The Trouble With Enterprise Software

Technology has always been about hope. Since the beginning of the industrial revolution, businesses have embraced new technologies enthusiastically, and their optimism has been rewarded with improved processes, lower costs and reduced workforces. As the pace of technological innovation has intensified over the past two decades, businesses have come to expect that the next new thing will inevitably bring them larger market opportunities and bigger profits. Software, a technology so invisible and obscure to most of us that it appears to work like magic, especially lends itself to this kind of open-ended hope.

Software promises evolutions, revolutions and even transformations in how companies do business. The triumphant vision many buy into is that enterprise software in large organizations is fully integrated and intelligently controls infinitely complex business processes while remaining flexible enough to adapt to changing business needs. This vision of software lies at the core of what Thomas Friedman in “The World Is Flat” calls “the Wal-Mart Symphony in multiple movements — with no finale. It just plays over and over 24/7/365.”1 Whole systems march in lock step, providing synchronized, fully coordinated supply chains, production lines and services, just like a world-class orchestra. From online web orders through fulfillment, delivery, billing and customer service — the entire enterprise, organized end to end — that has been the promise. The age of smart machines would seem to be upon us.

Or is it? While a few companies like Wal-Mart Stores Inc. have achieved something close to that ideal, the way most large organizations actually process information belies that glorious vision and reveals a looking-glass world, where everything is in fact the opposite of what one might expect. Back-office systems — including both software applications and the data they process — are a variegated patchwork of systems, containing 50 or more databases and hundreds of separate software programs installed over decades and interconnected by idiosyncratic, Byzantine and poorly documented customized processes. To manage this growing complexity, IT departments have grown substantially: As a percentage of total investment, IT rose from 2.6% to 3.5% between 1970 and 1980.2 By 1990 IT consumed 9%, and by 1999 a whopping 22% of total investment went to IT. Growth in IT spending has fallen off, but it is nonetheless surprising to hear that today’s IT departments spend 70% to 80% of their budgets just trying to keep existing systems running.

According to a multiyear study of over 400 companies by MIT researchers Jeanne Ross, Peter Weill and David Robertson,3 IT departments tend not to be innovative leaders within organizations, but rather conservative forces, viewed by business executives as cost sinks and liabilities. In many companies, it takes the IT department one to two years to implement a new strategic initiative — hardly the agility companies are striving for. The research shows the typical IT structure is so dense and extensive that it’s often a miracle that it works at all. The researchers observe: “Legacy systems cobbled together to respond to each new business initiative create rigidity and excessive costs. Every change becomes a risky, expensive venture.”

The Proliferation of Complexity

How did this happen? James Cordata, who has written extensively about the information economy, points out that as work became more complex and specialized over the 20th century, the use of data — numbers and facts — as fodder for more and more analysis and fact-based decision making intensified. And digital technology “was perfect for this kind of world.”4 Of course, digital technology not only supported that complexity but also played a large part in actually creating it, weaving a continuous web of unending data. “More computers are better than fewer” remains a key belief of American business, Cordata says. “There are no limits to how much is good.” Management became accustomed to the idea that buying more computers and more software would continue to cut costs and improve operations.

But there are limits, some of which are inherent in the nature of software itself. Software is code, lines and lines of code that run sequentially. Building software programs entails accumulating more and more code. Much of the seemingly boundless complexity of enterprise software is founded on conditional branching (if-then statements) and a hierarchy of interacting objects, all of which manipulate information in a logical succession of small steps. Each step contains explicit instructions. To build software, programmers routinely break down processes into discrete steps, effectively systematizing and standardizing how work is done. An entire sequence of such instructions works more like a calculator than a “thinking machine.” Thus the so-called intelligence of digital technology arises not through magic, nor, in more contemporary terms, through some emergent or self-organizing principle, as some would believe. The result is not greater than the sum of the parts. Rather, it’s more akin to Adam Smith’s division of labor and Frederick Taylor’s scientific management, a process dependent on relentless analysis and rationalization of the work to be done.

From theWall Street Journal Business Technology Blog

http://blogs.wsj.com/biztech

Technology is supposed to simplify business. This has been true from the Industrial Revolution to the Internet age. But did the large software applications that were supposed to streamline large companies instead irrevocably slow them down?

There’s a compelling argument to be made that they have. The average company spends $15 million on Enterprise Resource Planning software, the monolithic systems of record from vendors like SAP and Oracle, and many large companies have spent tens and even hundreds of times that, according to [Ms. Rettig’s article].

Some of this resonates. Certainly, companies that have tried to customize these systems to reflect their own customized processes have spent a lot of time and money to do so. And ERP systems do introduce a certain amount of rigidity. On the flip side, having a system of record is a benefit in and of itself that shouldn’t be discounted.— Ben Worthen

General software programming used in enterprise systems may contain intricate branching and handle a huge number of conditions, all of which allow it to control a certain amount of complexity. It does not, however, tolerate ambiguity, inconsistencies or illogical conclusions. To be sure, there are fuzzy logic programs, dynamic simulations, genetic algorithms and neural nets with subtler powers, but a vast amount of software working in today’s large organizations is not of these more advanced types. In fact, enterprise software systems are more likely to succeed at relatively straightforward tasks such as procurement and order processing. As the problems get more complex, so does the software that solves them. It is estimated that for every 25% increase in complexity in the tasks to be automated, the complexity of the software solution itself rises by 100%.5

Business users and management inevitably want changes in their automated processes as their needs and markets evolve. And they expect to be able to customize their software to fit their own needs. “Software is infinitely malleable,” says computer historian Martin Campbell-Kelly.6 This is in theory true; however, as enterprise software becomes increasingly comprehensive and complex, the costs and risks involved in changing it increase as well. No single person within an organization could possibly know how a change in one part of the software will affect its functioning elsewhere.

Software’s supposed flexibility and unending ability to manage complexity contributed to the discrepancies between the great expectations and mediocre reality that plagued the first round of implementations of enterprise resource planning systems. In the middle to late 1990s, U.S. corporations rushed to purchase and install such systems. These systems — Germany-based SAP Aktienge-sellschaft’s is the most common — promised to eliminate the complexity of multiple operating systems and applications by replacing them with a single set of interconnected modules to run the financial, manufacturing, human resources and other major functions of a typical multinational corporation. Theoretically, a single monolithic system would seamlessly connect various distinct and geographically separate locations through private networks. Companies understood that they could customize these systems as needed to suit their unique business processes.

That was the hope. But these massive programs, with millions of lines of code, thousands of installation options and countless interrelated pieces, introduced new levels of complexity, often without eliminating the older systems (known as “legacy” systems) they were designed to replace. In addition, concurrent technological and business changes made closed ERP systems organized around products less than a perfect solution: Just as companies were undertaking multiyear ERP implementations, the Internet was evolving into a major new force, changing the way companies transacted business with their customers, suppliers and partners. At the same time, businesses were realizing that organizing their information around customers and services — and using newly available customer relationship management systems — was critical to their success.

The concept of a single monolithic system failed for many companies. Different divisions or facilities often made independent purchases, and other systems were inherited through mergers and acquisitions. Thus, many companies ended up having several instances of the same ERP systems or a variety of different ERP systems altogether, further complicating their IT landscape. In the end, ERP systems became just another subset of the legacy systems they were supposed to replace.

The Costs of Implementation

ERP systems were expensive, too, costing companies more than they had ever paid for software when costs had been based on per-workstation usage. But that price tag was dwarfed by the installation charges, because companies had to hire brigades of outside consultants, often for a number of years, to actually get the software up and running. While the average installation cost $15 million, large organizations ended up spending hundreds of millions of dollars. Even such large expenditures did not guarantee success, however. In fact, 75% of ERP implementations were considered failures.7

Try as they might to measure the productivity gains of ERP implementations or IT in general, researchers have yet to arrive at any coherent or consistent conclusions. One problem is that there is little statistical evidence, especially about whether the benefits of ERP implementations outweigh the costs and risks. Researchers even have suggested that ERP implementations are so difficult that those companies that actually complete them with relative success gain a competitive advantage in the marketplace.8 It seems that ERPs, which had looked like the true path to revolutionary business process reengineering, introduced so many complex, difficult technical and business issues that just making it to the finish line with one’s shirt on was considered a win.

From Rough Type: Nicholas Carr’s Blog

www.roughtype.com

Over the last two decades, companies have plowed many billions of dollars into enterprise resource planning (ERP) systems and the hardware required to run them. But what, in the long run, will be the legacy of ERP? Will it be viewed as it has been promoted by its marketers: as a milestone in business automation that allowed companies to integrate their previously fragmented information systems and simplify their data flows? Or will it be viewed as a stopgap that largely backfired by tangling companies in even more systems complexity and even higher IT costs?

In “The Trouble with Enterprise Software,” Cynthia Rettig deftly lays out the case for the latter view. Enterprise systems, argues Rettig, not only failed to deliver on their grand promise, but often simply aggravated the problems they were supposed to solve. Different divisions or facilities often made independent purchases, and other systems were inherited through mergers and acquisitions. In the end, ERP systems became just another subset of the legacy systems they were supposed to replace.

So what’s the solution? Rettig doesn’t offer one, beyond suggesting that top executives do more to educate themselves about the problem and to work more closely with their CIOs. That may be good advice, but it hardly addresses the underlying technical challenge. But Rettig nevertheless has provided a valuable service with her article. While some will argue that her indictment is at times overstated, she makes a compelling case that the traditional approach to corporate computing has become a dead end. We need to set a new course.

— Nicholas Carr

All that complexity and all those options created another conundrum. As Nicholas Carr famously pointed out in his book, “Does IT Matter? Information Technology and the Corrosion of Competitive Advantage,”9 simply implementing the plain-vanilla business processes that your competitors have does not provide any competitive advantage. On the other hand, as many companies learned the hard way, customizing the already complex ERP software created yet more complexity and even larger risks. Without intimate knowledge of how the integrated pieces of these modular software packages actually worked, customizing could lead to in-house bugs and glitches that were hard to foresee and expensive to fix. Perhaps even worse, customization made changing the software later — or upgrading to a newer version — far more difficult, and in some cases prohibitively expensive. Christopher Koch, executive editor ofCIO Magazine, tells the story of one head of a corporate SAP installation group who bragged that he had his installation time down to a mere three months for various facilities around the world: “It didn’t matter that he was honing his skills on a 10-year-old version of the software because the costs of upgrading are so huge — tens, even hundreds of millions of dollars, or as much as it cost to install the stuff in the first place — that he keeps in-stalling old versions of the software so that it will line up with the old software they already have.”10

From Andrew McAfee’s Blog

http://blog.hbs.edu/faculty/amcafee

It is certainly true that enterprise systems have failed in many companies, and it’s also true that, as [Ms. Rettig] points out, many others have not been able to shut off legacy systems to the extent they expected after ERP went live. But it is simply not the case that researchers have been unable to draw any coherent conclusions about these technologies.

Rettig’s argument falls into a long line of pessimistic writing about the value of corporate IT. Much of this writing takes the implicit, and at times explicit, view that the executives who make technology decisions are dupes, perennially falling for a “triumphant vision” of software. The only way I can see for the IT pessimists to be right is if the delusion about IT’s benefits is both persistent and virtually universal. And I don’t buy that.

“ERP doesn’t help” is a testable hypothesis, and some colleagues of mine have tested it. NYU’s Sinan Aral, Georgia Tech’s D.J. Wu, and my friend and coauthor Erik Brynjolfsson at MIT recently published a wonderful paper, “Which Came First, IT or Productivity? Virtuous Cycle of Investment and Use in Enterprise Systems” (http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=942291). [This paper] contains a vital insight:If IT were not delivering value, rational decision makers would not keep investing in it.

I agree that it’s important not to naively accept anyone’s triumphant vision of corporate IT. But it’s also important not to make claims in the other direction that are too sweeping. Perhaps most fundamentally, it’s critical at some point to stop floating hypotheses about IT’s impact (or lack thereof), and to starttesting them.— Andrew McAfee

Unexpected bugs present another type of difficulty that increases with complexity. Robert Pool, technology journalist and author of “Beyond Engineering,” explains it this way: “It’s possible to go through a program line by line and make sure that each individual instruction makes sense but it is not possible to guarantee that the program as a whole has no flaws.”11 The average professional coder makes 100 to 150 errors for every 1,000 lines of code, according to a Carnegie Mellon study conducted by Watts Humphrey.12 That means for every million lines of code there would be 100,000 mistakes. Software developers do extensive testing on the paths users seem likely to take and correct many of these errors. Nevertheless, they cannot test or even anticipate every possible usage path, so released software inevitably contains unknown defects. “Civilization depends on software. So although much software code is poorly written, you can’t just stop the world to fix it,” says Bjarne Stroustrup, the Danish-born computer scientist who designed the popular C++ programming language. On the other hand, Stroustrup does concede that “muddling along is expensive, dangerous, and depressing.”13

The Vagaries of Data

The data that software processes and generates is another constant and growing problem. Estimates of errors are astoundingly high. Single systems can have error rates of 50% or more from myriad sources — everything from mistyped data to stale information to data placed in the wrong fields within the database structure. But the really nasty, intractable data problems erupt when companies integrate multiple data sources, as was necessary for ERP implementations, so that they could have all their product, inventory and production records stored in one place. Because of differing formats, conventions, abbreviations and so on, such integrations can result in a 100 or more records that actually point to a single product or customer. In the case of enterprise system implementations, data problems alone precipitate many of the failures perceived by business users and much of the added expense as well. Overwhelmed by the sheer difficulty and complexity of the new software itself, companies literally “forgot about the data,” as executive vice president John Nicoli of Harte-Hanks Trillium Software in Billerica, Massachusetts, describes it, until the tail end of the project, thereby necessitating enormous reworking to properly clean up and integrate the data.14 And with corporate data stores doubling every three years, such data issues are only compounding.

Is enterprise software just too complex to deliver on its promises? After all, enterprise systems were supposed to streamline and simplify business processes. Instead, they have brought high risks, uncertainty and a deeply worrying level of complexity. Rather than agility, they have produced rigidity and unexpected barriers to change, a veritable glut of information containing myriad hidden errors, and a cloud of questions regarding their overall benefits. Leaders in computer science are clearly worried. “Complexity is death,” says Chuck Thacker, one of 16 technical fellows at Microsoft Corp. “We are hanging on with our fingertips right now.”15

Business executives, however, simply want to continue to believe that technology will lower costs, improve processes and reduce the size of the workforce. They don’t want to understand IT issues. In part, this is because technology requires special skills and intellectual talents that are quite distinct from those needed to understand and manage business organizations, markets and strategy. But it is also because executives do not like to hear about the downside of technology. Observes Jim Shepherd, senior vice president of Boston-based AMR Research Inc., “Senior managers often don’t particularly want to be told that there’s a high risk and that there’s a great deal of expenditure involved in minimizing it.”16 Yet the only sure thing about new technologies and the changes they introduce is their uncertainty. In summarizing decades of research into technological change, MIT Sloan School of Management’s Wanda Orlikowski and the National Science Foundation’s Suzanne Iacono conclude that changes involving technology are both “profoundly complex and uncertain.”17

For their part, CIOs and their managers rate aligning IT with business strategy as their No. 1 priority. They struggle year after year to prove the value of IT to the business side of the organization. Yet the cost overruns, delays and outright failures of enterprise systems have if anything widened the digital divide between IT and the executive suite.

The Next New Thing

The proposed fix for these problems — the next new thing — is service-oriented architecture. Basically, SOA proposes to overcome the problems involved with updating and changing legacy systems by building modular cross-system business processes. These processes would connect the relevant pieces of functionality from various IT systems, thereby making it easier to change processes to adapt to new business goals. But technical realists point out that many difficult technical problems must be solved before SOA can become the backbone for a new strategic architecture, including robust protocols for accessing the applications, high-quality integrated data stores and a sound methodology for managing the overall process. Researchers Ross, Weill and Robertson admit that most companies are in the early stages of a four-part transformation to SOA that may take many years — even decades — to realize.18 The estimates of how long this will take reflect a growing acknowledgment of just how deep and radical are the organizational changes these technological innovations mandate. It is a process of adoption and adaptation that by definition cannot occur overnight. Nor, conclude the researchers, can companies skip a step. Given that only 6% of companies have made it into the later stages, this model would suggest that companies are in for a long haul if they are to escape the tangle of technological complexity inherent in large organizations today, and it will be a journey fraught with cultural as well as technical problems.

From the ZDNet.com Blog

http://blogs.zdnet.com

There’s really nothing new in [Ms. Rettig’s] analysis. But Rettig goes a step further and says there’s no hope for the future. In fact, while she doesn’t offer any remedies for her gloomy prognosis, she does quash one — service-oriented architecture (SOA).

Rettig doesn’t offer any encouraging words about SOA as an ERP workaround. SOA may take years to come to full fruition, not in enough time to help beleaguered companies, she says. And SOA may simply be too slow to keep up the dynamic business environments of today. Not to mention technical challenges. Rettig says that SOA increases complexity, as it becomes “additional layers of code superimposed on the existing layers,” and she doesn’t buy the Lego-block concept that underpins much of the thinking about SOA.

Let’s put it this way: aside from SOA, what is the alternative? No one is willing, or can afford to, to stay with the rigid, stovepiped systems in their current form. One solution is just throw the entire mess out, and buy a huge, well-integrated, modular application. But no one has the time or budgets. The only workable approach, then, is gradual integration between systems, and gradual, greater agility — if not through SOA, then how? SOA, pure and simple, is the first step to software industrialization — creating massive, adaptable systems in an automated and modular fashion through greater economies of scale. ERP was a step in this direction, since it modularized, and brought many vital pieces of the business together into a single standardized system. SOA takes it to the next level, beyond the domain offered by a single vendor. That’s the core value proposition of SOA.— Joe McKendrick

From the Deal Architect Blog

www.dealarchitect.typepad.com

The good news is [Ms. Rettig’s] article will get executive attention. Not that they do not know. I recently met an executive at a client about to start an ERP implementation. He sounded like a man headed to the gallows. Nervous, not excited about the project. (That afternoon, I felt really embarrassed for our industry that after 100K+ ERP projects, we still cannot make it a no-brainer.)

But it is way past talking about messes. Companies are in various stages of ERP hangover management, not always looking at software as a service (SaaS), as those vendors would have you believe — it’s not that easy to rip and replace a backbone ERP solution — but software as a customized service (SaCS). [Those companies are in] aggressive re-negotiation of ERP maintenance contracts or moving to third party maintenance.

The only ones who do not seem to realize the party is over are the vendors, who are using service-oriented architecture (SOA), compliance and more low payback justifiers to extend the run.

— Vinnie Mirchandani

The timeline itself for this kind of transformation may just be too long to be realistically sustainable and successful. The dynamic business environments of today, where whole industries and markets can undergo radical changes in a matter of a few years and the horizon for corporate strategies has shrunk from 10 years to three to five, makes it questionable whether companies actually can maintain a focused strategy long enough to align their core business processes with IT.

Technical problems raise additional questions about the feasibility of such an undertaking. The hallmark of service-oriented architecture — one reasonably might argue its entire raison d’être — is the fundamental modularity of its software business processes. A self-contained business process adopts parts of the functionality from multiple enterprise applications to automatically complete a set of tasks. For example, a single business process might begin with an order from a customer on the Internet in a web services system and send it to manufacturing in an ERP system. The same business process would set up delivery in a logistics system and then send all the relevant information to billing in an accounting system as well as a customer relationship management system. Companies would build (or purchase) business modules for their core processes. They would then be able to change these processes easily, snapping out and in functional pieces of code from enterprise systems in Lego-like fashion.

The Lego dream has been a persistent favorite among a generation or more of programmers who grew up with those construction toys. Unfortunately, however, software does not work as Legos do. For one thing, a unit of software code is not similar to other software code in terms of scale or functionality, as Legos are.19 On the contrary, code is widely various and heterogeneous. It contains different numbers and types of connections to other code, more like fractals, as Victoria University of Wellington researchers James Noble and Robert Biddle describe it, than Legos, with their uniform connections. Software engineering expert Robert Glass sees another problem with the Legos idea: The notion of reusable software works on a small scale. Programmers have successfully built and reused subroutines of standard functions. But as software grows more complex, reusability becomes a difficult or impossible task. “It is simply a problem too hard to be solved, a problem rooted in software’s diversity.”20

“Complexity is a deadly software killer,” says Yale University computer scientist David Gelernter, and he argues that managing complexity is more of an art than a science, and a difficult one at that, especially given the monumental real-world systems today’s software attempts to automate.21 And to the extent that these service-oriented architectures use subsets of code from within ERP and other enterprise systems, they do not escape the mire of complexity built over the past 15 years or so. Rather, they carry it along with them, incorporating code from existing applications into a fancy new remix. SOAs become additional layers of code superimposed on the existing layers. That means it is possible that a process will fail at some point due to some fault in the layers below, and in order to understand and fix that problem, software engineers will need to deal with the layers of enterprise applications below the modular business processes.

Culturally, this long-term plan calls for closer and closer communication and collaboration between the IT and business sides of the organization. While much to be desired, this has proved difficult in the past, and with increasing complexity in software systems, it is unlikely to improve by itself in the future. Differing backgrounds and perspectives, goals, even vocabularies — all hamper efforts to improve communication across this internal digital divide. Biases intrude: A recent study by Forrester Research Inc. of Cambridge, Massachusetts, found that only 28% of CEOs thought their CIOs were proactive or creative in terms of business process improvement.22 Forrester’s advice to CIOs is to get more deeply involved in the business issues and educate executives on what IT is and what it actually does.

Sound advice, no doubt, but it may be time for business executives themselves to become more proactive. Executives could educate themselves more about technology. They could send promising younger executives to executive programs designed to teach business people how to better understand, communicate with and capitalize on their IT. And business schools, too, could do better at teaching the interdependence of business and IT. At present, however, corporations see in software’s seductive invisibility and seemingly open-ended flexibility a never-ending frontier of promise, where hope triumphs over reality and the search for the next new thing trumps addressing difficult existing problems. And hope, unfortunately, has never been a very effective strategy.