The Future of ERP

Clouds, SaaS, Enterprise 2.0, Modules, Analytics, Enhancements, Fusion, Business ByDesign, Leo, Larry -- Oh My! In CIO.com's continuing analysis of the ERP market, we look at the future of ERP: What's at stake, who are the contenders, and what is and isn't likely to happen in 2010 and beyond.

Introduction

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.

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 multi-year 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 re-examination 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, to some in the industry—the players and relationships involved in the dust-up made it a watershed event. If Siemens is challenging the status quo, then maybe we should too?

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

Why ERP Is Still So Hard
After four decades, billions of dollars and many huge failures, Big ERP has become the software that no business can live without—and the software that still causes the most angst. See: Why ERP Is Still So Hard

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 re-invent 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."

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