Since the ERP 'heydey' of large-scale implementations in the nineties and noughties , the combined impact of globalisation, the more turbulent economic conditions and the move towards subscription-based software models is creating a fundamental shift in the way that organisations use and deploy ERP systems. For many organisations, ERP is the most costly investment they make; to continue to get a real return on this outlay means that it needs to be able to accommodate the new rules of business.
These days, ERP is no longer the preserve of large, multinational enterprises and many organisations, in particular small and midsize companies, are opting for a hybrid solution by taking best of breed solutions and integrating them with an existing ERP system. So, the question is: are big, costly ERP applications a thing of the past and are we seeing the end of ERP as we know it?
Shifting Business Dynamics
The first factor driving this shift is the evolving operational business model, which is transforming the way we plan, deliver and provide for customers' requirements. The twentieth century business model of many organisations, and those in the manufacturing industry in particular, was based on long term planning, with ERP at the very heart of all business processes. This involved a substantial financial investment, which resulted not only from the upfront cost of ERP software but also the long term project implementation costs.
Since then, organisations have had to react to the real impact of globalisation, and the increasing need for product customisation. The 'buy-once' consumption model is gradually being replaced by the services based model, with the net result that organisations need to be able to react quickly to changing business requirements, and if they can’t, their very existence is threatened.
At the same time, organisations rarely have a truly homogenous IT environment; they use multiple vendors' solutions which often don't easily work alongside each other. This has been exacerbated by the effect of de-centralisation, mergers and acquisitions within the industry.
To compound these wider economic changes, the software distribution model continues to shift; large scale ERP is a complex undertaking for any organisation and analysts now predict a move away from large scale in house implementations towards cloud based systems; Gartner predicts SaaS ERP revenue will reach $14.5billion this year, a 17.9% increase from 2011 of $12.3billion. This is the new battleground for ERP vendors, which have bolstered their cloud offerings to accommodate this shift; SAP bought Success Factors late last year and Oracle responded by buying Taleo earlier this year - further indications of the changing market.
Finally, the impact of consumerisation of IT is driving a growing need to extend ERP capabilities and legacy ERP systems, to whichever mobile device is required and to create a streamlined user experience from desktop to mobile. Providing mobile access to ERP data to support real-time decision making can make a significant difference to productivity and boost competitive advantage.
Is ERP as we know it a thing of the past?
All of these factors mean that organisations can no longer wait for an incumbent software vendor to provide solutions based around their product. Instead, they need immediate solutions that meet the specific requirements they are looking to achieve. Organisations typically don't want to rip and replace existing ERP - these are, after all, large, costly and complex systems. However, they do want to use the core ERP system for what it was first intended and plug on more flexible, often cloud-based solutions to suit their business needs and to react quickly to changing business needs.
Organisations want to take advantage of best of breed solutions which they can bolt on to their ERP system, whether these are CRM systems such as Salesforce.com, HR, Business Intelligence, Payroll or more specialised products. This ability to connect ERP with other systems and extend business processes to multiple mobile devices can help to ensure organisations get maximum return from their existing ERP investments.
So is ERP as we know it a thing of the past? It's likely that it won't be a wholesale demise and, in the next ten years, the large enterprises and core 'Fortune 500’ ERP users will continue to use ERP as we know it, with adaptations to suit. However, the real area of growth for the hybrid model will be amongst the SMB market - and this is where all ERP vendors are increasingly targeting their marketing efforts. For organisations that have dynamic strategies that can adapt to the new model, they can get the best of both worlds: achieving competitive advantage whilst protecting existing investments.
Posted by David Akka, UK MD, Magic Software