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

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Sure, traditional on-premise vendors face pressure to diversify their software delivery mechanisms. But CIOs face an equal amount of pressure -- maybe even more -- as the new millennium dawns. "Rapid proliferation of SaaS solutions inside the organization requires strong CIO leadership in coordinating data, business process, and metadata integration strategies," writes Ray Wang, Altimeter Group's partner for enterprise strategy, in a August 2009 blog post.

In particular, the business is crying out for easy-to-digest, highly usable, and meaningful analytic data on enterprisewide business functions. A 2009 IBM study of more than 2,500 global CIOs found that "leveraging analytics to gain a competitive advantage and improve business decision-making" is the top priority for CIOs. An eye-opening 83 percent of survey respondents reported that BI and analytics -- "the ability to see patterns in vast amounts of data and extract actionable insights" -- as the way they will enhance their businesses' competitiveness.

Inside too many businesses today, a paradoxical data situation exists: While the struggling economy has forced businesses to attempt to cut costs and "do more with less," that often means leaving this data store largely untapped, which creates the risk of "more is less," notes a July 2009 Aberdeen Group report (registration required). "The ability to provide better decision support with integrated enterprise data is an important factor in turning data into actionable intelligence," write the Aberdeen analysts. "The synergistic relationship between ERP and BI can indeed be the perfect storm, igniting improved performance and visibility." (For more on this, see "ERP and BI: A Match Made in Heaven, If You're in Data Hell.")

ERP analyst Hamerman writes in the Forrester report that embedded analytics represent a key functionality in the future: "Rather than having to leave the application and launch separate reporting and analytics tools, ERP applications are moving toward embedding analytics within the context of the application itself," he states. "This can be seen in a number of products including Epicor 9 and the yet-to-be released Oracle Fusion applications." Plenty of enterprise vendors are targeting these fertile grounds (some estimates top $100 billion). IBM, for instance, is making a huge push into the analytics market, using the combination of its SPSS acquisition and its hardware, software and services business lines.

So how are CIOs dealing with the ERP and BI demands? Nectarios Lazaris, CIO for Woods Bagot, an architectural design firm with offices in Dubai, Bangkok, London and Hong Kong, seems like he's coping the best he can. "We need an ERP system to do a lot of predictive forecasting, and output different [project] models and business scenarios for us," Lazaris says. He describes the complex process of how Woods Bagot vies for new business and how these global projects typically run their course -- covering structured and unstructured data from all over the globe and how best to "visualize" that data.

Is he getting that now? "With a great deal of difficulty and I guess a lot of skepticism in the output," he says. In fact, Lazaris laments that users still sometimes have more affinity for Microsoft Excel than the ERP system (which he declines to name). "Sometimes [as the CIO] you have to take it on the chin from your users," he says. "You go back, you try to talk to the account exec at your ERP vendor, and you try to get it across that you hope the next release is better. But [my] people will say: Why can't an ERP system be as powerful as Excel, which is ironic."

The future of ERP, this is not. But it just might be the reality for too many CIOs as 2010 dawns.

Talkin' 'bout the next generation

More than any time in its nearly four-decade history, change is swirling in the air of the ERP ecosystem: new software-delivery models, new licensing arrangements, new user-interface offerings, new support options, new emphasis on value. All of this change is a very good thing, analysts say. "Now, it's all about the value," says Accenture's Hayes. "With all of these different future trends out there, CIOs need to be more adept at describing the value: Here's the TCO and here's the revenue uplift; here's the day sales outstanding improvement; here's the business value we're going to get by using this application."

It's not that companies are cutting spending on ERP-related systems; in fact, quite the opposite: ERP investments still top the list of corporate IT investments and in 2009 were almost recession-proof.

It's just that the recession and years of questionable return have forcefully introduced a new strategy: Leave the commodity ERP processes to the back office (such as payroll and HR), but make damn sure that front-line users are freed from the banality and inflexibility of the Ghosts of ERP Past.

Industry consultant Reed sums it up this way: "'Empower me. Give me the tools to create differentiating processes that allow me to define myself from my competitors. And make sure that it's easier for me to do, so I don't have to hire 100 programmers. Give me the building blocks to put that together quickly, so that it's just humming in the background, and leave me free to focus on what makes us better than other companies.' That's what customers are expecting now and really want."

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This story, "The future of ERP: Why the 'big ERP' approach is dead" was originally published by CIO.

Copyright © 2009 IDG Communications, Inc.

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