Editor’s Note by Charles Knapp, Director of Content Marketing

“Our understanding of the evolution of ERP will dictate how well we will manage our journeys to the Cloud and the next generation of business computing,” according to Rick Beers. As we noted in our previous blog post, “Lessons From Systems Of Engagement,” by the mid to late-2000s, the need to move beyond a centralized, ERP-driven enterprise platforms was becoming increasingly clear. Many organizations turned to a two-tier applications architecture of CRM systems of customer engagement with ERP systems of record. The stage was set for adopting new systems and new systems delivery methods.

The Cloud Arrives…For Some

“The era of the traditional software ‘load, update and upgrade’ business and technology model is over…It is time for ‘The Business Web.’ Just as mainframe companies struggled for relevance in the client-server era, Microsoft finds itself in a worse position today, facing not just the obsolescence of a technology model, but a business model as well.”  – Marc Benioff of Salesforce.com, PC World, Nov. 2005Third party hosting of Business Applications dates back to the mainframe days during the late 1960’s. As the Internet matured as a full-scale business-computing platform during the 1990’s a new third party segment emerged referred to as Application Service Providers (ASPs). Rather than hosting an entire mainframe system, ASPs managed specific business applications licensed by the customer. ASPs followed an n-tier client-server architecture and billed either on a cost plus model or per use, referred to as ‘On Demand’. ASPs did not create software, they managed third party applications for clients. While ASPs filled a specific business need, it was not transformative. Nevertheless, it was to evolve into something that would disrupt the industry.By the mid 2000’s there was increasing demand for point solutions to augment large-scale enterprise applications such as ERP. For a time these solutions took the form of composite applications comprised of reusable web services but they of course were relatively costly to create and did not scale well. The answer came from technology companies such as SalesForce.com, who developed their own software and rather than package it as ‘on premise’ software and license it in the traditional way, they offered it as web services delivered on a subscription basis. This was the beginning of the evolution away from the 40 year old, captive client-server enterprise technology platform.

Beginning in the mid-late 2000’s the SaaS market exploded. There was pent-up demand within business leaders for technology not yet available from their own internal IT departments. Salesforce.com led the way, tapping into sales and marketing organizations directly, bypassing IT altogether. CIOs, still held accountable for enterprise–wide information and process flows, were left to figure out how to integrate these platforms with their systems of record. With no other option, at least in the short term, point-to-point integration proliferated. These were a short-term solution. Many enterprises would elect to operate with point-to-point integration tied to the gateways within their own ERP systems; for them, this made the most sense at the time. But it was simply not sustainable for large, multi-divisional enterprises with varying rates of change.

Such organizations began adopting SOA to eliminate or prevent the many point to point integrations that SaaS applications  created. IBM’s WebSphere and Oracle Fusion Middleware were the most common for Oracle’s ERP customers. The problem with this approach is that it simply isn’t scalable. There is a high cost of entry from a licensing standpoint and the complexity of the architecture led to high initial implementation costs. Many SOA solutions ‘sat on the shelf’ after initial attempts failed to deliver.

The need remained for open integration and middleware solutions that were outside of individual ERP platforms. However, traditional on premise approaches were simply too complex for most organizations.

Next Time

Learn about how the rise of Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) clouds answered the CIO Dilemma for organizations that needed more options than Software as a Service (SaaS).