The future of ERP: Why the 'big ERP' approach is dead

The traditional big ERP paradigm has reached its end. Instead, expect ERP systems to become modular, distributed, and a lot more nimble as they break apart

What's the future of ERP? What kind of a silly question is that, you may be asking yourself. First off, predicting the future -- especially in the technology world -- is a fool's errand, best handled by Ouija boards and IT analysts' dartboards. And isn't the future of ERP already here? Software as a service, on-demand apps, enterprise 2.0 collaboration, open source software, virtualization, cloud platforms: What more is there?

Right now, not much else. But the real future of enterprise software isn't exclusively based on wow-factor applications and functionality. It's about not only knowing which new applications and delivery models can immediately help the business, but also having the technological fleet of foot to take advantage of those new apps fast. That means not in 18 months or "next quarter," but whenever line-of-business managers truly need that functionality. Think days.

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In addition, CIOs and IT staffs must be certain that the underlying architecture and systems decisions they have made (or are making right now) are guided by a roadmap that allows for flexibility -- an ability to adapt enterprise technology to disruptive business events as they occur.

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By that definition, then, it's readily apparent that the status quo with ERP, as poked and prodded in CIO.com's "Why Is ERP Still So Hard?" ain't going to cut it anymore. The deleterious global recession and a jobless recovery have made that quite clear.

When asked if the recession will ultimately prove to be a turning point in ERP's history, Jim Hayes, the global managing director of Accenture's Oracle practice, who's worked for decades with enterprise software, agrees. "I'm a believer that from disruption comes opportunity," Hayes says. "The kind of disruptions that we've seen have been painful, certainly on one level, but maybe therapeutic, on another level, because it makes us rethink things."

But change has never come easily or quickly to the ERP universe. MIT's Erik Brynjolfsson and the Wharton School's Adam Saunders note in their new book "Wired for Innovation" that it typically takes between five to seven years for major IT investments, like ERP systems, to deliver substantial returns. That's due to the multiyear period it usually takes today's organizations to make the enterprisewide changes needed to truly capitalize on the new IT applications and systems, contend Brynjolfsson and Saunders.

Do you have that kind of time anymore? Thought not.

The recession that altered the future of business software

If anything positive has come out of 18 months of economic and business chaos, it is that companies of every size, in every industry, in every country, have made a much needed and thorough reexamination of their ERP investments and strategies. (And some might add the word "finally.") "What's the true cost?" ask CEOs. "Does the benefit equal the investment?" query CFOs. "Are we getting the expected value from ERP systems?" demand line-of-business managers.

Of late, when those core constituents haven't been satisfied with the answers they've gotten in response from IT leaders, they've been brazen enough to raise once-heretical questions: What are the alternatives? Do we have to stick with SAP or Oracle, just because we always have? How about looking into software as a service? For instance, Siemens, the German electronics and engineering giant and long-time customer of SAP, created an uproar when details leaked that it was questioning its ERP maintenance and support service agreement. Though Siemens and SAP eventually hammered out a deal -- the details of which remain clouded -- the players and relationships involved in the dust-up made it a watershed event. If Siemens is challenging the status quo, then maybe you should too?

Change was already in the air. The global recession just accelerated it.

To Jon Reed, an independent analyst, SAP Mentor and blogger at JonERP.com, outdated pricing models (such as ERP maintenance agreements) and ERP systems' turtle's pace of innovation are going to be two critical areas for the vendor community in the near future. "I think the economy is a game-changer," he says. "Even when it returns, it will return in a way that will support different ERP business models than have been dominant in the past. Companies that can reinvent themselves -- with more flexibility around service offerings -- that's going to be key."

Make no mistake: Enterprise software vendors have recently felt more economic hardship and had to tolerate more customer objections than ever before in their histories. And for many, more pain lies in wait. "The big ERP vendors are going to get a big punch in the gut, and to some degree they've already gotten it. They've already gotten some body blows," Reed says. "How they respond is a really interesting question."

At the venerable SAP, which has made billions from traditional big ERP installations, the future of ERP commenced with the tacit realization that change was inevitable and good -- for both the company and its customers. (As for shareholders, I'll get to that later.) "Enterprise software is going through a transformation in a very significant way," says Philip Say, vice president for SAP Business Suite. Themes that SAP has embraced in framing its own future of ERP include: clarity, innovation, enhancements without disruption, and timeless software.

"In one respect, and this is clearly a response to customer need and desires, [the future of ERP] is about the simplification of it," Say contends. "These systems are highly mission-critical, and these can be difficult to implement and manage. [At SAP], there's a world of activity to make consumption, investment and deployment easier and ultimately make usage of software by end user easier."

Don't buy Say's or any other big ERP vendor's "Yes We Can" change rhetoric? In fact, SAP is challenging the conventional thinking around ERP, including the outdated acronym itself, according to Say. "It's ironic: We're so invested in the notion of ERP, yet we're challenging the definition itself at SAP. I think it's radically changing," he says. "The classic perception is that these are finance, HR, back-office, classic stuff and that's it. I challenge that definition, because when I see operations and how customers are using [enterprise software], they're not doing it in that way any more."

The "single global instance" dream dies

One ERP system: a single, global instance of business software applications running our entire business and our business lines, seamlessly uniting our CRM, supply chain and business analytics applications. Efficiencies. Integration. Savings. Fewer headaches.

That's been the dream at many companies and for CIOs since Y2K -- a dream most often fed to them by eager ERP vendors. Just read this excerpt from a 2003 article in CIO:

Bill McDermott, president and CEO of SAP America, stares out the tinted glass wall overlooking the bustling convention floor and then dives into the same pitch he gives the pilgrimaging executives [at SAP's Sapphire event]. "You have ERP," says SAP America's CEO. "The next step is to expand it to CRM and the supply chain." The idea, he says, is to control all the data in a company by standardizing on one system for the front end and using one data source for the back. His pitch reaches its climax when McDermott sounds the message SAP has been trumpeting all week:

It's time to move to a single instance.

In other words, McDermott is telling CIOs to forget the multiple systems their companies use today, rip them out, and replace them with one ERP system -- with one data store -- that serves the entire company, no matter how diversified or geographically spread out it is. That, he says, is how to get the most bang for your IT buck.

That dream has now faded for many companies. Even at SAP. "I think the concept is evolving," Say contends. "There's a pretty open acknowledgement that -- is it practical to get to a single instance across all functions of a very large, global enterprise? No. That's not a realistic goal any more. We're living in a world where multiple systems have to be networked together, have to communicate openly with each other and need to have sophisticated enough infrastructures on top so that the business can manage it."

The "more evolved" thinking, Say suggests, is this: Companies can achieve consistencies and efficiencies in their business processes without having to use one singular system that manages the entire landscape.

Accenture's Hayes says that for many -- but not all -- companies, the pursuit of the single instance is a dream that hasn't come true. "The homogenous dream was a great dream, and I think the industry has helped clients move toward the dream," he says. "But like a lot of things you dreamed, it didn't turn out all that you had hoped, and therefore you modify your dream." (He notes, though, that it's not impossible for companies to get to a global, single instance; Accenture has done so with its ERP system, he points out.) Hayes is emphatic, however, that companies not return to the days of "crazy spaghetti code, heterogeneous systems, unsynchronized data and all that came along with it."

So what's the future fix? A "happy middle," Hayes offers, which takes advantage of new advances in middleware offerings, tools from the big vendors that allow easy integration between core databases and infrastructure, and SaaS apps where appropriate. He calls it harmonization.

All these capabilities become even more critical in the future. First, many companies are soon to be facing "to upgrade or not" questions as time continues to run out on their antiquated ERP systems: Do they stick with their PeopleSoft, R/3, eBusiness Suite, JDE or other aged ERP versions inching closer to losing support from the vendors (and, conceivably go off that vendor's maintenance and support services, moving to a third party), or take the plunge on a new and different ERP package, such as a cloud-based or open source suite? Second, M&As are going to be on the rise as credit starts flowing again, and the ERP systems of those companies making the deals and those being dealt must be "nimble and responsive to change in business conditions," Hayes points out.

Crispin Read, general manager of marketing for Microsoft Dynamics ERP, which targets midsize organizations, points to a trend he calls "hub and spoke" deployments: Companies use Oracle or SAP ERP suites as the central system of record, and off of that use smaller app packages like Dynamics in the subsidiaries, plants, and various operating units of the larger company. "It's not new," Read says, "but we're seeing a lot more companies doing this." The rationale: A smaller, tier 2 system is much cheaper and faster to deploy than force-feeding big ERP software down on the smaller properties of the company that most likely don't need the associated horsepower or headaches.

"With ERP, you can't do a one-size-fits-all," Read says. "The corporate office of a $10 billion organization just has different needs than the local operations in Australia. And if you try to deploy [SAP or Oracle] everywhere, you're effectively going to be deploying an enterprise solution in a midmarket company, and the costs are going to explode."

Could there be a resurgence in "best of breed" app strategies for vertical-specific business areas -- whether that's on-premise or in the cloud -- without all the integration headaches of yore? AMR Research Chief Research Officer Bruce Richardson thinks so. "The Burger King approach -- 'have it your way' with SaaS, on-premise, BPO," Richardson says, "is going to force vendors like SAP, Oracle, and Infor to get very aggressive in offering other deployment models."

The cloud rolls in, fast

Call it what you will: software as a service, on-demand computing, Web-based software, cloud computing. Doesn't matter, because business software experienced via an Internet connection and browser is already here. Resistance is futile, stupid and short-sighted. At this point, however, no one (save for the SaaS vendors, perhaps) is advocating for wholesale rip and replaces of on-premise ERP installs.

But as enthusiasm for traditional, on-premise, expensive and complicated software deployments wanes even further, Web-based software options hosted in either public or private clouds will become even more attractive for companies big and small looking for low costs and easily consumed apps, analysts say. (For the record, it appears that cloud computing is taking over the as the catch-all buzzword, but what's cloud-based and what isn't largely depends on which vendor you are speaking with: Salesforce.com is a self-described "Enterprise Cloud Computing Company"; NetSuite, a "Web-Based Business Software Suite" provider -- and they have nearly identical businesses.)

"The supervendors have architected enormous complexity in order to be able to sell across so many different verticals, in so many industries," says AMR's Richardson. "I think there's a need for simplicity, and the Salesforce.com and Workday people get that." (Even Oracle and SAP have finally realized that, though those ships are slower and costlier to turn around -- see SAP's Business ByDesign saga and Oracle's indecisiveness.)

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