner & Associates Inc. of Delray Beach, Fla.

The Mint is engaged in two activities that are unusual among federal agencies: manufacturing and marketing. The agency produces about 19 billion coins a year and gets almost one-third of its $1 billion in revenues from the sale of commemorative and bullion coins. "Customer relationship management" (an even more trendy buzzword than ERP) is important to the Mint and is supported by its new Consolidated Information System, or COINS. For example, a coin purchaser who calls to determine the status of his order can get a rapid and up-to-date response from a customer service employee, and the agency's marketing staff can dip into customer files for lists of likely purchasers of new coins and medals.

Atypical Organizations

It's probably no coincidence that many of the agencies that are adopting or considering ERP are, like the Mint, engaged in commercial-style activities. They include the Postal Service, Federal Prison Industries, the Smithsonian Institution and the Bonneville Power Administration. At its heart, ERP is about improving management of the range of resources-raw materials, parts, people, distribution channels and money-that go into making and selling products.

Since announcing its entry into the market in 1997, SAP hasn't rolled through the federal market the way it has the commercial ERP market, where it has an estimated 40 percent market share. Its major customers so far, such as Prison Industries and the National Credit Union Administration, are not subject to many of the same rules and laws that govern the major federal departments.

PeopleSoft, the Mint's choice, has made the greatest inroads into the federal sector, but for the most part its customers are sticking with the company's original product-human resources management software. For example, the Treasury Department is installing the HRMS to manage 148,000 employees. In fact, the company claims 70 percent of the Cabinet departments as its customers.

It wasn't until early this year that PeopleSoft and SAP won places on the Financial Management Systems Software Schedule (FMSS), the official list of products that are certified compatible with certain federal accounting rules and procedures. Only then could they begin selling their core financial systems to the 24 major departments and agencies that are required to buy through the FMSS.

Meanwhile, the vendors already on the schedule, such as Oracle and American Management Systems Inc., weren't sitting still. "Our focus is on an enterprisewide view," says Zipora Brown, chief technology officer in AMS' Civilian Agencies Consulting & Systems Practice. She says her company's Momentum Financials software achieves many of the same objectives as ERP.

Oracle has been selling its federal financial system to agencies since 1996 and has added modules for human resources, procurement, asset management and other federal functions. But it has not clearly positioned itself as an ERP supplier. Its glossy brochure on "Oracle Federal Applications," for example, never mentions ERP and instead, like AMS' literature, talks about "the entire spectrum of enterprise applications." Oracle has sold its applications to agencies such as the Defense Department- whose new Defense Civilian Personnel System has Oracle's Federal HR product at its core-and the Federal Reserve Board.

Getting Together

Each of these vendors sells modular systems that allow customers to use, say, one company's HR system and another's procurement system. In the past, the ERP companies have discouraged this, touting the desirability of a single "enterprise" system that moves information seamlessly from one function to the next. But lately vendors have been bragging about product enhancements that allow their systems to communicate more easily with software developed elsewhere.

This development suggests there's support for the so-called "best of breed" approach, where the customer evaluates separate products for each set of functions, then glues together the systems. Along the same lines, software products known as plug-ins for ERP systems have begun to appear, remedying real or perceived deficiencies in the major vendors' offerings.

The Air Force's Arnold Engineering Development Center is one organization that's moving toward an integrated business management system, using building blocks from several vendors such as a maintenance management system from Synergen Associates Inc. of Walnut Creek, Calif. and PeopleSoft's HR software. AMS is installing and integrating the systems and helping to reengineer the center's work flows.

Whether or not an agency chooses a single vendor's ERP products, there's a lot to be said for doing less than the whole enterprise at one time. The difficulty of implementing an SAP or PeopleSoft system is well-known. It often takes agencies a year simply to select the vendor. Then begins the painstaking process of matching up the software with the agency's existing systems and processes.

Where mismatches are found, someone must decide how to eliminate them. Inevitably, many entrenched processes and procedures must be modified. Those with experience in ERP implementation say the human aspects-changing job contents, changing work group assignments, changing reporting procedures and so on-are more stressful than any of the software and hardware challenges. "ERP is really just an implementation tool for BPR," or business process reengineering, says CSC's Luddeke.

Organizations generally reward employees for defending and perpetuating processes, but an ERP implementation requires them to abandon those same processes and adopt the software vendor's "best practices." Tom Williams, a manager for the United Space Alliance (NASA's space shuttle contractor and an ERP user), calls it "decustomizing" and likens it to peeling an onion, layer by layer. "It makes you cry, but you've got to do it," William says.

Although SAP and PeopleSoft now provide tools to simplify and speed up implementation, there is no way to eliminate the step-by-step process review. Federal Prison Industries will spend a year implementing its SAP system. It includes financials, materials management, production planning and supply chain management and will require 20,000 prison inmates and 2,000 FPI employees to be trained.

A modular approach, or function-by-function approach, mitigates some of the risk associated with committing to a single system for enterprise administration. Aversion to such risk seems to be one of the reasons federal agencies have been slower than corporations to embrace ERP. Other possible reasons are the diffusion of authority, which makes it difficult for agencies to take any action as an enterprise, and the intangible nature of some of the resources agencies must manage.

Y2K and Other Motives

Nonetheless, it's clear that agencies have good reasons to consider ERP. At DOT, for example, the financial system "is very cumbersome and expensive to change," Kleinberg says, so the department opted for more contemporary and efficient technology, including such new features as a self-service employee expense reimbursement system accessible via the DOT intranet.

The new DOT system also will produce data for monitoring Government Performance and Results Act compliance-a capability the ERP vendors are touting. "Congress is more in the knickers of agencies than it was before," says Wayne Bobby, a manager in Oracle's public sector division, and the old systems aren't providing the kind of information demanded by Congress and other overseers.

ERP is being boosted also by labor shortages, says Scott E. Luellen, president and chief executive officer of the Carpe Diem Group Inc., a consulting firm in McLean, Va. Workers who understand the old processes and unique systems are beginning to retire in quantity, and agencies cannot afford to hire and train skilled replacements.

Assessing the likely price tag for an ERP system is tricky, because most of the costs are for the services of integrators and management consultants who will make the software work. Overruns and delays are the norm on these kinds of projects. Many new users also should expect to pay for network upgrades and servers, but getting a firm estimate in advance can be difficult.

Will the effort be worthwhile? Probably. Most of the federal agencies that have installed ERP systems seem satisfied. But return on the investment can be difficult to measure. Even at the Mint, perhaps the federal leader in ERP, CIO Fletcher says it's too soon to say.