The Bottom Line: Organizations are finally allocating portions of their IT dollars to support EH&S compliance efforts, although no single vendor provides the full range of functionality necessary to support the full spectrum of EH&S compliance.

According to AMR Research’s 2007 IT spending projections, environmental health and safety (EH&S) compliance-related initiatives are the third most important area impacting IT investments in the next 12 months, behind the application of lean practices across the organization and better utilization/analysis of data throughout the organization.

Companies of all sizes have EH&S on their minds, and they are ramping up their software budgets to further support environmental compliance efforts. Historically, the complex software requirements of this market have been served by specialized consultants and narrowly focused applications, and so have not attracted sizeable IT investment. Today’s landscape of available technology options has consolidated somewhat, but there are few vendors offering true packaged software applications.

Key findings

• Although EH&S projects are global, they require local execution.
  
  
• EH&S platforms are emerging, but consulting and health and safety roots are still apparent.
  
  
• From application service provider (ASP) to software as a service (SaaS), there’s an emerging opportunity within hosted applications.
  
  
• EH&S is a market ripe for service providers.
  
  
• A golden consolidation opportunity awaits, but for
• whom?

Vendors featured in this Report

3E Company, Atrion International, BSI Entropy, Enverity, Enviance, EnvironmentIQ, ESP, ESS, EtQ, Pavilion Technologies, Perillon Software, and SAP.

Although EH&S projects are global, they require local execution

While funding for EH&S projects is from corporate-driven, top-down initiatives, EH&S technologies are deployed globally to support the vastly diverse set of regional EH&S requirements. Figure 1 demonstrates that companies of all sizes, not just billion-dollar-plus multinationals, are investing in technology for EH&S support.

Erosion of in-house skills, increased complexity of regulations, and brand risk are creating a perfect storm for EH&S compliance

In addition to the increasing complexity of regulations and growing consumer awareness of environmental risks, the specter of the brain drain is a looming factor that influences resurgent interest in commercial EH&S software for many of the companies referenced for this research. The aging workforce, which has held together yesterday’s disconnected EH&S processes and strategies with manual work practices, homegrown software, and a lot of smarts, is soon to retire, taking years of valuable knowledge out the door along with their retirement benefits (more on this later in the Report).

Meanwhile, what was once an isolated set of processes and niche competencies and, in some cases, an organizational afterthought are now front-and-center issues in boardrooms around the globe, regardless of an organization’s size. The broadening reach of environmental compliance is leading organizations to assess and repair the environmental risks across their global supply networks. Many of them have come to the realization that they need smarter commercial software and services to augment their dwindling in-house EH&S capabilities.

According to “Spending in an Age of Compliance, 2006,” companies of all sizes have EH&S on their minds, and they are ramping up their software budgets to further support environmental compliance efforts (for more on this, see “EH&S, Part I: SOX Is Nothing—Environmental Compliance Is the Real Challenge”).

Furthermore, an AMR Research survey completed at the end of 2006 indicates that environmental concerns have captured the minds of both IT and line-of-business executives. Both parties indicated increases in their budgets for environmental initiatives in the next year.

No comprehensive environmental resource planning platform exists

While planned IT spending on environmental compliance projects is on the upswing, organizations are still struggling to identify software and service providers that can support environmental compliance projects in the manner to which they’ve become accustomed with other enterprise initiatives and enterprise software, such as ERP, CRM, and SCM.

The EH&S market is fragmented, and no one vendor provides the gamut of functionality. This makes identifying the software vendors required to support the spectrum of capabilities required for a comprehensive EH&S compliance strategy a very different proposition from an ERP selection process (for more, see “EH&S, Part 2: It Ain’t Easy Going Green: Incorporating EH&S Compliance Into Your Business”).

Yet similar to manufacturing operations, the desire to rationalize in-house portfolios of homegrown point applications and encounter the current fragmentation of vendor capabilities necessitates the purchase of a complex tapestry of commercial software (see Table 1). It also requires the disciplined architecting of composite applications to create the multiple federated, high-fidelity frameworks for easing of automated data collection, operations process management (OPM), and real-time event definition and monitoring (RtEM).

A global problem that requires localized focus

If you think EH&S regulations have become less strict outside the United States, you’re wrong. Consider that the Chinese government recently announced a $175B effort for environmental cleanup, focusing on clean air, water pollution, waste disposal, and soil erosion. For multinationals that are establishing their offshore operations in China, this requires a deeper investigation and potential rethinking of the specific capital investments that must be made to establish operations. Not only are there new factors that will drive up the cost of capital investments to consider, but also more comprehensive strategies for data gathering and reporting that will influence IT infrastructure requirements, as both local and federal Chinese authorities will be monitoring compliance efforts.

Still not convinced? Well, the recent approval of Registration, Evaluation, and Authorization of Chemicals (REACH) legislation in the European Union (EU), which is progressive in its environmental compliance efforts, has elevated the EH&S debate. There are REACH restrictions on the management of chemicals inventories, driving a large sampling of the companies we interviewed for this research to sift through their tangled webs of point products and homegrown management applications and begin time-consuming data rationalization drills. The end goal is to establish a technology framework to track dangerous goods and hazardous materials across the supply network as well as their usage.

In the United States, manufacturers don’t just have to comply with federal regulations, but also local- and state-level environmental regulations. However, active compliance also presents some business opportunities. For example, with the Environmental Protection Agency’s (EPA) Clean Air Markets program, which places standards on waste management and clean air, organizations are mandated specific allowances for nitrogen oxide and sulfur dioxide emissions. These allowance rewards are based on waste consumption rates reported by the companies to the EPA. The thrust of these programs is to reduce the emission of ground-level ozone across large distances. While the EPA’s rules differ greatly from the emissions regulations in the EU and even Canada, one thing is clear: regardless of locale, ecological leaders stand to receive double benefits.

How can these benefits be achieved? Firms with emissions well below legislated levels or allowances can trade their credits with other organizations. The benefit to ecological leaders is not only do they demonstrate compliance by consuming less than their allowed emissions permits, but a chance for profitability also looms. For example, we spoke with one manufacturer that in the past two years has sold between 400 and 500 tons of nitrogen oxide emissions at $3K to $4K per ton, generating a nice revenue stream in the neighborhood of $1M to $2M as a benefit of its active compliance strategy.

EH&S platforms are emerging, but consulting and health and safety roots still apparent

While EH&S providers are increasingly supporting a broader spectrum of compliance functions and processes, there’s a high level of specialization and differentiation on specific EH&S processes, often stemming from their consulting services. The following section highlights some of that differentiation, as well as the opportunity to link vital EH&S processes with core manufacturing principles (see Table 2).

Employee training, tracking, and certification

Skills shortages, increased usage of contract labor, and recent high-profile accidents are likely to drive further integration with human resources systems, facility access control systems, and an interlocking with MES applications for task management to ensure the appropriate tasks are being carried out by the right individuals. Companies like BSI Entropy, EnvironmentIQ (formerly Camaxsys), and SAP currently provide frameworks for corporate-wide management of employee certifications and documentation. For more detailed site and individual facility-level tracking information, such as where specific employees were trained and certified to handle specific site-level tasks and processes, providers such as EnvironmentIQ, ESS, and SAP provide differentiated capabilities:

• ESS offers two products, the Essential Suite and the Compliance Suite, but delivers this functionality as part of its Compliance Suite.
  
  
• SAP accomplishes this through the Industrial Hygiene
• & Safety (IH&S) functionality within its EH&S module.
  
  
• EnvironmentIQ is evolving from its strengths as a
• local, site-specific tool to provide a more enterprise-wide approach with its RiskLedger product.

Employee health and safety

Software support ideally needs to span across all processes in which employees are interacting with product and manufacturing processes, such as R&D, manufacturing, transportation, storage, and disposal. It should also include the ability to sense and respond to potential hazards. However, few vendors successfully do this across an entire set of corporate operations. The majority of vendors deployed are within specific divisions or facilities that focus on one operation, such as manufacturing or distribution, avoiding a larger opportunity to link environmental and worker exposure monitoring with laboratory information management system (LIMS) applications to understand potential risks to employees.

However, enterprise-focused deployments do exist:

• A large commercial airline has deployed EtQ software as the key workflow component managing its global safety program, informing all constituents each time a safety document is changed or updated and ensuring version control for all safety plans worldwide.
  
  
• Both BSI Entropy and EnvironmentIQ provide the ability to ensure the appropriate health and safety controls and processes are
• incorporated and enforced across all operations.

MSDS authoring and labeling

The majority of software companies we spoke with don’t perform MSDS generation natively within their own applications, but instead partner with regulatory content providers such as BNA to import generated MSDS into their applications. However, there are vendors that provide not only MSDS generation capabilities, but also offer valued-added services, such as regulatory content updates, support for vendor MSDSs, and phrase libraries for long-term support and management of MSDSs. Consider the following:

• 3E Company, Atrion International, Hazox, SAP, Technidata, and The Wercs provide both the MSDS generation and regulatory content feeds. 3E provides a hosted service where it will perform the tracking and management of MSDS for the extended organization—R&D, manufacturing, sales and distribution, and disposal—as well as seek out MSDS from potential suppliers.
  
  
• Atrion provides a specific database for its customers that manages multiple phrases related to the composition and definition of a product. The company has integrated its product with several ERP packages, including those from Infor, Lawson (formerly Intentia), and Oracle.
  
  
• 3E, Atrion, Hazox, Technidata, and The Wercs all
• provide content services directly to SAP EH&S for users to then create the final MSDS in SAP.

Chemical inventory and hazardous material tracking

This capability often goes hand in hand with MSDS management for tracking inventories and materials inside the facility versus through the supply network. Consider the following:

• As part of its hosted services offering, 3E provides services not only to manufacturers, but also retail and hospitality companies to track chemical inventories all the way through usage and disposal.
  
  
• We spoke with references from Atrion, which provides similar capabilities to an EMEA-based petrochemical manufacturer to support REACH compliance efforts.
  
  
• One SAP user we interviewed indicated that integrating
• SAP’s EH&S module with the sales and distribution module helped ensure locally compliant product configurations were being sold appropriately.

Vendors do not need to be able to generate MSDS within their products or supply value-added services in order to support this competency. Enviance, ESP, and ESS track hazardous material consumption.

There is also the need to consider integration of these technologies with manufacturing systems for automated lot tracking and inventory tracking. Also worth mention is driving deeper investments in MES, tank telemetry, and other sensor technologies for remote monitoring, as well as integration with LIMS, data reconciliation, and yield accounting tools, such as OSIsoft’s SigmaFine, Aspentech’s Advisor, and Invensys’ SimSci.

Facilities and asset management

Software support should provide tracking for the maintenance and management of capital assets, energy usage, efficiency, and ecological impacts. Most enterprise asset management (EAM) applications go as far to track the first three items, but do not measure the ecological impacts. Enverity, Enviance, ESP, and SAP all have capabilities for capturing and reporting on data related to ecological assets (core manufacturing and/or operational). Most of the vendors profiled in this research have integrated their products with enterprise-level EAM modules within ERP applications or best-of-breed EAM packages, like MRO Software’s, for work order transfer and task assignment.

But references indicated that these integrations are localized and ad hoc, not to mention that duplicity of data is an issue when it comes to task synchronization between the systems. A fertile opportunity exists for linking asset-related data contained inside the EH&S applications with the production asset and equipment hierarchies housed in enterprise applications, like ERP and standalone EAM products. The rationale? A single version of the truth and a more comprehensive view of environmental compliance that encompasses not just manufacturing-related assets in a single data model.

Another opportunity to consider is aligning EH&S technologies with those provided by specialty vendors such as Conject and Fluor, and even ERP provider IFS, which provides capabilities for developing architectural and engineering plans for large production, warehousing, and retail facilities. This includes the development of high-level asset care plans, power usage, and plant networking, to design a feedback mechanism for managing environmental compliance into facilities from step one.

Enverity delivers specific competencies for Leadership in Energy and Environmental Design (LEED) certification for tracking the environmental friendliness and efficiency of individual facilities. The catch-22 with LEED certification is that while it supports multiple sites, it is a U.S.-based program with no international implications.

Incident management and event detection/alarming

Incident tracking systems allow for the real-time reporting of incidents or nonconforming events through data collection forms that are triggered manually or through integrations to manufacturing systems, providing real-time event detection and automated initiation of workflows. While the majority of vendors profiled in this research have capabilities for business-unit or site-specific incident management and remediation, major differences exist in how real time the event detection and alarming capabilities are, and whether alerts and alarms can span across multiple facilities. Consider the following examples:

• Users of EnvironmentIQ’s CamHealth application shared compelling use cases around site-level remediation. Users of ESP and ESS products report similar results.
  
  
• EtQ leverages highly configurable workflows that are
• also part of its quality management system (QMS), driving multiple site visibility of incidents and drive inspections and audits.
  
  
• SAP has a configurable workflow and alarming capability within its mySAP ERP suite and the potential to trigger them through SAP xMII.
  
  
• BSI Entropy, Enviance, and Perillon Software can
• support workflows driven off adverse events to force inspection and ensure remediation and recurrence prevention.

Most of the incident tracking systems use data collection forms and/or analysis via spreadsheets that extract data from historians to perform more passive or after-the-fact analyses. This identifies the need for manufacturers to expand the role of their data historians from vendors such as Aspentech, Honeywell, InStep Software, OSIsoft, and Wonderware to act as both data aggregators and as platforms for complex RtEM and OPM.

Manufacturers can also look to vendors such as Pavilion Technologies, which provides RtEM capabilities via direct integrations to automatically collect, validate, and aggregate data from a wide range of disparate sources in addition to historians such as DCS, LIMS, PLCs, and analyzers to continuously monitor manufacturing processes.

Regulatory reporting

While a core capability for many of the vendors in this segment, regulatory reporting is a broad area that is split between monitoring the production assets and manufacturing processes used to make a product or finished good and the monitoring of the actual final products and goods themselves (waste, usage, and disposal):

• Process
• monitoring—ESP, ESS, Enviance, Pavilion, Perillon, and SAP (through the Technidata-developed xApp for Emissions Management, xEM) demonstrated product capabilities designed to help companies manage the complexities of dealing with emissions calculations and monitoring. Specifically, Pavilion’s focus is primarily around emissions reduction, continuous emissions monitoring, real-time calculations, and reporting based on real-time data, rather than performing what-if analyses after the fact or on historical data models.
  
  
• Product
• monitoring—3E, Atrion, Enviance, ESP, and ESS provide capabilities for helping their clients manage information for the tracking of hazardous and chemical waste streams and disposal across a wide array of industries. Specifically, 3E can monitor products through maintenance of the MSDS as they travel throughout the supply network.

From ASP to SaaS, there’s an emerging opportunity within hosted applications

The highest percentage of vendor revenue comes from application hosting and maintenance—29%. A hosted approach is key—and not new—for EH&S management, as the majority of system selections we were exposed to were implemented to remove manual, paper-based, or Microsoft Access database and Excel spreadsheet processes. While the business increasingly recognizes the brand risk associated with nonconformance with EH&S compliance regulations, IT is supporting the call for a more standardized, efficient approach to data collection by rapidly deploying a common architecture across a large number of sites. Furthermore, the web-based nature of the majority of these deployments helps simplify the reporting structures for local/state, EPA, and EU requirements.

SaaS is gaining more widespread acceptance to support EH&S compliance, and the promise is simple and compelling. SaaS applications are updated regularly and deployed only to the depth that a customer wants, rather than a full set of functionality that can be obtained in an ASP offering. Additionally, application delivery is closer to a one-to-many model (single instance, multitenant architecture) than a one-to-one model, including architecture, pricing, partnering, and management characteristics.

Consider the following ways SaaS lends benefit to EH&S compliance:

• Shorter deployment time frames to meet an emerging compliance mandate or deadline and ongoing total cost of ownership (TCO)
  
  
• Application updates that do not require any coding changes at all, which fares well for organizations leveraging technology for complex emissions calculations, tracking waste and consumption levels, and remediation
  
  
• Attacking the brain drain head on by leveraging a SaaS deployment, an organization is provided with common processes for asset maintenance and inspection, reporting of best practices, and task replication, allowing higher productivity from its sprinkling of EH&S experts.

SaaS presents EH&S vendors with the opportunity to deliver best practices in addition to sustainable technology to collect and manage environmental data. The challenge is getting organizations to eliminate their hesitancy in letting mission-critical compliance data reside outside their firewalls. In our research, a number of vendors initially claimed to offer SaaS, but further investigation revealed that many vendors are offering ASP in disguise, with ASP applications written to be internet-native and updates akin to those that are issued for self-managed applications.

ASP is essentially a traditional client-server application with an HTML front-end add-on. These applications are then managed by a third party that ordinarily doesn’t have applications expertise, although it typically has very tightly secured server farm environments. Enviance is currently the only pure SaaS vendor in the EH&S space, but vendors such as Perillon and 3E are actively rearchitecting their products to be offered as pure SaaS. Many other vendors featured in this Report have shared their intentions to support SaaS as demand grows.

EH&S is a market ripe for service providers

Few of the organizations we spoke with performed ROI analyses to justify their environmental compliance spend, already knowing that the ROI for these investments is quite simple. Avoiding a fine that could affect damage to brand equity and shareholder value is return enough.

The majority of references discussed spending time during the selection cycle on identifying their needs and the primary areas of focus to apply the technology, often working with a consultant to help perform the internal benchmarking across multiple sites or divisions to drive business process improvements that the software could support. References indicated extending their work with consultants past this assessment stage to help them select and, in some cases, implement the software, often tailoring the packaged functionality to the business.

While this sounds like a typical professional services engagement for an ERP or Sarbanes-Oxley Act (SOX) compliance project, the characteristics of the consultants servicing the environmental compliance needs are vastly different. Often these firms are small, niche, and localized to the specific environmental compliance nuances of their region.

While beneficial to the customer seeking to manage its compliance processes, the narrow focus of these consultants also hinders EH&S projects from being assimilated with other compliance initiatives such as SOX, product quality and traceability, or supply chain traceability, let alone fitting environmental compliance into a firm’s operational excellence and profitability goals. This further fragments what should be a unified effort into a series of isolated and costly compliance projects. Niche consultants have historically hit pay dirt on environmental compliance projects for the following three reasons:

Services fill functional gaps

Data collected from our research demonstrates that a provider of EH&S technology claims roughly 30% of its revenue directly from software license sales and only 23% from implementation services. This near one-to-one ratio pales in comparison to other software application deployments where service components are often on average two to three times that of the initial license outlay. It’s the consultants that more than make up the difference in services.

In terms of deployments, the consulting firms that often perform the initial implementations are typically the same firms that performed the upfront business process and technology gap assessments, and most likely assume the maintenance of the software applications too, further securing their ownership of the client and hindering increased penetration and portrayal as a strategic IT component for the software vendor.

We spoke with a global manufacturer that was deploying technology for EH&S support at each of its 120 sites. As part of its blueprint, each individual site required its own site-level data model to support specific local compliance certifications and permits, not to mention the several custom integrations required because of the diverse data collection methods of each site. The consulting firm hired for this project was tasked to calibrate and install the software at each site, as well as perform any future modifications or changes to the system.

The cost breakdown for this project was as follows:

• $300K for the license fee paid to the vendor
  
  
• $750K for initialization paid to the consultant (e.g., creation of the models and integrations within the application)
  
  
• $250K for hosting and system support paid to the vendor
  
  
• Ongoing yearly support, including updates and
• modifications, at what the client estimates to be $300K a year split between the consultant and the vendor

While the vendor has created an annuity in hosting and support fees, consultants stand to see more revenue by owning the rollout.

IT can’t fill the EH&S skills gap

IT departments have built up significant business process understanding to support ERP and sometimes supply chain deployments. Deployment of EH&S technologies often requires a specialized skillset that most IT shops simply do not possess.

Furthermore, the aging workforce that designed and held together much of the disconnected EH&S processes is soon to retire, taking these years of knowledge out the door. This threatenS to diminish skills even further and forces the business to search elsewhere, often outside the organization, for this specialized skillset. Several reference discussions revealed that IT departments are not supplying commensurate resources to deploy and maintain EH&S-related technologies, creating a great opportunity for consultants.

We spoke with a chemicals manufacturer that was faced with the looming REACH deadlines. It had a nine-month implementation window to get its EH&S investment operational worldwide. The company chose to leverage its IT staff for deployment and sustenance of the investment. Despite sending IT workers to the vendor’s training course, it was soon discovered that there was a gap in business process knowledge that couldn’t be filled by its own staff. The client instead invested in a more intensive, 10-week engagement with a senior analyst from its provider to help perform the implementation (at $200 an hour).

Another chemicals manufacturer attempted to leverage the ERP consultant from its single instance consolidation project for EH&S support, and soon realized that it had to sub out the project in order to obtain the commensurate skillset for the implementation, training, and sustenance of the system.

A blend of global coordination and high-fidelity local execution processes

Several references we spoke with shared varied levels of success and ongoing progress with multiple site rollouts. Despite the actual financial decisions for purchasing technology for EH&S support being approved at a global level, the majority of EH&S system selections and case studies we were exposed to involve multiphase, multisite rollouts driven by either business unit, regional, or site-specific factors.

For example, a utility company is deploying technology for emissions and waste management to each site in its North American business unit. Part of this deployment also includes integrating the company’s EH&S application with its SAP investment specifically to the HR module for linking specific users to tasks. This has developed into a services-intensive project not just for the multisite integration to SAP, but also for each site’s specific configuration and modification (for example, the clean air laws for Texas and California are different). 22 months into the project, the company has already invested just over $3M and was still attempting to close this first phase of the project at the end of 2006.

The role of professional services for environmental compliance projects is likely to attract larger services firms with dwindling services revenue from increasingly commoditized ERP deployments. They have the business process skills, and EH&S compliance projects will continue to require a large services component in the absence of standardized processes and the relative immaturity of compliance frameworks.

The technology market that supports EH&S is fragmented. It requires architected application and development of composite applications that span multiple vendor applications and integration with the data models of enterprise applications. In fact, according to our most recent compliance spending data, only an average of 35% of a firm’s compliance budget is earmarked for technology-specific spending. This leaves 65% of the budget available for outsourced services (consultants, risk management, and auditors) and internal IT resources.

Our most recent application spending study indicates that two-thirds of the manufacturing investment either will be on in-house custom applications development or the extensive customization of various manufacturing applications, affirming that today’s packaged software applications still are not perceived as offering either the flexibility or extensibility necessary to address the broad range of manufacturing scenarios, legacy system environments, and their associated environmental compliance requirements (see “U.S. Enterprise IT Spending Profile, 2006–2007”).

As indicated earlier, EH&S is an area ripe for the development of composite applications, with ample opportunity for linkage to an organization’s manufacturing architecture, and could potentially benefit from some of this spend.

A golden consolidation opportunity awaits, but for whom?

While many of the vendors in this space are past the startup stages of their lifecycles, the segment they serve is just emerging. Despite some recent consolidation, the EH&S compliance market still has the characteristics of an emergent and immature market segment. Many of the vendor organizations were spawned from consultancy roots, often commercializing the applications, frameworks, and best practices they had developed and implemented for customers. Even with such strong credentials, no single provider is close to offering a fully integrated application for EH&S compliance. Few of the architected EH&S deployments we encountered in our research are tightly integrated with enterprise systems, nor would they meet increasingly stringent IT governance expectations for TCO.

AMR Research predicts that enterprise players will be encouraged by market growth and pressure from global customers to take environmental compliance more seriously. While partnerships are easy to predict, M&A is potentially a more realistic path. As Table 2 indicates, the majority of the vendors in this segment are small, with under $20M in revenue, and even with a two to three times multiple on acquisition, acquiring environmental compliance support could come at a relatively cheap price with high returns.

So who will be the consolidator of the EH&S market?

ERP vendors have larger opportunities...for now

Environmental compliance continues to gain mindshare and importance in the IT budget. Organizations are investing, and this is a segment that remains untapped by the larger enterprise-class software vendors and service providers. SAP is the one enterprise vendor with a significant EH&S product, spanning capabilities that affect people, products, and processes. Other ERP vendors, as well as PLM vendors, have made claims of EH&S support, but scratching the surface revealed that these companies have either partnered or OEMed specific functionality, often focusing on the management of multiple product specifications or MSDS support and only covering a fraction of the environmental compliance capabilities depicted in Table 1.

SAP is currently the only ERP provider with a significant EH&S capability, and the other ERP providers do not have this level of EH&S depth on their roadmaps. In fact, Oracle sold its Oracle Environmental and Oracle Health and Safety products to consulting firm Radian (now part of URS) in 1998. While SAP’s penetration of the chemical industry presents a large base of customers ready to adopt a comprehensive compliance platform from their preferred enterprise vendor, SAP will still require a few years to transform its architecture and create a services culture ready to capitalize on the EH&S compliance opportunity.

The good news for SAP customers is that the company recently briefed us on intentions to converge its Virsa acquisition, global trade management, and core EH&S functionality into a more integrated and extensible platform as part of its governance, risk management, and compliance (GRC) focus.

Also in the works are enhancements to support REACH, including support for data transfers through SAP XI to the IUCLID 5 database, and enhanced workflow and team collaboration scenarios for GRC. SAP is also targeting the much larger market opportunity for manufacturing operations software and, in the process, will be addressing similar requirements to support global coordination and local execution of processes with composite applications. SAP’s foray into manufacturing operations could well be the proving ground for a future EH&S consolidation strategy—that is, if no one claims the market in the meantime.

SOA infrastructure vendors bring services and domain expertise

Service-oriented architecture (SOA) infrastructure vendors—Sun, Cisco, Intel, HP, Microsoft, and IBM—could be the most unique consolidators. Specifically, customers placing emphasis on master data management (MDM) are trying to reinforce business responsibility for the data. While MDM may not be at the top of most business executives’ agendas, it is a necessary element for the success of most strategic programs, including ERP consolidation, strategic sourcing, providing one face to the customer, continuous improvement, and compliance. Several of these vendors also have developed frameworks and messaging structures for the construction of composite applications and provisioning of SOA, as well as the core network security structures.

By providing the integration points and network infrastructure for several of their clients, integrating the EH&S technologies could be their next opportunities. For some, the potential pieces might already be falling into place. IBM’s acquisition of MRO Software creates the potential of merging asset management (this pertains to not only manufacturing, operational, and transportation assets, but also IT assets), infrastructure and integration, and EH&S compliance together with consulting services, which could be a unique value proposition. The challenge, however, would be the specific EH&S domain expertise, easily remedied by acquisition of a few targeted consultants and some of the emerging compliance frameworks covered in this research.

EH&S consultants more likely to be usurped by enterprise consultants

Could the EH&S consultants fill the role of consolidator—or assembler—that would tie various complementary technologies together and assemble a complete EH&S platform? Yes, but at what cost to the current business model? While the vendors collect ASP and the majority of maintenance fees, the real profit opportunity revolves around performing systems implementation and ongoing services and support (including maintenance) of EH&S software deployments. These consultants derive recurring revenue by helping customers assess their current EH&S performance gaps, assisting in selection cycles, and customizing, configuring, and maintaining various EH&S packages and processes for their customers. If anything, consultants such as Deloitte, Capgemini, and CSC, all having built practices on GRC because of directives like SOX, could ride those coattails and start providing similar capabilities for environmental compliance.

Here’s how they can accomplish this:

• Partner directly with independent software vendors (ISVs)—Establish relationships with EH&S specialists from the vendor community that have roots in consulting. Environmental compliance could provide an in-road for several services firms to take advantage of the emerging opportunities in manufacturing operations, where real-time process control and composite applications to connect real-time applications with transactional systems are ripe.
  
  
• Partnering with
• niche environmental services firms—Establish relationships with environmental services firms such as CH2M Hill, DS&S (a subsidiary of SAIC), ERM, Lexicon Systems, and URS to sub out the heavy lifting of EH&S projects. Maintain the project management focus at the C-level, where global EH&S spending is being approved and where the environmental consultants have struggled to compete for funding.

Recommendations

The market for EH&S software is still emerging. If the statements in most annual reports are any indicator, environmental compliance is recognized as a critical component of stakeholder perception of sustainable business performance. As more aggressive firms make environmental compliance a core component of their business strategy, in turn raising the bar, disciplined architectural approaches and demand for enterprise-class software and consulting services will create the perfect storm for this market to grow.

For users

Benchmark your current EH&S processes and their support functions against the categories outlined in Table 1 to understand your current mix of systems and processes in use and their value. This will identify the varying levels of integration with enterprise systems, the portfolio of incompatible and overlapping technologies, and the maturity of their deployments, as well as what processes are automated. This will help your firm assess exposure to environmental regulations and prioritize the next steps, ultimately leading to risk avoidance and competitive advantage (for more information on performing these assessments, see “Environmental Compliance: Assessing Product Exposure and Executing a Strategy for Readiness”).

The integration of various EH&S technologies with not only each other but enterprise applications and local manufacturing environments as well is a reality that requires an architectural approach. Despite our speculation on the need for consolidation of this market segment, your firm can’t wait to identify the consolidators.

Two main approaches emerged in our research:

• Leverage your ERP vendor’s deep pockets, stability, and investments in GRC architecture. Augment with best-of-breed capabilities to fill the gaps in EH&S compliance functionality.
  
  
• If your incumbent ERP isn’t SAP, or if the costs are
• too high, we recommend selecting one of the EH&S vendors developing broader compliance architectures, such as ESS or ESP. Encourage them to partner with your incumbent ERP and forge alliances to augment their functional gaps.

In either scenario, success will hinge on your firm’s ability to augment your enterprise SOA framework with the higher fidelity capabilities required by a federated environmental SOA framework.

For vendors

Your customers need integration with both corporate ERP and local manufacturing systems. Even with SAP, there’s room to power NetWeaver composite applications. Find a way to partner with ERP providers, integrate your data into their compliance frameworks, and add environmental performance data to their dashboards.

Embrace SOA as a method to infiltrate your current product architectures into larger corporate compliance initiatives that affect full fleets of plants or facilities.

Finally, understand your options: be a consolidator or a casualty. Acquire or partner to broaden your compliance footprint. Partner with global service providers and consultants that have access to C-level and ERP or manufacturing integration expertise.

Appendix A: EH&S vendor overview

3E Company

After 3E Company acquired Ariel Research Corporation, the combined organization provided customers a suite of outsourced services and technology to help address product stewardship and environmental compliance throughout the entire lifecycle of a product (R&D through manufacture, shipment and transportation, and finally disposal). Customers leverage the 3E database to gain access to chemical lists, full-text regulations, phrase libraries, international transportation data, toxicological data, and MSDSs to best manage their own hazardous substance information, chemical regulatory compliance data, and environmental reporting.

Privately held, 3E is headquartered in Carlsbad, California, where the majority of the support for the organization’s outsourced services resides. While the organization has a substantial set of customers from the utilities, chemicals, and specialty chemicals industries because of the nature of those segments to keep up-to-date information regarding the attributes of its products (and associated ingredients), the company also has several unique deployments in nonmanufacturing industries.

Atrion International

Founded in 1989 and headquartered in Montreal, Atrion International has a laser focus on simplifying product stewardship processes related to the regulatory adherence of a product from R&D to shipment, aiding organizations with global supply networks in the chemicals, specialty chemicals, and utilities markets. By providing its customers functionality to manage the authoring and production of MSDSs and labels with the necessary regulatory content updates and validation from regional regulatory content bodies, Atrion helps ensure product compliance in each target locale to which a customer sells and ships. Specifically, Atrion provides a centralized workflow engine that interfaces with its Material Compliance Solution and SAP’s EH&S module, helping clients update and maintain regulatory content, such as phrase interpretations and localized regulatory data. It also provides a Content Solution for safety document authoring, MSDS management, product registration, and transportation management. Atrion was the first company to achieve certification for the SAP EH&S OCC interface.

In addition to SAP, Atrion is deployed alongside multiple ERP applications, including IFS, BPCS and Optiva (Infor), Lawson, and Oracle. This ERP agnosticism is appealing, especially as midmarket organizations start to explore their technology options for compliance support. There is value here for companies that are looking at tools for managing their compliance efforts around REACH as well as the Globally Harmonized System of Classification and Labeling of Chemicals (GHS).

BSI Entropy

BSI Entropy provides an enterprise framework to track compliance and performance to environmental, quality, and health and safety management standards, such as ISO 14001, ISO 9001, and OHSAS 18001. Its product leverages defined workflows to track, audit, and monitor performance to defined standards. The product has five key elements that BSI Entropy defines as “workflows”:

• Performance Management, which focuses on taking
• functions previously managed in Excel spreadsheets and databases and putting a standard dimension in place for goal setting, metrics development, and progress measurement to these goals.
  
  
• Incident Management, which is primarily for EH&S
• incidents and identification of risks as a result of them.
  
  
• Audit and Compliance Management for corporate-level
• tracking of checklists for ultimate determination of compliance levels and risks.
  
  
• Risk Management for site-level assessment methodologies (severity, likelihood, and control), and for the corporation to get visibility into its risks across the business.
  
  
• Knowledge Management for site and corporate document
• control management regarding employee training needs and records.

By virtue that the BSI Entropy system is management-system-based more on business philosophy and framework design, it is primarily a management-level offering. Site-level functions, such as tracking of complex greenhouse gas emissions and MSDS generation and tracking, are not part of the product focus.

Enverity

One of the smaller organizations serving this space, Enverity provides web-based software to help organizations improve accuracy and efficiency and drive down compliance costs in the handling of EH&S-related data. Core to Enverity's offering is the Enverity Platform, which provides data tracking and storage, workflow, calculation/analysis, and configurable forms for regulatory report preparation on environmental compliance initiatives such as Title V, NPDES, OSHA, and other permit-related compliance activities. These forms can be configured for prepopulation for role-driven environments as well.

The company has also developed specific functionality for LEED certification that is OEMed out to facility management firms like Johnson Controls to use with their clients. Specifically, these tools help customers understand and complete the multiple steps required for both LEED and ISO 14001 certifications through providing structured workflows and analysis for the management of individual building certification and documentation.

While not a marketing-intensive company, Enverity has forged successful customer relationships with discrete manufacturers and municipalities, as well as the more traditional consumers of EH&S technology in the process industries. Often these relationships were forged at the board level, helping create change throughout the organization. The customers we interviewed spoke highly of the company's ability to deliver capabilities for simplifying the management of complex EH&S tasks.

Enviance

Enviance provides the only pure SaaS product in the EH&S market. The Enviance System is a subscription-based, on-demand framework for the following:

• Management of air (greenhouse gas and Title V emissions) and water tracking, reporting, and calculation
  
  
• Local/facility-level incident and task management,
• escalation, and enforcement
  
  
• Audit and inspection
  
  
• Hazardous inventory tracking (Enviance relies on
• partnerships with SafeTec for MSDS generation and authoring and BNA’s Cite-It to supply the Enviance System with regulatory content)

Enviance does this on a single code base. There are no customizations or alterations needed other than those to the user interface, as each customer is different. Enviance relies on web services for collection of data from plant sources such as data historians, ERP systems, and various EAM applications. While the nonmodular system is hosted outside the firewall, the SaaS architecture allows for the creation of centralized role-based programs, which lends to effective reporting for compliance declaration.

While Enviance stays true to the promise of SaaS by providing a faster, more cost-effective deployment time than other applications in this segment, they also encounter the issue of having to mitigate the consternation that comes with having a mission-critical compliance application hosted outside the organization’s firewall. However, for organizations that grapple to get IT support for EH&S projects or that are encountering the brain drain, Enviance is a safe bet, with over 5,000 active users in 37 countries.

Founded in 1999, Enviance is privately held and headquartered in Carlsbad, California. It also hosts a blog for its customers to share thoughts and keep up to date with the latest environmental developments.

EnvironmentIQ

Formerly known as Camaxsys (which was founded in 1988), EnvironmentIQ was officially formed in 2006 through a combination of funding from Fidelity Ventures and Casenove Private Equity. The merger took Camaxsys' technology and married it with a management team familiar with enterprise software. The company's renewed focus is on providing the organization resources and technology to measure operational and EH&S performance together in a single application framework called RiskLedger.

RiskLedger is designed with multiple interoperable modules to help an organization gain global perspective into the multiple facets of EH&S management that an organization might encounter. Specifically, RiskLedger allows for automated management of metrics such as lost time, accidents/near misses, and regulatory monitoring related to OSHA and ISO compliance by individual sites, with a dashboard for executive management to have visibility into local, business unit/division, or regional compliance performance.

While RiskLedger shows great promise to be a kernel in an organization's active compliance framework, EnvironmentIQ faces the challenge of elevating itself within current accounts where the legacy Camaxsys product, CamHealth, is mainly deployed as a site-level and business-unit-level health and safety management system. That said, Environment IQ has several global manufacturing organizations on its customer list. Additionally, we spoke with a global pharmaceutical organization that will be deploying the RiskLedger product as its global EH&S framework.

ESP

ESP’s value proposition to customers is the empowerment of the EH&S organization to help customers maintain environmental compliance across the global enterprise through automation of tasks and procedures for monitoring and reporting on EH&S data. This is accomplished through removal of manual processes used to access data from work order systems, data historians and various facility-level databases, and asset management systems to provide a centralized and automated structure for the management, tracking, and reporting of both corporate and local compliance initiatives, such as air, water, and waste monitoring and calculation, task enforcement, incident management, and linking environmental performance to asset performance.

Customers in industries such as process manufacturing, power generation, and automotive have deployed the software to manage EH&S data in approximately 40 countries. Their usage includes the following modules from ESP’s opsEnvironmental product set:

• opsAir, the most commonly purchased module, for emissions monitoring and reporting, as well as nitrogen oxide and sulfur dioxide trading
  
  
• opsWater for water discharge management and reporting
  
  
• opsInventory for hazardous material tracking and
• management (ESP does not do MSDS generation or authoring, integrating with third-party applications for this)
  
  
• opsWaste for waste tracking and reporting
  
  
• opsIncident for incident management
  
  
• opsMetrics for corporate-wide EHS metrics collection
• and reporting
  
  
• opsCompliance for task management associated with
• internal and regulatory compliance

Founded in 1992 and headquartered in Mountain View, California, ESP software is used globally and delivers one version of the software with a strong reliance on services. Consultants such as ERM, URS, and DS&S help customers customize the software for their business. They also help integrate the applications with portal frameworks, like SAP’s Enterprise Portal, to portray environmental performance in contrast with other performance measurements, such as asset performance. ESP remains privately held.

ESS

ESS (Environmental Support Solutions) information systems have been purchased by over 17,000 organizations across a diversified set of industries. They include process industry segments, such as oil and gas and chemicals, where EH&S compliance has been a long-time core competency, as well as electric power, consumer products, industrial manufacturing, and all levels of government. ESS’s customers include multinational organizations running the full gamut of EH&S management capabilities, including inventory tracking and management, emissions monitoring and waste management, as well as sustainability performance reporting. The company also provides a performance management framework to help customers track their compliance efforts closely. ESS is starting to promote its performance management capabilities more actively in an effort to leverage its products for management of corporate stewardship initiatives.

ESS provides support for both global and local compliance and operational risk management approaches. The Essential Suite product line, which is built on Microsoft ASP.net, is targeted at any organization that takes a global or centralized approach to compliance and risk management, especially large enterprises with multiple site deployments. Its Compliance Suite product is geared toward organizations (or divisions of multinationals) seeking a local or decentralized approach to those challenges. Both products are available for delivery onsite or via a hosted model. Like other vendors in this space, ESS coexists with SAP favorably, as ESS provides a single-vendor EH&S platform. Additionally, ESS’s leverage of the Microsoft SharePoint portal provides integration capabilities to various parts of the SAP ecosystem for visualization of asset hierarchies, plant maintenance work orders, and the ability to portray EH&S data alongside financial data.

Founded in 1993, ESS has already successfully begun consolidating its EH&S business and offerings through a series of carefully planned strategic acquisitions designed to strengthen the company’s product portfolio and enable the organization to expand into complementary disciplines. Today its combined product offerings are among the more comprehensive technology options available in the market.

EtQ

With deep roots in the quality management market, EtQ's deployments in the EH&S arena tend to have overlap with an organization's quality management initiatives. EtQ’s Environmental Health and Safety Management offers capabilities for incident and task management, employee certification, compliance performance (for OSHA and ISO purposes), document handling, and auditing. The company’s product is also able to be configured to aggregate and present data from multiple databases, which for organizations managing multiple ERP applications has been a compelling factor for EtQ's selection.

As part of our research, we spoke with two global organizations: one a metal goods manufacturer and the other a global commercial airline. Both pointed to the product's abilities for escalation and delegation of specific tasks pursuant to inspections, incidents, and document changes in a timely fashion as the key drivers of their organizations to make EtQ central to their daily business processes.

Leveraging EtQ’s strengths of extremely configurable workflow management and escalation side, organizations can track compliance initiatives down to individual employees and cost centers through company-defined hierarchies. Yet in that same vein, EtQ's challenge is moving into the difficult domain of emissions and waste management for EH&S, as well as entering in deals that are strictly EH&S focused. While users were very positive about their deployments (and, in some cases, planned expansions) of EtQ, they are more limited to the health and safety side of EH&S.

Pavilion Technologies

Pavilion Technologies provides model-based, industry-specific software applications built on its common software architecture platform Pavilion8 that includes Advanced Process Control, Real-time Environmental Management, and Production Performance Management. The underpinnings of all Pavilion applications is a deep modeling and analytic engine that allows users to define process behavior and event-based triggering through a wide range of modeling techniques/algorithms. Pavilion’s play in the EH&S space is primarily in emissions reduction, continuous emissions monitoring, and real-time calculations and reporting. These capabilities help producers looking to maximize production efficiencies, maintain environmental compliance, and leverage emissions trading programs. Pavilion’s first environmental offering was the 1993 introduction of Software CEM (or PEMS—Predictive Emissions Monitoring System), a patented software alternative to what were at the time costly, hardware-based, continuous emissions monitoring systems. In 1998, the company introduced its monitoring and reporting package named Envisage.

Headquartered in Austin, Texas, Pavilion has one of the few real-time applications in the EH&S market. It differentiates itself from the competition by providing customers the capability to connect manufacturing and environmental behaviors, helping contextualize some of the most complex problems by putting “the PhD in the box” rather than requiring an ongoing, high-TCO commitment to its services.

Perillon Software

Perillon focuses on providing a real-time connection to manufacturing operations to the prevention of incidents and losses. The Perillon Workspace product focuses on EH&S incident management, compliance reporting, document management, task tracking, and audit and inspection capabilities. The product’s strong points are the forced workflows, which prompt data availability and the hierarchy models that provide multiple formats of data presentation, with a strong reliance on Microsoft technologies to make this happen.

Uniquely, the product can leverage the forced workflows and take a corrective action from one facility and turn it into a preventive action by creating an inspection task at other facilities to prevent an incident from recurring or becoming systemic. The product also possesses the capabilities to demonstrate real-time consumption rates to indicate asset health and operation status, allowing customers to link asset and environmental performance together.

Perillon is still a relatively small player in this space, but has a lot of potential. The company has landed some sizeable business recently, and is investigating new delivery models. While it currently can host its application for customers, Perillon is rounding out its SaaS strategy, which will put the company in closer competition with Enviance in some segments.

SAP

SAP is the only major ERP vendor to have expended significant effort on developing EH&S functionality by providing a combination of mySAP ERP modules, which include Product Safety (PS), Dangerous Goods (DG), Industrial Hygiene & Safety (IH&S), Occupational Health (OH), Waste (WA), xEM (xApp for Emissions Management), and Recipe Management (RM). All of these rely on the specifications database, which is delivered with the help of its development partner, Technidata. SAP’s first customer was in the chemicals industry where EH&S compliance has been a longstanding core competency.

Having established itself early as the de facto enterprise backbone of the industry with R/3, the SAP Chemicals IBU has been one of the pioneers in expanding the SAP footprint beyond ERP for its mature installed base. Despite the promise of EH&S functionality as part of the ERP data model, SAP customers still must overcome some complexities related to data integration and reporting. They must also deal with upgrades and additional licensed components beyond ERP core components (such as xEM) that have to be factored into the cost of deploying SAP EH&S.

SAP’s 2006 revenue is estimated to be approximately Euro 9.4B. It sells primarily through direct channels, with some business through distributors, value-added resellers, application service providers, and service providers. The company is headquartered in Walldorf, Germany, and boasts 88,000 installations worldwide. SAP sells across a broad range of industries in discrete and process manufacturing and services.

Acronyms and initialisms

ASP—Application service provider

CRM—Customer relationship management

DCS—Distributed control system

EAM—Enterprise asset management

EH&S—Environmental health and safety

EMEA—Europe, the Middle East, and Africa

EPA—Environmental Protection Agency

ERP—Enterprise resource planning

EU—European Union

GHS—Globally Harmonized System of Classification and Labeling of Chemicals

GRC—Governance, risk management, and compliance

HR—Human resources

ISV—Independent software vendor

LEED—Leadership in Energy and Environmental Design

LIMS—Laboratory information management system

LOB—Line of business

M&A—Merger and acquisition

MDM—Master data management

MES—Manufacturing execution system

MSDS—Material safety data sheets

NPDES—National Pollutant Discharge Elimination System

OEM—Original equipment manufacturer

OPM—Operations process management

OSHA—Occupational Safety and Health Administration

PLC—Programmable logic controller

PLM—Product lifecycle management

QMS—Quality management system

R&D—Research and development

REACH—Registration, Evaluation, and Authorization of Chemicals

ROI—Return on investment

RtEM—Real-time event definition and monitoring

SaaS—Software as a service

SCM—Supply chain management

SOA—Service-oriented architecture

SOX—Sarbanes-Oxley Act

TCO—Total cost of ownership

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