What 21st Century ERP Needs to Succeed

Today’s ERP systems are remarkably similar to those ERP systems that took the corporate world by storm in the 1990s. The main goal of the applications back then, and now: Manage businesses’ day-to-day operations and transactions, and make companies more efficient.

To a large degree, ERP vendors have accomplished that task. Even most small and midsize companies today have their operations intertwined with software applications that help them manage their finances, logistics, inventory, HR and sales process. And that’s fantastic. (See “Inside One of SAP’s Smallest ERP Customer Success Stories” for more on enterprise vendors’ invasion of the SMB space.)

But, hey, ERP vendors: That’s just not going to cut it in tomorrow’s Web 2.0, collaborative and customer-driven world. That means you: Infor, Lawson Software, Microsoft, Oracle, SAP and every other niche business software player that claims a spot in this market.

It’s astonishing that vendors still are under the impression that ERP is a competitive advantage. ERP is not a competitive advantage. ERP is about competitive similarity.

What’s needed is a new breed of enterprise software—not simply one that manages the physical-based business resources (i.e., ERP), but one that accounts for “the planning and management of people and the knowledge resources they apply to the transformation of the business from one state to another,” argues Forrester Research analyst Tim Harmon in a new report, “A New ERP For The 21st Century.”

He’s right. Forrester is calling this “extended-enterprise resource management,” or EERM. While I am loathe to add another vague and somewhat confusing acronym to the IT world, I think the concept is spot on: “These systems will complement traditional resource management systems by adding capabilities for coordinating, recognizing and optimizing the work of an enterprise’s most coveted asset—its people,” Harmon writes.

To be more specific, what business functions would these EERM systems help an organization improve? Harmon defines these categories as the most important: workforce (which includes project portfolio management, project team collaboration, HR and business process management); intellectual property (idea and IP management, product life-cycle management, wikis); relationships (customer analytics, CRM and supply chain management, social networks and blogs); and brand (brand monitoring, and enterprise feedback and marketing management).

“Extended-enterprise resource management doesn’t displace ERP,” writes Harmon. “It will coexist with and complement ERP.”

There are many challenges, however. Companies can’t build EERM on ERP transaction-based platforms. “EERM will be built on a collaboration foundation, which does not look like transaction engines underpinning ERP, CRM and other operational applications,” Harmon notes. In addition, Web 2.0 collaboration frameworks are still in a state of infancy, and enterprise application vendors simply don’t have the right business models to allow for “viral-like” spread of EERM applications inside companies, Harmon writes. Meaning that expensive, big-bang implementations have to go the way of the dinosaur.

Evidence of both the promise of and challenge inherent in an ERP extreme makeover can be seen with Oracle’s next-generation (and delayed) Fusion Applications project. (For an inside look at the delayed project, see “Oracle Fusion Applications: Is 2010 Delivery Too Little, Too Late, or Smart Strategy?”)

Perhaps the biggest challenge: ERP vendors are going to have to open up their coffers and start innovating. “The breadth and scope of EERM is analogous to ERP,” Harmon states. “Vendors need to invest substantially more in R&D than the typical 8 percent to 15 percent.”

The stakes could not be higher for businesses today. Harmon notes that while companies’ executive and senior managers are focused on business transformation, that simply “is not supported by today’s operations-oriented enterprise applications.”