Is ECM the new ERP?

Alan Pelz-Sharpe has made a thought-provoking post suggesting that the impact of ECM technologies on businesses will rival if not exceed the impact that ERP has had over the last twenty years, and consequently the market for ECM solutions has the potential to exceed that of ERP.

Alan points out that the really transformational impact of ERP came from the way it offered businesses best-practice mechanisms to reshape their back-office business processes, and it is this potential to change business processes for the better that will drive ECM adoption forward.
But what ERP recognized was that data centric processes were repeatable, that they were often inefficient and that many manual processes could be streamlined and automated. ERP and BPR went hand in hand.

ECM and the emergence of CEVA's (content enabled vertical applications) are really no different. In its early days, ECM was really just repository management, then structured content management, then it was repository management with a bit of compliance thrown in, and now increasingly it is process centric. It was the process centricity of ERP that lifted it, and it will be the process centricity (if such a word exists) of ECM that does the same for it.

I agree that “process centricity” is a rather uncomfortable phrase, but the point is well made: material productivity improvements necessarily come from changing the way people work, and that means changing their business processes.

Now as everyone knows, changing the way people work is never easy. And if you are a project manager and your starting pointing is an IT toolkit and the question “how would you like to change the way you work?” you are facing an uphill struggle. This is why best-practice, embodied in off-the-shelf applications, is so valuable, because it overcomes scepticism and inertia. Alan references the term coined by Gartner of CEVA's (content enabled vertical applications, and in case this buzzword is new to you, here is what Gartner said about it last year:

CEVAs will manage content within the context of business processes better than straight content management applications or custom applications. To bring unstructured content under process control and to support compliance efforts, companies today spend a tremendous amount on writing custom code, ongoing development, maintenance andsupport — often in independent projects that lead to redundancy. (The cost of customapplications to handle unstructured content easily exceeds the total revenue of the ECM market at present.)

Gartner says it sees increasing demand for off-the-shelf ECM applications that bring best-practice to solve specific business problems, and that are built on common ECM platforms. These off-the-shelf applications can deliver faster implementations and lower ongoing maintenance costs and hence a better return-on-investment than custom development projects. And because they run on common shared ECM platforms, they enable organizations to consolidate their back-end systems and reduce datacenter costs as well.

Back to Alan’s comparison with ERP, he continues:

Where the difference will come is in scale, ECM will on the one hand ultimately dwarf ERP - simply in terms of data volumes (unstructured data volumes are rising at an order of magnitude higher than structured data volumes), but it will be less visible to the user - as in many respects ECM will simply take ERP and Business Apps in general to the next generation of sophistication, rather than displace them.

I agree completely about the scale of the opportunity, and the often quoted statistic that 90% of enterprise unstructured data still remains outside of any management system, reinforces the point that ECM efforts to date have only scratched the surface. And I also agree that it is the emergence of off-the-shelf ECM applications that will start to drive adoption further. However, regarding the scope and nature of these new ECM applications I partly agree and disagree.

Yes, I think that any current business applications that store content in a proprietary fashion will be re-architected to store their content in the market-leading ECM platforms. This will yield benefits to enterprises by improving information sharing, reducing redundancy and meeting their records management goals. Those established business applications won’t be displaced, although the transition to embracing ECM platforms will be disruptive and there will be opportunities for market share gains.

However, this is only part of the opportunity for ECM applications. ERP, and the other major established business application categories, CRM, SCM, HCM, are predominantly focused on automating transactions and streamlining back-office processes. They do not address the more complex, heterogenous work tasks and processes undertaken by the higher-value knowledge workers in the organization– the type of work that McKinsey terms “tacit interactions”.
Here is a quote from the 2006 McKinsey Quarterly article “Competitive advantage from better interactions” on this topic:

Companies boost their productivity by improving the efficiency of transformational activities (such as the extraction of raw materials) or of transactions (for instance, the work of the clerks in the accounts-payable function). But the productivity of marketing managers and lawyers can't be raised by standardizing their work or replacing them with machines…The old strategies for efficiency improvements don't apply to employees whose jobs mostly involve tacit interactions; instead, a company must boost these workers' productivity by making them more effective at what they do.

As for the role that IT can play, the article says:

Companies will increasingly need to deploy technology that makes shared data, information, and expertise available in real time; to offer decision support tools that help workers involved in tacit interactions create insights from data and analyses and that enhance the context and information that interactions require; to improve the ability of employees, customers, and suppliers to interact; and to offer effective collaboration tools for multiparty work flows.

Workflow does have a role to play in improving knowledge worker effectiveness but the jobs these people do are not essentially “process centric” and it is a very different challenge than automating insurance claim handling, or loan applications, or accounts-payable departments – the areas where so much ECM+BPM technology has been deployed in recent years. Applying workflow technology to tacit interactions will require more art than science, and a light touch. It is will need to be flexible, be capable of incremental introduction, put control in the hands of the knowledge workers, and above all, be immediately beneficial to their productivity as individuals – or they just won’t use it. This is workflow, but not as we know it.

This reminded me of what Peter Rip wrote last year on the then emerging concept of Enterprise 2.0:

This is why I think Enterprise Web 2.0 is different from Consumer Web 2.0. Enterprise’s have goals and structure. People around the Enterprise collaborate, but the collaboration is (supposed to be) undemocratic, i.e., ordered and non-chaotic. Ironically, this is not a new category. We used to call it Workflow and it was on the Known Quicksand Sector list at every VC firm, along with Middleware, Knowledge Management, and Enterprise Search. It was a Known Quicksand because no two implementations looked the same. Users couldn’t change the workflow to suit their needs. Users couldn’t automate the dozens of little tasks of collaboration that they do every week.
Despite being Known Quicksand, nearly every VC firm has placed a bet on workflow at one time or another. Why? Because the big Enterprise Apps automate you and me and we’re done. Automating the white space between us is the last untapped source of Big Win in the Enterprise.

So to my mind the opportunity for ECM applications has two main facets: content-enabling the existing transactional business applications, and new applications that address the white space of tacit interactions. And it is the latter that is the bigger market opportunity.

How big might that opportunity be? Well one way to look at it is in comparison to the market for database-driven applications. In my last post I made the comparison between the state of the ECM market today and the relational database market in the late ‘80s. It was the consolidation among database platform vendors and the adoption of the SQL standard that enabled the emergence of a whole wave of new database-driven enterprise applications – ERP, CRM, SCM, HCM etc.

In the ‘80s, forward thinking enterprises were already using database technology to develop custom solutions to improve their manufacturing processes, and to track customer and supplier data, but it was the move to common database platforms, that allowed independent software vendors to create their off-the-shelf best-practice applications. And of course the relationship between the applications and the platforms was very symbiotic. The platforms enabled the applications to be created, and customer demand for the applications accelerated adoption of the platforms.

Fifteen years later it is interesting to look at the relative size and shape of the database platform and applications markets. The database platform market is worth approximately $13 billion per annum and Oracle, IBM and Microsoft have 85% between them. The enterprise applications market is much more fragmented (IDC counts 3000+ vendors) but the aggregate revenue of enterprise applications vendors at $120 billion is almost ten times that of the database platforms on which they are built.

So what might the market for ECM applications be worth? If the market for ECM platforms is roughly $2.5 billion per annum now, could ECM applications become a $25 billion market in 10 years time? This would make it just larger than the ERP market. So maybe ECM will be the new ERP – but there is a long way to go.