ERP: still alive in the Internet age

Over the past decade, two major innovations have transformed the way companies build and operate information systems: the Internet and its associated e-commerce technologies, and enterprise resource planning (ERP) systems. With all the attention being paid to e-commerce, some may feel that ERP is RIP. However, ERP is as necessary as it ever was and simply needs to evolve to thrive in the Internet age.

The basic functionality of ERP and the 'Net are different. ERP is an integrated transaction-processing system that handles businesses' internal information. The 'Net is fundamentally a distribution medium and doesn't involve a lot of processing. Of course, the information flowing through the 'Net is becoming more amenable to processing all the time, with advances like Java and XML. But it's still processed by applications, and the best business applications are still enterprise packages from major vendors.

The great benefit of ERP is integration. If you add a new sales order to the system, everything related to the order also changes, including sales commissions, inventory requirements, manufacturing schedules and the balance sheet. With ERP-enabled integration, all employees can use the same information and business processes and get the same results when the system is queried.

Of course, there are exciting point-specific applications with a strong Internet orientation. In procurement, for example, you could argue that 'Net-centric applications from firms such as Ariba are as good as, or better than, those from mainstream enterprise system vendors. But all is not lost for ERP even here. E-procurement vendors have alliances with ERP vendors and are happy to let customers interface their systems with the broader applications suites that pull together different kinds of information.

More importantly, point-specific e-commerce applications will not be able to achieve information integration within companies in the foreseeable future. Even if there were equivalents to e-procurement systems in finance, manufacturing and other areas, how would they all fit together? 'Net-based applications tend to come from start-ups, which have little incentive to integrate their information with e-applications from other firms.

Integration with ERP has never been easy to achieve, but it's generally worth the trouble. The integration allows firms to offer services such as available-to-promise inventory, which means that customers don't order something that can't be delivered in time. If procurement systems aren't integrated with sales, manufacturing and logistical systems, available-to-promise is just a tantalizing mirage. A lot of e-commerce firms, despite their highly Web-enabled applications, just can't do it.

In the end, e-business is business, e-commerce is commerce. The virtues of ERP will prevail for a long time to come.

Davenport is director of Andersen Consulting Institute for Strategic Change and a professor at Boston University and Babson College. He is the author of Mission Critical: Realizing the Promise of Enterprise Systems, to be published in March. He can be reached at thomas.h.davenport@ac.com.