ERP Versus Best of Breed

Throughout history, humans have spent countless hours debating the relative merits of tools: swords versus spears; cable versus satellite TV; Ford versus Chevy. In today’s business world, similar vexing issues must be addressed. And if you listen to Richard Pikowski, vice president of payroll and benefits at Crédit Lyonnais, the New York arm of the French banking and financial firm, he will politely inform you that none is more significant than the choice between an enterprise resource planning application and best-of-breed software. “It’s a decision that every company must make,” he says.

Pikowski isn’t one to take those words lightly. In 1996, Crédit Lyonnais began to examine different options for payroll and various other human resources functions. For the next year or so, he and other executives at the firm considered various approaches and solutions, including adopting an ERP package from a major vendor. Finally, in 1998, Crédit Lyonnais opted to abandon existing HRMS and payroll systems but to maintain the best-of-breed approach to which it had become accustomed. A human resources management system from Ultimate Software along with various other packages, some developed in-house, offered the company far greater flexibility, Pikowski reasoned.

The end result? Crédit Lyonnais has achieved the flexibility it needs without breaking the bank. “We have been able to streamline processes without feeling as though we’re locked into a particular approach or technology,” Pikowski says. “We have specific desires and needs and prefer systems that allow us to work the way we see fit. We do not want the rigidity that comes with many of the ERP systems now on the market.” The bank has integrated the core UltiPro payroll and HRMS functions with an in-house time and attendance system and outside tax-reporting services from Ceridian. It also uses a Web-based time and attendance system and is now migrating to Oracle for financials and general ledger. All of this has helped cut costs by nearly 25 percent.

The great debate over ERP versus best of breed is once again flashing across radar screens and computer screens. Although the fundamental issue has existed for well over a decade–as enterprise computing has matured–open standards, more sophisticated software, and the ability to integrate more easily and painlessly have prompted many organizations to take a closer look at the topic. “It’s an issue that organizations continually wrestle with,” observes Jim Holincheck, a research director at market research and consulting firm Gartner, Inc. “There’s no one-size-fits-all approach.”

What makes the issue so complex, and even gut-wrenching, is that the pressure to perform is now greater than ever. As organizations look to slash costs, boost productivity and streamline work processes so that they can compete more effectively in today’s business environment, information technology is under the magnifying glass. And while an ERP suite can simplify data integration and provide a streamlined way to get data to various divisions, departments and people, it typically costs a tidy sum and doesn’t always provide the leading edge that some organizations desire. On the other hand, an unfocused BoB strategy can drain the coffers and prove downright troublesome without achieving the desired return on investment. Besides the challenge of tying together disparate systems, there’s the question of whether a best-of-breed vendor can provide long-term service and support.

Further complicating matters is the fact that there’s no simple definition for best of breed. The term generally refers to applications that are designed to handle a single business function as opposed to an array of functions, but there’s no guarantee that a BoB product performs better than a comparative ERP tool. Ultimately, there are cost issues to consider, performance factors to weigh and IT matters to think about. “The issue isn’t only about which features an application offers, but also how it integrates throughout the enterprise and what it allows a company to do,” says Monica Barron, a research director at AMR Research, a Boston-based market research and consulting firm.

Breeding success
A couple of decades ago, choosing enterprise applications was a fairly straightforward proposition. Most organizations plopped a mainframe computer in place and unleashed an army of programmers to develop a homegrown application. Then, in the early 1990s, the birth of client-server computing models, which brought PCs to the desktop, changed all of that. It ushered in an era of shrink-wrapped applications, complete with templates and tools for myriad tasks.

Suddenly, companies began to carefully evaluate software and systems and make decisions about what worked best using side-by-side comparisons. However, by the mid-1990s, networking and e-business once again altered the landscape. No longer could each department choose specialized software in a vacuum and operate as a data island. Organizations found themselves sharing departmental data across the enterprise, frequently through an intranet or portal.

As the definition of data ownership has changed, so too have enterprise systems. For example, operations and HR must now tap into budgeting and financial-reporting tools to make more informed decisions. Project accounting functions have migrated away from headquarters and into the field. And companies increasingly plug sales and marketing data into a database to determine the value and performance of particular employees and work teams. That, in turn, can determine who gets raises and who needs additional training.

For many companies, this enterprise-wide hunger for data has led to an ERP-centric model. After all, one of the promises of enterprise resource planning suites is piping data to all corners of a far-flung organization. In recent years, SAP, PeopleSoft, JD Edwards (recently acquired by PeopleSoft), Oracle and Lawson Software have emerged as major players in the enterprise computing universe because they’re able to deliver on the concept of a one-source solution. “The high level of data integration and a standard interface make them very powerful and appealing,” says Kathy Battistoni, partner in the human performance service group at consulting firm Accenture.

One firm that has plugged into an ERP-centric approach is TransAlta Corp., a Calgary, Alberta, power producer and reseller with 2,500 employees in North America and Australia and sales of $1 billion in 2002. In 1998, the company ditched an array of systems in favor of an SAP R/3 implementation. “We made a conscious decision to embrace a single platform,” says Mike Williams, senior vice president of human resources. “We recognized that HR is only part of the enterprise picture and that a single data-delivery mechanism would boost our capabilities.”

Today, the ERP suite automates an array of functions: employee and managerial self-service, recruiting, hiring, benefits administration, payroll and reporting. TransAlta also is in the process of adding a sophisticated performance-management module and is eyeing several other upgrades and additions, many of which interact with other ERP applications run by finance and operations. The results are notable. TransAlta has trimmed transactional activity by 60 percent and slashed HR administrative staff by about 55 percent. The annual savings has topped out at more than $800,000. Equally important, the company has realized gains that extend beyond dollars and cents. “The system allows managers and others to engage in more strategic work,” Williams says.

Last year, when TransAlta began scrutinizing salaries and conducting comprehensive compensation planning, managers turned to the ERP suite to analyze data without diving into a swamp of spreadsheets. “They could look at how each individual or group of employees affected budget planning on a dynamic basis,” Williams says. “With the ability to view the entire organization, we were able to eliminate the drift that’s usually associated with the process. We came within $500 of budget.”

An enterprising approach
The divide between the ERP and BoB worlds isn’t as clear-cut as it might at first seem. In reality, many organizations turn to enterprise resource planning software for core functions like payroll, benefits administration, employee and managerial self-service, and performance management. However, many of these same companies also use best-of-breed applications to fill needs on a niche basis. Among them: time and attendance, succession planning and e-learning.

Gartner’s Holincheck calls it the “hype cycle.” As best-of-breed vendors discover new market niches and develop products that attract interest in the marketplace, ERP vendors take notice and play a frenzied game of catch-up. Over time, the ERP applications mature and BoB providers find new opportunities. A few years ago, for example, online recruiting and performance management fueled best of breed. Today, ERP vendors have acquired or developed their own offerings, and BoB vendors are pushing into new territory such as workforce analytics and workforce optimization.

The gap between best-of-breed software and ERP applications is also narrower than in years past. “Many ERP vendors have focused on providing more robust functionality,” Battistoni says. Although they may not offer all the bells and whistles of a BoB package, the difference isn’t great enough to justify veering toward a mélange of BoB products. “Many buyers feel that what they gain in a standard interface and improved data integration with ERP more than offsets the richer features of a best-of-breed product,” she notes.

ERP systems, of course, don’t come cheap. For small to medium-sized businesses, most applications are entirely out of reach at $2,000 to $8,000 per seat. Yet even for large organizations, an enterprise resource planning approach isn’t a slam dunk. “It’s best to buy a system for the core payroll and benefits functionality and worry about future features, such as performance management or competency planning, later. Either the ERP provider will offer the capability or a best-of-breed vendor will offer a product,” Battistoni says. And as the market moves from data automation to data analysis, many best-of-breed vendors have a distinct advantage. Their products are more powerful and flexible.

To be sure, BoB applications aren’t likely to wind up on the endangered-species list anytime soon. Deborah Leland, director of strategic enterprise development for Akibia, a Westborough, Massachusetts, systems integrator, is well aware of that fact. After sorting through all the issues almost two years ago, the 450-person firm opted to go best of breed. Leland looked at PeopleSoft and other enterprise suites but decided to stick with an approach that allows Akibia to use best-in-class systems. The company turned to an application service provider-based HRMS from Employease, and has plugged in a homegrown time and attendance system (a manual process via e-mail), along with the Certif-A-Gift employee-recognition application. Today, the system manages virtually all internal HR functions. “We’re able to handle virtually the entire life cycle of an employee,” she explains.

At Crédit Lyonnais, the story is much the same. In the past, “we didn’t have the flexibility we required. We couldn’t manage information as effectively as we needed to,” Pikowski says. The company’s approach was highly fragmented, with an HR system, outsourced payroll processing and various plug-in applications. By switching to the UltiPro HRMS, it consolidated various functions without finding itself locked into an ERP package.

“The key issue,” Holincheck says, “is what kind of return on investment a particular application offers. If the payback is relatively short, then it’s probably wise to go with a best-of-breed vendor. If the short-term gains aren’t all that significant, it might be wise to wait until the ERP vendor offers the desired functionality.” Oftentimes, it’s a balancing act. In the real world, most organizations understand, it’s impossible to get everything from a single ERP system. As Jeff Beinke, vice president of product strategy at Employease, explains, “[It] means looking at a combination of software and outsourcing services to meet an organization’s business objectives.”

To a certain extent, the debate over enterprise resource planning versus best of breed misses a basic point: swords and spears each offer a tactical advantage when they’re used in the right situation, and a skilled army uses whatever works best in a given battle. Centuries later, the story is the same. “There’s no single way to succeed or fail,” Barron says. “It’s important to use a combination of applications that makes sense for a particular company.”

Workforce Management, November 2003, pp. 53-56 — Subscribe Now!