The Future of ERP

Clouds, SaaS, Enterprise 2.0, Modules, Analytics, Enhancements, Fusion, Business ByDesign, Leo, Larry -- Oh My! In'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.

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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, we'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 In fact, SAP is challenging the "conventional thinking" around ERP, including the outdated acronym itself, according to Say.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 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 II 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."

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