Recently, the Birmingham City Council/City Council, the second largest city in the UK and also the largest local government in Europe, issued a "Section 114 notice" on its official website, substantively declaring bankruptcy. The local government said the purchase of Oracle IT systems had a serious financial impact.
The City of Birmingham originally used SAP's Enterprise Resource Planning (ERP) system, which has been running for nearly 20 years, in order to better adapt to technology trends, the City of Birmingham decided in 2018 to migrate data to an Oracle Fusion cloud-based SaaS platform at an estimated cost of £19 million, but after a three-year extension, data disclosed in May this year The cost could be as high as £125.5 million.
Birmingham, England, fell into "de facto bankruptcy", and the public is worried about the shrinkage of public services Source: Xinhuanet
Earlier this year, it was discovered that the Oracle system is not suitable for local governments because it is primarily geared towards manufacturing and trade organizations. During the migration of data from SAP to Oracle, due to the lack of some functions, some government business had to be carried out in manual substitution, and the IT team was required to rebuild these customized functions on Oracle systems, which led to project delays and a lot of additional costs.
It is worth noting that Western manufacturers have long been monopolized in the four basic software fields of operating systems, databases, middleware, and programming tools, and have used this as a sanction against Russian and Chinese related enterprises. After Huawei was sanctioned, it spent a lot of resources to build related basic software, and only in the development of MetaERP to replace the Oracle system, Huawei has set up a team of thousands of people, spent more than three years and nearly 10 billion funds, and joined hands with a number of software ecosystem partners to complete it.
On the other hand, in addition to Huawei, many central state-owned enterprises and large enterprises, including "Three Barrels of Oil" and State Grid, are long-term users of foreign ERP systems and are also facing the urgent need for domestic substitution.
Why is it so difficult to replace an ERP system? Can Huawei's software be reused to other enterprises in need? Driven by scenarios, will China's software market generate new formats? Science and Industry Force interviewed Chen Guo, an expert in industrial digitalization and evangelist of the Chinese Enterprise Knowledge Open Source Program, on these issues, and the following is the transcript of the interview:
Science and Industry Force: After the announcement of the bankruptcy of the Birmingham government, some media mentioned the problem of a large amount of expenses and time costs caused by the migration of the ERP system, are you concerned?
Chen Guo: I read the online report on the scope of implementation of the Birmingham project, including standard ERP content such as finance, personnel and procurement, which is a typical ERP project for service organizations, and it is said that the local government has been using SAP systems for more than 20 years.
In terms of ERP market share, SAP is larger than Oracle, especially in Europe. But it seems that the British are doing SAP for Oracle is also coincidental, I happened to pay attention to another thing, a large utility company in Hong Kong, using SAP for many years, is one of the largest SAP customers in Hong Kong, most of the management is British, front-end time they also announced the launch of the SaaS ERP solution from the old version of SAP ERP to Oracle.
Oracle Source: Sina Technology
Perhaps the British have a perception that if the ERP core system is to be completely clouded and transferred to SaaS (Software as a Service), because Oracle's cloud transformation is faster and more thorough than SAP, which is also reflected in the reports of some third-party evaluation agencies, Oracle may be a better choice. I guess that's probably the reason you mentioned for the City of Birmingham for Oracle.
From my personal point of view, I think that switching from SAP ERP to Oracle ERP SaaS is not so easy, because the core system of ERP involves too much business, and after years of use, there are usually many customized development on old systems, and heterogeneous system migration is very risky. My view is that unless the old system is really out of use, or the whole business has changed a lot, there is no need to change the ERP system. After all, it has been used for nearly 20 years, and if it is only for the reason of technological upgrading, or because it is spent on budget to change, it is actually very risky.
Science and industry strength: Extended to China, especially before Huawei encountered US sanctions, was forced to abandon Oracle and spent a lot of resources into self-developed ERP software. Many large domestic enterprises are also investing resources to do software and hardware autonomy. Can you tell us what you know?
Chen Guo: If we only talk about this issue in the field of ERP software, in today's domestic ERP market, SAP's share is much larger than Oracle's, plus Oracle took the initiative to adjust its market strategy in the Chinese market as early as 10 years, and today there is no influence in the traditional ERP software market, Oracle is currently fully focused on ERP SaaS, including the market where Chinese companies go overseas.
Many large SOEs are traditional users of SAP, such as PetroChina, Sinopec and State Grid, and they continue to invest significant resources in SAP ERP due to the important role ERP plays in the management of these mega-enterprises. These companies implemented SAP ERP in each of the group's companies more than a decade ago, and in recent years, they have completed or are in the process of group-level SAP "concentration" with hundreds of millions of investments.
On April 20, 2023, Huawei announced that it has achieved independent and controllable R&D of MetaERP and completed the replacement of the old ERP system
From the reality point of view, there are roughly three ways to switch foreign large-scale ERP systems with domestic software.
The first path is the route of some "high imitation flat" products. For example, the user interface, operating habits, nouns and terms of some software products are very close to foreign software, for enterprises that have used foreign ERP software for a long time in the past, this means the same habits, low user resistance, small switching resistance, but this practice has certain intellectual property risks, in addition, domestic companies may not be able to eat through the technology accumulated by foreign ERP companies for many years, ERP This complex system is not just looking alike, can be used smoothly.
The second way is to replace it with the products of leading enterprises in the domestic ERP software industry. It is said that when Huawei first encountered sanctions, it did demonstrate that it would replace Oracle with relevant ERP products of domestic enterprises, but the conclusion was that it was difficult to meet their needs, and finally had to embark on the route of self-development.
Because the ability of large enterprise ERP software involves two levels, one is technical strength, the other is business logic, even if the underlying technology of our domestic ERP software companies has reached the international level, but the business logic contained in ERP software itself is abstracted from the business practice of many enterprises, and domestic software enterprises need to precipitate in this regard. In particular, SAP software has been used by the world's top 500 enterprises for a long time, and it is iteratively improved in continuous use, while domestic ERP software enterprises have long served Chinese enterprises with small size and backward management level, lacking opportunities and experience.
The third path is self-research, which is now the path chosen by many companies, including Huawei, but self-research is not so easy.
As far as I have learned in the industry, Huawei's self-research road is divided into several stages.
In the first stage, Huawei began to use Oracle ERP in the 90s, and began to develop a new generation of ERP around 2017, when there were two main backgrounds, one was Huawei's overall cloud transformation trend, because the technical architecture of the original ERP software was relatively old, Huawei had the incentive to migrate it to the cloud architecture, which was the technical reason;
Second, Huawei was aware of the geopolitical risks at that time, in order to cope with the risks and ensure business continuity, since then, they have begun to build a "secondary runway" next to the runway of the old system, and the business mainly runs on the "main runway" of the old system.
The second stage is from 2019 sanctions to April this year to publicly announce the success of independent and controllable MetaERP research and development, at this stage, Oracle has been unable to provide services for Huawei, Huawei spent about 4 years of self-research, invested a lot of resources, as far as I know, Huawei invested thousands of its own resources, in addition to thousands of outsourcing teams, calculated to be tens of billions of dollars.
The third stage is Huawei's MetaERP after the launch to the next 5-10 years, Huawei's self-developed products are mainly for self-use, if you want to become commodity software to the market, I estimate that it will take at least 5-10 years to precipitate and iterate to meet the needs of external enterprises, in addition, it is necessary to establish an ecosystem of service partners.
Science and Industry Force: For other Chinese enterprises, especially state-owned enterprises, they also face the risk of sanctions. Is it necessary to invest such huge manpower and material resources like Huawei to develop a system to "reinvent the wheel"? Can Huawei's products or services be reused in other companies?
Chen Guo: The situation that other large enterprises you mentioned trying to develop ERP software by themselves, as far as I know, does exist, such as the self-developed replacement projects of SAP systems of some state-owned enterprises, the capital investment is far below the reasonable range, and the progress is not satisfactory.
ERP is not a pure IT project, it is the establishment of the entire enterprise management system, which requires a highly standardized and modern management maturity. Take the standardization of the human resource management system, it is necessary to do a complete set of standardization construction in the enterprise's own rank, salary scale, career development, performance management and other dimensions, in order to give full play to the human resource management function in the ERP, otherwise it can only be called a company personnel "roster" system.
Source: Sina Technology
In the long run, I personally hope that China's ERP software companies can rise and serve China's large enterprises. I am also very optimistic about Huawei's ERP software going to market, because Huawei is indeed one of the few large enterprises in China that combines technical capabilities with modern and international management levels.
But at present, even Huawei's ERP system still needs a lot of time and practice to precipitate and optimize. This involves another level of the question, that is, will there be a large general-purpose ERP software in the Chinese market? In fact, this is a problem of the different development models of the enterprise software industry in Europe, America, Japan and China.
Why did ERP software first appear in Europe and the United States? In the same era, the scale and software development capabilities of Japanese companies were no worse than those of Europe and the United States, so why did not ERP software appear in Japan?
Because ERP software represents a standardized management idea for information. For example, for a simple material, such as a cup, there will be dozens of fields and hundreds of fields to define it in the SAP system, which in itself shows that in large and complex organizations, its management of everything is very precise, and this precision through many large enterprises have used a standardized SAP software, has become a common social de facto standard, as long as the enterprise using SAP, all follow this standard.
The essence of ERP system is a social, organizational standardization of operations.
To extend this problem a little further, after more than 200 years of industrialization, European and American societies developed scientific management theory during World War I more than 100 years ago, Frederick Taylor proposed that by optimizing the way labor tasks are performed and professional division of labor to improve the quality of production, organizations can develop standardized work, and then specially trained managers are in charge.
A few years later, Henry Ford established a modern assembly line production model. In the 1960s, the concept of management accounting gradually became popular and became an important part of business management; In the 1970s, the Material Requirements Planning (MRP) algorithm of production, supply and marketing coordination appeared, and in this long process, a set of social standardized enterprise management systems was formed in the West.
Henry Ford Source: Pixabay
This standardization is closely related to two factors, one is that capital drives enterprise growth, and the other is the "professional manager" system. Large enterprises in Europe and the United States are basically urged by capital, capital always hopes that enterprises will use innovative energy for product and marketing innovation, and do not need to engage in innovative inventions at the level of enterprise management, only need to achieve average level and transparency to shareholder information; This also leads to the emergence of "professional managers", "professional managers" are flowing between enterprises, if the management processes and terminology of company A and company B are different, "professional managers" cannot play a role.
I have always had a point of view, ERP software is a kind of "big country heavy weapon", SAP software claims to be used by 80% of the world's top 500 enterprises, software continues to run, iteration for more than 20 years. From this point of view, it needs the strength of the whole country to coordinate development, even if Huawei invests such a large amount of resources to do it, it is not enough.
Come back and say why is there no ERP in Japan? First of all, Japan is a chaebol economy, it is difficult to form management standardization between chaebols, and the practices of different enterprises are definitely different, so you have heard that management terms such as "Toyota production model" and "Kyocera amoeba" have distinct corporate characteristics; In addition, most Japanese companies use a lifetime employment system, and after graduating from university, they join a company and work until retirement, and there is very little turnover of personnel, so there is no cross-company management experience exchange.
Therefore, Japan does not appear ERP such a general enterprise management software, Japanese large enterprises use most of the management software are self-developed, in Dalian, Japanese software outsourcing even become an industry, Japanese large enterprises will their own management know-how precipitation, the software requirements are written clearly, and then find Chinese code farmers to do development, this is the "Japanese model" of enterprise management software.
Returning to the question of whether Huawei's self-developed ERP software can go to the market, I think that the actual situation in China is between Europe, the United States and Japan.
China's industrialization process is rapid, after the reform and opening up in 1992 and even after joining the WTO in 2000, China's enterprise modernization began to develop rapidly, so the social standardization system is not mature enough, many enterprise managers also lack industrial era thinking, some still have "small peasant thinking", even some large enterprises, their bosses are also using small peasant thinking to do management, using the agricultural management method of "package production to households" to stimulate the enthusiasm of industrial workers. This is not a modern form of industrial organization.
When Chinese enterprises develop to a certain scale, some naturally realize this problem, and some begin to actively embrace the standardized management model of Europe and the United States, for example, Huawei made a great determination to learn management from IBM in the early years, I have worked at IBM for more than ten years, and have worked in other European and American companies for more than ten years, in fact, in my opinion, IBM's management system is not their original and unique, are the common practice of standardized management of large European and American companies.
Some large central state-owned enterprises were very active in large-scale ERP system more than ten years ago, and their driving forces were mainly two, one was that China joined the WTO, the State-owned Assets Supervision and Administration Commission was established, and the management was required to be in line with Europe and the United States, and the other was that many state-owned enterprises at that time were restructured, and they needed to go public in the United States, and they had to meet the requirements of the US capital market in terms of financial standards.
Source: Central Broadcasting Network
At the same time, there are also many large enterprises with their own systems, such as some other central state-owned enterprises and private enterprises, with many unique enterprise management cultures, which are relatively closed.
If Huawei's self-developed ERP is to be rolled out on a large scale, it means that Huawei's enterprise standards have become the consensus of the standardization operation of the entire Chinese social enterprise. Is there any other company besides Huawei that does this? It will take time to answer this question.
Another possibility is that if there is no consensus on the enterprise management model in the whole society in China, China will not have a unified ERP software, and over time, perhaps the "packaged ERP" form of enterprise software will die out in China, replaced by the Japanese model, and all large enterprises have developed their own software.
Is it possible that China may have a third path outside Europe, the United States, and Japan? Yes, is "ERP software with Chinese characteristics", not like SAP as large and majestic, tightly coupled complex system, business standardization degree is not so high, can be called "semi-standardized, semi-customized" enterprise management software, in fact, China's software leading enterprises, such as Yonyou, Kingdee, etc., currently seem to be following such an intermediate model, whether this model works, need to further observe the market.
Science and Industry Force: China's market ecology is diversified, and there are still a large number of small and micro enterprises, where is the problem of semi-standardization?
Chen Guo: Starting from the logic of enterprises using ERP software, their demands are very realistic.
From the perspective of general large enterprise managers, 80% of the world's top 500 companies are using SAP software, so is it true that the deeper the use and understanding of SAP, the closer to the management level of the world's top 500? If you use semi-standardized enterprise management software, some of them customize themselves, it is indeed possible to be stronger than the management level of the world's top 500, but it is more likely to be weaker than this "average".
Small and micro enterprises themselves cannot have enough resources to invest in software self-research, in reality they must choose standardized products, make full use of public infrastructure, and adopt SaaS models to reduce their IT usage costs.
Science and engineering force: The last question, we not only look at ERP software, but also want to ask you to make an expectation and message for the future overall development of domestic enterprise service software.
Chen Guo: There are several layers of enterprise software, let's talk about them separately.
The first runway is the ERP that has just been talked about a lot, including CRM, HCM, PLM, etc., collectively known as "enterprise solution software", its prospects depend on the degree of management standardization of Chinese enterprises themselves, if the degree of standardization is high, it is a large software product market, if the degree of standardization is not high, it is an IT service market, a group of software engineers around the needs of enterprises, customized development.
It is true that China does not necessarily need to follow Western standards, but it also comes at a significant cost to finding a path that works for itself. I am also personally engaged in promoting the standardization of Chinese enterprise management, welcome to pay attention to the "China Enterprise Knowledge Open Source Program" I am doing recently, which is supported by many leading enterprise solution software companies in China.
The second runway is the lower level of computing power, cloud computing, databases, including office software, low-code development tools, etc., the future of this runway must be domestic replacement, because these involve pure technical problems, China is not short of technology, difficult are human problems, social problems.
I think there may also be a new runway in China, that is, platform software for end users, because ERP is to solve problems with standardization and structure, with the development of technology and the acceleration of the pace of modern social development, many enterprises and individuals need to deal with a large number of unstructured information communication, such as enterprise WeChat, Feishu and other tools are now very popular, such platforms will promote the popularity of low-code development mode, may have an alternative effect on complex "enterprise solution software".
Science and engineering forces: If we expand on this last point, in fact, what artificial intelligence can do is also a very interesting topic.
Chen Guo: Yes, artificial intelligence may have a great impact on the traditional enterprise application paradigm, so the domestic replacement of ERP is not necessarily to copy a set of ERP, which may produce new software forms.
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