We love to hate ERP. For some it is the enterprise application that forces their organisation in an inadequate, static mold, others feel that over time they have customised and adapted it to death.
Is it dead or is there a future?
And if there is a future for ERP, how does that look like?
The death of ERP is accelerated by the transition to cloud and SaaS.
Big monolithic on-premise ERP’s are expensive to develop and run and with SaaS more nimble, faster and less risky paths to adoption and productive use of a new class of enterprise applications is available. The subscription models for these create an easy entry and reduce the initial investments required. In the HCM space the transition to SaaS offerings is largely completed and SaaS is the de-facto standard.
Software vendors like Salesforce and Workday started of ‘in the cloud’. Incumbent on-premise ERP vendors like Oracle and SAP answered by shifting to cloud first product strategies. The rationale was simple: cloud is the place to grow and remain relevant in the enterprise software market. For vendors it is essential to be designated by the financial markets as a cloud vendor. Both Oracle and SAP repositioned their core ERP initiatives (Fusion and S/4HANA) for cloud and over time both acquired many cloud companies to join and then lead the party.
What is dead in ERP is the large and monolithic suite; ERP deployed as a wall-to-wall single vendor solution. Extensive Implementations supporting Finance, HCM, Procurement, SupplyChain, Manufacturing, Logistics, Order management and even CRM. A true reflection of the E in the ERP acronym: Enterprise=Everything.
Obvious benefits are the integrated use of functionality and consistency and ubiquitous access to data, ideally resulting in better business process orchestration within and across business functions. The downsides of the suite approach are complicated coordination, and tradeoffs between requirements and use for the different functions, slow and expensive ongoing development and lack of innovation.
Over time the downsides have prevailed in the argument and most large organisations have departed from these ERP suite strategies based on their preferred vendor (often phrased as ‘Oracle unless’ or ‘SAP unless’).
Aging technology and technology designs in legacy ERP solutions compound the issues and strengthen the opinion that ERP is dead.
What is alive and kicking are digital business and digital transformations in existing businesses enabled by software technology and new digital native initiatives. For those the coherent execution of business functions and business processes with integrated enterprise software has become a critical success factor. Enterprises and their customers are moving to real-time.
Delivering on these ambitions with classic ERP only has not happened.
Slow, complicated, expensive classic ERP is a dying species. Vendors have them in late maintenance mode, serving as cash cow to fund investments in cloud.
ERP needs to transform from an Enterprise Resource Planning solution to an Enterprise Runtime Platform. The Phoenix can keep its name but needs to be reborn.
Why ERP as an Enterprise Runtime Platform?
Enterprise: Digital business processes at the enterprise level driven efficiency, consistent quality and scalability. Meeting faster evolving business needs, organisation needs to streamline their operations and configure business processes in software. Example: A group finance function that can close the books 3 days after yearend, demonstrates they have all accounting processes under control, largely automated. The CFO and team can now spend time and attention on the state of the business instead of producing and validating financials.
Runtime: Accuracy is required for speed with impact. In digital business, high quality and real-time accessible data is a differentiating force for the enterprise where ERP supports primary business functions. Runtime business capabilities in ERP augment classic planning capabilities.
Platform: Modern businesses need to master complex and complicated capabilities in any large organisation. There is a world of real-time interconnected and interoperable software components to support a ‘single click buying’ function. Similar capabilities apply to e.g. retail logistics, medicine production or complex manufacturing. These capabilities are instrumental to a thriving enterprise in our changing world. ERP is a core enabling platform, a central hub delivering the most scalable, resilient, secure and adaptable business functions.
The answer to a simple question illustrates the case: how long would your organisation continue to run business as usual if your ERP was down unexpectedly? A variation on the question is: What is the (financial) impact when your ERP would be down for 24 or 48 hours?
A grocery wholesaler answered me on the second question: ‘Oh, that is easy, we would be out of business in 48 hours.’
How long would your business last?
The ability of business and technology leaders in any enterprise to articulate how their enterprise applications enables execution of and delivery on the business strategy is a critical success factor. The new ERP is the posterchild in enterprise applications.
Without a clear ERP strategy, any business is fighting with one arm on its back.
Before getting into the question of how ERP reborn looks like, I’ll look at business capabilities as that is what ERP needs to deliver.
And that is for the next blog in this series.
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Why is ERP dead? Why is ERP dead? After the ERP is dead, what will the system use to replace it?
The point about the ERP going down might be mitigated by just moving it to a redundant cloud infrastructure.
I am not yet convinced that following a low-level microservice approach is the holy grail here.
Many companies who have followed this path in the last 5 years or so have already learnt the hard way that blindly following the latest lose coupling microservice hype proposed by some of their technical architects leads to absolute failure. In these environments most existing technological concepts are being abandoned and replaced by some ‘more modern’ approaches. Unfortunately often only to re-invent some of the abandoned concepts at very high costs.
Personally I think that slicing it right is the cruical part here. To wrap certain core functions/modules as kind of plugin saas soltuions and being able to “build your own ERP” might be interesting while having everything loosely coupled in event-based microservice architectures might be a nightmare.
Let’s hope that SAP and Oracle will be wise enough to slice it right.
I would not advocate a microservices approach either. That direction would come close to building your own ERP.
ERP components need to be ‘as big as necessary, as small as possible’ and perform a coherent business function with related operations.
Came across this and could not agree with Steven more.
“ERP components need to be ‘as big as necessary, as small as possible’ and perform a coherent business function with related operations.”
The last part is the crucial part (“perform a coherent…”) >> Is that not what the biggest challenge has been for the downfall of best of breed solutions..?!! The “as big as necessary..” has been already addressed by either the modules of the 2 ecosystems (Oracle/SAP or even add Salesforce in limited footprint) or point applications.
I think slicing and ease of fitment/richness of functionality has resulted in the historical zero sum cycles of application…
monolith > best of breed (until vendors incorporate the latest business use cases in their footprint) > monolith (until new business cases emerge that provide competitive advantage) > …
My argument is that the ERP monolith is dead. I do not see a cycle back to embracing a monolith strategy from vendors or their customers.
The largest ERP vendors do have a firm moat and customers tend to stay loyal and upgrade/transform from their legacy ERP to current offerings.
On the edges of the core ERP, smaller and niche vendors with targeted solutions can offer competitive advantages and thus become a viable and growing business.
Some of those end up being acquired by the ERP gorilla’s.
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