by Maryfran Johnson

What’s Happening with ERP Today

Jan 27, 2010
ERP Systems

Today's ERP systems call for different management.

What used to be the sweetest deal on the planet for ERP vendors has left a bitter aftertaste in the mouths of many CIOs. With maintenance and support costs running upwards of 20 percent annually, these legacy systems are costly, complicated and customized to the max.

Forrester Research reports that the global recession sent new ERP license revenue diving by 24 percent last year, which surfaced a lot of tension at vendor negotiating tables. And no wonder—about 90 percent of those outrageous maintenance fees is pure profit for the vendors.

Today’s ERP—the essential bedrock of your financial, HR, supply chain and manufacturing systems—does little to set your business apart from competitors or generate new revenue. “ERP is the Jack Nicholson of software,” as Senior Writer Kim S. Nash puts it in our cover story (“Reviving ERP”). “Its repertoire hackneyed, the old and expensive dog finds it hard to learn new tricks.”

The ones learning new tricks are the customers who just can’t take it anymore. People like Steve Hanna, CIO of Kennametal, a $2 billion metal-cutting tools company in Pennsylvania. This midsized firm racked up more than 6,400 customizations within its legacy ERP system, spending $10 million on maintenance during the past 13 years. Rather than attempting to retrain this old dog, Hanna is replacing it with a “plain vanilla,” non-customized version of SAP and changing Kennametal’s business processes to match it. He sees this as the future of ERP: Drawing clear project maps and modifying the software only as a last resort.

The underlying message in our story is that deriving value from ERP in the future means managing it differently—and much more cost effectively—today. As the pent-up demand for new technology initiatives explodes this year, CEOs will be calling on you to rethink and enable new business processes, to drive tougher bargains on maintenance fees and to make way for emerging technologies in the mobile-and cloud-computing realms.

The cloud is potentially one of the more “interesting disruptions” in IT now, says Harvard professor Clayton Christensen, the renowned expert on disruptive innovation. He likens the classic ERP vendors to the automotive and steel companies that tumbled under the onslaught of low-cost competitors. New players in cloud services and the SaaS arena are already picking off HR systems from the ERP pile, much the way Salesforce .com went after the CRM market. Disruption déjàvu. Bring it on.

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